World's Worst Market Timer (OSTK)

Well, I'm still comfortable with my decision to sell Overstock.com (OSTK -- click to register for free RT streaming quote) in the abstract, but I'm definitely beating myself up over the timing.

I had plenty of patience to watch it ride down and down and down as I pondered whether or not I thought the company could recover and the CEO could refocus on the business. After all that pondering, it finally became apparent to me that the company wasn't one that I wanted to continue owning and I sold my shares last week.

Immediately after I sold, the stock launched one of the more remarkable two-day rallies I've yet seen from a company that hasn't released any earnings or news of any sort. I'm not sure what caused it -- Overstock thumbed their noses at Gradient again last week, but that was before I sold. And TheStreet.com posted an article about how undervalued OSTK is, but it doesn't make sense that this one article would change everyone's minds just by comparing OSTK's valuation to Amazon's. There wasn't any data in that article that wasn't already available to everyone.

So I definitely don't understand it. If I had been a couple days more patient in making my sell decision I would have gotten a price about 25% better than the one I sold at on Friday. Arg.

Long term, I still think Overstock is a great concept that's not being well executed, and a solid business that has some huge competitors who I expect will bear down further on OSTK as it continues to grow. I wish the Byrne's and their company well in my absence, and I'm happy to be out of the company, but boy does my timing ever stink.

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Good-bye, Big O (OSTK)

Well, after waiting what was inarguably much too long for this company to straighten itself out, I've finally sold off my remaining shares in Overstock.com (OSTK -- click to register for free RT streaming quote).

I've been an Overstock shareholder for about a year now, and paid a lot more for these shares (average purchase price of about $53) than I'm receiving for them today (sold at $22.90).

Owning OSTK over the past year has been a slow but entertaining way to go broke. I wrote last week that I was very concerned about the potential loss of the company's well-respected Chairman Jack Byrne, and while I could wait around for their Spring meeting and see if he actually decides to leave I think it's probably just as good to sell now and put this money into an investment that I can be much happier with for the long haul.

It seems as though anyone who has been at all involved in the stock market, read the Wall Street Journal, watched CNBC, or even poked around on the investment websites during the past year has a strong opinion about Overstock and it's mercurial CEO, Patrick Byrne.

I wrote a little while ago about the "Three Horesemen" -- the three worst companies in my portfolio. Overstock was one of them, and the one I thought I was closest to selling at the time (I actually shaved off some of my Shanda holdings first). So it's not surprise, I suppose, that I'm now clearing the decks of the last dregs of my hope for Overstock and letting it wash into the sea of failed investment ideas, never to be heard from again.

Overstock was actually a very solid business idea, in my opinion -- it makes sense to standardize and apply economies of scale to closeout retailing. And I've been quite happy with them as a customer, not least because of the essentially free shipping for large heavy things (not really free, since I clearly paid for that shipping as an investor). All other things being equal, even considering the management problems they had in the second half of last year in getting t heir new IT systems online and working, I'd be willing to sit it out and see if the good business plan and some attentive management, led by a very active CEO with a huge personal stake and a Chairman with a sterling reputation, could bring Overstock over the hump and make it into a profitable company.

But the sideshow has taken over. Patrick Byrne's lawsuit against those he believes have profited from illegally selling short OSTK shares (naked shorting) and fraudulently conspired with media figures to bring prices down is clearly distracting him from running the company. I thought when he handed off the suit to the lawyers last year that he might be finally be ready to let it go and refocus on building Overstock's business ... but clearly that's not the case. Even dad Jack is frustrated with him, and frustrated enough to air that publicly and threaten to step down as Chairman of the Board.

And perhaps most telling, Patrick has been freely telling journalists that he was hoping to have left this job this year ... another indicator that his heart really isn't in the hard work of growing an online retailer that is facing strong competition from Amazon, Ebay and others.

