by Kyle Woodley | February 26, 2013 8:00 am
For more than a year now, I’ve received some well-deserved ribbing from writer Will Ashworth about one of my earliest pieces: a much-criticized, ill-fated call from last year concerning Joe’s Jeans (NASDAQ:JOEZ).
The short story: I tried to steer investors clear of the microcap retailer while it was trading at 70 cents a share. JOEZ doubled to $1.45 in less than two months, retreated for the rest of 2012 (but never back to 70 cents), then surged again above that $1.45 mark last week.
I was alerted to this by an email last Friday that said simply, “JOEZ $1.56.”
The flaming bag of crap I’m going to leave on Will’s doorstep notwithstanding, he’s right. The results say I flubbed that call. But rather than crying in my beer, I want to share the lessons I’ve gleaned from my gaffe. So, first off…
What a dumb, basic oversight on my part. While a company’s plans for the future are just that — plans — they’re critical to a stock evaluation. But I was so hung up on Joe’s risk of being delisted by the Nasdaq and its delayed earnings report, I overlooked the potential upside from store expansions and other factors.
I thought I was considering the long term when I said that JOEZ “is for all intents and purposes a high-risk penny stock gamble — not an investment.” But little did I consider that…
“Gambles” like that can produce sick returns, and even long-term investors should allocate at least a small part of their portfolio to aggressive growth plays. I saw Joe’s Jeans stock as too risky, so I don’t regret what I said. But JOEZ nonetheless demonstrated the quick profit power of a small, speculative play.
“But Kyle,” you say. “What’s so speculative about a 12-year-old retail company?” Well, as I said before, Joe’s received a delisting warning, and…
Most people are familiar with cases like Kodak (PINK:EKDKQ), wherein a company is delisted after filing for bankruptcy protection. But you can be delisted without being at risk for bankruptcy. Joe’s was warned about a possible delisting because it failed to trade above $1 for more than 30 days.
A delisting isn’t a sure kiss of death, but a warning still should be treated seriously, because it usually means the company is experiencing at least some severe trouble — in JOEZ’s case, it had swung from a 4-cent-per-share profit in FY2010 to a 2-cent loss in FY2011. And a delisting itself can lead to additional selling, both by individuals because they’re scared, and by institutional investors because many can’t hold positions in non-exchange-listed securities.
So, I suggested that prospective buyers look elsewhere. If you listened to me, you lost out on making money, but…
That was the upside. It was a wrong call, but I erred on the side of caution. So, at least no one lost money by following my advice.
Cue this comment:
You A Hole I sold this stock after reading this and lost money. And look at the stock now . You Mother ********er. Get the f out this field , go sell hot dogs at a street corner.
That really got under my skin at the time. But I’ve learned that you can’t get upset about negative comments, because everyone gets ‘em — and you also can’t beat yourself up about bad calls, because everyone makes ‘em. Also, after a closer look at the numbers, I’ve realized…
In the accompanying chart, the red crosshair shows where JOEZ was trading when my article was published. The green crosshair represents Feb. 29, 2012, when the above comment was posted.
I’ll spare you a few paragraphs of explanation, but it’s very likely the commenter would have been sitting on a loss so large that he should’ve been considering cutting his losses anyway. And if he bought before April 2010, he also passed up on a chance to sell at a profit (or mitigate losses from purchases made at higher prices in 2005 and earlier).
He’d only have a legitimate beef if he had bought in during a couple weeks in summer 2011 where 70 cents would’ve been a loss — but not a large enough loss to warrant rethinking the position — and 95 cents would have been enough of a rebound to reasonably be miffed. If that’s the case, I truly am sorry. Either way…
We all look at stocks in different ways — some pore over technicals, others prefer valuations, still others invest based mostly on the macroeconomic picture, and many people use varying combinations of these and other factors. That multiplicity of approaches leads us to different conclusions, and because a stock can only go in one of two directions, that means someone ultimately ends up being wrong.
That’s why, much as you shouldn’t buy a car because one friend says it’s reliable, you shouldn’t buy or sell a stock because one analyst says you should.
Instead, visit several news outlets and analyze a stock based on numerous points of view. If you do that, you’ll give yourself a chance to see a more complete picture — one that’s also tailored with your opinions and investing style.
Kyle Woodley is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @IPKyleWoodley.
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