One of my favorite Jim Cramer-isms is "Commandment No. 5" -- Tips are for waiters. Here's what he writes:
You know that the best moves are takeovers and you are convinced that if you can catch one, it will make up for all the bum steers and bad bets you have made. Tips are winning lottery tickets in most people's eyes.
That's the reason I've had to default to a simple analogy, tips are for waiters, to remind myself how stupid tips really are. Does it occur to you, on hearing the tip, that if the person telling you that Nokia is going to buy RIM really knows that's going to happen, the person is an insider and is breaking the law, and you could get in trouble, too? Does it occur to you that if the person isn't an insider, he doesn't know? There simply is no way a tip like that can work. Leave it for the waiter.
That's what investors should be keeping in mind as they watch shares of E*Trade (NASDAQ: ETFC) surge on extraordinarily vague takeover rumors. Shares were up as much as 25% on rumors that Schwab and Ameritrade were interested in buying the beleaguered broker. Where did these rumors come from? Ah, yes. "A source." And who's to say that "the source" isn't some clown holding a ton of E*Trade shares that he needs to get rid of -- for 25% more than they were trading before the rumor?
Everyone knows E*Trade could be in play -- any time a stock tanks that much, there are always going to rumors. But no one really knows what's going on, and buying E*Trade on the rumor is just mindless speculation.
As Doug McIntyre wrote, "E*Trade may be worth over $5, but it could also be worth a lot less."
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Reader Comments (Page 1 of 1)
11-24-2007 @ 7:05PM
Anthony to the S. said...
This is great advice, thank you!
http://paidandpopular.blogspot.com
11-25-2007 @ 11:23AM
Don Martin said...
There's a reason that E*Trade went digging around in the subprime sector in the first place. There's just not that much money to be made in deep discount securities brokerage any more.
If Schwab or Ameritrade want one or more of E*Trade's b/d subsidiaries, it doesn't make any sense for either of them to take over the whole firm. They'll cherry-pick its assets either before or during its time in bankruptcy.
11-25-2007 @ 3:46PM
jim said...
This really sounds like a lame attempt for shorts to make money. ... who says you or even Cramer isn't another clown being USED to help people make money... USED...
actually, if you look at Cramer, he does kinda act like a clown on TV
11-25-2007 @ 7:29PM
james said...
Oh, you got to be kidding. You quote Cramer, an embarrassment to any serious trader and only a nut can't see the actual value of ETFC at this level. The headlines and false declarations by Bhatia and other loser analyst tried to undo ETFC at it's worst moment. Common business sense says.BUY ETFC at thsi level and HOLD......the paper can be unwound with a pro at the helm if it is not bought! For Gods sake. If what the ''analyst'' are saying is true about the 15% chance of bankruptcy and then you say ''don't buy on rumors'' is all you got for your great insight we rae in great trouble with such amateurish yakkers wasting our times reading your garbage when the fact is YOU DON'T SELL ON RUMORS! Your logic and reasonings is childish, and frankly costly for longtermers who have to suffer at the expense of your kind of nonsense. Be wise, and learn when to say nothing when you have nothing,Facts, to say. Then I'd listen! When I see someone quote Cramer, a man who admitted he lied as an broker on marketwatch, when in fact most brokers are honest. He was the exception. So, to put firmly......give facts why ETFC is not buyable at this level 5 bucks or simply quit guessing about the value of a great brand name ETFC that has 4.65 per share cash value and 1.9 billion in cash/assets and most CDO's are high quality. Point is, they aren't Citibank...Bhatia works for those thugs!
11-25-2007 @ 10:20PM
beanieville said...
Etrade subprime mess. Are you worried?
I have one of my brokerage and bank accounts with them. I was busy selling all my assets and transferring to another broker and bank as quickly as i can, right after the stock price dropped below $5. Management was less than honest about their exposure to subprime, imo. They said Etrade had only a small exposure to subprime, but later threw the burrito at us. I don't trust, therefore i wrap up and leave.
Even though your money is insured by FDIC and SIPC, it could take months to get access to the money if Etrade goes under.
It doesn't look like Etrade will go belly up, but ya never know.
Good luck.
www.beanieville.blogspot.com