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Talking stocks, trading, and investing in general - Page 618

post #9256 of 11161
Quote:
Originally Posted by lawyerdad View Post

Yet in my completely SCIENTIFIC BITCHES! anecdotal and sporadic observations, stock prices usually take a meaningful hit as soon as the case is announced just because people get scared or don't really understand anything beyond "Securities Fraud Suit Filed By SEC re Company X Stock". There's generally a relatively quick recovery as cooler heads prevails and the market digests the fact that the suit says absolutely nothing relevant to the investment case for the company. Anyway, if one of you .001%ers want to bankroll such a fund and need a GC, give me a ring.

I used to work on cases like this a lot. Generally one of the things we would look for was the positive impact of the alleged fraud on the stock before it was uncovered.

If the stock is going to drop 15% in response to fraud being uncovered and having to restate financials...then you would expect that the fraudulent statements helped improve the stock performance by a comparable amount. E.g. a bank releases false and misleading mortgage numbers for a few quarters, causing their stock price to climb (or at least not fall as much in a downturn)...when the true numbers come out, the stock equalizes back to where it would have been but for the fraud (and minus any fines or reputation loss).

Outside of blatant fraud (like a pharma company saying "We have a cure for X" and it turning out to be false), I remember it being fairly rare to observe a statistically significant impact from the perpetuation of the alleged fraud. Then again, I don't think we were in the habit of taking unwinnable cases.

That would suggest that lawyerdad's theory has merit. The panicked selloff lowers prices far below the actual impact of any accounting shenanigans. Also, remember that every trade has two sides...I wonder if the big drop in price has more to do with outside buyers who know that people are panicking on the bad news and know that they can turn that fear into a low entry price to the stock. Normal buyers who would be interested in the stock at a fair price are wary due to the bad news...but strategic investors like lawyerdad's hypothetical fund are happy to sit there on the low end of the bid-ask spread and hope for someone who simply wants out of their position.

I know there have been many "bad news" stocks that I have worked with that I would have loved to own if it had been ethical (although as a counterpoint...I've also worked with bad news stocks that I absolutely wouldn't have wanted to touch with a 10ft pole and we had to hope they would still be around long enough to pay our bills).
post #9257 of 11161
Quote:
Originally Posted by otc View Post

I used to work on cases like this a lot. Generally one of the things we would look for was the positive impact of the alleged fraud on the stock before it was uncovered.

If the stock is going to drop 15% in response to fraud being uncovered and having to restate financials...then you would expect that the fraudulent statements helped improve the stock performance by a comparable amount.

Outside of blatant fraud (like a pharma company saying "We have a cure for X" and it turning out to be false), I remember it being fairly rare to observe a statistically significant impact from the perpetuation of the alleged fraud.

That would suggest that lawyerdad's theory has merit. The panicked selloff lowers prices far below the actual impact of any accounting shenanigans. Also, remember that every trade has two sides...I wonder if the big drop in price has more to do with outside buyers who know that people are panicking on the bad news and know that they can turn that fear into a low entry price to the stock. Normal buyers who would be interested in the stock at a fair price are wary due to the bad news...but strategic investors like lawyerdad's hypothetical fund are happy to sit there on the low end of the bid-ask spread and hope for someone who simply wants out of their position.

I know there have been many "bad news" stocks that I have worked with that I would have loved to own if it had been ethical (although as a counterpoint...I've also worked with bad news stocks that I absolutely wouldn't have wanted to touch with a 10ft pole and we had to hope they would still be around long enough to pay our bills).

