Interesting point. I had to really think about it.
“It seems to me that you are staying in INFN only because you are already in it.”
I don’t think it is the only reason or even the main reason, but it is a factor. The vast majority of my INFN holdings are in a taxable account and I have a gain on them, believe it or not.
I think the primary reason for holding today is twofold: (1) I don’t see it going much lower (absent general market decline); and (2) Insight Infinera on 11/17 is a near-term potential catalyst.
I will also admit that the fact that I have a gain on Infinera probably colors my perceptions in a way that my rational self realizes it shouldn’t.
I’ll also say that my depth of knowledge about Infinera makes me comfortable with the holding and keeps it “top of mind” for me. I will grant you that there are probably more important things for me to buy right now than Infinera - some on your list and some not. I don’t want to mention names today to preserve my trading ability. I can’t trade Infinera right now because I’ve posted about it. Fool’s Rules.
But I like your hypothetical question. If I had never heard of Infinera and a newsletter recommended it today, would I rush to buy it? Probably not. I might put it on my watch list. I probably would because I think growth in network bandwidth is a powerful trend, and this is a way to play it. I’m pretty sure you have some exposure, Saul, but through a different player, sort of in the same industry but not really a competitor. You see the potential too.
But I think the critical difference between my real-life scenario and your hypothetical one is that I know the company really well. That’s why I’d consider buying when Fool’s Rules allow.
“They have no control over their business environment.” Saul, they CREATED the small form-factor, purpose-built data center interconnect market. They were first to market, currently have a 94% market share (two years after the initial launch), and their next gen product will ship in the first quarter (it’s rumored that Dmitry Netis is getting an early prototype). They have less control - to be sure - in the long-haul and Metro spaces. In long-haul, they have 40% domestic market share, so gains are tough. In Metro, they’re a recent entrant and it is tough to displace competition. But they’re done it before. The burst onto the scene in the middle of the prior decade and took market share quickly with a superior product (based on more integrated chips than any one else had; they still have a lead in that). If their next gen product is really good (remains to be seen), then they will be able to exert a bit of control on their environment. They’ve done it before, arguably twice.
Saul, I really have to get to other projects I’m working on. Your questions are really making me think. That’s a good thing, in general, but not when I have so much on my mind already. I may need to take a bit of a break from this discussion, but I appreciate how you’re challenging me and making me think. Please feel free to reply and challenge me further, but you may not get the satisfaction of a quick response.
Oh. One quick last point. I see a possibility that Infinera could be acquired, but that is not an outcome I would relish; it would just be a bigger player taking advantage of an opportunity. Acquisition is absolutely not at the core of my thesis. I want Infinera to remain independent. I agree wholeheartedly with you that hoping for acquisition is not a good reason for investment.
I hope what I’ve written here makes sense. I tried to get it out quickly so I could get back to my other projects.
Thanks and best wishes,
TMFDatabaseBob (long: INFN)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth