Do telecom stocks have a future?

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rgs92
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Do telecom stocks have a future?

Post by rgs92 » Thu Nov 09, 2017 8:50 am

I still have a fairly large lump of big telecom stocks from my legacy of working in that field.
(1) Does telecom have a future or will cord-cutting kill this industry?
(2) Are these stocks worth keeping as quasi-bond equivalents?
(3) I read somewhere that they are essentially like convertible bonds. But could the bottom drop out?

It's only about 5% of my portfolio, but it's still a large concentration for me.
[Well, that and Apple/Google, but that's not my question here.]
Last edited by rgs92 on Thu Nov 09, 2017 8:53 am, edited 2 times in total.

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Re: Do telecom stocks have a future?

Post by nisiprius » Thu Nov 09, 2017 8:52 am

If you assume that you just don't know, then what is your best course of action?
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Re: Do telecom stocks have a future?

Post by DaftInvestor » Thu Nov 09, 2017 8:54 am

It depends upon the telecom - some have already migrated into other business areas - look at what percentage of their business is still telecom.

Personally - I traded in all of my individual stocks for mutual funds years ago - I don't like any large concentrations.

rgs92
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Re: Do telecom stocks have a future?

Post by rgs92 » Thu Nov 09, 2017 8:55 am

Well, that why I was crowd-sourcing this question here nisprius. Thank you. Also, I know there are many members here who used to be in this field too, and may be thinking the same thing.

Sometimes you just hold on to certain stocks out of inertia or just from a buy-and-hold mentality, however misguided that may be.

avalpert
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Re: Do telecom stocks have a future?

Post by avalpert » Thu Nov 09, 2017 9:04 am

rgs92 wrote:
Thu Nov 09, 2017 8:50 am
I still have a fairly large lump of big telecom stocks from my legacy of working in that field.
(1) Does telecom have a future or will cord-cutting kill this industry?
Sure it has a future.
(2) Are these stocks worth keeping as quasi-bond equivalents?
Of course not, they aren't and never were quasi-bond equivalents. They are much more volatile than bonds, so much so one could call them quasi-stock equivalents...
(3) I read somewhere that they are essentially like convertible bonds. But could the bottom drop out?
Of course it could, they are risky assets like any other stocks and particularly if you are holding a small number of individual ones were you are taking on unsystematic risk that you don't expect the market to compensate you for.

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Re: Do telecom stocks have a future?

Post by Da5id » Thu Nov 09, 2017 9:08 am

rgs92 wrote:
Thu Nov 09, 2017 8:55 am
Well, that why I was crowd-sourcing this question here nisprius. Thank you. Also, I know there are many members here who used to be in this field too, and may be thinking the same thing.

Sometimes you just hold on to certain stocks out of inertia or just from a buy-and-hold mentality, however misguided that may be.
I don't pick individual stocks or sectors. That said, I have my doubts about telecom. Wireline is dwindling. Wireless is not. However, there was once such a huge barrier to switching carriers (contracts, locked phones, no number portability), and relatively little competition as there weren't many networks that were adequate in a given area. There now is lots of competition, no contracts, number portability, etc. Seems like most competition is on cost/MB with relatively little value add by the Telco. Verizon's network superiority has withered away. Margins aren't what they used to be.

Maybe 5g rollout when it comes will help them, letting them compete perhaps with the internet/television providers. Maybe.

But presumably all that is priced into the stocks already, nothing I know that the market doesn't...

rgs92
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Re: Do telecom stocks have a future?

Post by rgs92 » Thu Nov 09, 2017 9:26 am

I was thinking that network capability was becoming a commodity (subject to price wars, where quality wasn't really an issue, no real way to differentiate your product)...

OTOH, these stocks are about 64% institutionally owned. Is that a factor? Or is that a factor for any particular stock in general?

Thanks for the insights Da5id.
Last edited by rgs92 on Thu Nov 09, 2017 9:31 am, edited 4 times in total.

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Pajamas
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Re: Do telecom stocks have a future?

Post by Pajamas » Thu Nov 09, 2017 9:27 am

Most of the telecom companies are not just providing telephone service over copper wires these days. The AT&T-TimeWarner deal is in the news and gives a good idea of how the industry has evolved. Doesn't seem to me that the industry will be dead anytime soon, but it certainly has undergone significant change and it looks like that will continue.

I agree that the idea of those stocks being quasi-bonds is dead, if it was ever true in the first place.

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Re: Do telecom stocks have a future?

Post by AlohaJoe » Thu Nov 09, 2017 9:31 am

rgs92 wrote:
Thu Nov 09, 2017 8:50 am
(2) Are these stocks worth keeping as quasi-bond equivalents?
Didn't Sprint drop by 15% today?

If I bought a bond and it dropped by 15% in a single day...I think I'd be pretty disappointed with it. I'm not sure in what possible world they can be considered quasi-bond equivalents.

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Re: Do telecom stocks have a future?

Post by KlangFool » Thu Nov 09, 2017 9:32 am

rgs92 wrote:
Thu Nov 09, 2017 8:50 am
I still have a fairly large lump of big telecom stocks from my legacy of working in that field.
(1) Does telecom have a future or will cord-cutting kill this industry?
(2) Are these stocks worth keeping as quasi-bond equivalents?
(3) I read somewhere that they are essentially like convertible bonds. But could the bottom drop out?

It's only about 5% of my portfolio, but it's still a large concentration for me.
[Well, that and Apple/Google, but that's not my question here.]
rgs92,

Sell everything as soon as possible.

Is your telecom bill going up or down every year? That should answer your question.

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Re: Do telecom stocks have a future?

Post by KlangFool » Thu Nov 09, 2017 9:36 am

Da5id wrote:
Thu Nov 09, 2017 9:08 am
rgs92 wrote:
Thu Nov 09, 2017 8:55 am
Well, that why I was crowd-sourcing this question here nisprius. Thank you. Also, I know there are many members here who used to be in this field too, and may be thinking the same thing.

Sometimes you just hold on to certain stocks out of inertia or just from a buy-and-hold mentality, however misguided that may be.
I don't pick individual stocks or sectors. That said, I have my doubts about telecom. Wireline is dwindling. Wireless is not.
Da5id,

I disagreed. Your cellphone's bill is going down every year. Or, you are getting more for the same price. The margin is collapsing too.

