By Lee Levy
At the time, the stock was ignored, practically left for dead. I told a fellow manager I bought the stock and he laughed then pulled out his iPhone to tell me great it was. He told me how even the Samsung Galaxy, an Android-based smartphone, was better than the BlackBerry as well.
Stone House Capital Partners returned 4.1% for September, bringing its year-to-date return to 72% net. The S&P 500 is up 14.3% for the first nine months of the year. Q3 2021 hedge fund letters, conferences and more Stone House follows a value-based, long-long term and concentrated investment approach focusing on companies rather than the market Read More
BlackBerry offered better bells and whistles than its competitors
I didn’t argue. After all, I didn’t buy the stock because I thought Blackberry offered better bells and whistles than its competitors. In fact, when I bought my first smartphone in 2009, I bought a blackberry precisely because I didn’t want the bells & whistles … I didn’t need the distractions.
Most consumers don’t think as I do; they want the bells & whistles, plenty of them. But I knew they would cut into my productivity. Plus, I didn’t want my kids playing on my phone. Blackberry was a fine smartphone; maybe not as sleek or cool as the iPhone, but it did what I needed it to do. Then one day, my Blackberry failed me. It would not turn on. I replaced it with an iPhone.
I know there is a generation of investors who follow the Peter Lynch philosophy, which is “If I think it’s a good product or service, other people will too; hence, increasing sales, earnings and margins will increase the stock price.”
Lynch is a spectacular investor. Naturally, he actually did much more than simply ask “Is this a cool product?” Once he asked that question, in fact, he looked at valuations and growth potential. He’s an industry legend; so this is not a knock on him. It’s a knock on investors who only take one part of his complex process and think they have it all figured out.
How high can BlackBerry go?
As a fund that focuses on risk management and valuation first, growth second, our first question is “What if we’re wrong? How much money could we lose?” as, say, opposed to the “How high can this stock go?”
Having been in the investment management business for more than 20 years, there are two prime questions I am often asked. The first is “What stocks do you recommend?” The answer to that question would be another for another day, another article. But the short answer is “You don’t want to take a recommendation from someone you don’t know. You don’t know my risk tolerance, my holding period, or the rest of my portfolio to properly manage that risk.”
Why did BlackBerry went down even after good news?
The second question is “I own stock in a company who recently reported good news, but the stock went down. Why is that?”
My off-the-cuff response is that their colleague or broker gave them a “Buy on the rumor, sell on the news” strategy, and it doesn’t comfort them. Nor does it educate them to make better future decisions.
The short answer is their expectations were too high. While the results might have been good, they didn’t meet investor hopes or expectations. Hope is the pivotal word in the previous sentence. Too many investors hope, but hope is not an investment strategy and it’s an even worse risk management strategy.
Trying to guess/triangulate/discern investors’ expectations is a very difficult challenge. Trying to do it consistently is pretty much impossible, yet an overwhelming percent of investment funds play this game with their clients.
Personally, I’m loath to refer to any part of investing as a game, because an investor’s hard-earned savings, retirement funds, college funds etc., aren’t a game. They represent a life’s work as well as their long-term goals, both for themselves and for their families.
Sadly, that’s what many investors do … they play games. They hope to figure out what other investors expectations are … what might get someone else to move a stock higher (or lower in case of a short).
Perhaps some people find that easy to do. I do not. Our strategy is to strip investing down to the basics, a fundamental principle at our company. We don’t ask, “What’s the news flow?” Because when the news is publicized, the stock has been priced in the news, which is not a good thing.
Then, those game-playing investment advisors will say “Don’t worry if results come in slightly below expectations and hammer our stock price.” But of course investors will worry. Their expectations were unrealistic.
With our strategy, we look for the opposite. We seek out stocks whereby the market has low expectations (and valuation) for the stock. We see attractive valuation as limited downside due to book value, etc.
Boiled down … We avoid anecdotal information. We are cautious every step of the way with our investor’s hard-earned money.
Authored By Lee Levy, General Partner at Silicon Valley-based boutique asset management firm
About Canid Asset Management LLC
Canid Asset Management LLC is a San Francisco-based boutique value hedge fund offering a broad range of wealth management solutions. Launched in 2009, Canid is a young fund that successfully manages a liquid long/short equity portfolio specializing in protecting investor capital during highly volatile markets using quantitative, fundamental & tactical investment approaches hedged with sophisticated option strategies. The firm posted 2013 returns 2000 bps greater than Hedge Fund Indices. In addition to the Fund, Canid Asset Management also manages separate accounts. For more information, please visit www.canidasset.com or contact Lee Levy at [email protected] .