Monday, August 09, 2010

Overstock.com's Loss and Patrick Byrne's Prescient Stock Trade

My latest column in TheStreet today describes the dangers of investing in cult stocks, ranging from Sirius XM to Apple to my all-time favorite, Overstock.com. My point was that falling in love with stocks is a bad idea--and, as if to prove my point, Overstock decided to take a swan dive into the toilet late last week.

The issues are, as usual, multiple. Overstock had a real bang-up quarter, and investors celebrated by selling the stock in droves, pushing its price down 17% on Friday on heavy volume. But that's not really the problem, as Sam Antar and Caleb Newquist point out.

The problem is that CEO Patrick "Wacky Patty" Byrne made the far-from-wacky decision to dump $3 million in shares in May, and then gave a misleading interview in which he implied that the company's finances were on an even keel. They were not, and the resulting surprise can be seen in Friday's share price action.

Volume is again heavy today, and the shares are down again as of this writing. There was no press release celebrating the latest bad news, but there is a conference call, scheduled for 3 p.m. today. It will be interesting to see if CEO Patrick Byrne can find the right evasions and Buddhist aphorisms to mask the bad news. If past is prologue, I think that we can expect no impolite questions from the quaking analysts in attendance, and no questions permitted from Sam Antar.

Another prediction: the Salt Lake Tribune and Deseret News, Overstock's hometown papers, having both ignored the shareholder slaughter--the second-biggest on Nasadaq on Friday--will figure out a way of producing happy-talk articles. Stay tuned.

UPDATE: Still waiting on the Utah papers' latest lotion job. Meanwhile, Byrne's brief conference call falsely claimed that there was only one caller with a question--ignoring Sam Antar, who not only signaled for a question by pressing *1 on his phone, but had previously emailed Overstock on the subject.

I assume that the SEC will let this stunt passed unnoticed, as Overstock has pulled it in the past. I wonder what they have to fear from Sam? (As if I didn't know.)

Overstock shares are down 4% for the day on heavy volume. If this trend continues, the company's cult status may be over.

© 2010 Gary Weiss. All rights reserved.

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