Investing Curiouscatblog

Category: Stocks

  • Stop Picking Stocks?

    Stop Picking Stocks—Immediately! by Henry Blodget. I don’t agree totally with his conclusion but the article is a good read. Definitely the kind of information investors need to know. I do agree that most of the time for 90%+ of the population stock picking doesn’t turn out to be the best financial move. Three counterpoints for why it can make sense: 1) tax smart investing (for buy and hold) 2) investor education (if you pay more attention by buying some individual stocks as part of an entire investment strategy) 3) the Peter Lynch buy what you know small cap strategy (buying companies that you understand better than “wall street” – as a part of an investment portfolio). From the article:

    The problem for investors is that even though stock-picking usually hurts returns, it’s extremely interesting and fun. If you are ever to wean yourself of this bad habit, therefore, the first step is to understand why it’s so rarely successful. The short answer is that the overall market provides most investment returns, not particular stock picks, so most stock pickers get credit for gains that came merely from being invested in stocks generally. Second, competition among stock pickers is so intense that it is extraordinarily difficult for any one competitor to get a consistent edge.

    Related: Curious Cat Investment Bookstore including: The Intelligent Investor by Ben Graham with forward by Warren Buffett and Security Analysis by Graham and Dodd

  • Google to Let Workers Sell Options Online

    Google to Let Workers Sell Options Online:

    It would mark the first time a U.S. company has created a private Internet auction for stock options. Investment experts called the idea creative and said other firms might follow suit if Google’s plan succeeds. The private online auction is to be managed by Morgan Stanley and accessible only by Google employees and the participating investment banks.

    A good idea that reduces friction in the marketplace. Options are transferable, the problem with employee granted options is there is no reasonable marketplace to exchange the options for cash (the friction is very high). Google’s engineers focus on reducing friction in many processes. Many others just accept that the level of friction is inevitable. Google realizes it is not. More on Google Management.

  • Google Approaching $500 and Entering the S&P 100

    Standard & Poors is placing Google in the S&P 100. Google is close to $500 a share today. Here are our thoughts before Google was added to the S&P 500:

    The price of a share of Google stock rose 5.7% to $255.45 today. The stand “explanation” “reported” by the media is along the lines of this quote from CNN:

    Internet shares rose along with Google (up $13.84 to $255.45, Research), which jumped 5.7 percent on rumors that it could be added to the S&P 500. Should that happen, the stock would benefit from index fund managers having to buy it for their portfolios.

    I don’t understand how these types of “explanations” are accepted by the media and their customers. If some investor really was surprised that Google was going to be added to the S&P 500 they shouldn’t be investing in the market, they should just buy an index fund and leave well enough alone.

    If CNN (and the others [MarketWatch Potential index inclusion drives GOOG”], Reuters (via CNBC)… reporting the same story) really believes the increase of 5.7% is due to a rumor that Google could be added to the S&P 500 I don’t know what to think of the other reporting they do. Even when much smaller companies are actually announced as new additions to the S&P 500 and that company’s addition really was questionable (for say anytime in the next year or two) they don’t go up 5% in price. But, if CNN doesn’t believe it, wouldn’t that be worse? It just seems financial reporting is more concerned with finding some explanation even if that explanation lacks almost any merit.

    SmartMoney’s “explanation” was much better: “Google (GOOG) shares shot up nearly 6% to the latest all-time high with nary a provocation.” But if you don’t know anything about investing this seems like SmartMoney don’t know what the others are reporting. I don’t know whether SmartMoney actually made a good editorial decision or they just wanted to vary the language a bit. (more…)

  • Is Amazon a Bargain?

    Is Amazon a Bargain?:

    Amazon stocks 1 million unique products in inventory, whereas grocery stores stock roughly 50,000, and supercenters stock around 125,000. What’s more, Amazon sells out its entire inventory 14 times per year, which is more than Costco (Nasdaq: COST), Wal-Mart, and Best Buy (NYSE: BBY), whose inventory turns are 12, eight, and eight times.

    Furthermore, Internet real estate doesn’t require Amazon to make monthly lease payments. But Amazon, in turn, can collect rent from other retailers by “renting” out its virtual real estate. In fact, Amazon made roughly $3 billion last year, or 30% of sales, from outside sellers by “renting” out its Internet real estate to third-party sellers.

    Amazon is a very interesting stock. It is not cheap (on a PE basis) and trying to evaluate what the earning picture will look like going forward is not easy. This article does a good job of looking at some of the interesting questions.

