Research In Motion Will Survive, but You Still Shouldn't Buy It

Whenever a stock drops 30%, it gets my attention -- and that's precisely what's happened to BlackBerry-maker Research In Motion (Nasdaq: RIMM  ) over the past year. The carnage is even worse if you look back another year, with the stock down some 70% since its 2008 high.

Yet this is a company that continues to be No. 1 in the U.S. smartphone market, with near 40% market share, and No. 2 globally, with 18% market share. It's also sitting on $1.5 billion in cash and no debt, grew sales at a better than 27% clip over the past year, and generated nearly $3 billion in free cash flow over the past year, much of which the company used to repurchase shares. That sounds like an attractive profile for a stock trading for less than five times EBITDA.

Not without reason
The fear, of course, is that Google (Nasdaq: GOOG  ) and Apple (Nasdaq: AAPL  ) , which are rapidly gaining smartphone market share and have by most accounts superior phones, are about to drink Research In Motion's milkshake, turning the BlackBerry into an also-ran along the lines of Betamax. Remember that these tech giants are similarly cash-rich and have other operating businesses that can subsidize their battles in the smartphone space.

I, however, am open to the argument that fears of the BlackBerry's demise are overblown. Not only do the devices continue to have significant market share, but they are also entrenched in the hands of many corporate and government users. Further, remember that technologies never disappear overnight. Smartphones, for example, accounted for less than 15% of all mobile phone sales in 2009, meaning 75% of consumers are still buying basic mobile phone technology. And by 2013, smartphones are only expected to account for 27% of all mobile phone shipments.

In other words, a significant number of mobile phone users don't need smartphones and by extension, a significant number of smartphone users likely don't need all of the superior features offered by Android and the iPhone. These products are becoming solutions in search of problems, which means that anyone who isn't a tech geek or early adapter may not be willing to pay up for them.

That, of course, creates an opportunity for Research In Motion to defend its BlackBerry business.

And that's why I'm interested
What this means for Research In Motion is that it can move down-market and maintain market share by offering lower-cost, basic smartphones (embrace the oxymoron). In fact, Research In Motion CEO Jim Balsillie alluded to just such a strategy on the company's recent conference call. Asked about BlackBerry's design strategy going forward, he said "This is really a promising space and we can address lots of segments ... and efficiency and different price points ... because if you make these things so high-end that they're not adoptable to the market or they are so consumptive of the networks they can't scale, that's not what we originally designed our business for."

The BlackBerry, in other words, intends to be a basic solution for the basic smartphone user and therefore should be able to continue to grow revenues as the global smartphone market expands.

The problem with that
This was my hypothesis in taking a look at Research In Motion. My suspicion was that following a two-year 70% decline, the market was pricing in dramatically slower revenue growth. And in fact, that's true. According to my estimates, a $50 stock price is baking in 6% annual revenue growth over the next decade -- a number Research In Motion continues to best by a wide margin.

There is, however, a wild card here: profit margin. If Research In Motion decides to go down-market in order to defend its sales base, then it should start to look more and more like another global mobile phone market share leader: Nokia (NYSE: NOK  ) . Although Nokia continues to boast better than 34% of all global phone market share, the company's stock has been in a freefall since late 2007 and its board recently opted to change CEOs. Perhaps most ominous for Research In Motion is that Nokia is also cash-rich, with almost $6 billion in net cash, cash-generative, with almost $4.5 billion of free cash flow over the past year, and committed to repurchasing shares. Its problem has been that it can't stop market share declines even as it cedes profit margin. Nokia's operating margin has dropped all the way from 15.6% in the second quarter of 2008 to just 6.6% in the second quarter of 2010 as its phones have become commoditized, with price their most compelling selling point.

Could the same plight befall Research In Motion?

A worrisome scenario
Although Research In Motion's operating profit margin is down from 2008, it's essentially stable at slightly more than 20%. If that number were to fall to 12%, however, as the company embraces a less premium sales strategy, then my model suggests that the company would have to achieve 15% annual revenue growth over the next decade to justify the current stock price. That's a tall order given that overall smartphone sales are expected to grow between 20% and 30% annually through 2015 and the quality of competition in this space. Further, remember that much of this growth is expected to take place in emerging markets, and particularly Asia, where Blackberry's brand is weakest and where consumers tend to be much more demanding of their technology.

