Offbeat Trading

Blog the Third: A biomedical scientist looks at the Fastenal Fiasco

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One of the stocks in my fund is Fastenal (FAST). Last Thursday, the earnings for the third quarter came in at $0.41 versus the $0.42 that was expected. The stock immediately plunged around 10% and continued down to around a 15% drop. This over-reaction makes no sense! The earnings disappointment was only about 2.5% so a drop of that magnitude might be expected. In reality, however, I do not consider that there is any significance at all to the difference between $0.41 and $0.42 per share. If I do an experiment and expect to get a value of 42, but the results come out to 41, I do not consider that the experiment is a failure. Quite the contrary; it is close to expected. In fact, it is likely that no matter how many times I repeat the experiment, taking into account limitations such as time and money, the difference between 41 and 42 will never be statistically significant!

I cannot understand why there is such an over-reaction, but I can take advantage of it. I have already added to my position in Fastenal at a reduced price and I plan to add more if the price declines some more. In my experience, Wall Street tends to overdo both runups and corrections and cashing in on these is one of the best ways to make money on stocks.