23ANTCYSMx3x2

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    • Wed Jul 2nd 10:30 AM
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      Titan Machinery: Doesn't Anybody Look at Valuation?
      @Glen: You highlighted a few momentum stocks where the Graham/Buffett framework would have prevented a value investor from entering. Depending on when a value investor looked at the stock, you’re right. I would argue that very few investors apply a strict Graham/Dodd framework – e.g. a classic net-net is effectively impossible to find – but instead try to buy/sell companies where there is a market price / intrinsic value mismatch – hence, the TITN short call above.

      On to your examples of profitable momentum names - one of the basic tenets of value investing is a margin of safety. The stocks you mentioned as being profitable momentum stocks are listed below and have performed from peak to current as follows:

      - HANS is down 57% since October 2007
      - TASR down 87% since December 2004
      - ERS is down 94% since May 2006 (traded down 61% in 8 trading days from its top tick)
      - In fairness, the markets have been down too - SPX/Nasdaq/Russell all down 21% from peak (ex 2000 for Nasdaq - another ugly outcome of momentum investing)

      With the benefit of hindsight, you're correct, all of these would have been fantastically profitable longs and shorts. Sadly, none of us have next year’s stock almanac so we depend heavily on a margin of safety to protect us from massive draw-downs when (not if) our analysis turns out to be incorrect.

      Why are you surprised at the author’s “open admission of [his] short position”? It is perfectly legal/ethical to disclose that you have a short position – in fact it’s encouraged…I’d much rather know that someone is short than wonder if s/he is just creating a more attractive entry point ahead of a positive catalyst. Beyond that, the author presented a seemingly factual case with no sensational claims…the closest he got was pointing out that there could be corporate governance issues.

      Finally, an ad hominem argument takes away from your point – attack the central theme, not the author of the article and use facts when you do so. It’s easy to get angry when someone takes the other side of a trade but it’s hard to listen and see if they’re right and you’re wrong. Fundamentals always prevail and momentum cuts both ways. Happy investing.
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