Columns · investing

Buy the “Wrong” Stock, Hit the Jackpot

I wrote about the phenomenon of tech stock doppelgängers showering riches on people who can act quickly, but mostly parting fools from their money.

Zoom Technologies is carrying on a long American tradition: making people rich by accident.

Not to be confused with Zoom Video Communications, a unicorn that went public in April, making its backers truly wealthy, the similarly named penny stock appears to have benefited from mistaken identity. A $1,000 investment in late March would have been worth over half a million dollars by mid-April. Even now, assuming one were able to find a buyer, it would be worth $175,000.

Zoom joins the likes of doppelgangers Tweeter and Snap Interactive. Similarly confusing episodes happened in the last tech bull market. For example, penny stock Appian Technology surged by nearly 19,000% because it shared a ticker with a hot initial public offering on Nasdaq, AppNet, in 1999.

Of course all of these scenarios enriched people already owning the shares of the “wrong” company, and only if they acted quickly. Buyers fooled by similar names or tickers usually regret it. Not always, though. Mistaken buyers of food company Sysco back in March 2000—when red-hot Cisco Systems briefly the world’s most valuable company—have made 571% since then compared with a loss of 12% by owning the “correct” stock.

investing

Is Crypto Ready for Stephen Moore?

If you can’t beat’ em, join ‘em. And if you can’t join ‘em?

Pundit Stephen Moore withdrew last month from consideration for a position on the Federal Reserve Board. Now he is joining a group that wants to “perform Fed-like duties,” but not for traditional money. He will, according to Fox Business, join Decentral, which aspires to be “the world’s decentralized central bank,” performing a stabilizing role for cryptocurrency.

This raises a few questions. Bitcoin, the most valuable cryptocurrency, is hugely volatile in dollar terms, but its supply is famously limited by design. Its appeal lies in the lack of a central bank.

But supposing Mr. Moore’s outfit were able to stabilize values, would it be hawkish or dovish? Back when Barack Obama sat in the White House, Mr. Moore decried the Fed’s “easy money policy” as the recipe for the next crisis and advocated a return to the gold standard. When he was hoping to be nominated by Donald Trump, though, he advocated cutting rates by half.

Crypto investors eager to see their purchasing power maintained would prefer the 2015 version of Stephen Moore.

Columns · investing · journalism

In a galaxy far, far, away

The column I edit, Heard on the Street, has to find one mildly ridiculous business story for each issue of the paper, in addition to all the serious, analytical stuff. This usually isn’t a challenge, though there are occasional droughts when we have to dig deep.

Thank goodness for people like Patrick Byrne, CEO of Overstock.com. He is a gift to seekers of corporate hilarity and I was a bit mean to him today.


Patrick Byrne felt a great disturbance among his shareholders, as if millions of voices suddenly cried out for an explanation. This compelled the chief executive officer of Overstock.com to write one of the more bizarre news releases in recent memory about his reasons for selling 900,000 “founder’s shares” of the retailer.
“Frankly, I had no idea that shareholders would demand explanations of why and how I might want to use my cash derived from my labor and my property to pursue my ends in life,” he wrote.
Mr. Byrne detailed a number of personal projects, including charitable causes, for which he needed the cash. Even after all these years, he is most famous for a different rant about an alleged conspiracy to damage Overstock’s share price involving a “Sith Lord.” Mr. Byrne backed efforts to expose and punish allegedly manipulative short sellers.


Despite some spikes in the share price, the short sellers were basically right. Since the 2005 “Sith Lord” speech, the stock has dropped by 77% compared with a 133% gain for the S&P 500.
Perhaps Mr. Byrne should have directed more energy to running the company. Do or do not. There is no try.

Columns · investing · journalism

Making Monkeys out of Hedge Fund Stars

The darts don’t lie

So we decided a year ago to poke some fun at the masters of the universe who unveil their stock picks each year at the Sohn Investment Conference . My team and I decided to throw darts at stock listings and see how things panned out. It was a blowout.


