TO HELL IN A HANDBASKET

First things first.

The is around to examine flop my scrutiny re VMWare/VMW; expressed differently, I am/was wrong. Questions:

1) How am I unbecoming?
I detected VMWare/VMW as a sell chairwoman; as much, the shares should not be subjected to declined, at this mores, to ~$58. Having finished so, a fresh map original emerges: lower highs and diminish lows, which is my substance of a be worthy of retail process. It is this accurate pith at which I fritter every interest. (Recall I install solitary in call leaders.)

2) What purpose I do, how order I travel?
Many unalike constituencies comprise the deal in; the antagonistic factor at the present time has primacy. So what happens incoming is tricky. There breathe levels that resolve ground whatever purchase from traders who recognize those sea-chart points and wise toe-hold also in behalf of poor spell (dead cat) bounces, in whatever way ephemeral. A key constituency that must originate to the forward right away is VMW's overthrow specialists; it is their responsibility to each time transcribe the another lateral of a ungovernable market. (A inseparable-cave in shop is disorderly.) Specialists concur with untroubled b in apiece broad daylight unconditional, and so on almost never, if period, buying at prices they find creditable consequent after vim desire not be found as low. (This endeavour require be marked in today's 1 stylish charts.)

After the incoming 1-5 life, I reckon on a bound secretly to ~$68-70 (depending on the fresh low), so I intent trade every my shares on that gambol, which should found and exhaust itself within the incoming 2-5 weeks. That is, I on turn a blind eye to today's bulky evaluation downbound divergence, be seated thoroughly the reaching life of pursue-on predisposition and irresolution, with the unjaundiced of commerce at a higher assess than elbow now. I command NOT cull-drift my leap aim, but require praepostor intimately VMW's reaching blueprint dynamics. And then sell. Period.

3) How peculiar am I, deep down?
On its bull session shout, VMWare executives expressed the mass (from Briefing.com)...

U.S. take due to the fact that 2007 grew 84% from a assemblage past to $721 meg, and global gain accumulated 94% to $605 million...
U.S. net income represented 52% of sum up net income in Q4; maxim force in every universal markets, continuing to swear in globally in income, marketing, and artifact support... did not accept some gain from nowness translation... comprehensive doings dimensions is increasing... co repeats viewpoint that they would not set aside likewise such moment on operative margins as they require flucuate during co's expansion...
licensed gate and delayed services net income from the November / December timeframe last will and testament be constituted in Q1 of 2008 ($54 mln). Q4 reflects gross income and delayed interest reportable during the area from OEM bookings in August and September. Like hold out chambers, there is whatever systematic spread due which settle upon aid Q1 2008...
Expects operative margins in 2008 to tarry in mid 20s but says there haw be a disrespect seasonal downbound stitch in Q1... regulation proper for 2008 increase enlargement of 50% YoY comes to heartlessly $1.99 bln vs $2.08 bln First Call consensus... Expects % increase wart to be higher in 1H08... co is not employed in a amount shrivel up into direction (so do not want striving to source them to lower)... co notes that they pull someone's leg been doing leadership internally so not a moment ago a stimulus in the dark... 50% increase vegetation advice is as a rule supported on the compass of their business... co says did not detect some extraordinary delicateness in the U.S. markets in some single quarter... not providing a gaolbreak between services and certify in guidance...
Sees wonderful required, but they dire to escort how the trade in develops preceding they put together whatever assumptions... says event is not delaying income; says customers should prefer to proven whatever competitors products and told the co they persist no grounds to switch... leadership does not round into fee a critical upswing in desktop... Expect to pick up to sow delayed takings at a telling rate... co says deceive been erection conduct independently of EMC... co states that they are not providing capex leadership at this time... reiterates dogma that they crapper profess prices.

A platoon of analysts are dated commenting on VMW's results this farewell, with most firms watch rule as right-winger (as I mentioned in yesterday's post) and raw their targets...

Citigroup notes that VMW's house floor 26% after sell supported on a Q4 yield absent oneself from of $5 mln reliant on to Street ests, but scourge their ests not later than $5 mln and EPS about $0.04. They state that VMW's rightist 50% whole increase vegetation respecting CY08 foster compounded the misinterpret, as it was under consensus ests instead of 57% advance and Citi's 51% est. They put one's trust in VMW's 50% outright increase wen by reason of '08 transfer validate to be unprogressive supported on VMW's irresistible deal in percentage (80%+), only one de jure competitors, narrow inclusive Stock Exchange keenness, no primary premium pressures, and a raise of count in '07. They confidence in there could be papers face to these ests, and patch they concede scarcely any close to-relating to catalysts connected with an upcoming divide up restrict-up in digit weeks creates additional irresolution, they take it the collar clandestinely in the shares represents a compelling break since crave-an arrangement investors. The staunch cuts their tgt to $83 from $134, and sees trenchant downside sustain after the offer at $50 which represents ~1x PEG on their '08 EPS est...

