Would You Buy This Stock?
 

This is a true story but I am leaving out some details for various reasons.

I bumped into somebody (I'm not saying when) who I hadn't seen in over a year. A very successful businessman, multi millionare, and extemely good amateur poker player. Over 50. We were very friendly acquaintances over the years.

I asked him how he was doing, and what he was doing nowadays, and he said he was seriously getting into the stock market, among other things, and it was working out for him. We continued to chat for a while and I told him that I expected to see him again soon at the WSOP and that it was about time he won it. We shook hands and parted.

After taking about twenty steps, he turned around and called to me. I walked back to him and he said something like " I would buy XYZ".

Keep in mind this wasn't an off the cuff recommendation. It was more like he mulled it over. Like he was feeling guilty for letting the conversation end without telling me about it.

Assuming the stock was $10 the day he told me about it, what's its EV two years later?

Re: Would You Buy This Stock?
 

I really don't have any idea how to estimate its EV with only the info given (perhaps if I were more involved in the stock market I could make an estimate), but I would definitely buy. Yeah, sure, I'd do some research on it to figure out how much I'd be willing to risk, but I would almost certainly buy.

Re: Would You Buy This Stock?
 

it was martha stewart wasn't it?

Re: Would You Buy This Stock?
 

Does the businessman have any relationship to the company in question?

Re: Would You Buy This Stock?
 

Mail me the stock trading sym and I'll research and give my advice. I suck at Poker but am OK with stocks

Re: Would You Buy This Stock?
 

Of course it’s an automatic buy.

He didn’t get to be a multimillionaire by making bad stock picks or giving bad advice to people he respects and likes.

It’s EV in two years doesn’t matter much because, barring a recession, it’s almost sure
to beat the both the market and the short term interest rate.

Re: Would You Buy This Stock?
 

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Assuming the stock was $10 the day he told me about it, what's its EV two years later?

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You've got no way to even attempt to quantify value or time horizon. If I had to guess, I'd say he knows about some non-public future event. An honest valuation of a stock probably wouldn't manifest as a '"hey, you should buy X" and then walk away' kind of situation. I'd guess he knows about a) an important product development or b) an acquisition. "What's the EV in two years" probably isn't as relevant as "what's the potential gain when this info becomes public" if it is in fact insider information.

Re: Would You Buy This Stock?
 

Dumb question.

Re: Would You Buy This Stock?
 

Come on! tell us the stock!

I sold all my IMMR at the early peak price
+30% and need something to move into.

D.

Re: Would You Buy This Stock?
 

Jail?

Re: Would You Buy This Stock?
 

a multimillionare stock investor gives you stock advice and you question whether to put some money into this or not? considering you are a pro gambler isn't this like an oxymoron?

Re: Would You Buy This Stock?
 

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a multimillionare stock investor gives you stock advice and you question whether to put some money into this or not?

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Looks more like he questioned if *you* would buy the stock. And what you think the EV is.

Re: Would You Buy This Stock?
 

Guys, if I'm not mistaken, he's "Getting into the stock market". Yes he's doing well but the OP said he was a multi-millionaire before he was aware he is now into stocks.

Re: Would You Buy This Stock?
 

Questions...

1. Did the stock in any way relate to anything discussed in the conversation?

2. Did he have any knowledge of this stock due to his business?

3. What was your first thought, after hearing his stock tip?

Re: Would You Buy This Stock?
 

EV is impossible to judge from this situation, but as someone said it's greater than most other investment options.

The more interesting question is: Assuming you're rational and only interested in maximizing dollar EV, what percentage of your disposable fortune would you gamble on this stock?

Re: Would You Buy This Stock?
 

Dumb Question indeed !

Re: Would You Buy This Stock?
 

David,

Since you've helped me soooo much with my poker skills through your books. I really hope you listen to my advice on this because I have been a professional trader/ hedge fund manger for 20 years.

The stock markets have far more variables then poker and unlike poker someone just can't read 5 or so books and play for a year and call themselves a professional.

