No. of Recommendations: 3
Here's the transaction history I've had with this maker of computer and consumer electronics components.

Date $$ Date $$ Price Since Since
Bot bot sold sold Return now sold bot (thru today)
3/10/11 $7.23 6/21/11 $5.46 -24.5% $10.76 97.1% 48.8%
3/31/11 $6.38 6/13/12 $5.18 -18.8% $10.76 107.6% 68.7%

Can you believe that? 100% rise in less than 3 months!

When I bought Nam Tai originally, it was primarily because it was priced as if FCF would be dead forever. Looking back, I did not have a firm grasp of the dynamics of its business, its competitive environment, or its industry (I was and am quite ignorant of tech). Nor did I have a catalyst in sight that would/could turn the company around.

The first sale was to lighten the position back to a minimum size. I felt I had overextended the position given the risks I felt faced the company (it was leaving one business line, entering another and I didn't see how it could compete successfully in what I felt was a commodity business, and it was at the mercy of local politicians in getting its new plant built). When I sold the second time (the remaining position), all of that still remained true, as far as I could tell. Margins were crashing, if I recall.

So what has happened to drive the price up so far so fast? I mean it's essentially gone vertical in the past 2 - 3 weeks.

What appears to have happened is that Nam Tai got one (or more) of its products into the iPad via its own customers. Here's a Seeking Alpha article with some coverage:

There are several questions I'd like to address, here.

1) Is this share price sustainable? The current TTM FCF is actually negative, but that might be due to heavy capex and/or lower CFFO. I haven't looked. But the price ramp could be a result of enthusiasm for Apple and Nam Tai is riding on the coattails. If iPhone sales disappoint, will that hurt Nam Tai's stock price?

2) Can the company keep the Apple wins? Was Nam Tai in the original iPad and iPhone? If not, why not and why is it apparently in there now? What's to keep it there?

3) Should I have invested originally? No. I do not know the industry, business seems to go to the cheapest provider (which means there's danger for Nam Tai to be undercut by someone else), and the risks from being in China are still quite large. I did not have a catalyst in sight. My lack of understanding of the industry quite possibly prevented me from seeing that it would (or could) get into Apple's products. Or, getting into Apple's products could have been a result of luck.

4) Was my sell a mistake? I don't think so. Sure, the outcome (so far) would make you think so, but my reasons for selling were more about not truly understanding the company and its position in the industry -- major handicaps. Plus, if it doesn't deliver (or if Apple switches vendors), it could fall in price just as rapidly.

All in all, the outcome so far, from my perspective, is bad luck in that I missed out on a big rally of the share price. (Though, we'll see what the future holds.) The lesson from this investment is to understand the dynamics of a company better (and have a visible catalyst) before investing.

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