Q&A: Investing Recommendations

Dear Eddy,
Firstly thanks for your blog. I read it faithfully several times a day and find it very helpful.
My question relates to NSTK. It lost 8.55 today after Merck pulled out of deal. However, prior to his passing, Kennedy Gammage recommeded the stock heavily noting it as a once in a life time opportunity.
Also after such a hammering it seems these stock rebound quite well (ex. BCRX and ENDP). What would be your thoughts on NSTK? I bought it around 14.80 [Sep 2005] and jsut got stopped out around 14.90.
Also would you please recommed two books to read, maybe two periodicals and if possible, two newsletters you think are worth subscribing to [although I think in the past you wrote on newsletters, I’ll need to look that up].
Thank you again. My family and I appreciate your efforts.

Thanks for the kind words!
First off, let me say: Never listen to anyone who says there’s a once-in-a-lifetime opportunity in the stock market. There are once in a lifetime opportunities in many places, but the market is not one. The fact is there are many, many great stocks out there, and investors have many opportunities to buy them.
To show you what I mean, let’s look at AFLAC (AFL). Twenty years ago, you could have bought it for $1.50 a share (split-adjusted). So there’s your once in a lifetime chance, right? But ten years later it was going for $8 a share. (Twice in a lifetime??) The stock soared, but it was still a huge bargain. Even if you were late to the party, you still could have made a big profit. This return creamed the vast majority of mutual funds and hedge funds. The opportunities are always there.
Or Golden West Financial (GDW). This stock is about as boring as they come. In 1982, it was going for (split-adjusted) 30 cents a share. Let’s say you ignored it. In 1990, it was still going for $3 a share. Today, it’s at $70, and that doesn’t include dividends!
I don’t know much about Nastech Pharmaceuticals (NSTK), but let’s look at the basics. They don’t make money. In the world of high-powered finance, we call that “a bad thing.” Actually, they haven’t made money is several years. That’s even worse than my March Madness brackets!
I also have to admit that I don’t know much about Nastech’s business (intranasal drug delivery). It sounds interesting, but what do I know? I begin my analysis not by predicting things that might happen, but instead by admitting my ignorance. Fortunately, I have a lot to work with.
I don’t know what the Fed will do, what will happen with the economy or what Google will do. The price of oil? Beats me. But what I can do is find stocks that have consistent track records of delivering high returns-on-equity. Sure, AFLAC could blow up tomorrow and lose all its value. Same with Fiserv (FISV) or Brown & Brown (BRO). But I think the odds are fairly remote. The important point is that I can’t eliminate risk, but I can work to control it. My view is, never take risks you don’t need to.
The stocks on my Buy List all have great track record, and I assume that in due course, the market will reward them. Nastech could have the most fabulous amazing invention ever, but I wouldn’t know, and I couldn’t know. I wish them well. But I won’t go near them until they prove they can make money in good times and bad. That’s the difference between investing and speculating.
Two books I would recommend are “One Up on Wall Street” by Peter Lynch. Lynch is the legendary manager of Fidelity Magellan. The book is about 20 years old, but in my opinion, it hadn’t been topped. Another good book is “The Essays of Warren Buffett,” which is a collection of his writings over the decades.
As far as periodicals, trust me, periodicals aren’t necessary to becoming a good investor. In fact, they probably harm a lot of investors. I assure you, reading Fortune never made anyone rich.
For newsletters, I’d recommend “Richard Band’s Profitable Investing.” I’ve known Richard for many years. He’s an outstanding writer and he has a sharp mind for all things financial. Another excellent letter is “The Prudent Speculator,” which is now written by John Buckingham. The late Al Frank wrote it for many years. They have a deep value approach that has beaten the market for many years.
Thanks for your e-mail, and happy investing!

Posted by on March 8th, 2006 at 3:02 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.