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Trade Anatomy
Charities Are An Industry
Fed Understatement - Defying Logic
A Personal Comment On RIM
Exxon - Patience Is A Strategy
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Research In Motion - Not For Investing
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Latest Microsoft Stock Report

April Options Results
Comparing The Bear Markets Of 2000 to 2003 and 2007 to 2009
Microsoft Puts Are Better Than Gold
Dance Near The Exit
How I Treat My Investing Like A Business
Microsoft - The Ultimate Utility Stock
The Value Of A Plan
Staying In The Game
It's All About Oil
Market Trend: Still Up - But Watch For June

 

June 19 2011  / Research In Motion - Stock Symbol RIM (TSX) or RIMM (Nasdaq)

A Personal Comment On RIM

Opinion Article

 

Liability Waiver On This Article

Before reading further be sure you understand that I am in no way qualified to give advice or personal recommendations of any kind. I am not a financial advisor. Everything on my site is Trade At Your Own Risk. Read the terms and conditions of using my site here, or scroll to the bottom of this page and read the disclaimer. This disclaimer is on every page of my website. Stocks are risky assets and losses can and often do occur. Nothing you read is financial advice or recommendations.

As everyone knows, the news from Research In Motion was terrible on Thursday. Analysts everywhere have downgraded RIM stock, yet again. For the past couple of weeks I have received hundreds of emails asking my opinion on what an investor stuck in RIM can do. I apologize for not being able to write everyone individually and in a more timely manner. I have to say at the outset that I am not a financial advisor and I cannot offer personal financial advice. You can read why here. But in a nutshell, I am not qualified in any way or manner.

In dozens of emails readers keep asking me what would I do if I was in RIM and had bought shares months or even years ago. On a personal note I can say that it is a tough, tough choice. I must indicate as well, that if I was an investor in RIM stock I would have been selling covered calls all the way down and I would definitely have bought protective puts months ago when the first earnings outlook dropped the stock like a rock. The problem I have with looking at a stock like RIM and offering a hypothetical "what would I do" answer is that I have done nothing but write for more than a year that RIM is not a stock for an investor. It is a stock for day trading or those who do options like myself. It's next to impossible to give any kind of opinion on a stock that there is no way I would ever have owned it. As well, every investor has different needs, comfort zones, ambitions, goals, opinions and capital available. It's pretty hard to give out advice to someone you do not know, have never met, and have absolutely no idea about their investing knowledge and ideas.

Therefore I can really only discuss some general information. I do know that Research In Motion has been a disastrous stock for millions of investors. Whether or not this is the bottom or there is more downside to come, I haven't a clue. The problem with RIM is that investor perception is that it is losing market share, which it is in North America, that the company's management seems totally unaware of what is happening and is therefore reacting too late. Investors are bailing as they believe that the future for Research In Motion will be worse for earnings and growth than is being experienced currently. So while earnings are presently good, and the PE seems unbelievably cheap and every analyst for a long time loved the stock, analysts kept repeating what a great buy it was and moaned about how no one was seeing the "value" in RIM.

What these analysts did not see was that investors dumping shares were doing so based on their perception of the future of RIM and not the present. Those investors dumping shares are aware that RIM is making money, has a lot of cash, no real debt, are a major smart phone provider with literally millions of subscribers. Yes, they know all this. This is not what they are focusing on. They are focused on the future and they believe that future is not bright for RIM. These investors see the fact that market share is being eroded; "cooler" smart phones have entered the market and captured a lot of subscribers; RIM management seemed unfocused on their core operation, and indeed did seem to be spending more time talking about hockey franchises than how they were going to stay ahead of the competition.

I suppose some of this is the fault of the market itself. Research In Motion had pretty well held a monopoly in the smart phone sector. So much so that its users were called "Crackberries". That has all changed whether real or just perception, it doesn't matter to those investors dumping shares and suppressing the stock. Notice how it is perception not the reality of the present, that is driving the stock lower and most analysts didn't seem to see this.

