Picking stocks isn’t, by any means, an easy business.
There are always fluctuations in the market you can’t foresee or control. Virtually nothing is ever certain.
Even so-called “gurus” get things wrong now and then (probably more often than you think). Anyone who tells you otherwise is a liar, and anyone who won’t admit they make bad calls is a straight-up con artist.
If you want the evidence, just take a look at what CXO Advisory Group found regarding some of the most established names in investing:
- Accuracy of Gary Shilling: 36.6%
- Accuracy of Jim Cramer: 46.8%
- Accuracy of Marc Faber: 44.6%
Of course, none of this is to suggest playing the market is futile, nor is it to suggest these folks aren’t making money. If you ride out your winners and cut your losers out early, you can, in fact, turn a profit even with a sub-50% win rate.
But even if Cramer, Shilling, and Faber are losing money, that’s not necessarily a bad thing, either. In fact, as long as you’re not any of those three people — or blindly listening to them — it’s technically an opportunity for you to profit.
For every dollar lost in the market, a dollar can be made on the opposing trade. If Cramer is convincing hordes of inexperienced investors to take losing positions every time Mad Money airs, it creates an equal opportunity on the other end.
Ultimately, picking stocks isn’t about being right every time — it’s about being right more often than the next guy.
Like my grandfather always used to say, you don’t need to be faster than a bear to get away from it — you only need to be faster than the guy next to you.
A Wounded Bear
Every so often, though, you just so happen to be faster than that bear. It’s a rare occurrence, but it does happen.
Maybe the bear has a broken leg, or maybe it ate some bad sushi that day (it’s a salmon joke, get it?). Either way, it doesn’t really matter. The fact is, even if you’re the slowest guy in the forest, you’re not going to get eaten.
In October of 2013, I happened to cross paths with exactly this kind of stock — a wounded bear, so to speak. That is, a company I can take a position in and be completely sure it’s not going to come back and bite me in the rear.
If you’re a consistent reader of my work, you know I rarely title posts with definitive assertions. In other words, I will almost never say a stock is a sure-shot buy or sell.
Like any other financial pundit, the last thing I want is to get caught with my foot in my mouth. I also want to be able to stand behind the things I say, which is why I’m very particular with my wording.
Since the start my career, I’ve written hundreds (possibly thousands) of articles pertaining to the market. Only twice have I titled an article with definitive phrasing about the future price direction of a stock.
The first was an article titled, “Facebook is Undervalued,” posted on June 27, 2013. Shares are up nearly 200% since that article went out.
The second was an article titled, “Rosetta Stone is a Sell,” posted on October 28, 2013. Shares are down 43% to date.
Now, to be clear: I don’t bring this up to boast or to come off as an omnipotent investor. I, like everyone else out there, get things wrong and will continue to do so as long as I’m in the market. That’s just the nature of this game.
However, when I say that I’m certain, I’m certain. On the rare occasion I make a definitive statement about where a company is going to end up, you can be pretty confident that’s what it’s going to do.
Today, I’m going out on a limb to make one of these statements, once again involving language software provider Rosetta Stone (NYSE: RST). The statement is this:
Rosetta Stone will be out of business by 2020.
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How can I be so sure? Well, for one thing, the company hasn’t turned a profit since 2010. It lost over $55 million in 2014 and has less than $50 million left in cash left (compared to $98 million cash in 2013).
More importantly, though, Rosetta Stone is selling a product that’s becoming completely useless. Not only is there free language software available that’s proven more effective than Rosetta Stone, but learning multiple languages will soon become a totally worthless venture.
I made this point back in 2013, and it’s worth making again: Language translation software, namely Google Translate, will shrink the demand for bilingualism to near zero.
Yesterday, Google released its latest version of its Google Translate app, with two features that are obvious killers of Rosetta Stone…
First, the app uses technology from Word Lens, a company acquired by Google in May of last year. This now allows Google Translate to read text in virtually any language using the camera on your smartphone and translate it back to the language of your choice.
The feature is particularly useful in translating signs in foreign countries. It even works in Cyrillic script:
Then there’s this: Google Translate can now translate languages in real time. It’s literally like having your own personal translator follow you everywhere you go.
Oh, and did I happen to mention it’s free?
Seriously, if you have a smartphone, download the app right now and try it out for yourself. Then ask yourself if it’s worth spending $229 and countless hours of your time to learn just one language.
Unfortunately, there are no long-term puts on Rosetta’s option chain, but shares are certainly available to short. At the very least, if you happen to own shares of RST, the time to sell is now.
Until next time,
Jason Stutman
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