Ongoing Inflation...

Logitech International SA

I bought LOGI at US$9.5995 on 28 September 2011 and sold it at US$10.50 on 24 October 2013. As a result, I made a profit of 16.5% including dividends and transaction costs. I am fortunate to make respectable return on this 2 years investment in LOGI.

All of us know so much about Logitech International SA. The rational of investing in LOGI is as follows. In Q4 2011, it was heavily short-sold because a lot of short sellers thought that the era of keyboard and mouse will end as touch-screen feature will completely replace the mouse and keyboard. At that time, LOGI has sturdy balance sheet quality such that it can withstand all kind of financial and economic disasters. Because of that, I thought that this kind of sentiment was overblown and young people and our generation will still use keyboard and mouse as a form of assurance such that we can control where we tell mouse and how fast we type. They will still exist in the office for the next few decades. What about at personal homes – gamers can never do without mouse and keyboard to play WOW, FPS games and other sort of games.

With that in our mind, what about LOGI’s competitors? Microsoft is fierce competitor but it is slow in reacting to trends of the keyboards and mouse. Razor, being run by Singaporean, focus too much on gaming experience but less focus on quality. LOGI produces all types of mouse and keyboards for such specific usages while retaining the quality. At home, I have more Logitech devices than Microsoft devices!

Few weeks or months after our purchase, short-sellers were clobbered. They have to cover their asses by buying shares at higher price. It rose to USD$13+. However, I never sold because I believe that the intrinsic value is much higher than that.

Unfortunately, ex-CEO was too slow to react the changing landscape of desktop and mobile computing. Nobody expected that PC manufacturers started to develop touchscreen monitors for desktop. The penetration of tablet is so great that people are getting comfortable. I personally recognize it after I bought tablet. However, there is a need for mouse and keyboard for certain moments.

Previous CEO resigned as he knew that he had lost the plot. Interim CEO was appointed to stabilize it while searching suitable person with sufficient time. New CEO, Bracken Darrell, took over and took time to create a suitable strategy to restore Logitech’s profitability in the face of changed computing landscape. Few months later, the result is showing. He did a good job for making Logitech devices more relevant for mobile uses and tablets. Logitech’s keyboard for ipad is one of top 3 popular devices.
I have been talking about mouse and keyboards. Logitech owns a subsidiary called Ultimate Ears (UE). It is excellent company that makes quality earphone, headphone and portable speakers for average Joe. UE products are selling quite well.

All that said, you can find that Logitech is really impressive company. However, Logitech has reduced its balance sheet size to survive for approximately 1.5 years. As a result, margin of safety has decreased in terms of balance sheet quality.

Right now, it is good time to sell LOGI as I want to reduce the exposure to computing technology industry. At the same time, I cannot see how the future pans out for hardware computing. In 2011, I know that keyboards and mouse will not cease to exist but poor management of ex-CEO destroy the shareholder’s value. Thankfully, margin of safety protect us and enable us to make money.

Post mortem of CNTY

I am quite speechless that CNTY has reached at $5 plus price level this year. I guess I didn't have much patient to wait after learning that managing casino is not highly profitable business I would thought. Attracting the customers to the casino is the key in this case.

If I kept CNTY till now, I probably achieve higher return. Nevertheless, I am happy to sell CNTY and bought another US stock, which appears to be making positive unrealized return for me.