POST OF THE DAY
Qualcomm
Long Means Long

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By Lokicious
April 30, 2001

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I know everyone is frustrated that Qualcomm's near term growth isn't as hoped, but we shouldn't be surprised, given the economic slowdown. And anyone who has been paying real attention to technical developments, not the sloganeering about who's on first, has known that 3-G will take several years to come to fruition.

Qualcomm is an investment for those who don't need a return on their investment for years. We need to understand just how much the stock market is now dominated by short-term interests, or at least mutual funds and individuals who are trying to leverage their investments by buying stocks when the time is ripe. I doubt if I were a legitimate growth fund manager (not a trading fund) that I'd be rushing to buy a lot of Qualcomm now. There are other growth stocks that have been far more mauled by the bear.

A long term investor who is simply trying to get a good return, not an optimal one, does not have to worry about leveraging and timing. We want to be invested in companies whose stocks will appreciate substantially in value before we need the money, let's say in 10 years. If my expectation is that Qualcomm will at some point before then reach at least $250, the difference in after-tax gain between my buying shares at $70 vs. $50 is (roughly) only 10%. If it really reaches $500, the difference is only 5%. It also doesn't matter to me when the stock reaches these numbers.

But this old-fashioned investment philosophy doesn't work if you are trying to use the stock market as your principle means of accumulating wealth. There are a lot of young investors, and older ones who are in a hurry to make up for not having been accumulating all along, who, especially after the absurd annual gains in the 90s, expect to be able to turn small amounts of investment capital into large accumulations. For them, timing is everything. It isn't just the active traders (including trading funds) who turn over their portfolios every day or couple of months, who are trying to leverage. There are now a lot of funds and individuals for whom "long term" means paying capital gains at the long-term rate and who think any stock in their portfolio should triple in no more than two years. None of these folks, mutual funds or individuals, is going to be interested in Qualcomm until either earnings actually start growing substantially or the overall market moves back to a growth stock emphasis and everyone wants to be in Qualcomm before it's too late. At this point, when even supportive analysts are lowering expectations for earnings in 2002 (my guess is, having been criticized for overestimating they are now underestimating), we probably won't see a big growth spurt until at least 2003. When investors decide it's time to pile on is anyone's guess.

I'm just glad, with my old-fashioned long-term approach, none of this matters. Some of those who leverage their investments will do better than me, some will do worse (the statistics say most will do worse), but I don't have to waste my time checking stock prices, and I don't have to worry about high blood pressure.