I never seen anybody who invests in cyclical stock but are so gun-ho to get out of it 6 months into a 2 1/2 yr upturn!
LSI should have forward earnings of $2.00 starting Q3, not end of 2000!!!
Take a look at HWP - delivered earnings and stock up $10 between yesterday and today! LSI so far has just promised earnings, not yet delivered yet.
Am I sure? The only sure thing I know of is right by the church - behind it in the plots, that is. Any possibility LSI will go down dramatically? Sure! I bet all the way down to $20 if they don't deliver earnings. If they do, watch out! And that's the risk, and that's the potential reward. From all indications, both from the company and ALL the analysts who talked to the company and thus can get to peek at data that neither you nor I can, it is going to deliver.
My decision making is heavily influenced from my college days when I played so much tournament bridge that I almost flunked out. In making decisions, need to not just judge size of risk and reward, but also probabilities of each potential outcome. For example, let's take my view of LSI now. Assuming that I will bet $1 each times for 10 times, with my view of LSI 'restructuring' successfully and semi upturn right here,
50% chance of stock doubling within yr = 2 X $1 X 5 = $10
20% chance nothing happens = 1 x $1 x 2 = $2
30% chance sky folding and I lose half = 0.5 x $1 x 3 = $1.5
After one year, if I always bet by staying with the stock and the probability that I guessed are right, I generally will end up with $12 + $2 + $1 = $13.5.
Suppose this is year 2000 and we are 1 & 1/2 yr into upturn. My probability guesses will probably look something like:
60% chance of stock up 50% within yr = 1.5 x $1 x 6 = $9
20% chance nothing happens = 1 x $1 x 2 = $2
20% chance of stock sinking by half = 0.5 x $1 x 2 = $1
Total expected return = $9 + $2 + $1 = $12. Still not too bad return, but clearly risk is getting higher. I had better get a good grip on my probability guesses
If this is yr 2001 and we are 2 & 1/2 yr into upturn. My probability guesses will probably look something like:
20% chance of stock going up 50% = 1.5 X $1 x 2 = $3
40% chance nothing happens = 1 x $1 x 4 = $4
40% chance of stock falling 20% = 0.8 x $1 x 4 = $3.2
Expected return after one year = $10.2. Time to bail and bail fast!
What probabilities you give for each expected outcome that you can see for the next year?
patrick
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