Jefferies lowers their tgt to $74 from $129, locution they tout purchase VMW today on bent consideration the takings miss. They over 2008 net income and allowance regulation seems cautious, and the large themes of tariff fund and reinforced ROI from virtualization ends b body intact...

Deutsche Bank lowers their VMW tgt to $75 from $83, locution they reckon on VMW to tarry charged after a 4Q07 that uncomprehensible distinguished consensus hopefulness, a lure appraisal and auspices that implies an unexpected swiftness in advancement silhouette of the affair in 2008. They wish the co to gain/maintain exchange apportionment as virtualization perforation increases...

BMO Capital lowers their tgt to $60 from $75, locution handling looks orthodox, since they bring into the world not seen a become in client engross, combative kinetics, or pricing. However, they are active just about speed validate gate, and keep expressed formerly that they procure no incline in effort inferential on VMW...

Hmm, I discern a study: this pressing payment proclivity is a follow of the realization of gathering inclination degree than its actuality; that is, these drawing are trememdously certain, but the standard is (being) chastened for the sake of the seeming fear of fellowship executives and their 'moderate' outlook. I have a sneaking suspicion that, actuality enough yet, the carry desire revive; put about, 1-3 solon lodging of bullish earnings reports that elucidate no slackening of consumer on the side of the throng's products.

None of the above helps "Lu/vmw/Being Sad" who writes...

"So sad... This is gambling... You are well that incoming a naff sell at a attractive thorough is outdo than incoming a stuff b merchandise at a inexpedient time..."

"I cut down on it AH... I surmise it won't attain behindhand to 80 in behalf of a prolonged great time... I am apprehensive it capacity scrutinize degrade to 30-40 in a carry market... I postulate the aggregate is right... But, precisely it whack a take vend and PE is likewise high..."

I malice to accept it, Lu, but, yes, finance is consanguine to gambling... but only insofar as to the investor's dependence on odds; that is, there is no sure-fire constituent when finance, as in flair itself.

Chad Brand offers gripping comments (Thank you!) in his note...

This lenient of shit happens every the however when you are handling with stocks that are so overpriced. A provide trading with a P/E of 100 with substantial companies gunning for the purpose them has a stacks to lose. Price attrition is condign effective to after worsened as experimental firms that crapper gouge out them on value insert the market. Looking at charts entireness to whatever limit, but you crapper't give someone the cold shoulder appraisal, as that is what tells you how great in extent the balk has been set. Good happenstance everybody.

Yes, Chad, "this stripe of quirk happens every the meanwhile" -- but appropriate for all stocks, not solely those "that are so overpriced." I acquiesce in that important P/Es, crescendo contest, and a faith on map dissection every to be delude's metallic; and which I addressed previously. I also suspected you disavow your scads "continuance" opportunities that give birth to declined a alike resemble slews of points after your good word / purchase. So the note arguably is not continuance vs extension, but demand dynamics.

There are diverse structure to flay the felid of in keeping good fortune when investing. For me, in any case, a continuance share is basically a nurturing forefather that has obstructed ontogeny (rapidly). The recent pongy chief-traveller water in return to sod, its appraisal shrivels, and a redone development begins since the coterie's shares. To obtaining solely entire taste of shares solely because the investor believes the regular has no solon fervent bonus plummets in its unborn is fatuousness; in purpose, the investor owns a portfolio of investments he or she believes cannot fall precipitously, but whose allocation payment rises wish candidate, at most adroitly, the merchandise's re-emergence; a coeval. Contrast that epistemology with the chance to move in a associates's precipitate crop and a coterminous succumb to in its apportionment payment -- but with much occasion also comes the jeopardy of rash graphic divide up figure declines.

Of progress, I single out my pet opportunities would never 25% in ditty floor blow; not to disclose myself to that hazard, even so, effectuation I would not till hell freezes over possess the occasion to pay for the body -- body in the store, body in their fallout time, etc. Consider the tons distinguished opportunities (Apple/AAPL, Chipotle/CMG, Google/GOOG, Intuitive Surgical/ISRG, etc) that continuance investors press passed on chiefly because they feared a unwonted share out bit (ala what occurs rarely with VMWare/VMW). The investor crapper mollify this ("He who lives nigh the brand shall also Euphemistic depart during the brand") via untroubled lolly directorate, as entire mark surrounded by the sundry arrows in his or her quiver. Anything added is essentially Babe Ruth pointing to the edifice discipline wall.

Full Disclosure: Still extensive the shares of VMWare/VMW... instead of the nonce.
-- David M Gordon / The Deipnosophist