Patrick: “I don’t find your opinion logical. You say, ‘ETRM, especially, is just a gamble. Having now doubled, it’s not something I’d start with if you’re not already in it (though I hope it will double again).’ Either it is worth buying at today’s price because you think it is a good investment or it isn’t. Who cares if it already doubled? I can understand if you are saying it is risky, but then just say that.”
☞ Well, I get what you’re saying. But in a world of great uncertainty and so many competing opportunities for your and my limited resources, I’m not sure it’s that simple. Made less so because, someone who bought shares at 90 cents when they were first suggested (and who thus has nearly a triple, actually) is within weeks of seeing the gain go long term. Not true for a buyer starting out fresh.
This is not a big deal; the tax tail should never wag the investment dog. But it’s not nothing, either. And it’s the one aspect of the decision I can at least quantify. Being so close to favored tax treatment on my gain — should the stock not collapse in the meantime as it definitely could — I have more incentive to hold on than you have to buy.
Beyond that, “not selling” is like “buying.” But as a practical matter, or maybe just from a psychological, self-management perspective, they’re not the same. I’m assuming you have limited resources to expose to my reckless speculations. So in this case, weighing my sense of the odds for each of the three stocks mentioned Friday, I just felt more comfortable exposing newcomers to the risk/reward of BOREF and SIGA than ETRM. (See SIGA update, below.)
When ETRM was first suggested, I thought, essentially, “who knows? you could lose 90 cents but maybe make $9!” Now my sense is, “who knows? you could lose $2.45 but maybe get a double or triple.” Still intriguing, for sure (or I wouldn’t be holding on), but a little less reason for exclamation marks. (It all comes down to punctuation.) Also, while I could be dead wrong, obviously, I just don’t see either BOREF or SIGA as “or you could lose everything” kinds of bets, where ETRM basically is. I try to go light on the suggestions where we could lose everything because all too often (remember my Google puts?) we have.
Glenn:I occasionally sell covered calls on stocks, especially those that have moved a lot since I purchased them. I was late coming to the party in buying ETRM but purchased most of my shares between last fall at an average price of $1.33. Once it had almost doubled, I started looking at option opportunities and was pleasantly surprised to find that someone was buying May 17, 2014 $7.50 calls at 25 cents. I sold enough to cover more than half my shares [lowering my cost on those shares by 25 cents each, but giving the buyer any profits above $7.50]. And then was able to sell calls on the rest at 30 cents. So apparently someone believes this stock is going to more than triple in the next 120 days!!!!”
☞ This is fun — gambling is always fun when you’re winning — and I have high hopes it will work out well. If by May 17 the stock has not collapse yet hasn’t climbed above $7.50, you just got free money! You get to keep what you were paid for the calls.
If the stock hits $10 by May 17 (unlikely!) and your shares are called away at $7.50, you still will likely feel great: you paid little more than a buck a share (after taking in those 25- and 30-cent options premiums) yet received $7.50 . . . I don’t see you moping around the house just because you left $2.25 a share on the table.
And if the stock goes to zero, well, at least you lost 25 or 30 cents a share less than you otherwise would have.
But I do see you moping around the table in that situation, despite the 25 or 30 cents. I will be moping right there with you.
After posting Friday’s column I saw this sobering post from Jim Leff, who brought SIGA to our attention in the first place. (And this follow-on.) After being its strongest advocate for years, he’s selling some of his shares (not all). I like to think his gloom may be overdone — as, in hindsight, his enthusiasm may have been. But I’m lightening up a bit myself, as a consequence, and wanted to be sure you saw his thoughts.
Glenn: “I read Jim’s article and think he is like the miners that stopped 8 foot from a vein of gold. I think his comment on why he sold the stock sums it up (he just isn’t patient enough). I think the lawsuit will come to a conclusion anywhere from next month to at most 12 months from now (if an appeal is necessary). I also think that management is sand bagging. There are more opportunities ahead for ST-246 including with our government (why should management discuss this now while being sued by PharmAthene?) as well as in other places throughout the world. I also believe there is huge potential for their dengue fever drug and that they are setting up to be sold to another company (potentially Pfizer). My advice is to stay the course.”
☞ This is what makes horse races. I have a ton more BOREF than SIGA or ETRM, but high hopes for all three.
Quote of the Day
If I had thought about it, I wouldn't have done the experiment. The literature was full of examples that said you can't do this.~Spencer Silver on the work that led to the unique adhesives for 3M Post-It Notepads.
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