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November 3, 2005

Not a bullet?, Thurs., Nov. 3, 2005, 6:59 AM

Maybe I misused the word bullet" yesterday regarding the instantaneous market reaction of my buy recommendation on JNJ. Soon afterward I received e-mail from a registered representative of a major broker-dealer. He was writing me about (i) how he felt I could improve the website, and (ii) his take on the market. Both were reasoned, and I thanked him.

But then he added a zinger p.s.: I don't think a 13 cent move on a stock is a bullet!"

He obviously didn't see it was a 14-cent move, so I, being a perfectionist, got pissed and told him the following:

p.s. re JNJ, you're right, but 14 cents in two minutes on a stock that was plunging, and reversed on a dime to go up 14 cents -- on 3 billion shares -- is a market cap change of $420 million to the plus side, so maybe I could suggest that (your firm) teach some arithmetic. But that would be unkind.

Besides I made my point in the blog with some humour. I just forgot to write: "THIS IS A JOKE". I didn't expect (the price reversal) to keep going up (on my account). Who am I? I'm just blogging.

S, with respect (but only because you are a reader), when was the last time you read about a retiree running from blindfolds and Uzi's and took it seriously? I do this to have fun. That's why it's free. And I meet some amazing people this way. I'm having more fun than I ever had in my life. So pls endulge me. :-)

Thanks again for your ideas on changing the blog. Cordially, /Bill"

That's a problem I find with capital markets. People think price when they ought to be thinking market cap. A 14-cent move in a penny stock is... well you get my point.

In my 1999 Dow 30 Journal (published three places on the Internet), one day I made a note of a sharp intra-day move in MSFT. I told my readers, Bill Gates has just gained more wealth THIS HOUR than the annual GDP of Portugal, but who's really counting?"

It's one of the reasons I get ticked with GOOG, as you know. I love the product " I use it sometimes 50 times a day " but I don't know what Google has done YET to deserve a market cap that is bigger than the aggregate size of about 20 pct of the Dow 30 blue chips.

You can do this table yourself by clicking on the next link. AA AIG AXP BA C CAT DD DIS GE GM HD HON HPQ IBM INTC JNJ JPM KO MCD MMM MO MRK MSFT PFE PG SBC UTX VZ WMT XOM

After you bring up the list, click on the Fundamentals tab. To sort by market cap, you just need to click on the column header that says MKT CAP.

But, just like a small 14-cent price move in JNJ really meant a big move in market cap, the same principle applies to GOOG. It's just that they have fewer shares and a higher share price.

Sure the company's earnings report blew people away" but the PE is over 100. So when the price pops one or two pct, think what the leverage factor is doing to the market cap.

Tell me, what did GOOG traders discover on October 21 that caused an increase in market cap of more than $22 billion in nine trading sessions? That happens to be much greater than the historical growth in equity at any of Alcoa, Caterpillar or General Motors. But who's counting anyway?

GOOG will be fine until traders realize that Google's present growth rate is impossible to sustain.

Then there will be a market reaction that will be kind of like letting the air out of a balloon the size of Portugal.

Posted by Posted by Bill Cara on November 3, 2005 06:59:19 AM | Category: Cara Investment Reports