All told, I'm interested in Research In Motion, but not at current prices. Yet market pessimism can be a destructive force. Should investors be given the opportunity to purchase shares when both lower growth and lower margins are priced in -- let's say $25 to $30 per share -- then I think we will have an intriguing contrarian play on our hands. Until then, I would be neither long nor short the shares.

Get Tim Hanson's Global View column every Thursday on Fool.com, or by following him on Twitter.

Google and Nokia are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 23, 2010, at 12:31 PM, BadCopNoDonuts wrote:

    InfoThatHelp!

    InfoThatHelp!

  • Report this Comment On September 23, 2010, at 1:04 PM, BadCopNoDonuts wrote:

    can you say "personal vendetta"?

    I knew you could..:-)

  • Report this Comment On September 23, 2010, at 1:49 PM, sk8ertor wrote:

    Wow, that InfoThatHelp is really clueless. He says they should leave NA. Are you kidding me? BlackBerry is the #1 smartphone in NA and you say they should just abandon? You're not just a FOOL, you're a m0r0n! You're absolutely clueless. Do you not get bored from spreading your foolishness? Seriously, it's getting boring.

  • Report this Comment On September 23, 2010, at 2:19 PM, jonfz1 wrote:

    The low end of the smartphone market is the highend (price-wise) for the mass market opportunity in developing countries. In India for example, monthly ARPU is $5-$10. This lends itself to lower end smartphone price points, and pay-as-you-go..

    AAPL with its ~$600 iPhone ASP will require quite the subsidy in order to mass sell in these markets.

  • Report this Comment On September 23, 2010, at 2:25 PM, mammon12 wrote:

    It sounds like you are running a discounted cash flow analysis. If you do that for any stock, you will come up with a number far smaller than the current stock price. Stocks just are not priced that way outside of schools.

    Perhaps the poor economy will help a price conscious handset company. However, the monthly cost of mobile services seems far too high. The price of the actual phone pales in comparison.

    RIMM should go all out on R&D and go for even more expensive phones that are better than the iPhone. That seems the only logical strategy. Not the opposite.

  • Report this Comment On September 23, 2010, at 3:15 PM, TMFMmbop wrote:

    <<It sounds like you are running a discounted cash flow analysis. If you do that for any stock, you will come up with a number far smaller than the current stock price. Stocks just are not priced that way outside of schools.>>

    You're right. Price-to-phone number multiples are a much more worthwhile real-world scenario.

  • Report this Comment On September 23, 2010, at 3:31 PM, MrZ2357 wrote:

    Dear Author.

    I do not believe that rimm will concede the high end smart phone market and just go after the lower/affordable market. I also believe that rimm has the engineering capability to produce a competitive high end phone. If that were not the case then I would agree with your thesis.

    For what its worth, there is speculation that storm 3 will be that high end phone, with GigHz processor, boatloads of memory and largish high res screen with new OS etc.

  • Report this Comment On September 23, 2010, at 3:54 PM, Aeoran wrote:

    I'd like to gently remind one and all that in the world of darned fine German automotive engineering, and the home of some of the very best auto manufacturers and brands in the world, Volkswagen is king.

  • Report this Comment On September 23, 2010, at 3:55 PM, infektu wrote:

    all nice and logically laid out ... however, it's all based on a single gut-feeling premise: that RIM would be going the "affordable" segment;

    somehow I find this hard to believe (actually their price per phone has recently increased by a few percentage points); why ?

