Investing Curiouscatblog

Category: Stocks

  • Amazon Soars on Good Earnings and Projected Sales

    Amazon’s stock price is up 25% to $117 today, after announcing good earnings and increasing sales projections for the 4th quarter. I own stock in Amazon and have it in my 12 stocks for 10 years portfolio. That portfolio is currently beating the S&P 500 by 500 basis points (for annualized return) with a beta of .96 (meaning with a bit less risk than the S&P 500 historically and an alpha of 4.7).

    Operating cash flow for Amazon was $2.25 billion for the trailing twelve months, compared with $1.27 billion for prior year. Free cash flow increased 98% to $1.92 billion from $0.97 billion for the trailing twelve months.

    Net sales increased 28% to $5.45 billion in the third quarter, compared with $4.26 billion in third quarter 2008. Operating income increased 62% to $251 million in the third quarter, compared with $154 million in third quarter 2008.

    Net income increased 68% to $199 million in the third quarter, or $0.45 per diluted share, compared with net income of $118 million, or $0.27 per diluted share, in third quarter 2008.

    “Kindle has become the #1 bestselling item by both unit sales and dollars – not just in our electronics store but across all product categories on Amazon.com. It’s also the most wished for and the most gifted. We are grateful for and energized by this customer response,” said Jeff Bezos, founder and CEO of Amazon.com. “Earlier this week we began shipping the latest generation Kindle. Its 3G wireless works in the U.S. and 100 countries, and we’ve just lowered its price to $259.”

    North America segment sales, representing the Company’s U.S. and Canadian sites, were $2.84 billion, up 23% from third quarter 2008. International segment sales, representing the Company’s U.K., German, Japanese, French and Chinese sites, were $2.61 billion, up 33% from third quarter 2008. Worldwide Electronics & Other General Merchandise sales grew 44% to $2.36 billion.

    For the quarter that ends in December, Amazon forecast sales of $8.1 billion to $9.1 billion (compared with $8.19 billion in previous analyst estimates).

    Amazon continues to build a strong company for the long term. I must admit I think the current stock price might be a bit too high. But I believe in the long term success of the company. They continue to make intelligent, customer focused decisions.

    Related: 12 Stocks for 10 Years – July 2009 Update – Another Great Quarter for Amazon (July 2007) – Very Good Amazon Earnings (April 2007) – Amazon Innovation – Jeff Bezos and Root Cause Analysis – Jeff Bezos management quotes

  • Nouriel Roubini Believes Stock Market has Risen too Far, too Fast

    Nouriel Roubini is still worried about the US economy, though he does believe we are coming to the end of the severe recession we have been in.

    I believe, that if you were worried about your portfolio being overweighted in stocks late last year, now is a good time to move some money out of the stock market. In December 2008, when many were selling in panic, I invested more in stocks.

    The stock market has been on a tear increasing

    1 December 2008 the S&P 500 was at 816
    1 January 2009 – 903
    6 March 2009 – 684 (the lowest point since 1996)
    1 May 2009 – 878
    1 August 2009 – 987
    5 October 2009 – 1040

    In 6 months, since the market hit a low on March 6th, it is up 52%. Certainly the decrease in prices seemed overdone. The 50% increase in prices seems overdone also. But trying to predict short term moves in the stock market (say under 1 year) is very difficult and few people can do so successfully (even if you can find lots of people offering their guesses). Predicting the economy, while not easy, is much much easier that predicting the stock market.
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  • It is Never to Late to Invest

    I like to buy stocks cheap and then hold them as they rise in price. This is not a unique desire, I know. One thing this lead me to do was find a stock I liked but hold off buying it until I could buy it for less. When that works it is great. However, one thing that happened several times is that I found stocks I really liked and they just went up and went up more and kept going up. And I never owned them.

    I learned, after awhile, that is was ok to buy a stock at a higher price once I realized I made a mistake. Instead of just missing out because I made a mistake and didn’t buy it at a lower price than I needed to pay today (which made it feel really lame to buy it now at a higher price) I learned to accept that buying at the higher price available today was the best option.

