In late December I purchased Research in Motion after it had fallen over 75% in price in 2011. As with buying any investment that the rest of the world hates, it is hard. When it’s difficult to come by an agreeable opinion, you can’t help but question your judgement. I am constantly questioning myself on what I might be missing in my investment thesis, whether with RIM or any other investment bought under similar circumstances.
RIM is a financially healthy company with decent earnings and cash flow (for its price) and no debt. But, as is easy to see throughout the media, the Blackberry is losing popularity and their Playbook tablet was an utter failure. The question is how far will Blackberry sales fall (in spite of what you read in the media, the number of global subscribers is actually growing). To answer this question it is useful to revisit Soros’ theory of reflexivity.
George Soros, the hedge fund manager famous for breaking the British Pound in 1992, but also for his theory of reflexivity. What is reflexivity? Under normal conditions, financial markets reflect what is going on in the real economy. But there are times when the behavior of markets can feedback into the system and in turn influence the real economy. The deleveraging effect we all felt in late 2008, as stock markets plummeted causing businesses to cut employment and halt restocking their inventories, was a perfect example of reflexivity.
This phenomena of reflexivity no doubt affected the sale of Blackberries over the last year. As more and more negative news came out about RIM and their operational issues, this certainly influenced many businesses and individuals away from buying new Blackberries. This effect is partly what has led their stock price so low and will also affect their sales in 2012. Without this reflexive effect I would feel much more comfortable my thesis. But the future of the Blackberry has only become more uncertain because of all the negative press and falling RIM stock price.
How far Blackberry sales will fall in 2012 is anybody’s guess. Though few would argue with me when I say Blackberries are unlikely to disappear anytime soon. I know I still see Blackberries, including the newest ones, everywhere I go, whether on the subway in New York, in Buenos Aires, or being used by my cousins in India. They are not the symbol of “cool” like the iPhone but people are buying and using them. It’s anybody’s guess how Research in Motion will fare in 2012, but my research tells me there is still plenty of value in their business so I’ve put my money where my mouth is.
