I want to take a break today from Korea to write about investing strategies. I just purchased shares in Caribou Coffee (CBOU), the company that I discussed in my September 8 blog entry. The company went public on September 28 in a traditional initial public offering (IPO). The stock debuted at $14 per share and quickly rose to $15.51 on the first day of trading before settling at $13 per share. The price dived even further on Friday to $11.35 per share. Fate saved me from buying at the outset of this IPO. I was on my trip to Pusan and could not access my IPO account with W.R. Hambrecht last week. If I had, I might have bought CBOU too soon. When I saw that it dipped so low in the post-IPO selloff, I decided to track it and bought it today after the market opened. I just purchased shares at $12.10 per share. As of this writing, CBOU is hovering around $12.55 per share, a gain of $.45 per share. The stock rebounded today from what I believe is an artificial low, aided by a bullish day on Wall Street. I believe that $14 per share is a fair price for this stock. It dipped over concerns that Caribou Coffee has over-allocated stock options as well as due to selling by those who were allocated shares in the IPO. I believe that Caribou is now in the middle of a price lull and will rebound to $14-$16 per share as the sell-off ends.
The art of investing is a delicate game. At times, buying equities can be like hunting. First, you locate an investment, then you track it. You make sure you have the means to purchase shares. When you think it’s the right time to buy, you go in for the "kill" and buy some shares. The moment following a stock trade, especially a big one, can be euphoric or a letdown. If you buy the right stock, such as Google or Morningstar, you feel good about yourself and feel confident about your stock-picking ability. If you buy the wrong one, such as Webvan or Infospace, you get a big knot in your stomach when you see your investment tank. That may very well be why so many active investors get emotional about equity trading. It can be addictive, like a game. It can also be a very expensive game, because the odds are that your picks will underperform. For every winner, there are inevitably more losers. IPOs are especially volatile. I am an active investor, but I am not an active trader. I try to be patient when I pursue investments, and I tend to buy and hold for the long term.
To purchase Caribou Coffee, DreamWorks Animation, and Cogent Technologies, my most recent post-IPO pickups, I employed the same investment strategy. This strategy also helped me avoid buying shares of Baidu.com. (Now at $65.75 per share, Baidu.com is well off of its 52-week high of $153.98. I’m glad I passed on it.) First, I read the prospectuses and the buzz from analysts and financial web sites such as the Motley Fool and Red Herring about these companies to help me determine a fair price for each stock. Second, I decided that I knew enough about the company and that truly believe that each will be successful. I pursued established companies with either a killer app, such as Cogent’s finger-recognition technology, or a well-known company such as Google. Third, I waited until after IPO to purchase shares, because the big, bad underwriting firms never let small fry investors like myself in on a traditional IPO. Then, I tracked the post-IPO sell-off for each stock, which typically, temporarily depresses the share price by 15%-20%. When the price dips close to my own target price, I buy. I use real-time quotes (you can get these at Yahoo! Finance) and track the after-hours trading from the previous night’s trading to determine which way the stock is likely to go the following day. I tend not to put in a limit or market order before trading begins, because the stock is likely to dip too low or rise too high the next trading day. Instead, I track the share price at market opening to see where the market and stock momentum is headed, and I buy if the price is close to my target. This strategy has been a consistently winning one for me when I target companies that have gone public within the last six months. It’s impossible to know when is the best time to buy, but momentum gives you an idea of when you should buy.
In other news, I’m sad to report that the orb weaver spider I wrote about on September 21 has disappeared. The spider’s web is still there, but it appears unattended. I’m going to miss her. It is possible that she went to spider heaven, although I’m not sure. I’ll be on the lookout for her. The other four spiders in our yard are still there and growing bigger by the day. I’m sure they’re just as intrigued by me as I am by them.
I have some good news to report. Last Monday, I was elected chairperson of the community association I’ve been involved with since last March. I’m happy to be able to take over as chair. I have some good ideas I want to implement, and I hope we can be successful over the six months while I’m chairperson. My first order of business is to get a vendor for our cafeteria, secure a new lease with one of our coffee shops, and eliminate membership dues.