It might be that both Patrick and Jack will leave -- it sounds like Patrick is sick of this business and his dad is sick of Patrick's inattention to the business. It's possible that they could leave and bring in a seasoned manager to focus on operations to turn their very solid sales growth into some actual potential for profitability and earnings growth.

But I'm not willing to wait around for that potential outcome -- and with a majority of shares in the hand of the Byrne family and their friends, I think it's just as likely that they'll sell out to someone or take it private, and at this point I don't think anyone's going to pay much of a premium for closeout goods.

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Bear Market Blahs -- Where to invest now?

Well, when the market as a whole is taking a tumble like it's doing this week, and my portfolio is almost entirely awash in red, it's hard to get motivated to think about your holdings.

Some are still doing quite well ... PDL Biopharma (PDLI -- click to register for free RT streaming quote)got a fair amount of attention around the time of its earnings release last week -- they would have had their first quarter of positive earnings if not for some one time charges, and forecasts are for real-life earnings in 2006 that will give PDLI a PE ratio for the first time. Always exciting for a biotech. Business Week recently came out with a PDLI article and they make a few good points -- principally that PDLI, though risky, should generally be considered less risky than many similar early-stage biotechs.

And Northern Orion (NTO) continues to steam ahead, enjoying the wonderful tailwind of low-cost mining production and very high copper and gold prices. That one will ebb and flow with the commodity pricing over the next several years until Agua Rica is online -- though some folks think they'll be bought out before then so a bigger company can get their hooks into Agua Rica. Either way's fine with me, this is my only real metals investment and it seems to be doing just fine.

But nearly all of my holdings are tanking this week. Tough news on interest rates is rough on the market as a whole, and especially on the more volatile sectors that I am fairly heavily weighted in like emerging markets, growth stocks and the like. Some of these companies I find tempting for additional investment during this general decline ... GOL is down about 6% today, a rough give-back of most of their recent gains ... ISRG has had a horrible month and is now extremely tempting for another add-on purchase. But I've already committed so much to these two stocks that I'm wary to double down again just yet.

On the flip side, this is the worst time to offload most of my holdings (though I may soon sell Overstock, for reasons I've covered recently, and if I wasn't overly patient I would have already lightened up on my Google position a little -- too bad I didn't foresee their ridiculous problems of the last few weeks). When the market's taking a dip like this, seems to me that it's time to look for new investments that might be going on sale. Here are a couple that I'm thinking of at the moment:

Options Express (OXPS). I've had my eye on this one for a little while as it has had an almost unmitigated upward trajectory. I like a lot of things about the company. I think they're in a great business as options trading is climbing dramatically worldwide, and should climb faster if the market becomes more volatile in the coming year as many people expect. They have a fairly distinguished product that is substantially different from what the major online brokerages can offer for options trading. Though a fairly young company, they are very profitable even though they trade at a current high PE. And they have huge insider ownership, which I always like to see. Insiders have sold a lot of shares recently which is not terribly surprising since they've just completed their first year as a public company, but that's certainly an area of concern to investigate. They also pay a small dividend, which is a nice treat.

Oh, and did I mention that they're getting clobbered today? Down close to 10% as I write this after announcing what I can only imagine are weaker performance numbers than expected. I see that their performance is still up dramatically YOY but down from last month, which might be the reason for the current panic -- I am interested in picking up shares but need to do some more research first. If the price keeps plummeting the dividend yield will be up to 1% in a few minutes.

Markel Corp. (MKL). Markel is a big insurance underwriter, and a lot of folks think of them as a junior Berkshire Hathaway (not unlike White Mountains). Like Berkshire (and Google and others) they haven't split the shares so the stock price is up north of $330 at the moment. And this week, Markel is one of the few companies I'm watching that isn't dropping like a stone.