KlangFool

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Re: Do telecom stocks have a future?

Post by Da5id » Thu Nov 09, 2017 9:52 am

KlangFool wrote:
Thu Nov 09, 2017 9:36 am
Da5id wrote:
Thu Nov 09, 2017 9:08 am
rgs92 wrote:
Thu Nov 09, 2017 8:55 am
Well, that why I was crowd-sourcing this question here nisprius. Thank you. Also, I know there are many members here who used to be in this field too, and may be thinking the same thing.

Sometimes you just hold on to certain stocks out of inertia or just from a buy-and-hold mentality, however misguided that may be.
I don't pick individual stocks or sectors. That said, I have my doubts about telecom. Wireline is dwindling. Wireless is not.
Da5id,

I disagreed. Your cellphone's bill is going down every year. Or, you are getting more for the same price. The margin is collapsing too.

KlangFool
Did you read what I wrote or stop with the quoted section? Heck, I even said "margins aren't what they used to be", and my main point was that wireless is in a bad state. Wireless just isn't facing net subscriber loss which is impacting wireline, since many people are dropping their home phone. And even more would drop home phone service if it weren't thrown into triple play deals.

KlangFool
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Re: Do telecom stocks have a future?

Post by KlangFool » Thu Nov 09, 2017 10:01 am

Da5id wrote:
Thu Nov 09, 2017 9:52 am
KlangFool wrote:
Thu Nov 09, 2017 9:36 am
Da5id wrote:
Thu Nov 09, 2017 9:08 am
rgs92 wrote:
Thu Nov 09, 2017 8:55 am
Well, that why I was crowd-sourcing this question here nisprius. Thank you. Also, I know there are many members here who used to be in this field too, and may be thinking the same thing.

Sometimes you just hold on to certain stocks out of inertia or just from a buy-and-hold mentality, however misguided that may be.
I don't pick individual stocks or sectors. That said, I have my doubts about telecom. Wireline is dwindling. Wireless is not.
Da5id,

I disagreed. Your cellphone's bill is going down every year. Or, you are getting more for the same price. The margin is collapsing too.

KlangFool
Did you read what I wrote or stop with the quoted section? Heck, I even said "margins aren't what they used to be", and my main point was that wireless is in a bad state. Wireless just isn't facing net subscriber loss which is impacting wireline, since many people are dropping their home phone. And even more would drop home phone service if it weren't thrown into triple play deals.
Da5id,

<<Wireless just isn't facing net subscriber loss which is impacting wireline, >>

But, the subscriber number is stagnant. We are reaching a saturation point. There is no growth at the subscriber level.

KlangFool

Da5id
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Re: Do telecom stocks have a future?

Post by Da5id » Thu Nov 09, 2017 10:05 am

KlangFool wrote:
Thu Nov 09, 2017 10:01 am
Da5id wrote:
Thu Nov 09, 2017 9:52 am
KlangFool wrote:
Thu Nov 09, 2017 9:36 am
Da5id wrote:
Thu Nov 09, 2017 9:08 am
rgs92 wrote:
Thu Nov 09, 2017 8:55 am
Well, that why I was crowd-sourcing this question here nisprius. Thank you. Also, I know there are many members here who used to be in this field too, and may be thinking the same thing.

Sometimes you just hold on to certain stocks out of inertia or just from a buy-and-hold mentality, however misguided that may be.
I don't pick individual stocks or sectors. That said, I have my doubts about telecom. Wireline is dwindling. Wireless is not.
Da5id,

I disagreed. Your cellphone's bill is going down every year. Or, you are getting more for the same price. The margin is collapsing too.

KlangFool
Did you read what I wrote or stop with the quoted section? Heck, I even said "margins aren't what they used to be", and my main point was that wireless is in a bad state. Wireless just isn't facing net subscriber loss which is impacting wireline, since many people are dropping their home phone. And even more would drop home phone service if it weren't thrown into triple play deals.
Da5id,

<<Wireless just isn't facing net subscriber loss which is impacting wireline, >>

But, the subscriber number is stagnant. We are reaching a saturation point. There is no growth at the subscriber level.

KlangFool
I believe you've said you disagree with me again without disagreeing with anything I've actually written. I said wireless isn't having net subscriber loss. You agreed, but it started with "But" like you disagreed. Baffled.

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Re: Do telecom stocks have a future?

Post by KlangFool » Thu Nov 09, 2017 10:10 am

Da5id wrote:
Thu Nov 09, 2017 10:05 am
KlangFool wrote:
Thu Nov 09, 2017 10:01 am
Da5id wrote:
Thu Nov 09, 2017 9:52 am
KlangFool wrote:
Thu Nov 09, 2017 9:36 am
Da5id wrote:
Thu Nov 09, 2017 9:08 am


I don't pick individual stocks or sectors. That said, I have my doubts about telecom. Wireline is dwindling. Wireless is not.
Da5id,

I disagreed. Your cellphone's bill is going down every year. Or, you are getting more for the same price. The margin is collapsing too.

KlangFool
Did you read what I wrote or stop with the quoted section? Heck, I even said "margins aren't what they used to be", and my main point was that wireless is in a bad state. Wireless just isn't facing net subscriber loss which is impacting wireline, since many people are dropping their home phone. And even more would drop home phone service if it weren't thrown into triple play deals.
Da5id,

<<Wireless just isn't facing net subscriber loss which is impacting wireline, >>

But, the subscriber number is stagnant. We are reaching a saturation point. There is no growth at the subscriber level.

KlangFool
I believe you've said you disagree with me again without disagreeing with anything I've actually written. I said wireless isn't having net subscriber loss. You agreed, but it started with "But" like you disagreed. Baffled.
Da5id,

1) You said that there is no net subscriber loss. It could mean either

A) No growth.

B) There is net subscriber growth.

2) I am clarifying that it is (A). It is not (B).

KlangFool

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Re: Do telecom stocks have a future?

Post by Grt2bOutdoors » Thu Nov 09, 2017 10:11 am

Telecoms of yesterday have transformed, they are essentially data providers who control the "last mile" to your destination. They are regulated entities. What are the Facebooks, Apple's Google's of the world? They are content providers, but even the telecoms are encroaching upon their business. So don't think of Telecoms as the stodgy wireline business of yesterday, they aren't.
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Re: Do telecom stocks have a future?

