FTR Bagholders: Take a Lesson From RIM

Tickers in this article: FTR P RIMM

NEW YORK (TheStreet) -- Last week on TheStreet, I made nothing short of an impassioned plea to telecommunications provider Frontier Communications longs: Stop chasing yield and sell this dog of a stock.

I feel for what I am sure are a whole host of retirees who got taken by what was once a double-digit dividend return. Of course, no dividend can make up for a 51% drop in the price of the underlying stock in the last year.

The stock market moves fast. The numbers in that article are already outdated (FTR is down 59% over the last year, as of intraday Tuesday), but the overarching theme is not.

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I have little doubt, however, that FTR bulls will defend their positions even after the latest swoon. Expect more of the same. Consider a comment posted by an apparent FTR long to last week's article:

Way to be backwards looking ... I just took the plunge yesterday at just over $4.00 per share, thank you very much. Why? Because my focus is on the future, not the past. The steep price decline provided a much better valuation (entry point) than was available 12 months ago.
Listening to Bozo's like this is why most little investors lose regularly.

Man. It's enough to make this Bozo cry.

Go ahead. Buy more. Soon, you should be able to get some cheap shares under $3.00 per share.

Please allow me to make a couple of things completely clear.

First, I hate to see people lose money. Nothing sucks more. Therefore, I am not gloating or laughing in a bagholder's face. Even a bagholder who called me a "Bozo." Instead, I am trying to make the point that you are fooling yourself If you continue to buy this stock.

Second, if you know that I am long Pandora , you might experience the urge to call me a "hypocritical Bozo." When P dips, I buy more. In fact, as long as the long-term narrative remains constant and forward-looking, I will buy shares of Pandora at any price. I have bought the stock down at $8.00 and as high as $15.00.

There's a huge difference between FTR and P. It's more than nuance. It's something quite profound and fundamental.

Already growing explosively, Pandora is on the cusp of fresh explosive growth. Spin it however you want, that's not the case at Frontier. The company finds itself wallowing in a massive reorganization.

While different ballgames, similarities exist between Frontier and Research in Motion . They exist at the company level, at the stock level and at the shareholder level. The connection is not all that difficult to understand because they interrelate.

You might, with your last drop of blood, believe what Frontier management told you on its conference call the other day:

I really think the acceleration, as we talked about, will be in Q3 and Q4. Q2, we will continue to finish the cleanup from this first quarter conversion. And we do see stability continuing in the second quarter. So we don't foresee any fallbacks on revenue. But when we look at the acceleration, we're really focused on really being aggressive in the marketplace in the third and fourth quarter of this year.

Wait. Rewind the tape. Is that FTR Chairman and CEO Maggie Wilderotter or former RIM co-CEO James Balsillie? It's difficult to tell.

As Balsillie's company was falling off of a cliff, he was offering similar reassurances. Consider what I wrote on Seeking Alpha in May 2011:

RIMM's FY2012 guidance is the stuff shareholder anger is made of. I see no way in the world, after lowering Q1 guidance and the poor timing of inferior product launches, RIMM can meet its own projection of beating consensus EPS estimates for the year by nearly $1.00.

And then, lo and behold, in June of 2011, RIM slashed EPS estimates for FY2012 by about $2.00.

Through all of this, RIMM bulls remained steadfast. They refused to read the indelible ink on the wall. Many continued not only to defend, but to buy the stock on the way to 52-week low after 52-week low.

You might have full confidence in Frontier management. I can appreciate that. But do not allow this conviction to interfere with your position in the stock. Learn something from the mistakes of those who came before you.

In last week's article on FTR, I show how the dividend yield does, for all intents and purposes, nothing to offset the massive losses produced by the stock. If you're holding the bag on this dog, think about two crucial points with relation to the association between your conviction and stock ownership:

  • Even if Frontier executes like it says it will and like you think it will, do you see 59% or even 50%, 40%, 30% or 20% upside over the next six months, year, five years or decade?
  • What if you're wrong like RIMM bulls have been wrong? Then what?
  • At day's end, thousands of tickers float across your screen each day. It boggles my mind why any investor, particularly a retiree seeking dividend income, would sink more than a relatively small amount of money into an uncertain falling knife like FTR.

    Tickers in this article: FTR P RIMM