Markel had a tough 2005 business-wise, as did all the big insurers with hurricane exposure. It now seems like it might be a reasonable time to re-purchase a MKL position for my portfolio given the firming prices for P&C insurance and Markel's excellent investment performance. I owned MKL for a while, selling back in 2004 at a small loss when they weren't doing very well, but they're looking appealing again. Like BRK, they have a large cash hoard (though much smaller than Warren's, of course) and have some solid float performance that gives them free money with which to invest. This would be a nice counterpoint to much of my portolio, given that MKL focuses on value investing in equities with their float. Haven't done much research ye to reacquaint myself with MKL after a year or two of absence, but I've got their latest filings and conference call transcripts to pore through and I'll see if I like what they're doing. 2006 is expected by analysts to be a very solid year for MKL, giving them a forward estimated PE of about 12 ... if I can have faith in those numbers, I think now is a good time to pick up some MKL holdings that I can stash in a retirement account and hopefully ignore for a good many years.

Will let you know if I take any action on these or other ideas that are mulling around in the back of my head.

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A few week-ending thoughts

It has been a pretty interesting week for me in the market. A couple things I'm thinking about:

As I wrote last night, Jack Byrne potentially leaving as chairman of Overstock (OSTK) worries me. I'd like to see more than just this Wall Street Journal article that quotes him as saying he'll "think about it", however ... will see if I can hold on for long enough to get a more definitive answer, or if I decide that it's just not worth it to watch OSTK decline.

I'm thinking about giving Irobot (IRBT) a chance. I've been critical of them and their products since their IPO, don't remember if that criticism was in this space or not, but now I'm thinking that perhaps they have something worth investigating. I think the Scooba is doomed to failure as a floor cleaning robot, and I still am very skeptical of the Roomba even though it certainly has a huge cohort of fans, but maybe I'm thinking of this the wrong way. I listened to the CEO on the radio and found his arguments fairly compelling -- the company is focused on practicality and cost effectiveness in robotics, which certainly makes sense. After all, the stuff on the Jetsons is almost all available to us right now ... if we're billionaires. It's IRBT who has brought the first significant robotic tool for a humdrum daily task into our homes at a reasonable price, so perhaps I shouuld look into it with a less jaundiced eye. I also am convinced that their military robots might show some real promise. Hopefully I'll have a chance to read up on the company in the near future.

CV Therapeutics (CVTX) has had a rough week after earnings -- their lost a little more than expected, which is not a huge cause for concern since they're transitioning to building a sales force, but analysts are sounding warning bells that Ranexa's uptake in the market may be slower than folks are expecting. If it's just "slow", then I might see an opportunity to add to my shares this year before Merlin results hopefully allow for an expanded label ... if it's "slow" because there are actual concerns about the drug in the marketplace among cardiologists that could be a cause for actual concern. We'll see.

And I'm wondering why Formfactor (FORM), a company that has had a huge run, is filing for a secondary share offering that could pull in about $200 million at today's share price. They've got about $5 a share in cash already as far as I can tell and no debt, and they've already completed a large new facility ... I'd hate to see them diluting our shares just because they know they can get a good price for them today, but if they have plans in mind for expansion or acquisitions I'd be interested to hear them.

And finally, it looks like I jumped too soon in taking a flier on my Intel options ... I was guessing that the bad news was out and it wasn't likely to get much worse for this gigantic workhorse trading at a bargain valuation ... but now they've warned that revenues will likely be lighter than estimates and the shares are falling again. I'm still holding a small position in January LEAPs at $20 at a fair loss right now, but on the whole I still think Intel has a good chance to recover in the next several months as folks gear up for the replacement cycle with Vista. So far, Intel's warnings haven't impacted anyone else, and my other semi companies -- WFR and FORM -- have not caught the cold that semi companies typically catch when Intel sneezes, which is good news.

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Step back, Jack (OSTK)

Well, this is disappointing news on first read. I just saw that Overstock Chairman of the Board Jack Byrne is thinking of stepping down.

Normally, you might not think that's a bad idea if there is conflict in the executive suite ... when the CEO and Chairman are at loggerheads, it can be good for business if one of them bows out.