Post by brad.clarkston » Thu Nov 09, 2017 10:16 am

Da5id wrote:
Thu Nov 09, 2017 9:08 am
rgs92 wrote:
Thu Nov 09, 2017 8:55 am
Well, that why I was crowd-sourcing this question here nisprius. Thank you. Also, I know there are many members here who used to be in this field too, and may be thinking the same thing.

Sometimes you just hold on to certain stocks out of inertia or just from a buy-and-hold mentality, however misguided that may be.
I don't pick individual stocks or sectors. That said, I have my doubts about telecom. Wireline is dwindling. Wireless is not. However, there was once such a huge barrier to switching carriers (contracts, locked phones, no number portability), and relatively little competition as there weren't many networks that were adequate in a given area. There now is lots of competition, no contracts, number portability, etc. Seems like most competition is on cost/MB with relatively little value add by the Telco. Verizon's network superiority has withered away. Margins aren't what they used to be.

Maybe 5g rollout when it comes will help them, letting them compete perhaps with the internet/television providers. Maybe.

But presumably all that is priced into the stocks already, nothing I know that the market doesn't...
As a Network Engineer at one of the big 4 telco's I have to snort at this ....

There is absolutely no competition in the USA. What you see as dynamic companies are really just MVNO's of the major four, they own them all.
"No contracts" is just pre-pay contracts which is cheaper for them not us. "Number portability" is just a way to make it cheaper to deal with each other.

With that said LTE/LTE5g isn't the future it's now. Three of the four big telco's are IT companies pretending to still be phone companies (T-Mobile USA has no infrastructure/towers as they are just starting to build out) they have there fingers in a lot of the Silicon Valley type of underbelly. That's where the money is.

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Re: Do telecom stocks have a future?

Post by siamond » Thu Nov 09, 2017 10:18 am

I was a Telecom specialist for several decades, with a broad technical and business knowledge. So yes, I could make an extensive commentary on the shift from wireline to wireless (said wireless using a wireline infrastructure right after the first few hundred yards, by the way), on the commoditization of network services and the impact on margins, on the hard-to-imagine Internet growth which happened in the past and which remains in front of us, on the Internet-of-Things which will change everything (no shortage of new 'subscriber' here!), about the truly frightening security risks associated with it, on the amazing adaptability and creativity of some industry players and countries vs. the mind-boggling ossification of others, etc.

Oh, I can bore you to death here. But this doesn't make me any more capable to predict corresponding stock market trajectories, equities as well as bonds. Whenever I made a bet about individual stock prices (starting by my own company which I knew inside out), I almost always got it wrong (which means that I was lucky when I got it right). Then I learned my lesson. No more individual stock or bond, whether I know the market segment or not. Just own the entire market and maximally diversify, and when I say that, I mean, own the *world*, not just the US. If there is one thing I know about Telecoms, it's that country boundaries are getting more meaningless by the hour...

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siamond
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Re: Do telecom stocks have a future?

Post by siamond » Thu Nov 09, 2017 10:21 am

brad.clarkston wrote:
Thu Nov 09, 2017 10:16 am
There is absolutely no competition in the USA.
Oh yeah, this is vey true. A fact that makes many specialists from other countries roll their eyes in disbelief.

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Re: Do telecom stocks have a future?

Post by bloom2708 » Thu Nov 09, 2017 10:25 am

Sell over 1,2,3 years. Buy Total US Stock index + Total International Stock index.

The answer is unknowable.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Da5id
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Re: Do telecom stocks have a future?

Post by Da5id » Thu Nov 09, 2017 10:32 am

brad.clarkston wrote:
Thu Nov 09, 2017 10:16 am
As a Network Engineer at one of the big 4 telco's I have to snort at this ....

There is absolutely no competition in the USA. What you see as dynamic companies are really just MVNO's of the major four, they own them all.
"No contracts" is just pre-pay contracts which is cheaper for them not us. "Number portability" is just a way to make it cheaper to deal with each other.
To quote wikipedia (and common sense) about mobile number portability, which isn't what you said (perhaps you were thinking of a different functionality?)
MNP is important for telecoms markets because it removes a bar to switching that keeps those with much equity in the number – in particular many business users – prisoner behind a high switching barrier. The reduction in barriers to switching is of particular benefit to challenger carriers against dominant incumbents. Typically, when MNP is implemented in a country, a rise in churn follows.
No contract and (pretty old now) US mobile number portability are huge changes, in terms of loss of ability of a company to lock you in. The large increase in churn over time has shown that. It is odd that with no competition that cell plan prices have plummeted. ARPU has fallen. Companies are spending vast amounts in advertising to steal users from each other because (as Klangfool says above, now that I understand what he is saying) the US market is indeed fairly saturated.

Are you arguing that the US wireless providers are doing awesomely and have better prospects than the stock market taken as a whole? In their heyday?

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Re: Do telecom stocks have a future?

Post by not4me » Thu Nov 09, 2017 10:34 am

OP, sounds to me that you are asking what to do about an individual stock based on the "state of the industry" on a forum that doesn't specialize on either....I don't think all companies in the industry would have the same answer.

Are there competitive threats? Yep. Really a factor for each individual company in each industry. Is Verizon dealing with the same threat as Vonage? At&t and Level 3 Communications? Not really.

I assume the references to quasi and/or convertible bonds really means "are they a reliable income stream" (with upside potential for convertible argument)? Again, which company? AT&T has paid (& I think increased in absolute terms?) dividends for many, many years but some think that may end if the upcoming merger arrives with associated debt. Then again Verizon may not be in the same boat. Most of the recent price movements that I've noticed have been around merger talks & different companies are buying or maybe being bought.

Could the bottom fall out? Yep. Stocks are risky at times &, oh by the way, bonds default at times also.

If you've owned these stocks a long time, you MAY have a embedded capital gain. Is that your bigger concern? Or just a reality check on the possible inertia you mentioned? If this is an emotional link to your past that your head says sell & heart says hold, then maybe consider starting to edge away. Sell some this tax year or give as charitable contribution & see how that feels?

Good luck!

