RANDOM MUSINGS OF A PROLIFIC NATURE
I haven't been doing much other than reading during the trading hours as of late. This isn't a market I have an interest in participating in for a variety of reasons that I have done my best to outline here over the past several weeks. I'm still sitting in a net neutral position, which means I don't really have to participate in the market until I lift my hedges. That is IF everything goes according to plan. Hedging is more an art than science. Chaos can and will appear when you least expect it.
I have actually been increasing my exposure to WMIH this week. It is the only stock I am absolutely comfortable holding here since it has no correlation to the general averages, no business model to rely on for revenues and is essentially a shell until the board, along with Blackstone, figure out how to capitalize the company in an effort to utilize the NOLs. My research report on the company is here.
The general market isn't really "investable" here. It will, more or less, be a mess of volatility for weeks, possibly months to come. It is the type of environment where the best you will be able to hope for is a tendency towards consistency of the unchanged variety. Consistent upside is virtually out of the question. Consistent downside is a significant possibility. When the best case scenario consists of hoping for an unchanged outcome, I would rather participate in cash as an investment, as I have done to a great extent in the portfolios during October.
I don't think that enough attention is paid to the maintenance of emotional equilibrium for investors. Once you have been involved long enough, you will begin to discover what it is that takes you out of your equilibrium. This is, perhaps, one of the most important discoveries an investor can make, as it determines the structure of their investment philosophy going forward. There are those who will never discover this key concept, trapping themselves inside the spiked walls of purgatory within the financial markets for the remainder of their existence.
There are also those who will simply ignore what they feel to the detriment of their pocketbook. You cannot be what you are not in the markets. It creates a hole that will always be susceptible to anomalous periods that will end up dissolving your strategy into acid. The goal is to have no holes. Plug them before they eat you.
I was very impressed with FB earnings after the close today. You have to commend the company for so quickly adapting a mobile strategy, creating revenues that are already up to $1 billion in just two quarters. This is without utilizing Instagram within that strategy, a website that now sees more engagement than Facebook according to Zuckerberg. I believe Facebook is a tremendous long-term opportunity and will be one of the leaders in the technology space over the next decade.
There is no other website that is as much a destination as Facebook. Entire populations in less developed parts of the world are demanding internet access not to Google the origin of the local population of monkeys, but to go onto Facebook and connect. People long for connection and discovery. Facebook is the destination for humans to connect and discover what it is their friends, strangers and others are doing.
It is a company that is in its infancy within the technology cycle, yet it already has 1 billion users. These are 1 billion users that Facebook is intimately familiar with. As their mobile strategy becomes more pronounced so will their ability to gain users, as every man, woman and child in the world wants or already has a cell phone.
I believe the upside is untapped and impossible to imagine. Simply dismissing the company as overvalued based on traditional company metrics is similar to what AMZN, YHOO and even GOOG faced in their first year as public companies. If you haven't already read it, my article on the similarities between FB and YHOO IPOs is here. I expect that FB will have an outstanding 2013 and expect it to be above 100 within the next couple of years.
As always I continue scouring the landscape for new small-cap investment candidates. Although if I did discover any, I wouldn't necessarily take a position as of yet due to the market environment. The search has yielded one impressive opportunity that I am keeping on ice for the time being. It is a under-valued asset play within a company that is in a relatively unique niche. No debt, lots of cash, earnings powers and a recent restructuring. All of the attributes I like in an investment. I will be publishing a report on it within the next couple of months.
Don't over-think this market. It is nothing that deserves your time and energy at this very moment.
