A Tale of Two Shitties


I’m sorry. I just couldn’t resist.

Both Dell Computer and Hewlett Packard announced earnings on Tuesday.

The morning started with an earlier than expected release and disappointment by HP and ended with Dell’s decent announcement.

A lot has been said over the last two days about what these two companies have in common. Without exception, those comments have been derisive of Hewlett Packard.

LosersBefore I weigh in, for me, Dell and Hewlett Packard are very much alike, but there is still hope for HP’s salvation.

You see, in the short 4 years or so that I have solely been responsible for managing my own account, I’ve had very few losing stocks.

Now before you say, “yeah right” or something much more offensive, let me qualify the previous statement.

Since I’ve been in the habit of selling call options on just about everything that I have ever bought, when you add the options premiums into the mix, I’ve had very few losing stock positions.

Since I have gotten much more anally compulsive since the advent of computer spreadsheets, I also throw in the opportunity costs represented by annualized S&P gain into the mix, as well.

Anally compulsive. Shitty. Get it?

Never mind, but the dearth of losers makes it easy to remember them, although sometimes I don’t hold a grudge. That’s really only true if I dump a loser specifically to take a tax related loss. Otherwise, I do hold a grudge and the long term memory is still going strong.

Man was YRCW good for that. In fact, it was good enough for both of those. Forever etched in my memory and wiping out lots of taxable capital gains. In fact, it’s almost displaced the debacle of L.F. Rothschild, which soured me on trading for my own benefit some 25 years ago.

Anyway, I digress, but you can probably guess two of the stocks on that short list.

I first bought shares in Dell about the time I started seriously managing my own stocks. I remember picking up shares after Dell announced earnings that  were disappointing. The shares took a $3 hit from their previous close of $36.

That alone will give you an idea of how long ago it was. Dell hasn’t seen $36 in a long, long time. Back in the days when 20 gigabyte hard drives were kick ass. Get it, kick ass, anal, shitty.

Never mind.

I didn’t know the definition of “value trap” back then, but at the very least, I’ve proven myself to still be capable of learning.

I also remember selling call options and clearing a few dollars. Not too many, because I was so convinced that Dell was going to recover all of its earnings related losses and then some, that I sold well out of the money $40 options.

Long, painful  story short, I sold my Dell shares. They were repugnant to me.

They are still repugnant to me, with or without Michael Dell at the helm.

Speaking of long term memory, back in the early incarnation of the Szelhamos Rules blog, I wrote an entry that was directed at Michael Dell and Jerry Yang. It was entitled “You Can’t Come Home”. If anyone is remotely interested you can look for it in the Szelhamos Archives (March 30, 2007).

But if you do so, that’s pretty sad.

Guess which other stock was one of my losers, although I currently am short puts on shares. Talk about a worn out welcome. Yang really blew it on his return. Maybe he should have taken steroids.

At the moment, I hold HP shares, but they’re nowhere near as repugnant, since I’ve been selling near the money call options on it over a few different options cycles.

With a cost basis of $41, I can sell my shares at $37 and still walk away saying that it wasn’t a loser.

But I’d be deluding myself, because it is a loser in pretty much all other regards.

It is amazing that value traps do exist. Knowing that is preventing me from buying additional shares. Fortunately, that same knowledge knew not to pick up additional shares in Dell, or more recently Ford Motors.

I remember every loser, but I don’t lose too much sleep over them, although occasonally I will rant, as I recently did about some Bove related debacles in Citigroup and Goldman Sachs. One, a long ago memory, the other a grudge in the making.

HP on the other hand, shitty as its been, may still have some life in it.

Before talk of HP becoming a commodity, remember than the same accusation was dealt to SanDisk, after it dropped from its highs a few years ago. A little talk of takeover, a little fire on all engines, a little growth in flash memory everywhere and everything and all of a sudden, SanDisk is trading like anything but a commoditized product.

It was a shitty decision not to own shares of SanDisk.

Not to step on Dickens’ rotting corpse, and all due apologies for mangling the title of such a classic, but human nature being what it is and the uncertainties in life and the stock markets, I probably should have entitled this piece “A Tale of Many More Shitties to Come”.

That’s especially true given what a downer this month has been.

But the nice thing about reliance on options premiums is that each month begins a new opportunity and if it weren’t for those spreadsheets, I’d have no meaningful memory of the previous month.

So, I’m completley ready to say goodbye to “This Tale of Two Shitties” and say hello to “A Brave New World” that starts on Monday.




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