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Re: Do telecom stocks have a future?

Post by brad.clarkston » Thu Nov 09, 2017 10:37 am

KlangFool wrote:
Thu Nov 09, 2017 10:10 am

Da5id,

1) You said that there is no net subscriber loss. It could mean either

A) No growth.

B) There is net subscriber growth.

2) I am clarifying that it is (A). It is not (B).

KlangFool
That's not true, there's plenty of churn it's one of the big metrics we chase all the time. But it's movement between the big four telco's.
And there's always new subscriber growth i.e. young kids getting there first phones who are data hogs which we like it's just not EM level growth.

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Re: Do telecom stocks have a future?

Post by brad.clarkston » Thu Nov 09, 2017 10:40 am

AlohaJoe wrote:
Thu Nov 09, 2017 9:31 am
rgs92 wrote:
Thu Nov 09, 2017 8:50 am
(2) Are these stocks worth keeping as quasi-bond equivalents?
Didn't Sprint drop by 15% today?

If I bought a bond and it dropped by 15% in a single day...I think I'd be pretty disappointed with it. I'm not sure in what possible world they can be considered quasi-bond equivalents.
15% was just a few pinnies when your stock is at $6 so no we do not really care about that, Sprint isn't going anywhere.

Personally I minimize my tech funds as much as possible as it's a huge part of the general total stock funds and make no mistake telco is nothing but tech.

rgs92
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Re: Do telecom stocks have a future?

Post by rgs92 » Thu Nov 09, 2017 10:49 am

Big thanks for all the great comments. (Ha ha, ironically, Bogleheads seems to provide the most level-headed and keen, objective, broad and unexpected insights into individual stocks and sectors, even though buying particular stocks is contrary to the BH philosophy.)
Again, thanks! You are all very helpful. (I hope it's OK to use BH for these types of questions.)

By the way, all of my holdings are in tax-deferred accounts (401Ks and IRAs).
Last edited by rgs92 on Thu Nov 09, 2017 10:54 am, edited 3 times in total.

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Re: Do telecom stocks have a future?

Post by brad.clarkston » Thu Nov 09, 2017 10:51 am

Da5id wrote:
Thu Nov 09, 2017 10:32 am
brad.clarkston wrote:
Thu Nov 09, 2017 10:16 am
As a Network Engineer at one of the big 4 telco's I have to snort at this ....

There is absolutely no competition in the USA. What you see as dynamic companies are really just MVNO's of the major four, they own them all.
"No contracts" is just pre-pay contracts which is cheaper for them not us. "Number portability" is just a way to make it cheaper to deal with each other.
To quote wikipedia (and common sense) about mobile number portability, which isn't what you said (perhaps you were thinking of a different functionality?)
MNP is important for telecoms markets because it removes a bar to switching that keeps those with much equity in the number – in particular many business users – prisoner behind a high switching barrier. The reduction in barriers to switching is of particular benefit to challenger carriers against dominant incumbents. Typically, when MNP is implemented in a country, a rise in churn follows.
No contract and (pretty old now) US mobile number portability are huge changes, in terms of loss of ability of a company to lock you in. The large increase in churn over time has shown that. It is odd that with no competition that cell plan prices have plummeted. ARPU has fallen. Companies are spending vast amounts in advertising to steal users from each other because (as Klangfool says above, now that I understand what he is saying) the US market is indeed fairly saturated.

Are you arguing that the US wireless providers are doing awesomely and have better prospects than the stock market taken as a whole? In their heyday?
Not at all, the exact opposite actually as far as the telephone side goes it's completely stagnate. While the price of the phone is subsidized by the carrier (lease that phone and pay double at the end) and text and speech is basically free. Data on the other hand costs a fork-ton more than it should as we all dump as much LTE traffic down to wireless/wired as much as possible which is very cheap.

I personally would never quote Wikipedia it's not a reliable source especially when the telco's write the state and federal laws for the politicians. It just so happened that there was a side benefit to number porting that customers liked but that was not the main reason for the law as churn is hard to manage.

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Re: Do telecom stocks have a future?

Post by Valuethinker » Thu Nov 09, 2017 10:55 am

rgs92 wrote:
Thu Nov 09, 2017 8:55 am
Well, that why I was crowd-sourcing this question here nisprius. Thank you. Also, I know there are many members here who used to be in this field too, and may be thinking the same thing.

Sometimes you just hold on to certain stocks out of inertia or just from a buy-and-hold mentality, however misguided that may be.
Then I would sell, subject to tax considerations.

THis is an industry full of tectonic plates, moving. There's no guarantee your favourite stock won't get crushed.

I know electric utilities a lot better than telcos. This is a dead steady, boring, industry, that is now faced with total disruption. A 100+ year old business model that is beginning to break down. People will still have wires to their houses and businesses that transmit electricity, but just about every other aspect of the industry is up for grabs in the next 20-30 years. [short description: the means of electricity generation will change almost totally. The location of generation and energy storage will move out towards the network end nodes & "behind the meter" will become a major source of energy, the pay-by-units-of-use business model will start to disappear, instead you will pay for the ability to draw on the grid, and for grid reliability aka "the internet broadband business model"].

Finance? If anything, it's worse. Retail is definitely far, far worse. Probably 40-50% of the stores out there are the walking dead -- either because their parent companies take them online and shutter physical locations, or because they just fail.

Technology is causing tectonic shifts. Even the experts don't know who the winners will be.
Last edited by Valuethinker on Thu Nov 09, 2017 11:11 am, edited 2 times in total.

vested1
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Re: Do telecom stocks have a future?

Post by vested1 » Thu Nov 09, 2017 11:02 am

rgs92 wrote:
Thu Nov 09, 2017 8:50 am
I still have a fairly large lump of big telecom stocks from my legacy of working in that field.
(1) Does telecom have a future or will cord-cutting kill this industry?
(2) Are these stocks worth keeping as quasi-bond equivalents?
(3) I read somewhere that they are essentially like convertible bonds. But could the bottom drop out?

