One Investor Sells, Another Investor Buys
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I was doing some reading over at pfblogs.org and one particular post reminded me of a fundamental notion that occurs in the market every single moment of every single trading day – that for every seller there is an equally as enthusiastic buyer and for every buyer there is an equally enthusiastic seller.
Around September 2005, 2million made a purchase of Merck on the weakness that the stock had gone through since the Vioxx problems. If you remember, I chose to sell the stock 8 months later on the worries with the Vioxx lawsuits. Although I admit the timing of this is not necessarily a one for one exchange of shares, I think it does highlight the fact that people analyze stocks with different assumptions and come up with different perspectives on the future prospects of the company. 2million believed, and it appears he still does as he transferred his shares recently to a Sharebuilder account, that Merck’s prospects are good and the gains he has received will hold and grow in the future. I do not know, as I have not looked at the shares since I sold. I have just chalked that one up as poor timing on my part.
I think the take-away for me in this is that there is always a counter argument for a buy in the market and that every investor should always temper their enthusiasm for a stock by thinking that there is someone out there who is thinking the exact opposite as they are. This will ensure you have thought through all the fundamentals and are truly willing to purchase the stock – that you believe you are right and they are wrong!!
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George from FatPitchFinancials.com said:
I bought Merck back in October of 2004. The key to avoiding mistakes like the one you made with Merck is to evaluate a company’s long term cash generating capability. Vioxx was a one time liability disaster, but one that is typical in the pharmaceutical sector. As long as a company like Merck can keep producing new important drugs under patent protection then its long term value will remain intact even if one of its drugs generates a huge liability.
October 28th, 2006 at 5:13 pm -
empty spaces said:
well, since there’s someone who bought every stock you sold, there are definitely people with the opposite view points!
October 29th, 2006 at 11:24 pm
