RE: Perhaps we should sell now and buy it (TDFX) back six months from now.
This is known as "Market timing". Every time I have tried it in the past I have been burned
I beg to differ. This is known as living in the present and not blindly hoping for better days. Rather relying on *known* fundamentals and acknowledging that future may also get worse. If it sucks now, then we should dump it now. When it shows improving fundamentals and a clear solution to its present short commings, then we can go ahead and buy it back. Why should anyone hold on to a losing position now in the hopes of future improvements? What would you do if that future does not show an improvement? Will you sell then or will you still hope for better times? Where should we draw the line? By just hoping for better days you are market timing the fundamentals; in effect you are saying that this is the bottom is in the business.
Book value by itself is not a determinant of stock floor. I know of many larger and more established companies than 3Dfx that are trading at 40% ~ 80% of their book value. This means TDFX could go as low as $3. Likewise, cyclical companies (of which 3Dfx is one) do trade with lagging PEs as low as 4~6 (assuming no one thinks they will go under). This means that if TDFX does close the year with annual earnings of $1.40, they can still be trading ~$7 a year from now. The rule in the market should be not to make leaps of faith that are too long, especially with companies like TDFX (read young, unproven, small, cyclical, high tech companies).
Sun Tzu
P.S Just to get a feel for how bad things can get, take a look at the long term chart of LRCX, one of the Big Four semicon cap equipment makers. If you had bought them in Feb 1992, today you are breaking even. If you've been a long term holder since after Feb 1992, then you are a loser today. Listening to the market does have its advantages. |