It's only about 5% of my portfolio, but it's still a large concentration for me.
[Well, that and Apple/Google, but that's not my question here.]
As a retiree from one of the big telecom megacorps I can understand your reluctance to sell your shares. Make sure you aren't allowing emotion to influence your decision however. When I was working, all matching funds for the 401k were in company stock, which if ignored, made that portion of the 401k out-sized over time, adding more risk. Many employees took the dividend payments, rather than reinvesting, which I did not. This created a learned behavior and a reluctance to reinvest dividends in some, even after retirement.

Some of my friends still retain large holdings in the company after retirement because they consider the November payout of dividends to be a bonus check. :annoyed . A few have complained to me about the plunge in value of the stock recently, but still hold it because of the yearly checks, and out of a strange sense of loyalty. For these individuals, their company stock is equivalent to a bond, but for them it is wrapped up in feelings that were created over time. No stock is equivalent to a bond holding IMHO.

Here is a snapshot of AT&T from Vanguard, which also includes comparisons to other telecom stocks.
https://personal.vanguard.com/us/funds/ ... t?Ticker=T

When I retired I sold all of my shares which are now entirely in index funds, so I still own shares of that company at any rate, as well as all other domestic and some foreign telecom stocks. Those tiny positions are fine with me, as they are inconsequential to my overall holdings. Not so for those same friends, who have had a decline in portfolio value this year when most other investors are realizing record gains. This is almost entirely due to the concentration in a single stock.

As for the future of telecom, who knows? From personal experience I can tell you that investment in new infrastructure is not equal among the top competitors, and that not keeping up with the technology or supporting it with capital expenditure will eventually take its toll. I would not like to bet my portfolio on such a volatile industry. There is a popular sentiment that the proposed "merger" of AT&T with Time Warner will cause a bump in the stock, but that process is currently being stalled for reasons that I won't go into because I consider them political in nature.

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Re: Do telecom stocks have a future?

Post by Da5id » Thu Nov 09, 2017 11:06 am

brad.clarkston wrote:
Thu Nov 09, 2017 10:51 am
I personally would never quote Wikipedia it's not a reliable source especially when the telco's write the state and federal laws for the politicians. It just so happened that there was a side benefit to number porting that customers liked but that was not the main reason for the law as churn is hard to manage.
What specifically was wrong about the wiki section quoted? You are challenging the source, but not the content? I too am in the industry, and that was my understanding of MNP inpact as well. Do tell, what in your view was the purpose and genesis of MNP? My understanding at the time it was a consumer friendly mandate from the FCC to decrease lock in to your wireless provider and encourage competition, and that these consumer benefits were the purpose of mandating it rather than a "side benefit".

Sounds like despite all that we basically agree, that telecoms aren't clearly superior investments compared to index funds :)

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Re: Do telecom stocks have a future?

Post by brad.clarkston » Thu Nov 09, 2017 11:17 am

Da5id wrote:
Thu Nov 09, 2017 11:06 am
Sounds like despite all that we basically agree, that telecoms aren't clearly superior investments compared to index funds :)
Yes I would sale the telco stocks as it's already covered by total stock. The telco's aren't going anywhere but they will be changing there stripes in four or five years as they transition into hybrid carrier/content creators (watch for who buys Charter and Comcast) the same way AT&T is trying to right now with Time Warner.

Individual stocks are hard the only ones I have left in my two primary accounts (Fid & VG) are high dividend picks in my Roth - mostly REIT and Utilities, and a little KO.

I do have a play account but it's no more than 10% of my total port at any one time.

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Re: Do telecom stocks have a future?

Post by AlohaJoe » Thu Nov 09, 2017 8:09 pm

brad.clarkston wrote:
Thu Nov 09, 2017 10:40 am
AlohaJoe wrote:
Thu Nov 09, 2017 9:31 am
rgs92 wrote:
Thu Nov 09, 2017 8:50 am
(2) Are these stocks worth keeping as quasi-bond equivalents?
Didn't Sprint drop by 15% today?

If I bought a bond and it dropped by 15% in a single day...I think I'd be pretty disappointed with it. I'm not sure in what possible world they can be considered quasi-bond equivalents.
15% was just a few pinnies when your stock is at $6 so no we do not really care about that, Sprint isn't going anywhere.
What does the share price have to do with it? 15% is 15%. If you had $100,000 in it then you lost 15% of your $100,000.

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Re: Do telecom stocks have a future?

Post by nisiprius » Thu Nov 09, 2017 8:24 pm

rgs92 wrote:
Thu Nov 09, 2017 8:50 am
I still have a fairly large lump of big telecom stocks from my legacy of working in that field.
(1) Does telecom have a future or will cord-cutting kill this industry?
(2) Are these stocks worth keeping as quasi-bond equivalents?
(3) I read somewhere that they are essentially like convertible bonds. But could the bottom drop out?

It's only about 5% of my portfolio, but it's still a large concentration for me.
[Well, that and Apple/Google, but that's not my question here.]
OK, I will make two specific comments, echoing those of others. First of all, disabuse yourself of the idea that any stock is a "quasi-bond equivalent." Any look at any chart should convince you that this is not true. If you are thinking of these stocks as "bonds," you should exchange them immediately for bonds.

Second, in your situation, being unable to predict the future but not able to justify a 5% commitment to a single stock, I would pick some number of years--two, three, five--as a time frame for divesting, and gradually and systematically exchange them for something like the Vanguard Total Stock Market Index Fund, a certain percentage every year or every quarter, and do it on a calendar date without being tempted to do it on the basis of whether the stock is up or down. That is, personally, what I would do. It's not entirely rational. It has the great virtue that I've done things like that and found that I was able to stick them, and the gradualism reduced my anxiety about picking an unfavorable time. That is not a recommendation. It might not be right for you, and I certainly can't guarantee anything about performance relative to any other strategy.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Do telecom stocks have a future?

Post by brad.clarkston » Thu Nov 09, 2017 8:26 pm

AlohaJoe wrote:
Thu Nov 09, 2017 8:09 pm
brad.clarkston wrote:
Thu Nov 09, 2017 10:40 am
AlohaJoe wrote:
Thu Nov 09, 2017 9:31 am
rgs92 wrote:
Thu Nov 09, 2017 8:50 am
(2) Are these stocks worth keeping as quasi-bond equivalents?
Didn't Sprint drop by 15% today?

