My (long-winded) two cents which is based on a PM on Saturday to a threadmate concerned about "position protection" and the tax impact of possibly lowering the risk profile of a QCOM overweighted portfolio. All FWIW.
Re: position protection
Yeah, went through the same lousy drill. Puts at these levels are a bad deal. Taxes, I think we all tend to make some bad decisions on account of these... as I said before, it is a mainly a present value matter if one assumes that at some point normally you'd diversify/lower risk profile of, your portfolio. If the Q had stayed @ $125 and then bounced around year after year at say down 20% up 35% type of swings, at what point would you lighten up naturally?
Two years, five years, ten years? Never? ("never" not usually being a wise choice).
If there's some time frame, then the taxes are a present value, not absolute amount, question.
Another consideration is are you likely to have other trading losses in 2000? If so and you sell no winners, will you just carryforward the wrire-offs above the limitations on the losers? Or would you never sell a loser because you couldn't claim currently the full write-off?
While it seems almost criminal to use up our carefully crafted L/T capital gains to offset short-term losses dollar for dollar pre-tax, not getting a tax deduction for S/T losses because we refuse to take any L/T gains can be just as dumb.
Lastly, on taxes, our current favorable capital gains rates are only fairly recent and can be wiped out by a Democrat Congress at will. It's happened many a time before. The percentage tab in the future could be higher. (American politicians not being really all that different from their Chinese counterparts in terms of changing the rules of play midway through the game.)
We probably both fell into this wonderful seductive trap. Here we have this great company, stock performance that made us deliriously happy in 1999, and speaking for myself I had this great idea that maybe I could just keep borrowing against an ever-increasing value for cash and other investments, AND NEVER HAVE TO PAY TAXES!!!
Maybe finally internalizing the risk of this (now realized) folly is too little, too late. Dunno. But my one-track investment strategy, if you could call it that, on QCOM cost dearly, all the way down. Finally, this 2 x 4 hurt so bad I had to look at the downside risk from here, as well as the upside potential vis a vis alternate QCOM-related investments and other competing investments.
At the current levels, QCOM is susceptible to a lot more traditional and comparitive financial analysis that before. It is comparably valued with NOK and ERICY (both of which I own, but a lot, lot less of than QCOM), the other two "world-class nearly pure wireless" plays. Based on forward 12-month earnings, expected near-term eps growth, and forward prospects. QCOM is undervalued due to strength of IPR portfolio (which was overrated b/4 and is now arguably being underrated) but NOK and ERICY have that enormous installed base which is growing in monetary value generated much faster than the IS-95 base. NOK the king of handsets, ERICY king of base stations, each has valuable IPR in their own right.
So in looking to the future, I see QCOM most likely outperforming its peers, but nothing like what we saw last year, or the underperformance this year.
If, for argument's sake, NOK is fairly valued @ $49 and ERICY @ $19, based on P/E/G's and that stuff, the Q maybe should be at $75-80 today. But as we have observed, QCOM stock has its own peculiarities and vulnerabilities.
OTOH, some pretty compelling arguments can be made that in the short-term NOK and ERICY (and for that matter SUNW, ORCL, CSCO, NT, etc.) are presently significantly overvalued given the greater near-term macro risks for a higher interest-rate, higher energy cost, slower world growth environment. The market will start focusing on the risk of sustained higher energy prices on "gross worldwide product." Something has to give in this equation - either energy prices or the everything else.
[Apparently the Saudi prince dude, who is getting billions of oil dollars, is not single-handedly capable of propping up the U.S. tech stock market as witnessed by the recent performance of his buys.]
So, we are in a different environment than a year ago with generally low interest rates around the world, and low energy costs. So price/earnings/growth multiples have changed.
I think a good case can be made in general with tech stocks that we have only gone from bubble valuations to optimistic valuations - i.e. still above historic means, but nonetheless entirely justified if Greenspan can engineer the soft landing and we have several years more bull market ahead.
But to totally ignore the bear case at this conjecture would be a mistake. An intelligent investor will assign probabilities to the Fleckenstein type views of the world that are more than nominal. Maybe not probable, but certainly greater than 5%.
While it took me seven figure losses, it's never too late to wise up. Losing boatloads of dough is not a good excuse for continuing the ostrich-approach ("it just can't get any worse from here") of investment thinking. Or the "QCOM was at $150 mere weeks ago, surely it'll snap back... just a matter of time" pap.
For me, over the weekend I laid out subjective probabilities for both QCOM and NDX on a spreadsheet for both near term (I used June 30, 2000) and intermediate term (used December 31, 2000). For QCOM I went in $10 increments in the range $40 to $100, then $20 increments up to $160)for NDX in 200 point increments either direction.
Some people might find this easier to do by drawing a histogram or some asymetrical modification of a bell curve.
Anyway, the point is to take everything you know from absorbing and filtering the huge information onslaught you've exposed yourself to, and to make quantitative, not emotional, judgments about it. Be realistic, both pro and con. Think about how Mr. Market is apt to make judgements, not what you or the other posters here all hope will happen.
If you haven't crunched financial numbers on QCOM recently, you ought to. IR has helped by giving historical quarterly condensed P&L's for the three segments and corporate on Q's web site. It doesn't take that long to build a simple model. There are plenty of statistics out there like # of CDMA subscribers, # of MSM chips sold (from which ASP can be derived) etc. that you can use to build more sophisticated financial ratios.
Don't expect sell-side house analysts to do the work for you. As you can see right now, they are all over the lot with respect to QCOM in calendar 2001 and beyond. So instead of griping about various hidden agendas and manipulations, do the damn work yourself.
Vary the growth rates in your model, vary the interest rates. If you don't want to go through the effort of a multi-year model, try projecting out 2002 eps, assign a
"normal" PEG factor, then discount the result back to the present at a minimum (for the two years combined) 30% discount factor. How does that compare to today's price? What happens when you vary the assumptions?
There are a lot of quantitative methods to skin the cat, but the exhortation here is to put aside the slogans, the hype, the holy wars IPR rhetoric, the number of erlangs on a CDMA vs. TDMA carrier, and lay out on a spreadsheet some scenarios you think represent different pessimistic, realistic, optimistic type scenarios.
Remember that with few exceptions, hardly anything in tech-land ever generates measureable revenues in the time frame the initial press releases (or the enthusiasm of some of our fellow posters) might have you believe.
Then look around at what else is out there. Although it has fallen the hardest, the most recently, QCOM is by no means the only outstanding big cap tech company with monster growth prospects in this current valuation boat. It has plenty of company. If todayyou only had cash (equal to today's value) and wanted to invest it, where would you put it? Forget about what QCOM did last year; only the price right now is relevant. Try a little "zero-based" portfolio allocation exercise for an objective look.
If part of the thinking for allowing one stock to become grossly overweighted in your portfolio (when that little voice inside was saying "be careful") was fear of paying cap gains taxes, well, the good news for those who do some portfolio reallocation now is that the present value of that tax bite is a whole lot less.
These exercises helped clarify my thinking and formulate some significant portfolio actions, some of which have been taken, and some of which are on the tee for various market conditions.
Better late than never.
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I had sold 50% of my QCOM position, but am watching, along with Greg M, Mucho Maas, etc. for reentry points. I see some of the people did some quantitative work over the weekend. It won't hurt. But this overall market still has the capability to take down Q and others a few more notches.
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