But Jack Byrne is the father of CEO Patrick Byrne, and I'm afraid Jack's presence as chairman was one of the things that was giving me some confidence that Overstock would be able to refocus on their core business and turn things around.

Apparently, the late session traders at least are not of the same mind as I am -- they've bid up OSTK shares by several percent since this story broke. I'm not sure I understand why, unless they think that Jack's public warning that he might step down gives Patrick the kick in the pants that gets him to refocus his energy on the business.

I wrote a couple weeks ago that of the three worst offenders in my portfolio, Overstock was the one I was closest to selling (in the interim, I sold about a third of my Shanda holdings, too). And I wrote that one of the things keeping me in the fold was that I thought Jack would bring the Warren Buffett "focus on the business fundamentals" influence back to Overstock. Perhaps that's too much to ask of a family member and of someone who was already a major owner and board member, but that's what I was hoping -- and it seemed that kind of influence was what Patrick wanted when he bround dad into the chairmanship.

But it's clear after reading his comments that Jack is frustrated with his son and would rather keep a son than keep a job. I can't blame him for that, but I think if he leaves as Chairman it's likely to be bad for Overstock's future. He wouldn't leave entirely, of course, since he still owns close to 10 percent of the company (Overstock is predominantly owned by Patrick's family and friends, which is probably part of why he's so extra mad about the shortsellers selling shares they couldn't possibly get their hands on).

I think the prevailing opinion on Wall Street is that Patrick Byrne, whether you like him or not -- and from what I know, I do like him -- is at best turning into a tragic hero, Don Quixote tilting at windmills. I happen to believe that his case also has some merit and that it's probably good for all of us if the short-selling system, the financial press and the hedge funds get additional scrutiny. But I also think that this crusade may benefit the markets but be terrible for Overstock, which seems to have lost the full-time attention of it's CEO at a very vulnerable point in it's development as a company.

There are still plenty of arguments in favor of Overstock if you think they can right the ship -- it's a compelling business model, and they have very solid sales growth and might even be thought of as a value investment in some ways today (at least according to Geoff Gannon, a value investing blogger).

But if Jack Byrne's shot across the bow doesn't work and he decides to step down, that will be one more reason ... and maybe finally a good enough reason ... for me to sell.

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The Three Horsemen (SNDA, TASR, OSTK)

I wanted to take a moment to post a few thoughts on a few of the worst investments in my portfolio.

First, a moment for brief celebration. All three of these stocks, which for quite some time have been the poorest performers in my portfolio, are now ONLY down on the order of 50% from my average purchase price.

OK, so that's not that impressive -- but one of them, Taser, was down by close to 80% at one point -- so there is indeed at least a little cause for celebrating.

Taser (TASR -- click to register for free RT streaming quote), Overstock (OSTK), and Shanda Interactive Entertainment (SNDA) are all former stock market darlings.

Taser was going to revolutionize law enforcement with their "less lethal" stun guns.

Overstock was going to bring the best of closeout merchandising to the web and drive high volume sales and great customer loyalty that would make Amazon blush.

and Shanda was ... well ... big in China. And there are a lot of people there. And they play these online games, for a few cents an hour, and Shanda sells them the game time. Did I mention that they're in China. And they're on the Internet. Do you know how many people live in China? Wow, it's a lot.

Now that was just the prevailing sentiment on all of these stocks at or near the time when I first bought them, and I fell victim to the exuberance as much as anyone else.

But you know, these businesses are all pretty solid if you strip away the short-term messes they find themselves in. I regret that I've lost money on all of them, but they seem to have a lot of potential long-term upside at today's prices ... which is why I haven't sold them yet.

I have sold companies whose stocks have declined, but I have sold them becaue the business lost it's way or because I lost faith in the business' ability to grow or earn money. That was the case with Great Wolf (WOLF), and with Design Within Reach (DWRI) -- click on the tickers on the top left for those takes of woe.

