Are You Stupid?

I saw this article today, called More Investors Overweight Equities: Citigroup. And I can't help but think, are you stupid?! The first paragraph reads:

"Investors are becoming increasingly confident in holding equities as U.S. markets continue to make new yearly highs heading into the final months of 2009, according to a client survey by Citigroup."

Later, the article points out that the S&P500 has risen 62% since it hit a 12-year low in March. And I can't help think--there's really a lot of stupid people out there. When stocks are at 12-year lows--oh, everyone is scared. Nobody wants to invest any money. AFTER the price runs up 62% percent--sixty two percent--in just seven months, those same people are now thinking, "Yeah, I think prices are good now."

HELLO?!

Not to long ago, the Dow Jones topped 10,000 for the first time in a year and I read that some folks on Wall Street were popping champagne corks to celebrate. I remember the first time the Dow topped 10,000, record highs, way back in March of 1999, and they were popping champagne corks to celebrate. The fools--would they have celebrated if they realized that ten years later they'd be celebrating the exact same thing?

At the beginning of the year, I was positively giddy about stock prices. I was looking at stock prices stunned at what seemed like impossibly low values. Companies like the mighty Microsoft--still a powerful monopoly, enormous piles of cash with virtually no debt--trading at less than ten times earnings? It hardly seemed possible! I did buy a little of Microsoft, but only a little. It was smaller companies that I'd never heard of before that fascinated me even more.

Terra Industries, which makes fertilizer, was trading for about 2 times earnings. In all fairness, the stock did deserve to go down from its highs--earnings were plunging. But they had an enormous pile of cash and virtually no debt, and they were still profitable despite the earnings going down. The company certainly had the resources to survive the crisis, and at just 2 times earnings, I was possible giddy with greed. So I bought a bunch, then started calling it my "crappiest investment ever." They do make fertilizer, after all! =)

I bought it twice. The first time in December, somewhere around $13/share. No matter how I looked at it, it seemed like people were trying to sell me dollar bills for 20 cents each. I'd be stupid to say no! The timing turned out to be incredibly lucky as the price started marching upward almost immediately.

By January, I saved a little more money and bought more. I was kind of hesitant--the stock had already shot up nearly 20% in the one month I held it. Maybe it would go back down and I could buy more at the same prices I did before? The stock still looked SOOO incredibly cheap, however, and what if prices never came back down again? I pulled the trigger--it seemed like a good deal, and 'haggling' did not seem like a good idea. "Oh, I see, you want to sell me dollar bills for thirty cents each? I'm afraid I can't--I won't pay more than 20 cents for each of them."

Sounds like of stupid, don't you think? That's what I thought, so I went ahead and bought the stock again, and I'm lucky I did because a few days later, another company--CF Industries--announced that they wanted to buy the company and would acquire it in a hostile takeover if necessary.

The stock price shot up overnight and hasn't looked back. As of this minute, it's now trading at $35.80, more than double what I paid for it. But you know what I feel? Bummed. I'm bummed that the price has run up so far. Today, I feel like the stock is selling more-or-less at what it's worth. Maybe a little less--perhaps 90 cents for a dollar. Not much margin of safety considering the inherent risks of investing, and certainly nothing to get excited about.

So I feel bummed. Sad. Earlier this year, I had a list of 20 stocks I wanted to buy that I felt were selling at pennies on the dollar. My biggest problem was trying to decide which stock I wanted to buy. Today, my biggest problem is trying to find just one stock I want to buy.

And then I read an article like this one, where people are feeling more confident about buying equities, and I can't help but think, ARE YOU STUPID? The time for confidence was earlier this year--not after prices have run up 62%. When it did become fashionable to "sell low and buy high"?

And no, not all of the stocks I've bought have done as well as Terra, but none has fascinated me more. I thought I bought a sleepy old fertilizer company. Boring, but cheap. CF Industries then announced Terra as a takeover target, and Terra rejected it. Then fine, CF says, it'll be a hostile takeover. Then Agrium comes along and announces they want to buy CF Industries--under the condition that they drop their bid for Terra. CF tells Agrium they aren't interested. Fine, says Agrium, it'll be a hostile takeover, then. CF raises their bid for Terra to seal the deal, the Terra plays shy. Agrium raises their bid for CF, but CF plays shy. CF raises their bid again. So does Agrium. And to complete the circle, it was announced today that if Agrium succeeds in buying out CF, they'll sell a plant to Terra to settle "regulatory issues."

Did you follow along with all of that? CF is trying to buy Terra in a hostile takeover, Agrium is trying to buy CF in a hostile takeover, and Terra will buy an Agrium plant if they succeed. I've seen soaps on TV with less complicated plots, and I've found the whole thing incredibly fascinating. Who will win? Will CF acquire Terra before Agrium can acquire CF? I don't know! But I can't wait to see what happens in the next episode of Days of our Fertilizer.

But the time to be excited about equities was earlier this year--not after prices have run up 62%. Idiots!