Investing Curiouscatblog

Category: Stocks

  • Not Every Day is Profitable

    Some days turn out to be quite unprofitable. One of my larger holdings is Depomed – it was down 58% today (a phase 3 drug trial failed to significantly reduce pain when compared with placebo with Depomed’s formulation, not the kind of news you want for your company). Oh well, you have to take the bad days as an investor (at least I do) if you expect to see the good days (if you invest in individual stocks you have to accept that you will have some bad days). It was the largest holding in my Darvamore marketocracy fund. I imagine the fund, which beat the S&P 500 by 3.5 percentage points annually since it was started, is going to see that result take a huge hit. This day will be noticeable on the chart for a long time.

    At least I have the sense to know it was a risky stock – I didn’t have any in my sleepwell fund, for example (the sleepwell fund is beating the S&P 500 by 1.5 percentage points annually since inception – 17.4% to 15.9%, and remember marketocracy reduces returns to account for a 2% annual management fee and trading commissions). Of course that is a bit misleading as most any individual stock can have huge losses on a given day or week. Google is my biggest holding there and while I think a sharp decline is unlikely right now, I would not be amazed to see it drop 30% in some week during the next few years. Given that Google is up 149% even a 50% decline would still make it quite profitable for the the fund. Taken as a whole for a long period of time I think the sleepwell portfolio is pretty solid.

    Well, even though I am sure I will have more days like this I hope I can avoid them for awhile and build up some profits first.

  • 12 Stocks for 10 Years Update – Jun 2007

    I originally setup the 10 stocks for 10 years portfolio in April of 2005. In order to track performance I setup a marketocracy portfolio but had to make some adjustment to comply with the diversification rules. In December of 2006 I announced a new 11 stocks for the next 10 years (9 are the same, I dropped First Data Corporation, which had split into 2 companies and added Tesco and Yahoo). Now I will add Templeton Emerging Market Fund (EMF) making it 12 stocks for the next 10 years. I like the emerging market area and liked the concentration in China and southeast Asia the Dragon fund offered. I still do, but given the rapid rise in the Chinese market especially other markets look more attractive than previously. EMF will allow for a wider geographic representation.

    At this time the stocks in the marketocracy portfolio in order of returns –
    Google (134% return, 15% of the marketocracy portfolio, 12% of portfolio if I were buying today)
    PetroChina (127%, 7.5%, 8%)
    Amazon (92%, 6%, 6%)
    Templeton Dragon Fund (73%, 11.5%, 10%)
    Toyota (69%, 10%, 10%)
    Cisco (54%, 6%, 8%)
    Tesco (14% [22.55 purchase price on Dec 11th 2006]*, 0, 10%)
    Templeton Emerging Market Fund (EMF) (15%, 2%, 4%)
    Intel (6%, 4%, 8%)
    Pfizer (-6%, 4%, 8%)
    Yahoo (-12%, 4%, 6%)
    Dell (-23%, 6%, 10%)
    (more…)

  • Why Investing is Safer Overseas

    Jim Jubak makes a good case for why investing is safer overseas now.

    To which I say: Wake up and smell the new world order. The U.S. financial markets are relatively riskier now than they were five years ago, and (many) emerging country financial markets are relatively less risky. If you haven’t updated your view of what’s called country risk in the last five years, you’re costing yourself money.
    …
    And as I look ahead, I see few signs that the United States will put its financial ship into better trim and lower the country risk that comes with owning U.S. equities and bonds.
    …
    I think you need to compare markets one by one to look for those where investors, who tend to stick with the conventional wisdom until something whacks them over the head, have mispriced risk. The countries that I find particularly interesting as investment targets are those that have made the biggest strides in getting their houses in order.

    He makes a good point. I have long advocated the benefits of international investing. And looking forward the potential for economic development (and investment gains) outside the USA are strong. As he says this does not mean abandoning the USA stock market but does mean thinking about increasing ownership of foreign stocks (probably using mutual funds though in our 10 stocks for 10 year portfolio we have 3 individual stocks: Toyota, Tesco (added in the December 2006 update), PetroChina and Templeton Dragon Fund [closed end mutual fund]).

    Related: State of the nation? Broke – Our Only Hope: Retiring Later

  • Greenspan Warns of China Stock Drop

    Greenspan Says China Stocks May Post `Dramatic’ Drop:

    Former Federal Reserve Chairman Alan Greenspan said he was concerned Chinese stocks might undergo a “dramatic contraction” after its main stock index jumped more than 90 percent this year.
    …
    “It is clearly unsustainable,” Greenspan told a conference in Madrid today by satellite. “There is going to be a dramatic contraction at some point.”

    Sure seems like a fair point. Over the long term China has great potential but a dramatic decline in stock prices seems a reasonable thing to fear.

  • Live From Omaha

    Live From Omaha: The Berkshire Hathaway Meeting a nice series of posts at fool.com, including:

    Buffett cautioned, though, that the difference between investing on paper and investing with real money is like the difference between reading a romance novel and, as he delicately put it, “doing something else.” “There’s nothing like having a little experience in investing,” he said. Once you’ve done that, you can decide whether, as Buffett said, “it turns you on.”

    On a final note, he gave a not-too-surprising suggestion to always look a stock in terms of the whole company. So, for example, if you’re thinking about buying GM (NYSE: GM) at $30, he said, you should consider whether you think the entire company is really worth $18 billion.

    I wish someone would post a transcript or at least more details. If you know of a good source, please let me know.

