Post of the Day
July 22, 1998
Subject: Re: Just curious...
IMHO time horizons are a very tricky thing. I have a certain group of core holdings, G, KO, PG, CHV, MRK, WMT which I have held for many years with an enormous gain in wealth. These companies are all dominant behemoths in their market spaces, have outstanding access to capital, and superior management teams. I chose to hold these companies for a long time because the risk/reward profile is very attractive and these companies have an established track record of performance and innovation....and that view remains solid going forward.
In order to take a "long-term" view (say 3-7 years with periodic re-evaluations in portfolio weighting and valuation), I insist that a company have demonstrable financial success, and thus a risk/reward curve that does not fall into the speculative category. Historically no rational investor speculates for the long-term. It is much more a series of short-terms.
|"If one thinks about it for more than an emotional second, only a few technology companies have only recently fallen into what instituational investors would consider long-term holdings."|
If one thinks about it for more than an emotional second, only a few technology companies have only recently fallen into what instituational investors would consider long-term holdings. They are the restructuring telecoms, INTC, CSCO, MSFT, and perhaps a random DELL or two among a few others (and they are ALL large caps). By and large, the vast majority of high tech companies are so volatile in terms of profitablity and sustainable competitive advanatge, that one cannot take anything more than say a 12-18 month view. These companies demand frequent re-evaluation and a lot of attention. In other words, anyone who says that they are a long-term investor in TDFX, and means more than 12-18 months, is, IMHO, delusional and frankly....misguided.
Even the most self-righteous tech-savvy posters on this board truly cannot claim to have a clue where the 3D roadmap points to beyond 18 months. And as such, companies like TDFX get placed under the microscope with 1000X magnification for even the slightest loss in competitive positioning. Now I do agree that due to the technical nature of this company's product, a lot of their core strengths may be lost upon the average investor. As a result, I have consistently bashed TDFX's management for allowing that to happen as I believe there is an appetitite for tech companies out on the not-so-well understood fringe (e.g. stocks like Affymetrix, Guidant, and even the YHOO's of the world). But it is incumbent upon the management of a public company to frequently demonstrate to the investing public the merits of its products/technology with easily digestible press releases, product comparisons, and consumer testimonies. Has TDFX done some of this? Perhaps. Have they done enough? No way. Are they claiming a plan to do more? Yes. We'll see.
|"But it is incumbent upon the management of a public company to frequently demonstrate to the investing public the merits of its products/technology with easily digestible press releases, product comparisons, and consumer testimonies."|
Now let me come to my point. Frankly I cannot even say with a modicum of certainty whether TDFX will be around in 2 years (by conventional wisdom: 6 product cycles from now). Will Coke? I would bet my life on it. I will never be a long term investor in such a company as where TDFX is today when there is so much near term fog. I think it unwise to do so. TDFX is nothing short of a speculative investment....regardless of how much fun it is to play Unreal on an overclocked PII with a 24 meg V2 board. Therefore the risk curve of this investment is practically undefinable. That is why investors watch the stock literally on an hourly basis (and I know the regular posters on this board do that). So in answering the orignal question as to what is conventionally long-term with this stock...my answer is there is no such thing. And if you believe there is, then you are way overbought on risk. So far TDFX has not even begun to provide a sustainable reward that is commensurate with that risk level.
And that is but one reason why the Street's PMs have placed this stock in the Sanford & Son junk yard. Way too volatile and dangerous in terms of outlook. As owners of this company....you really have only yourselves to blame if that message has been ill received.
PS Is there a place for short term stocks, even trading stocks, in a well thought out portfolio? Absolutely. My sense is that it is about 8-20% (tops!) of a portfolio's value. And even then I think sector specific mutual funds are the way to go---not singles.
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