Though “It’s Scary”, Yacktman Funds Add to Research-In-Motion
In our latest interview with Don Yacktman and his associate Russell Wilkins, GuruFocus asked about his view on Research-In-Motion. This is the part of the interview:
We talked about out of favor, and you mentioned Research In Motion. That stock has lost around 90-something percent from the peak, and today we just reported that Prem Watsa from Fairfax bought another 25 million shares.
Yacktman: The stock hardly moved, didn't it?
Yeah, haven't moved. What do you think about the company? You own a position.
Yacktman: Here's the dilemma with it. It has a wide array of outcomes. We felt we had protection, but what happens in a company like this where there's no dividend, the protection is there, it still remains there, but I think people get very nervous about it. I think you have three pieces. You have the cash, you have the patents and you have the embedded base. The real problem is that they've continued to stub themselves in the foot on the new phone, and the concern we've had increasingly about it is that that part then becomes a little bit of an ice cube, particularly the embedded base part which – the other two are pretty clear, and you can clearly there have some worth to sell the patents and the cash obviously, but the embedded base will only stay with you so long if you don't come up with another product that's going to work. They'll switch to Apple or whatever. And this phone better work. They've delayed it what, three or four times now?
Yacktman: You're stretching the patience of your embedded base, and it's scary. That's why we have such a tiny position in it, because we just don't have a high level of confidence. But the same $20 of value that was there when we initially looked at it is pretty much $20 of value. It may be slightly less, or may have started a little bit higher.
We have a lot of discussions on Research-In-Motion (RIMM). The value camp thinks that the stock is now sold at far below its liquidation value. The value trap camp thinks that the company is in long term trend of decline. Don Yacktman thinks the stock is worth about $20. But he does not have enough confidence to build a large position in the stock. RIMM is only 0.54% of his total portfolio. He said in the interview:
So to us, the better approach is the take a small amount of capital with those kinds of situations, whether it be BAC or Research In Motion (RIM). We have a number of them that we've done that over the years, and what happens is if you're wrong, you don't get killed. As a package, they can work out quite nicely, but any one of them could be a disaster.
So his approach to these high risk and high return positions are to buy a basket of it. If we check his portfolio, these stocks probably include Apollo Group Inc (APOL), Hewlett-Packard (HPQ), Goldman Sachs (GS), Janus Capital (JNS) etc. Each of them is about 0.5% of the Yacktman Funds' total portfolio. In strong contrast, for companies such as News Corp (NWS), Procter & Gamble (PG), and Pepsi (PEP), which he has strong confidence with, he put more than 10% of the portfolio into them.
We will publish the entire interview after it is reviewed by Mr. Yacktman. In the meantime, you can also read:
1. Don Yacktman's latest portfolio
2. Risk Adjusted Return – The Secret to Don Yacktman's Success
3. What Are High Quality Companies to Don Yacktman