It takes at least 5 years of study and several market cycles before you even honestly have a clue about trading, that being said some people can have good runs when they first start because the market may be in a bull cycle (as we have been in recently).

Sooner or later this cycle will end (actual it ended Tuesday) and we will enter another cycle of either a Bear market or possibly a Consolidation phase (still to tip it's hand).

It takes years and years of experience and skill to learn how to navigate these various market conditions successfully.

If you want to have a little fun go ahead and buy the shares with money you can afford to loose and treat it like a lottery ticket if you win.

As long as he did not disclose any inside information to you it is NOT insider trading.

Good luck with your trade. :-)

Re: Would You Buy This Stock?
 

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...Sooner or later this cycle will end (actually it ended Tuesday) and we will enter another cycle of either a Bear market or possibly a Consolidation phase (still to tip it's hand).

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Re: Would You Buy This Stock?
 

Since I believe in efficient market theory, I would say the EV of the stock should be similar to the EV of the average stock. So, maybe EV = 10-12% per year, with SD of maybe 40-50%.

That means your actual investment performance over 2 years could be anything.

-Tom

Re: Would You Buy This Stock?
 

This question reminds me of certain poker strategy questions. Some of the answer depends on your ability to play a subsequent situation (i.e. you might be right to blind steal more or less depending how skillful you are in playing the flops vs. the BB in position). One inherent problem with just taking this guy's stock tip is that you don't (necessarily) really understand the company. You won't know when the ideal time to sell (or add more shares) is as often as you would for a position you discovered and were able to recognize value in on your own accord.

His advice might be good enough that your timing isn't very critical. But your ability and willingness to "play the various hands" has a large say in this stock's EV, particularly compared to what your money could do in a good ol' index fund or a stock for which you might have more natural timing insight.

Re: Would You Buy This Stock?
 

depends on the market capitalization...the smaller the market cap, the more likely he has something insightful to say about it...

if the stock was IBM or exxon, practically meaningless... if it was a $500M market cap biotech, i would look at it very seriously.

Re: Would You Buy This Stock?
 

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depends on the market capitalization...the smaller the market cap, the more likely he has something insightful to say about it...

if the stock was IBM or exxon, practically meaningless... if it was a $500M market cap biotech, i would look at it very seriously.

[/ QUOTE ]

Correct answer. It happened four years ago and it tripled.
It is important to understand that this wasn't really a question about the stock market.

Re: Would You Buy This Stock?
 

[ QUOTE ]
[ QUOTE ]
depends on the market capitalization...the smaller the market cap, the more likely he has something insightful to say about it...

if the stock was IBM or exxon, practically meaningless... if it was a $500M market cap biotech, i would look at it very seriously.

[/ QUOTE ]

Correct answer. It happened four years ago and it tripled.
It is important to understand that this wasn't really a question about the stock market.

[/ QUOTE ]did you buy it when he recommended it to you?

Re: Would You Buy This Stock?
 

gg

Re: Would You Buy This Stock?
 

[ QUOTE ]
[ QUOTE ]
depends on the market capitalization...the smaller the market cap, the more likely he has something insightful to say about it...

if the stock was IBM or exxon, practically meaningless... if it was a $500M market cap biotech, i would look at it very seriously.

[/ QUOTE ]

Correct answer. It happened four years ago and it tripled.
It is important to understand that this wasn't really a question about the stock market.

[/ QUOTE ]

Right... so if someone told you beforehand to get out of Enron because they had insight about the fraud involved in the company, that is basically meaningless.

Re: Would You Buy This Stock?
 

How can we determine the value of a stock in 2 years without knowing the industry, product, service, revenues, balance sheet, competitors, etc...

Re: Would You Buy This Stock?
 

[ QUOTE ]
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depends on the market capitalization...the smaller the market cap, the more likely he has something insightful to say about it...

if the stock was IBM or exxon, practically meaningless... if it was a $500M market cap biotech, i would look at it very seriously.

