On Friday, I suggested that RIM (changed to Blackberry today) looked like a good candidate for a short sale. The stock price has fallen over 20% over the past few days since then. If you shorted it it, nice trade. Go ahead and book some profits. It may go all the way to zero over the next few years as their smart phone business continues to die a not-so-slow death. But easy money is rare in the stock market so when you find it, it’s best to just take the money and run.
In fact, short-selling has got to be the furthest thing from “easy money.” It’s extremely difficult and requires extraordinary patience and balls of steel. For this reason, 99% of investors should just leave it alone. For most, it’s a recipe for easy losses. Even when your research is correct you can have your ass handed to you in a heartbeat. Not many people have the ability to trade around a position in those circumstances or to simply ride it out until they’re proven right.
Now that that’s out of the way, Facebook (FB) looks to me like another dead catish-type bounce ripe for a short sale. It’s extremely overvalued but as Amazon showed us yesterday that’s no reason to short something. While Amazon’s basic business is very strong and growing like crazy (I’m a good customer), it seems to me that we’re getting close to seeing peak Facebook. In fact, we may have seen it come and go already. They lost 1.4 million users in December and, just from my experience, the users that are still around are using is less and less everyday.
I taught my first investing class up at the community college last night and a student asked what I thought about Facebook. Let’s ignore for a second the fact that the question, itself, would make me bearish on the stock (because my students, until they finish the course, are usually good contrarian indicators). I answered by saying I could imagine getting the same question about MySpace five years ago.
To put on our Warren Buffett glasses for second, which company is more likely to still be around five years from now, Facebook or Coca-Cola? As Buffett likes to say, “if you’re not willing to own a stock for ten years don’t even consider owning it for ten minutes.” And I would be more likely to put money on Facebook being completely marginalized ten years from now than still being relevant to the masses. Such is the state of the www (world wide web/wild, wild, west).
Facebook is due to announce earnings after the bell today so we’ll find out soon enough how well Zuckerberg is doing holding onto his 15 minutes of fame.
Chart of the Day
Technically, Facebook has nearly regained 61.8% (Fibonacci/golden ratio) of its decline post-IPO. It’s also formed a stochastic divergence in the process and a DeMark Sequential 9-13-9 sell signal.
See all of my annotated charts at StockCharts.com