Spoiler Alert: PATH is down again today.
The board monitor told someone that TMF stands by its recommendation to own the stock. Obviously, TMF doesn’t understand the basics of investing. Not only is buying IPOs a highly speculative gamble, continuing to hold them as their price falls isn’t “investing”. It’s losing money by the truck load. Today alone, PATH dropped another $7.59, and this is on a stock that was $29 yesterday and $90 a couple months ago. To that loss, needs to be added whatever fee the buyer of that stock paid to be told to buy it. Worse, given that inflation is now running 15%-20% on food and energy, getting back to even on the initial stock purchase-price will always mean a loss of purchasing-power.
So, what should have the person done? #1. On average, any “recommendation” TMF makes should be faded. (They don’t understand ‘investing’ in any meaningful or classic sense of that term.) #2. All speculative buys should be trailed with a stop. (Wm O’Neil suggests 8% is a good “cut loss” point.) So, let’s run the numbers. If the entry price was $75 and a stop was set at $69 (or just below the round number), an early buyer of PATH would now be down just (-$6) per share, not nearly (-$55), or 9x that.
But the real benefit of observing the Prime Directive – also known as Buffet’s Rule Number One-- is that the person wouldn’t be suffering the devastating emotional trauma he is now experiencing. Instead, he could be the sidelines, watching the market sell the stock down to what might begin to be its “intrinsic value” and waiting like a spider to make his move. At some price, PATH could-be/should-be bought. But that price wasn’t its IPO price, nor its price the past couple of months. In time, “the market” will discover what a fair price for PATH might be. Meanwhile, smart investors --who take the game of investing seriously-- wait for “the market” to do its work of discounting the future, instead of arrogantly asserting they know what that future should be.
Value matters. Timing matters. Suffering avoidable losses or trying to argue with “the market” isn’t smart.
Arindam