If I bought a bond and it dropped by 15% in a single day...I think I'd be pretty disappointed with it. I'm not sure in what possible world they can be considered quasi-bond equivalents.
15% was just a few pinnies when your stock is at $6 so no we do not really care about that, Sprint isn't going anywhere.
What does the share price have to do with it? 15% is 15%. If you had $100,000 in it then you lost 15% of your $100,000.
I've been in the tech company trenches since the late 80's the stock price really doesn't matter.
Trust me 15% is nothing to Sprint employees (share holders) there's more to a company than stock price.

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Re: Do telecom stocks have a future?

Post by snowox » Fri Nov 10, 2017 5:42 am

Stock picking is never a good idea and at one point or another these stocks were picked for you/by you. If its a small enough portion of your portfolio you can not care about it then let it ride BUT based on what you said I would dump them and put the $ into your index funds. No one knows the answer, yes the industry is changing but if there was a for sure answer then it be a no brainer.
Last edited by snowox on Fri Nov 10, 2017 7:24 am, edited 1 time in total.

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Re: Do telecom stocks have a future?

Post by Valuethinker » Fri Nov 10, 2017 6:17 am

brad.clarkston wrote:
Thu Nov 09, 2017 8:26 pm
AlohaJoe wrote:
Thu Nov 09, 2017 8:09 pm
brad.clarkston wrote:
Thu Nov 09, 2017 10:40 am
AlohaJoe wrote:
Thu Nov 09, 2017 9:31 am
rgs92 wrote:
Thu Nov 09, 2017 8:50 am
(2) Are these stocks worth keeping as quasi-bond equivalents?
Didn't Sprint drop by 15% today?

If I bought a bond and it dropped by 15% in a single day...I think I'd be pretty disappointed with it. I'm not sure in what possible world they can be considered quasi-bond equivalents.
15% was just a few pinnies when your stock is at $6 so no we do not really care about that, Sprint isn't going anywhere.
What does the share price have to do with it? 15% is 15%. If you had $100,000 in it then you lost 15% of your $100,000.
I've been in the tech company trenches since the late 80's the stock price really doesn't matter.
Trust me 15% is nothing to Sprint employees (share holders) there's more to a company than stock price.
I would reckon 20-30% of the posters here either work in, or have retired from, tech and telecom related industries.

The stock price matters a lot to employees in terms of their remuneration-- especially in tech. That's why Blackberry (RIM) banned looking at it during office hours - the penalty (enforced) was to buy donuts for the entire company. Once or twice a year someone bought donuts for c. 4,000 people. If the stock price drops, people leave. If it rises, they get distracted.

A low stock price will put pressure on the Board and the Management in any case. Spending plans will be scrapped in favour of share buybacks. A merger may take place -- and believe me, employees are worried about mergers, because "synergies" = cost cuts = redundancies. Every time.

Or there may be an offer by an LBO firm to take the company private. In which case, the focus will be on EBITDA above all else, because the bank debt needs to be serviced-- interest paid and repayments made on time-- for a much greater debt than public companies carry. Net debt to EBITDA of 4x or even 5x is not uncommon (public company average probably c. 1-2x).

The degree of difference of opinion here between 2 industry participants, re telecoms, convinces me that "no one knows nothing".

To the OP. Holding a single stock worth 5% of your portfolio is just not a good idea. Really. Not. Especially when the US index is tilted towards big tech stocks, and in 2000 in particular tech & telecoms were highly correlated. And just look at the 52 week range on those stocks-- 25% is a huge swing.

This is a fast moving industry where things can happen that you cannot anticipate. Subject to tax considerations I would sell. Maybe you spread it out over 2 to 3 tax years, but I would sell.

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Re: Do telecom stocks have a future?

Post by Valuethinker » Fri Nov 10, 2017 6:19 am

snowox wrote:
Fri Nov 10, 2017 5:42 am
Stock picking is never a good idea and at one point or another these stocks were picked for you/by you. If its a small enough portion of your portfolio you can not care about it then let it ride BUT based on what you said I would dump them and put the $ into your index funds. Know one knows the answer, yes the industry is changing but if there was a for sure answer then it be a no brainer.
+ 1

It's really hard to call the winners and losers.

Some of the telco stocks are overdistributing - their long run earnings growth does not match the underlying dividend growth. Dividend cover = DPS/ EPS is declining, and the dividend is not sustainable when it drops below 1.0 times. Eventually they are going to have to stop distributing so much to shareholders.

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Re: Do telecom stocks have a future?

Post by Valuethinker » Fri Nov 10, 2017 6:20 am

AlohaJoe wrote:
Thu Nov 09, 2017 8:09 pm
brad.clarkston wrote:
Thu Nov 09, 2017 10:40 am
AlohaJoe wrote:
Thu Nov 09, 2017 9:31 am
rgs92 wrote:
Thu Nov 09, 2017 8:50 am
(2) Are these stocks worth keeping as quasi-bond equivalents?
Didn't Sprint drop by 15% today?

If I bought a bond and it dropped by 15% in a single day...I think I'd be pretty disappointed with it. I'm not sure in what possible world they can be considered quasi-bond equivalents.
15% was just a few pinnies when your stock is at $6 so no we do not really care about that, Sprint isn't going anywhere.
What does the share price have to do with it? 15% is 15%. If you had $100,000 in it then you lost 15% of your $100,000.
A point which is sometimes missed.

A 15% loss of wealth is a 15% loss of wealth. Doesn't matter if the share price drops from 30 cents to 25.5 cents, or from $100 to $85.
Last edited by Valuethinker on Fri Nov 10, 2017 6:30 am, edited 1 time in total.

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Re: Do telecom stocks have a future?

Post by Valuethinker » Fri Nov 10, 2017 6:29 am

brad.clarkston wrote:
Thu Nov 09, 2017 10:40 am
AlohaJoe wrote:
Thu Nov 09, 2017 9:31 am
rgs92 wrote:
Thu Nov 09, 2017 8:50 am
(2) Are these stocks worth keeping as quasi-bond equivalents?
Didn't Sprint drop by 15% today?

If I bought a bond and it dropped by 15% in a single day...I think I'd be pretty disappointed with it. I'm not sure in what possible world they can be considered quasi-bond equivalents.
15% was just a few pinnies when your stock is at $6 so no we do not really care about that, Sprint isn't going anywhere.
If a company's share price drops too far, then it's a sign that the value of the debt exceeds the value of the assets by enough that the equity is worthless (it declines to option value only).

