Hey Rob,I'm curious what you think of the ISRG move. I know that they're always fending off studies and commentary, but this seems a little larger than normal. Multiple credible sources are questioning the economics and the FDA incident review is piling on at the same time.The thing I like the least is last evening's reversal on the increase in incident frequency. When the FDA initiated the review, ISRG's initial comment was a denial that there was an increase in reportable incidents. Then they come out yesterday ans say there was an increase, but it was due to how they've reclassified certain incidents.Intuitive Surgical Inc. (ISRG) said changes in how it reports adverse events resulted in an increased number of reports sent to U.S. regulators, as well as more incidents being classified as resulting in serious injury. The company, maker of the da Vinci robotic surgery machines, said the rise in adverse event reporting "does not reflect a change in product performance."-Dow JOnes NewswireIt's don't care for that news. The price action has also swung radically. I decided to protect my gains and closed the position at a nice gain. Not as nice as it could have been, and I still like the company a lot. I just don't like the idea of fighting the tape in a market that feels a little top heavy. Thoughts?Peter(Sorry for the OT guys...)
As an aside, I was looking at ISRG puts, which I normally don't look at. Long dated puts (Jan 2014s) with really low strikes ($250) are trading at $3.00. A $300 strike is netting you $8.50ish.That seems really bearish that someone's paying that much for a strike so deep out of the money. That's a 45% drop from here in less than a year. Are these normal prices for these puts that long out? See anything that interests you?Peter
I'm curious what you think of the ISRG move. I know that they're always fending off studies and commentary, but this seems a little larger than normal. Multiple credible sources are questioning the economics and the FDA incident review is piling on at the same time. -- PeterI've got a couple thoughts:1) High PEs *always* come down to normal levels in time. Sometimes it's gradual, sometimes it uses an excuse to drop quickly. I've attached a portion of a post I wrote regarding my "theory of PEs and high PE stocks". ;) That stuff is all down below in italics.2) Regarding these accusations, there's a lot of different opinions over at Rule Breakers that tend to fall into this summary:* The customer (patient) really likes the short hospital stays and minimum invasiveness of daVinci.* Laproscopy has made huge strides in the last decade as well... and daVinci is basically laproscopy.... at higher cost. <Rob- This is not a correct view. I've listened to doctors who say that daVinci is far more articulated than any laproscopy instruments and far better.>* ACA (aka Obamacare) will drive out high cost solutions.* Old doctors in general are not keen on daVinci, young doctors are moving to it in the thinking that this is the future.* The other concerns that have been expressed are, in my opinion... after reading the RB:ISRG board....largely overblown. I don't think there is any substance to fear as investors in terms of safety or effectiveness. In terms of cost-effectiveness, that's been an on-going debate for years..... and hospitals continue to buy more. daVinci's recent progress into the cardiac markets bodes well for the future, IMO.* My opinion: You wrote "I still like the company a lot. I just don't like the idea of fighting the tape in a market that feels a little top heavy. Thoughts?" I still have my position and I think the company will continue growing for years. That being said, I personally hold a "minority opinion" (as contrasted with the outlook of most TMFs) that agrees with your comment about fighting the tape. I think there could very well be a cloud of doubt that hangs over the company for a few years as government health care develops. But, kinda like AAPL, the PE is going to go down just so far before ongoing profit increases force the price march upward to resume.* There is a fairly good chance I will significantly reduce my position sometime this year anyway because I'll be selling off a large proportion of my portfolio to fund a franchise business I'm getting into (so much for being retired, eh? LOL). Lots of stuff has to go. As an FYI, I sold all my Ford stock earlier this week, largely to deal with expenses I've already incurred. Overall, I'm thinking 60-75% or more of my portfolio will be liquidated, as well as all the incoming money from my pension buy-out (when that comes). If it works out, it will work out very, very well. If not, I'll have to remember to save some cardboard boxes to live in. LOL I believe I can continue my current involvement at the Fool, but I've decided to reduce the number of boards I follow from 200+ to "a lot less". I will continue to be showing up on this board however. And.... I'm not really saying much else about it until we have ink on paper, which may be as soon as late next month.