Individual investors are an interesting breed. So much of what they do requires a steel spine and little emotion. Yet ask any individual investor about the market, and the response back is laced with feeling.
The Rational and Irrational Investor
The conundrum then is how do you react rationally when every ounce of your being wants to do the opposite.
In early December, I wrote about Overstock.com, Inc. (OSTK) and suggested that investors would be wise to consider the stock for their portfolios.
In response, I heard from some individual investors that thought quite differently about the stock. I suspect those bashing the company may have been burned by owning shares previously. As recently as January 2005, OSTK traded close to $80 per share.
It has been all down hill since. Of course, you are going to be upset if you bought shares of OSTK’s at its peak. Losing money in the market is a sure fire way to trigger irrational emotions that can get in the way of making an unbiased opinion.
I’m not interested in evaluating the company at $80 per share. I’m interested in evaluating the company at $10 per share. Obviously there is a big difference from the two points of view.
Online Retailers Holding Up Well in Recessionary Environment
On the same day that online retailer Amazon (AMZN) hit a homerun with its earnings report, OSTK announced that it too had generated a profit that was greater than expected.
In the case of OSTK, analysts were expecting the company to lose $0.03 per share. Instead the company made $0.04 per share. Although revenue was lower, the company held firm on prices allowing profits to perform better than expected.
After drifting lower in December and most of January, OSTK rallied some 20% on the news. Yet on Monday the company was downgraded to sell by an analyst at brokerage firm Stifel Nicolaus.
Online retailing is clearly holding up well despite the recessionary environment and OSTK is poised to take advantage of brick and mortar retailers looking to liquidate inventory.
If OSTK’s end prices can hold up well margins should expand in this environment. Any sort of recovery in consumer buying will help OSTK grow its business.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
