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Dendreon Perfect Storm
In the case of DNDN, shareholders had a -213% return on equity. Maybe the common denominator was that insiders at DNDN and Big Banks own a minority of their company.
The phrase caveat emptor, let the buyer beware, certainly applies to DNDN and a lot of other stocks today more than ever. In this day and age of reduced transparency when books were cooked hiding off balance-sheet transactions disappearing book values and earnings, the first rule of investment survival must be what Warren Buffett and Peter Lynch learned:
If it doesn’t have earnings, we don’t buy it.
It is not enough to believe the trend is our friend, then plunge in for a shellacking.
Although it is vital to use trailing Sell Stops to protect ourselves, when volatile markets or stocks gap down, up or close, we may not get out with a good fair price.
In the case of DNDN today, a trailing Sell Stop protected the bacon. On another day it may not, another good reason to avoid volatile stocks without consistent, visible earnings.
Selling short has even more risks.
Legal Short sellers take on unlimited risk for limited reward, not a good ratio for long-term success.
They borrow the security, pay the dividend or interest to the owner, return it if asked, buy it back for less than they sold it, meet margin calls from short squeezes up or use trailing Buy Stop Orders to get out.
Although short sellers may provide more liquidity for markets, they may also create more volatility with sudden short squeezes.
Finally, perhaps the most interesting DNDN lesson of all may be what baseball player turned lone wolf Billionaire on Wall Street and presidential adviser Bernard Baruch pointed out to a reporter a long time ago:
The Bears have no mansions on Fifth Avenue.
BB knew; he owned a 17,500 acre barony on the coast of South Carolina which Winston Churchill, General Pershing and the wife of Woodrow Wilson enjoyed.
