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INM Jul '08 - Listen To Me, Brother!
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
I care deeply about our firm’s clients, realizing that I have a fiduciary concern and resposibility for their best interest, just as I care deeply about my closest friends and family. Over the 8 years of writing this monthly Investing for the New Millennium column, I have occasionally shared some very personal stories involving the investment decisions made by certain of my family members, close friends, and clients. For the purpose of “keeping it real” and doing my best at educating all in the process, I have opened up in the past about the consequences of choices that were made by certain individuals. In this article we will have yet another look at a very dramatic example.
Long time readers may recall when Qualcomm Inc (QCOM) topped out in early 2000 after a many-fold move up. It was a stock that hit very close to home because of the nice sized chunk of shares my brother had accumulated while working for the company during the development of its CDMA technology. Sell signals were repeatedly ignored and big profits evaporated during the big bear market which led to a huge -88% decline in QCOM's shares. More recently, I recalled the decision to sell Hansen Natural Corp (HANS) for impressive gains in my father’s IRA account. The gains that were nailed down were far short of capturing the bulk of the stock’s move during its 55-fold rise from February 2004. HANS was sold for the many of the right reasons, but the "mistake" most regretted was the decision to not buy it back again later, when strength returned. Both of the above stocks made very dramatic moves in price, such that each of these family members’ individual stories involved small fortunes - lifestyle changing quantities of cash!
Before delving into the finer details of the latest personal story I'd like to share, let's acknowledge one thing we all need to be willing to accept – that there will sometimes be huge winners that do not even come up for consideration as buy ideas under the guidelines of the investment system we are using. We can still take comfort in the fact that the system stacks the odds in our favor of finding our fair share of big winners, but we cannot let ourselves get too frustrated by big winners which did not meet our investment criteria.
My brother, an electronics genius living in
Unfortunately, things started to look ugly for MOT back in October of 2006, when it started flashing signs of deterioration recognized as classic technical sell signals. At that time I went out of my way to point out its 50-day moving average violation, which was the earliest sign that its outlook was turning negative. Upon each of several technical breakdowns we revisited the discussion, as I pointed out that the chart for MOT was giving us clear evidence that institutional investors were bailing out. Gaps down to new lows with considerable losses on very heavy volume made the opinions of mutual fund managers rather obvious to chart readers. In late-July of 2007 it was breaking below $17, and maybe it seemed “too late” to think about selling then. This is how it looked on August 1, 2007.
The steep plunge during the broader market correction in January 2008 sent MOT down into the single digits. It continued to struggle in recent weeks after the company announced a plan to split into at least 2 separate companies in an attempt to unlock shareholder value. To me, the announcement from MOT seemed somewhat reminiscent of long ago plans announced by Tyco International Ltd (TYC), which revealed a plan to split into 4 companies just prior to its great 2002 meltdown - that was followed later by its CEO and others being sent to prison!
More recently, I fired off an annotated graph to my brother showing that MOT was again triggering technical sell signals on June 18th, 2008 by sinking to new multi-month lows with, you guessed it, more losses on heavy volume. This is how MOT looked on June 18th, 2008.
It has not been surprising to see another -15% trimmed from its price since, especially given the broader market (the M criteria) weakness, and specific disappointment in the Telecom-wireless Equipment group created by the recent breakdown that occurred in Research in Motion Ltd (RIMM).
One underlying thought that has always lingered is that there are major institutional investors with far more considerable stakes in the above mentioned ideas - more millions or even billions at stake in the very same companies I have talked about an accurately called. Institutional money managers who were not properly positioned then, and those who still may not be properly positioned now, are the ones who I really hope to make a solid point with about the importance of selling and buying based upon technical analysis. In the case of HANS, QCOM, and MOT, their respective technical breakdowns occurred well before the fundamental evidence of slower sales revenues and earnings growth became very obvious to everyone on the Street.
Institutional money managers are encouraged to contact our office for details on the invaluable research and assistance we can offer you in technical and fundamental analysis. Open a prime brokerage account and you may start tapping into the expertise of our qualified team at Source Capital Group, helping your firm be even more efficient at maximizing gains and minimizing losses using this proven systematic approach.
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program. Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.
The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.