A Painful Lesson on Inaction: How Could I Let aQuantive Get Away?

This is a painful tale of inaction - to the tune of missing a 6,000% return overnight due to my own procrastination when I made the case for an aQuantive (AQNT) takeover on my own blog. So painful in fact, that if it weren't for the timestamps on the blog posting and my submission to Digg.com on Thursday, most investors probably wouldn't believe this tale of love and loss; this reads like a genuine Greek tragedy. I "loved" the potential and highlighted it in my own blog as a great play and "lost" my opportunity in not executing a trade due to procrastination.

On Thursday, the day before the announcement that sent AQNT shares skyrocketing 76% overnight, I put up a specific post highlighting this as a top pick for a takeover by Microsoft (MSFT) specifically. The very next day, Microsoft announced they would be buying AQNT for over $60 a share when the stock had been in the mid 30s. Although I underestimated the return on the options as a 1000% return, which ended up being a 6,000% return (the buyout premium was much more than the 30% I anticipated, gotta love the leverage of options), the call was as timely and accurate as ever, and from a practical standpoint, as much so as will ever be again in my lifetime. Essentially, this would have been in the same realm as when George Soros made a fortune betting against the British pound overnight (except mine was more lucky luck than calculated manipulation of a foreign currency).

I postulated that by buying Jun or Jul 40s out of the money, any buyout would fetch at least $45 and they cost only about .45 each at the time. As of this writing, the options were worth about $24 each, a 60-fold return on investment overnight.

What happened???

Well, Thursday, I felt compelled to put this post up based on the WPP (WPPGY) takeover announced earlier that day and cited in my article. I felt like an AQNT buyout was "highly plausible". Imminent enough that I took a rare couple minutes over lunch and threw up my post (I generally do all my blog-related work at night since my job is pretty demanding and I have ethical issues with doing this stuff at work as a general practice). Thursday was my last day of work, as I was about to leave for a nice long weekend vacation. Well, following my post, it was right back to work and I figured when I returned from vacation this week, I'd go buy a bunch of those out of the money options I was referring to and see how I fared; they might be even cheaper after some time premium came off.

On Sunday, I decided to use the internet connection provided by the resort we were staying at just to check on how the market did Friday. It felt like a kick in the gut seeing the AQNT quote up 76% from Friday's close. I just made a strong case for this buyout and didn't buy the damn options myself! I couldn't believe it. In all honesty, I generally only throw about 400-500 dollars at a speculative bet like this, as posted in my Knot.com article, so I likely would have purchased 10 options at the .45 for $450. This would have been worth over $24,000 the next day. I'm not going to revel in the timing or extrapolate the annualized percent return, etc. as it would be nauseating and silly. I'm revealing a rookie mistake here as is this site's mission, as it would be disingenuous to claim that I only make stellar moves in the market or that I'm infallible. To the contrary, I'm human and make bonehead moves like the rest of us. You live and you learn.

Have I recovered?

Of course I have. Although that day I was disappointed, a bit queasy for a few minutes afterward in fact. The reality is that although it would have been nice and hey, who couldn't use a nice $25,000 bonus, I'm really OK. Think of the context. I'm on an international vacation in a beautiful resort with my wife. $25,000 wouldn't have altered our lives drastically with respect to an early retirement and yachts in the Hamptons, you know what I mean? It likely would have gone into my IRA, the kids' college funds and perhaps another nice vacation this year. I'll be OK, because life is good. (And it helps that my other holdings are doing great, some recent posts on FMCN, PCU, MRK, TSP, etc. as evidence).

Based on a question from seekingalpha.com, I started disclosing whether or not I actually own the instruments I discuss on my site. Sadly, although this takeover frenzy was first highlighted on my site with TheKnot.com (which I did disclose that I purchased out of the money options), I did not disclose as much for the AQNT options, because I didn't get around to purchasing them.

I guess this proves a few things...I don't hype stocks on my site for my own benefit; I do the research, make a case, and then if I have the liquidity and time, make a purchase myself later or disclose in advance that I've already done so. As lastly, sometimes what you read can make you money and sometimes it won't. Statistically speaking, it's highly unlikely that I will ever time or recommend such a grand slam of grand slams again in my life. But then again, it's like a learned on my first day in Stats...each time you flip a coin, the probability is the same, even if you've just had heads 5 times in a row (and I keep telling my wife that she has equal probability of getting that girl she wants after our first two boys, but she's not buyin it!).

To add insult to injury, the other stock I mentioned in the article, ValueClick (VCLK)...Well, that was up 15% today on takeover speculation. I guess I missed the boat on that as well. My only consolation here is if in fact we do see a takeover of TheKnot.com.

Comments

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Dan

2007 May 30 08:46 AM