VP Opinions

[AdamA]

After about a year without any speculation, I finally put a very small amount of money into my very speculative VP today.

Curious to hear what people think.

1.  TLT and SPY June 2012 calls.  I plan to sell them in March on options expiration day.

2.  National Bank of Greece.  50% NBG 50% cash.  I'll rebalance at 25%/75% and will not put any extra cash into the investment outside of the 50% that's already there.  So I'll either sell out of it eventually or lose all of the money if the bank goes under.

3.  RIMM Jan 2013 puts.  I think they're going to continue their downward spiral.

Kind of a lottery ticket type of VP, I know.  I figure by posting the investments, I'm at least a a little bit accountable and will have to publicly admit to losses.  Will either encourage or discourage me in the future.

It's a very very small amount of money, by the way.

[Storm]

Great job pulling the trigger on your VP.  I like the first and third investment, but Greece?  I guess maybe the doom and gloom is oversold.  Good luck to you!

[AdamA]

...but Greece? 

I know.  I figure I'll have to be patient with this one (unless I just lose it all quickly).

[MediumTex]

Won't RIMM be a buyout target at some point, especially with their cash and IP assets?  Isn't it trading at a P/E under 5?

[AdamA]

Won't RIMM be a buyout target at some point, especially with their cash and IP assets?  Isn't it trading at a P/E under 5?

It could, but at what point?  I know they are rolling out the NFC technology that is supposed to replace debit cards, and, if successful, could turn things around for them, or at least make them more attractive for a buyout.

I won't pretend to understand the intricacies of this industry (or any industry for that matter), but I would be surprised if things turned around for RIMM over the next six months.  I'm gambling that they'll have another couple of bad quarters.  

But who knows...maybe the damage is done and it's bottomed.  

[Storm]

Won't RIMM be a buyout target at some point, especially with their cash and IP assets?  Isn't it trading at a P/E under 5?

It could, but at what point?  I know they are rolling out the NFC technology that supposed to replaced debit cards, and, if successful, that could turn things around for them, or at least make them more attractive for a buyout.

I won't pretend to understand the intricacies of this industry (or any industry for that matter), but I would be surprised if things turned around for RIMM over the next six months.  I'm gambling that they'll have another couple of bad quarters.  

But who knows...maybe the damage is done and it's bottomed.  

RIMM is a dying company.  You can pontificate about P/E ratios until the cows come home, but business now are buying iPhones and iPads, not Blackberries.  The Blackberry Playbook, RIMMs tablet device, is woefully undersized (only 7" vs. the iPad's 10") and won't even get email functionality until 2012!

Can you imagine?  A company whose one claim to fame is allowing business people to get their email anywhere, has a product competing directly in a fierce marketplace that can't even receive email?

Long-term, they probably will become a takeover target since their Blackberry messenger platform has significant marketshare in Asian countries, and the lock-in for that will probably be enticing if Apple or some other company can pick up their customer base and integrate it with iMessage.

I just see anyone going long on RIMM as investing in buggy whip manufacturers after Ford released the model T.

[AdamA]

Won't RIMM be a buyout target at some point, especially with their cash and IP assets?  Isn't it trading at a P/E under 5?

It could, but at what point?  I know they are rolling out the NFC technology that supposed to replaced debit cards, and, if successful, that could turn things around for them, or at least make them more attractive for a buyout.

I won't pretend to understand the intricacies of this industry (or any industry for that matter), but I would be surprised if things turned around for RIMM over the next six months.  I'm gambling that they'll have another couple of bad quarters.  

But who knows...maybe the damage is done and it's bottomed.  

RIMM is a dying company.  You can pontificate about P/E ratios until the cows come home, but business now are buying iPhones and iPads, not Blackberries.  The Blackberry Playbook, RIMMs tablet device, is woefully undersized (only 7" vs. the iPad's 10") and won't even get email functionality until 2012!

Can you imagine?  A company whose one claim to fame is allowing business people to get their email anywhere, has a product competing directly in a fierce marketplace that can't even receive email?

Long-term, they probably will become a takeover target since their Blackberry messenger platform has significant marketshare in Asian countries, and the lock-in for that will probably be enticing if Apple or some other company can pick up their customer base and integrate it with iMessage.

I just see anyone going long on RIMM as investing in buggy whip manufacturers after Ford released the model T.

I agree with you, Storm. 

I think MT's point is that because RIMM is not a debt ridden company, they may become a buyout target sooner rather than later, given some of the things you list above. 

The question is what those things are really worth.

