BOOM! Goes The Molycorp: Avoiding 'Manic' Stocks

Includes: MCPIQ
by: Roger Nusbaum

The other day I heard or read a quick mention in passing of rare earth miner Molycorp (MCP). The chart tells us a lot about what type of stock it was, what expectations were and how those expectations ended up playing out, or not playing out in this case.

From its peak it is down 85%. While anything is possible in the future it looks like a meaningful, permanent impairment of capital for anyone who went heavy at the wrong time and did not sell.

The chart traces an arc that I've written about many times before where a great sounding story leads to massive price gains ahead of the fundamentals because "this is different," it goes on long enough to be convincing and eventually the mania/fad ends. The chart shows the recurring arc, it could just as easily be Comparator Systems (IDID) or Andrea Electronics (AND)--remember those?

This type of mania should be very familiar to long time readers and I think they are easily spotted as was the case a little over two years ago in a post titled Fad, Mania or Bubble that I wrote about... you guessed it: Molycorp. These will come up again and I will try to point them out.

Some people will trade fads and manias successfully of course but others will get blown up by them.

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