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Dealing with "in-the-red" picks.



December 27, 2007 – Comments (4) | RELATED TICKERS: MIL.DL2

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... 

4 Comments – Post Your Own

#1) On December 27, 2007 at 2:26 PM, Z1chopper (76.77) wrote:

I have a similar problem because as long as I've been playing my average keeps going up. If this was my real money I would have dumped tons of my picks. I deleted the first one today. I felt like I had abandoned it and I should of hung in there. What if it goes up?

 Well, like you I have to play this game more realisticly.

 We will see if I really know what I am doing. I am having fun doing this. So I will keep up with MY CAPS for another year.



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#2) On December 27, 2007 at 3:24 PM, billddrummer (36.93) wrote:

I had a similar problem with some of my first picks.  And it almost looked like I was day trading with some of them--in with an outperform, stock gets hammered, end that pick and go back in with an underperform, only to see the stock rise.  Now I don't trade nearly as much, and only have 20 active picks.  I believe in them to the extent that I'd use my own money in the same way, but I do understand how you feel about abandonment issues.

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#3) On December 27, 2007 at 6:50 PM, XMFHelical (< 20) wrote:


As a CAPS bull on Millipore, I'll offer a deeper perspective.  Millipore's history is in industrial filtration products - which led to water purification businesses and high margin consumables used for the biotechnology industry (removal of potentially infective bacteria from injectable drug preparations for example).  Millipore expanded more into the biotechnology support industries with the purchase of Serologicals in 2006.  Biotechnology support is expected to be a better growth / higher margin business moving forward.

So the Millipore investment thesis really boils down to how well they will integrate Serologicals and grow the biotechnology support consumable business.  I think you are wrong to focus on today's PE and should look at the forward PE of only 18.  Of course this assumes they grow as expected.

Now this isn't Millipore's first effort to expand more into Biotechnology.  In the early 90's they owned a couple of biotechnology support businesses that they sold off.  These included instrument maker Waters (which has gone on to outperform Millipore since then), and a unit (Biosearch) that included oligonucleotide and peptide reagents, synthesis, sequencing and such, which eventually ended up as part of Applied Biosystems (mostly). [Note: I was part of the Biosearch unit at that time].

We shall see if Millipore makes a better run at it this time.  I'm encouraged and would stay with the pick.


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#4) On December 27, 2007 at 7:19 PM, dwot (29.18) wrote:

Z1, the problem is that way too often when I look at my in the red I think they will eventually give back some.  I have had a few do that already.

Billdrummer I have left many, but if I find a reason to think it will not turn around I do end it.

Helical I did notice growth in sales looking back, but I calculated a forward P/E of 27, not 18.  I guess you did it on expected future growth?  I will look at a stock based on 4 quarters like the last one.  To go from 27 to 18 is a rich growth expectation.

I had an underperform on it, so I took it off.   

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