Can You Beat Gas Prices?

It was a simpler time, Washington’s Gridiron dinner not long after President Bush was first inaugurated. ‘You can fool some of the people all of the time,’ he joked, ‘and those are the ones you have to concentrate on.’

Worked like a charm.

I know, I know – it’s comments like that that rankle . . . and yet you keep coming (and I am very glad that you do). To wit:

179.9 DEGREES OF SEPARATION

Kevin: ‘You and I are 179.9 degrees apart politically (about as far as you can get), but I wanted to thank you for your financial tidbits. Of the three ‘tips’ I’ve picked up on your site, I have made money on each one (BOREF, AXP, and NTMD). I know things can change and turn the other way, but just wanted to give credit where it’s due. Less politics, more stock tips from ‘smart doctors,’ please!’

☞ Thanks, Kevin, both for your gracious note and for ignoring my idiotic Google Puts suggestion, and a couple of others that, though less bad, have not been good, like ARC and CMCSK. All I ask is that you keep an open mind. If my judgment is not awful on the finance side, maybe it’s not as bad as you think when it comes to broader issues. For starters, PLEASE tell me you’ll consider the possibility that the scientists are right about evolution, and that Nancy Reagan is right about embryonic stem cell research.

Or maybe it’s not good judgment, just dumb luck. Because, after all . . .

CAN YOU BEAT THE MARKET?

Mostly, I think: no. You can’t. Most mutual fund managers don’t (especially after accounting for fees, let alone taxes). Most pension fund managers don’t. Most brokers don’t. Most individual investors don’t.

But there’s a difference between don’t and ‘can’t.’ Most can’t, any more than most can run a four and a half minute mile. But some can.

There are rare individuals – most famously Warren Buffett and Peter Lynch, but others, of course, too – who, despite their very different styles, surely put the lie to the ‘random walk’ theory. That theory holds that no one, absent illegal inside information, can beat the market, other than by luck, because the market factors in all known information. A stock’s price reflects it all; fairly reflects the risks and rewards.

Michael Fang: What’s happening with NTMD makes a mockery of the ‘efficient market hypothesis.’

I agree. Then again, most stocks are not nearly as simple as NTMD – this one has just a single product, for crying out loud. And even then, most of us weren’t sure its product wouldn’t sell. It’s only really clear with hindsight – although the ‘smart doctor’ Kevin refers to, who had really done his homework on this, was certain from the start, which is what gave me the confidence to suggest you buy puts.

(You will be relieved to know that most of the ideas I suggest in this space are not my own. That alone does not guarantee success, but it surely helps.)

The typical company is a lot harder than Nitromed to analyze, especially if you are betting its stock will go up. (While it’s more dangerous to bet a stock will go down – because if you’re wrong, whether on the fundamentals or on irrational exuberance, you can get killed – I think it’s also sometimes more obvious that a stock is ludicrously overpriced than that it is underpriced.) Even so, I believe it can be done.

There will be clunkers – LEA, suggested here at $28 six months ago, dropped to $15.60 before closing at $26.95 Friday. My hope is that a couple of years from now it will be higher; but obviously, the smart friend who put me onto this one would have preferred to get in at $15.60 than at $28.

But the people I tend to get these ideas from are right more often than wrong. And so we have CBH, suggested September 30 at $30.68, closing Friday at $40.78, and, we hope, worth holding for many years. And FMD, suggested two months ago at $38.11, closing Friday at $47.83 – and, again, if we’re lucky, worth holding for the long-term.

I wouldn’t necessarily buy more AXP here, although I am not selling. If you haven’t bought WMT, and can afford stock market risks, I hope it will do better for you over the next couple of years than would a savings account.

There is the tendency for me to forget the clunkers, of course – so don’t be shy about reminding me.

MAYBE NOT, BUT YOU CAN BEAT GAS PRICES

Just sell a few shares of your oil stocks and use the proceeds to buy your gas. The proceeds will cycle their way through the system and increase oil company profits, which will hike the value of your remaining shares. Whence the saying, ‘the rich get richer.’

(If you have only enough oil stocks to pay for your gas, and thus have no remaining shares – or if you had no oil stocks to begin with – you will already be muttering under your breath the remainder of that saying. Time to cut taxes again for the best off. That should fix things.)