At the end of 2013 we recommended that investors sell Twitter (TWTR) near $72. Institutional investors were gobbling up shares of Twitter to dress up their portfolios as the year came to an end, and the stock increased aggressively during December alone. Our call to sell Twitter was based on that fabricated demand, which was not warranted by the growth rate and trends of the stock itself.
Of course, when sell recommendations are made in the face of aggressive buying like that those recommendations are also met with the tremendous amount of criticism. Our recommendation to sell Twitter then was questioned by all of those institutional investors who were dressing up their portfolio just so they could show ownership of Twitter shares to their shareholders when their quarterly statements were issued. That is fabricated demand, because it is not warranted by anything other than window dressing.
Taking advantage of anomalies like this are something that investors should try to do, and it is not hard if you leave emotion at the door. At the same time we recommended that investors sell Twitter, we also recommended that they buy BlackBerry (BBRY), an example of buying when everyone else is selling. Blackberry is up about 34% YTD, and Twitter was getting destroyed.
Interview Archive: Sell TWTR; buy BBRY.
However, when these calls were made they were both met with a tremendous amount of criticism because they were contrary to what was popular at the time. That brings us back to the notion of buying and selling, and by rule the best time to buy is when everyone else is selling and the best time to sell is when everyone else is buying. This is not the popular thing to do, investors who engage in this practice often miss the hype associated with momentum stocks like Twitter was at the end of 2013 too, but as the song goes, "Don't believe the Hype!'
As investors, we should do everything we can to keep our emotions away from our decisions, and that means we should avoid the temptation to get involved in a stock that is being overly hyped for any reason. That also means that we should look for opportunities in stocks that are beaten down for reasons that may not be warranted either, so we always keep our eyes open.
The recommendations to sell Twitter and buy BlackBerry our great examples, and currently we recommend that investors avoid Twitter. There's no reason to buy the stock at these levels, but eventually there may be. We cannot know for sure, but we can anticipate opportunities to buy the stock again if it falls enough. Right now, even after the decline, we see no reason to buy Twitter. We are keeping our eyes open, we are looking for opportunities, but we must all let the stock come to us before taking action. When that happens, we will issue buy recommendations to our clients just like we issued sell recommendations when it was time to sell the stock.
Until that time, our recommendation to anyone interested in Twitter is to avoid it. The best opportunities to short the stock are already behind us, and buying at these levels is extremely risky. Just be patient, and one way or the other this stock will come to you again.