So while I suppose there are many different strategies that an investor could employ to try to rescue the enormous losses, I would really need to ask myself do I think this stock can recover. Since no dividend is being paid and there is no talk of one to come, the only way to gain income is through selling covered calls or puts.

Every stock that I own I am comfortable with. If Microsoft fell to $15.00, which it did in the most recent bear market crash, I would be in there buying the stock and selling calls and puts, which is exactly what I did with Microsoft. As well Microsoft pays a dividend, has a moat of cash, a wide assortment of products, hardly any debt, excellent profit margins, games and gaming system, patents galore and a management that encourages individuals to work as teams and put forward new ideas or improvements on existing products. Nonetheless, analysts are mixed on Microsoft fortunes as are many investors. The stock hasn't really done anything in 10 years, but if it fell I would be delighted to pick up the stock and sell options, all the while earning income on the dividend.

I can say the exact same thing with Intel, Exxon, Johnson and Johnson, Clorox, Royal Bank, Bank of Nova Scotia and all my stocks. Even VISA which pays less than 1% annual in dividend, I believe has a great future. So my comfort level is very high on those stocks I like.

I guess therefore I would have to ask myself, does RIM fall into this category of comfort. If it did then I guess I would be elated to get the stock at a discount price and either buy more shares or be selling puts to try to pick up more shares even cheaper than where it is trading now. As well, a friend sent in his covered call roll downs on RIM for investors to review so I suppose that could be an option for those who like RIM now and believe the future is bright and there will be a recovery at some point. There is also the article on Bank Of America where an investor just kept selling covered calls, being exercised out, and bought back and kept selling more covered calls until he ended up with a profitable position. In the article, it is the second table.

I suppose another idea might include buying shares and selling in the money covered calls to try to earn some premium, get some protection against more downside and hope to get exercised out every month and earn a bit of money with every exercise.

For example an investor might have bought stock on Friday at say $27.50 and gone out to September and sold a covered call for $25.00 if they could have earned perhaps 3.25 or 3.50 on the call. At $3.25, if exercised, they would earn $25.00 + $3.25 = $28.25, less $27.50 = 0.75 cents or 3%. By doing this they are protected to $25.00 minus $3.25 = $21.75 as the break even on the stock. The problem right now for this type of trade is that there are no options presently, below $27.00. That however will change probably this week. So I suppose this might be an idea. At .75 cents for each quarter an investor would earn $3.00 annually. But if an investor had bought in at $70.00 or more, and all that is earned is $3.00 a year and the stock falls and stops at $25.00 and does not ever rise, it would take 16 years or longer to just break even. That's a long time to be in a stock waiting for a recovery and hoping it doesn't fall lower which would make any recovery even more difficult.

Another idea could be to sell the stock and buy another stock and hope that the new stock can move high enough to earn back the loss. However in this market I don't know what stock to pick that can do this. I always pick slow moving, trending stocks with dividends, so the chance of any of them making me back $50.00 in a year or two, is, well, pretty impossible.

I do know that years ago when I started investing I lost lots of money. Then I changed to my strategy and over many years I rebuilt my lost capital and then added more to it. But for many people it is probably pretty boring and certainly not full of exciting stocks. I saved as much as possible and kept adding to my positions. Even if I only had a few hundred dollars, I put whatever I could back into my investments.

So rebuilding lost capital, takes a long time, which is why I moved to my strategy years ago and do everything I can to not lose capital. If that means staying out of the markets at times or reducing my positions, then I do it.

So that's my take on Research In Motion. I am sorry I couldn't be more helpful. None of what I have mentioned is financial advice or recommendations. Remember that you trade at your own risk and stocks are risky assets which can and often does result in losses.

 

 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed or presented are financial advice, trading advice or recommendations. Fullyinformed.com is a private website. Everything presented and discussed are the author's ideas and opinions only.
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