I reposted this on the SNCR thread but then realized that people who might be interested would likely miss it if they weren’t following SNCR, so here it is again. I posted it originally on Dec 9 th when I was exiting SNCR at about $41.00… I see it finished today at $13.25.
…Maybe I should explain why I’ve been selling my shares.
After a long wait, they finally turned the corner. Their cash cow activation business had slowed down but was still raking in the dough. Their cloud business had become over 50%. Their new enterprise business with Goldman and Verizon was finally bearing fruit. Earnings had taken off again after several quarters of flatlining. All they had to do was sit back and rake it in.
So what did they do?
They sold their cash cow, which was guided to be $74 million for just the next quarter, and 37% of their total revenue for the quarter. That’s wrong! You keep your cash cow legacy business until it becomes a small enough part of your total that you don’t miss it.
They are taking on new debt of $900 million which is roughly half their capitalization.
They are acquiring a company that they clearly didn’t need (based on the “sit back and rake in what you have earned” scenario). This is a huge acquisition. This acquired company is almost half their size, is losing money, and has grown revenue VERY slowly. Why is SNCR doing this? You mean they couldn’t find a bolt-on acquisition that would make them happy?
The CEO that has made them so successful is choosing this crucial moment, with everything in flux, to remove himself from the day to day running of the company.
And who is replacing him? The CEO of the slow growing, money-losing huge acquisition. What a great choice.
This is no longer the company I was invested in. It’s barely recognizable. It’s an unknown quantity, with a huge debt load, less revenue, a huge money-losing appendage, and a CEO who is also an unknown quantity. Just saying. You may convince yourself you should stay in (because you are already in?), but not me. It may do fine, but it will do it without me.
This is no longer the company I was invested in. It’s barely recognizable. - Saul
Your instincts were spot on, Saul.
I have a similar story of my own, though it didn’t exactly have a happy ending. I’ll post it here in the hope that it proves to be a “teaching moment” for others.
I came to invest in Sunedison (SUNE) as a consequence of some compelling analyst recommendations (notably due to the advocacy of David Einhorn). The financials were so complicated that I couldn’t research them myself. I relied on the competence/reputation of others. I began establishing a position. All went well for a while. I bought more as the share price grew. SUNE came to be a 5+% position for me. Then, on a day after the market closed, I heard the announcement that SUNE was buying Vivint Solar. Wait. What!?! Vivint was a rooftop solar company. SUNE was a utility solar company. This didn’t compute at all. The next morning, I sold 80% of my shares (I had a 5% position and reduced it to 1% as was my standard practice). I made a profit on the sale. But…as things turned out, that 1% position remaining turned to ashes…a total loss. The loss on that 1% “stub” holding exceeded the profits made on the sale of the other 80% shares sold. Sigh.
The Market humbles everyone eventually (sometimes often).
Putnid, You can’t be totally right all the time. Your instincts were right on, getting out of the 80% of your position. If you feel bad about the loss on the 20% you kept, imagine how you’d feel if you had had the same loss on 100% of the position! You can give yourself a pat on the back.
Saul
This is where I so disagree with the MF position. They’ve recognized for some time that SNCR was doing something really stupid, but instead of telling their subscribers to “sell”, they’ve put it in the “Penalty Box” which means “don’t sell, but don’t add to your position either”. So they’ve ridden out a drop now from $41 to $13. It’s not just the loss, but it’s opportunity loss too. That $41 could have been invested in a different one, or several, of their good growing picks in a rising market, and might be $43 or $45 or $47 now instead of $13. (My $41 is now worth $51, but this has been an exceptional few months for me).
Sure, SNCR may come back, but who knows? If it rises 200% over the next 5 years it still wouldn’t be back to where I sold it, and my $41, even if I only made, let’s say, 12% per year (which is much less than my historical average), would then be worth $72.25. No, riding out big drops isn’t a great strategy. For every Netflix that people can brag about there must be ten that don’t come back (AOL, YHOO), so the odds are really against you.
TMF has a business model built on the “buy and hold” mantra. It took me a while to figure this out. The simple fact is that they often refuse to recognize substantive changes to the business of companies they recommend. A “sell” to them violates everything they stand for, ergo, it is only with extreme reluctance that they issue “sell” recommendations.
To be very clear, it is this board that helped me much better understand that there are good reasons to get out of a stock and holding everything you ever bought forever is not a good way to maximize one’s returns.
That being said, I must admit I’m not yet all that adept at recognizing when to sell. The reasons are usually not in the financial reporting (at least not at first). It’s generally a trigger based on some corporate action or a change in the competitive landscape coupled with a “6th sense,” or maybe just a lot more years of experience than I have yet accumulated.