    -- they have wonderful hardware engineering (their radios are the best, even better than Motorola's) and splendidly keep their own turf in software against 2-3 companies each 10 times bigger than RIM;

    -- they have been innovating all along, since they started pushing wireless email at a time when bill gates & co. were still debating whether internet was going anywhere;

    -- they are a _real_ voice+software+OS device manufacturer, to say nothing about the secure server solution; not a lot of companies pack that knowledge in such a small size; IMHO writing eye-candy software for mobiles is cool, but in order to offer a solid, repeatable, efficient "wireless online experience" it takes more than buying a 3rd party GSM/3G phone chip and gluing it on a slimmed down platform of a cool computing machine; and form-factors, displays, etc. are changing every season, what stay are the fundamentals;

    a, there is a lot of crap thrown around as "facts" these days, it can be safely ignored, f.i. RIM has only 6-7,000 employees, NOT 70,000 and they're among the most efficient in high tech (just divide revenue :-) )

    also, that time-waster that posts only wishful thinking pretends that "Blackberrys were number 1 with huge once insurmountable leads in North America since 1993" ... hahahaha !

    The first data-only Blackberry logged on the net in 1995 ... in 1993 RIM was an ambitious startup while this loser's (currently) favourite company was trying to avoid banktrupcy after having lost the pc market with their upscale product.

  • Report this Comment On September 23, 2010, at 4:35 PM, Aeoran wrote:

    @TMFmmbop, a couple of questions about your interpretation of the RIM CEO comments to mean that RIM is making basic smartphones, not high-end phones:

    a) Do you not see the comment about "so high end, [competitor's phones] are not adoptable and so consumptive of networks" as a caution worth thinking about with regards to Apple and Android products being potentially fundamentally flawed products, as opposed to RIM not being able to create bandwidth-wasting products?

    b) If RIM could only deliver a simple experience with smartphones and could not create more than a simple smartphone experience, why is it that they have the most sophisticated (and realistically, the only one) end-to-end system in the world for wireless data communications, tying into and between pretty well every carrier in the world?

    I think there's probably more than meets the eye with respects to RIM. As much as people may want to believe that web+apps = bleeding edge technology, and that two weeks in a garage plus a good starting idea = beat the world+dog, wireless requires depth. Exhibit 1 - see Apple's laughable iPhone 4 antenna design; almost certainly specified by and created by folks who know Photoshop more than high school physics. The results show.

  • Report this Comment On September 23, 2010, at 5:26 PM, echotango0 wrote:

    Huh ?? So, the net net of this article is; if a really really successful company's stock price drops by 60%, then it's a really really good buy ? Gee, I'm so glad you pointed that out.....I would have never have guessed that all by myself....

    Of course margins were higher in 2008...RIM had virtually no competition ! With Ip4 and Adroid in the marketplace, RIM will and has changed their strategy, primarily moving into the consumer space with lower priced and lower featured phones. All of this is ancient history and intuitively obvious.

    This is another of those "analysts" who did very little research to come to the same old "herd mentality" conclusion that RIM is doomed.

    Let's review one more time, great last quarter, upped the guidance for the current quarter and new products continuing to rollout.

    I certainly hope no money changed hands for this article and if yes, the author should immediately return it.

  • Report this Comment On September 23, 2010, at 5:47 PM, dexter1225 wrote:

    @InfoThatHelp

    "* NASDAQ bids for Rim outnumber asks consistently by a factor of 10x on a regular basis. Monitor it closely would reveal a possible Rim exodus in Rim investment holders panicking."

    Are you kidding? RIMM is a picture-perfect representation of over-shortselling in the market today; 3 months ago (and several months before that) it was Sirius XM, now it's RIMM.

    Overzealous short-selling is dragging RIMM's price unnecessarily lower as market-makers try to squeeze more and more pennies out of their short positions. This is merely another stock stuck in the tug-of-war between bulls and bears...

    InfoThatHelp - I'm not sure I've heard of the religion that worships Steve Jobs, but I won't deny he is a charismatic speaker and does well getting people excited about Apple's products. However, I think you're letting your love for Jobs (and whatever grudge you have out for RIMM) cloud you judgment on a great company like RIMM.

    @infektu

    "The first data-only Blackberry logged on the net in 1995 ... in 1993 RIM was an ambitious startup while this loser's (currently) favourite company was trying to avoid banktrupcy after having lost the pc market with their upscale product."

    Excellent point and one that some posters here neglect to remember.

  • Report this Comment On September 23, 2010, at 6:56 PM, BadCopNoDonuts wrote:

    InfoThatHelp........... will you marry me?

