Apr

26

Martha StewartOne of my daughters is not very experienced at handling money, so my wife suggested that she buy some stocks to put her foot in the water. She chose company names she knew and liked like Netflix and Martha Stewart and American Apparel. "A young person's portfolio," her broker said. On average they are up 25% in the last two months.

In looking at her portfolio, I made a Baconian mistake. I said Martha Stewart is losing money on every sale and the sales are down. Don't buy it. It couldn't be good. My wife said, "She has to learn. Let her do it it." That one's up 40% or so. I am reminded of the time Collab and I were in our first six months of writing. Five of my daughters or siblings came to me over a weekend with requests to start or fund an Internet company. As I said at the time, "if so many people are coming to me, down on my luck and fortune, why imagine what the supply and backlog must be among the real players. It's about to burst." One has similar thoughts about my daughter's good fortune.

Sushil Kedia adds his two cents:

netflixMy two cents:

1) In the beginning we always call them lucky only. Too little data to conclude yet. Commonsense becomes more and more uncommon as each of us goes onto accumulate experience and other tools. Let her have her way. Let her find her own victories and lessons.

2) When my daughter would begin trading in some years, I would go short or long against her positions on a paper trading system I will maintain quietly and separately. Once her positions are closed by her, I would share my paper-trading risk management system with her to see where the deviations are. I would let her learn from my mistakes and wins against her rhythm, without pulling her away from her own. 

Michael Cohn shares:

american apparel"The Junk Rally & Quants: guru Matt Rothman says both quant and fundamental metrics continue to struggle in the 'junk' rally as Valuation remains 'largely irrelevant'. His models continue to show that stocks with variables such as the high short interest, weak b/s, highest beta, continue to significantly outperform. So how long can the junk rally go? The current low quality rally started March '09 is among the longest such rally on record, but, the underperformance of 'Quality' stocks is still only now a 'moderate' (9%) versus (10-18%) u/p of similar periods since the 1950s."

This seems to be a widespread issue according to Barclays.

Ken Drees adds:

Always jump on beginner's luck if you can.


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