The Kind Of Stock You Don't Need To Buy

Includes: EFA, SCMR, SPY
by: Roger Nusbaum

For some unknown reason, the name Sycamore Networks (NASDAQ:SCMR) popped into my head last night. Sycamore, if you don't remember the name from 12 years ago, makes networking products. I traded it a couple of times as the Internet bubble was inflating (I worked in a different part of the industry back then). It made stuff that made the Internet work and was named after a tree, so what's not to love?

I have not looked at the name in ages and haven't owned for even longer. While I have no plans to buy the stock personally or professionally, I think I kind of root for it because I made money on it so long ago. Nothing wrong with having irrational thoughts as long as you don't act on them.

A few days ago I posted about a study from the SEC that tried to assess whether individual investors should buy individual stocks or not. The general tone of my response was that, for most market participants, the suitability of individual issues boils down to the time they have to devote to the task and their perception of their own ability. I went on say that using a couple/a few individual stocks in moderate weightings as part of a strategy relying primarily on funds is not ruinously reckless. The stocks chosen may not do well, but it would not be suicide.

A name like Sycamore would not fit the bill. While I think it says something positive that the company is still in business, this is not a name that too many people need to buy. The stock is in the middle of a nine-year downtrend, save for a couple of spikes upward along the way. It has been losing money and will continue to lose money, and did a 1-for-10 reverse split almost three years ago. Strangely, though, it has a little over $12 in cash vs. a share price just under $15 -- so maybe there is no company, just a bank account?

Where the context is a portfolio for a do-it-yourselfer who does not want to spend 40 hours or more per week on his or her portfolio, but wants to try to do a little better than an SPY/EFA combo, the siren call of some must-have fad, deep value play, "special situation" and so on is probably best to be avoided.