Don't waste your time reading this Sankar.
"There is a better SI thread to post such articles:
it makes no sense for me to waste my time to
read this irrelevant junk (the hindsight punditry!!). "
Sankar Acharya
To others who may be interested, here's a very relevant IMO article.
Judge it by yourself.
Wrong! Dispatches from the Front: Cramer on the Complexity and Pain of
Capitulation
By James J. Cramer
Now we are separating those who think investing is fun from those who
know it is dangerous, but at times extremely profitable.
I remember when I used to sneak into Motley Fool Chat Rooms to get a
sense of what the spectators were thinking. I was always amazed at
the good cheer in the rooms. Even during the Iomega debacle.
But earlier this year I stopped when it became apparent to me, that
even though the chat rooms were meant to discuss all stocks, almost
all anybody really wanted to talk about was how great the disk drive
and storage stocks were. People were clapping for Western Digital.
They were cheering for Seagate. They had an Applied Magnetics booster
club. People had fallen in love with Readrite and thought Quantum
could do no wrong.
I had left the group earlier in the year, in part because the
fundamentals were turning down, and, in part, because I don't like
people rooting for my stocks. Part of the job description for running
a hedge fund is trying to figure out whether people worship a
stock or a particular group too much. Every time I stepped into a
MF chat I got blown away by the rooting for a group that is notorious
in its fickleness. I was shocked at how complacent these
investors/traders were about a possible downturn in this group's
fundamentals, particularly given how boom/bust this industry was from 1984
to 1994. Anybody who lived through the myriad Conner, Maxtor Micropolis,
Miniscribe, Western Digital, Quantum and Seagate disappointments of
previous cycles would know that these stocks can be vicious heartbreakers.
I had made the mistake of trying to call the bottom in Seagate close to 25
points ago after it had preannounced, thinking the worst was over. I took
my loss when they preannounced a second time and then moved on. Seagate's
fans didn't want to hear this trash talk. When my standard response for a
month to someone who wants to own a disk drive was to go buy a drug stock,
all I did was anger people. This position became so heretical that the only
way I felt I could keep the atmosphere convivial was to dissemble and say
that I liked the group. I would rather be right and lose friends than wrong
and make them. So instead I just stopped going in.
Now we are seeing the downside of that rooting. In true cyclical style, we
are now well past the shock phase of the decline. That's where you are so
whacked upside the head by the sharp change in the fundamentals that you
can't even react. Again, using Seagate as an example, the air pocket from
the mid-50s to 40 encompassed the shock phase. Few players get out whole,
if at all, in that phase. Next comes the denial phase, in which we find
ourselves now. The denial phase is an ugly stretch of time, punctured with
scattered hopes from people who believe that the drive companies have to
come back. Simply because things do come back.
That's the whole rationale. Some people don't even believe they are down. I
get e-mail all of the time from people who tell me that they aren't
worried, that it is important as a long-term investor to ride out the peaks
and valleys of stocks and the drives are simply in the valley before the
next peak. These people still love these stocks, they are like their
children and nobody wants to abandon their children. This phase has gone on
from $40 till Thursday at $19. Long phase.
Now anybody who bought Seagate in the last two years and held it has a
loss. That usually means we are about to enter the capitulation phase. In
this phase people turn on these stocks with a vengeance. The former
cheerleaders cancel their season tickets, wear paper bags over their heads,
wish they had never met the drives and ultimately just plain give up
watching and owning.
Here's the problem. Ah ha, capitulators of the world don't bother uniting
to cause a rally. The capitulation phase is more about time than it is
about price. The capitulation phase requires that the shareholder base
turns over and all new shareholders come in, shareholders who aren't in the
stock for any near-term fundamentals. These are people who recognize that
Seagate is not a loved child nor a devil child. It's a company caught up in
a vicious cycle that will be a survivor when the smoke clears.
How will we know when Seagate has reached bottom? Simple answer: when it
stops its fretful decline and then does nothing. For weeks. That will be
the sign that large merciless ice-cold institutions are accumulating
positions. These buyers give you all sorts of tells. They are always on the
bid side. They never take. They don't disappear as buyers on bad days, they
just stand there. They buy 50,000 to 100,000 at a clip and then come back
for more.
(It is difficult to find this stuff out without a full service broker
giving you a "look from the floor" which tells you whether there are big
buyers "lurking" underneath. But I know of no other way to get this
information.)
When you see large bids, when you stop seeing Seagate on the percentage
down list, when all analysts have gone to a hold, then it may be safe to
get back in the water.
Or you can own a drug stock.
*****
Random Musings: Keep a close eye on tech mutual funds. I can't recall a
time when these guys have been more soundly whipped by the S&P. I can't
believe that will be good for the inflows next month.
IPO and secondary markets seem deader than doornails to me, which means
that the go-go-mo-mos (the aggressive growth funds) won't be able to walk
up a couple of high-flying new issues to pad whatever measly gains they
have this year.
Can anyone figure out why the autos act so well given the strong dollar and
competition from foreign car makers? Could they just be too cheap? I am
doubtful but getting optimistic about this group simply because of the
price action. Can't wait to get my mouse on my Cyber-BusinessWeek today to
see if I can use editor-in-chief Dave Kansas's handy-dandy guide to using
Gene Marcial's column to make me some money. On the short side, of course.
*****
James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com.
Under no circumstances does the information in this column represent a
recommendation to buy or sell stocks. Mr. Cramer's writings provide insights
into the dynamics of money management and are not a solicitation for
transactions. While he cannot provide investment advice or recommendations,
he welcomes your feedback, emailed to Jjc@Jjcramerco.com.
Pstt! Sorry Sheriff , I think that one has a copyright also.
Richard |
