09/21/10 RIG, RIMM, Amy Winehouse, Elvis, a full moon and the courage of convictions

09/20/10 RIG, RIMM, Amy Winehouse, Elvis, a full moon and the courage of convictions

Read on and it will all make sense. I was challenged by our longest partner (we avoid using the work client) regarding RIG and RIMM. Speculating and investing were the basis of the conversation. They insisted that our views on RIG were no different from theirs on RIMM.

As background, we reviewed RIM this afternoon and called them to alert them to the opportunity offered. They insisted that RIG was no different from RIMM. They said that were using short-term tactics disguised as strategies to justify the stock purchase and we were just fooling ourselves. Hah! I said, RIMM is faced with a multitude of problems, consumer fashion, market forces and regulatory. RIG faces a beaten sector and a failed US Gulf catastrophe. This is a stock we would gladly own in our portfolio without regard to the current situation and part of a sector that is discounted due to a transient problem. We civilly discussed the efficient market pricing hypothesizes, meaning of risk, perceived risk, real risk, market risk and Sobieski vodka risk. I held to our convictions and the benefits of our strategy. COURAGE OF CONVICTIONS!

I spent some time after the initial conversation with some of the smartest investors I know. More Ivy League degrees than necessary and really smart folks. Yah, isn’t it obvious, they agreed with me, so I called the original partner back to let them know that I was vindicated by having these really smart folks agree with me. I got them to capitulate, but it was a shallow victory.

As the old adage goes, the victors/owners of the blog write history. However, my conscious led me to more reflection than I wanted. COURAGE OF CONVICTIONS is tough and like old age, it is not for sissies. Let us review the issues:

RIMM

The best disaster we can find in all this is with RIMM. They are facing things we do not understand. Our group does not use their product because, basically, we are afraid and do not understand the apparent risks. Our strategy is to avoid risk not invite it. These guys seem to go to court to fight battles over their operations. To us, matters like this going to court are like Russian Roulette with bullets in every chamber. Their competitors want them gone, foreign governments want them gone and a Judge has the final decision? This case is as hard as they come to understand and each outcome seems to be a 50/50 proposition. This is beyond David v. Goliath. Mostly because we do not know who is David and who is Goliath. Let’s face it, if lawyers like the stock it is not good for investors.

RIG

I do agree that RIG has its issues. The Gulf oil issue remains a potential liability. Our view is that BP has set aside $20 billion and is doing everything possible to give it away without success. We really like the television commercials where they seem to be either begging for claimants or taunting the folks who wanted this to be a disaster in excess of $20 billion. RIG in our view is an annuity company that is a service provider. They sold the services of their equipment and the fact that BP is taking the lead indicates that BP views their liability to be a matter that they want to manage and avoid involving 3rd party vendors like RIG. The US Government may be in control as the President claims; however, there seems to be no disaster to fund without regard to their best efforts.

Anyway, the stress of the challenge led me to go for a late night walk. In my area, the moon is full, Amy Winehouse is on the portable player and Elvis followed singing Unchained Melody. Irony at its best all around.

We stuck to the courage of our convictions and look for your opinions.

Send them to: addingalpha@consultant.com