CEO of New Constructs: Novel alpha from proprietary fundamental data. Proven-superior financial models and stock ratings.
"It's Getting Ugly Out There" -my e-letter from a few weeks ago - some key excerpts are below. Sign up here to get them as they come out: www.newconstructs.com. I held a live webinar explaining the hottest sectors, key stocks to avoid and the proprietary research we have at New Constructs. It’s a limited time presentation and offer. Markets move fast. They can turn on a dime. If you’re investing based on a narrative without understanding fundamentals, you’re playing a very dangerous game. And, I’m going to share a stock that is a perfect example of just how damaging narrative-based investing can be. I’m not saying your investing process should be 100% fundamentals-based, but I am saying it should NOT BE 0% fundamentals-based. People can say fundamentals don’t matter, and they might be right for a short time, but, in the end, fundamentals always matter. It’s a law of nature: businesses that do not make money cannot survive forever. Ignoring fundamentals is like playing chicken with a freight train. You’ll be fine if you jump off the track in time, but if you wait too long…splat. If you jump too soon and others HODL longer, you miss out on big gains. You have to wait until the last second, time the market and sell near the peak. Easier said than done. Just ask all the investors who lost a fortune in 2022. Or, you can use fundamentals to get your cake and eat it too. I mean: use fundamentals AND technicals. Use fundamentals to help you gauge just how far away a stock’s valuation is from its fundamentals so you have a better sense of when to jump off the track. Just an idea. Ok, here’s the perfect example of a Wall Street pump-and-dump stock scheme that was designed to take advantage of unsuspecting investors. This one is so obviously exploitative that it makes me angry to write about it. Having seen so many of these tricks over the years, I honestly get frustrated knowing that these ruses still work. Then, I realize that I’ve been inside Wall Street firms, and I have seen things, terrible things that opened my eyes to the realities of how devious these firms are. And, most people have never had anything like those experiences. So, it is part of my duty to support the integrity of the capital markets to explain what is going on. The bottom line is that most people simply do not realize how sneaky Wall Street analysts can be. So, here’s a perfect example, on April 11th, Wells Fargo analyst Elyse Greenspan raised her price target on Root (ROOT) from $12 to $64, or 500%, while not changing her “Equalweight Rating”. That’s not a typo. [Thanks to Giulio Helmsdorff for bringing that to our attention in a recent post he made in our Society of Intelligent Investors: “Sell Side Analysts Never Fail to Entertain”.] This “upgrade” happened after the stock nearly doubled. See chart below. My guess is that institutional investors needed more time to get out of the stock before it cratered, so Ms. Greenspan stepped up, baited the hook, and the rest is history.
