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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: lws who wrote (6223)	12/22/1998 6:38:00 PM
From: John Curtis	Respond to of 27311

LWS: I like your explanation and agree regarding "opportunity cost." For me it's clear....well.....as clear as anything can be when speculating, heh, that contracts ain't gonna be forthcoming real quick(ie. the next month or so), therefore I saw other opportunities and moved some profit from VLNC to them. But I've still got my sizable core speculative VLNC holding intact, just felt the need to put some profits to immediate work. This opportunity? TKLC(up over 2 pts in the last 2 days) is one rather volatile example, not that I'm "name dropping." ;-) There are a couple of others. I figure I'll restore the position I gave up to pursue TKLC, et.al., in early January and won't have lost much on VLNC. This after a hopefully favorable outcome on my aforementioned short term gamble. Indeed, regarding that "not much lost" statement, some folks might chose to exercise the tax-loss gambit at this point, thus making VLNC a wee tad volatile, but this remains to be seen. And let's not forget the dreaded margin call. Bottom Line? I'm not about to give up on VLNC. After all, one cannot argue with insiders having purchased such a large amount in the company, nor the fact of a major executive now on the board. These two facts are hard to dispute or brush off as incidental data, no? So it goes....it's all about profit after all, eh? Should I even ask this question???? Dont'cha just luuv speculating? I know, I know, this time 'round the reaction to this statement is probably more along the lines of my god-daughters reaction to something she doesn't like when talking to me on-line. That is.... :-(! Heh! Regards! John~

To: lws who wrote (6223)	12/22/1998 8:40:00 PM
From: MGV	Read Replies (1) \| Respond to of 27311

lws - Your aphorism "you win some and lose most" with regard to bets on companies with no commercial product or any production revenue is true to a degree that I suspect you have underestimated. In the case of a company that has the poor execution record and changes (flip-flopping) in management that is manifest with VLNC the risk reward is even more skewed against you. I take issue with both of your points. First and most importantly regarding "opportunity cost." The distinction between ex ante and ex post is useful for the sake of making the point more precise. Ex post relates to "sunk costs." Ex ante relates to "opportunity cost" in the sense that I described. I agree that sunk costs aren't appropriate to a risk reward assessment. You agree that Ex ante or opportunity costs are relevant. The problem with your analysis regarding what constiutes a proper measure of opportunity cost is that it allows only for a choice between a riskless investment and the one in VLNC (in your example). But none of us are so limited in opportunities. (You grazed the issue when you mentioned that "certainty" is a probability issue). There are opportunities to invest in companies that have much more predictable earnings or revenue streams than VLNC or a risky internet stock such as Ebay or Amazon, if you will (but their risk pales in comparison). Markets pay premium multiples for such companies. They are valuable in part because they ease the risk/reward analysis. The point is to make solid risk/reward assessments. You demonstrated an exercise to do just that in assigning probabilities to a set of potential outcomes you defined last August or Sept. The exercise was admirable but from an accuracy standpoint you were running up an acutely steep and slippery slope. In the case of VLNC, the information available to help you assign probabilities in a reasonable manner to a reasonable set of potential outcomes is extremely deficient. VLNC has left a litter of misguided risk/reward analysts strewn in the wake of its poor price performance. It is not surprising because the margin for error is so low with poor information and no record of execution. For example, klemencic boasted last summer that the risk/reward for VLNC was outstanding. It was a poor call. fmk exaggerates klemencic's poor call even further. With VLNC there is not only an absence of a record of execution but, also evidence of poor execution over the years. It hurts the company even more than if it had no record. In sum, given the poor information and record the risk/reward is impacted tremendously. That is why the company takes aggravated hits when disappointing information is disclosed. It is a function of credibility on the street (Wall or those of Omaha). So what is the proper measure for opportunity cost? I would argue for lining up all of the investments of equal risk to VLNC at the time you placed your bet on it. Certainly that would carry you far beyond t-bills. Reasonable men may disagree how far it will carry you in alternative opportunities but, we can agree that it is more than a few. The second issue is easier. Imminent "real" signs. "Real," not "imminent" is the operative word. "Real" meaning substantial and objectively verifiable. A contract would qualify, even if it were a relatively small one. There will be ample opportunity to buy the stock in the first competitor in the lithium polymer ion battery market to come to market without losing most of the upside. VLNC is an obscure company and you follow it assiduously. I appreciated the nature and spirit of your response. Happy holidays to you lws.