Taser has recovered pretty remarkably -- I still am a little uncomfortable with the level of hucksterism we see from the Smith brothers who run the company, but I think now that the furor over wrongful zapping has died down and the press releases about every positive instance of Taser use flow freely from the company's flacks, things look a bit more positive. I have always believed that they sell a useful and important product that ought to be carried by every policeman, but now it looks like we're finally concentrating on the upside of the product instead of the downside and the market has really enjoyed that. Earnings are still lagging behind thanks to their well-publicized troubles, but I expect them to return in time ... hopefully no one will notice and we'll get to enjoy TASR chugging back to respectability for several years to come.

Overstock I am really having a hard time understanding. I am very pleased that Patrick Byrne brought in his dad to be chairman, and I still do think that the business model they're running has a lot of promise -- and their sales growth reflects some of that promise. This is the one of the three that I'm closest to considering selling, however -- and one more thing that makes me question management's ability to handle this business may send me over the edge. I think they're a little bit chastened by their huge mistakes from the last six months, and I hope Byrne will leave the short sellers alone and let his lawyers argue his points -- he must realize by now that his bully pulpit has ceased to have any impact on public opinion and now merely calls attention to what the press seem universally to acknowledge is his megalomania or, at worst, his lack of focus on the business. Hopefully daddy Jack can help him right this ship and get growth going -- they've now got the technology infrastructure in place, and the sober leadership on the board, and I like Patrick Byrne as long as he's using his energy to build the Big O, not detract from it. I'm still very much on the fence.

And several people have recently posted questions for me about Shanda here on the blog and at ADVFN. I'll give you the short answer: I don't know what's going on, but I think the next year will be better, not worse, than this past fall.

What it really comes down to now is how well Shanda's EZ system of home and portable devices performs and whether they can really establish a distribution pathway for all entertainment to the consumer, and whether their next wave of MMPORPGs gets to market in good time and to a good reception. I think the market is pricing in negative news for all of that, and I would not be surprised to see pretty weak earnings for this past quarter given their massive changes to their business with free game play and the new focus on the EZ system. That said, I think bad earnings are priced in, and although they don't really provide guidance I expect the news we hear about sales of EZ and advancement of the new games, as well as about the effectiveness of the new free play model for their older games, will be the determining factor for the short term stock price. It could be a wild one, but barring more bad news I'm holding on to Shanda for potential appreciation over the next several years as their market continue to grow by leaps and bounds.

So there you have it -- one company on a serious rebound in Taser, one that the Street and I both have an itchy trigger finger on in Overstock -- a business that should work but that has been beset by management mistakes and bad press, and one in Shanda that seems completely shrouded in mystery in the short term but still with great potential if they can successfully navigate their new business plan.

This is what makes things interesting.

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Huh? What? (OSTK)

Okay, I officially have no idea what's going on with Overstock (OSTK).

I bought most of my shares of Overstock at the height of it's growth, unfortunately, back in January, and I'm carrying an average cost of over $50 a share ... so I'm delighted at the 25% jump up in the last couple days. A little more of this and I'll be back in the green.

But I definitely don't understand it.

Overstock (OSTK), for those who may be living on the Moon and haven't yet heard, is a closeout online retailer (the "Big O" TV ads are out in force again) whose founder and CEO is, to say the least, charismatic. Patrick Byrne has been accused of being crazy, insane, irresponsible, and ignorant of the ways of Wall Street. None of those accusations seem fair.

Overstock has become a very popular shopping site, and they continue to have huge growth in sales (if not profits) ... but there are a few significant issues that have come up over the past six months.

1, Byrne and Overstock filed a lawsuit against a bunch of hedge fund traders and researchers claiming conspiracy and all kinds of other stuff.

2, They have also been spending a lot of time and energy talking about "naked shorting", which is an illegal practice where by shares are "borrowed", shorted, and sold without the shares actually having been located for borrowing. The result is a "failure to deliver" list of the companies whose stocks have been shorted without short-able stocks having been found for loan. While it is illegal, there aren't teeth in the law and Overstock, which is almost always on that list these days, is angry.

