Friday, October 10, 2008

Potter Isn’t Buying. He Can’t.


Don’t you see what’s happening? Potter isn’t selling. Potter’s buying! And why? Because we’re panicky and he’s not.

—Jimmy Stewart as George Bailey, It’s a Wonderful Life



The last two weeks have seen near endless speculation on when, precisely, the bottom of this crash will have been seen—so that investors can start to buy.

Gray-hairs who’ve actually been through real crashes—1987, for example—understand that so long as television talking heads are still asking if it is time to buy, then whatever we’ve been through that day didn’t amount to a seller-clearing, bottom-creating panic.

It’s when everybody is too scared to buy—and we mean everybody, including smart-alack blog writers—that the opportunity has come.

And one of the hallmarks of just such a crash is forced selling—the kind of “automatic, involuntary selling” of stocks that has occurred in Boston Scientific in recent days.

Seems stock belonging to the cofounders of the upstart stent-maker and top-tick buyer of Guidant, known as “Boston Sci” on Wall Street, was sold out in recent days owing to the shares having been put up as collateral for loans. Quite a lot of stock in fact: 13 million shares worth.

And it’s not just wealthy founders of medical device companies who’ve been forced to sell when they might have wanted to start buying.

We noticed sales hitting the tape in recent days by the executive officers of other, less high- profile companies, and have learned that in more than one case the sales were due to margin calls.

And it exactly this kind of the forced liquidation of securities that creates the kind of fear-inducing, but ultimately seller-clearing crashes, that all the talking heads seem to so earnestly want.

Even Potter, it seems, isn’t buying right now: he can’t.

Potter has a margin call.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

10 comments:

Namazu said...

Significant shares of BRKA and BRKB puked up at a 20% discount in early trading, I'd guess via market orders. Capitulation?

Anonymous said...

"owing to the shares having been put up as collateral for loans."

who put these up as collateral? boston sci? or is this part of the dirrivitives scam? where someone else is betting against these companies and now the chickens came home to rost?

whydibuy said...

This animal is totally different than ’87 or 91 or even ’98. All those Mini plunges exhausted themselves rather quickly and in both ’87 and ’98, the market finished the year positive.

This forced selling of everything from junk to Berkshire and utilities, has the feel of a giant derivatives pac man eating all the capital in the market. And if these murky derivatives are as large as bears say ( 10s of trillions ) it could get even worse by a margin of double. Dow 4000 from a historical level really is not that out of the realm of possibility.


Jim Jubak feels that hedge funds raising cash for redemptions started the rout but I think its really cash calls for exercised derivatives. All those insurance policies they wrote ( derivatives ) are now demanding payoff. And now j6p is now panicking in the mutual arena. Historical times. The 1929 of our times.

Anonymous said...

Jeff,
Any good ideas on where individual investors can find information about companies trading at a discount to intrinsic value? I'd like to find a source that is calculating DCF values on conservative estimates for stocks so that I can find stocks that are truly trading a discount to their value.
Any thoughts?

TM said...

Slightly off topic, but in the "clear signs of top" category, how about T. Boone Pickens and his top-ticking book?

Anonymous said...

I remember hearing stories of the old timers in the great depression. They would buy stock after the crash, etc and later find that instead of rallying....stocks just got cheaper and cheaper.

Also read a good piece in NYSSA's value investing archive of how investors were buying stocks in the early 1970's at 10x earnings and watching them go to 3-6x earnings. Ouch.

Market looks very cheap, but I can't help but wonder if we don't see it get "once in a generation" cheap.

whydibuy said...

Wow, speaking of forced sales, Chesapeake Energy ( CHK ) ceo Aubrey K. McClendon was forced to sell substantially all his holdings due to the financial panic of the last few weeks. I believe this guy made the Forbes 400 earlier this year.

jb said...

Also:
Chesapeake CEO , Aubrey McClendon Sold `All' Stock to Meet Margin Calls

McClendon, 49, owned 33.5 million shares, or 5.8 percent of the company's common stock, according to a Sept. 30 filing with the U.S. Securities and Exchange Commission. He was the company's third-largest shareholder.

``You have to imagine Aubrey's lost a large portion of his fortune,'' Benjamin Dell, an analyst at Sanford C. Bernstein & Co., said today in a telephone interview

Anonymous said...

"smart alack"

The original term, "smart aleck," has been linked to a pimp and thief from the 1840's named Aleck Hoag.

barrypopik.com
"It wasn't simply that he was a celebrated thief but that with some too-clever-by-half methods he tried to welsh on his graft commitments to the NYC police"

Lyon Jewett said...

But the Feds are....