Some thoughts on QCOM, JDSU and stop losses.
Perhaps a few old timers here might recall some discussions I had on this board with LindyBill regarding the relative merits of QCOM and JDSU. Lindy, of course, was the savant who placed an early 100% wager on QCOM and then had the foresight to get out not too far from the top. Awesome. Later he diversified, and for a while one of his favorites was JDSU. At the time I was an investor in both those companies, as were many here, but I thought QCOM was the better bet, while Lindy favored JDSU. We exchanged a number of posts on this.
When JDSU started to fall I posted that I had sold a portion of my holdings (about a third, I think) when the stock dipped below $100. Naturally, it quickly rebounded and several here made some good natured posts thanking me for marking the bottom with my sale. And yes, I had sellers remorse - and a tax bill to fret over.
We all know what happened next. JDSU again headed lower, this time breaching $100 for good. Then $90, then $80 and so-on. Had I stuck to my convictions I should have sold more, but JDSU had gone up so far, so fast, for so long that I rationalized that I was playing with "house money" having made such a killing on the third I had sold. And besides, I had bought into the whole LTB&H philosophy, (even thought I was one of the few here who continued to post about the lure of timing).
Unfortunately, the decline just never ended and now the stock is trading below $5. The lesson: stop-losses are very important, and watching a stock fall, while doing nothing, is just bad management.
For a long time it certainly looked like QCOM was the better choice of these two stocks. In fact, when another poster called QCOM "dead money for as far as the eye can see" and offered four alternatives, I had a little fun with that, setting up a hypothetical portfolio that was long QCOM and short an equivalent dollar amount of the four other stocks. That port, for the many months I watched it, was always highly positive, as QCOM stayed relatively strong and the others faded.
But more recently QCOM has also fallen. Unlike with JDSU, I continued to sell as prices got lower. When I sold a chunk at $50 that seemed like a bottom and a stupid move, but then it eventually got to $40 and I sold off the last piece - although I did hold on to a handful of LEAPS.. It now getting close to $30.
As one of our gorillas, I never thought I would bail on QCOM so soon and in the low double digits. But it is more than chart reading and mechanical stop-losses that drove my decision. More and more I have considered that CDMA may not be the winner many of us thought it would be. Personally, I was thrilled to trade in my AT&T TDMA phones a few years ago for Verizion's much clearer, and reliable CDMA, but the number of people doing so is less than a stampede. Not only is CDMA subscriptions rising less in absolute numbers, but it is also disappointing in percentage terms. Perhaps that will change, but perhaps it will not. Also QCOM has other issues and baggage, from accounting to this latest Enron director flap. I think it is time to say goodby. I'll keep watching, but not owning, at east for now.
Selling a long term hold when it is down is difficult. To make it more palatable I use a replacement strategy. I sell the stock and then put the money into an equivalent number of shares of what I believe to be a better prospect. So if I sold 1000 shares of QCOM in an account, I then bought 1000 shares of NTAP. Keeping the same number of shares "in the game" is a way of ensuring that I am not bailing at the market bottom - the historical curse of many bear-time sellers, and since NTAP has been selling at around half QCOM's per share price the move generated cash.
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