Friday, August 5, 2011

The Insanity That Is Market Volatility.

The recent turbulence in the financial markets has spurred a lot of people to thinking and saying a lot of different things about stocks... Certainly, the downturn of a market often sinks the price of all stocks-regardless of quality. Value stocks often have a sick way of becoming more of a value.

This has made a lot of investors move to cash, which seems to further the problem of a falling market.

However, every security that I own could likely liquidate, even in a bad market, for more than it is trading at. They generally sit on a glut of cash (so, I don't really feel like I have to, since I essentially own said cash), they generally earn or are getting ready to earn a nice bit of money, AND they will likely be able to weather most any storm that comes their way.

So, this leads me to the question: "Am I going to sell off any of my significantly undervalued dollar bills, in the hopes of buying them back at cheaper prices?"

Unless I have a better place to put the money, my answer is "Hell no!". I certainly don't have any way of saying with any authority or accuracy that I know how the stock market will preform... What I do know is this: the analysis I have made of the situation of each of my owned securities is an analysis that I am comfortable with, regardless of the price that Mr. Market offers me for my stocks. Furthermore, a few percentage points difference in the price of the Dow does little to effect my mood.

As such is the case, I will likely re-allocate funds from other areas (such as my rental business) to these and other stocks that I watch. This is especially true if their price/intrinsic value gets deeper into the levels that already make me froth at the mouth.

The prospects for Nevada Gold alone, nearly numbs me (in a good way!). In light of the fact that at last reporting of results for the state of Washington, well over 1/2 of the card rooms in the state lost money, there will likely be further industry consolidation. Due to the set up and discipline of Nevada Gold, the industry could consolidate right into their arms... Which would be freakishly profitable for the company.

While I don't think that the company is fairly valued, let's assume it is, and base that assumtion on the earnings that they just posted. Going forward, if they manage to get juice just a single million dollars in additional earnings out of their 10 card rooms (which seem to have a lot of room to run), casino, or buy it via acquisition (how the company is, and has been growing), and then assign a 1o multiple to it, that is essentially a 50% increase in the market value of the company. This doesn't even begin to value any future management contracts, mega acquisition, or their development project (all of which, they talk about in in their conference calls). For me, this is not a bad way to place a bet, especially when the markets are going to shit...

EDIT @ 2:08 PM: When writing this, I walked off for a little bit, and didn't check out the gyrations of the stock market... Apparently, it went from being nicely down, to being marginally up, in a matter of just a few hours. Go figure. It just highlights my point that market volatility is a crazy thing!

Disclosure: I am long shares of IBAL.OB, UWN, SYMS, and SYTE.OB (all of which, I linked to various write ups of). This is not advice of any kind. This is not a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.


3 comments:

Taylor Conant said...

Jeff,

I see a lot of value investors trying to get tricky here and make hot-shot calls like they're suddenly talented macro traders.

I am glad you are resisting that temptation. I also think many value investors are displaying Buffet-inspired hubris. Everyone is trotting out the "be greedy when fearful" quote and trying to smartly call this nothing but a panicky sell-off.

The question is not "is the market cheap/oversold?" that value investors should be trying to answer. The question is "Are companies I know and understand cheap/oversold and if so, does this mean I can buy them with sufficient margin of safety?"

Everyone is showing their bullish biases or their economic ignorance here. How many have priced a depression into their models? They're all starting to sound like Barton Biggs and Laszlo Birinyi of the "with my last dying breath I'd shout 'BUY THE DIP!'" school of perma-bull, go America! "investing."

My rapidly depreciating two cents. Thanks for letting me rant.

Anonymous said...

Bravo.

Always good to get a shot of confidence when all the headlines scream of the end of the world.

jeff said...

Taylor, feel free to rant any time you want. :)