  • Report this Comment On September 23, 2010, at 10:57 PM, BR14 wrote:

    "Google and Nokia are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. The Fool owns shares of Apple and Google."

    Shock horror. Tim Hanson denegrates RIM.

    How about letting us in on your options positions on RIM?

    The Fool stands to win big from RIM disappearing from the market place. But they're sadly misinformed and clearly don't know much about the global market for phones.

    If Android has grown so quickly, how come RIM hasn't lost subscribers hand over fist? Because the Android market is exactly the market previously held by the manufacturers who switched to Android.

    Samsung is the second largest phone manufacturer in the world. Android zooms up the charts when Samsung switches to Android. Hardly unexpected. Thing is Android makes no one any money (not even sure Google care that much), and will soon be a poisoned chalice when Google loses against Oracle (not to mention NTP and Apple).

    RIM volatility has been a short sellers dream but you can't continue to grow like RIM and the price stay low.

    There's massive value in RIM and people who remain patient are going to end up super rich.

  • Report this Comment On September 23, 2010, at 11:42 PM, lowmaple wrote:

    BR 14 etc:whenever the subject of RIM comes up I am reminded of a song 50 years ago about the word Buffalo; it's as the full moonhas come out. Just because some one has stock opinions and backs them up by recommending said stocks does not = conspiracy.

  • Report this Comment On September 24, 2010, at 12:51 AM, grant224 wrote:

    Conspiracy Theory:

    I think infothathelp, millerfallsman, aorean, BR14, infektu and probably others are all the same person who has way too much time on his hands. It's unfortunate you hijack the comments section of every RIMM article..

    If I am wrong, I wouldn't apologize because all of you appear to spend your time on this website whining on the comments section of any RIMM articles that you can find, contributing the same thing each time. If you have something to discuss try the forums! Play with yourself(ves) there.

  • Report this Comment On September 24, 2010, at 5:36 AM, ryanalexanderson wrote:

    Ah, but is "grant1224" yet another facet of the split personailty? And, in fact, perhaps it is the Gardner brothers behind all of these personalities? Including "ryanalexanderson"?

    How deep does this rabbit hole go?

  • Report this Comment On September 24, 2010, at 10:47 AM, afamiii wrote:

    RIMs competitive advantage has been corporate email. This is a niche and the rise of smartphones (Apple, Android, et.al.) have reduced the opportunity for them to grow into the consumer space. Future growth will be harder and at lower margin.

    RIM made a number of strategic errors: i) not putting sufficient urgency into their global expansion; ii) not moving to lower price points fast enough; iii) not innovating around the handset and application space (though this was a weakness amongst all handset makers until the arival of Apple)

    I believe resulting from their small mindedness. (not asking how can I serve the highest number of people - good ideas seldom remain niche in the tech space. Apple take note)

    RIM needs to make several strategic changes:

    i) Focus on your advantages (and your core functions). Your customer relationships (in leading businesses), your marketing (product design, brand development), your network service (not your physical network)

    ii) Outsource your none core functions:

    a. Get out of the manufacturing game - outsource all production to Chinese/South Korean/Malaysian outsourcers. They will provide prouct cheaper

    b. Network (run it over IBM or other clouds/networks.)

    iii) Doing this will

    a. enable them to spend executive time against what customers value - developing/designing better phones and network services.

    b. enable them to cut out massive cost

    c. introduce massive organisational flexibility

    They then need to

    i) leverage their corporate relationship to deliver other applications that are currently delivered over the desktop/laptop.

    ii) Leverage their email leadership into the consumer and SME space.

    IBM and Apple are examples of corporate come backs.

  • Report this Comment On September 24, 2010, at 11:08 AM, grant224 wrote:

    I can't prove I'm not one of that person's names and I won't waste time trying except to say that you'll notice my CAPS profile is active while all the person's I've named are blank minus comments posted on RIMM/smartphone articles.

    And it's not a rant, I'm tired of clicking on an article dealing with RIMM and then watching the discussion be wrecked by the SAME people each time who only ever insult each other. Why is that too much to ask? As I said before, do it on the forums, then you don't have to have the same argument each time, you can click and your brilliant points will be there forever!

