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Editorial: Fortunes Not Made

By Chuckmonster on Monday, 3rd March 2014 4:15pm
  » filed under Las Vegas  comments: 19

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The thread of gambling may end with a slot machine, but it begins with investors - bulls and bears, longs and shorts, pass and don't bettors, who bet millions of dollars on the house, not in it. Long time VT reader and gaming industry watcher Motoman shared with us his thoughts about betting with the house and not betting at all. Enjoy!

As we approach the fifth anniversary of the stock market crash that precipitated economic meltdown, I happened to notice that the stock of Las Vegas Sands Corporation, owners of Venetian, Palazzo, Sands Convention Center, and a bona fide cash-generating empire in Macau and Singapore, closed the day north of $85.

Flash back to 2007. As storm clouds were beginning to gather just beyond the horizon, the Dow reached an all-time high of over 14,000 and shares of LVS peaked at around $145 -- also an all-time high. By mid-'08 the Dow was faltering and LVS had lost well over half its peak value and was sliding downhill -- horrors!

Then the bottom dropped out. Automated trading algorithms augmented investor panic (and vice-versa) and on that fateful day of March 9, 2009 the Dow plummeted below 6600, less than half its high of barely a year and a half prior. And LVS closed the day at $1.42. That closing price represented a loss of over 99% from peak value.

Pity the fool who sold on that day.

"Buy, buy!" I would yell to anyone willing to listen. Sands was still printing money in Macau! Singapore was in the works. Thanks to Admiral Hunter's Two Way Hard Three blog and regulars detroit1051 and Dr. Dave who had inspired an interest in the business side of the gaming industry, I felt better-informed than Average Joe on the Street. It's a fire sale! Buy!

So, did I take my own advice? What do you think? ;-)

Herd mentality is a funny thing. Panic is contagious. Somehow I convinced myself that any available "play money" was fully committed, tied up in "safer" equities like Apple and Nike. And there was no way in hell I would tap IRA or other retirement funds for such a speculative play. Besides, who could say if LVS had been fairly valued at its earlier price? We had already suffered the hot air of the dotcom bubble. Sure, AAPL and NKE had good runs during the current recovery. Just not, oh, 4710% ! Yes, that is the approximate gain enjoyed thus far by LVS. Four thousand, seven hundred, and ten percent.

Of course it's impossible to buy at an absolute low and sell at an absolute high. The market as a whole and Sands in particular began rebounding almost immediately. But just to rub salt in the wound let's have a little lesson in Opportunity Cost, shall we? A mere $1000 pulled from other investments and placed on LVS would today be worth over $47,000. Easy math, right? $5K would have yielded more than $235,000 and made for stress-free Vegas vacation planning.

$10K? While I wouldn't exactly be retired, Sky Suites and Wynncore's finer offerings would become a no-brainer. And I certainly would no longer be living the Ed Schultz "Shower AFTER Work" lifestyle and coming to Vegas just to escape all that. That much is certain.

Any Vegas Tripper out there brave enough, bold enough, or just plain crazy enough to have made that play? Feel free to brag here. And do send us pictures from inside the Sky Villas and Mansions. Those things look delicious.

#CouldaWouldaShoulda. Indeed.



Tagged: editorial   motoman   las vegas sands   stock market   



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Comments & Discussion:

Wish I had. Bought MGM in wife's acct at $11 and was happy enough with that, have made more on the stock than we have taken home in all our Vegas trips (doesn't that say something about where one should be 'gambling' with disposable income!) Friend of mine swears by Wynn as the way to go because they pay out the 'Special Dividends' so often. Personally I am surprised the chinese haven't swooped in to change Macau legislation, taxes, etc. or made it difficult for operators there...

Buying MGM near the bottom sub $2.50 would still be a 10-bagger, nothing to sneeze at. But LVS being a 60 bagger is the clear winner, though, perhaps one can loosely chalk the greater Macau exposure (and zero CityCenter exposure) of LVS as being worth ~50x difference?

Don't ever let yourself think about the trades you could have done and missed. It will drive you insane within 3 years, less if you're a professional and miss trades every day. There's always another rocket ship to the moon, as one of my mentors in the business is fond of saying.

The long term leadership plan for LVS goes something like, "Sheldon discovers the method of immortality." I've kind of considered it a risky investment, because he has driven off the closest executives years ago; and I simply don't trust a revved-up, hard chargin' octogenerian to be healthy in the 2020s.

(PS: Remember to set aside 15% of your metaphorical windfall for Uncle Sam.)

Unfortunately, I bought BYD instead. I try not to beat myself up – I still hit a triple. For what it is worth…the scenario has provided some intangible value. I use it as a self deprecating anecdote when I am drinking with traders and need to contribute to the conversation.

I bought 750 LVS at $3.01 in my Roth IRA. Sold 250 at $9. Then covered calls got called away at 200 at $40 and 200 $65. I have 100 left. All in all, I made almost $30k in my IRA with a $2,267 investment and I'm not a baller, by any means... now back to index funds!

http://imgur.com/FPnte4l

It's also worth nothing the Shelly bought $150M (some in his wife's name) at $3.27-ish in March of 2009.

kudos deedubs...good way to play it.

@deedubbs
WooHoo! Now that is what I'm talking about! To my point about the impossibility of catching the low: though you bought at over 200% off the bottom (which if memory serves was only a matter of days later), and sold some at triple your purchase price, you have still done gangbusters. Good job!

And yes, I do remember Sheldy's self-reinvestment. (Should have been a kick in the pants for me as well.) And somehow, it's a scary thought. The song at the end of Dr. Strangelove is playing in my head right now....





