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Technology Stocks : Rambus (RMBS) - Eagle or Penguin -- Ignore unavailable to you. Want to Upgrade?

To: Jon Khymn who wrote (76203)	7/26/2001 5:50:30 PM
From: Bilow	Read Replies (1) \| Respond to of 93625

Hi Web Myst; Re: "BTW, you didn't tell me if you have any RMBS position, just curious...." Sorry for forgetting to answer that, LOL. But it's clear from my posting that I think that Rambus has only a small chance of collecting significant royalties from SDRAM and DDR, and a zero chance of ramping RDRAM to be the mainstream memory type. My knowing that RDRAM isn't the next mainstream memory is from my experience designing memory controllers. But it is true that if Rambus wins royalties on DDR (of 2%) they will go up at least 20x. So, as far as a gamble goes, I'd be inclined to buy RMBS if the odds of their winning DDR royalties is considerably greater than 1 in 20. The problem is that I don't know what that probability is. I really and truly don't know if RMBS (long term) is a good gamble at the current price. If I was sure that they would lose their attempt at DDR royalties, I'd think that they were a "safe" long term short. But when you short a stock you have to take into account how far the position could go against you, and RMBS is famous for short squeezes. All stock market investing is, to a certain extent, gambling, but the specific problem that prevents me from getting long or short RMBS is that I don't know what the odds are. Part of the difficulty of the stock market is that it is an auction market. When you buy something at an auction, you have to pay more than anyone else at the auction is willing to pay for it. That would tend to indicate that you made a bad decision, LOL. Similarly, when you sell a stock, you have to sell it at a price that is lower than anyone else is willing to sell it at. That would also tend to indicate that you are on the wrong side of the trade. (The marketmaker who takes the other side of the trade makes the spread, but a typical investor loses it. Investors can put up limit orders, but the marketmakers and daytraders make coin off of those too. The basic fact is that the stock market is a game that is slightly tilted in favor of marketmakers and high speed daytraders.) But I'm off topic here. The problem with auctions is that the winners of auctions very frequently discover that what they bought is not what they thought they were bidding on. And since the winner of the auction is the person willing to pay the highest amount, this means that the winner frequently gets shafted. For this reason, I avoid auctions where there is a lot of buying interest hanging around. I like to buy stuff at auction only after all the pros have gone home and the auctioneer is tired and just wants to get the rest of the junk off of the stage with two bids each. So the tendency with auctions is for people to shaft themselves by paying too much. Suppose that there were 100 items at auction (or 3000 nasdaq stocks), and you were able to analyze 98 of them correctly, but you missed on two of them. On the first, you underestimated its value completely, and on the other, you overestimated its value. Then you made bids for all 100 stocks. Well, it turns out that the stock that you are most likely to end up buying is the one that you overestimated the value of. Pretty obvious, eh? So to avoid getting shafted by the inclination of auctions to make you pay too much for the item that you have the worst estimate of the value for, buyers do a simple thing. They bid a lot less for things than they think they're worth. So this is a long way of saying that I stay away from long term trades unless the return is very good and very sure. RMBS, as a short, doesn't have much steam left in it. In the past, even when RMBS was $140 per share, it was still less than fairly valued for its royalty stream if they did get 2% royalties on DDR and 5% royalties on DDR controllers. -- Carl P.S. By the way, RMBS set a new 52-week low today, but closed up. I call that a reversal, and I think it may be playable.