No matter how many times I say stick to trades with ideal risk-reward ratios for the smaller investor—those being media-hype plays and pumps and dumps courtesy of your friendly local stock promoter, the questions about random real companies keep streaming in—none moreso than Visa (V). The emails came from far and wide and helped inspire the thesis of THIS AOL article I wrote about the company the morning before its IPO. Yup, I was dead right. So how did I know it’d follow a VMware (VMW)-type trajectory; because simple theories work best.
Think about it, everybody and their other mother is comfortable with the strategy of buy what you know, buy blue-chip companies—blehhhhhhh! The absurd popularity of that strategy makes me gag because while it’s worked well in the past, it’s sooooo old news now. I’ll use the example highlighted in my book An American Hedge Fund by comparing this strategy to baseball card collecting—everybody growing up in the 1980s and 1990s who collected those stupid little pieces of cardboard dreamed of their values soaring into the thousands of dollars, just like those cards from back in the 1950s and 1960s.
Unfortunately, the card companies took advantage of this great track record and us suckers, producing those cards en mass and us kids—ignorant to the laws of supply and demand—bought them en mass, only too happy to pack them away and wait to collect our inevitable rewards.
Whoops! Too many people used the exact same strategy and now we’re all sitting on cards of which there is waaaay too much supply and waaaay little demand. Now, I’m not saying Visa will go down—the fact that it’s come this far helps the prophecy stay true a bit longer now since people who bought in at $55-$60 are bragging to their friends and how they expect it to go to $100+. Now their friends are thinking, those people are smart, maybe they know something, maybe it will go to $100, maybe they should also buy in…
I can’t tell you how disgusted I am—here I am sitting on a strategy that’s like a broken slot machine that pays out far too often (but mostly only quarters and half-dollars) and you bastards want to me to guess what number will pop up next on the roulette wheel cuz it’s more fun and scalable. Homey don’t play that game!
In fact, I have no opinion on Visa right now—it’s a classic case of market randomness as the easy money has been made, even if the odds slightly favor it going higher. Forget this, back to higher percentage plays for me. Being able to profit form blatant stock mispricings—no matter that it’ll take me a few years to be remade into a millionaire…now that’s my idea of fun!
Posted in Analogies, Guessing Games, Hot Stocks, Story Stocks