FACEBOOK’S VALUATION DEFIES LOGIC
This article also available on Forbes As Facebook prepares to go public over the next few months, a circus of rational minded pundits attempting to apply logic based on the S-1 filing emerges. These commentators, analysts and traders are making the most out of their fascination with well thought out investment analysis that, in all likelihood, has garnered returns for their portfolio that are no better than a yellow baboon throwing darts. The markets have not and will not ever function on logic. It is an illogical mechanism that feeds on our propensity for logical thought. The more watched the situation, the more deceptive, illogical and counter-intuitive the market becomes. This being the fact, why then are so many attempting to apply logic in determining whether the valuation of one of the most anticipated IPOs ever, in Facebook, is justified? In order to determine whether Facebook is fit for investment all logical thought should be suspended in favor of seemingly illogical assumptions of the current company, its future potential and the potential of the economy as a whole going forward. The S-1 filing and 99% of articles you have read should be crumpled up into a paper ball and thrown at your children when they don't listen or your neighbor when he tells you a joke that isn't funny. Allow your mind to run in directions that would cause any "rational" person to question your judgement and the truth about a company like Facebook will become apparent. Let's first look at the logical facts that are causing investor panties to get caught up in a bunch: 1. The valuation - $100 billion potentially. That's too much. A P/E of a million. How? Why? 2. The environment - Wall Street feeds on selling investors stock at high prices so insiders can exit at a favorable price. All that is happening here is that insiders are being provided a liquid environment from which they can feed you and I stock. 3. The company - the barrier to entry isn't great here. Look what happened to MySpace. FOX bought it for over $500 million and today it worth no more than a bean burrito. Facebook will soon disappear in favor of YourFace or SpaceBook. All three of these seemingly logical concerns are born out of the environment we are in. When GOOG came public in 2004, the same arguments were being bantered around without much thought that the premium that was being assigned to the shares was in anticipation of what was to come. Yes, GOOG came public with less of a premium than Facebook will and yes, GOOG came public with...
AN UPDATE ON THE FOUR RECOMMENDED STOCKS SO FAR IN 2012
A technical update on the performance of the four recommended names I have mentioned here since the start of 2012: click chart to enlarge
5 CHARTS THAT WILL HELP THOSE WITH BLINDERS SEE THE ENTIRE LANDSCAPE
click chart to enlarge
HOW TAKING THE PATRIOTS IN THE SUPERBOWL REMINDS ME OF GOOG WHEN IT IPO’D: 2012 EDITION
In the same tradition that gave all my intellectually gifted readers the Green Bay Packers as the Superbowl pick last year, I am compelled to pick the New England Patriots as a 3 point favorite for a return of near 100% on capital invested in a matter of a few hours. The reasons for taking the Patriots are much the same as the reason the Packers were the pick last year. Namely, the public is enamored with NY Giants and the oddsmakers are being kind enough to give them a gift of a 3 point cushion just for participating. The bets are lopsided towards the Giants. The sentiment is one-sided. Those hotels you see in Vegas weren't built by giving the public gifts on the single most heavily bet event of the year. They were built by offering up illusions to the public that do not exist. Much like the Green Packers being a 3 point favorite to the heavily bet Steelers last year, the Patriots as a 3 point favorite offers up a grand illusion to the multitude of bettors who feel that they are getting a value. If you haven't read my comparison between GOOG when it IPO'd and the Packers (now it's the Patriots), please do so. The link is here http://www.zenpenny.com/?p=638 The exact same circumstances apply to this game. The only difference is that it is a year...
THOUGHTS OF CONSOLIDATION, ANTICIPATION AND HOW BEING IN CASH IS VERY WRONG
The most impressive piece of technical information coming from the markets is the manner in which important market indices are consolidating at or near their highs in anticipation of a further run to the upside. It's literally picture perfect behavior: - The BKX is consolidating right on its 200 day MA just waiting to push higher - The Dow is consolidating right below a generational resistance point around 12,900 on the way towards an upside break of this level. I don't think it will be a successful break until later on this year, however. More on that this weekend. - The Dollar Index is consolidating on an important support point on the verge of breaking down further. A signal that the inflate or die trade is back. - EEM - Emerging Markets - broke out this week. An overall positive for the US markets. - Gold and silver continue to soar. Another sign that the inflate or die trade has been resurrected. - The S&P 500 is consolidating right around the 1320 range in anticipation of a push up into the 1350 range possibly? - Volatility continues to plummet. The bears lifeblood is volatility. Without it there will be no large scale decline that seems to be still be on the mind of a lot of traders. I have posted numerous studies showing the ramifications of a volatility crash following an abundance of put buying as we saw during the second half of 2011. In summary, the markets have a tendency to put together long, grinding bull markets when volatility suddenly disappears after a period of excessive put buying. The studies are being further confirmed by the price action which is inline with previous grinding bull moves of the past decade. Tech is leading...the small caps are kicking in...the bank stocks are recovering...the Dollar is falling...gold and silver are rising. All of these create the landscape for the move to take place. Ignore the shifts at your own peril. I continue to believe that the best way to play this is to find a group of companies and simply park your money in them. This isn't the time to be sitting in cash. I have pointed out four different companies this month with tremendous upside potential. PRGS has already posted a 30% gain since I reviewed the name two weeks ago. GSIG continues to rise steadily as well. I recently reviewed SPRT, another company with tremendous upside given current market conditions. Bear in mind that bull markets move in phases. I have discussed Phase 4 Investor Theory many times on this website. As this bull market progresses, you will...
THE CURRENT MARKET DEMANDS THAT YOU SHELVE YOUR BRAIN
The single biggest killer of traders and investors is the subjective nature of analysis in the financial markets. There is no such thing as consistency of analysis. Every system of trading, be it fundamental or technical, will face a period of time when it will be tested by the markets. Knowing when to toss a method of trading into the trash and when to dig your heels in, sticking to a certain method, can only be learned through the minutes, hours, weeks and years you put into this endeavor. Even then you will still be subject to the inevitable periods of equity drawdowns that eventually will have you questioning yourself. I bring this up tonight because it seems that a lot of traders still have a rangebound mentality despite the fact that we are now in a trending market. In fact, most of the articles I read and comments I observe are born out of a mentality that has come to believe that markets will forever be choppy. Therefore, if the market goes up X%, it must come down X%. What trending markets tend to do is to reconfigure the ranges that market participants have become accustomed to associating with overbought or oversold, excessive bullish or bearish sentiment, overvalued or undervalued. A range expansion in indicators tends to take place. While that range expansion is taking place, those indicators are useless. All the meanwhile, traders continue to cling onto those indicators without taking into account the fact that they have become irrelevant as a result of the trending nature of the market. During strong trends that is the only thing that matters. By that I mean the strong trend becomes the be all and end all. There is no analysis needed. It's a trend...and your job is to ride it to its fullest potential. It is true that the most ignorant of investors can make the most money during strong trends, especially bull trends. This is because they lack the knowledge to be able to assess the markets properly. They are not able to get in their own way with analysis that isn't compatible with trending markets. Yes, indeed, ignorance can be bliss and it can make you money if the conditions are right. A majority of this year will be a time to put the magnifying glass away professor and walk with the deaf, dumb and blind. Your brain is your...