Jul

19

This morning something called "OTR Global" started a rumor that RIMM will discontinue the Wi-Fi version of the PlayBook tablet. This was picked up by an exceedingly large number of blogs and later more serious websites. In particular, the widely-read, openly pro-Apple BGR blog I had mentioned before picked this up and published an article without the "Wi-Fi" in the title, with a headline that RIM is about to kill the Playbook altogether. It later added the "Wi-Fi" to the headline. In the article it now cited Mike Abramsky of RBC who has recently turned dramatically anti-RIM with the following: "In a note to investors Monday afternoon, RBC Capital Markets Managing Director Mike Abramsky reiterated an OTR Global report that Research In Motion is possibly planning to stop production of the BlackBerry PlayBook’s Wi-Fi model." Interesting choice of words, "reiterated…possibly planning". I could "reiterate" that Hu Jintao is "possibly planning" to personally pilot a new kamikaze nuclear-tipped missile into a major US city, and I wouldn't even be lying. I mean it's not very likely, but possible. Later in the day RIM tweeted that this is "pure fiction", but who will notice? This denial is now on a few obscure websites and some comments elsewhere, but the damage has been done. They are truly trying to kill it.

This morning some Forbes columnist in his blog wrote another deathwatch post on RIM that was widely distributed as well. In it, it stated that RIM is planning to release QNX phones at the end of 2012. I posted a comment on his blog article saying that the company had repeatedly said that it would be in EARLY 2012. He replied that that wasn't true, although I have personally heard it in the quarterly call and also read it in a live blog from the shareholders meeting. He was later called on it by another commenter.

I just find this to be an amazing effort.

Rocky Humbert replies:

Mr. Rogan: I don't think this subject is boring at all; it's a live laboratory experiment in all of what makes up speculating, investing and more generally, human psychology. It's generally accepted that a speculator should primarily concern himself with what other market participants are currently thinking — and what other market participants will be thinking in the future.

In contrast, an investor should be focused on his assessment of the intrinsic value of the enterprise and whether Mr. Market is pricing the enterprise sufficiently below its probable future intrinsic value so as to provide a margin of safety and attractive return on shareholder capital. It's critically important to not confuse the two, or as Keynes said, "In the short term, the market is a voting machine, and in the long term, it's a weighing machine."

If, based on your research, you have decided to own this stock for a few years (as an investor), you might consider tuning out the market chatter since it's value is relatively limited for someone in your shoes. However, I believe that chatter becomes important for investors only when the chatter (and speculative flows) cause feedback loops. A falling share price (and credit rating) causes an increased cost of capital for an enterprise. That harms the enterprise's competitive position (versus companies with lower costs of capital); it makes recruiting and retaining talent more difficult; and it can also scare off potential customers (even if the product is excellent). These feedback loops (a variation of Soros' reflexivity) can help explain why certain trending strategies appear to work.If you believe this pernicious feedback loop is underway, it may reduce the future intrinsic value. Lastly, assuming that RIMM survives in some form, I believe the most difficult question for a value investor is when and how much capital to commit to a stock that is declining while other sexier stocks are rising. If the investor's money management is flawed, or his timing is flawed, RIMM may prosper yet the investor doesn't.

Lastly, I'd argue that one of the biggest mistakes any investor can make is thinking "I just want to get back to even." Because if RIMM turns around on its business execution, you will surely be tempted to exit in the high 40's … whereas all of my work suggests that you should consider buying more RIMM should the fundamental turn — rather than selling.

Dylan Distasio writes:

Gary,

If RIM actually delivered a quality product that people wanted, all of the below would be a moot point. People trading RIM stock might have skin in the game on the short side, and be enjoying churning the rumor mill, but again, if RIM actually made anything people wanted to buy, the stock price would eventually follow the sales/earnings. RIM is headed the way of PALM if they don't get their act together soon. Balsillie and Lazaridis are on another planet, and refuse to acknowledge the dire situation they have put their company in. In addition, they have not been making friends in the press or with analysts.

I'm not sure what is so amazing about this effort. The weak are preyed upon in both the marketplace and the stock market. The vultures are circling, and shorts are doing what they always do, piling on as much as they are able to. If you're buying what RIM is selling, look at this as a buying opportunity.

FYI, I have no exposure to RIM or any of its competitors, so I have no axe to grind, but what is happening now appears to be out of the standard playbook for a heavily shorted, potentially dying entity.
 


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search