Europe's down 2%. So we are down 2%. They sold off at the opening, so we sold off at the opening. The futures indicated we would be down more than 2%, and we are down more 2%. That's just the way it is. The big price swings are happening because huge pools of capital are whipping around the futures and the futures are obscuring the individual players who might be doing well regardless of what these multibillion-dollar traders are up to.
Yep, we are stuck with these prices, these discounts, these maddening selloffs and we can bemoan them or we can exploit them.
I choose to exploit them. Here's why.
Tonight's the Mad Money Schlumpadicka Fantasy League Draft. I spent all night poring over players, looking at the order, whom I would take, what happens if someone takes a player right ahead of me whom I am looking at.
I went on ESPN and did a mock draft with strangers, seeing if I could manage under a tight time frame, spotting patterns, getting predictabilities, working out disaster and recovery plans.
And then I did the same thing with stocks. I am not kidding. I have my draft list. And I have my price points. I know which stock I want to draft at what price, and if it doesn't get to my price, then I will pass.
The NFL draft has a lot of wild cards to it. Are my colleagues going to pick the right players so I can game who will be left by the time I pick, as I am No. 11? Should I get a running back or a wide receiver? When do you pick a defense? How aggressive should I be?
But when it comes to the market, there are fewer wild cards. I don't have to compete with anyone to buy a stock. My stock will not trade ahead. I can choose which round I want to buy a stock in, the down 3% round, the down 10% round, even the down 20% or more round? I can let the market sell me stocks that aren't hurt and pick them up at what I think will be reasonable prices.
Why this analogy?
Simple. Because somehow we, meaning market participants, have gotten totally gun-shy about buying merchandise and exploiting opportunities.
Unlike fantasy, in a bear market you might not want to choose anyone. That's fine. The market's optional. No one is forcing you to take action. There's no gun to your head. The snake isn't coming at you, you are never on the clock.
But you know what? It doesn't hurt to imagine that you could be the first one to draft in your stock league and you have the choice of what to buy.
So let's talk about how not to do it and how to do it.
First, recognize that the stock market involves pieces of paper that have to do with the fortunes of the companies, not the fortunes of China or of Europe. Let's go back to the analogy because it is pretty perfect. When I am drafting players in fantasy, I am always wary that they are on teams that play against some pretty tough opponents. You might not want to draft any Philadelphia Eagles because they play, in addition to their own division, the New York Jets, Miami Dolphins and the New England Patriots at home.
Those could be shutdown games.
But Celgene (CELG) doesn't have a road game in China. Netflix (NFLX) doesn't have to go to China either. It can do so next year.
I see where Brazil is coming off the rails. I don't need to own a single club that plays in Brazil. That means not playing an auto, which is a shame because the autos are having a good camp, but it is just a domestic camp. The numbers overseas -- away, so to speak -- are horrendous. Why not own a team that always plays at home? How about at home, in a dome, in winter. You know who that is? That's Celgene.
But, sticking with Celgene, at what cost? Here's a company with a stock that traded at $139. In retrospect, that was a real bad draft. However, you missed that price. You are not afflicted by it.
So what round is appropriate to buy Celgene? We can get emotional and decide, ooh, Celgene, really scary. Better to pick a defense. Or we can say, let's see, last time around in the last draft, last week, the darned thing traded at $113. It's only at $116, so I am going to wait until a lower round. Why buy at all? Because the scouting report, given in a calm time when we weren't drafting, says Celgene, which earned $3.71 per share two seasons ago and is operating at a $4.80 run rate this year, could rack up $7.53 in 2017. With these biotechs, you have to draft looking a few years out. If it goes back to $113 or lower, I am going to be able to pick this one up for 14x earnings. That means this sleeper could be terrific for my portfolio team at my price. Remember, I don't have to worry about Celgene trading ahead. I can wait until it gets there or not draft at all.
Why bother? Well, we don't have an Adam Schefter or a Fantasy Guru or any service working for us, but I know Celgene's now picked up Receptos (RCPT) at a good price, which gives the Summit, N.J.-based team -- my hometown yet -- a very balanced attack.
But let's say you want something more aggressive than what's basically a defensive stock that doesn't have to worry about China because it doesn't have a lot of exposure.
Maybe you want a speedster like Facebook (FB). So you check your cheat sheet and you see Facebook was taken at $83 in the mock draft that was last Tuesday's low. I have increasing confidence that Facebook could earn as much as $4 per share in 2017, again how I draft for the future. I would, at $83, be paying about 27x earnings for this stock. Hmm, seems expensive. Should I wait for a later round? Well, it's not that simple because Facebook is growing at almost 30% a year and has all of the characteristics of a Dez Bryant, an Antonio Brown or an Odell Beckham, meaning that it's a real speedster that's pretty unimpeded by opposition, including Brazil, China, Vietnam, Argentina, Thailand or any of those other also-ran clubs. Now on any given day of the week, this one could trade through $113. Nevertheless, you have to pay up to get that kind of growth. (Facebook is part of TheStreet's Action Alerts PLUS portfolio.)
Now I can play this game with any sort of company. A safe supermarket stock like Kroger (KR) went at $33 last time around, where it is now. But it doesn't have the explosiveness I need unless it trades still lower. I am going to pass. I don't want a GoPro (GPRO) here or a Wayfair (W) or a Tesla (TSLA), because they are all way too expensive no matter where they trade.
However, here comes Kimberly Clark (KMB), which is admittedly interchangeable with a lot of other defensive outfits, yet it is sitting on the board for lower than it traded last time even as its business is virtually unchanged and the only thing that has happened is that its yield has grown because the stock's going lower. Tell me what kicker has a good yield!
Now, I know that you may just say, "Holy cow, I am not going to go in the draft room on a day like today. I am going to wait." That's totally up to you. I like to buy my players cheap when few competitors are around because it is a light week and every team, including ones with excellent draft prospects, is falling apart even though none of these companies has been carted off the field with an ACL or given a four-game suspension for drug use or whatever other abuse they are punishing stocks unfairly for.
I could be wrong. But who says I have to put all the money to work at one level? This reality business is a much better game than fantasy. There's another draft tomorrow.
I want to be in on that one, too, provided the players are selling even cheaper tomorrow.