[/ QUOTE ]

Correct answer. It happened four years ago and it tripled.
It is important to understand that this wasn't really a question about the stock market.

[/ QUOTE ]

Right... so if someone told you beforehand to get out of Enron because they had insight about the fraud involved in the company, that is basically meaningless.

[/ QUOTE ]

And if pigs had wings they could fly. The point is it's doubtful an expert could have accurate insight about the fraud if the current asking price didn't already reflect that. With a very small company, it can happen.

Re: Would You Buy This Stock?
 

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depends on the market capitalization...the smaller the market cap, the more likely he has something insightful to say about it...
seriously.

[/ QUOTE ]

Correct answer. It happened four years ago and it tripled.
It is important to understand that this wasn't really a question about the stock market.

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Obviously, no one can predict prices 4 years in advance. The real question is are you comfortable trading on inside info and riskin gprisoin and fines.

Re: Would You Buy This Stock?
 

[ QUOTE ]
[ QUOTE ]
depends on the market capitalization...the smaller the market cap, the more likely he has something insightful to say about it...

if the stock was IBM or exxon, practically meaningless... if it was a $500M market cap biotech, i would look at it very seriously.

[/ QUOTE ]

Correct answer. It happened four years ago and it tripled.
It is important to understand that this wasn't really a question about the stock market.

[/ QUOTE ]

Warning: perhaps too much within a specific context for anyone to care about...

I know you don't care much for "high falutin philosophy" but formal epistemology might be grounded enough in math for you to care.

Too Odd Not to Be True

There is a lot of contemporary conversation about the merit of this idea, with a recent negative result by Olsson and this being a more positive outlook. Skip to the end (557) for a discussion of a similar situation as the one you outlined.

Re: Would You Buy This Stock?
 

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Assuming the stock was $10 the day he told me about it, what's its EV two years later?

[/ QUOTE ]

BUY BUY BUY!

Re: Would You Buy This Stock?
 

We have a saying on Wall St.

Show me the chart and I'll show you the future.

David, If you'd like an expert opinion on the stock in question feel free to erase the symbol on the chart and email me the Daily and Weekly Charts.

Re: Would You Buy This Stock?
 

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Dumb question.

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Re: Would You Buy This Stock?
 

there seems to be this huge presumption that it's some sort of information....

hard to explain but i think alot of stuff is based on knowing someone who has made a fortune at your golf club on technology stocks (like a venture capitalist) and he'll tell you about some company he saw at trade show about amazing product.

i don't think there's as much inside info out there as people think... i think it's more a matter of informed opinions from highly knowledgeable people. and it helps if the ultimate stock picker has great knowledge of a certain industry or at least geographically... i think people in atlanta make huge, huge money on home depot (or even coca-cola) from years ago... and i can think of amazing small caps from where i've lived that locals loaded up on before they became well-known. although i do think the market has become more efficient on this over the past 20 years.

Re: Would You Buy This Stock?
 

You don't give enough information. I see rich guys on TV pumping a stock. Maybe he tells everyone in Vegas his "secret" tip to talk the stock up.

Depending on his holdings and position in the stock, is he breaking the law?

You could take Two Plus Two public and cash in. Talk to a tax guy.

Johnny Hughes, Ph.D.

Re: Would You Buy This Stock?
 

Come on David. Have you ever heard of trust but verify?

Re: Would You Buy This Stock?
 

Despite the answer, I still say the buy matters little
about what the acquitance says, and more about its
fundamental value. Also, you said this guy was just
getting into the stock market, not that he had made
his money from it. Success in other places does not
necessarily translate to the market.

DON'T BUY, without research. Also, tripling means
nothing if you haven't sold the stock yet (assuming you
bought it)

I bought a stock two years ago at 1.50, it was at $6
6 months ago, but I didn't sell, and now it is $0.80

You Guys Are Missing The Point
 

Which was should his behavior have a great impact on my decision?

Re: Would You Buy This Stock?
 

The EV is negative.

