Thomas Group: No Reason to Stick Around

Yesterday was not a fun one, as I made the decision to bail out of my position in Thomas Group (TGIS) with an 18% loss. I know that sounds weak, considering that I have a $15-$16 price target for TGIS and it is a profitable company, has no debt, pays a 4.1% dividend yield on a modest payout ratio, and is trading at 9.7 times earnings. Sounds like a deal, right? It has only been a couple of weeks and I typically do have the patience, but the reality is, my confidence in TGIS is not as high as it is in my other positions, such as Sycamore Networks (SCMR) and Ash Grove Cement (ASHG.PK).

The reality is, I do not have a comprehensive and intelligent hypothesis as to why TGIS will get to $15-$16. It sure looks like it will from a technical standpoint, and the financial ratios indicate this one should be a winner, but that is information everyone in the world has access to. To succeed at an above average rate, you need to have a different take on things what is already readily available. The stock market does a great job of pricing in available information, such as financials, news, and expectations – so typically a stock is right where it needs to be at. The deviations in this status quo are typically catalysts to move the stock up or down. That is why trading on insider information is so scrutinized and is illegal – inherently, it is cheating. However, doing your own research and forecasting ahead is fine and is what can help you find above average gains – you just need to have an understanding of the marketplace and your theory.

In the event of TGIS, I really had no unique basis for my price target other than readily available technical and financial information. There is certainly merit in that, but in the end, the market controls you rather than the other way around. The lack of confidence and the 18% decline since I purchased, honestly, scared me out. Will TGIS go to $15? Possibly and there does appear to be value, but if it does, I do not have any real reason why other than the stuff that everyone else already knows. As for changing my mind on TGIS, Billy Donovan did it, too. It just was not in my heart to own it any longer.

Cutting your losers before they get to bad is what it is all about. Losing 18% is no fun, but it is worse to lose say 40%. It takes a lot more 30%-50% winners, which are hard to come by, to make up for a 30% loser than a 15% loser. Abandoning losers sooner rather than later provides opportunity to preserve precious capital that can be better re-allocated and puts less pressure on your portfolio to produce home-run type returns in an effort in order to have a break-even or mediocre portfolio. The reality is, most people tend to hold on to losers too long and bail out of winners too soon. Simple mathematics and diversification – act accordingly.

TGIS 1-yr chart

Disclosure: none

Comments

[Nidhi Kadalbal:]

TGIS is at ~ $14 today .. Anything you want to re-address??

creating-wealth.blogsp.../

2007 Jul 09 07:36 PM

[tchannon:]

None - no regrets whatsoever and no need to re-address. A nice contract for TGIS, though actual rewards delivered to TGIS are yet to be determined. I prefer to cut losses if they get too aggressive, which is what I did. Proceeds from that were put into other positions which during the short term have outperformed TGIS, even on this latest pop. Best regards to those that saw the contract coming and earned the short-term gain. TGIS, by the ratios, is in a good position to perform well, however, I feel more confident, long-term, in my other positions. I do not consider myself a psychic by any means and this certainly could be one that I come to regret - but the marketplace abounds with opportunity. Additionally, I try to be upfront to those reading and if my mind changes and my current opinion differs from an original, I come straight to the point. Again, best regards to TGIS holders and management for earning a part of the Navy contract.

2007 Jul 10 09:00 AM

[Yo Bob:]

Outstanding move! It's now under a buck. The one-trick pony has faltered.

2008 Nov 08 11:26 AM