Behavioral Finance
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S&P 4,349
Dow 34,079 Nasdaq 13,548 Ru 2,009 |
The Russia/Ukraine brouhaha is a rallying cry for Ukrainians, a wake-up call to Europeans, and an opportunity for investors
(20 Feb 2022) Will they? Won't they? That is the question being asked incessantly on the news channels. The question is missing the point: Russia has, in essence, already invaded Ukraine. After all, the country forcefully took the almost-island (it is connected to Ukraine by a tiny isthmus) of Crimea back in 2014, annexing it as Russian territory; it is fomenting constant fighting in the Donbas region of southeastern Ukraine; and it has unleashed a cyberwar on its western neighbor. Yes, a ground invasion would bring about a multitude of deaths (14,000 have already died in the Donbas region of Donetsk and Luhansk, where Russian-speaking separatists—provided with Russian arms—have been fighting government forces), but the real threat is to Putin himself, not the markets. The dictator has painted himself into a corner, despite his belief that he holds all the cards. Germany, thanks to Merkel's full-throated and myopic cheerleading for Russian gas flowing into the country (roughly 50% of demand), is certainly in a precarious situation as it scrambles for new suppliers. And the sanctions which would follow a ground invasion would send oil above $100 per barrel. But from a US market perspective, this threat is far less ominous than the one posed by a global pandemic we knew little about back in March of 2020. That spring turned out to be one of the best buying opportunities since the fall and winter of 1987. The press is doing its best to keep anxiety high, but Putin will be the real loser in this game of chicken, not the US stock market. The major indexes finished the week down—their fifth losing week of the last seven, and the downturn has created some real opportunities to pick up some of those wish list stocks on the cheap. Granted, many tech names were strongly overvalued, but the likes of Adobe (ADBE), Uber (UBER), PayPal (PYPL), and Generac (GNRC) fell to levels investors would have drooled over last fall. Now is the time to discount the headlines and search for some premium names to buy. Just as we did in March and April of 2020, we pulled out our own wish list of stocks which have dropped below our target buy price. Take a look at portfolio allocations and see which promising sectors and industries have become underweighted and plug in some good names. Let the headlines rattle others into wanton selling; the crisis in Eastern Europe does not pose a major threat to fundamentally sound, cash-flow-generating American companies—it has created a tactical opportunity which will become clear to others over the coming months. |
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KOSS
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Sticking it to the man? Koss family cashes in as Reddit army targets the shorts
(08 Feb 2021) Readers may be vaguely familiar with the name Koss, but certainly not to the same extent as Bose, Beats, or Sony. To say the Wisconsin-based headphone maker was struggling is an understatement. In fact, going into this year the company was worth about $20 million—the most micro of micro-caps. Then the Reddit army discovered how many short sellers were betting on the company to fail, and sprang into action. Despite minuscule sales and a dearth of profits, they jacked the shares up from around $3 in early January to an intra-day high exceeding $120 per share on the 28th of the month. Corporate executives and the Koss family, which together control 75% of the shares, also sprang into action: they sold $44 million worth of shares of a company that had a market cap of $20 million going into the year. Who can blame them? When you know your company is worth about $3 per share and a group of retail investors suddenly make it worth 40 times that amount, why not rake in the dough? SEC filings show these insiders sold between approximately $20 and $60 per share. Among the family, president and CEO Michael Koss sold around $13 million worth of stock, while John Koss Jr., vice president of sales, sold almost exactly the same amount. The company had a short interest of around 35% before the madness began, putting it on the Reddit army's radar. Shares have since fallen back to $20, only about four times what we value them being worth. Who knows, maybe the insiders sold the shares to raise cash for a new strategic push, though we doubt it. In the meantime, we would like to meet the "investors" who bought into a company with horrendous fundamentals while the share price was between $100 and $120. We would like to simply ask them "why?" |
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The South Sea Bubble
300 years before Bitcoin, the same herd mentality swirled around an investment in Britain's South Sea Company. |
The insane trading of Eastman Kodak shares should raise concern
(03 Aug 2020) Quick, what comes to mind when you hear the word Kodak (KODK $2-$18-$33)? Maybe an old camera you or your parents used to take on vacations in the 1970s? Or maybe that workhorse inkjet printer sitting in your home office? Perhaps even a classic Paul Simon song from 1973? Chances are, the name doesn't make you think of active pharmaceutical ingredients (APIs) for use in drugs. Nonetheless, that last category has been the catalyst for frenetic movement in the company's share price over the past two weeks. It began when the iconic camera maker landed a $765 million government loan under the new Defense Production Act—authorized by President Trump back in May—to help fix America's medical supply chain problem; specifically, our reliance upon communist China for about 85% of our drug ingredients. While the shift from photos and printers to drug production may seem like a radical departure for the 132-year-old company, the firm has a long history of working with chemicals and advanced materials. But the real story is the stock's crazy price movement. This company went from having a $95 million market cap in June to a $1.5 billion market cap at the end of July. Now wait a minute. Even if the government loan (which can be paid back over 25 years) were an outright gift, that would still just bring the market cap up to $860 million. Here's the magic formula that made KODK an overnight darling among Robinhood users: it was selling for under $10 per share, and there was a nice story to tell with the DPA loan. Bammo! Price goes from $2 to $33 to $18 all in the matter of ten trading days. Now the reality: This deal will help energize a company that was floundering badly, but it is not a magical panacea that will suddenly make it investment-worthy.
(03 Aug 2020) Quick, what comes to mind when you hear the word Kodak (KODK $2-$18-$33)? Maybe an old camera you or your parents used to take on vacations in the 1970s? Or maybe that workhorse inkjet printer sitting in your home office? Perhaps even a classic Paul Simon song from 1973? Chances are, the name doesn't make you think of active pharmaceutical ingredients (APIs) for use in drugs. Nonetheless, that last category has been the catalyst for frenetic movement in the company's share price over the past two weeks. It began when the iconic camera maker landed a $765 million government loan under the new Defense Production Act—authorized by President Trump back in May—to help fix America's medical supply chain problem; specifically, our reliance upon communist China for about 85% of our drug ingredients. While the shift from photos and printers to drug production may seem like a radical departure for the 132-year-old company, the firm has a long history of working with chemicals and advanced materials. But the real story is the stock's crazy price movement. This company went from having a $95 million market cap in June to a $1.5 billion market cap at the end of July. Now wait a minute. Even if the government loan (which can be paid back over 25 years) were an outright gift, that would still just bring the market cap up to $860 million. Here's the magic formula that made KODK an overnight darling among Robinhood users: it was selling for under $10 per share, and there was a nice story to tell with the DPA loan. Bammo! Price goes from $2 to $33 to $18 all in the matter of ten trading days. Now the reality: This deal will help energize a company that was floundering badly, but it is not a magical panacea that will suddenly make it investment-worthy.
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The Fallacy of Efficient Market Hypothesis
From the Editor: If there is one lesson investors should take away from the past few weeks, it is just how easily external events can change the trajectory of the stock market within a matter of minutes. The market bulldozed through the "worst months of the year" like a hot knife through butter, and was on target for yet another record week in the waning days of November.... |