All good points, Mav. But here is how I see the potential of stocks like T and WCOM down here. If they were to pop off of support at say $30 bucks, based on a new valuation, upgrade, appreciation, or whatever. How far would they bounce?
The lower they get, the higher the percentage gains associated with a pop. In other words, a 10 point pop [which I feel both could EASILY see] from $40 is 25%, from $30 it is 33% and from $20 its 50%. So by buying and holding down here, I am looking at these telecom value plays as a sort of mutated big foot rat dog.
It is unfathomable that they could go to zero. Incomprehensible that they could go to $10. Highly doubtful they will fall to $20. And most likely are quite near their all-time bottom around $27. For those who think there is more downside, lets call the bottom $25 for the sake of argument.
So from $25, the downside risk might be 10% or perhaps even 20%, though highly doubtful. But a 10 point pop from $25 is a 40% gain. And that only puts us at 35. It is reasonable to consider that on a true turnaround of valuation of the telecoms, WCOM could move back to $50, a more reasonable valuation, when compared to other techs [especially in the winter] . . .which of course represents a doubling or 100% gain over the bottom.
So we are discussing a 10 to 20 percent downside risk versus a 40 to 100 percent upside potential. Risk vs. reward, Or as I like to think of it. . .
Reward / Risk X Time [months] X [ROE/12] = Rande's Return Index >g<
So the only question that remains to be asked is how long are you willing to hold one of these giants before you see your return?
At 3 months a 40 percent gain is at an annual rate of 160% per year. . .while a 100% gain is of course at 400% annual rate of return. Hold it 6 months and a 40 percent gain is 80% annually. 100% gain is 200% annually. Hold it a year and 40% is 40% and 100% is 100% annually.
And should it take 2 years to see $60 per share from where they are right now at $30 per share, then the gain is 100% at a rate of 50% annually on a relatively low risk investment, due to being a massive company like WorldCom with their impressive and valuable telecom and internet related holdings. Not too shabby of an investment in my opinion.
And I think that is why Spirit gets excited when the great companies become value plays. I know I do. That was why I posted that I was buying WCOM as an "Ultra Long-Termer". . . sure, the money might sit their for 6 months without moving. . .but at least I won't miss the pop, which could come overnight and be worth 10 points all at once. . .on a mass upgrade based on new valuations.
Since that pop could be 3 months, 6 months or a year down the road, the play on T, WCOM, VZ and others is strictly about investing and has little to do with trading, IMO.
Rande Is
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