    Also if anyone is actually "real" and is insulted by being grouped into that category, maybe you should ask yourself how I formed that conclusion. It does not take much insight to click your name and look at past postings...

    Reading the comment's section on TMF are one of the main draws of this website (at least for me) so forgive me if I don't feel like scrolling past the same names each time.

    What wonderful investment discussion we are all participating in!

  • Report this Comment On September 24, 2010, at 11:15 AM, grant224 wrote:

    Good luck trying to manually influence share prices though..

  • Report this Comment On September 24, 2010, at 12:55 PM, ryanalexanderson wrote:

    Just cracking a little joke there. But I agree, this is reminiscent of the Sirius XM comments that would always follow an article regarding the same.

    On a serious note, I went to undergrad university across the parking lot from RIM in 1995, and many of my engineering classmates took jobs with them. Many left about a decade ago when it appeared that middle management from the consumer sector came in and basically changed the corporate culture from hardware innovation to entrenched corporate buddy-buddy-ship. Predictably, this has become their core competence now. Perhaps they should team up with Microsoft to take the "low-road" of innovation, concentrating even further on their corporate channel rather than new and great "cool" devices.

  • Report this Comment On September 24, 2010, at 2:18 PM, plange01 wrote:

    rimm is a great stock to be buying..its main competiter apple is so high is about to collapse under its own weight! that stock is just like gold driven to a ridiculous level by the big hedge(trash) funds...

  • Report this Comment On September 24, 2010, at 3:59 PM, chrispilg wrote:

    RIMM's headed the way of Palm. Go into any wireless store - all Blackberries require a data plan, not a basic plan. If you aren't going to pay for a data plan on the low end, you aren't getting a Blackberry, but you can get a Nokia. If you're going to pay for a data plan, why not get more for your money - Droid or iPhone?

  • Report this Comment On September 28, 2010, at 2:21 PM, Glycomix wrote:

    "Throw the baby out with the bathwater?"

    With all due respect to Tim Hanson's impressive research and arguments, the conclusion that one should avoid investing in RIMM. It's too early to make that conclusion. ``

    RIMM is a 'value' stock. Its guaranteed to stay in the #2 or #3 slot. It has competitive products with Apple, but it'll take 6- 10 years before we know the important of each innovation.

    RIMM has a proven competitive advantages in security and in a loyal installed base. Its base will be willing evangelists for its product line if it provides them with performance on a par with Apple's at small incremental costs.

    It can port the best of the iphone 'apps' to its products and teach its folk how to use them. In gratitude to RIMM and to help their friends and family, satisfied customers will sell RIMM's products thought the cheapest and most effective of, advertising methods, word of mouth.

    If they can build equal public enthusiasm for its offerings, RIMM can charge the same premium prices as the iphone.

    RIMM is not dead, and it can come back strong. Throwing away RIMM when it's at a low P/E would as silly as when I refused to buy Apple when it was selling at a 1:1 book/price.

    Warren Buffet made $37B in investment by buying stocks that were oversold by the industry. That's the take-away lesson from the dot-com bubble of 2001-2003

    KEY ISSUE: The individual investor will have to make an effort to determine whether the stock is a value of a value-trap. The difference appears to be that the values continue to make improvements that maintain its competitive moat.

    ADVANTAGES: Research in Motion has a huge installed base in the business market and it uses a dedicated keyboard. These differentiate it from Apple. RIMM has made an investment in the I-pad market to connect with the streaming TV and information market. What's the weather going to be like.

    Apple's 'apps' for the phone expand it to a wider audience and increases its usefulness. Before Google's Android there was no other other smart-phone; so Apple could set the margin to the usefulness of its applications' the question was whether the added utility of the application was worth the cost.

    Usefulness is the test that RIMM has to pass. It has to find a way to equally useful to more people and advertise their own edge..

    Apple made the applications free though advertisements. The result is that it has a huge base of instantly useful applications. You can look at your iphone to determine the weather without having to have a TV cable hookup.

    Example1: Will the weather mess us up. We can discover whether a rainstorm is going to mess up our plans to go on a deep-sea fishing trip; whether a hurricane will be migrating your way or whether tornado is coming towards you.