    Related: 10 Stocks for 10 Years Update – Amazon Innovation

  • Highest Possible Returns

    fool.com is an excellent site. They offer commentary that is both informative and even better educational. One strong theme they preach is to buy for the big score. Today, one of the founders, David Gardner, has a great article on this theme: The Highest Possible Returns. Period.

    The Wise of Wall Street would chalk up AOL’s 35% annualized gains to luck. “No one can really identify the great companies of the next generation,” they’d say. Growth stocks are too risky, according to the Wise; it’s best to avoid that style of investing altogether and let a Street “expert” manage your investments.

    I disagree. Investing in great companies early on in their high-growth stages, then holding them for the long term, will provide the highest possible returns. Period.

    We call those companies Rule Breakers. Our investment service of the same name seeks out the great growth stocks of tomorrow — the potential AOLs — before the Street catches on.

    I missed out on the IPO for Google, much as he missed out on AOL. Luckily for me, I did buy at $220 (the IPO price less than a year earlier was $85): now it is at $476. Buying after you watch a stock more than double is not easy. My investment experience helps me make that decision today when I likely would have decided not to buy before – thinking I should have bought before it doubled so since I didn’t I wasn’t go to jump in later… I doubt I would buy Google now but I am keeping what I have.

    Related: 10 stocks for 10 years update

  • 10 Stocks for 10 Years Update

    In April of last year I posted on 10 stocks for 10 years. At that time I also setup an fund through Marketocracy, which allows for 3rd party tracking of investing results. See the results so far on Marketocracy’s site. Thusfar the portfolio is up 20%, in under 9 months (versus 13% for the S&P 500 for the same period of time.

    The 10 stocks didn’t meet the diversification requirements for marketocracy, at the time, so I modified the portion of the portfolio for each stock when I setup the fund. The portfolio as of Jan 2006 (17% cash):
    		Stock % of fund Current Return
    Google – GOOG 16 114%
    Templeton Dragon Fund – TDF 12 25%
    Toyota – TM 10 48%
    Dell – DELL 8 -13%
    Petro China – PTR 5 36%
    Cisco – CSCO 5 8%
    Amazon – AMZN 4 39%
    Pfizer – PFE 4 -9%
    First Data – FDC 4 11%
    Yahoo – YHOO 4 25%
    Intel – INTC 3 13%
    BP – BP 3 5%
    Walmart – WMT 3 -5%
    Templeton Emerging Markets Fund – EMF 2 43%
    Microsoft 1 6%

    Obviously Google is doing quite well, up 114%. The second largest gain is for Toyota, which is up 48%, I’m sure a surprising result to many.
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  • Warren Buffett’s Annual Report

    The annual meeting of Berkshire Hathaway is being held this weekend in Omaha (cnn article). Recently the 2004 Berkshire Hathaway Annual Report (by Warren Buffett) was published. The report is excellent reading for anyone interested in investing. Some quotes from the annual report:

    • In one respect, 2004 was a remarkable year for the stock market, a fact buried in the maze of numbers on page 2. If you examine the 35 years since the 1960s ended, you will find that an investor’s return, including dividends, from owning the S&P has averaged 11.2% annually (well above what we expect future returns to be – [bold added]). But if you look for years with returns anywhere close to that 11.2% – say, between 8% and 14% – you will find only one before 2004. – page 3

      • (more…)

  • 10 Stocks for 10 Years

    I decided to look at selecting a portfolio of stocks I would be comfortable putting into an IRA for 10 years. My main criteria was companies with a history of large positive cash flow (that seemed likely to continue that trend).

    The 10 stocks I came up with are (closing price on 22 April 2005 – % of portfolio invested):

    • Templeton Dragon Fund (TDF – 16.40 – 16%) – a closed end mutual fund investing in China, Hong Kong, Taiwan, Singapore… This one doesn’t fit the criteria but does a great job of filling out the portfolio in my opinion.
    • Dell (DELL – 36.43 – 12%)
    • Toyota (TM – 72.42 – 12%)
    • Google (GOOG – 215.81 – 12%)
    • Pfizer (PFE – 27.22 – 8%)
    • Amazon (AMZN – 33.04 – 8%) They are only just starting to generate cash but I like their prospects.
    • Intel (INTC – 23.24 – 8%)
    • Petro China (PTR – 61.68 – 8%) Investing in PTR is based on the potential for China, the prospects for oil over the next 10-20 years and Warren Buffet’s ownership of the stock.
    • Cisco (CSCO – 17.43 – 8%)
    • First Data (FDC – 37.48 – 8%)

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