Noise and Crowds…So Costly

Posted by Howard
on September 30th, 2007

Andy’s great post got me thinking again on this subject .

In everyday life, noises and crowds leave you with a headache, bruises and anxiety problems. In the stock market, they force you to miss a trend completely or sell early.

I was looking at two stocks, one I don’t own today Crocs (CROX) and one that I own – Google – and adding up my mistakes. With CROX I was noised out and lazy in my last sells and Google is not a big enough position as much as I have blogged positively about search and Google itself. Ouch.

How wrong were the YouTube haters 180 points ago when Google announced the $1.6 billion acquisition (rhetorical…about $50 billion wrong). For those that use time as a way to bugger out of being wrong, 180 points and $50 billion against you holds no mustard. You are wrong no matter what happens next. You won’t be there for the possible bad ending anyway.

CROX offers more of a lesson to me and hopefully you. I hate focusing on my misses and early sells, but that’s how I learn and use this blog to hopefully stop my mistakes (not going to happen in this lifetime).

CROX has NEVER been cheap. The fundamentals have never blazed ‘all clear’ back up the truck. At this point in the company’s growth cycle, it will never be. If it is, it will likely be a dangerous trap. Stupid, plastic, easy to rip off shoes. Here is a thoughtful September 2006 piece by The Motley Fool on why they are SHORT CROX in the 20′s . The jist:

Fad, insider selling, overvaluation and competition.

Here’s the real problem…if the author had actually tried tried the product and listened to customers in the mall’s and on the web, he would have at least considered it was not a fad. Insider selling is never a great ‘tell’ for direction in the short and immediate term. Countrywide insiders were selling for years before the stock was hit as the most recent example. Overvaluation…OY…in growth stock investing that means nothing for years. Competition is always a valid concern, but one year later, it’s obvious that the competition was/is not an issue.

I have chronicled the CROX story as much as any blogger . Forget, as I had mentioned in my original buy piece and Wallstrip show back in October 2006, that the Motley Fooler did not even have a position. My post focused on price and money flow. It was easily backed up by a quick surf around the web and my own experience.

Crowd investing is comfortable, but weak. Following price and thinking outside the box or not thinking at all with lead to successful trend riding. Noise, comfort and crowds are our enemies.

You SHOULD watch the crowd for their BUYING BEHAVIOR on the web and in the malls, but NEVER LISTEN to that crowd for financial advice. If an investment becomes too comfortable, something is likely wrong.

Money SPENT by the consumers and money FLOW from the institutions is all you need to follow to beat the market. Combine this with money management (the real holy grail) and you will manage billions . On this blog as in my fiancial life I stick to my main money management principle…sell when you can, don’t be a pig and booking profits and paying taxes is fine. Definitely not perfect but it has produced some huge winners and helped me blog responsibly for 2 years now on the subject of trends.

Disclosure – Long Google

PS – I hear from friends of my wife that the ladies CROX Pumps are a huge hit and not available/sold out anywhere/everywhere…even on their great website . Not good for the CROX shorts and there are lot’s of them.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.