Thursday, September 17, 2009

Is it too late to buy CMTP?

I first wrote about China Digital Communications back on July 20th, 2009. Back then it was trading at ridiculously cheap valuations at a price $2.85 per share. It's still pretty cheap. Check out this piece from by Rick Pearson. He went to Shenzen and interviewed management and came away convinced that the stock is still trading at a major discount.
The stock has appreciated by nearly 2/3 since I recommended it. As was the case with MNI, I am contemplating taking the money and running.

I agree with Pearson that the company is still undervalued. They are doing everything they can to attract institutional investors and that will be very good for the stock. Still, why not take a little off the table? This is the tug of war that everyone goes through with deciding whether or not to sell a stock. You can follow rules like those suggested in this Kiplinger's article.

They are helpful, but very general. However, if they were specific, that wouldn't work either. The bottom line is that you really have to know what you own and what your risk tolerance is. Neither of these tasks is nearly as simple as it sounds,

Lot of people thought that they had a good handle on Enron, Fannie Mae,Citigroup and lots of other companies that seemed like one-decision, solid blue chip stocks. Even when they acknowledge that they didn't know (remember how people used to say that Goldman was one big hedge fund), they had blind faith as long as the numbers continued to look good.

Risk tolerance is no easier to get a grip on as it has a tendency to mirror market fluctuations. When the market is in an upswing, most people say that they are very risk tolerant. However, during a bear market, most people (including institutional investors who ought to know better) run for the hills.

So what am I going to do? I'm going to hold on to CMTP. Why? I look at it as a long-term holding. Once I double my money, I'll sell half and play with house money the rest of the way. Until then, I'll let it ride.

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