MorningWord 2/26/15: $CRM – It’s All in the Game

by Dan February 26, 2015 9:39 am • Commentary

If you are reading this post then it is a safe assumption that you consider yourself a sort of DIYer market participant. You probably direct a bit of your free time on a segregated part of your invest-able assets with the intent of identifying inflection points in individual securities. From my own experience I can also assume that this is not a “get rich quick” scheme but you do it because it is a challenge, and its as good of a hobby as any.  Some people knit, play Halo, fantasy football or blackjack, others run ultra marathons. But you have chosen a hobby that is likely to be an impossible task to outperform the broad indices with any level of consistency over a long period of time.  But it’s all in the game right?

I guess my point is simple, punting in the financial markets for most at home should be considered nothing more than a hobby with assets you are willing to lose at the poker tables in Vegas, or the Fabric Barn at your local mall.   Why? Because trading is hard, and those that do outperform on a consistent basis spend a considerable amount of time and resources to do so, and from my experience the best have a sort of midas touch that they are just born with.  I have worked for some of these people.

So trading is hard we can all agree, but it can be fun, and as long as you have defined your risk parameters, and you live by them, it’s as good as hobby as I can find, and likely to be a lot more intellectually stimulating than most. For those of us who have been doing this a long time we tend to make things harder than they have to be, using untold amount of inputs to evaluate a specific story or trade set up.  Sometimes in hindsight trades can be very simple.

For instance, on Monday I took a look at the trade set-up into CRM’s Q4 print last night (Name That Trade – CRM: Benioff To Never Never Land) and concluded the following after ripping through a handful of inputs that included valuation, fundamentals, technicals and recent options activity:

I will add one more observation. It was widely reported in the press (here) and on CEO Mark Benioff’s Twitter feed (here) that Metallica played at CRM’s employee “Kick Off” party, which sounds like a belated holiday party. I am hard-pressed to see the company have such a high profile event and then lay an egg on current quarter guidance… just saying.

To be fair one of my smartest friends in the business, who cares little about company fundamentals made this observation to me. This individual only cares about how a stock’s options are priced relative to what he think the should be. But when he highlighted this fact it seemed pretty obvious to me that the company, by booking this band for close to $1 million, well before the company would know the quarter just reported results, would be INSANE to go public with it if they had any sense that they were about to lay an egg with the quarter or guidance.  I did not place a trade in CRM prior to earnings (the stock has broken out to new highs, up more than 10% in the pre-market), as this input merely neutralized other inputs that might have had me considering a short biased trade based on such mundane things as valuation.

Sometimes we make this a lot harder than it has to be.