Buy "Strength", Sell "Weakness"

Ok, for now Kara Swisher gets to laugh. But I'm hoping the old maxim about laughing last holds true. Sadly, when it comes to the stock market it has been said, and correctly that "hope" is just a four letter word.

My 1000 share buy of Yahoo from over a month ago is underwater. While I always looked at this as a 10 year hold, if I look at what's going on in the market right now these are still not great times for Yahoo. Lately it seems, whether the market is up or down, YHOO is down. Today the market is up, YHOO is down. This is not a sign of strength.

Someone much more savvy than I, Mark Pincus is long YHOO @ 23.32 (current price as of this writing = $22.68) and very, very long at $20...

More on AAPL, YHOO and Lunch Money

On Monday I bought another 1000 shares of YHOO in my IRA, but on Tuesday pre-earnings it had run-up a bit in only a day, and I figured unless Yahoo reported something stellar (which didn’t seem likely) it would get smacked by at least the amount it had run-up pre-earnings, so I took my one day profit. The post-earnings smack down did indeed seem to play out, whether that’s on YHOO or the NASDAQ in general, I can’t really say yet. There may be more hell to pay in the market for YHOO, but regardless, I do believe it’s undervalued based on its scale relative to the competition.


Scale has value, and I don’t think this factor is currently anywhere near fully-baked into YHOO’s stock price. I’m hopeful however, it is baked into the way Yahoo will run itself as a business. As I have said, I am looking at this as a 10 year hold.

Psychology is everything when it comes to successful trading. I think I have developed (finally, and before I completely ran out of money) the discipline to not do anything very stupid, but trading-wise in my brokerage account I have really been enamored with the quick trade that makes ~$150 with the risk of losing $100 or so. I’m just trying to get into the habit of making money on my trades. I’ve implemented only one rule: if you made money, don’t second guess yourself at all and the way things have gone with the lunch money trading, I haven’t wound up needing to second guess myself for a couple of months.

Trading is something where you can get immediate results, and then new results, and then 2 minutes later results like “Argh, if I would have held 2 minutes longer I would’ve made another $200!” As long as I made any money, no second guessing. Second guessing is reserved for losing, and while I am particularly adept at second-guessing myself, it's a good rule.

It is interesting for me to see my own difference in psychology with my brokerage account versus my IRA. The main distinguishing factor between the two accounts is with my brokerage account, I look at this as money I kind of sort of need right now, and I do not feel that way about my IRA. So my psychology is actually completely different.

As a trader in my brokerage account I am currently gravitating towards the quick trade that lasts less than 15 minutes total. While I think there are “smarter” things to do, like short-term swing trading (buying and holding, perhaps intra day, perhaps for a few days, but either way much longer than 15 minutes) my psychology seems such that I’m more suited to that in my IRA. Why? Well if YHOO goes down $3 by Friday, I’ll be down over $6000 in my IRA (currently holding 2000 shares 1000@ 27.25 or so, and 1000 @ 26.08) as a result of YHOO, but I will not care. I really do believe YHOO will bounce back and I really am looking at this as a 10 year hold. Short of losing more than a quarter of its worth very swiftly, the day to day machinations of YHOO, even if they result in what looks like $6000 in losses won’t bother me at all.

However, if the same thing happened in my brokerage account, it would get in my head in a very different way. I have two goals here presently: one is to play to my strengths and my own psychology. This means I will probably stick with the lunch money trading (like today’s two 1000 share lots of AAPL that resulted in a gross gain of $180 – but only ~$150 after you factor in fees, commissions, etc) in my brokerage account and play around with swing trading a little bit in my IRA where I have more of a stomach for it). But if the results of swing trading in my IRA are good, I would actually like to change my own psychology to the point where I could make similar trades in my brokerage account Whether or not that is a real possibility or pure folly is unknown to me at this time, but I’m game to collect at least a little bit of data in the name of research.

I have my eye on one stock in particular only because I’ve watched it for about two years now. It’s a pharmaceutical company that has been sort of struggling for the last couple of years. I am big on scale, but I am also big on thinking things that make you think you feel better, or actually do make you feel better and live longer will be…very popular and profitable at least while the baby boomers are still alive. More on this later if I actually pull the trigger on the trade.

Why I just went LONG 1000 YHOO in my IRA

Normally I don't invest, but, I saw an opportunity here.

The main factor I attribute to this buy is the education I have received recently, specifically from Ted Leonsis, though not anything to do with YHOO and GOOG.

There is a dynamic currently in place where things with scale, any scale (and especially some kind of scale with people who have and spend money) are increasing in value even as scale is being reduced. Whether it's ABC, NBC or CBS, or MLB, NBA and NHL, it doesn't matter. "Share" may be going down, but valuations are going up.

I take this to mean that YHOO, even as the #2 has so much scale that unless it completely screws up, ultimately (thinking 5 years) it will appreciate in value considerably even as it loses "share".

Think I'm wrong? Maybe I am, but it's a dynamic that's already in place and one way I can show that is the television Networks. ABC, CBS and NBC lost 2/3rds of their "share" during primetime between 1995-2006 seasons. All 3 combined now have the share they each once had. Even adjusting for inflation, and even though I don't know the specific valuations I'm comfortable thinking the values of these networks has…not decreased.

I suspect the same thing to happen w/Yahoo. But if I'm wrong, I won't blame Ted.

update: think "Lowest Rated NBA Finals in History" matters? Not to the NBA or the networks it doesn't, it just got 20% MORE in revenues...I know it's counter-intuitive at first, but, 20% more is 20% more and there's just no getting around that.

NBA announces extensions of TV deals with ESPN/ABC, TNT
The Associated Press
Article Last Updated: 06/28/2007 01:50:29 AM MDT

NEW YORK - The NBA's new television contracts with ESPN/ABC and TNT include rights to technologies that have yet to be invented, an indication of the importance the deals place on newer forms of media. The eight-year extensions go through the 2015-16 season.

The current six-year contracts expire at the end of next season. ''I consider this to be a wonderful vote of confidence by our very sophisticated network partners who are making such a substantial and long-term commitment,'' NBA commissioner David Stern said. The number of games televised on the networks won't change much. What's different are the extensive rights for the networks to broadcast games and other content on the Web and mobile phones.

The NBA will receive about $930 million a year for all its broadcast rights, an increase of more than 20 percent from the previous average of $767 million, according to a person familiar with the deal who requested anonymity because he wasn't authorized to release details. The previous contracts, though, did not include the extensive digital media rights. Stern said the traditional TV rights still are worth more than the digital rights. ESPN/ABC and TNT will each be able to simulcast and offer video on-demand for games on its networks. Stern and network executives downplayed the league's declining TV ratings, insisting there is still plenty of demand for NBA-related content through other forms of media.