I Think It Might Be Time To Buy TASR

[DesertCat]

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Huh? My post didn't claim that TASR might be a good buy because it was out of favor, but rather because the REASON it appeared to be out of favor (it kills people) was not as relevant, in my opinion (partly based on converstions with cops), as most people thought. All other aspects of the company, I assumed to be properly evaluated by the market.



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Two questionable assumptions. First, is that you think that whether tasers kill people has a large effect on the stock price. You have no ability to measure the gross motivations of a crowd (no one does). Secondly, you assume the EMT is valid. First, there are three flavors of EMT, and there are very good disproofs of the strongest two versions. Warren Buffett's career is a clear disproof of the strong and semi-strong form. The only form of the EMT that has any reasonable underpinnings is the weak form, which says that you can't use technical analysis to generate excess returns.

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This general method of picking stocks is more art than science but it firmly applies my Fundamental Theorem of Investing (Before you buy or sell you should be able to explain why people are willing to take the other side and why you think they are wrong) in conjunction with the Efficient Market Hypothesis (thus allowing you to be ignorant of all the other factors, though it would be better if you weren't.)

I understand that picking stocks this way bugs those who have studied the subject for years in the same way that some successful sports bettors who couldn't tell you the name of one player bug sports fanatics who can't beat their bookie. On the other hand there are plenty of pro stock picker who acknowledge that at least some of their picks use similar methods and are thus quick to ask their daughter the name of the new shoe company she is raving about.

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Real investors also know how to value a company. They only use their daughters interest as a stepping off point for further research. They can quantify the value of upside from being at the possible forefront of a fad, and determine todays price is offering enough upside and a margin of safety to justify buying.

You are relying on very weak sauce with the EMT. The market never valued Enron correctly (until the end) despite very vocal fundamental investors pointing out that their financials made no sense years before it collapsed. EMT can't protect you from fraud at Taser, and it can't protect you from irrational investors trading Taser, just like it didn't protect internet investors during the bubble.

[Alex/Mugaaz]

Desertcat, I think if you even further simplify your objections you'll agree that there has to be an unaccounted/miscounted error/bonus (or missing info) for a company's true value to be more or less than it's current value. If you find one then the rest of the info is irrelevant. The thing you need to worry about is there being another one that is working in the opposite way. So David's pick would only be wrong if his reason was incorrect, or if the true value is so much lower than the current value that it wipes out the edge from his find.

So is your objection that his view on the TASR killing people is wrong, or that the true value of the company is worth less than it's current value?

[DesertCat]

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Desertcat, I think if you even further simplify your objections you'll agree that there has to be an unaccounted/miscounted error/bonus (or missing info) for a company's true value to be more or less than it's current value. If you find one then the rest of the info is irrelevant. The thing you need to worry about is there being another one that is working in the opposite way. So David's pick would only be wrong if his reason was incorrect, or if the true value is so much lower than the current value that it wipes out the edge from his find.

So is your objection that his view on the TASR killing people is wrong, or that the true value of the company is worth less than it's current value?

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Neither. My view is the way to value TASR is to estimate it's value in a worst case scenario (i.e. scenario A, backlash from tasers killing people hurts sales) and a best case scenario (scenario B, backlash doesn't affect sales) and assign relative percentage weights to both to come up with a blended average return. The way you value each scenario is based on the future cash flows generated by each, discounted back to present value. You also need to adjust by what part of those cash flows can reasonably expected to accrue for the benefit of shareholders (i.e. either dividended out to shareholders, used to buy back shares at reasonable prices below IV, or reinvested at high rates of return in the business).

Ideally, you'd be happy if your valuation for scenario A still produced a value significantly above todays price, then you are getting TASR with a good margin for error and the upside of scenario B thrown in for free.

But no one on this thread has estimated the value of TASR in either scenario, including David. So no one can say whether TASR is unfairly cheap, or outrageously expensive.

And methinks David misunderstands EMT. Strong EMT says that the current price is the markets best estimate of value under weighted future scenarios, i.e. the market includes all information and comes to the best possible conclusion on price, so according to EMT, David's insights can provide no edge.

The math I describe to estimate value can be estimated very trivially. Calculating it with great precision is as simple as putting together an Excel spreadsheet. Not doing either is pure laziness.

[Alex/Mugaaz]

If you don't believe in strong EMT then you're saying that there is the possibility people make mistakes in information and the judgements people make on that information. Say you knew that David was right about there being little backlash about TASR killing people, and that most people disagreed. How much more info do you need before you'd invest? I'm assuming your answer is enough info to know there isn't a downside that most people are wrong about too, right? If you did a full valuation of the company the only thing that would change your mind is if you found out it was actually worse than people gave it credit, right?

[ISF]

Desertcat,
David's investment thesis is perfectly valid, and very similar to the way most event-driven hedge funds invest. They care less about the long term "intrensic value" of a stock, and more about what people will pay for it after some near term catalyst.
I would guess that on average this type of strategy has yielded higher risk adjusted returns then any other. Granted most would also look for companies at a reasonable valuation so that the downside is limited, in the event the catalyst does not play out as expected. You dont seem to get that there are more ways to make money investing then just following warren buffets' long term buy and hold approach like its some sort of cult.
I know you are going to say something retarded about trading vs. investing, but for people that care about making money more then being right about long term intrensic value, concerning yourself with catalysts can significantly improve your returns.

[DesertCat]

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If you don't believe in strong EMT then you're saying that there is the possibility people make mistakes in information and the judgements people make on that information. Say you knew that David was right about there being little backlash about TASR killing people, and that most people disagreed. How much more info do you need before you'd invest? I'm assuming your answer is enough info to know there isn't a downside that most people are wrong about too, right? If you did a full valuation of the company the only thing that would change your mind is if you found out it was actually worse than people gave it credit, right?

