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My other line of logic was to try to find solid companies that had stumbled but that could rebound. When I bought Netflix at 9 in November 2004, I did very well. I was hoping to find some candidates that might bounce back, but also aware that many companies that come crashing down ofter deserve it. Also using Yahoo! Finance’s stock filtering software, I hope to find isolate companies that have good financial returns but the stock has taken a large decline recently. I hope to understand the source of the decline and then decide whether I agree with the market’s reaction. As with Netflix, the sentiment seemed that either Blockbuster’s competition was going to disrupt Netflix’s success or that increased usage by its customers would drive up costs. I thought both concerns were overblown, and I was right. Netflix continued to grow, eventually forcing the market to re-evaluate its dire evaluation. This idea originally came from Warren Buffett. I have read that early in his career, I believe in the late 1960s, there was a some financial scandal involving American Express. The stock plunged. Buffett went to many local stores and saw that they were still using American Express and that was the main source of their income and the scandal did not involve this core business. So he bought heavily and benefited from its subsequent rebound.
Filter Criteria:
Please see the glossary page for a description of the terms. The “Call” column details the progress of my follow up research. Several of these companies are in insurance. Generally, I don’t have a very intuitive feel for financial services, but plan to read enough to gain a basic understanding of the drivers of success in insurance. All completed research summaries will be included in this summary. As compared to my Hidden Gems, my judgment of A, B or C did not correlate as strongly to overall returns, and, as a group, the returns were lower. But the returns of the group of companies, overall, modestly out-performed the markets.
I passed on most of these companies because many of them were technology companies (PMCS, MRVL, OPWV, OVTI) or were related to housing (EXP). I dislike technology companies because unless I happen to know a particular technology really well, I feel I am just guessing when I invest. I hate that. Even when I play blackjack in Vegas, I feel the need to do my best to track the cards even though I cannot really count, just because I hate that feeling of putting money down blindly, hoping for good luck. I don't mind modestly informed calculated risks, but hate feeling that I am guessing. TOMO is a Chinese internet company. Getting a genuine understanding of that company's position in a market I know virtually next to nothing about seemed like a real stretch. PAR Pharmaceuticals and Plantronics had the most promise to me, but, sadly, I do not remember what held me back on those. Mainly time, as I tried to go much deeper than I normally do in researching the companies, but, given that my methodology pulls up companies across industries, that was slow going. Group A Detail:
As mentioned above, I read about OVTI, but felt well out of my depth assessing whether their particular technology was going to rebound. Plantronics, the maker of cellphone accessories seemed promising. I am not sure what held me back from doing the additional work needed to make an assessment, but this process is getting me to trust my methods better. Group B Detail:
As mentioned above, two technology companies and a Chinese internet company did not give me confidence that I would be able to make a reasonably informed assessment of their rebound potential. Group C Detail:
I mentioned my hesitations about Openwave (technology) and Eagle (housing related). PAR was interesting to me on the initial reads of analyst reports, but, again, had trouble getting through all the research I wanted to do for all these companies. In final summary, this approach still holds some promise, but will take more effort to disentangle the good from the bad.
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