MorningWord 2/11/16 – Pundit Abundance

by Dan February 11, 2016 9:45 am • Commentary

News Flash. Not everyone you see talking about stocks or the markets on TV or the social web is the next coming of Warren Buffet. Yes, they often have an unwavering confidence in their market views and their ability to talk over the guy making the opposing case. But that’s a different skill set entirely. Isn’t it?

Everyone who invests/trades in financial markets has good patches and bad patches. The good patches are rarely because they are geniuses. And a lot of times they outsmart themselves anyway. Things look easy when risk assets go up. But risk assets don’t always go up and professional investors (just like retail investors) frequently make things harder than they need to be, often at inflection points.

Prior to 2009, when I started squawking about stocks & options on CNBC, I had little clue what went on with retail investors. As a trader at hedge funds and at a large bank, I lived an insular professional world amidst large institutions. So since launching RiskReversal in 2011 it’s been a sincere pleasure to interact with retail investors, I swear to you I learn as much from you as you do from me from our correspondence.

I want to share with you an exchange I had this morning, where a gentleman forwarded an email conversation that he and I had three years ago on Facebook (FB), when the stock was $30, (up from its recent lows of $17.50 at the time). Spoiler alert, he was bullish and I was cautious. From 2013:

On Jan 25, 2013, at 7:54 PM, Bill wrote:

Dan – Enjoy your work. Understand why you don’t like company now but in 7 – 10 yrs could be huge. Over a billion users must be worth something. CEO reminds me of a Jobs or Gates early on. Just curious. I own it at $29. Thx.

My response:

On Jan 30, 2013, at 5:50 AM, “Dan Nathan” wrote:

Hi Bill. Thanks for the email. I agree it definitely could be huge in 7-10, but I suspect more like a utility that people aren’t willing to pay much for. I don’t use it and never will, I doubt my 7&9 yr old daughters ever will, there will be something cooler soon enough. I think they are saturated in North America and they better find stickier ways to monetize existing user base, which I suspect they will, but how much are investors willing to pay for uncertain growth. I guess the real story will be geographic expansion in China, India where there are hundreds of millions of people yet to discover fb. I am probably being short sighted but The current business model seems dated and challenged. They should buy twitter ASAP for real time search and look for ways to integrate the 2 networks. Oh, i think steve jobs had more talent in his left pinky than Zuck’s entirety. Maybe he is gates-esque but certainly no bezos. One man’s opinion. Thnx for your thoughts.

This morning Bill sent me an email with the prior correspondence attached. Bill had a nice comment about me and the show, so he was not emailing to gloat on his success in Facebook, and I appreciate that. But as always, his email got me thinking again about the company, both as a market professional and as a father and consumer. Here was my response:

WOW Bill that is a blast from the past. First things first, nice job regarding FB. its interesting to note that when you emailed me the stock had rallied 70% from its lows, so it was far from a no brainier, so props to you with the stock now up 200% from there. What’s interesting to me about our conversation is that my daughters still dont use FB’s core offering, they do use Instagram, but what’s an ad on a 4 inch screen to a 10 & 12 year old with no purchasing power. Oh and they have yet to make inroads in China and India has been slow with less than 150 million users, less than 10% of their mau’s (and see the recent block of FB Free Basics in the country). but I guess the point is, you were right about all your points three years ago. the main take-away is simple, no matter who you are, and where you come from your investment views for you own portfolio are more important than some opinionated dope on tv or the web!

The last part is the most important point. Your views on stocks, markets, on anything really are more valid than anything you hear or read from a so called expert. That’s for one main reason, you are the only one who can stress test your thesis based on your own risk tolerance and time horizon.

I opine on a lot of stocks and do a lot of work on them. I have opinions long term and short term. And may even have positions in that stock (usually short term). But most importantly I have made it my business to have opinions on stocks and markets and have to cover a lot of ground. Just because I or others opine on a particular company or asset class does not make it an investment strategy for someone at home who has real confidence or doubts about that company or asset long term.

And while you are stress testing your portfolio and the advice you use as inputs for your investment process, test the credibility of the pundits you listen to, there are so many phonies out there. They’re usually the ones that are never wrong or have set themselves to only be wrong when everyone else is as well. More on this topic:

MorningWord 1/7/16: These Aren’t the Pundits You’re Looking For

Lastly, thanks to Bill for reaching out both then and now, and keeping it real.