The Week of Our Discontent

By Travis Johnson, Stock Gumshoe, August 17, 2007

Well, how’s everyone doin’ out there? That week was so ugly you would have thought the Gumshoe was on vacation again (that’s usually when the market decides to give me a wedgie).

But no, I was here, at my trusty keyboard, watching the bloodbath (and recovery, and more bloodbath, etc.) I think this volatility is bad for the ‘ol ticker.

And it’s definitely bad for the kind of high risk, high growth, marginally profitable companies that the newsletters tend to prefer to tease us about (after all, we’ve already all heard of GE and MMM, right? Most people wouldn’t be itching to pay someone to tell them about those companies)

And the Gumshoe spreadsheet certainly puts that in stark perspective — I just checked, and of the 140 or so official Gumshoe sleuthing jobs that I’ve recorded, only 50 are showing positive returns from the date they were first advertised (or at least, the date when I first saw their teaser email). This is a far cry from a few weeks ago, when the performance was much more evenly split and we had a whole passel of great performers at the top who were knocking the cover off the ball.

A few weeks back, you would have looked at the spreadsheet and seen Rusina Mining, with a near 100% gain. Lynas, up well over 200%. Duluth Metals, closing in on 200% gains. And the list goes on.

Today? No 100% gainers, with one exception: aQuantive, which the Motley Fool Rule Breakers folks pegged as the “next Google”, is still sitting there with a 140% gain. That, of course, is because they closed out their gain by selling to Microsoft a while back, otherwise I expect AQNT may well have taken a header recently as well.

So of all those Gumshoe companies, there’s not a one you can buy today that has even 100% gains — and many of these recommendations are six months old or so. Only eight of them are up by as much as 40%, and those are Friday closing prices, after our minor recovery at the end of this tough week.

Hopefully, that gives you some indication of how much money you should lay on the table when a teaser email tells you that this is a “near guaranteed double in a matter of weeks.” Of course, nimble traders might have been able to do much better if they tracked the best performers and got in and out at the perfect time … but I’ve certainly never been able to do that consistently, and I’m quite skeptical of anyone who says they can.

And the tail end of the spreadsheet — what we might call the “bargain bin” if these companies didn’t look so damaged — is no better. The ranks of companies that have 50% or greater losses is growing by leaps and bounds, and the number that are down anywhere from 30-40% is simply remarkable. Add to that group one recommendation that’s not yet even a week old, as Brian Hicks tried to impress us with his pick of Accuray only to see an earnings miss of only a couple cents drive it down by nearly 30% in just one day. Ouch.

The Aussie Miners and resource companies, formerly the strongest performers in the Gumshoe portfolio, are now looking like either bargains or huge disappointments, depending on your perspective: Rusina Mining, the nickel miner in the Phillipines that was a strong 100% plus performer, is back down to the 20 cent range where it was first teased by Chris DeHaemer at Taipan. Another recent DeHaemer recommendation, Range Resources, is still in a trading halt in Australia but may well be worthless in the near future if they can’t keep their oil claims in Puntland, Somalia that are really the only important asset the company has (lots of hairy politics in Somalia at the moment, and, surprise surprise, it looks like if there is oil to be had there, it might end up going to the oil majors and the Chinese if Range can’t defend their turf) — a far cry from the hundred percent gain it had enjoyed for a few months, and the 700% predicted by October by DeHaemer (though it may still work out, despite my skepticism … I’m certainly no expert on Somali oil politics).

And our old favorite, Lynas, the rare earth miner that recently did a secondary offering to help pay for their mining startup and their processing plant in Malaysia, has fallen on hard times, too. Not sure why, the offering, just last week, was apparently taken up fine at 1.15 Australian, but it’s down 30% or so from that point now, and had fallen quite a bit before the offering, too. Still, Lynas keeps a tenuous hold on the top of the Gumshoe spreadsheet if you ignore the no longer available aQuantive … at least for another day.

Other groups that have fallen on hard times have been the MLPs (or “American Oil Pension,” if you prefer made up terms), which have fallen 10-20% along with their peers. And of course, the real estate finance firms have almost uniformly fallen off the cliff — remember, those guys you see on CNBC all the time now, like Thornburg Mortgage and RAIT Financial, were pretty strongly hyped stocks for a while there, at prices dramatically higher than you’d pay for them today.

Most stocks have probably pretty closely tracked their peers, of course — the majority do fall into that range of up or down 20% or so, which isn’t surprising, and a fair number are within just a few cents of their initial teaser recommendation price.

I have updated the spreadsheet to include everything I’ve sleuthed out up to today, FYI, so you can go check it out if you’re interested. I do find myself scouring the bottom of the sheet when I’m tempted to do some bargain hunting, but after what I’ve learned about most of those companies the temptation is, thankfully, fairly easy to resist. Let us know if you think you see any gems in there.


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4 Comments on "The Week of Our Discontent"

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Anonymous
August 19, 2007 5:15 am
The word was out that the Fed would have to go beyond just adding liquidty injections…the surprise in overnight discount was only in timing…only happening on Friday due expirations and tanking of Nikkei… Market will continue to go up and down with bias to downside…I expect by or before the next FED meeting to see a change in the rate affecting mortgage interest… By the way, I was out completely on July 13th…same scenario…news is still not positive and Sept 11th…is coming and if anything is going to happen in the US it will be on or near that date…terrorists… Read more »
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Anonymous
August 20, 2007 3:16 pm

Thanks for your sleuthing and your entertaining comments. What do you think now of Ambrian Capital? You indicated you liked it and would add it to your holdings. They are down some, but not as bad as others.

One Guy
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One Guy
August 20, 2007 3:29 pm
Thanks for the comments … I do still like Ambrian, though as a small investment bank that’s primarily in the commodity space they caught some waves last week. I do own shares, with a loss on paper at the moment, and am planning to hold them for the long term unless the company doesn’t continue developing as I expect them too. I want them to continue divesting their mining holdings, starting managed investment funds, and building their fee based brokerage and commodity trading businesses, which I think have potential. I also like that they’re expanding out into other business sectors… Read more »
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Anonymous
August 23, 2007 1:33 am

Thanks GS for the spread sheet. I appreciate your site immensly.
I personally like infrastructure plays in todays global markets.I notice they held up well in the recent panic. My picks are LYNAS,RUSINA,GEOVIC, and WWAT. Some of these are longer term plays with a prayer some come into production. GI

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