Investing: Always Follow the Big Guys

This question came in May 8 from long-time Rule #1 Blog reader, Shane.

Phil,I do have a question. I have looked at TSM <http://moneycentral.msn.com/detail/stock_quote?Symbol=TSM>.

I did the analysis and everything looked good. I got the three greens back about 3 weeks ago. I bought at $10.94. The stock has dropped but I do not have red arrows yet. Should I have sold when it started dropping even though I didn't have red arrows or should I have sold it already? I think this company is just great and plan to continue watching it but I'm afraid I am getting ready to lose some money in the short term on it. Thanks for your advice.

My response:Hi Shane,I just looked at the chart and assume you got in at $11 and out at $10.75 - $10.50. I'll grant you that the numbers are decent. A bit scary to see the earnings growth way outpacing the bvps growth but ROIC is awesome. And the MOS seems to be there if you believe in a 20% growth rate and an 18 PE. Now the question is, what's the MEANING of this business to you? Are you a semiconductor guy? Do you know why TSM is better than Intel? What's the MOAT? Do you love the CEO? Shane, you have to really UNDERSTAND the business as if you owned all of it and it was the only way for your fam to make money for the next ten years. So assuming you got all that, do the 4M analysis for us. Tell us why this is the best of breed, most wonderful biz. And no matter what, yes, you should bail with the big guys. They know things some of the time and I just hate to see you wake up with a big gap down.Now go play!

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