    I have seen two types of situations where this takes place: one I realize I was just way off, it was a great deal at the price I could have bought at – I just made a mistake. And if it was still a good buy, I should buy it. Another is that the stock price goes up but new news more than makes up for the increased stock price (the news makes the value of stock increase more than the price has increased).

    I missed out on the Google IPO, even though I really wanted to buy. Then the price went way up and even though I had learned this (don’t avoid buying a stock today just because you made the mistake of not buying it at a lower price earlier) tip I wanted to buy it for less than the current price and so kept not buying it (emotion is a real factor in investing and that is another thing I have realized – you need to accept it and deal with it to be a good investor). Then Google announced spectacular earnings and it was finally enough to get me to buy the stock a few days later at $219 (which was well over twice the price 6 months earlier). But it was a great buy at $219 and losing that just because I should have bought it at $119 is not wise – but something I did many times in the past.

    In March of 2009 I bought some ATPG at $3.20. In August I bought more at $11. The news was bit better but really it was just a huge huge bargain at $3.20 and I should have bought a lot more. In the last 5 trading days ATPG was up $5.12 (16.78 – 11.66). A nice gain. Right now, it is up another 68 cents today at $17.43. Now this is a volatile stock and until I sell it may not turn out to be profitable investment, but the odds are good that it will.

    It is also hard to know when to sell – in fact for many selling at the wrong time (either selling too late – after it collapses [for good or sell it after a collapse only to see it recover], or too early missing out on huge gains) is the biggest problem they have in becoming a successful investor). One trait of many successful investors is holding the right investments for huge gains. A few stellar performances can lift the entire portfolio to long term investing success. And if you sell those stocks early you miss huge opportunities.

    Holding on for the huge gains is a mistake I do not want to make – and so when the opportunity is there for such gains I am willing to risk losing some gains for the potential of a much larger gain. Right now the balance is keeping me from selling any ATPG, though I am likely to sell some if it increases (while continuing to hold some of the position).

    Related: Great Google Earnings April 2007 – Nicolas Darvas (investor and speculator) – Not Every Day is Profitable – Does a Declining Stock Market Worry You? – 401(k)s are a Great Way to Save for Retirement – Beating the Market, Suckers Game? – Sleep Well Fund

  • Mark Mobius on Emerging Markets

    Mark Mobius is an investment manager with Franklin-Templeton that I have invested with for over a decade (through the Templeton Emerging Markets Trust and Templeton Dragon Fund – they are closed end funds). I believe in Templeton’s emerging market investment team and Mark Mobius and believe his thoughts are worth paying attention to. He recently wrote an overview on Emerging Markets:

    Year-to-date, however, emerging markets were still up 51%. While Eastern European and Latin American markets continued to record positive returns, Asian markets, as represented by the MSCI AC Asia ex Japan index lost 3%.
    …
    In Mexico, GDP contracted 10% y-o-y in the second quarter of 2009 as a result of the global economic crisis and swine flu outbreak. In comparison, GDP fell 8% in the first quarter of the year. Declines in the manufacturing, construction and retail sectors had negatively impacted GDP during the period.
    …
    Since 1995, portfolio inflows into emerging markets have totaled more than US$123 billion. A significant amount, considering it includes the US$49 billion in net outflows in 2008 as a result of the global financial crisis. The recovery in emerging markets and hunt for attractive investment opportunities, however, saw these funds return just as quickly with inflows totaling more than US$44 billion in the first seven months of 2009, nearly 90% of the outflows registered all of last year.
    …
    Emerging markets account for more than 80% of the world’s population. With economic growth accelerating and population growth decelerating, per capita income is one the rise. In our view, markets such as China, India and Brazil stand at the front of the class.
    …
    As of end-August 2009, the benchmark MSCI Emerging Markets index had a P/E of 16 times, cheaper than the MSCI World index which was trading at a P/E of 21 times.

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  • Tesco: Consistent Earnings Growth at Attractive Price

    Tesco is one of the holdings in my 12 stocks for 10 years portfolio (currently returning 450 basis point above S&P 500 annually). I agree with this well documented post – Tesco: Consistent Earnings Growth at Attractive Price

    Tesco is the largest UK retailer and the 3rd largest global retailer. Tesco controlled 30.8% of the UK grocery market as of May 2009 and ~9% of the UK non-food retail market.
    …
    Tesco has leading market share positions in Hungary (#1), Thailand (#1), Ireland (#2), S. Korea (#2), Malaysia (#2), Slovakia (#3), Poland (#4) and Czech Republic (#4).