    Related: Great investors, Warren Buffett – Buffett’s Newest Letter to Shareholders – Warren Buffett’s Annual Report 2004

  • Very Good Amazon Earnings

    Wow. I have been a believer in Amazon’s long term strategy. Earnings have not been as positive as many expected (over the last few years) but I continued to believe Jeff Bezos’ long term strategy and execution were very positive. I was a bit concerned that present earnings were not better. This quarter the earnings were quite impressive. One quarters numbers are not significant to the long term success. And if earnings were to be less impressive in the coming quarters that would not sour me on the stock. But the good earning are a nice surprise and something that has been made possible through many years of smart moves by Amazon (that reduced short term profits over those years).

    Net sales increased 32% to $3.02 billion in the first quarter, compared with $2.28 billion in first quarter 2006. Excluding the $84 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 29% compared with first quarter 2006. Operating income increased 38% to $145 million in the first quarter, compared with $106 million in first quarter 2006.

    Net income increased 115% to $111 million in the first quarter, or $0.26 per diluted share, compared with net income of $51 million, or $0.12 per diluted share in first quarter 2006. First quarter 2007 effective tax rate was 23% compared with an effective tax rate of 47% in first quarter 2006.

    Related: Amazon Innovation

  • Great Google Earnings

    Google quarterly earnings are amazing again. Google reported revenues of $3.66 billion for the quarter ended March 31, 2007, an increase of 63% compared to the first quarter of 2006 and an increase of 14% compared to the fourth quarter of 2006. 63% jump to $3.66 billion, very impressive and a 64% increase in earnings.

    GAAP operating income for the first quarter of 2007 was $1.22 billion, or 33% of revenues. This compares to GAAP operating income of $1.06 billion, or 33% of revenues, in the fourth quarter of 2006. Non-GAAP operating income in the first quarter of 2007 was $1.41 billion, or 38% of revenues. For 2006, GAAP operating income for the first quarter of 2006 was $743 million, or 33% of revenues.

    This type of performance is next to impossible to achieve, which makes it amazing they have achieved it but also unlikely it will continue. Still I am happy to own some Google (and glad I have owned it for awhile).

    Related: 10 Stocks for 10 Years Update – Sleepwell portfolio results (largest holdings: Google, Templeton Dragon Fund and Toyota) – Investment Books

  • Buffett’s Newest Letter to Shareholders

    Buffett’s letter to shareholders. Always a required read for investors.

    We’ve come close to eliminating our direct foreign-exchange position, from which we realized about $186 million in pre-tax profits in 2006 (earnings that were included in the Finance and Financial Products table shown earlier). That brought our total gain since inception of this position in 2002 to $2.2 billion.

    Interesting. The following (and more in the letter – page 15) is extremely important.

    As our U.S. trade problems worsen, the probability that the dollar will weaken over time continues to be high. I fervently believe in real trade – the more the better for both us and the world. We had about $1.44 trillion of this honest-to-God trade in 2006. But the U.S. also had $.76 trillion of pseudo-trade last year – imports for which we exchanged no goods or services. (Ponder, for a moment, how commentators
    would describe the situation if our imports were $.76 trillion – a full 6% of GDP – and we had no exports.) Making these purchases that weren’t reciprocated by sales, the U.S. necessarily transferred ownership of its assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of what we owned in order to consume more than we produced.

    Related: On Warren Buffett – 2004 Annual Report by Buffett

  • 10 Stocks for 10 Years Update – Feb 2007

    I originally setup the 10 stocks for 10 years portfolio in April of 2005. In order to track performance I setup a marketocracy portfolio but had to make some adjustment to comply with the diversification rules. In December of 2006 I announced a new 11 stocks for the next 10 years (9 are the same, I dropped First Data Corporation, which had split into 2 companies and added Tesco and Yahoo.

    The marketocracy portfolio won’t let me by Tesco so I don’t have it in that portfolio though I want to and will add it if they let me. I also have not sold Western Union of First Data (the companies resulting from the split of First Data). I still find them reasonable investments, just at this time would not buy them for the next 10 years (but for reasons such as not being able to buy Tesco and diversity rules for Marketocracy I am keeping them for now).

    At this time the stocks in the marketocracy portfolio in order of returns – Google (116% return, 15% of the portfolio), PetroChina (88%, 7%), Toyota (85%, 12%), Templeton Dragon Fund (69%, 12%), Cisco (56%, 6%), Amazon (23%, 4%), Yahoo (2%, 4%), British Petroleum (3%, -3%), Intel (3%, -11%), Dell (6%, -32%). The split First Data is probably up about 20% and combined they are 4% of the portfolio. I also have under 2% positions in a couple of stocks and about 15% in cash. I occasionally purchase or sell some amounts (I have sold a small portion of Templeton Dragon Fund and bought some Amazon, Dell, Intel and Yahoo in the last few month). I will sell First Data and or Western Union if the price increases enough. I would also like to find an energy company I like to hold in addition to PetroChina (and would likely sell BP if I find one I like for the long term).

  • Nicolas Darvas

    Nicolas Darvas wrote a classic investment book – How I Made $2,000,000 in the Stock Market. In it he provides an honest and open look at his experience from his naive start to his eventual success. He lays out, in great detail, exactly what he did and how foolish some of his actions were. Then he explains how he came to find success by focusing on the price and volume action of stocks. While honing his investment strategy, in the 1950’s, he traveled the world working as a world class ballroom dancer and placed order via cable.

    As with other classic investing books age does not detract from this books value. The book is very similar in form to another classic: Reminiscences of a Stock Operator by Edwin Lefevre (about his experience in the early 1900s).

    Darvas’ method was a forerunner of the many technical analysis schemes used today. He is extensively referenced by William O’Neil (of Investor’s Business Daily fame) and other leading technicians. An extremely simplified overview of Darvas’ method: determine “boxes” (trading ranges) for a stock and buy on the breakout, to the upside, of the box. He used very close trailing stop loss orders to minimize losses. He sought to make large gains (let his winners run) and take losses quickly.

    More on Darvas’ investing ideas – other leading investors