So far the only comment on my post about going long RIM is “good luck with that”. So far so good there.
My pet quip about value investing is that your investing thesis looks good if it passes what I call the “double idiot test”. That is, you get called an idiot for buying, and then you get called an idiot again for selling.
A great case study right here, right now is Apple and RIM. Apple is being touted as on its way to becoming the world’s first trillion dollar company. RIM is headed for zero, or so the conventional wisdom goes.
While there is no denying that Apple is a great company (as I type this on my macbook pro with my iPhone by my side), you always have to ask yourself “Is it a great company that can be had for a great price?” Apple alone accounts for more than 10% of the Nasdaq and over 4% of the S&P500. Every institutional investor that is eligible to own Apple already owns it, every individual investor who is excited about it is in already. Public sentiment is delirious. I ask you: is this the point where powerful, secular uptrends are launched from? Or is this pretty well the point where everything starts to level off ahead of a secular decline? When everybody is in then where is the additional buying power going to come from to push it higher?
RIM on the other hand is a joke to most people. A dog, it’s as good as dead. Nobody wants to hear about it and “everybody knows” it’s headed to zero. What does that mean? Well the big question is whether it’s a value trap or if, as is often the case, it has overshot to the downside. Given what I said yesterday: there is no debt, lots of cash, a huge patent portfolio, an established customer base, a network and an overlooked near monopoly in in-vehicle computer systems, I suspect the latter.
The investors I have studied and respect the most always strive for low risk / high return scenarios. To a lot of people RIM seems risky, but I see a 30% to 50% gain if they fail and are liquidated and a double to triple in 5 years if they successfully pivot or execute a turnaround.
In the meantime Apple is good for what at this point? Another 20%? Another 30%? IF they meet or beat expectations, IF they continue a phenomenal growth rate? IF they don’t disappoint through one issue or another? Apple has to keep being perfect or even beyond perfect to even sustain this valuation – any whiff of disappointment will take it down hard.
[Note, I am not shorting AAPL, because I've never been too good at timing those. But I am long RIM]