Introspection on Couple of Positions

As the year comes to an end, I wanted to share some thoughts on couple of my current positions and lessons I learnt from them:

Qwest Communications (Q)

I have had this position for a month that has gained substantially not to mention a sweet 5% dividend yield. Q has been the second highest performing stock in S&P for 2010. However, lately its various valuation ratios are gradually reaching saturation levels. It is now getting to the point of being a bit too rich for my taste, at least for the short term. The company seems to have a very effective leadership with an equally solid presence in its industry. Also, recently the management announced that the company reduced its debt by about $3.3 Billion since February. May not be good for bond holders, but a strong point for equity investors. Overall, I feel that Q continues to be a good bet for long term investors. But from a short term perspective, I am playing it safe. I shall be out of this position by next week, one way or the other. May think of re-entering on pullback.

Akamai (AKAM)

I suffered a lot on this position. Big lessons learnt:

1. Should not have doubled down on a losing position:

   I bought the first batch on December 1^st. On December 9^th, management didn’t update its Q4 guidance starting the intermediate downtrend that is still continuing. I thought there was way too much fear and bought more. On December 21^st, I doubled down further to average down my purchase price still believing that AKAM would come up as the fund managers chase a 2010 top stock in December. Both tactics backfired. The management making such a negative decision played a far more important role than the performance chasing strategy. Besides, the short float for the stock was very thin. So AKAM could not have gone up solely on its own.

2. Bet on growth but look for cheaper competitors:

   Prior to this one, I have had trades with AKAM, all of which were profitable. My thesis for the last two years has been the gross underestimation of the growth in content delivery services. This thesis worked in my favor for the better part of the period. However, I clearly neglected to be mindful of the emerging competition. More importantly, AKAM’s valuations compared to LLNW for instance, are inferior. If I believe in the explosive growth of the sector, I should have bet on just that. Instead I ignored the cheaper and less risky means to bet on my thesis and continued with my infatuation with AKAM.

AKAM still has a good long term growth story but with meaningful competition around, its current stock price is no longer that attractive for short term. My bet is if AKAM goes below 35, it could become an attractive buy out candidate. For now, I am going to get out of a majorly losing position in the first week of January, hopefully with some dead cat bounce.

I have a few more positions I am going to review and see what I want to do with them in 2011 including starting with some fresh stock picks. I am hoping to share those with you. Today, I bought some calls in SPY expecting the market to be higher in the first week of January. As always, I continue to post my trades close to real time on Twitter.

Good luck and a prosperous 2011 to all of you,

StocksRider