Happy Girl,
An unexpected couple of free hours, sort of, as my better half works late and our trip is delayed.
Shakespeare! As someone who majored in English in college, I guess I'm flattered. Or did you mean that, like some Shakespeare, the writing was impenetrable at first, and only slightly less muddy later on?
Either way, I think where we may disagree is when you say that "all others think the same way as well." As I understand it, you are referring to YHOO as a momentum play. As I define it, momentum investors seek to identify stocks -- not companies, but stocks -- which have attracted buyers who buy because the stock continues to go up. These investors join the fray (as longs) because they believe, with some justification from historical market patterns, that a stock, once it goes up, will continue for awhile from its own momentum. In a pure momentum play, you guide your strategy by anticipating the actions of all the other longs who are jumping on the bandwagon; the longs are really acting as an identifiable group with a common motive and rationale (buy because it is going up). K-Tel's recent bubbles (especially the first one last spring) come to mind as examples.
Where we may disagree is that I don't think YHOO is purely a momentum play or that is has been these past few weeks. Certainly momentum has played a significant role in extending the upsurge, but there is a core of belief, rational belief based on certain assumptions, that this is THE company (not just stock, but company) of the future, best poised (along with AOL) to capitalize on the Net revolution. So I am still not convinced that this is the equivalent of the shoe-pounding episode in that the mass of YHOO investors cannot be characterized as acting with one mind or with one rationale.
Theoretical discussion aside, how does that affect your strategy? If you mean by "calling your bluff" that the bears and shorts can't drive the price down, I don't think that's the case. The current crop of bears and shorts apparently can't do so, and haven't, but as prices get higher more bears may emerge. From where? From the ranks of the current bulls and longs. This is particularly a danger with two diverse groups of current longs. One is fund managers, who by the nature of their industry are usually tied to some version of traditional valuation methods. These managers want large returns, granted, but more than that they want to keep their jobs. At its current valuation, YHOO is hard for them to justify buying EXCEPT as a momentum play; it's not so much that it can't go up, it's that the second-guessing if it goes down will be relentless. The other group of current longs to watch out for is the more sophisticated momentum players, many of whom have deep pockets and the ability to drive share prices down. They believe from history that momentum plays eventually subside, that although a body in motion tends to stay in motion, that principle assumes as its theoretical basis that the system has no friction or external forces that might cause the body to slow. The market is full of such forces, and if they change the body's direction, momentum of a decidedly negative tenor can replace the current momentum. Let me emphasize that this will not necessarily happen, but that it has happened throughout history on numerous occasions when a young equity gains momentum and outstrips the so-called fundamentals by a wide margin. (I know that this is not the way you prefer to analyze things, but I think it's relevant to whether you can truly "afford" to be irrational -- if that's what you're being). This second group of longs will likely desert the ship quickly if some force is exerted which causes movement southward.
Broadly speaking, there is a third group of YHOO longs who are believers in the revolution. They will likely stay put in the face of a major correction, because YHOO has seen corrections before and always resumed Northward momentum.
I am still struggling with the Prisoner's Dilemma analogy. As I understand it, a true Prisoner's Dilemma is when two suspects are being interrogated by police, separately, about the same crime. Each prisoner is given the choice of confessing, thereby implicating the other in the crime, or remaining silent. The dilemma arises because the suspects are *collectively* better off if neither confesses, but if one confesses, the other is *worse* off (because of harsh penalties for those who do not confess) than if he had confessed. So to determine what to do, each prisoner must correctly surmise what the other will do. In other words, what appears best for the individual is not necessarily best for the collective group.
This is often used to highlight the fact that application of the Nash equilibrium -- each player following his best strategy after assuming that each other player has followed his best strategy -- does not necessarily result in the best solution from the vantage point of the group. Because if you apply Nash, each will confess, since they will first assume that the other will do what is in his personal best interests. (I think I have that right, but if I don't, please correct me. It's been awhile, although there was a summary of it I read recently in the Nash biography). I am still struggling with what that has to do with YHOO longs' current decisions, although I think it does apply somehow.
Not long yet, but have adjusted my target upward from the original $110. But I have decided not to try to foresee all the mileposts on the way there; I'll just reevaluate as we go. Where I come from, patience is still a virtue; I didn't learn about opportunity costs until later.:(
Have a nice Thanksgiving.
MAD DOG
One more thing: Where do you think the Bloggs fit into the framework of YHOO investors? Are they outside the three categories? Just curious.:) |
