This is a fantastic time of year. Not only am I in love with lights and holiday celebrations (the concept of getting together for “cheer” is especially exciting), but as a sports fans the football season closes in on playoff and top bowl games.
ON ESPN, one of the football wagering experts mentioned something that applies both to football and to stocks. He said that if you’re going to actually spend money betting on a game, you’re saying in part that the experts in Las Vegas is wrong.
I think this is the same for stocks.
If you’re going to buy a company with a stock price in the tank, you’re “betting” that the market is wrong about the price.
As an example, with Sony it seems clear to me that the market is correct. Sure, the stock is down from a high over $22, but the North Korea hacking situation is just another in a long line of worries. The company has struggled to control burgeoning costs and to turn a profit. The fact that the stock is still as high as it is now is surprising to me.
You Have To Dig Harder
I’ve detailed in recent posts my penchant for buying stocks when they’re out of favor. Generally, my returns have been S&P 500ish or worse (I don’t mind being beaten by the S&P 500….I worry less about beating the market than I do about consistent, lower risk results in my portfolio. The beta of my Nvestly portfolio is 0.65 and I like it that way….).
Stock’s I’ve Purchased On Sale:
I’ve beaten the S&P 500 when I thought the “line” was wrong on stocks. The “line” is the market price. Generally speaking, the market price is going to be right on a stock. The market will determine what the worth is of a company.
Whether you’re betting online on football or purchasing stocks, you’ll sometimes find opportunities. Here are a few of my biggest “wins”:
BP (ticker BP) I purchased British Petroleum during the Gulf oil spill crisis. I didn’t want to bet on a company creating horrible environmental problems. I wanted to bet on morons who thought BP was going to go under and who sold their shares at a huge loss. I was a willing buyer.
This trade wasn’t as good as it could have been, had I sold BP more quickly and upgraded to a better-run oil company (I recently swapped out BP for Chevron).
Yahoo! (ticker YHOO) had been a mismanaged company for many years before Melissa Mayer took over the helm. Even though there have been several instances where investors have wanted her to move more quickly, the results speak for themselves. I purchased YHOO below $20 a share and the stock has traded as high as $50 recently.
Why’d I buy when the stock was low? I thought the “line” on YHOO was clearly wrong once there was a leadership change. I believed hiring the former Google executive would help the firm realize some of intrinsic value in the Yahoo name.
Carnival Cruise Lines (ticker: CCL) I purchased during the horribly ugly event when their ship limped in to shore, the second big problem cruise in the matter of a couple weeks. I loved this pick up because I was able to purchase a quality company at a discounted price, realizing short term value but then also holding on while they continue to profit.
What Investors Can Learn From Vegas Football Betting
As I look over the schedule of upcoming bowl games, I realize that something else this ESPN analyst said was also right. He said that it’s critical to remember that Las Vegas oddsmakers are correct nearly all of the time, and because of that, you shouldn’t bet on most games. You read that correctly: most of the time you should leave your money in your pocket, or leave it conservatively invested in your long term portfolio.
I think it’s the same with investments, don’t you?
Precious metals is an asset class where it’s better to leave your money alone. Sure, prices are low, and a piece of me agrees with Andrew Chanin, who was recently on our podcast, that silver is an attractive way to play metals currently. However, there seems to be no catalyst in this market . Why would prices change in the silver market? I have no idea. Maybe there IS a reason for prices to rise, but I don’t know what it is.
I really like oil on the other hand, (as you saw on my latest post). While experts say that oil prices could stay low for a long time, historically, oil has moved up sharply when it moves. Getting in early is preferable to missing the boat on another good investment opportunity.
While it isn’t true that you’re betting when investing in the stock market, there are many similarities. We can learn from top Vegas football gamblers: do your homework, carefully deploy funds, and most of the time realize that you aren’t smarter than “the line.”
I really like the perspective you’ve brought with this post and taking an ESPN comment on gambling and applying it to stocks. I guess that’s why so many people are staying away from investing in singular stocks and companies, because how much do you really know about them?
Agreed. Greg mentioned this on our latest podcast: if you don’t have the time to dig in, buy index funds and forget about it.