Research in Motion posted Q3 2007 Earnings tonight, Dec. 21, 2007 and it did not disappoint (except the shorts).
Learning from the LDK situation, which was the lesson of "listen to the market", RIMM was a nice chance to put that knowledge into play. RIMM had been drifting downwards toward the $100 mark since mid-November, but today it started to rise with no new information except that earnings were to be released after the closing bell.
From a sliding position for the past four weeks, to suddenly rising nearly 5% today... what gives? The only thing this points to is a positive earnings report, i.e. better than expected earnings. Analysts give us their estimates of what a company will report their earnings at. In most cases when a company beats those earnings, the response is usually positive with a large jump in stock price. Keep in mind that the difference between actual earnings and the expectation of the market is what causes the price jump. A better than expected earnings report can sometimes disappoint the market, leading to a slide in share price, when the earnings report didn't surprise the market enough. Bizarre, eh? This situation is often closely tied to a competitor that has recently released a similar surprising earnings report, but their difference in actual vs. expected earnings was greater. Talk about keeping up with the Joneses.
So the price of RIMM started to climb today leading up to the earnings report. To me this was the market saying: "RIMM is going to beat earnings". Where this information is coming from and how it is arriving at the market is not of my concern. One can guess that from a company of 6000 there is some information leaking out about how they're going to do. To think that a secret like earnings from a company as hot and as well known as RIMM was going to stay 100% under wraps... you gotta be kidding. Another interesting thing about human nature... we love secrets. And not keeping them, but sharing them. In the past two days we've seen this information played out in the markets with LDK and RIMM, one reporting less than stellar earnings, the other better than expected.
Now that we've listened to the market information with a near 5% rise in price just today, the big question was and still is: how high can it go? Checking the previous earnings release for Q2 2007, RIMM beat earnings by a bare cent, but over the course of the two following trading days their share price jumped 20%. That at least gives us some idea of the movement possible with this latest surprise EPS report.
A useful site for looking at historical and future EPS reports is Reuters. For capturing the latest news on a stock The Fly On the Wall does the trick.
Thursday, December 20, 2007
LDK Solar - December wild ride
LDK Solar is a great stock to follow in Google Finance Discussions. It is hilarious to read what people are saying on the discussion board in terms of predictions or even reasons why this stock was going to bust through the roof with nary a pause after the audit report comes up clean.
Even after the audit report cleared LDK of any accounting foul play, LDK never reached it's pre-SEC investigation level of $75 and continued to slide slightly as everyone waited for them to post 3rd quarter earnings results.
The key to predicting that this stock wasn't going to beat earnings was that it never surpassed pre-investigation price and continued to slide after the audit report came clean. Squeaky clean even. Why wouldn't the price surpass it's previous high before the investigation? Because the market was saying: I don't have confidence that they're going to pull a First Solar and shatter earnings predictions like a balsam wood model bi-plane vs. a Louisville Slugger.
The market has information, hidden in each little movement. It's all about information. Those who have it, profit from its pure essence of value. Knowing that the earnings report was not going to beat expectations was a license to print money.
All those short sellers, to the tune of something ridiculous like an 8th of the entire pool of outstanding shares, were saying something. And there were plenty on the Google Finance discussion boards that weren't listening at all. Do you think that all of these sophisticated traders and their pocketbooks were wrong? That they were somehow illogical and irrational in thinking that LDK would tumble big after they did not beat earnings?
Sorry, but, you've got one hell of an ego to think that you know better than the market. When I say the market, I mean the market sentiment. It's the collective knowledge surrounding a stock. A composite of all that is known about a stock, information obtained legally or otherwise.
The lesson learned from LDK solar: listen to the market, ignore the vocal minority. Listen to that huge background noise whispering: massacre after earnings are released. The vocal minority that use message boards like those found at Google Finance and Yahoo Finance are speaking to ease their worries and anxiety about what will happen. If you think about it, they are the vocal few who do not have privileged information. If they did, they would keep it for themselves and profit from it. This past month with LDK solar is a perfect example of this.
There are still some on that board who speak of LDK hitting 80 by Friday, Dec. 22. It must be great to live in that dream world, where every wish came true. There is lots of noise about how all the shorts are going to have to cover and thus the buying demand will rocket the price of LDK up to stratospheric levels. Except... that's not going to happen when you have the majority of the shareholders who did not have privileged information offloading the stock like it's last year's hottest fashion trend (which now stinks to high heaven). The price will only go up if there is no group willing to unload the stock. And after that barely sufficient earnings report, there's going to be a boat load of people willing to drop that stock in a hurry.
Good luck to all on LDK hitting 80 in 30 hours time. But, I wouldn't hold your breath.
Even after the audit report cleared LDK of any accounting foul play, LDK never reached it's pre-SEC investigation level of $75 and continued to slide slightly as everyone waited for them to post 3rd quarter earnings results.