    The company entered China several years ago and plans to open more hypermarkets and shopping centers over the next decade. The Chinese retail market remains very fragmented and the top three players each control less than 1% market share.
    …
    Tesco generated £5 billion in operating cash flow last year, benefiting from improvement in working capital efficiency and good inventory management. Its capital expenditures were £4.7 billion last year (£2.6 billion in UK and £2.1 billion in international). The company expects its capital expenditures to decline to £3.5 billion this year through spending less on mixed use development land and purchasing fewer existing stores from UK competitors.
    …
    Tesco ended the year with £9.6 billion in net debt, up £3.4 billion from the prior year… Nevertheless, its interest coverage ratio was 8.9x last year and does not appear too aggressive.

    A big part of my reason for buying Tesco is their management teams commitment to lean thinking (Toyota Production System) management methods. I still worry they will not continue to adopt these methods more thoroughly but I believe superior management methods are one reason their performance has been good in the past and should improve even more if they continue to apply those methods more.

    Related: Jubak Looks at 5 Technology Stocks – 10 Stocks for Income Investors – Small Business Profit and Cash Flow – GM and Citigroup Replaced by Cisco and Travelers in the Dow

  • Lazy Portfolios Seven-year Winning Streak

    Here is an excellent article on how to invest in the stock market. I personally tweak this advice a bit but it is much better than most advice you get. Basically keep costs down (don’t pay large fees) and diversify. Lazy Portfolios seven-year winning streak by Paul Farrell

    Greed drives this [mutual fund] industry. The “world’s largest skimming operation” has now lost over 50% of America’s savings in the decade since the peak of 2000. The track record of actively managed funds during the recent subprime-credit meltdown continues to prove that the industry is failing America. The only way to invest is with index funds, which make up just 14% of the total.
    …
    In short, even though we know that the average compensation of portfolio managers is often $400,000 to more than a $1 million, the hot-shot managers of these actively managed funds provided no value-added to their funds’ performance. Conclusion: Their investors would be better off investing in index funds.
    …
    Yes, the market was in negative territory the past few years, but still all eight Lazy Portfolios outperformed each of the six actively-managed funds.
    …
    Customize your own Lazy Portfolio following these six rules and you’ll win. More important, you’ll have lots of time left to enjoy what really counts, your family, friends, career, sports, hobbies, living.
    …
    2) Frugality, savings versus financial obesity. Tools like starting early, autopilot saving plans, dollar-cost averaging, frugal living and other tricks are familiar to long-term investors. Trust your frugality instincts — living below your means — it’s a trait common among America’s “millionaires next door.”

    Related: Lazy Portfolio Results (April 2008) – Allocations Make A Big Difference – 12 stocks for 10 years – 401(k)s are a Great Way to Save for Retirement

  • SEC Curtails Abusive Short Sales

    Short selling stock is a tool that can help keep markets more stable. However, short selling can be used to manipulate the market and in the last decade naked short selling has contributed to such manipulation. The SEC has made permanent a temporary rule that was approved in 2008 in response to continuing concerns regarding “fails to deliver” and potentially abusive “naked” short selling. In particular, temporary Rule 204T made it a violation of Regulation SHO and imposes penalties if a clearing firm:

    * does not purchase or borrow shares to close-out a “fail to deliver”
    * resulting from a short sale in any equity security
    * by no later than the beginning of trading on the day after the fail first occurs (Trade + 4 days).

    Cutting Down Failures to Deliver: An analysis conducted by the SEC’s Office of Economic Analysis, which followed the adoption of the close-out requirement of Rule 204T and the elimination of the “options market maker” exception, showed the number of “fails” declined significantly.

    For example, since the fall of 2008, fails to deliver in all equity securities has decreased by approximately 57 percent and the average daily number of threshold list securities has declined from a high of approximately 582 securities in July 2008 to 63 in March 2009. Which still is not acceptable, in my opinion. In general this is a good move by the SEC, but still not sufficient.