*****Show me a mature and successful company with a PE of 50, 100 or 500. You won't find it. That means that your sky-high PE will drop dramatically over time.... and that matters. - RobWho ARE you and what have you done with Rob? -- DaveLOLI also said that the PE compression is a big mountain to overcome..... and I said that I own AAPL and PCLN.How are these reconciled?I'm not saying that growth companies are bad or that high PEs are bad (and that, of course, brings our RAX discussions to mind). And, as vs101 says, you can get massive returns from these high PE companies.I'm merely saying that when you buy companies like RAX.... or an ISRG or whatever..... eventually the PE will drop. And that we need to recognize that our calculation of future growth not only has to be sufficient to give us those multi-bagger returns we love..... they also have to grow enough to.... in effect.... pay down that PE from 100 down to 12 or so in some future.We see that with ISRG now.I used to own it when it had a PE of 65 or 70. Now, it's down to a PE of around 30. It'll drop further over time too.... you can count on it. Does that mean investing in it was a mistake? Of course not! I have a multi-bagger! What am I saying?ISRG earnings had to triple to give me a 3 bagger.ANDISRG earnings had to double again to PRESERVE that multi-bagger for me as the PE dropped in half. (That's one way of looking at it... in reality, both processes are to some degree simultaneous: multi-baggerism and PE compression).That's the mountain that high PE investing has to overcome. Does that make high PE investing bad? In no way! It's just that we need to consider the fact that over time, our high growth companies will come down to earth.... and paying "ANYTHING" is not necessarily going to work out well (because that mountain will have to be climbed eventually).Am I communicating or do I sound completely alien? :)*****Rob
Rob,Appreciate the thoughts. I agree with much of what you said. The multiple is likely to decline, but a ridiculously profitable company that's growing still should command a decent multiple, even if it compresses. This isn't a company with phantom profits. It practically prints money.One aspect of high fliers that's a little different, is how dramatically they can decline in their transition. It seems like the same folks that buy them by the bushel load just start selling them in bushel loads and it's just no use fighting against the current. since they are expensive, the value crowd is slow to acknowledge the drop, because they're still pricey. Temporarily out of favor growth stocks are kind of caught between two worlds, no longer momentum favorites and not cheap enough to attract garbage pickers.Best to step aside, let it play out and reassess, especially when you have sizeable gains. Since a third of it was in an IRA and had no capital gains, I pulled the trigger after the apparent acknowledgement that incidents were statistically up due to a change in reporting. That sounded enough like a reversal to me that I felt the market would take it that way; at least short term. My thoughts were why let it unwind? Plus, the market feels frothy. There seem to be a lot of talking heads starting to pump the market more that we've gotten back on the Dow and the S&P is points off 2007. Valuations are getting higher. Not long ago, it was still reasonably easy to find decent buys. Now, everything seems to be bought up, except some really bottom of the barrel cyclicals. The general macro environment combined with prices has me skittish, I guess.Riding a winner down was not in the plans...Good luck on your business. Did you find retirement too slow for your taste? I hope all goes great. It sounds like fun. I've tried on a few occasions to talk my wife into starting a business, but the uncertainty is too much for her to agree to it. The potential for unsteady income is too unsettling. Combined with the healthcare issues, it's always proved a non-starter...To the others: this personal message came up on this board b/c this is a board Rob reads and others may have followed his earlier opinions on ISRG. I thought they might also be interested in his comments now that some events created weakness, so I posted it rather than just emailing it. If not, my apologies for the off-topic post.Good luck Rob,Peter
Good luck on your business. Did you find retirement too slow for your taste? I hope all goes great. It sounds like fun. I've tried on a few occasions to talk my wife into starting a business, but the uncertainty is too much for her to agree to it. The potential for unsteady income is too unsettling. Combined with the healthcare issues, it's always proved a non-starter... -- PeterA friend of mine is in the same biz in the Detroit area. Contrary to common sense ;), the business should provide the stable income I'd like to have with stocks, but I'm not getting.That needs explanation.* Stable income from stocks is possible of course with a variety of regular income strategies, but my portfolio is not big enough to give me the income I want plus the growth I want. I suppose I could trudge along with a good income and modest growth, but I want more flexibility in my spending.* I explored a combination of income through options sales along with my regular growth companies, but my options income varied more than I was comfortable with. At times, it was incredibly profitable. Other times, I'd be sitting on shares that were put to me. Overall, I think it would work, but....this other thing came along....* The business is just too compelling an investment. It certainly isn't the passive kind of income or growth achievable through the stock market, but the returns (and risk) look extremely favorable. Too bad I didn't start with it when my friend did! Nevertheless, I think I can make the money I'd like within a couple years.... and have far more than I need a couple years after that. Fortunately for me, it's a relatively simple minded business where location and personnel development are key...... and not so much with inventory issues or complexity of operations. The franchisor gives an incredible amount of support. I'll talk more about it when I'm officially on board.Oh.... my Fool email address (such as is obtained by clicking "E-Mail this Reply to the Author") won't work for me. I mean.... I imagine it's working, I just can't access the account. Fool IT has tried to help me with it, but to no avail.Rob
A counterpoint to the ACOG President:http://www.businesswire.com/news/home/20130316005039/en/Mini...Rob
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