Most established companies carry debt. Thus, you have to look at the Enterprise Value (= market cap + debt net of cash) not just the market capitalization (shares in issue x last share price).

Some of these telcos will get obliterated as the tectonic plates move. There is value in owning the infrastructure, the "last mile" and the exchanges, because that's how most customers are hooked up. Analogously mobile contract customers have value (and so do prepaid, to a lesser extent)-- ownership of a customer relationship. Outside of that it's hard to see what a telco does now that has a lot of value.
Personally I minimize my tech funds as much as possible as it's a huge part of the general total stock funds and make no mistake telco is nothing but tech.

This is wise. And I agree re the telecoms = tech point, subject to the proviso about the actual physical access to the customer.

Although US telcos and cablecos* have been able to arrange a somewhat cosy oligopoly, the history of tech is that that tends to get bypassed in the long run. Long can be a long time, AT&T had a pretty good monopoly from the 1920s until breakup in the mid 1980s. But the current speed of technology change and more importantly adoption is very great.

Think of SMS (texting), which was hugely profitable, has declined relative to say WhatsAp.

* you only have to read threads here, as an outside observer not based in USA, to realize what trouble Cable Cos are in. Their customers hate them (by and large) and their ruthless billing and bundling practices have encouraged "cutting the cord" as innumerable threads attest to here-- the internet companies are bypassing the cable TV companies.

Similarly, I don't seem to meet many/ any people under 30 who still pay for a fixed line telephone. Another dying franchise.

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Re: Do telecom stocks have a future?

Post by Helo80 » Fri Nov 10, 2017 8:07 am

I don't think anyone has brought up Nortel.

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Re: Do telecom stocks have a future?

Post by CyclingDuo » Fri Nov 10, 2017 9:17 am

rgs92 wrote:
Thu Nov 09, 2017 8:50 am

(3) I read somewhere that they are essentially like convertible bonds. But could the bottom drop out?


http://marketrealist.com/2015/07/divide ... nds-times/

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Re: Do telecom stocks have a future?

Post by brad.clarkston » Fri Nov 10, 2017 10:46 am

Valuethinker wrote:
Fri Nov 10, 2017 6:17 am
I would reckon 20-30% of the posters here either work in, or have retired from, tech and telecom related industries.
I mean absolutely no offense by this but the current stage in the telco business has nothing to do with the ones from 10-15 years ago. Two of the four big ones are 80%-to-85% owned by private companies (Softbank & Deutsche Telekom) and AT&T is nearly back to full monopoly status in content delivery with only the DOJ trying to stop them. The days of employee's hanging on every stock tic is long past as our bonuses and pay increases have no bearing on ticker price.

I do agree on selling out of any telco stocks but for different reasons. They are stagnating due to a lack of competition and are transitioning away from there old cores into content delivery and creation so it's strange times at best.

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Re: Do telecom stocks have a future?

Post by RAchip » Fri Nov 10, 2017 12:29 pm

Pretty much every single person in the world has or wants a smart phone and other devices connected to the big carriers networks so I think they will be ok.

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Re: Do telecom stocks have a future?

Post by TonyDAntonio » Fri Nov 10, 2017 12:39 pm

I'm so glad I found this site a few years ago. It has almost convinced me to sell my two large positions in T and VZ (bought as bond substitutes). I'm waiting for a better exit point (ie. higher price) or more threads like this. 😀
Ironically, this site has made me realize that in all aspects of my life the older I get the less I really know. My kids will be happy with my revelation.

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Re: Do telecom stocks have a future?

Post by avalpert » Fri Nov 10, 2017 1:27 pm

TonyDAntonio wrote:
Fri Nov 10, 2017 12:39 pm
I'm so glad I found this site a few years ago. It has almost convinced me to sell my two large positions in T and VZ (bought as bond substitutes). I'm waiting for a better exit point (ie. higher price) or more threads like this. 😀
Don't wait - the higher price may never come and if it does it likely also means that the alternative, broad-based index you would have moved to also is higher in price so all you are doing is increasing the tax cost to move without getting any particular gain.

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Re: Do telecom stocks have a future?

Post by rgs92 » Fri Nov 10, 2017 1:35 pm

CyclingDuo wrote:
Fri Nov 10, 2017 9:17 am
rgs92 wrote:
Thu Nov 09, 2017 8:50 am

(3) I read somewhere that they are essentially like convertible bonds. But could the bottom drop out?


http://marketrealist.com/2015/07/divide ... nds-times/
Good article. Thank you!

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Re: Do telecom stocks have a future?

Post by TonyDAntonio » Fri Nov 10, 2017 5:26 pm

avalpert wrote:
Fri Nov 10, 2017 1:27 pm
TonyDAntonio wrote:
Fri Nov 10, 2017 12:39 pm
I'm so glad I found this site a few years ago. It has almost convinced me to sell my two large positions in T and VZ (bought as bond substitutes). I'm waiting for a better exit point (ie. higher price) or more threads like this. 😀
Don't wait - the higher price may never come and if it does it likely also means that the alternative, broad-based index you would have moved to also is higher in price so all you are doing is increasing the tax cost to move without getting any particular gain.
No tax cost. I hold them in my IRA. As for a sell price...????? Like I said, I'm almost convinced. T and VZ have done exactly what I wanted from the time I swapped my bond funds for them: they have provided income to live on while not having to sell any shares. The total return is still positive even with their recent decline in share price. Believe it or not it still is a tough, if not critical, decision for me. I know I know nothing but I think they still have at least one more price increase in them. I think that is when I'll hold my nose and swap back into bonds. And start selling shares to live on. 😭

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Re: Do telecom stocks have a future?

