Quite A Day

We had a great, great day on Wednesday. While the Nasdaq rose 2% and the Dow 1.6%, our current positions did far better:

- Maxtor +12%

- UTStarcom +9%

- ProFunds Ultra Semiconductor +6%

- Disney +3%

Disk drive makers were spurred higher by Western Digital upping its outlook for the quarter and getting an analyst upgrade. Craig-Hallum Capital Group analyst Christian Schwab wrote: “We believe 2005 is beginning to look like a year in which all drive companies, and Western Digital in particular, could begin to show improved operating leverage over 2004. Our thesis is based on a pricing environment which continues to improve and a demand environment which remains strong.”

Next week, Maxtor will hold a mid-quarter conference call to introduce a new management team and other changes. On Tuesday, Maxtor named former Western Digital chief financial officer Duston Williams to that position, effective Friday. Williams left Western Digital in 1999.

Things are looking up for our friends in Milpitas (Maxtor’s hometown). While our position is already up 31%, the stock is still 66% below its 52-week high. There’s a lot of upside on top of this great headstart.

It seems that whenever the market does something dramatic in one direction or the other, somebody must always say “yes, but”. For instance, people are already saying that the market is overvalued, overheated, getting ahead of itself, and so on. Some point to the above results and say that a rising tide lifts all boats and that we got lucky on a surging market.

Bull, in both senses of the word. Anybody who reads this site regularly knows that our positions were not chosen haphazardly. They were chosen after long, careful scrutiny. We purchased when the headlines were bad in anticipation of those headlines improving. Where were the naysayers when Maxtor lost its CEO and CFO within a two-month period? Where were the naysayers when the entire semiconductor industry was given the thumbs-down after a weak Intel report? Where were the naysayers when Disney’s ABC was consistently at the bottom of the ratings? Not buying, that’s for sure. Now, those of us who had the courage of our convictions when the news was bad are getting our due. We planned for it, we calculated the risks, we saw the needle leaning toward green instead of red, and we’re being rewarded.

There is no “yes, but” needed. We all know that the market won’t rise at this pace forever. The good news will abate and, when it does, our rising stocks will slump. But that’s not the point. The point is that when prices were down, we were able to see a future beyond the bad news. We knew then that the market would not drop forever, that oil prices would not continue to $100 within the year, and that, eventually, the election would pass and a winter rally would ensue.

We were right. Let’s enjoy today and the rest of this rally, because it’s not over yet.

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