Yesterday, I described a forthcoming book whose author has made a fortune in what he calls the “secret hiding places” of the market — and who kindly shared his latest idea with us.
The case for that stock — NCR — certainly seemed compelling (I bought some), until you read the comments of a leading computer analyst who thinks it’s a screaming short. (I bought it anyway, but chastened.)
Isn’t it interesting how really smart people can have diametrically opposed views?
That reminded me to tell you about a different book, and a different stock. The book is Investment Gurus by my friend Peter Tanous. The stock is (was?) Marvel Entertainment (MRV).
For me, Peter’s book — a series of interviews with 18 “gurus” only a couple of whom, Peter Lynch and Michael Price, you’re likely to recognize — pretty much sets to rest any lingering notions one might have that “you can’t beat the market.” Perhaps you can’t. Perhaps I can’t. But for some of these very smart pros, working at it full time (and delighted to compete with us amateurs), above-average returns clearly are more than luck.
Anyway, there I was reading these interesting interviews Labor Day weekend — which I had to do because I had promised Peter I would write a Foreword to his book, but which I didn’t mind doing, either, because I was learning a lot — and I came to the interview of Laura Sloate. Laura is the only one of Tanous’s 18 I know personally, as a friend. I met her even before she started her own brokerage firm in 1974, Sloate, Weisman, Murray, which now manages more than a billion dollars (remarkable less for the fact that she’s a woman perhaps than that she’s blind).
And there she was talking about Marvel and how she liked it at $14, a price at which billionaire Ron Perelman was buying it too. “And now it’s come down to the $11 area,” she told Peter. “We looked at the cash flows; we looked at the underlying values of the company’s divisions . . . the baseball season should be better than last year — no strike — which will help their trading card business. Ron Perelman is a resourceful guy. He’s got his right-hand man at Marvel, and it’s my guess that at 10-1/2 bucks it’s probably bottomed. So we increased our position. The market won’t believe their story until the turnaround is evident. But in the Spring, these guys got up at a meeting and gave earnings projections by division. Either they want to hang themselves, or they banked those numbers and they’re pretty certain they’ll hit them.”
Hmmm. Wonder where MRV is trading now, I thought as I read this. Would it be cheating, I wondered, to buy some months before this book came out? Some sort of insider trading?
To my surprise, the stock that brilliant Ron and brilliant Laura had bought at 14 — and more of at 10-1/2 — was now 8-5/8. I bought some.
Then, the next time I was on the phone with Laura, I mentioned Marvel. “Oh, we’re out of that,” she said.
It seems she just felt it wasn’t going anywhere and that, while, yes, it was probably undervalued, she had decided not to wait. Indeed, rather than dump her million shares on the open market, which would have depressed the price, she had “shown” them directly to Perelman’s people, who bought them at $10.
This made me very happy. For one thing, it meant that the guys who knew more about MRV’s true value than anyone else — Perelman’s people — were betting $10 million it was going up. For another, it meant that, for once, I was smarter than Laura. (After 23 years, it was about time.)
As those of you who follow these things might guess, I bought more MRV at $4.75, still more at $2.50 and, finally, a few of the bonds at 19 cents on the dollar. A few days later, Perelman put MRV into bankruptcy.
I might do OK on the bonds and the last batch of stock; more likely, I suppose, I’ll lose it all. (Don’t cry for me, Ike and Tina — I had a few good ones last year, too.) But my reason for describing all this is simply to give you the pleasure of feeling superior and to point out what a tough game this is, even when you get to see the manuscript months before anyone else.
Next Week: Thinking About the CPI
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History is a vast early warning system.~Norman Cousins
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