RENN: It is liberating to 'invest' in losing money ventures
We spend significant time in CGS dissecting earnings statements and balance sheets in attempt to value stocks based on their company's true value. What we are left with is a basket of stocks, many of which are trading at less than the value at their assets, some of which are trading at a market cap less than their cash+receivables, and almost all of which that are trading at forward PEs under 5 yet are still somehow despite seeming like a too good to be true deal these stocks are still uninvestable.
Maybe the key is to buy stock in companies that are losing money and thus don't have earnings upon which to be (under) valued. Stocks that are losing money are priced according to the buzz that they can generate about a potential future.
A list of the hottest buzz adjectives leading to premium valuations (in no particular order):
*China
*Internet
*Mobile
*Social networking
*Apps
*Facebook
*Groupon
*(Cloud)
*(Lithium)
*(Rare Earths)
Renren hits all but those last three buzz words and probably a lot more that have investors salivating.
RENN is no more the 'Facebook of China' than DANG, an online bookstore, is the 'Amazon of China' but lets not let reality get in the way of our dreams.
I have been waiting for a green day to dip my toe into the water with RENN. The calls are running at a discount so I bought a handful of $13 strike May calls for $0.60 using the options for the primary purpose of limiting my downside rather than obtain leverage.
RENN calls are currently relatively cheap and if they are still running at an implied volatility around 80 at the end of the week I will probably roll these calls forward if they wind up in the money. If the slide continues I will wait for another up day to reestablish my position.
AI
