To: JEB who wrote (175 ) 10/19/1998 10:48:00 PM From: Sun Tzu Read Replies (1) | Respond to
This is an amazing story. The biggest problem in the market is lack of information. Even when you know something is going on, there is often more than one way to interpret it. Here is a case that I've been watching for a week and today I got my answer (unfortunately may be a bit too late). I hold a minor stake in TDFX (2000 shares). The stock is highly undervalued and its strategic position has been constantly improving. However, for reasons that are best described in the 3Dfx thread, the price has been nose diving since last April. As a result of this downfall, institutional ownership has dropped from 45% to 27%, leaving the stock mostly in the hands of retail investors. This in turn has meant that the bid/ask spread is usually ~1/4 point to 1/8. Watching the tape over the past while, I noticed that many times during the day the spread narrows to 1/16 to 1/32. This is a very narrow spread for microcap. I concluded that someone (I thought a fund) is opening or closing a large position. My gut told me that this was a very clever purchase. One thing I've learned, always go with your guts. But I could not figure out why a mutual fund would want to open a large position in a microcap with such technicals (I personally believe we've seen the bottom, but I can see why the funds would want to wait). Especially since we are near the funds tax selling season. So I concluded that myown long position is deceiving me and that the funds must be selling. Still I did not close my position because I did not see the case for the bear.