No animals were harmed in this financial experiment, but some human egos were bruised.
Burton Malkiel famously wrote in “A Random Walk Down Wall Street” that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by the experts.” A year ago the journalists at Heard on the Street decided to see if they could beat the crème de la crème—fund managers presenting their stock picks at the annual Sohn Conference in New York.
The results were brutal. Heard columnists, not monkeys, threw the darts at newspaper stock listings, but Mr. Malkiel would still approve. The columnists’ eight long and two short picks beat the pros’ selections by a stinging 27 percentage points in the year through April 22. Only 3 of 12 of the Sohn picks even outperformed the S&P 500.

investing · The book

Markets Have Reached Peak Consonant

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We’ve hit peak consonant and that has me worried about the stock market.

There’s a difference between being an investor and a speculator. I advise readers to stick to the former in my book and to keep it simple. But I also point out that the awful performance of most ordinary savers has a flip side since the markets are a zero sum game. Aside from fees, which are considerable and keep many fund managers and advisers in fine fettle, a small number of speculators reap the rewards of outwitting a large number of suckers. When you zig they often zag. if you want to be one of those guys or girls who can sniff out opportunity or danger and profit from it then you have to be able to read the writing on the wall. I think I just saw it.

The trend of naming companies and products with few or no vowels seems to have peaked. The shuttered burger store pictured above, which I walked by yesterday on Broadway,  is exhibit A. Why on earth would this matter, though? Names are just names, after all, and the likes of Flickr, Scribd, or Unbxd are mostly private companies or, like Tumblr,  divisions of public ones with other activities.

Ah, but trendy names have been a recurring sign of danger in markets. Back in the early 1960s there were the “tronics.” Any company associated with space or electronics did marvelously for a while as the government poured cash into the Space Race. Burton Malkiel writes about a company that sold records door-to-door and changed its name to Space Tone. It saw its stock rise sevenfold in a short period. This sort of irrationality signaled not only a bubble for those particular companies but the beginning of the end of the Kennedy Bull Market.

Years later, most of us were in the market already during the granddaddy of them all when hundreds of companies with a dot-com in their names achieved lofty valuations. We all know how that ended.

In fact it seems that, even outside of a bubble, avoiding companies with exciting names is smart. The great investor Peter Lynch wrote in One Up On Wall Street, the first book I ever read about investing, that “a flashy name in a mediocre company attracts investors and gives them a false sense of security,” and he warned against buying stocks that have an x in their name.

I decided to test this out for an article I wrote for the Financial Times back in 2010 and found 109 companies in the Wilshire 5000 that began or ended with an ‘x.’ They were, in fact, more expensive, far more volatile, and less likely to be profitable. In a stock picking game I’ve been playing for several years I’ve blindly shorted such stocks and made decent returns doing so. ‘Q’ is just as bad.

So back to the vowel-less companies. Is it a case of what’s old is new again? The Semitic languages, including modern Hebrew and Arabic, had some of the first alphabets and are written mostly without vowels. When I went to Hebrew school they were written in but are considered training wheels in modern Hebrew, much to my confusion in Israel.

That’s not the case here. There is no convenience factor as with those scripts, just a hipness quotient. My former colleague John Carney once made up a fake company called Grindr that would grind down your enemies, but it turns out someone grabbed the name to start a gay dating app. I considered grabbing the url for Tstr, perhaps to launch a grilled cheese company, but it already was  claimed by “Tacoma & Seattle Trailer Repair.” Darn.

Anyway, the moment has passed and you’ve been warned. The stock market as a whole is at the 96th percentile of all observations in 135 years based on the Shiller P/E ratio and companies like Tesla with no earnings or free cash flow are worth multiples of established competitors many times their size. Put “cloud” in front of a product and you can command double the multiple. I can go on and on.

Watch out below – srsly.

investing · The book

The Warren Buffett Argument

The Wall Street Journal is running a smart series this week, pegged to the 40th anniversary of the first index mutual fund, on the merits of passive investing. The editors asked me if there were any arguments for why active managers, despite their awful relative performance, are worth it. I came up with three arguments, the most convincing of which readers of my book will be familiar with: “Warren Buffett.”

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