Roger Nusbaum submits: This comment came in over the weekend:
Thanks for sharing your insights on NZT and the NZD. We have a holding of NZT and are panicking since it has fallen so low. Left the trade with our wealth manager and sadly he didn't advise us to get out of it last month but instead told us to hold on to it when we asked. My wife only came across your blog last wk. Wish we could have done much more self monitoring instead of being so foolish and naive.
Do you mind sharing what it is about NZT that is appealing? What was the price you had bought it in your previous trade? If you've already covered this is a previous blog entry, pls refer us to it. Thanks again.
I would say that if they are panicked about the drop they have too much. Concern about an individual stock is OK, but actual panic is bad.
Their wealth manager advised that they stay in the name. This may or may not have been bad advice, we don't have enough information to know. If Telecom Corporation of New Zealand (NZT) is held because it has a low correlation to the US and the weight in the portfolio is low there may have been no need to sell. That is the benign spin on this. The more malignant take would be that the wealth manager has too many clients, does not really know why he recommended it and his ego won't let him tell the client to sell. Chances are the truth is in the middle.
Let me clear one thing up. I didn't handle NZT very well. It topped out around $39. I sold just shy of $28. Most clients owned it in the high $20s and low $30s. So, not great.
I think I will miss half of the decline in the currency. I think the currency might go to the high $0.50s and that might mean the stock has a $25 handle and I would expect to buy the name back. But if I get some part of this wrong I do not have to buy it back.
The self-monitoring issue is a great point. If you are paying for help and the person you rely on has a lot of clients and works for a bank or brokerage you need to realize you need to mind the store a little bit and help yourself. This is not to say that the advice might not be good but over-reliance on someone with 200 clients may bite you.
There were several ideas behind NZT and most of them still stand up. When I first started to buy it, in 2003, I had dim expectations for domestic telecom. Late last year I wrote that thought telecom would do well in 2006. The rest of the story is still intact long term -- NZ and Australia are more commodity based economies, although they export different products. The economic cycle of these countries tends to be different than service-based economies like the US. Different economic cycles usually mean different stock market cycles which means potential diversification.
Also, both countries tend to have less volatility in their stock markets, the last few months notwithstanding. Longer term I think that New Zealand could have a very healthy ecomony and provide a lot of growth. NZT is the largest company in New Zealand which I think makes it a good proxy for the country and while laying out the bottom up case would take a while, I'll just say the stock makes a lot of sense to me.