Makes sense to me. To be clear, I was talking strictly about insider trading cases. I don't disagree with your observations about fraud/restatement cases generally, I just haven't paid as much attention to any such trend in that broader group. Insider trading cases have kind of jumped out at me over time because they're so often completely irrelevant to the company's performance and prospects, and it's almost always the case that by the time the investigation/suit is announced the purported inside information upon which the trading was based has since become public. Because insider trading technically constitutes securities fraud, you get headlines linking the company and a "securities fraud" suit. That often gets a short-term market reaction even when neither the company nor its senior management are implicated. As a subset of securities fraud cases, my (again, totally speculative) sense is that insider trading cases would comprise a lower-risk set of investment/trading targets, although perhaps with less upside than some of the other cases you'd be leaving on the table.
post #9258 of 11161
Quote:
Originally Posted by lawyerdad View Post


To your point and mschapiro's:
Well,
1. Huge drops are common upon the announcement of a restatement, especially in a situation like this where there's a lot of volatile sentiment already. The vast majority of folks driving that 15% drop don' t know any more than we do, and equating the market reaction to the announcement with the (unknown) magnitude of the potential accounting issue is silly in my opinion. I've long harbored this theory that someone should start a fund that invests solely in firms as to which an insider trading case by the SEC or DOJ has just been announced. Such cases usually have nothing to do with company's value as an investment, usually don't say anything about the trustworthiness of senior management, and almost always involve amounts that even if they were somehow relevant to business performance would be super-immaterial. Yet in my completely SCIENTIFIC BITCHES! anecdotal and sporadic observations, stock prices usually take a meaningful hit as soon as the case is announced just because people get scared or don't really understand anything beyond "Securities Fraud Suit Filed By SEC re Company X Stock". There's generally a relatively quick recovery as cooler heads prevails and the market digests the fact that the suit says absolutely nothing relevant to the investment case for the company. Anyway, if one of you .001%ers want to bankroll such a fund and need a GC, give me a ring.

2. That said, I'd have a hard time being as sanguine as Mschapiro here. One of jbarwick's main points, I believe, is that what was announced could just be the tip of the iceberg. I have no idea, but I think it's a reasonable concern. The fact that there's an issue requiring a restatement is certainly a red flag about the accounting generally, and there's no way of knowing what might turn up when they start digging through everything.

3. I have no idea whether the auditors should have found it or not. I could be wrong, but it's hard for me to believe that jbarwick and really judge that fairly either. You know how auditing works, right? It doesn't involve reviewing every transaction the company engaged in over an audit period. There's definitely sloppy auditing, and there are definitely circumstances where the auditors defer too much to management. But it's also entirely possible for auditors to do a competent job and simply not find nothing.



In any event, it seems to be about 9% less of a great buying opportunity that it was last night. smile.gif So as of this morning market sentiment seems to agree with mschapiro.

1. Is a good plan unless a suit ever totally takes out an investment, which is doubtful, so it remains a good plan.

2. I'm more of the opinion that if this was the worst they could find it is not a big deal. There are a lot of concerns ever since Philidor, so I think that assumption is baked in for sure. 

post #9259 of 11161
Quote:
Originally Posted by lawyerdad View Post

Makes sense to me. To be clear, I was talking strictly about insider trading cases. I don't disagree with your observations about fraud/restatement cases generally, I just haven't paid as much attention to any such trend in that broader group. Insider trading cases have kind of jumped out at me over time because they're so often completely irrelevant to the company's performance and prospects, and it's almost always the case that by the time the investigation/suit is announced the purported inside information upon which the trading was based has since become public. Because insider trading technically constitutes securities fraud, you get headlines linking the company and a "securities fraud" suit. That often gets a short-term market reaction even when neither the company nor its senior management are implicated. As a subset of securities fraud cases, my (again, totally speculative) sense is that insider trading cases would comprise a lower-risk set of investment/trading targets, although perhaps with less upside than some of the other cases you'd be leaving on the table.

And hey, lots of insider trading probably occurs when the company is doing well!

Earnings going to be good? Buy some options. Acquisition going to be announced? Increase your holdings. Bad news causes a drop way worse than what actually occurred...tip your buddy that now's a good time to buy.

And even when the insider trading is in advance of poor performance...like you said, the market has already absorbed the bad results. Some minor insider trading going on doesn't suddenly remove a few billion dollars in value.

About the only way that would be true would be if someone like Elon Musk were to be found massively guilty of insider trading and thrown in prison and stripped of their ability to run the company. I could see his companies losing significant value without his leadership. But some random CFO gets nabbed? meh, that's worth a few million in legal and recruiting costs.
post #9260 of 11161

RE: $VRX, the restatement sounds like management throwing a pebble out to the public from their rocky mountains, just to distract and appease the regulators.

