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Real-Money Stock Picks / Messed-Up Expectations Portfolio
|Subject: Re: NTE - Tripled||Date: 1/25/2013 11:01 AM|
|Author: TMFGebinr||Number: 865 of 901|
Oh, I've noticed. Very much so.
Since I started this portfolio, I've been tracking all my purchases (of course) as well as all my sales as data to help improve my process. I've decided that a year of tracking for the sales is sufficient to see if my process was sound or not when making the sell decision.
As of last night, here's the data for NTE:
The reasons I sold (also included in my tracking) are, for the first position, "Too big a position for the risk level I had assigned" and for the second position, "Do not understand the business or its advantage well enough to own." I believe those still hold true today.
In other words, I had pretty much bought this company mechanically because it met certain screen settings without truly understanding where it sat in its industry and what competitive advantage it held. When I sold the second position last summer, there was a reader who said I was making a mistake because the "big" customer the company had been talking about was Apple. I looked hard for that information, because if I could confirm it, and if Apple did well, then it was likely that this company could ride some coattails (which is exactly what happened). However, I could not find corroborating evidence and therefore decided to stick to my guns and stay out.
As it turns out, the price of Nam Tai rocketed upwards shortly after I sold the second position, in response to its earnings release in early August. But the company never named the customer as Apple. That's all been speculation, as far as I can determine (e.g. see http://beta.fool.com/mthiessen/2012/09/10/new-apple-manufact...). Unconfirmed speculation, for me, is not reason enough to invest, especially with money that is not mine (i.e. the MUE port).
Further, even if the unnamed customer is Apple, that company is well known to dominate the relationship between supplier and customer. In other words, Nam Tai has no, none, zip, zilch, nada pricing power over Apple. If Nam Tai does not meet the prices Apple demands, then Apple will just go find another manufacturer, of which I suspect there are a significant number. In other words, Nam Tai has no moat and if Apple leaves as a customer, there goes all that high revenue.
So, looking back, with what I knew at the time (and even with what I've learned since then), I believe that the decisions to sell Nam Tai were a result of a good process (unlike the buy decisions) and the stock price movement is what's known as "bad luck." Better that than to have stuck with the company and seen its price go down further, which would have been "just desserts" for having used a flawed process to decide to buy in the first place.
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