Warning: Possible Capitulation!
I've now been in COMS for about a year. I bought just before the USRX announcement (that week was more excitement than I really needed...)
A little background is in order. I'm a long term, buy-and-hold kind of guy. I try to find growing companies that have high margins and pricing power in industries that look very promising. Then I try to mess around with a little accounting, and buy companies when analysis of their financial statements suggest that I'm getting more than I'm paying for (on a discounted future free cash flows basis).
COMS fit the bill when I bought it. Great industry. Very strong positioning. Raking in tons of cash. High margins (relative to other industries at least). And it looked cheap.
Then they bought USRX, making their financial statements hopelessly complicated. Competition in their core businesses has become ferocious, removing most of their pricing power. Modems, NICs and hubs are just plain commodities now. COMS has strong brands, but they seem to be getting hauled down into price wars anyway. Result: margins are dropping.
So now I own a commodity company with falling margins and financial statements which I no longer trust my ability to evaluate accurately. Although I intended to give the market several years to properly price the strong company I bought, I am increasingly seeing the market pointing out this company's growing weaknesses. In short, I have been flagrantly violating my sell discipline.
I believe their are several reasons for this:
1) I'm sitting on a 25% paper loss. My ego needs me to give it a chance to exploit a short term bounce. This is irrational. I no longer have faith in this company's prospects. If I did, I wouldn't be worrying about a paper loss.
2) This company's products are still well-regarded, and I certainly believe that a lot of people will be buying modems of one form or another for many years to come. Ditto for NICs and ethernet switches etc. But I have lost faith that these are high-margin businesses.
3) The company has had an improbable amount of bad luck all at once. The industry is in a slump, yet COMS still gains market share. Things couldn't possibly get much worse for them, so I would inevitably choose the exact bottom to sell. With a little patience, I could probably get back what I've lost, and then some. However, this goes against my whole investing philosophy, so is also highly irrational. My most deeply held belief is that I'm completely incapable of predicting short term market swings, and that any such behavior on my part is tantamount to gambling. So the rational thing to do would be to confirm my long term strategy by taking the loss and walking away like a man.
So why haven't I yet??????
Every day I procrastinate, thinking, "oh it might jump up a buck or two tomorrow, then I'll dump it".
I'm not exactly having the courage of my convictions here, am I ?! What a poor excuse for an investor I am.
Andrew |