    Transparency is increased some by the SEC with the new rules:

    * Daily Publication of Short Sale Volume Information. It is expected in the next few weeks that the SROs will begin publishing on their Web sites the aggregate short selling volume in each individual equity security for that day.
    * Disclosure of Short Sale Transaction Information. It is expected in the next few weeks that the SROs will begin publishing on their Web sites on a one-month delayed basis information regarding individual short sale transactions in all exchange-listed equity securities.
    * Twice Monthly Disclosure of Fails Data. It is expected in the next few weeks that the Commission will enhance the publication on its Web site of fails to deliver data so that fails to deliver information is provided twice per month and for all equity securities, regardless of the fails level.

    Full SEC press release: SEC Takes Steps to Curtail Abusive Short Sales and Increase Market Transparency

    Related: SEC Temporarily Bans Short-selling Financial Stocks – Shorting Using Inverse Funds – Too Much Leverage Killed Mervyns

  • 12 Stocks for 10 Years – July 2009 Update

    I originally setup the 10 stocks for 10 years portfolio in April of 2005. In order to track performance created a marketocracy portfolio but had to make some minor adjustments (and marketocracy doesn’t allow Tesco to be purchased, though it is easily available as an ADR to anyone in the USA to buy in real life – it is based in England). The current marketocracy calculated annualized rate or return (which excludes Tesco) is 3.5% (the S&P 500 annualized return for the period is -1.7%) – marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund – so without that the return is about 5.5%).

    The current stocks, in order of return:

    Stock Current Return % of sleep well portfolio now % of the portfolio if I were buying today
    Amazon – AMZN 136% 9% 9%
    Google – GOOG 105% 15% 13%
    Templeton Dragon Fund – TDF 80% 11% 11%
    PetroChina – PTR 78% 11% 10%
    Templeton Emerging Market Fund – EMF 28% 5% 6%
    Cisco – CSCO 15% 6% 8%
    Toyota – TM 7% 9% 11%
    Danaher – DHR -14% 6% 9%
    Tesco – TSCDY -14%* 0%* 10%
    Intel – INTC -15% 4% 6%
    Pfizer – PFE -38% 5% 7%
    Dell -60% 4% 0%

    The portfolio is beating the S&P 500 by 5.2% annually (which is actually quite good. Also it is a bit confused due to to Tesco not being included. View the current marketocracy Sleep Well portfolio page.

    Related: 12 Stocks for 10 Years Update – June 2008 – posts on stocks – investing books
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  • The Formula That Killed Wall Street

    The Formula That Killed Wall Street

    For five years, Li’s formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

    His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

    Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li’s formula hadn’t expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system’s foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

    Very nice article on the dangers of financial markets to those that believe that math can provide all the answers. Math can help find opportunities. However markets have physical, psychological and regulatory limitations. And markets frequently experience huge panics or manias. People continue to fail to model that properly.

    Related: All Models Are Wrong But Some Are Useful – Leverage, Complex Deals and Mania – Financial Markets with Robert Shiller – Financial Market Meltdown – Failure to Regulate Financial Markets Leads to Predictable Consequences

  • GM and Citigroup Replaced by Cisco and Travelers in the Dow

    Starting next Monday GM and Citigroup will no longer be in the list of 30 companies making up the Dow Jones Industrial Average. I posted in 2005 that GM should be dropped from the DJIA. GE has lasted in the Dow for more than 100 years. 12 of the 30 stocks have been added since 1997. Cisco and Travelers are the companies that are joining the Dow on June 8th.

    The 30 stocks of the Dow Jones Industrial Average, as of June 8th, 2009:

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    Stock Market Capitalization Year Added
    Exxon (XOM)             $347 Billion     1928
    Walmart (WMT) 195     1997
    Microsoft 189     1999
    Proctor & Gamble (PG) 155     1932
    Johnson & Johnson (JNJ) 153     1997
    GE 147     1896
    AT&T (T) 145     1999
    IBM 143     1979
    JPMorgan Chase (JPM) 141     1991
    Chevron (CVX) 138     2008
    Coca-Cola (KO) 113     1987
    Cisco (CSCO) 112     2009
    Pfizer (PFE) 100     2004
    Intel (INTC)   91     1999