Misvalue
In the last post, I said that I would much rather mistime than misvalue. This reminded me of an article I read recently.
Michael Sivy writes an article every month for Money magazine in which he updates his recommended portfolio (the “Sivy 70″). Considering he only has to update his portfolio once a month and give a paragraph or two explanation, it could very well be one of the easiest jobs in the world.
The one hard part of the job is that he opens his picks up for criticism. One of his recent actions had to be based on psychological/technical reasons rather than fundamental analysis. In his September 12, 2007 post
he replaced Dell with HP.
Obviously, before his post HP was on a tear and Dell had been slumping for years. Just as obviously, Dell has been en fuego after the article. See chart.
The problem with this pick is that it wasn’t just a mistiming. He replaced Dell after a long period of underperformance. If anything, Dell’s fundamentals had only improved. But it can be hard to keep the faith if the stock price is stagnant. If Sivy would have stuck with his original analysis and not, presumably, been influenced by relative performance he could have seen which stock offered the more compelling value.
Disclosure: As I have disclosed earlier — actually just a week after Sivy replaced Dell with HP — I have an interest in Dell. See earlier post arguing that Dell was in fact cheap even though it had a high raw P/E ratio.
