First Solar Proves There's No Such Thing as 'Priced to Perfection'

I've been reading repeatedly since First Solar (FSLR) reported their first earnings 9 months ago and traded up to $40 that the stock is "priced to perfection." The truth is there is no such thing as a stock "priced to perfection." Stocks don't trade in the confines of some arbitrary ranges such as $30-40 or a Price Earnings Growth multiple of between one and two. They simply trade between a price of 0 and infinity. A stock priced to perfection would by definition be infinitely valued. Laughably oversimplistic statements such as "what goes up must come down" can easily be refuted by slightly less foolish statements such as "objects in motion tend to stay in motion." Throughout the year I've witnesses numerous shorts who may have less than a week's experience with FSLR appear and disappear. Much like the reinforcements for a losing army, they've joined to battle too late to witness the carnage of their fallen comrades. They cheerfully charge head on into their own demise.

As a former professional high stakes poker player turned investor, I have a unique perspective on the markets. The lessons I've learned as a professional gambler are priceless. Issues such as emotional discipline, money management, risk assessment, prioritizing statistical information, and realizing a perceived advantage are all integral skills required for succeeding in both poker and investing.

Even the most inexperienced gambler spending the weekend in Vegas is probably aware of the various pitfalls to steer clear of. Games designed by the casino to separate you from your money such as "three card poker" or any version of blackjack where blackjack pays less than 3 to 2 are known in the gambling community as "sucker bets." Many of these wagers carry a house advantage as high as 10% or more, whereas even slot machines typically only have an advantage of 2-5%.

The investing "sucker bet" would be shorting a stock for any reason other then as a hedge to minimize risk. Since going long and short a stock in the same industry will minimize risk but also return, this isn't recommended either. I would prefer to buy putts to achieve the same goal. To short a stock, especially without covering your position by the end of the day, is like betting against the house. The fact that equities tend to appreciate with time is due to one of the most fundamental economic laws. Equities appreciate because they are basically a highly leveraged play on inflation. Therefore when you hold a short position through the close, time is not on your side. Just as the odds will catch up with the slot machine player, they will catch up with 99% of your typical shorts. Although I've never shorted a stock in my life, I can imagine situations in which it could prove profitable.

In single deck blackjack, pit bosses have a sure fire way to catch card counters. One of the card counter's most profitable tools is to take "insurance" when the deck is stacked with "face cards" by an otherwise competent player. Under normal circumstances taking "insurance" is a laughably poor bet. Therefore it's only done by the very best and very worst players. Shorting stocks is much the same, reserved for the very best and worst speculative investors with the best usually consisting of those with billions under management.

YTD my portfolio is up over 500% thanks mainly to a heavily margined position in FSLR. As it went up I'd "pyramid up" buying more on my newly earned margin, partly due to my low margin interest of only 5 1/4% (fidelity, tradingdirect). In order for a short to achieve comparable returns he would have had to rotate all of his money from one stock that went to 0, to another, and then to a third. My guess is not a single person has achieved this this year. Yet many have lost several times more money then they would've going long Enron back in the day.