Baltbear on Finance markets are like marshmallows

i confine the title a little, for the spyders from google.

as noted about fnm…and prudent speculators who followed my thought a bout it made another above buffet roa recently on it…
there a class of equities one can only justly call whore stocks.
if u have the $$ to risk, they can show u a good time, leave u diseased, and aren;t going to be brought home to meet the folks.
they are often “story stocks”–but then so is fnm, the story being “housing makes america great.”
the prudent speculator stays cold enuff to examine the dd of serious money, when that dd is >seeable<
that is, subject to speculation.
i recently saw an article which gave me some dd from some very competent investigators.
here it is:
:”$3 billion for stem cell research, as authorized by California voters in 2004. Of the $1 billion awarded so far, more than a third — $358 million — flows to Bay Area laboratories.”
so: here is an asset pool, $3bb over 3 years. $1bb a year.
the holders of the asset pool get a benefit no matter the play, since the $$ will be spent in california, creating some cash flow from which the state will take a cut, and the state will be fulfilling its underlying contractual obligation of their being a stake from which to take a cut.
that already makes this a rigged game, one which people who are not from california derive no certain benefit. thus, following this play is already less prudent than it is for californians.
but, hypothetically, let’s say you have $30,000 out of ur working capital to put to stem cells. In itself, that should indicate that you have working capital far higher than $30k, since “stem cells” are by no means the only game in town.
let’s go verry speculative fwd thinking, and say ur totally future loaded, with $500k to work.
there’s solar, biofuel, stem cells, “media”, materials science.  that’s 5…so $100k in each.
so, $100k is to $1bb is easily workable.
a lot of cirm’s $$ will go to universities, again because as long as $$ are in motion in this direction, cirm will be a beneficiary. let’s call it 2/3. that further rigs the deck against you, but it is a price of  doing business as a speculator, obligating you to then get ruffly 3x the ror that cirm gets.
so, you might reasonable say that if cirm puts 1% of its funds on a bet in which you can participate, if you put 3% on the same bet.
if cirm says a corp with a publicly tradeable stock gets 1.6% of it’s $$, then u can, after your own dd, say that 5% of your %% is parity…$5,000 in the example being used.
anything above that suggests the hubris that the speculator knows more than cirm does about stem cell possibilities for making $$ flow.  that decision range is utterly imprudent–utterly stupid.
on the other hand, crim does not care at any given moment what is going on.
therefore, one can “dance” with a given stock, in/out, as long as the commitment is no less prudent than cirm’s.
and now u have a playable whore stock.

the next step is to examine where $$$$$ place their dd. that can be read from filings, and expreses as the basis at which financial insiders are in, with whatever yout own voodoo tells you about black-scholes and the actual events transpiring…not the news releases.
if a year ago, insiders were in at a dime, then paying more than $1.20 is bowing the knee to them. if the stock is trading at 2 7/16, one can trade in/out until a basis close to 1 1/4 is in the port.
thinking that you are not entitled to such a basis is just drinking the  kool-aid offered by the cult leaders.
buffet says it’s better to pay a high price for a great company than a low price for a good one.
but then, he’s talking about stocks with actual events, actual; cash flow, actual markets, and not “stories”.

Posted under business

In a recent discussion about some newly issued warrants I had to explain “time value” to  somebody about to be worked over by the bucket shop punks who specialise in pumping the “next big thing.” This year it is tem cells. Next year…who knows? Prudent speculators take risks. They do not however take risks on the promises of ceos, board members, or bulletin board touts. They take their risks on the assets. The assets may be nothing but intellectual property, or a clear road on howe to get some. That’s what makes “story stocks” such an interesting arena. But sooner or later, risk management and reality collide with story-telling. At the point, the road to cash flow, appreciable assets and management style become critical.

As the economy picks up (as i predicted in February, a soft bottom is beginning to form in September) at the same time that credit card defaults are also again on the rise, as banks continue to keep credit tight, i anticipate that “real estate” is going to begin the process of recovering as a speculative sport. It will only be profitable for the bottom feeders. The heroic bottom feeders have been at work for 6 months. Those are the folks who had cash on hand in February and March, and bravely bought those residential properties that looked like they were going to be part of urban war zones. I salute them.

Remember Warren Buffet? Somebody told me there was nothing to learn from him. I laughed, since i recall BOA, and Tino de Angeles. Buffet understand being a prudent speculator, exceopt when he is overly prident, as he admitted a few years ago about selling MCD, because he thought the underlying real estate was being overpriced.

But it;’s a lot better to be wrong about something like that than to be wrong about overvaluing an unexecuted biz plan that depends on leased patents and paint on the tape for success.

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