    Example 2: Specific user utility. Physicians, doctors, can now access the Merk manual by a free Apple 'app'. That can save lives.

    The android, although similarly smart has virtually no useful "apps" although it's going great guns trying to get them. The only Android application that I find astonishingly useful is its ability to instantly translate foreign road-signs into English. The Apple iphone can do the same and speak the signs aloud. Apple already has ten years of voice production experience in the imac.

    THE POINT:RIMM may be stronger if it doesn't act like a clone.

    THE CHALLENGE: If it acts in a focused fashion, RIMM can discover apple's most useful applications (apps), port them over to its own phone, and make them available to its own users.

    The hardest thing about a new technology is getting users acclimatized to them. RIMM has a loyal world-wide band or customers who can act as ambassadors and trainers for their friends.

    What advantage does RIMM have? Privacy and security! Hackers are breaking into and robbing individual's bank accounts and credit cards without their knowing it.

    RIMM can use its dispute with India to highlight that its phones and data are more secure than Apple. I recall a newscast that suggested that Apple has already had trouble with the security of its transmissions. RIMM's transmissions are so secure that even nation-states have trouble cracking them!

  • Report this Comment On September 28, 2010, at 3:42 PM, Glycomix wrote:

    Friends, thank you for your wisdom and your passion. I've grown wiser from each post. May our courtesy to each other abound to the same degree.

    Passion is wonderful! Who wants to watch a football game where no-one is excited about their team? However, we're all spit-balling, trying to thrash though our own thoughts about the real value of RIMM. At least I am. We present our own experiences and information and listen to the wisdom of others.

    Consider grant222's point: the dialectic, the contest of ideas, gives us better answers. I would be poorer if I hadn't had your input. I hope that you get something from mine.

    Although it's vital to challenge wrong ideas, why hurt the amazing person who presented them? Can't we challenge each others sloppy thinking without calling each other names?

    The best way to support an idea is by presenting it clearly and succinctly. The best way to support a pro or con position is with data: links to the website that goes into that position in depth.

    ---------------------------------

    Let's look at the value!

    Our host, Tim Hanson, set the stage with the puzzle with which we're all struggling: What is the real value of RIMM? RIMM is a huge presence in the marketplace, and it's numbers look amazing, but what happens if it doesn't innovate? It's CEO speaks about 'niche marketing', but that's a cop-out. It could easily be in the two of three in this market. Don't give up Jim Balsillie!

    chrispilg reminds us of a realistic concern with how a lack of innovation can destroy a product: Palm went from the hot-ticket-item into oblivion because it didn't innovate

    Millerfallsman supported his position that RIMM is a value with his reference to "apha": http://seekingalpha.com/article/226638

    I understand the concern with commentators' moving opinion can over-influence the market. A CNBC commentator mentioned Atwood Oceanics and another stock and those went up 2% in the selling pressure this morning. Nobel, a much better deep-water drilling-rig company, with better numbers and a clear strategy went down 2%. Go figure

    I have my own thoughts on that: viz. Nobel Corp (NE) is the second largest off-shore driller and has little exposure to the Gulf-of-Mexico PR nightmare.

    Nobel(NE) has better ROE, ROI, ROA and PEs than ATW and it has a 1.5% dividend while ATW doesn't give any dividend. Check the numbers out yourself http://www.finviz.com/quote.ashx?t=atw

    Nobel is a hands-down better value than Atwood oceanics: Nobel's 2009 book value was $26 share while its stock price is currently only $33. It went down with the stock market this morning while Atwood's went up. Atwood's 2009 book value was $17.16 a share while it's stock has a current price of $29.81. jAtwood (ATW) has a current PE of 8.19 while Nobel (NE) has a PE of 5.94. Atwood has a Return on Assets of 15.6% while Nobel has one of 17.6%. The same is true of Return on Investment and Return on Equity, NE is slightly better than ATW. So the question: Which do you think is a better value?

    Look. I'm not calling anyone names, but neither do I excuse sloppy research.

