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Strategies & Market Trends : Value Investing

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To: Michael Burry who wrote (5759)	1/13/1999 1:40:00 PM
From: LauA	Read Replies (2) of 78644

A Short Caveat - Let me relate a sad experience of mine that you might find relevant: Several years ago I became convinced that CUC was cooking its books. So I took a modest short position, that grew and grew, just like Jack's beanstalk. Every quarter I would rummage around and make a checklist - same old accounting tricks, same old crooks running the place. When they started using watered stock to buy real software companies, I bailed - earning a six figure tax loss. Then they merged to form Cendant. The rest is history. (Am I allowed to join in on that shareholder suit as a jilted short?) My caution would be that stock prices can run far ahead of rational valuation. Using rational observers as an indicator of how big the bubble can get is flawed -> it seems that it will keep going until no one cares any more. The final price drive seems to occur when the shorts capitulate, and cover. The ever present risk is that the company will use cheap stock to buy real companies. Now what do you do? EXTRA CREDIT QUESTION: Compaq is paying $220 million to buy Shopping.com (a failing online mall with a 12 month loss of $18 million on $4 million of revenue, approx.) If you were advising Compaq on how to spend $220 million, you would recommend: A. buy Shopping.com B. start over, and hire 2200 software engineers for one year C. hire 220 software engineers for 10 years D. take the corporate jet to Brazil and build real sand castles on Ipanema E. spin off Alta Vista and declare a $220 million cash dividend LauA

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