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Everything Does NOT Have A Price

September 18, 2012 | About:
There is a saying that there is a price for everything. I was the first guy in line to defend Goldman Sachs a few months ago when Lloyd Blankfein and others were questioned by congress. Why? Because selling a product that you think is crap should not be seen as a criminal activity. Obviously, loans made to poor credit home owners is not worth as much as one made to ones that have solid credit. At some point, even I would probably be interested in buying. So yes, in a way, everything does have a price. Even a used up crappy car (which I could sell parts).

There Are Exceptions Though For Me

The other day, a reader asked me at what point I’d be interested in buying stock of Research in Motion (RIMM). Great question. The company has started to lose money, has diminishing sales and profits, has fairly crappy products (as an owner of a blackberry phone, I feel like I know about that part.. I’ve also seen a few disappointed Playbook owners), has little hope to one day become profitable again.

Still Has Value Right?

RIMM still has patents, customers, a lot of technology, very competent teams and employees. It’s very likely that the company will eventually sell part or all of the company and that will be at some price right? So surely, there is value here right? My problem though is that I have no idea how much that is worth. It becomes a lot more complex in my opinion to value a company based on its liquidative value than what I usually try to go by (future earnings, P/E ratio, etc). Even at a few pennies, I’d be afraid to buy shares of RIMM because I’d tell myself that those who really know the value of those assets would be buying if it was that obvious.

rimm.png

Groupon

Groupon is another one of those stocks that I have no idea how to value. I’ve written about the many questions that surrounded its IPO which make it very difficult for me to have a feeling about the stock. I could easily see the value increasing by 20-30% or decreasing (had written an ironic post about Groupon’s possible rise a while back) by the same margin and that is something that I personally try to stay away from. So don’t expect to see me trading either one of those names anytime soon (I haven’t traded RIMM in years and have yet to take a position on GRPN since its IPO)…

grpn.png

How about you? Do you think every stock becomes a value at some point? Did you buy a company such as Nortel (NT) or Lehman Brothers (LEH) a few years ago?


Rating: 2.5/5 (15 votes)

Comments

batbeer2
Batbeer2 premium member - 1 year ago
Thanks for sharing your thoughts; an interesting read and title.

>> It becomes a lot more complex in my opinion to value a company based on its liquidative value than what I usually try to go by (future earnings, P/E ratio, etc).

So something as tangible as NCAV

- 100% fact

- Double checked by people who will lose their license and worse if they don't do it right.

Is more complex to you than an estimate of future earnings

- 100% opinion

>> I’d be afraid to buy shares of RIMM because I’d tell myself that those who really know the value of those assets would be buying if it was that obvious.

OK, so I see $ 100 lying on the lawn but I tell myself it can't be. Others would have picked it up if it were so.

I agree though, not everything has a price. In fact, as far as I'm concerned, 90% of the stocks out there are worth $0 because:

1) I don't understand the business or

2) I do understand the business or

3) I would immediately replace management if I owned the company outright. How then could I be content to own a piece of the company with that management in place.
pravchaw
Pravchaw premium member - 1 year ago
The key to valuing stocks like RIMM and GRPN is to decide whether they have a viable business model or not. Companies like AMZN, EBAY etc. were left for dead after the dot com crash of 2002. So was AAPL. Fundamental analysis is NOT the answer.
batbeer2
Batbeer2 premium member - 1 year ago
>> Fundamental analysis is NOT the answer.

If fundamental analysis is not the answer, we are probably thinking about different questions.

For a few hours RIMM traded at a discount to NCAV. So I picked up some stock.

An NCAV with a seasoned guru on the board. IMHO that is as simple as it gets in value investing.

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