The Motley Fool: The Fribble, Snake Eyes, by Phred5252

Thursday, July 16, 1998

Snake Eyes
By (Phred5252)

I received a call from a Wise Man the other day. He asked questions about my investment style, interests, if I had a broker, and finally if I had enough money to invest to make his call worthwhile.

In summary, I do invest in stocks, don't have a full-service broker, and prefer companies with solid earnings histories, no debt, and good prospects for the future. In addition, I like to be able to visit their locations, sample their products, and understand the businesses they are in.

He said that the strategy of his firm is to track insider trading and invest in firms where the insiders are buying. "Corporate managers are much smarter about their businesses than we are. So, we just watch what they do." Simple.

I agreed that the knowledge about insider buying could be of value. He then told me that he wanted to offer me a special deal in order to begin a relationship. The offer was to purchase only 1,000 shares in Trump Hotels and Casino at 8 9/16. He said that the earnings were probably less than I liked, but the industry traded on cash flow so earnings did not matter. Also, since the current book value was over $13 per share, there was very little risk. He concluded by saying that I should put my faith in his firm and Donald Trump as they knew how to make money. He also said that they had inside knowledge of a take-over and expected the stock to go to $25 or $30 in the next 45 - 60 days. [Editor's Note: Insider knowledge, huh? Anyone have the phone number of the SEC?]

I told him that I didn't know much about the Casino industry and nothing at all about Trump Hotels and wanted to do some research. He said that he would fax me a report and follow up with a phone call. He ended the call by suggesting that I abandon my conservative ways and "think outside the box."

The fax never came. I did a little bit of research at The Fool site and just about went into convulsions when I saw the amount of debt that "The Donald" is trying to service. The Wise Man called back a few days later and said that it was "time to pull the trigger" on this deal. I told him that I believed that if I did, I would be shooting myself in the foot.

"Why?" he asked. "What is the down side?" I told him that I was very uncomfortable with this type of investment. I like earnings and little debt. This company had no earnings and a mountain of debt. I also didn't like the fact that they have to deal with the government regulations in Atlantic City and apparent increasing competition from other casinos coming into Atlantic City and those in Connecticut. He tried to downplay the amateurs in Connecticut. After all, he was calling Colorado from his office in New York. How could he possibly know that I was born in Connecticut and knew of the popularity of the casinos from my friends and relatives? In addition, the share price had fallen about $1 since we last spoke.

He tried harder to close and I told him that I did not trust him or his company because he was asking me to do something that made me very uncomfortable. He responded by saying, "I don't understand. I'm getting mixed signals from you. You say that you like to make money but are uncomfortable with a deal that will obviously make you money as there is no down side."

"Mixed signals?" I said. "Let me clear that up for you. There is no way on Earth that I am going to do this with you. Does that clear it up for you?"

The moral of this story is that you should do your own research so that you can be comfortable with your decisions. Don't rely on the Wise.

[Editor's note: Trump Hotels and Casino <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> trades today at $7 5/8.]