March 16, 2008
Shining a Light On…
“Research”
The Most Over-Rated, Most Dangerous
Word In The English Language.
Revealed…3 Ugly Stains On the Time-Honored
Conventional Wisdom Of “Doing Research” –
Don’t Make Another Move Until You Read This Rapscallion Report!
“Do your research” – that phrase is as plain to investors as jelly is to the PB & J sandwich.
You hear it all the time. “Did you do your research?” As if THIS is the money-maker behind all successful trades and investments.
But what does it really mean?
In this week’s Rapscallion Report I weigh in on the farce that is “research” and show you what to be focused on instead.
Let me start off with a very recent example:
Microsoft recently spent $240 million to buy 1.6% of “Facebook.com”. If you know anything about Facebook, it was started 4 years ago by a peach-fuzz faced college student.
And no…that wasn’t a mis-print…Microsoft actually paid $240 million for a 1.6% stake of the company!
Facebook.com is like MySpace.com – both are leaders of the newest trend on the internet called “social networking” and “Web 2.0”.
Microsoft also paid close to $800 million for the right to advertise on MySpace.com. (not to advertise…for the RIGHT to advertise!)
Basically over the past year, Microsoft has shelled out ONE billion dollars to get involved in the “social networking” scene.
Spending a billion dollars probably meant that Microsoft did extensive research – likely multiple layers of research with multiple departments involved.
The point is…
According to recent industry reports, Microsoft is finding out the “traffic” from these sites aren’t clicking on the ads like they’d hoped. In fact, not even close.
But they sure did their research!
And that’s the first farce:
Farce #1 – The World Is Too Complex And Is Moving Waaay Too Fast To Depend On What You Think Is “Good Research”
When cellphones were multiplying like rabbits…no one could have conceived that the hottest trends in cellphones were going to be:
a) the
sound they made when they rang (ring tones), and
b) snapping cheap, grainy pictures (when digital cameras took 1,000% better
pictures)
Now without this turning into 100 pages long, let me be abruptly brief: technology is exploding in a limitless number of directions…which is creating brand new opportunities in an un-predictable number of combinations.
This has formed new industries and sub-sets of industries right before our eyes!
To try and pretend you can hold this in your hand or do “research” using past measures to try and figure this out is a fool’s errand!
Which leads me to…
Farce #2. Most investors rely on “research” sourced to scum-sucking Wall Street analysts with an inherent conflict of interest.
You’ve probably already heard me rail on the “analyst cartel” or how I refer to them as financial terrorists.
Bottom line is…analyst research is one of the main stumbling blocks for individual investors. Their version of research is known as “sell side research”. This is the kind of research that is slanted and packaged so as to “sell” the public on their investments.
What’s especially deceiving is the analysts’ names are listed right there in conjunction with the major names on Wall Street. They sound legit and smarter than you, they’re always in front of the media and high-powered financial publications…so how could you go against the “research” they are saying about this stock or that?
It’s the basic con that’s gone on since the very beginning.
Here you have “research” (that’s dubious all by itself)…and then the cherry on top is you have research produced by the enemy! A double whammy!
Which leads me to Farce #3…
Harken unto me.
The first two farce’s of “research” are undeniable and proven:
Farce
#1 – Things are moving way too fast out there today, and
Farce #2 – Analyst are corrupt and issue their version of “research” like a
drumbeat to the investing public.
But the third is as powerful as the first two – it’s just that there’s no way I can prove it conclusively…
Here it is,
Farce #3 – I wager that most people, organizations, companies, committees, etc. already have picked out what they want to do…then do “research” that backs up what they’ve already decided to do.
As investors, it’s easy to play tricks on ourselves. I mean there’s no shortage of voices and noise out there telling us what stocks to look at, what to think about this or that, etc.
sMy point is, it’s easy to come to a conclusion that a certain stock is a good buy. All I’m saying is be careful of what kind of “research” you do at this point.
The tendency is to do the research that backs up your decision!
Why do I think most research is this way? I think it’s to escape blame.
Let’s face it…it’s hard to blame yourself when things don’t work out. It’s much, much easier to say to yourself…”but I did my research, so it’s not my fault!”
Now, I promised after getting done with these rants about research I’d tell you what to focus on instead. So here goes.
What to focus on instead…
Stocks over $15 a share.
Stocks that issue sudden upward guidance to their earnings per share or revenue picture over the next quarter to one year. And more importantly, price action and volume prove that people are rushing in to get in on the action.
Stocks making new highs after not having done so for 2 months, 3, 4, 5 or even 6 months.
Stocks that go through the stock split process.
Stocks that are moving fast and furiously out of the gate of their IPO.
Stocks that cover a hell of a lot of ground very quickly… and then crack and start to fall down. (for a downside opportunity)
In fact, if you want to read a true classic – one that will take “research” and put it in its place, go out and get: “How I Made $2 Million in the Stock Market” by Nicholas Darvas.
It’s a page turner – the only book I find myself re-reading about twice every year. One read through it and you’ll never look at “research” the same.
Well, there you have it!
I hope this weeks installment finds you well.
Your for more profits more often,
--Preston James
