I too saw that analysis and change to hold recommendation, but I am also troubled by it.
The gist of the recommendation is that, in light of the poor results of recent events and with the now more uncertain Ampex revenue stream, along with the general decline in the market, there are presently many better choices to be made in other less speculative situations. On the face of it, sound prudent advice. Mention was also made regarding lack of institutional interest until revenue streams firm up. Also reasonable, all things considered.
However, consider the following from G.M. Loeb "The Battle for Investment Survival" (1935)
"It is important to stick to issues which in past times of bullish enthusiasm have had active markets and which can be expected to have active markets again. However, at the time of purchase they must be low-rated and unpopular, with their prices down and discouragement about their prospects quite general" .... " The objective is always to buy that which the majority thinks is speculative and sell when the majority believes that quality has reached investment grade. It is in this policy that both safety and profits exist."
Let's follow these thoughts through. Take a look at a longer range chart (weekly or daily for at least five years). What I see immediately is the first real basing activity having occurred during September and October. Also look at the volume during this period. Mostly quiet except for one, at most two day moderate volume spikes during the release of more discouraging news. With a little more effort, as an aid to measure the slope of change in price over time, I can draw trend lines of varying lengths across the rally highs and thereby can see that the downward rate of change is largely gone. With still more effort, I can plot oscillators on both long and short termed graphs which indicate conditions of price being both oversold and also under accumulation. There's still more. Now, into the first week of November, more of the same patterns
All these technical patterns are usually correlated with bottom formations. This is the key point.
In all fairness though, the analyst did comment on the presence of good value at this price level and that holders should consider selling into rallys for the purpose of locking in tax losses. Again, this sounds like reasonable strategy - from this perspective.
However, if after say a three to four month quiet period at the $1.00 level, prices were to "loft" up to the $2.25 level, would the same advice be valid? Thinking ahead and visualizing the effect of the recommended action, I can visualize relieved shareholders disposing of their holdings and finally being done with all the frustration, the opportunity losses and the disappointment Of course, there will be opposing sides to these trades and, I presume deep pocketed or foolhardy speculation seeking purchasers would be the buyers. This would lead to a zig-zag in the form of appearing to be a rising set of stairs. And so on.
In sum, while I feel that the analyst's points are well taken, that this is the right advice being given at the wrong time. That is, the advice may be following prices and not anticipating them. Would this advice be justified if one can find a better investment with "better profits and safety" ?
Ed Perry
PS The book I mentioned in an earlier post by G. Moore is correctly titled "The Gorilla Game". |
