We are wired to assume that the future will be like the near-term past and underestimate the potential for a major change. As Howard Marks would say “99% of financial history has taken place inside two standard deviations, but everything interesting has taken place outside those bounds”. Indeed.
A little more than 3 years ago, Yahoo was still trading under $15 and was considered one of the dogs on Wall Street. It had changed 6 different CEOs inside a few short years and it had done very little for its investors. Back in those time, Phil Pearlman went on a limb and called that Yahoo could be a $50-billion dollar company in 3 years. I decided to make a friendly bet with him and told him that if it happens, I will send him a case of premium beer.
I felt quite confident in my position. It was like selling very out of the money call spread for a very decent premium: risk/reward was 1:1 and I did to be a good sport, too.
Earlier this week, Yahoo came within very close proximity of reaching Phil’s target. I consider it good enough to admit that he is the winner of our bet.
Here’s the brain behind this call. His StockTwits and Twitter handle is @ppearlman
The curious thing about $YHOO is that none of us needed to have some special insights in order to make money in it. Price was all we needed to spot a major change of trend. In November 2012, $YHOO cleared new multi-year highs from a very long sideways base near $16 and it hasn’t looked back ever since. We made that bet before the breakout occurred.
I don’t know what his reasoning was and how his thinking changed over time, but I have to admit that he made an incredible call and he won his beer fair and square.
Cheers, Phil
Beer photo credit: Eric Huybrechts
