Re: Volatility (and the collapse of Cendant - totally unrelated)
Paul, I have read enough of your posts, some of which castigated me (which I loved because you make me think) to make this statement in advance. I am not arguing with you here, just making a point about an argument you made. I think you probably would agree with this.
VOLATILITY IS YOUR FRIEND IF YOU ARE A VALUE INVESTOR. The last thing you want to invest in in this market is a company that cranks out that 10 or 15% growth every quarter. Those are by definition overvalued. If you have any conviction of your own intelligence or research ability, what you want as a value investor is a great business which is volatile. No, that is not an oxymoron. Nike is one. AMR is another (but DO NOT buy that one now. Buy it a year ago). Sure, it requires more time and homework to understand the business, but it is very profitable to buy these things when they are down.
HFS (the company now known as Cendant) was pitched to me MANY times as a one decision growth stock, and even a value stock. And it got WHACKED yesterday on one mistake. I never took it seriously because it looked like a Ponzi scheme to me. If their stock price was high, sure, they could acquire companies with lower P/Es and produce EPS growth. But that is eventually a fools game. As the Wall Street Journal article said today, Cendant's collapse (this was a $30 BILLION company Wednesday which is now a 15 billion company) really makes you question Nationsbank among others.
As an institutional value investor, I had calls yesterday telling me that Cendant has $21 worth of "real value". From firms that had strong buys on the stock at 40 and holds at 19. The phone calls were kind of fun. Make them go through their argument as to why the stock is worth $21. Then ask why they had a strong buy on it at 40 and a hold on it at 19. Thats fun for a value investor. Growth investors would call it sadistic. |
