To: +steve goldman (1495 )
From: +steve goldman Monday, Nov 3 1997 9:13PM EST
Reply #1496 of 1501
S3: As an example to learn from:
1. Tape watching. it works if you are good.
Thank g-d I don't own that stock and had recommended selling it many points ago. I hope some of you heeded my words there.
S3 announces they will restate earnings. What does this mean? It means they will go back and adjust revenues, costs and ultimately their bottom line. If a trader or short term and for that matter long term investor owns a stock, restatement is the worst thing such a holder can hear. There is no way to whitewash it. The company did not present their true picture for whatever reason and must adjust it. In fact, even if they adjusted it upwards, I would be very very concerned.
In this case, they will chop a lot of numbers off the company's numbers and it will be ugly tommorrow. Analysts will downgrade the stock and mutual fund managers will kick it out. Some have rules which talk about such events which trigger automatically selling. The basic premise is, when one thing goes bad, more is to follow. there is no doubt that lawsuits are coming, management will probably be removed (which might be good).
Opportunity to buy or simply take what is there and say goodbye. First off, my basic rule is never never never own dishonest companies that have to restate for whatever reason. Now, given that the market goes to extremes, there might be an opportunity to make money trading it.
Tommorrow, maybe...this is what I see happening.
The stock gets hammered first thing in the morning. The opening prints will be the worst of the first hour of trading. The stock might bounce where a day trader (day trader only) might make money. I would guess about 9:45 after the panic selling and first big pieces are moved. I say the stock opens 6 3/4ish (I have to discount it a bit because I have not read the full press release yet and it might not be that bad. I don't care about the per se number they are restating but more importantly is the reason why). The stock bounces and looks to recover on short covering, day traders, and then gets smacked in the afternoon.
There is a lot of stock that was just acquired. The stock just fell from 11 to 9 so many firms have been buying it up to average down (which is always a bad idea....never average down, only up.) so there are a lot of people who are only going to be out a point or so and are going to say adios and move onto something better.
As an investor, no way do I, me, own this stock. I won't even consider owning it again, probably ever. With so many good companies out there who are honest and forthright, I dont need to own this crap that has done nothing but come down for the last few months. I used to be somewhat "attached" to the stock because it was my most profitable trade of the year when it moved from 9 to 18 but forget it, the spell is broker.
So, what does the "ideal"trader do? First off, the ideal trader doesnt take home stocks for the trading portfolio because it takes a lot of 1/4s and 3/8s to make up for the 2points this stock will get hammered tommorrow. You arent playing that bet and you can handle buying it back in the morning up a 1/4 but just dont own an OXHP or an SIII or AVNT, a Centennial, etc. It spoils a great year. A 1/4 point loss is nothing, its meaningless, but getting a stock halved on you should never happen in your trading portfolio. It does happen in your long term stuff but then you should only be owning quality in this allocation so the chances are less. I will take my chances that GE, DELL, IBM and LU don't restate. Not an S3 or a IFMX.
The flawed "ideal" trader who made the mistake of taking home S3 should say goodbye first things. Being around long enought I can guarantee you this stock will be under pressure for quite a while . Those who buy tommorrow, if the stock recoveres and doesnt get hit too bad, will be sellers a point or so higher for a great return., ultimately the stock will be under pressure for quite a while.
Those mutual funds with a huge position will start tommorrow and sell all the way up. The only good thing is that buyers are strong hands. As well there is a decent short position, I believe...
The lessons to be learned and lived by:
1. As a day trader DO NOT TAKE THEM HOME.
2. As a swing, position trader, as well as any type of trader or investor if you buy a stock to go up and it doesnt, kick it out. That this stock was down when the market had its third best day ever was an indication to say goodbye. By the way, today was the most boring day of the year as a day trader, while my long term stuff was up 2, 3%. The key....diversification of allocations.
3. If you do get a gap loser like this, SAY GOODBYE. Sell it first thing. Maybe wait for a bounce to get an 1/4 or so better but who cares abut a 1/4 when you are going to lose big points. Say goodbye, cut the cancer out and good riddens. you arent a rabbi, a priest so praying will get you nowhere. Nonetheless you have loss, when you step into the rainshower, you get soaked. take your thumps, learn your lesson and move on to better stocks. You will make it back elsewhere.
Anyway, I thought it would be interesting to talk about what to do when a stock is not doing what you want it to do.
Regards,
steve@yamner.com
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