If you think I spend all my time looking for new and exciting startups to invest in because of their unusually large upside, you’re right.
I’ve made no secret of my admiration for the startup space. The best of these companies can generate investor profits of between 5X and 100X and sometimes even more than that.
That’s pretty hard to beat. But it’s not the only reason I play in the startup sandlot.
In the age of social media, instant analysis and self-promotion, I like the “quiet” surrounding these small companies.
No hype… no media mobs… no talking heads filling your brain with information ranging from the superficial to the just plain wrong.
So much white noise… and so little truly revealing information… I hated it then and I hate it now.
It’s one of the big reasons I was drawn to an investing space where the vast majority of my research is my very own analysis of the metrics, technology, market and leadership team.
I don’t even have to tune out the media these days. The noise goes in one ear and out the other.
So, Jim Cramer, do your “booyah” thing. You’ve never opined on any of my startup holdings, and you never will (unless they go public, at which point we will have already made a small fortune on the company)…
George, Jim and John (Soros, Chanos and Paulson, respectively), I don’t know your latest pronouncements and don’t care.
You should try it. Ignoring the white noise is one way to maintain your sanity and make better investment decisions.
I found a much better way…
I’ve used these “instant experts” to my distinct advantage. It isn’t that hard. I basically draw on three strategies…
Profiting From One-Off Events (and PR Nightmares)
My go-to example is BP’s Deepwater Horizon oil spill. It was a tragic occurrence, with lost lives and grave environmental damage. BP was the subject of unflattering news articles for months – fully deserved, by the way – that immediately drove its price down and then prevented any kind of rebound.
And, no, I did not do so furtively. I urged anybody who asked me to invest. Most of them didn’t (including my wife). They found the company too “morally repugnant” or “undeserving of their money.”
Listen, I understood. Some equate their investments with making moral judgments. I don’t, but that’s me. I give voice to what I see as good buying opportunities. I can’t help it. It’s in my DNA.
I thought the overreaction among sellers would eventually fade and give way to an upswing. I was right. BP never again reached the highs of its pre-Gulf oil spill, but it remains 60% higher than the price it dropped down to in the aftermath of the spill.
Tracking Brokers’ Buys and Sells
When a solid company goes through a rough time (and gets bad press), I time my investments with a buys vs. sells “signal.”
It’s not what you think. I don’t wait for buys to outnumber sells. Sort of the opposite. I wait for sells to vastly outnumber buys… to the point where 99% of all the sells are already on the table.
In other words, the only way to go forward is for buys to increase and sells to decrease. New buy calls are bullish and can signal a turnaround, especially when the number of buys doubles or triples.
This happens only when sells have peaked and buys are nowhere to be found.
Riding on a Fundamental Misreading of the Market
A great recent example is Amazon buying PillPack for $1 billion. It got rave reviews based on a fundamental misreading of where the pharmaceutical delivery space is headed.
Bottom line: Amazon bought a company whose bright future had come and gone. (Read everything the financial press got wrong in my July 4 article right here.) I loved it…
When you’re on the “wrong” side of a popularity contest, there is serious money to be made (if you’re right, of course).
Co-Founder, Early Investing