We all know what happened afterwards. A series of unforeseeable and unknowable events took place within a relatively short period of time. The deal fell through and BlackBerry’s shares tanked to to $5.44 at one point. Thorstein Heins was ousted and John Chen was brought in. BlackBerry announced massive quarterly losses of $4.4 billion due to huge impairment charges and assets write-offs.
However, had you bought BlackBerry at $4.15 billion at the time I wrote the article (Oct. 2, 2013) and sold it at the closing price as of Jan. 15, 2014, at $4.76 billion, you would have made 14.7% in about 14 weeks, or 66.4% annualized.
I am deeply intrigued by the outcome. How did one make money in a failed merger situation in a company that lost multi-billion dollars during a quarter? It was not my investment skill for sure. When I asked Stephen Yacktman from the Yacktman Funds (Trades, Portfolio) and Arnold Van Den Berg (Trades, Portfolio) from Century Management, neither of them was convinced that Fairfax would consummate the deal in the first place. There were regulatory concerns; Blackberry’s new operating system and handsets were not looking good; The old management team lacked execution skills. They both thought the deal did not make sense.
This is the difference between professional investors and amateur investors. My thesis largely relied upon Prem Watsa (Trades, Portfolio)’s reputation of “never walking away from a deal.” It had unconsciously made me spend less time analyzing the other factors that were all in play. Had I placed more emphasis on other factors, BlackBerry would probably fall into the “too hard” pile, as there were so many important unknowables at the time I wrote the article.
In searching for an explanation of my BlackBerry experience, I found the following words from Howard Marks' (Trades, Portfolio) latest memo illuminating: “Sometimes, even though an investor’s projections may be far too optimistic relative to what he should have expected – a.k.a. “wrong” – the investor is bailed out by unforeseeable positive developments, or even by non-fundamentally based price appreciation. Either way, the stock rises and the investor is applauded. I’d say he was 'right for the wrong reason' (or 'lucky).”
I was lucky with BlackBerry and I feel blessed to make money and learn a great lesson from what could have been a bad investment. Such is the role luck plays in an investor’s investment process. Sometimes we get good luck with a poor thesis and sometimes we get bad luck with a sound thesis. Differentiating the role of skill versus luck is essential in order to achieve consistent long-term superior returns, as luck-based results are inherently unsustainable.
Comments and constructive criticism will be warmly appreciated.
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