Post by avalpert » Fri Nov 10, 2017 5:55 pm

TonyDAntonio wrote:
Fri Nov 10, 2017 5:26 pm
avalpert wrote:
Fri Nov 10, 2017 1:27 pm
TonyDAntonio wrote:
Fri Nov 10, 2017 12:39 pm
I'm so glad I found this site a few years ago. It has almost convinced me to sell my two large positions in T and VZ (bought as bond substitutes). I'm waiting for a better exit point (ie. higher price) or more threads like this. 😀
Don't wait - the higher price may never come and if it does it likely also means that the alternative, broad-based index you would have moved to also is higher in price so all you are doing is increasing the tax cost to move without getting any particular gain.
No tax cost. I hold them in my IRA. As for a sell price...????? Like I said, I'm almost convinced. T and VZ have done exactly what I wanted from the time I swapped my bond funds for them: they have provided income to live on while not having to sell any shares. The total return is still positive even with their recent decline in share price. Believe it or not it still is a tough, if not critical, decision for me. I know I know nothing but I think they still have at least one more price increase in them. I think that is when I'll hold my nose and swap back into bonds. And start selling shares to live on. 😭
Honestly I don't know what to tell you. If you think stocks with standard deviations ~18% over the past decade are substitutes for bonds in any meaningful way then you will do what you want to do. You could have gotten higher returns with less volatility using a total market index (over nearly every time frame).

If you now recognize that the two aren't substitutes then you need to decide whether you really want the attributes of a bond or the attributes of a stock (and then I would suggest immediately switching to whichever one you want).

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Re: Do telecom stocks have a future?

Post by TonyDAntonio » Fri Nov 10, 2017 10:07 pm

avalpert wrote:
Fri Nov 10, 2017 5:55 pm
TonyDAntonio wrote:
Fri Nov 10, 2017 5:26 pm
avalpert wrote:
Fri Nov 10, 2017 1:27 pm
TonyDAntonio wrote:
Fri Nov 10, 2017 12:39 pm
I'm so glad I found this site a few years ago. It has almost convinced me to sell my two large positions in T and VZ (bought as bond substitutes). I'm waiting for a better exit point (ie. higher price) or more threads like this. 😀
Don't wait - the higher price may never come and if it does it likely also means that the alternative, broad-based index you would have moved to also is higher in price so all you are doing is increasing the tax cost to move without getting any particular gain.
No tax cost. I hold them in my IRA. As for a sell price...????? Like I said, I'm almost convinced. T and VZ have done exactly what I wanted from the time I swapped my bond funds for them: they have provided income to live on while not having to sell any shares. The total return is still positive even with their recent decline in share price. Believe it or not it still is a tough, if not critical, decision for me. I know I know nothing but I think they still have at least one more price increase in them. I think that is when I'll hold my nose and swap back into bonds. And start selling shares to live on. 😭
Honestly I don't know what to tell you. If you think stocks with standard deviations ~18% over the past decade are substitutes for bonds in any meaningful way then you will do what you want to do. You could have gotten higher returns with less volatility using a total market index (over nearly every time frame).

If you now recognize that the two aren't substitutes then you need to decide whether you really want the attributes of a bond or the attributes of a stock (and then I would suggest immediately switching to whichever one you want).
I didn't buy T and VZ for higher returns than the total stock market that's what the other 75% of my portfolio is for. I bought them to generate an income stream greater than the total bond fund. And I believe that they've done that over the time frame. I'm not trying to convince anyone else to do this and I'm not saying it is without risk. I'm coming to grips with the risk.

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Re: Do telecom stocks have a future?

Post by avalpert » Fri Nov 10, 2017 10:31 pm

TonyDAntonio wrote:
Fri Nov 10, 2017 10:07 pm
avalpert wrote:
Fri Nov 10, 2017 5:55 pm
TonyDAntonio wrote:
Fri Nov 10, 2017 5:26 pm
avalpert wrote:
Fri Nov 10, 2017 1:27 pm
TonyDAntonio wrote:
Fri Nov 10, 2017 12:39 pm
I'm so glad I found this site a few years ago. It has almost convinced me to sell my two large positions in T and VZ (bought as bond substitutes). I'm waiting for a better exit point (ie. higher price) or more threads like this. 😀
Don't wait - the higher price may never come and if it does it likely also means that the alternative, broad-based index you would have moved to also is higher in price so all you are doing is increasing the tax cost to move without getting any particular gain.
No tax cost. I hold them in my IRA. As for a sell price...????? Like I said, I'm almost convinced. T and VZ have done exactly what I wanted from the time I swapped my bond funds for them: they have provided income to live on while not having to sell any shares. The total return is still positive even with their recent decline in share price. Believe it or not it still is a tough, if not critical, decision for me. I know I know nothing but I think they still have at least one more price increase in them. I think that is when I'll hold my nose and swap back into bonds. And start selling shares to live on. 😭
Honestly I don't know what to tell you. If you think stocks with standard deviations ~18% over the past decade are substitutes for bonds in any meaningful way then you will do what you want to do. You could have gotten higher returns with less volatility using a total market index (over nearly every time frame).

If you now recognize that the two aren't substitutes then you need to decide whether you really want the attributes of a bond or the attributes of a stock (and then I would suggest immediately switching to whichever one you want).
I didn't buy T and VZ for higher returns than the total stock market that's what the other 75% of my portfolio is for. I bought them to generate an income stream greater than the total bond fund. And I believe that they've done that over the time frame. I'm not trying to convince anyone else to do this and I'm not saying it is without risk. I'm coming to grips with the risk.
Well yes, if you take more compensated risk you expect higher returns which enables greater income - of course equating dividends with income is a mistake (see any of the dividend threads, don't need to turn this into one of those) - the thing is you could have gotten that higher income with less risk by using a total market index, and still can today, so the particular risks you have taken aren't being compensated and that is why you shouldn't be hesitating to move on from the individual equities.

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Re: Do telecom stocks have a future?

Post by CyclingDuo » Sat Nov 11, 2017 8:34 am

TonyDAntonio wrote:
Fri Nov 10, 2017 10:07 pm
I didn't buy T and VZ for higher returns than the total stock market that's what the other 75% of my portfolio is for. I bought them to generate an income stream greater than the total bond fund. And I believe that they've done that over the time frame. I'm not trying to convince anyone else to do this and I'm not saying it is without risk. I'm coming to grips with the risk.
Seeking Alpha's "Fill The Gap Portfolio" that they set up at the end of 2014 just added more shares of T due to the recent stock price and yield. It also holds VZ in the portfolio:

https://seekingalpha.com/article/412227 ... -help-will

Image

https://seekingalpha.com/article/411853 ... iral-worry

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