Oculus has become a crowdfunding victory. Originating on Kickstarter and quickly growing steam amongst techies, the VR device gained enough momentum that Facebook (FB) finally acquired the company for $2 billion yesterday as its first foray into wearable computing. It’s unclear how the device fits into FB’s current business model, but the surprise acquisition has taken the tech world by storm, with controversy, anger, and confusion dominating the conversation. FB’s stock didn’t budge much on the news.
However, the news was much more significant for a less well-known stock that is a darling amongst swing traders: Himax Technologies (HIMX) is a Taiwanese hardware manufacturer that produces some components for the Oculus. 2013 was a monster year for the stock, helping it to rise over 5x from a microcap to small cap stock, until 2014 took the wind out of the stock’s sails. Tuesday began as a really bad day for the stock—falling nearly 15% at one point, the stock was falling fast on a downgrade and momentum from swing traders seeing signs of a collapse.
With a stock like HIMX, there are roughly three groups involved:
1. Day and swing traders looking to play momentum for a quick buck.
2. Long-term bulls, who fundamentally believe in the value of the company.
3. Long-term bears, who believe group 2 has pushed the stock far above its intrinsic value.
Yesterday’s drop was a win for group 2 and for the lucky traders in group 1 who were fortunate enough to have timing on their side.
Long-term investors, unlike traders, do not rely on luck; they rely on skill and the acumen of market foresight and deep knowledge of a company and its sector. However, yesterday was a lucky day for long-term bulls in HIMX, because it provided a temporary and artificial entry point. In pre-market on Wednesday, after the FB acquisition was released, the stock was already up to where it began on Tuesday, which means yesterday was little more than an opportunity to get the stock at a relative discount, if the bulls prove right in the long term. In other words, the fretting of scared bulls-turned-bears and the momentum of traders was a stroke of luck for long-term bulls.
This uncovers one facet of investing that many do not realize: luck is not necessary to successful investing, but it can provide a boost. If the bulls turn are proven right over the next few years, yesterday’s price action will be one happy, fortunate accident that pushed their cumulative returns a little higher.