Post of the Day
July 27, 1999
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Subject: Reality Check on LU
Dear Fellow LU Fools:
Sorry for the following long post, but I can see from this board that several LU holders are a bit shell-shocked from LU's drop even though it announced tremendous earnings. I've only been a LU holder for one year, but I wish to point out the following "reality check" to anyone who may be doubting whether to hold LU:
1. I live in Tokyo. The reputation for quality of firms like LU, ORCL, SUNW and CSCO throughout Asia is about as close to perfection as you can get. If you think the growth of these companies in the U.S. market has been fantastic this decade, you ain't seen nothin' yet for Asia in the next decade.
2. I bought CSCO and LU last year (my very direct first stock purchases), and they each promptly dropped nearly 40%. It nearly made my heart stop, but I knew these companies had the same management, the same quality, the same growth that they had before their drops. Both stocks came back and they are now each roughly 80% higher than my original purchase price for them.
3. Don't forget--when your mutual fund suffers a loss, you STILL pay taxes on their distribution, which adds insult to injury. In contrast, any price reduction with a stock like LU is just a paper loss with no tax liability unless you sell.
4. The LU losses recently reflect a trend throughout the entire market. I don't care what sector you are following, the entire market is going through a typical summer swoon. So, selling LU and investing in some other stock won't resolve your worries.
5. Back in Fall 1998, nearly everyone was panicked about their holdings, and many felt like idiots for not getting out before the stock market plunge at that time. In retrospect, however, many of us feel like idiots for the opposite reason--that we did not take advantage and go on a buying spree at that time. Wouldn't it have been great in Fall 1998 to buy AOL at 20? Or Ebay at 25? Or CMGI at 15? Now, in light of what happened last year, and in light of LU's stunning revenue and profit growth just reported, no one could reasonably conclude that LU won't be heading "north" in time.
In my view, there is only one conclusion: Hold your LU shares, treat the current price decline as a buying opportunity, and continue to review LU's business news to ensure that you are satisfied that its management and its growth prospects continue to excel.