[MediumTex]

If I could buy a buggy whip manufacturer for less than the liquidation value of its plant, equipment and intellectual property, I might be able to get excited about that, even though at this point I think cars have shown that they are preferable to buggies for most transportation needs.

Even with its depressed earnings, RIMM is still providing a 20% return on assets, which is pretty good.

Even if RIMM is ultimately a company like PALM, at some point it gets cheap, and a P/E of 3 or 4 and selling at book value might be that point.

As far as what companies are doing, MANY companies are still only using Blackberries.

[FarmerD]

I've always been a big believer in buying the chespest/most undervalued stocks which are not in danger of going bankrupt.  HP seems like a good play now.  They're selling at a PE of 5.  Due to recent CEO misfires, everyone hates this company so every bad scenario is already priced into the stock.  Companies like this are ripe for upside surprises.  If it happens, look out.  You should make money even if nothing much changes for the company if for no reason other than PE multiple reversion to the mean. 

Do you really think the PE will drop to 4 or 3?  Not very likely in my opinion so downside risk is minimal. 

Just my opinion

[AdamA]

You guys both make good points.

In the end, it's a gut shot.  When I look at RIMM's main product compared to that of it's competitors, I don't see the company having much of a future without undergoing a major turn around.

The fact that the company still has reasonable fundamentals is a source for optimism in the market that keeps some investors holding onto it.  

I see those fundamentals getting worse before they get better, if they get better at all, but again, this is basically a guess.  

[AdamA]

Do you really think the PE will drop to 4 or 3?  Not very likely in my opinion so downside risk is minimal. 

It just depends on how much the "P" drops the next time the "E" is not what was expected. 

[MediumTex]

Do you really think the PE will drop to 4 or 3?  Not very likely in my opinion so downside risk is minimal. 

It just depends on how much the "P" drops the next time the "E" is not what was expected.   ;D

Often, too, when it's all said and done it is discovered that earnings were being manipulated and what LOOKS like a P/E of 3 or 4 is actually much higher.

I remember the same things happened with Worldcom about 10 years ago.  For months it looked like a screaming buy with a P/E around 5.  What everyone came to realize, however, is that this P/E wasn't real and the stock was actually probably very expensive at the prices it was trading at during that period.

I'm not saying that RIMM is up to anything like what Worldcom was doing, but I have found that the price of a stock is sometimes not as stupid as it looks.

I don't really have strong opinions about RIMM either way, but I do watch it just because I am curious how the story will end.  I suspect that RIMM will end up being the Blockbuster Video of the mobile communications industry.

[AdamA]

I suspect that RIMM will end up being the Blockbuster Video of the mobile communications industry.

That's the exact thought I had in my head when I decided to make the trade.  It's not really based on any analysis...just a hunch.

[AdamA]

After about a year without any speculation, I finally put a very small amount of money into my very speculative VP today.

Curious to hear what people think.

1.  TLT and SPY June 2012 calls.  I plan to sell them in March on options expiration day.

2.  National Bank of Greece.  50% NBG 50% cash.  I'll rebalance at 25%/75% and will not put any extra cash into the investment outside of the 50% that's already there.  So I'll either sell out of it eventually or lose all of the money if the bank goes under.

3.  RIMM Jan 2013 puts.  I think they're going to continue their downward spiral.

Kind of a lottery ticket type of VP, I know.  I figure by posting the investments, I'm at least a a little bit accountable and will have to publicly admit to losses.  Will either encourage or discourage me in the future.

It's a very very small amount of money, by the way.

Laughably, I sold out of all of these positions over the past couple of weeks.

Every time I looked at the account balance it annoyed because I'd just keep thinking that I could earn roughly 10% a year on it if I just put in my PP.

[moda0306]

Adam,

As much as I love the PP, I'd be extremely surprised to see 10% average performance out of it over the next 5 years, and especially over the next 1-to-2 years.

Beyond that, though, I have no input on you moving out of your VP plays.

[AdamA]

Adam,

As much as I love the PP, I'd be extremely surprised to see 10% average performance out of it over the next 5 years, and especially over the next 1-to-2 years.

Beyond that, though, I have no input on you moving out of your VP plays.

It's no so much the percentage (as a number) as it is that it's money safely invested in a way that's likely to produce consistently positive returns (mostly) over time.  (I'm sure I'm preaching to choir).

It's just hard for me to believe that anything I'll think of will do better, and that's what irritates me every time I start to think about a VP.

[moda0306]

Agreed.

I still feel like I have to get my balance sheet into a more "comfortable" position before I start playing around outside the PP.