JB,
Jeez, I wish I had sold at 17 5/8 -- and bought twice as much at 9. As far as your clients go, I assume you advise them of your own moves? I would be curious to hear what made people sell at that point; I know Betty Ann Poe did too. I tend to follow Philip Fisher's three sell rules from "Common Stocks and Uncommon Profits" (1957): sell only if the company is not what you thought it was, if its fundamental outlook has changed, or if you genuinely have a better stock you want to put your money in. That last reason should almost never occur if you did your homework to begin with. As CELL hasn't violated any of those rules, I'm not selling. I have a longer-term horizon, so it would be silly of me to set stop losses unless I really had reason to think a bear was coming, and then I would probably just buy the cheapest puts I could. I think it's too late to do that now, but I've been wrong a lot lately.
You ask a very good question on whether big or small caps will dominate going forward. I guess it depends on your time horizon, and also on your philosophy: if you buy value, you should be buying small caps here or financials or some of the more beaten down techs. If you buy growth, you should be buying drugs, CSCO and DELL. I guess what this experience really argues for is diversification: I own growth, I own value, I own large cap, I own small cap, I own mid cap and in the stock portion of my portfolio I own 8-10 stocks: studies have shown that that amount does dampen volatility. As a result, all of my holdings are flat on the year, my stocks (surprisingly, despite CELL) are up 20%, and the stocks I've sold are down 20%. I'd be down about 40% if I just owned CELL (sorry Brian). I could be doing even better if I hadn't fallen for the head-fake at 8800 back in June, but I like the market at these levels, so it's another buying opportunity, right?
But the relative value of small vs. big cap is a screaming disparity here: a 15% return the past three years vs. 80% for large caps; a PE of 15-20 with forward anticipated growth of 15-20% vs. a PE of 23 or so with forward growth somewhere in the 5-7% range (the numbers are changing all the time -- downward). We may be in a long-term large cap environment; certainly having capital and market dominance seems to help in the technology area. Or it could be that values are about to come more back into line -- either small caps go up or large caps go down. I don't know, and it's anyone's guess, but watch the so-called "smart money" carefully: bear markets are usually the beginning of a new game, and it's good if you can recognize the trend early. Given the outperformance of small caps, large techs and drugs in the last week, we may be getting a signal there (the drugs could just be a defensive play, despite their great fundamentals; I don't know). Besides, isn't it usually small caps that outperform coming out of a bear market?
On the 50s: oddly, I think the market returned 168% DESPITE essentially flat earnings (a lesson for today's doomsayers). And you raise a good point about CELL's foreign exposure: I own it because nothing is more closely linked to GDP than teledensity, and if these emerging economies are going to grow (and I think they will eventually), then CELL will do just fine, thank you. As we all know, half the world has yet to make a phone call yadda yadda yadda. That's also why I own NOK.A and ERICY too (I'm buying ERICY and NT at these levels, along with some more CSCO, which I think is fairly valued at $82).
So bottom line: it's anybody's guess. Buy stuff you think will beat the market over the long-term and hold onto it. That's all any of us can do, unless you're one of those born market-timers or lightning-quick traders. Heck, that's all Peter Lynch and Warren Buffet do.
Good luck to you AND your clients!
Paul |