 

Similar to banks, the more often their executives states that their book is solid the more dirt there are inside.

post #9261 of 11161
Having worked on restatements, usually one issue will lead to a host of a bunch of other issues that's caused by a general lack of controls over financial reporting.
post #9262 of 11161
Quote:
Originally Posted by chogall View Post
 

RE: $VRX, the restatement sounds like management throwing a pebble out to the public from their rocky mountains, just to distract and appease the regulators.

 

Similar to banks, the more often their executives states that their book is solid the more dirt there are inside.

We shall see, I continue to add to my position. 

post #9263 of 11161
I'm a little spooked by the increasing housing prices and low cost of lending worldwide, especially with the other factors. People buying things they shouldn't and shrugging their shoulders into bankruptcy?
post #9264 of 11161
Quote:
Originally Posted by ramuman View Post

I'm a little spooked by the increasing housing prices and low cost of lending worldwide, especially with the other factors. People buying things they shouldn't and shrugging their shoulders into bankruptcy?

 

While I try not to dig into peoples financial position, some friends shared how they bought their houses last summer.  1 guy who is in med school got some special 0% down future doctor type loan and the other 3 all bought their houses with varying down payments below 10%.  With rents rising, people are pushing themselves into home ownership with very small down payments and probably towards the upper limit of what a bank says they can afford. 

 

While people in this thread have enough sense to not do this, I would bet on a lot of people paying 30%+ of gross income for housing.  

 

I have heard people in China pay something crazy like 5x annual income for housing where in the US, some recommend nothing over 3x which is still on the high end in my opinion.

post #9265 of 11161
Quote:
Originally Posted by jbarwick View Post

While I try not to dig into peoples financial position, some friends shared how they bought their houses last summer.  1 guy who is in med school got some special 0% down future doctor type loan and the other 3 all bought their houses with varying down payments below 10%.  With rents rising, people are pushing themselves into home ownership with very small down payments and probably towards the upper limit of what a bank says they can afford. 

While people in this thread have enough sense to not do this, I would bet on a lot of people paying 30%+ of gross income for housing.  

I have heard people in China pay something crazy like 5x annual income for housing where in the US, some recommend nothing over 3x which is still on the high end in my opinion.

A friend of mine sent me this article about the Yelp girl and a reply:

http://www.businessinsider.com/stefanie-williams-response-to-yelp-employee-talia-jane-2016-2

It really confuses me when people have former Yelp girl's mindset.
post #9266 of 11161

I know far too many people like her.  I bet when she was fired, she didn't understand why.

post #9267 of 11161
Silicon Valley has historically been very politically liberal, but those who made it are quite conservative when talking about social safety net despite all the bullshit talk about changing the world.

@jbarwick I think that ratio depends on the region. Here in the valley 4-5x is the norm even with double income families. But the current medium home price is 10x medium household income. Yeah. Chinese money X IPO lottery = disaster for those who aren't lucky.
post #9268 of 11161
what do you guys think about OnDeck - price is starting to get interesting? I know LC has been discussed and Chogall is short...same thesis with ONDK?
post #9269 of 11161
Quote:
Originally Posted by chogall View Post

Silicon Valley has historically been very politically liberal, but those who made it are quite conservative when talking about social safety net despite all the bullshit talk about changing the world.

@jbarwick I think that ratio depends on the region. Here in the valley 4-5x is the norm even with double income families. But the current medium home price is 10x medium household income. Yeah. Chinese money X IPO lottery = disaster for those who aren't lucky.

NYC is pretty much the same. A studio is Williamsburg is now above 600k, not counting the 6% or so closing cost. Prices generally scale in that an extra bedroom costs you at least another 600k.

post #9270 of 11161
I have zero sympathy for that Yelp girl. Bitch whines about eating rice and bread but brags about getting not-shitty whiskey DELIVERED to her office.

I bet she upgrades to the latest iPhone every year.

Not to mention, she lives by herself and no roommates.

Groan.
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