Friday, November 07, 2008

Crocs Days Of Glory Are Gone Forever

I have talked of Crocs a few times on here. This is my last post on the company given it is now being marginalized in the market place. Nothing could be more representative of this cycle than the speculation in this shoe company. We wrote of how overvalued Crocs was on the way up. In fact, we wrote it was more overvalued than 99% of all stocks. And, the fall has been a brutal one - from $75 to $1 and some nickels. (It's back to $2 today.) From those who argue stocks are now undervalued, is Crocs, as an example, undervalued? Is the market acting irrationally? Frankly, the stock valuation is right about where it should be given the dynamics at the company.

This brings up a good point. Most analysts put out for public consumption have never been good at balance sheet analysis. Crocs is a prime example of this fact. I am reminded of this fact every day with most of the investment community falling all over themselves to tell us how cheap stocks are. Really? I am sure they are right since many of the same voices were telling us how cheap stocks were when the S&P was near 1600. Comparatively our position at the time was that this was the largest financial bubble and global stock market bubble in history. Contrary to popular belief, gambling and investing are not remotely similar. If you are serious about investing in equities, you really need to become a disciple of Ben Graham and turn off Jim Cramer.

Let's end this post with a point to ponder. If we make it to 400 on the S&P as we said could happen, the drop from here would be sixty percent. That means the drop we have seen so far would be dwarfed by what could be yet to come.

posted by TimingLogic at 6:56 AM