3, Operationally, Overstock had some major snafu's with their IT changeover to a new system. According to Byrne they bit off more than they could chew and were unable to both upgrade their systems and load new inventory into their marketplace, which meant their numbers were awful at their last earnings release.

4, Looking forward, there is great news in that Jack Byrne, Patrick's Father and a Warren Buffett friend and the CEO who took GEICO to the heights it now enjoys, is now chairman of the board. That tells me that Patrick has realized he needs help refocusing on operational excellence in Overstock's core business.

This has been covered to death in the financial media all summer, but I am particularly partial to the Motley Fool coverage -- I think they've been fair, and they've tried to actually explain what's going on rather than just reporting the sense of the street. Article from them about the bad quarter here., about the company's profitability or lack thereof here, and on Patrick Byrne's lawsuit shenanigans here and here. They also ran a good series of questions for and answers from Byrne himself, which are a must-read for any long-term OSTK holder -- after all, in the eyes of the Street, Byrne IS Overstock.

But what does that have to do with the last few days?

I am personally feeling much better about Overstock than I was a few months ago -- it seems that the lawsuit is being handled in court as it should be, though Patrick Byrne continues to issue press releases such as this one, reminding people of the naked shorting problems.

And I believe Jack Byrne will help the company to refocus.

And I hope that their new systems are ready for a very busy holiday season, because I'm looking forward to Overstock capitalizing on it's growing brand name and great inventory to see some really significant sales growth during this Xmas season.

But none of that is a reason why the stock would shoot up by 25% in a couple days, with really no particular catalyst. Although Overstock did very well and had a similarly great move in the prime shopping season last year, I think it's a bit early for that since we've heard no such great news about traffic or sales yet.

So I'm left to assume that this is a short squeeze -- Patrick Byrne and his family and friends still own the lion's share of Overstock (more than 80%), so if they really are calling in all of their stock certificates from their brokers and making them unavailable for shorts to borrow, I expect that both legitimate and illegitimate shorts are going to get their shares called. When the shorts comprise 65% of the float and the float itself is so small, I guess it doesn't take much to really throw the shares into an uproar ... especially if the trend turns against the shorts.

I'm no expert on shorting -- I wouldn't do it myself, not because I believe it's unethical (legal shorting, that is) but because I don't like the limited potential for gains (a stock can't go lower than $0) and the unlimited potential for losses (with long investing, at least you can't lose more than you invest). If I really believed a company was going to fall, I'd buy puts instead of shorting the shares ... but for the most part, I prefer to spend my time on optimism and buying.

So does anyone else know what's going on with Overstock?

Beats me, but if they can figure out this lawsuit without it taking too much more attention away from the company's leadership, I still like the business, and I really like Jack Byrne and the growth of online Christmas shopping ... here's hoping there's good reason for this week's ascent in OSTK.

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Catch a falling knife?

Days like this are what makes me wish I had more cash on hand, while at the same time making me fearful of what I would do if I did.

The old stock market adage, "never try to catch a falling knife," is an apt one -- articles from various folks on just this topic are here and here -- but unfortunately, the urge to try is one of my weakest characteristics as an investor. Two cases in point today:

Shanda (SNDA), which I've written about before and which is one of my favorite Chinese companies, is falling for reasons I can't easily discern, and after climbing up above $40 for a little while after I purchased it it has now fallen down to near my original purchase price of $32. And that's in just a little less than two months. Business seems to be good, earnings should be quite strong when they're released, and the valuation makes it quite a bargain in my opinion -- forward PE of 16 for a company that's expected to have AT LEAST 30% annual growth going forward?

