We Worry Too Much
Tejpal is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We can't worry about every day-to-day event that happens to a company. That's what management is for. Let the leadership worry about a company's daily operations. If we as investors start worrying about the everyday operations of a company, we'll become nervous wrecks at best or at worst lose a lot of money.
Recently shares of Netflix (NASDAQ: NFLX), Westport Innovations and Green Mountain Coffee Roasters (NASDAQ: GMCR) have been punished because of perceived threat of new competitors. When Comcast anounced it was starting a streaming video service, shares of Netflix dropped from $125 to $103. Similarly, Cummins said it will develop its own natural gas engine for commercial vehicles and shares of Westport, which has a joint venture with Cummins, crashed to $35 from a high of $51 in days. Lastly, Green Mountain shares dropped from about $70 to $43 when Starbucks, with which Green Mountain has its own joint venture, unveiled its single cup espresso machine.
I believe investors overreacted in all three cases for many reasons. Just because a company announces it is going to compete with another doesn't mean it is going to destroy the other company overnight. It takes time for a new product to get established and it may never get established. Meanwhile the company with the original product has a headstart in the market and its not going to stand still and will fight to maintain its superority.
For example, Netflix is a market leader. Comcast is a newcomer to streaming, its library is smaller and it streams different content than Netfix. And I'm sure Reed Hastings is well aware of Comcast and any other threats to the dominance of his company and is busy planning his next move. If you're a Netflix investor let the leadership handle the challenges that they are paid to handle. Similarly, Westport is a leader in nat gas commercial engines. Cummins own new engine is a different design and is aimed at a diferent segment of the market and is just now being developed. Starbucks single cup machine is an espresso machine which is different from the K-cup brewer that Green Mountain makes.
In all these cases I believe the market reacted to the headlines rather than the substance of the news releases. Investors who sell on even the hint of any negative news lose a lot of money not to mention a lot of sleep. The only winners are the brokerages who are smiling at the prospect of all those trading commissions. The best advice: invest in companies with a competitive advantage and management that can stay one step ahead of the competition.
Motley Fool newsletter services recommend Green Mountain Coffee Roasters, Netflix and Westport Innovations. The Motley Fool owns shares of Westport Innovations. tejpalsk has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Blogger Tejpal Kang owns shares of Netflix, Green Mountain Coffee Roasters and Westport Innovations