@motoman
You are correct, the move from $1.42 to $3 was very quick, maybe two weeks tops. I want to say that the short interest was over 40% around that time. I will likely spend the rest of my life believing in efficient markets, but spring of 2009 was crazy. I almost bought a basket of WYNN, MGM, and LVS, but my belief was if LVS could hang on to get MBS open, they would be the most likely to survive. Ultimately, Shelly's purchase of those special convertibles had the biggest impact, imo. I never, in my WILDEST dreams, imagined a run like this.

Bought more at $5, still own it. That, however, was a small slug compared to what I had already owned. When I bought it at five and it fell below $2, I was crapping my pants. phew....

WouldaCouldaShoulda will definitely linger on something like that, but hell, it gets me here and there with $WYNN too. I missed the rock bottom prices for that position, but I look at it now and think "Damn, I should have scooped up a ton more at 97.50!" Regardless, it is amazing to find and score on crazy market inefficiencies at times.

I've found the older I get, the more risk averse I am. I keep thinking, if it doesn't work, how will I live? Sometimes, it's expensive to be cautious.

Corrections. (I wonder how a Vegas celebri-chef would prepare my plate of crow…?)

1) I must've flunked math. Jimmybond calling LVS a "sixty-bagger" is correct. ($1.42 x 60 = $85.20) I *did* look up the historical day-to-day for the Dow and LVS when writing this. For percentage gain, I merely used the touchscreen graph on a smartphone -- which I noticed later, only showed the low at $1.77 and high $83 and change, for a multiple of 47.1. Makes a difference when each increment of $1.42 is another 100%!

That also means those hypothetical gains would have been even greater ($1000 => $60K, $5K => $300K, etc.). Ouch, I felt bad enough when writing the piece.

2) A true definition of Opportunity Cost would of course subtract the gains made by that hypothetical money in its other, actual investments. I knew this. Just neglected to mention it.

3) #WouldaCouldaShoulda is more correct than #CouldaWouldaShoulda (thanks @jerrydice). My bad, trying to be hip with a Twitter reference. But that's not a signature... ;-)

Actually, motoman...when I hear it in my head, "CouldaWouldaShoulda" sounds good. No crow for you on #3!

Regardless of whether you're looking over stock performances and lamenting missing a bottom, or if you watched back-to-back Yos on the craps table all while hesitantly holding a nickel in your hand - trying to time these things perfectly will only grind your nerves down.

:( I won't even remind you that Wynn got to $20 around that time too, trust me my tears are shedding for myself as well, I just try and reason with it when I realize how much in taxes I would have paid

Wynn was hurt least of the major players, by far (therefore less upside potential). LVS was/should've been a no-brainer after that hit, what with their Asian cash machine unaffected by Wall Street shenanigans. :-(

And those are "good" taxes! I already assume readers plowing this deep into the comments are in a tax bracket that would leave them *thrilled* to have to pay (as mike_ch noted above) only 15% on such a windfall. Seriously.

In my bracket it would make little difference. Disclosure, I did play a couple short-term flips on MGM and LVS, which did no more than fund a second trip to Vegas only six weeks after our regular save-up-the-paychecks vacation. That was to attend the Aria opening, where I was privileged to meet Hunter & Chuckmonster for the first and thus far only time.

Honestly, given a (second) choice at the time I would've probably gone with MGM over Wynn and look where they are now, the laggard of the group. (I do own a few WYNN out of sheer fanboyism -- so few that the occasional dividend buys me a cup of coffee, neat.)

I bought a few shares of casino stock back then. Before I decided drugs were more fun.
I recall opining on Two Way Hard Three that LVS was gonna make a huge turnaround and was a great buy, and that I wouldn't touch it as a matter of principle, due to my dislike of Sheldon Adelson's treatment of contractors. His use of the practice of "I'm not gonna pay you. So sue me." was so blatant that the Nevada legislature changed construction laws to limit the use of this practice IIRC. I still have the same opinion of him and don't have a lot of regret about it.

That kind of return on investment is epic. Some of the funds I'm invested in through my Simple IRA previously had stock in the gaming industry and sold it all off several years ago (I'm sure some of these fund managers are kicking themselves for selling off shares of Las Vegas Sands, but considering the walloping funds were taking at the time, they needed to get money into stocks that had better potential at the time.). The funds I'm in had shares of MGM and Wynn but not LVS.

What Las Vegas Sands will do in the post-Adelson era is something that will be a cloud over the company. He doesn't seem like the type to ease off into retirement (Same goes with Steve Wynn) and is likely to remain in his position until either his health necessitates him resigning or he dies.

@vespa, I'm sure those fund managers have pretty specific rules/formulas for when to sell in order to maintain balance. (I kept getting calls from my planner about NKE being overweight in my portfolio, even as it went on to double in value….).

But I simply cannot fathom what @deedubs said about short interest in LVS after it hit such a bottom! Goes to show that when we as individuals have a specific interest in a company or business sector (AAPL or gaming), we may actually know better than the "experts"! As long as we can keep emotion out of the equation, that is.

@Jeff, I do recall your comments on TWHT. I think the best revenge would be to take his money and cash out. Just like at the gaming tables!

I'd like to think that in a company -- no, an empire -- as vast as LVS, a succession plan is in place like at Apple. Even though as mike noted, Adelson has lost some of his top lieutenants (and Jobs may have been unique in the history of American business).

Any Trippers who are holding and just to "modest" to brag here, just keep an eye out for "sell" signals.

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