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