Nobody is Right All of the Time

To me, the above statement is pretty obvious. Today a reader left an anonymous comment on my latest post about Google (GOOG) that said the following:

“Yeah, GOOG is up some 13% or so, about the same as KFT is up since you bashed it a couple of months ago saying it was not a good buy. …. Trust me, you will actually gain more credibility with your readers if you admit your mistakes.”

I decided to expand on this issue in a separate post, in addition to my answer to the reader.

First, I think the reader’s characterization of the Kraft (KFT) post is a bit unfair (you can read it here: Kraft Shares Still Not Overly Attractive, Even After Altria Spin-Off Selling Pressure). I didn’t “bash” Kraft stock. The shares dropped from $32 to $30 as investors were set to sell the small pieces they received from the Altria (MO) spin-off. Given the drop was likely to be temporary in nature, I decided to take a look and see if the pullback presented a buying opportunity.

I concluded that the stock didn’t appear to have much value even after the $2 drop. It traded at 18 times forward earnings and was only growing in the low to mid single digits. That type of valuation failed to persuade me to suggest readers take a look at it as a potential purchase. In the two months since that article, Kraft stock has made up the two points it lost and had added two more, taking it to the current price of $34 per share.

The reader is correct in pointing out that I did not write another post alerting everyone that Kraft went up four points. And perhaps there are more people out there that would have preferred that I had done that. However, I’m not sure that the conclusion one should reach from that is that I refuse to admit when I am wrong. I can’t think of a time when I tried to deny being wrong. If you read the post about Kraft when it was $30 and now see the stock at $34, you are well aware that it went up. Just because a stock doesn’t interest me, it doesn’t mean it won’t go up.

The reason I didn’t go out of my way to point out the rally in Kraft shares is pretty simple; nothing changed. The stock still trades at 18 times forward earnings. Nothing is fundamentally different at the company and nothing has changed my opinion on the stock. I still don’t think it is a good value, based on valuation and growth prospects, and I would not be surprised if it continues to trail the market.

As far as Google goes, I tend to write more about stocks I recommend than those I don’t. When I recommend stocks on this blog, some people do wind up buying them after reading my views and doing their own due diligence. Since I know that those people are curious about when my opinions change (they email me and ask), I will often write updates when things change. Google shares rallied more than fifty points in a very short amount of time. I thought it was relevant to let people know that I was not selling, despite the quick move, and how much further I thought it could climb.

By no means does this mean I am unwilling to admit mistakes. If I was, there would be little reason for me to run a blog. My opinions are out there for everyone to see, over 400 posts since I started. I have been wrong a lot and every one of those posts is still sitting in the site’s archives. In the last six months alone I thought Amazon (AMZN) was overvalued in the high thirties, Express Scripts (ESRX) was close to fairly valued in the mid eighties, and liked Amgen (AMGN) at 16 times earnings. Amazon has doubled, Express jumped twenty percent, and Amgen is down to 13 times earnings.

I’m pretty sure the vast majority of my readers understand that writing this blog is the last thing I would do if I wanted to hide the track record of my investment opinions. But since not everyone seems to realize that, I figured I would address the issue. If anyone has any suggestions on how to make the blog better, please let me know. I’m always interested to hear what readers have to say.

Full Disclosure: Long Amgen and Google at the time of writing