Wednesday, August 26, 2009

Give Me Fear and Loathing

A lot of rickety boats are floating on the market’s rising tide. I don't make predictions on overall market direction, but the volume of good ideas crossing my desk has fallen.

Everything has run up. The good (have I mentioned Ternium or Dr Pepper lately), the bad, and the downright ugly. Just look at Freddie Mac, Fannie Mae, and AIG. Does anyone really believe there is any equity value in these "companies" aka government subsidiaries?

And how about Motors Liquidation Corp, the hollowed out company that contains what's left of the old General Motors? It continues to trade at around $0.88 a share. This translates into a $500 million market value. The company's so-called assets are the one's nobody wanted to buy, a golf course in Detroit and maybe a parking lot. The company's liabilities are in the hundreds of billions of dollars. That better be one nice golf course.

This company is bankrupt! The shares are worthless, yet people keep trading them around. What are they thinking? See madness on display. The ticker is MTLQQ.

I am reminded of a James Grant column entitled "When to Buy, When to Sell, from the November 24, 2003 of Forbes. In it, Mr. Grant encapsulated his value investing recipe as follows:
Seek out investments that are absolutely cheap, not just "cheap to the market." Hold a cash reserve. Deploy said reserve to buy said bargains.

How to know when an investment is absolutely cheap? You'll buy it with trepidation and then watch it get cheaper. Then buy more.

Who said getting rich was easy?
I don't see much trepidation in this market, do you?

No comments:

Post a Comment