The reason is that it is beyond stupid to buy a stock because someone tells you to.

The fact that he is a millionaire is irrelevant. I know plenty of millionaires that can't invest in the stock market to save their lives.

The information that you can not share... it sounds like he may have an inside edge. That is also irrelevant. People manipulate stock prices on the short for a number of different reasons. He may even be playing YOU for the sucker.

If this is how you invest, I would suggest you buy some Mutual Funds and adopt a long-term approach. Oh, and do not not NOT not NOT not EVER try to speculate in options.

So when he told you about this stock, you checked the technical aspects of it. You also researched the history of the company and got at the very least a feel for the business at hand. Then you looked at the balance sheet.

Then you looked at the market in question, such as the competitors, the government regulations, "cousin" companies related to the stock, and what the insiders are doing?

I think that you are saying you did none of these things but you are going on something a friend said and you had a "feeling" about this and you tripled your initial investment.

Sorry for the tone of the post, Mr. Sklansky. But there is nothing more pain inducing to my ears then "A friend told me to buy XYZ because it is a sure thing". *Vomit*

Lion out.

Re: Would You Buy This Stock?
 

There is so much wrong with your post

"The EV is negative."

A random stock has a positive EV

"The reason is that it is beyond stupid to buy a stock because someone tells you to."

I'll agree that is probably somewhat accurate as a general rule

"The fact that he is a millionaire is irrelevant. I know plenty of millionaires that can't invest in the stock market to save their lives."

True again. Except that he was also a world class poker player and the combination is a strong indication of multi faceted talents.

"The information that you can not share... it sounds like he may have an inside edge. That is also irrelevant. People manipulate stock prices on the short for a number of different reasons. He may even be playing YOU for the sucker."

Didn't you read my post? He was a friend of mine. And he was obviously feeling guilty about walking away without mentioning the stock. He wasn't touting. And he wouldn't have behaved that way unless IN HIS MIND anyway the EV was WAY positive.

"If this is how you invest, I would suggest you buy some Mutual Funds and adopt a long-term approach. Oh, and do not not NOT not NOT not EVER try to speculate in options."

I don't think that even my biggest critics doubt that I could quickly learn to play options better than all but the most elite. I turned down mega money to do just that.

"So when he told you about this stock, you checked the technical aspects of it."

Please

"You also researched the history of the company and got at the very least a feel for the business at hand. Then you looked at the balance sheet."

You think there is information there not already taken into account by the market?

"Then you looked at the market in question, such as the competitors, the government regulations, "cousin" companies related to the stock, and what the insiders are doing?"

ditto

"I think that you are saying you did none of these things but you are going on something a friend said and you had a "feeling" about this and you tripled your initial investment."

It wasn't a "feeling". See my posts about adjusting evaluations when smart people are sure about something.

"Sorry for the tone of the post, Mr. Sklansky. But there is nothing more pain inducing to my ears then "A friend told me to buy XYZ because it is a sure thing". *Vomit*"

Agreed. But that's not what happened.

Re: Would You Buy This Stock?
 

Fair enough.

When I asked about you looking up the details of a company you wanted to invest in you said...

"You think there is information there not already taken into account by the market?"

I will give a wishy-washy yes and no answer to your question. I am familiar with the Efficient Market Hypothesis. In a way, I am almost an Acolyte to it.

When all of the analysts in 1999 said to buy freakin' everything because it was a Bull Market, was that good advice?

As far as I know, the only folks I know that said it was a bubble at the time was IBD (Investors Business Daily), myself, and my Dad.

The reason I say I am an Acolyte to the above mentioned theory is I am of the school that the "market does what it does". So I should react accordingly. I do, but with research.

There are tens of thousands of companies listed in the NYSE, and you are right... most of them are profitable in the long term. Yet, many are not.

You ignored my question if you actually did research on the companies you would invest in...

The question is, do you?

I may have been incorrect in my initial post to your original question but I have to posit that at the very least basic research into companies you invest in had to enter into the equation.