OT
Cary,
RE: "I will be "retiring" from my software engineering position at the beginning of March '01 and I will depend on investment income. I will be able to devote more time to investment research..."
Congrats on your upcoming career change. I certainly hope that with your planned retirement from your software engineering position and the reallocation of your time toward investment research, you would consider again actively moderating Blood or another thread.
The values offered by semi-equips at the cycle bottom are incredible and I am almost content to wait for the next opportunity.
I sense a note of lingering despair in your tentative decision to simply wait out the presumably imminent down cycle in CDs. It would be most convenient if such a cycle bottom were to occur around March '01, but what on earth will you do if it does not come until much later, or if, as some have predicted, the semi-equip cycle is somewhat attenuated this time around? Can you really afford to be a "one-trick pony" in this dynamic investment universe or are you as negative on equities in general right now as your portfolio would tend to imply?
There seems to "blood in the streets" in one company, industry or sector nearly every single day on Wall Street. What is it that seems to prevent you from seeking out such opportunity outside of your traditional core focus area? Semi-equips are not alone in their tendency to experience boom bust cycles. I vividly remember Corning selling at 22 in August '98 due to the effect of sudden Asian slowdown in fiber demand precisely at a time when fiber capacity was coming onstream at an unprecidented rate. I wonder how many portfolio managers who are now jumping over each other to buy Corning at 300 plus have pondered the deep cyclicality of this seeming energizer bunny.
It appears to me that of all the cyclical growth industries, semi-equips are among the best positioned to safely ride out the inevitable down cycles mainly through prudent financial management and low debt levels. As investors "discover" this tendency they should demand less risk premium for owning these companies during temporary down cycles, somewhat attenuating the industry's historical cyclicality, at least in terms of stock price. Therefore the game might not be as interesting next time around as the semi-equip bargains you correctly perceived in '98 may not reappear for a very long time.
Low debt levels are anathema to true bloodhounds, who love to leverage their bets. The fixed cost nature of debt is precisely what exaggerates the cycle, while providing the thrills of a near death experience and resurrection that resembles financial bungee jumping.
Fear not that aerospace, defense, or energy may not have the same secular growth potential as chip equips or that they are not part of your resume. You can make plenty of money off a good sine wave, compared to CDs.
A recent example this spring was Boeing, which was selling at historic low multiples due to temporary merger indigestion and strike related factors. All one had to do was to look at a ten year chart and see how BA had performed in the 18 month period since it settled each of its strikes.
No need for detailed regression analysis or parsing of conference calls. The 50% return over the past 5 months is about on par with past strike endings there.
An even more recent and lucrative example was 3Com [COMS] this past April as it was preparing to spin off its Palm division. Several analysts and even CNBC anchors pointed out that buying COMS under 40 you were essentially getting the company with a huge cash hoarde for free, based on the present market value of Palm which had by that time stabilized since its boom-bust IPO. This position, including the 1.48 shares of Palm that it generated, has more than doubled over just the past 4 months.
One of the most valuable lessons that I have learned from you is the importance of patience. It seems to me that valuations of financial instruments tend to be extremely fuzzy, with a trading band of as much as 25% to both the upside and downside of expected value being perfectly normal on manic-depressive Wall Street. Therefore the courage to stick to your guns is extremely important and the tool of choice is periodic scale-down purchase into the nadir and scale-up selling into the apex. I had never really used such tools before encountering them on your Blood thread. I still occasionally have my confidence shaken and sometimes sell out of a winner much too soon, assuming that a skittish market might know something I don't know, but I am learning to be a bit more patient and try to use the volatility to my advantage.
Now that I have reduced my commission costs to zero, as long as I trade fewer than 40 times per month (thank you, American Express), I am also able to tailor my portfolio much more closely to my confidence level, even if it means sometimes taking micro positions in certain high flyers on their occasional dips from the sublime to the merely ridiculous, as Ariba did this spring. My purchase of one share at 72.5 back in April was more inspired by a desire to get their annual reports in order to learn about b2b than it was motivated by immediate economic gain, although it has been one of my biggest gainers this year, on a pure percentage basis, of course.
This desire to learn is perhaps even as strong as my profit motive in investing. And there is certainly a positive feedback loop since I have found that it is much easier to pay attention to something if I have a stake in the outcome, even if the stake is tiny indeed.
Cary-- I hope that I have convinced you that there are plenty of opportunities besides CDs and that there are many other lucrative crops to sow besides semi-equips. Devoting your portfolio to one industry may be as short-sighted as a farmer devoting his entire livelihood to a single crop. It might be OK for an agronomist or a researcher, but not for a farmer or investor.
Looking forward to much hopefully mutually rewarding dialog and argument with you in the future, as in the past,
Sam |
