The Market
by ::G @ 2005-02-04 22:42
How about that Google? They peaked at $216.80 per share on Wednesday, dropped to $210 for Thursday, then fell to $204 for the weekend. There's money to be made in the volitility, if one has the psychological fortitude. I've been wanting to short Google for a while now, even though I still hold a long position, and if I'd done it last time Google peaked and waned, I would've made almost $3000.
So why haven't I? Lack of funds. Short-selling has to be done in round lots, that is, multiples of 100 shares. $210 x 100 is a big chunk of change. Now in short-selling one borrows the shares, but one has to have equity equaling 25% of the shorted value. With margin trading, one needs 50%, according to Regulation T. The stocks one holds can count toward one's buying power, minus the maintenance requirement, which can be sizeable. Now I'm not hurting for cash, but I don't want to put too much of my funds into the Market. Comfort level is a big thing.
I'm doing ok in picking stocks so far. I've made about 25% on tech stocks in six months, primarily on Google, but also "boring" chip stocks Intel and AMD. I cashed out my original investment in Google and so everything I own now is just extra. Intel I bought at $20, since appreciating 15%. AMD I bought at $15, since appreciating 17%. If one's familiar with the industry, it's easier than picking based on fundamental analysis alone.
Google is scary, though. The IPO price was $85, then rising immediately to $100 and taking off from there. I got in at around $102, and I'm kicking myself that I didn't buy twice as much as I did. It's not often that one gets the chance to double their money in 3 months, but of course it's easy to post-mortem one's past decisions. Anyway, at the time, some analysts had price targets for $135 (the original IPO asking price), and some optimists had targets at $160. Then as Google's stock price started climbing, all of a sudden the analysts started getting more bullish. Imagine that! Sounds like the mentality that led so many investors astray during the Dot-Com bubble. This is a concept that so many investors don't get—the Market is not rational. Google's P/E ratio is nearly 150. It can't sustain that kind of blue-sky investment forever: Most stable companies are around 20, although higher ratios are common for Net stocks. I don't think Google's worth $210/share, which is why I'm willing to take the risk and short it. Because some emotional investors put so much of their hopes in Google, more rational people can make money coming and going. I would've too, if I had more investment capital. It's true that it takes money to make money.
On the other hand, who knows, maybe there are enough irrational people around to push Google's stock even higher. I'll need to consider that some more. Google's also added some useful tools like Desktop Search, local searches, and Picasa's image organizing software (too bad they don't have a Mac version). Although those are all free, it adds pull to Google's site, further bolstering their core revenue stream. I like Google, which is why I invested in the first place, so I feel guilty about treating them like a cold moneymaking instrument. That's all business is, though, and that's all the concern most shareholders have—which explains the state of Corporate America today. I have to wonder: can a "benevolent" company like Google survive the malevolent environment that surrounds them?
So why haven't I? Lack of funds. Short-selling has to be done in round lots, that is, multiples of 100 shares. $210 x 100 is a big chunk of change. Now in short-selling one borrows the shares, but one has to have equity equaling 25% of the shorted value. With margin trading, one needs 50%, according to Regulation T. The stocks one holds can count toward one's buying power, minus the maintenance requirement, which can be sizeable. Now I'm not hurting for cash, but I don't want to put too much of my funds into the Market. Comfort level is a big thing.
I'm doing ok in picking stocks so far. I've made about 25% on tech stocks in six months, primarily on Google, but also "boring" chip stocks Intel and AMD. I cashed out my original investment in Google and so everything I own now is just extra. Intel I bought at $20, since appreciating 15%. AMD I bought at $15, since appreciating 17%. If one's familiar with the industry, it's easier than picking based on fundamental analysis alone.
Google is scary, though. The IPO price was $85, then rising immediately to $100 and taking off from there. I got in at around $102, and I'm kicking myself that I didn't buy twice as much as I did. It's not often that one gets the chance to double their money in 3 months, but of course it's easy to post-mortem one's past decisions. Anyway, at the time, some analysts had price targets for $135 (the original IPO asking price), and some optimists had targets at $160. Then as Google's stock price started climbing, all of a sudden the analysts started getting more bullish. Imagine that! Sounds like the mentality that led so many investors astray during the Dot-Com bubble. This is a concept that so many investors don't get—the Market is not rational. Google's P/E ratio is nearly 150. It can't sustain that kind of blue-sky investment forever: Most stable companies are around 20, although higher ratios are common for Net stocks. I don't think Google's worth $210/share, which is why I'm willing to take the risk and short it. Because some emotional investors put so much of their hopes in Google, more rational people can make money coming and going. I would've too, if I had more investment capital. It's true that it takes money to make money.
On the other hand, who knows, maybe there are enough irrational people around to push Google's stock even higher. I'll need to consider that some more. Google's also added some useful tools like Desktop Search, local searches, and Picasa's image organizing software (too bad they don't have a Mac version). Although those are all free, it adds pull to Google's site, further bolstering their core revenue stream. I like Google, which is why I invested in the first place, so I feel guilty about treating them like a cold moneymaking instrument. That's all business is, though, and that's all the concern most shareholders have—which explains the state of Corporate America today. I have to wonder: can a "benevolent" company like Google survive the malevolent environment that surrounds them?
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