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Yes, I think doing the valuation is always first step. If the valuation is high, you can say "hmm, seems like the market is unfairly negative on TASR's prospects". You wouldn't call on a draw in poker without knowing what the pot odds are, would you?

And doing a valuation doesn't have to be a hard or lengthy process. You can usually estimate it fairly quickly. The more time you put in the more accurate you should be, but sometimes it's so blatantly obvious the decision is quick and simple.

[DesertCat]

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Desertcat,
David's investment thesis is perfectly valid, and very similar to the way most event-driven hedge funds invest. They care less about the long term "intrensic value" of a stock, and more about what people will pay for it after some near term catalyst.
I would guess that on average this type of strategy has yielded higher risk adjusted returns then any other. Granted most would also look for companies at a reasonable valuation so that the downside is limited, in the event the catalyst does not play out as expected. You dont seem to get that there are more ways to make money investing then just following warren buffets' long term buy and hold approach like its some sort of cult.
I know you are going to say something retarded about trading vs. investing, but for people that care about making money more then being right about long term intrensic value, concerning yourself with catalysts can significantly improve your returns.

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What has David said here that makes you believe he can estimate the "madness of crowds" as it relates to TASR? He might have done an elaborate analysis, but it certainly takes more than he's shown on this thread.

And remember, Warren Buffett has made billions in arbitrage, special situations, bankruptcies, etc. He just closed out a short against the U.S. dollar for a multi-billion dollar profit. Pigeon-holing him as "buy and hold" investor is a gross disservice, and a complete misunderstanding of how he applies value in a variety of different investing situations. You really need to understand this better, my returns have been fantastic since I figured it out, and I rarely hold positions longer than a year.

And I doubt the typical event driven hedge fund is offering risk adjusted returns anywhere near to Buffett's career. As far as I know, he's only had one down years in 50+ years between his original hedge fund and Berkshire Hathaway, with annualized returns close to 25% per year over the entire 50 year period. We know from studies that hedge funds as a group offer returns similar to the market (some studies say worse than the market if adjusted for survivorship bias).

There certainly is a small group of hedge funds offering >25% returns over reasonable but much shorter periods (10-20 years), and some might have a low risk profile and pursue a similar strategy to what you've outlined. But just because Ted Williams hit .400 doesn't mean anyone can step up to the plate and do the same.

[ISF]

I trying to say anyting about how warren buffet has made his money, but was commenting on your advice to anyone that doesnt invest the way you do.
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And I doubt the typical event driven hedge fund is offering risk adjusted returns anywhere near to Buffett's career.

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This has to be one of the stupidest arguments I have ever heard. I shouldnt even have to elaborate.

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We know from studies that hedge funds as a group offer returns similar to the market (some studies say worse than the market if adjusted for survivorship bias).


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I have never heard anyone with half a brain analyze the historical returns of hedge funds, and specifically event-driven hedge funds and not conclude they have had much better risk adjusted returns then the stock market. To someone that doesnt understand why volatility is risk, this might not be obvious. The various event-driven databases have like 14% returns on around 6% vol or so over the past 15 years. Some may argue about weather or not they are sustaniable going forward.
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What has David said here that makes you believe he can estimate the "madness of crowds" as it relates to TASR?

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David is implying that he believes the companies earnings will be higher then the market expects them to be. If that is the case it is reasonable to assume that if they beat earnings the stock will go up. I am not saying I agree, but it is a reasonable thesis. For what it is worth I have been short TSAR for the past two years, and have only partially covered it. So I obviously dont agree.

[DesertCat]

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And I doubt the typical event driven hedge fund is offering risk adjusted returns anywhere near to Buffett's career.

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This has to be one of the stupidest arguments I have ever heard. I shouldnt even have to elaborate.


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It was an opinion, not argument. When someone says your opinion is too stupid to respond to, it often indicates they don't have a good response.

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We know from studies that hedge funds as a group offer returns similar to the market (some studies say worse than the market if adjusted for survivorship bias).


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I have never heard anyone with half a brain analyze the historical returns of hedge funds, and specifically event-driven hedge funds and not conclude they have had much better risk adjusted returns then the stock market. To someone that doesnt understand why volatility is risk, this might not be obvious. The various event-driven databases have like 14% returns on around 6% vol or so over the past 15 years. Some may argue about weather or not they are sustaniable going forward.


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14% returns on 6% volatility over the last 15 years, if it were true, would trail Buffett's last 15 years where he's averaged over 17% returns with only one down year (-6%). And that's Buffett managing $100B, much, much more than any hedge fund, giving him a huge disadvantage. His first 15 years when he managed smaller amounts he averaged close to 30% per year, no down years. So by your own estimates, it doesn't appear that the average event driven fund does better than Buffett.
But the real question is whether your estimates are even accurate. If you've never heard criticism of claimed hedge fund returns, you just aren't paying attention.

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One reason why a database may be biased, based on the argument that subscribers are only interested in funds in which they can actually invest, the data vendor deletes funds as soon as they become defunct. When the emphasis is on survivors, average returns will be overestimated and volatility underestimated.

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Lastly, volatility is not risk, savvy investors understand that volatility creates opportunities.

[ahnuld]

<3 Dester Cat, you have much more patient than most people I know.

IMO all of dc's arguments have been perfect and true here. Not one person in this thread has done any real analysis of the company. Sure you can buy based on a gut-feeling much like in cards you can call on a gut feeling that the guy is bluffing. But it sure helps when the pot odds are in your favor to go along with your gut feeling.