    Atwood has a good top management, but so does Nobel. He gives the financial picture clearly and doesn't sugar-coat anything. At least you know where you stand. Hear him for yourself.

    http://cc.talkpoint.com/barc002/091510a_rb/?entity=17_O4G766...

    Take-away.

    Couldn't we show each other more courtesy? Wouldn't you like it better without name calling?

  • Report this Comment On September 28, 2010, at 5:21 PM, Glycomix wrote:

    Topics in this post is the Importance of ...

    - both passion and civility

    - personal experience in getting input on different companies' culture

    - Each other's data and wisdom to make sense of a scary market/ world

    - knowing WHY a contrarian view will be profitable and how to test the validity of that view before committing to it whole heartedly.

    PASSION WITH CIVILITY:

    I agree with passion, but urge civility.

    I too feel frustrated by information that promotes a possibly lesser product or company over a better one. However, when we come to immutable difference between us, let's agree to disagree. When our differences are too great, we can still honor each other without always agreeing.

    We must remember that we're all in this together. we can make much better decisions together than we can alone. That's why we share our thoughts with each other, and debate and discuss what's on our minds.

    PERSONAL EXPERIENCE IS IMPORTANT:

    Earlier I emphasized data to settle points. Contributing personal experiences as ryanalexanderson can be just as important as data if we have enough who share their experiences so we can draw a conclusion.

    My uncle tells a cautionary story about how US steel bought Kusan 30 years ago and ruined it by their executives' ignorance of the toy market. In the early 1980s Kusan developed a plastic computer that was half-the price and more advanced than most of the computers on the market. However, when US Steel took over, they wanted to use "their own management team" and destroyed the company. Kusan which was one of the hottest toy-makers on the market lost half of its value within five years and continued to deteriorate. In his 60s my uncle lost 90% of the value of his pension which was invested in Kusan stock.

    The problem was hubris, overweening pride. The new management, proud that they were "steel-men", wouldn't listen to those who knew what they were talking about.

    Does ryanalexanderson's post may have hinted of hubris in RIMM management or does it suggest the stodgy Pepsi-cola, play-it-safe management that almost bankrupted Apple after Steve Jobs left?

    I don't know the answer. If you do know please share! Only people with first-hand experience would know. That's why we need each person's input and experience. Gathering together each piece of data, someone in the community may make sense of it all and share their insight. After we've tested and debated the point, we'll all have a better handle on the result.

    THE IMPORTANCE OF REASONS FOR CONTRARIAN IDEAS:

    Don't you feel better investing in a company because you understand why it's works? Do you get nervous when you make a blind faith judgment, depending with blind faith on a wise mans prognostication?

    David Gardiner was right about Apple, Pixar, Marvel and Disney. He told us to buy when the time was right. I'm willing to make some limited bets based on his judgment and research.

    However, I'm not going to go whole-heartedly into a stock, like Netflix, that has a 60:1 PE without knowing the answers. Warren Buffet pulled out of the stock market in the late 1960s because "they weren't a value, the PE's were 60:1" According to Mary Buffett his daughter-in-law, Warren Buffet has made $37 Billion avoiding cliffs, buying value, low cost stocks, and selling when they reached a limit of 60:1 PE.

    If, as a value investor, the Gardiners are contradicting Warren Biffett's and Ben Graham's course, I want to know why. What are their reasons?

    I don't want to take things on faith when I can see other information is flashing caution signals.

    We're facing hard times in the US because we've taken on "faith" in the wisdom of our leaders.

    Now I want reasons. I want to hear 'why' we should take a course that looks like trouble, even from a highly respected leader like Dave Gardiner.

    EXAMPLE OF BLIND FAITH THAT WORKED:

    Years ago Jerome Bruner had babies crawl to their mothers across a visual cliff (clear plexiglass made it look like a cliff when there wasn't one. ) Many of the smarter but shyer babies wouldn't cross and cried at the demand. The babies that implicitly trusted mother made the leap of faith and crawled across an empty void.

    SMART BABIES TESTED BEFORE THEY CRAWLED:

    The smartest babies who crossed, tested the plexiglass, with their hand and saw that they were supported and then crossed. I don't refuse to make the leap of faith. I merely want to know that the plexiglass is there, and show me how to test it.

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