Dealing with "in-the-red" picks.
In real life I don't hold on to loser, but in CAPS I seem to be hanging on to lots. A few I have looked back, reassessed what I know and ended the pick. My most common reason for ending a pick has been bad data, what is reported on common sites for information is quite different than what is in the financial reports.
On CAPS I do not research picks nearly as well as I do for most that I bought in real life. In real life I have bought stocks with poor research, but I always got around to checking them out much closer within a day or two of buying them. I admit to buying the odd stock on a tip and that when I checked the stock closer I learned to never trust another tip from that person, and if I didn't like what I found, I would just sell. There is a lot of talk about the fees hurting you on in the stock market, but where I was dealing I paid $10 for a buy or a sell plus a couple dollars for exchange fees depending on the number of shares so rarely was a buy and a sell more than $25. That is cheap for moving out of a mistake quickly.
US stocks, on the other hand, were extremely expensive because I also ended up paying 1% for exchange on both the buy and sell side. Also, the company was a rip off artist in that if I wanted to sell one US equity and buy another with the money they insisted my money had to be exchanged to Canadian and back to US because it was a retirment savings account and was not allowed to hold US cash -- technical theft imho. My stock purchases tended to be between $2k and $20k, depending on my reasons for buying. Two percent on $2k is another $40, and $400 on $20k. I pretty much abandoned US stocks within about 3-4 months because of the fees and because I figured the US dollar was going to tank because of the outrageous growth of debt. Interesting, the US dollar improved from about 1.10 to about 1.20 before going down to par with Canadian.
But, here on CAPS I have a lot of in-the-red picks. I do go back and look at them every once in a while, but I seem to keep them.
So, today I'm looking at Millipore Corporation, MIL . I am -8.44 on that pick and it is probably one of my first picks on caps judging by the start date, Oct 25, 2006. It is up 16% in a time frame that the S&P is up 8%. The company does stuff with vaccines and that kind of thing, an area I would say I am not particularly informed. The P/E is simply high at about 37. Right now the CPI says you can't go higher than a P/E of about 22 to maintain your buying power, never mind getting ahead. I don't care what the investment is, any stock trading over a P/E of about 20 leaves little room for response to the business cycle.
Insiders are selling, but not at an outrageous rate like the insiders of say Google, for example, but then the insiders already don't own much. It looks like there has been a net decline in institutional ownership. The numbers do not add up on MSN insider ownership. I am reading 6.1 million shared sold out, only .7 million bought and net change is 1.3 million?
Revenue for the last quarter was up 12% and they gained from foreign exchange... That last statement, the gain from foreign exchange is the single strongest reason I have found to end this under perform. The US dollar has tanked further since that last report which means they have a good chance of having very good earnings next quarter without doing anything new, and when you look at the leverage of this kind of cash cow margin being added to earnings, well, that's at least another $20 million on their earnings for the year, but it will give the appearance of marvelous growth, and far too many investors over value "growth."
So, I think this one is over valued. A more reasonable P/E of 20 would put it at about $35 and if you put in that exchange bonus you might get to $45. I haven't looked deep enough to see where sales can decline, but I think the exchange gain is a pretty sure thing and potentially a very good buffer for this company, so I am out of my under perform.
Well, I managed to deal with what, one red pick... Only about 165 to go...