No. of Recommendations: 3
Anyone noticed?

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:

Now / Since Since
Bot Price Sold Price Return 1 yr sold bot
3/10/11 $7.23 6/21/11 $5.46 (24.5%) $ 5.54 1.5% (23.4%)
3/31/11 $6.38 6/13/12 $5.18 (18.8%) $12.54 141.9% 96.6%

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 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.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.