The key to predicting that this stock wasn't going to beat earnings was that it never surpassed pre-investigation price and continued to slide after the audit report came clean. Squeaky clean even. Why wouldn't the price surpass it's previous high before the investigation? Because the market was saying: I don't have confidence that they're going to pull a First Solar and shatter earnings predictions like a balsam wood model bi-plane vs. a Louisville Slugger.
The market has information, hidden in each little movement. It's all about information. Those who have it, profit from its pure essence of value. Knowing that the earnings report was not going to beat expectations was a license to print money.
All those short sellers, to the tune of something ridiculous like an 8th of the entire pool of outstanding shares, were saying something. And there were plenty on the Google Finance discussion boards that weren't listening at all. Do you think that all of these sophisticated traders and their pocketbooks were wrong? That they were somehow illogical and irrational in thinking that LDK would tumble big after they did not beat earnings?
Sorry, but, you've got one hell of an ego to think that you know better than the market. When I say the market, I mean the market sentiment. It's the collective knowledge surrounding a stock. A composite of all that is known about a stock, information obtained legally or otherwise.
The lesson learned from LDK solar: listen to the market, ignore the vocal minority. Listen to that huge background noise whispering: massacre after earnings are released. The vocal minority that use message boards like those found at Google Finance and Yahoo Finance are speaking to ease their worries and anxiety about what will happen. If you think about it, they are the vocal few who do not have privileged information. If they did, they would keep it for themselves and profit from it. This past month with LDK solar is a perfect example of this.
There are still some on that board who speak of LDK hitting 80 by Friday, Dec. 22. It must be great to live in that dream world, where every wish came true. There is lots of noise about how all the shorts are going to have to cover and thus the buying demand will rocket the price of LDK up to stratospheric levels. Except... that's not going to happen when you have the majority of the shareholders who did not have privileged information offloading the stock like it's last year's hottest fashion trend (which now stinks to high heaven). The price will only go up if there is no group willing to unload the stock. And after that barely sufficient earnings report, there's going to be a boat load of people willing to drop that stock in a hurry.
Good luck to all on LDK hitting 80 in 30 hours time. But, I wouldn't hold your breath.
Learning from mistakes
Investing in the stock market is about learning from your mistakes. Mistakes that are made due to a common human characteristic: greed. Greed clouds your vision, imparts bias, and makes one do stupid, irrational things, all with the thought of making loads of money in a very short time followed by endless days of sunning oneself on the beaches of some tax haven island in the Caribbean.
The vast majority of traders learn quickly that this is not to be.
So, why is investing about learning from mistakes? Because in hindsight, we see where our greed got the best of us, where it forced our hand into pushing that buy button on a stock at a ridiculous price hoping... no... knowing, that that ticker was going to rocket us to financial freedom. That fantasy generally ends up being a loss of a few thousand dollars, after which we regroup to think about what the hell just happened.
But, making mistakes is good because you've realized that it was a mistake. This is the way we humans learn. Once you've recognized your mistake, you can learn from it. Unless you were born with rabbits feet coming out of your ass, you're like everyone else, making a ton of mistakes along the way, but learning from each and moving in a different, and hopefully, better direction.
Investing is about looking at the past. It's the only information we have that is fact. No one can predict the future. If we could we'd all be done with investing, spending our millions in countless different ways, one of them not being stuck in front of a computer watching numbers flash green and red.
This blog is about my mistakes in investing. Perhaps you can learn from these mistakes and use this information to prepare yourself for when you do the same. Simply avoiding the mistakes of others is far too simple and efficient! You have to feel the pain to remember anything! It's just the way it is...
The vast majority of traders learn quickly that this is not to be.
So, why is investing about learning from mistakes? Because in hindsight, we see where our greed got the best of us, where it forced our hand into pushing that buy button on a stock at a ridiculous price hoping... no... knowing, that that ticker was going to rocket us to financial freedom. That fantasy generally ends up being a loss of a few thousand dollars, after which we regroup to think about what the hell just happened.
But, making mistakes is good because you've realized that it was a mistake. This is the way we humans learn. Once you've recognized your mistake, you can learn from it. Unless you were born with rabbits feet coming out of your ass, you're like everyone else, making a ton of mistakes along the way, but learning from each and moving in a different, and hopefully, better direction.
Investing is about looking at the past. It's the only information we have that is fact. No one can predict the future. If we could we'd all be done with investing, spending our millions in countless different ways, one of them not being stuck in front of a computer watching numbers flash green and red.
This blog is about my mistakes in investing. Perhaps you can learn from these mistakes and use this information to prepare yourself for when you do the same. Simply avoiding the mistakes of others is far too simple and efficient! You have to feel the pain to remember anything! It's just the way it is...
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