The right way to buy a tech stock

Hewlett-Packard and Apple provide 2 very different illustrations of why patience is such a critical piece of the investing puzzle.

By Bill_Fleckenstein Nov 30, 2012 3:02PM

Dollar sign on keyboard © CorbisAs many readers no doubt know by now, Hewlett-Packard (HPQ) recently reported a massive write-off on its acquisition of Autonomy. I bring that up as a way to talk about what has happened to a great many of the tech leaders that flew so high in the stock mania that ended in March of 2000.

 

A lot of the pretend stocks of the dot-com variety have, of course, evaporated, but plenty of "real" companies also have declined in the 12-plus years since the peak of that insanity, HP being just one example. (Its price is now back to where it was in 1995.)

 

What often happens to good companies that get really expensive is that when valuations start to decline (usually due to some fundamental deterioration), people are attracted to them because of their "value." We have seen a bit of that with Apple (AAPL) and will probably see more prospectively (more about Apple below). In any case, Hewlett-Packard, Dell (DELL), Intel (INTC) and Microsoft (MSFT) are all examples of that, but there are hundreds more. (Microsoft publishes MSN Money.)

 

How to turn a garage into a woodshed

However, the difference between Hewlett and the others is that its board is probably one of the worst on the planet. After bringing in Carly Fiorina, who was a disaster, the board replaced her with Mark Hurd, the only CEO there who, over the past decade, had done anything approaching a good job, but whose exit was handled poorly. (Search to read about his ouster.) Hurd was followed by Leo Apotheker, who led the charge for the dreadful acquisition of Autonomy, and he was followed by Meg Whitman, whom I don't see as a savior there.

 

The point of all this is to note the metamorphosis that occurs at many companies as they go from being the darlings of the growth stock community to "value" stocks. One must be very careful taking positions in companies making this transition, as it is easy to get fooled about a company’s real value -- and you can lose a lot of money being way too early and paying too high a price.

 

Do not hurry, do not rest

On the note of being careful, and more important, patient, I took the unusual (for me) step of trading a bit of Apple stock last week. I mention that primarily to illustrate the sort of patience and discipline that is required to be successful when speculating. As I noted in my Nov. 9 column, I did purchase some slightly out-of-the-money calls when Apple was trading at around $580 going into the election, and I lost $4 apiece on them.


I had no real plan to be long, unless the stock traded in a way that made me think the downside may have reached exhaustion in the short run. Thus, when I saw a setup I liked, I bought the stock and wound up selling it later that same day for a $20 per share gain.

 

The points I want to emphasize are that I was very careful about when I acted, and only did so when I had good reasons and could define my risk.

 

Now, I’m not trying to pat myself on the back because the idea worked, as I make plenty of mistakes. I simply want to reinforce the idea that patience and discipline are important.

 

Oftentimes folks don't give themselves credit for the trades that they don't do or the ones that they get away from. (By "get away from," I mean, for example, by owning the calls when I was wrong about Apple, I didn't have to fight the potential "value"

rationalization as the stock price collapsed, and thus a "better" idea, as
of course, it was cheaper, but not necessarily a better value.)

 

In any case, hopefully that discussion of growth, value, patience and discipline will be useful to folks.

 

At the time of publication, Bill Fleckenstein was long Microsoft shares.

15Comments
Dec 3, 2012 2:03PM
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Marc the moron wrote:

timmy geithner is a tax fraud   odumbo and his band of thieves want the  Congress to tell them what they want  lol   what a bunch of Punks   Lead from behind:=============

 

The President has given his plan, the republicans need to come to the plate with their plan Is that so hard for you whacks to understand.

 

Just for the record Marcthemoron. President Obama's annual spending is 1.4% reported by the Wall street journal. That 1.4% is the lowest percentage in 60 years. To compare Ronald Reagan was above 8%.

 

You rightwing whacks are all known now, bye bye,LOL.

Dec 3, 2012 1:29PM
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@ someone

CAN YOU TELL THE FED'S NO?

I WILL NOT COMPLY W/ILLEGAL UNCONSTITUTIONAL MANDATES BY EXECUTIVE ORDER such as NDAA

The Federal Gov cannot exist without the States

Why have State rights?

Why have a Constitution?

Why don't the Federal Gov. just rewrite the Constitution to be a one liner

NEW CONSTITUTION  your under according to the Federal Government

We can do whatever we want because we are the Federal Gov.

If we are thrown over the FISCAL CLIFF SECESSION IS THE ONLY TOOL WE HAVE TO SAY

"NO" TO THE FED'S

Dec 3, 2012 12:02PM
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Rather than sitting back and assuming that an old big name stock will have "value", why not do your homework before investing?  If you don't research a company and its industry you're just gambling - and deserve your losses.  Too many people think that the Stock Market is a free ride.

 

But automatically blaming Washington for poorly performing companies is a cop-out.  Then demanding secession is ridiculous.   Do you really believe that your State can survive without support from the Federal Government, along with replacing major structures like a monetary system overnight?  Would you yourself invest in a new State currency after that State succeeded from the Union?  Too much “big talk” by keyboard jockeys who don’t actually put their money or efforts where their mouths are.

 

Dec 3, 2012 11:31AM
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Make sure to sell it as soon as the POTUS  sends it a stimulus package

Dec 3, 2012 10:45AM
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Cut the budget

Start w/ ATF... For misplacing and mishandling of 6 million pounds of Explosives in LA.

End the ATF's agenda to remove the 2nd Amendment (treason) with FAST A FURIOUS

Charge all those involved with FAST AND FURIOUS w/TREASON AND SEDITION TO OVER THROW THE CONSTITUTION through subversive operations

Dec 3, 2012 10:36AM
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timmy geithner is a tax fraud   odumbo and his band of thieves want the  Congress to tell them what they want  lol   what a bunch of Punks   Lead from behind
Dec 3, 2012 10:03AM
avatar

The art of politics is not to make a decision.

That is what we are seeing from our Rep/Dem

If they cannot work together for the best interest of the American People

Then we have no other choice but to SECEDE

THE OTHER CHOICE IS NOT ACCEPTABLE

 

Financial enslavement by foreign banks

Dec 3, 2012 10:01AM
avatar

If we are thrown over the FISCAL CLIFF

Then secession is our only hope...

 

Dec 3, 2012 9:58AM
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12/21/2012

Is the end of the Federal Reserve’s Charter of 100 yrs.’ of tyranny

END THE FEDERAL RESERVE CHARTER AS AGREED

RETURN OF THE GOLD CONFISCATED FOR THE FEDERAL RESERVE FROM THE PEOPLE BY FORCE

AUDIT THE GOLD RESERVE OF THE AMERICAN PEOPLE

NO MORE QE'S WOULD BE A GREAT GIFT TO THE AMERICAN PEOPLE

QE'S IS USED TO USURP THE PEOPLE THROUGH FINANCIAL CRISIS (printed fiat money)

btw the Federal Reserve is not a part of the Government.

The Federal Reserve is a group of independent foreign banks issuing out our currency to us with an interest payment based on 1's & 0's zeros printed on fiat money

Dec 3, 2012 9:52AM
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Sure patience and discipline are important. But this article does not help anyone - unless the trade is explained. I understand the reasons why Mr. Fleckenstein does not want to explain the trade before he made them. But if he does not want to after as well, then this article has no value. If it does, then here is another article, " I made a 30$ a stock by being smart and efficient. Remember folks, i want to stress the importance of being smart and efficient".
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ABOUT BILL FLECKENSTEIN

Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.

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