Here's the article on CPN:
So I'm shopping at Costco (COST:Nasdaq - commentary - research) over vacation -- thank heavens I don't buy stocks of companies I like to shop at; I could have been killed by that one -- and one of the terrifically helpful people at the counter buttonholes me about the market. Well, not about the market, but about one segment of the market: Calpine (CPN) and the energy traders.
He wants to know whether it is the short-sellers who are keeping Calpine down. He says I look like a regular guy, and he wanted to know what I thought.
"Tough," I say to him. "Tough, because to some degree the shorts are keeping it down, but they are doing it in a responsible way."
That, of course, elicited stares and confusion, because nothing done by a short-seller is responsible in the eyes of a long holder. But the man let me explain even as my wife was trying to get me and the kids out of the store and back onto the beach.
I told the Costco associate that, as with Dynegy (DYN) and Reliant (RRI) and El Paso (EP), there is substantial short interest in Calpine, because if the company is to refinance successfully, it might have to give up common stock to bondholders. Those bondholders can short the common stock with impunity.
The associate shot back that the restructuring was already finished so no more common stock would be issued. I told him that companies like Calpine are in a perma-restructuring mode, as are the Level 3s (LVLT) of the world, and that only after they reach real operating profitability, as has Nextel (NXTL), are they out of the woods.
He said that he still thought the stock should go higher. I said that if I wanted to play one of these broken energy plays, I would rather be in Dynegy, because it was further along the restructuring path and might have better assets.
That frustrated him more. He wanted to know when he would get back to even in Calpine.
That's when I realized that I was wrong to deal with the specifics of Calpine. That company, along with its whole remaining cohort, came about because of a belief that we needed more power plants because of a power shortage in California. It turns out that while we may need more plants, what we really need is more transmission facilities, and Calpine's not the play on that.
In fact, Calpine may not be a play on anything.
If you are in an industry because of a secular trend that ends or never was to begin with, it doesn't matter. You aren't getting back to even.
History is littered with stocks that came public or reached ascendancy based on a secular or cyclical trend that didn't pan out or ended. While it is not written, these stocks never get back to even. It is far better to cut your losses and find new stocks that will make back your money.
That's a tough, tough lesson for most investors. I think that most of the people who bought Calpine also bought the telcos at the top and, perhaps, the dot-coms, at the top. They are top-buyers. My whole purpose, the essence of what I'm doing, is to prevent you from buying the Calpines so that you don't have to do damage control.
But barring that, your best bet, if you are in the Costco associate's boat, is to change boats. Find something that hasn't run. Find something that is a stable grower down on its luck right now. Find interesting goods with damaged stock prices, not damaged goods with damaged stock prices. That's your best bet. That's what I should have told my Costco man.
Hmm, now maybe I just will have to go back to that great store and tell him -- and remind him that he is not alone. So many thousands -- no, make that hundreds of thousands -- of people got in during that Calpine era, the 1998-to-2000 period. Many will never come back. Those who do come back will have to do so with a fresh start, because those old leaders aren't going to get them back to even. Worse, those old stocks act as an impediment to finding the stocks that could get them back to even, dollar-wise. Which is, of course, all that matters. |