This one is always pretty volatile, so a 20% move over two months may not be a big deal, but it gets me itching to buy when it drops this far and I don't see a good reason for the drop -- although politics and competition are certainly always threats, SNDA is still the biggest force in the market and Chen Tianqiao is an icon of Chinese success. But I have to keep reminding myself, let it fall and watch for a while, don't buy just because it's cheaper than it used to be. Reconsider the fundamentals. Try to figure out why it's falling. Wait and see whether someone knows something you don't know. But also don't necessarily believe ridiculous claims like this one that "Shanda should do well because Microsoft and Marvel both also think massively multiplayer online games are a good idea."

And the other one that's collapsing as I type this is FARO technologies (FARO). This is a great company, in my opinion, with a spectacular product and very strong management. I first found out about them when they were a Motley Fool Hidden Gems recommendation back when I subscribed to that newsletter, and I really like the story. I have a full position already, but the hiccup in quarterly sales that they just announced has dropped the shares by about 14% last time I checked -- I want more!

FARO basically designs and sells computer aided design and measuring equipment -- notably the FARO arm, their signature product that allows extremely precise laser guided 3d measurement. They sell all over the world, and are even planning to build manufacturing capacity in Asia to meet the rising demand for their products there. Boeing just ordered 10 of the Arms, which was released along with the sales press release as perhaps a way to soften the blow.

This is one where I really might try to catch the knife, since it really appears to me as though they are falling just becauase of a little softness in the quarterly sales -- they still have a solid backlog of orders, and they have not changed their annual guidance (though this sure makes it tougher to make the annual numbers, as Bill Mann at the Fool wrote today), but some sales moved from Q2 to Q3. They are going to stop issuing these kinds of sales updates, probably with good reason, and they are going to only issue annual guidance, not quarterly, going forward. I like both of these decisions a lot.

But I am trying to be disciplined, so I am trying to wait.

You see, I've had some bad experiences. I bought Ebay when they surprised everyone this winter with bad growth numbers, just because I loved the business and thought they would come back. I ended up selling it a little while later because I thought other businesses, including Google, were more likely to grow my money.

I bought Overstock when they surprised everyone on the downside this winter as well, and I'm still holding but the chunks I bought at $58 and $53 are well underwater. I kept buying the falling knife later on, catching some in the $30s as well, so I'm close to even over all. Same with Provide Commerce -- another business I love, bought at $34 before they disappointed with Valentine's Day, then bought more as it fell at around $18. At the top of my writeup on Dreamworks Animation you'll note that I bought once before the troubles began this winter, then again after the Shrek 2 DVD problems pushed the price down to $31 ... but if I had waited, I could have picked up some today for $23. I still like the company in the long term and am holding, but I can't justify increasing my position any more even though it's now on even more of a sale (and who knows, maybe it will go down again after Wallace and Gromit this fall and I'll be tempted again).

The experts say that you should wait for a stock that's on a precipitous decline to "settle" and display a "bottom" before you buy in because it's on sale. I respect the opinion, and I understand that it comes from years of studying charts, but that smacks too much of technical analysis for me. I don't understand candlesticks or stochastics, and I never intend to, and the only bottom I really can pick out of a lineup is my own -- if I see a company go on sale that I already own or that I'm interested in, it really really really makes me want to buy in. I'll try to avoid buying the day that it falls and wait to see if the coming weeks will make it more of a bargain, but psychologically I think I'm more afraid of missing a bargain than I am of making a mistake and buying too high -- after all, these are companies that I really admire and believe in long term, so I have some faith that it will work out in the end -- especially in the case of FARO, where I think I understand why it's falling and am fairly confident that the market is overreacting.

So while I'm trying to be disciplined and wait for stable prices and the end of the decline (though if it was easy to pick the bottom, we'd all be rich), too much discipline really takes the fun out of this -- and if it's not fun why not just buy an index fund? I'll post any changes that I can't resist making to the portfolio, so all will be able to see if I'm an idiot.


Technorati tags shanda, SNDA, Chen Tianqiao, FARO, knife

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