Margaret Conomos: ‘I heard you speak at Barnes & Noble in DC recently. I advised my mother to buy 200 shares of Borealis based on your recommendation. It was about $5.35 then, last time I looked it was $3.80. Any advice? Why is it dropping? Hold? Sell?’
☞ Several things to say about this. First, I always make clear that the stock will likely go to zero, and that you should only buy a few shares if you really, really don’t care if it goes to zero. Because it probably will. Second, last time I looked, Borealis (bulletin board symbol BOREF) had traded at $3.25. (The bid and ask are at $3.25 and $4.10.) So it’s even worse than you thought! At this rate, it should be zero by the end of the month! Third, I know of no good reason for people to be selling – which of course doesn’t necessarily mean they don’t have a good reason. But this may be the kind of stock people go into hoping for a quick killing; then lose patience with and sell. So it rises on good news, then falls back as people grow impatient for results.
I just look at the preposterous claims on the Borealis web site and imagine that if even one of them were true, the company would be worth an easy $1 billion. That’s 50 times what it’s selling for today – which is reason enough to write this stock off as preposterous. Except that then I look at the Beckett and Boeing press releases and I wonder: why would they be party to something preposterous? Might there – conceivably – be something here?
That simple reasoning has not changed since I was hawking my book at Barnes & Noble, so I would not sell the stock. It will either be zero one day or else . . . well, you pick the astronomical number. I’m hoping for the latter, but expecting the former.
(While at Barnes & Noble buying my book – surely a more sensible gift than roses – be sure to stop by the Café and try a few varieties of iced Honest Tea!)
Joe Cherner: ‘If you had $70 billion, would you rather buy Dell OR buy Sony and have $30 billion left over to throw me a party?’
☞ If that’s how I had to spend the $30 billion, I would buy Dell. Otherwise, I’d go for Sony and the cash.
Kenny: ‘Why don’t the pundits, experts, advisors advocate a pure indexed philosophy of indexing versus all the other nonsense out there.’
☞ There’s no money in pushing index funds. Many financial writers like me, and finance professors, do advocate them. Our livelihoods don’t depend on what we recommend, so we can comfortably push what we think is best for you, not worry whether it’s also best for us. The least-promoted alternatives often provide the best value. Also, of course, it stands to reason that if you really do your homework and are very, very smart, you may actually find stocks the market has ‘mispriced’ – see yesterday’s column on shorting Enron – and beat the market that way. Almost none of the mutual funds do so with any consistency, so you’re best off going with the low-expense index fund. But people like to dream (and the marketing departments of actively-managed funds like to encourage those dreams). Finally, if EVERYONE indexed, then the market would become grossly inefficient and mispricings would abound. But we are a long way away from a time (and will never get to a time) when everyone indexes, when no one tries to discern value, and when, thus, ‘mispricings,’ ripe for easy picking, hang low from every tree.
There clearly was such a mispricing with Enron. If I’m incredibly lucky, hindsight may show that Borealis was mispriced as well. If not, I will have enjoyed the dream. A bit like Sidney Greenstreet at the end of The Maltese Falcon.
Quote of the Day
It was only 80 years from the time Darwin published ON THE ORIGIN OF SPECIES until we detonated the first nuclear bomb. In the lifetime of one person, we went from figuring out where we came from to figuring out how to get rid of ourselves.~Paleontologist Jack Horner
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