Why did Twitter Inc.'s (NYSE: TWTR) stock drop like a hot potato last Thursday?
Millions of people think they know the answer, which is great. However, the far more relevant (and profitable) question is why on earth millions of investors would have bet otherwise?!
#thestockisbetterleftfordead
There are far more profitable alternatives out there and, I might add, that come with far less risk.
Including the two I'm going to mention today.
Last August, Twitter stock was up 80% off the $14.40 per share low it set in June, leading millions of investors to think that this was it... Twitter was "back."
No way in hell.
A billboard on the notoriously dangerous Road to Dushanbe would probably be more profitable.
Hope has never been, and will never be, a viable investment strategy.
Not for Apple.
Not for Disney.
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And, as of Thursday morning, apparently not for Google, either.
According to various news sources, every potential suitor we know about has concluded the same thing we did all the way back in June when I explicitly told you not to bet on a "buyout bailout."
Twitter remains a stock with no redeeming value whatsoever.
Worse, it's a company that rips bare any assumption about "eyeballs" and "clicks" and the "promise of social media."
Twitter is also a glaring wake-up call for investors - or at least it should be.
Here's why.
Millions of investors have a bad case of FOMO, which stands for the "fear of missing out." So they're throwing money at social media investments like Twitter on the assumption that they have to. In the process, they're creating billions for company founders, for underwriters, for lawyers, and for angel investors. Just not for themselves.
At the same time, they're creating billion-dollar valuations that are complete fantasyland and based on nothing more than the premise that they might be "on to something."
Good luck with that - even truly innovative companies have real products.
At the risk of sounding like a broken record, you cannot and should not invest in a company where the numbers are going the wrong direction - no matter how many passionate users there are, no matter how much potential they seem to have, and no matter how exciting Silicon Valley makes 'em seem.
If you're a trader and you want to speculate, that's fine. There's a role for that as part of a disciplined overall investment strategy. But that's not what we're talking about today.
Investing in a company like Twitter is like trying to grab a rattlesnake - you're going to get bit. Just because you can do something online does not make it profitable.
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Real numbers and real results are what matter when it comes to building Total Wealth.
Take Raytheon Co. (NYSE: RTN), for example. We talk about this defense contractor frequently with good reason. It's generated at least 228% for Money Map Report subscribers since July 2011, versus only 44% from the S&P 500 over the same time frame.
The company produces everything from Iron Dome Weapon Systems to Maverick missiles and generates $25.2 billion a year in sales. Earnings are growing by 40.4% a year, according to Yahoo Finance, as Raytheon takes the fight to our enemies.
Now, the company is pioneering intelligent cybersecurity remedies, beginning with a billion-dollar contract from the U.S. Department of Defense.
Or how about American Water Works Co. Inc. (NYSE: AWK), which has allowed every subscriber following along as directed to bank at least 149% and counting.
You can live without Twitter, but you cannot live without water for more than 72 hours. The company is growing by leaps and bounds and, by the way, pays a healthy dividend of 2%, too.
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Both Raytheon and American Water Works are backed by Unstoppable Trends worth trillions of dollars that will get spent no matter what the Fed does next, that Wall Street cannot hijack, and that Washington cannot screw up. Twitter is backed by "eyeballs," very few of whom evidently pay money for anything the company produces.
What's more, Raytheon and American Water Works make "must-have" products. So it's logical that they're going to attract gobs of capital going forward. Sure, they're going to fluctuate, but overall the net flow is to them. Twitter makes people run... away.
And, best of all, Raytheon and American Water Works allow you to play defense in a world gone mad even as you tap into the growth that comes with them. Twitter, by contrast, is constantly trying to justify its own existence and not very effectively at that.
Many people share tweets without reading, so there is no correlation between what's been posted and what people are actually looking at. Which means the only redeeming value to Twitter would be the data set it represents.
Frankly, I don't think that's worth the paper Twitter's stock certificates are printed on.
And it's not just me - at least not generally speaking.
Many of the venture capital experts I talk with on a regular basis tell me privately that there is no way valuations should be what they are today especially when it comes to anything in the social media space.
Yet, publicly, these same individuals continue to ply their trade for the simple reason that there will be billion-dollar start-up valuations as long as the public is willing to pay for them.
Present company excluded, of course.
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