A SLOW MARCH TOWARDS DOOM FOR RIMM
There are a million different ways to lose money in the financial markets. What catches most market participant's off-guard is the counter-intuitive nature of trading and investing. It's an issue that is best summed up by Jefferson Airplane in the song White Rabbit:
When logic and proportion
Have fallen sloppy dead
And the White Knight is talking backwards
And the Red Queen's "off with her head!"
Remember what the dormouse said;
"Keep YOUR HEAD"
In order to "keep your head", you must realize when situations are obvious to a majority of market participants, it will slow down the pricing mechanism for whatever financial instrument is in question.
The most recent case in point of this phenomenon comes in the form of RIMM. The maker of the popular, but increasingly outdated Blackberry line of cell phones is becoming painfully irrelevant, as the market for wireless devices is moving towards an application driven format.
RIMM has been slow to react to the lightening pace with which the evolution of technology takes place. This has cost RIMM about $60 billion in market cap over the past two and a half years. More importantly, it may have cost them the opportunity of ever recovering the customers who have switched to either an Iphone or an Android device.
The rule of today's technology marketplace simply states that once you are obsolete, you are obsolete. Unless you have the alien mind of Steve Jobs, you will be hard-pressed to find an avenue with which to recover.
The best thing that RIMM has going for it is the fact that most everyone in the financial markets realizes that their back is pinned against the wall. A funny thing happens when a majority of investors begin seeing a situation as obvious. It creates a support dynamic for the stock price. It actually slows the descent of the stock price, as short-term money becomes involved and long-term interest in the stock slowly wanes.
Below is a monthly chart of RIMM going back to 2007. You can clearly see that it has been the creation of an application driven model for wireless technology that has been the downfall of RIMM. Yes, the grand sell-off of 2008 played a part in the decline. However, the lack of recovery for the stock, while many similar names are making multi-year highs is very telling.
(click on chart below to enlarge)
RIMM
It is most fortunate for RIMM that the markets thrive on punishing those who attempt to profit from obvious situations, regardless if their opinions ultimately end up being correct. It is this reason that will create a cushion of time that will allow RIMM a very small chance of righting their sinking ship.
Perhaps they will begin thinking outside of the box and create a phone that doubles a flotation device? A built in parachute would be nice for those of us who are afraid of flying. May I suggest the ability to strap a phone on your back and have it carry you to an elevation of no more than 1,000 feet using some type of rocket propulsion system? Great for construction workers, police officers and any person looking to escape from screaming kids, an angry wife or a violent co-worker. A phone that doubles as a helmet? A built in condom dispenser? All ideas that RIMM engineers should be exploring, as they plot the difficult path towards reviving a withering brand.
Should RIMM beat the odds and manage a return to prominence, they only have the public market for capital to thank. More importantly, they should thank the underlying counter-intuitive, backwards talking nature of the market. Where logic and proportion are often times sloppy dead. Creating pockets of time for companies to pick themselves back up while the markets make certain that its riches are distributed to the chosen few who realize its true nature the best.
