Recent Sell – Qualcomm Inc

As most regular readers are aware, I have been liquidating some of my holdings lately. This has been driven by a few different reasons – driven by a combination of market conditions, complacency in the market, lack of belief in individual holdings, the yearn for simplicity provided by index funds etc. Some of these reasons have been summarized in this post. This post captures another recent sell in my portfolio.

As the market continues to hover around all time highs, I have been thinking more about investor psychology and introspecting my own mentality. Recently I posted an article entitled “Do You Love Your Investment Holdings?” detailing how investors can fall in love with a holding and try to justify it even when the evidence points to investors to come to different conclusions instead. This can be driven by familiarity and a bias that comes with ownership of shares in a company for a prolonged period of time. This is a common pitfall that investors fall for and I came to the conclusion that I was facing the same issue with this holding. Coming to this realization, I decided to sell my shares and exit this investment.

I decided to sell 75 shares in Qualcomm Inc (QCOM) @ $62.20 and close my position.

Recent Sell Decision

  • There have been a few different reasons to sell but one of the main reasons has been, as mentioned above, the fact that I loved my holding and I let that cloud my judgement even though there have been a few strikes against this investment holding.
  • One aspect that the company has achieved any sort of earnings growth or earnings stability is by using the cash towards a buyback program. However, investors had to scratch and look a bit under the surface only to find that this was a farce and this was only a way the management was rewarding itself. For e.g., between 2012 and 2013, the total buybacks announced totaled $9B (I cant remember what the actual amount spent was), while the sharecount actually increased!
  • Over the past few years, executive compensation has gone through the roof. CEO Mollenkopf’s compensation totaled $60M in 2014 and what was frankly a subpar performance from the management. The compensation for the executives totaled a whopping $186M in 2014. Those are not numbers to sneeze at. I tried to convince myself that it is the way of the industry and shareholders will simply have to live with it. This is where I was blinded with my love for the investment holding instead of looking at it objectively.
  • Over the years, I have believed that Qualcomm has been an industry leader and the company has done just enough to stay ahead of the competition and rest of past laurels thanks to its licensing business segment (QTL). However, they have not been able to capture the same kind of market share in new businesses as they did with the mobile sector. They still continue to innovate and made decent progress in some sectors, but those arent necessarily translating to something concrete. This could turn into something more substantial in the future, but the following point has me take a step back.
  • The macro picture. The companies have been squeezed and all the earnings growth that could be achieved has been for this cycle and while I rode this stock up and down, I am now level with my cost basis. I have decided to quit this investment for now and take another look in the future.
  • Qualcomm is still a very interesting company and is spending money on innovation although it gets caught in all sorts of anti-competitive behavior and has had to pay fines after fines in many countries. You can say that I am a tired investor that is not totally impressed with the company.

Overall gain (including dividends during holding period (about 3 years) ): 5%

Further Reading

Full Disclosure: Our full list of holdings are available here.

12 thoughts on “Recent Sell – Qualcomm Inc

  1. JC says:

    I can’t blame you on that given Qualcomm’s struggles and I can’t stand companies that make a big deal of this “cash returned to shareholders” via share repurchases. Especially when they either (1) don’t decrease the shares all that much or even worse increase them and (2) when they aren’t actually funded through cash on hand. With the current macro headwinds and the company specific problems it seems prudent to cut bait. I’m thinking of doing similar things with some of my other holdings. HCP is high on my list because I don’t want any piece of the spinoff HCF Manorcare and there’s rumblings about an actual dividend decrease. I’m leaning towards selling and reevaluating HCP as a standalone business and investment.

    How’d you end up doing on your QCOM holding? Hopefully you were able to squeeze out a profit with the markets running this high.

    • Hi JC,
      Thanks for sharing your thoughts. HCP is a trainwreck imo. I looked at it a while ago and it didnt look that great anyway — an that was before the HCRManorcare issues came up. Of course, most investors are ok disregarding this news and continue buying without really looking at the underlying business problems. Its a company I wouldnt touch even with a single $ of my hard earned money. There are better companies in the sector for healthcare REIT exposure.

      Overall I think I ended up with 5% gains after a holding period of 3 years…hardly anything to write home about lol. Updated the article with that missing data.
      cheers
      R2R

  2. I’ve actually had QCOM on my watch list but I would not buy until I see a return to earnings growth. I never really like share buybacks, it seems like a shady way of disguising executive kickbacks as you mentioned. I prefer my returns in dividends! Thanks for the update.

    • It is definitely a kickback and I hate the buyback model. Folks may argue that its a bigger piece of the pie, but I disagree and its short term thinking. I am shedding companies in my portfolio which are big on buybacks. I’d rather they invest for future growth.

      R2R

  3. Good for you cutting ties with a stock that you love, given the issues that you’ve identified. I’m still long QCOM, sitting with total returns of 27%. Guess I was lucky entering at below $50 for most of my shares.

    I’m going to hold for now and see how things go. The recent dividend increase of 10% helped.

    Take care!

    • It was a hard decision, but had to be done and I had to remove emotion from the decision making process. Its what Ive been thinking a lot about and trying to look internally on how I feel about each holding.

      Good on you for getting it at such low levels. Looks like you are on track to make some good gains.
      R2R

  4. Can’t fall in love with those dividend stocks. That’s what I was referring to last month when I sold a bunch of stock. I think some of the comments I received were from people blinded by their love of the dividend. This is a dangerous position to be in.

    I sold QCOM last month. I’m selling puts on it now, but I hope the expire worthless.

    • haha I hear you, Nathan. People love their investment holdings or strategy and will attack if you question it. Its a pitfall you want to avoid at all costs.

      Looks like we are moving in very similar directions with our holdings lately. Are you finding anything interesting to invest in, these days?
      R2R

  5. I don’t know, man…sure that was a lot of money, but…

    ROE in 2014 was 21%…and total shareholder’s equity was $39B, which means total executive compensation was ~2.2% of their return on equity ($186M/$8.2B)…generous for sure, but probably a relatively fair bonus structure…

    I’m not attacking your decision to sell. That’s definitely your business, and there’s almost always a bear case to be made.

    I for one like the company’s balance sheet and free cash flow generation. I think that strong financial position will allow them to weather any number of storms that may arise in the near to mid term. I see the current share price as roughly equal to fair value and am watching them as a potential buy, although a lower entry point (larger margin of safety) is definitely preferable.

    Good luck with whatever you put the proceeds towards.

    • There is still lot to like about Qualcomm. I hear you on all those points and the companys balance sheet has been very good. Wireless communication isnt going anywhere and this company will continue to do well as long as they stay ahead of the competition. I might have to take a look again in the future and find better entry points. The macro picture is what worries me and the current valuation does not provide me with much comfort.

      Thanks for stopping by and sharing
      R2R

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