Thursday, April 29, 2010

The illogic of results v predictions

The market is correcting itselft today, up 119 points. Akami (AKAM) rose 20% today, due to reporting 1Q earnings of $.35/share, v the expected $.31/share. This is where the market's illogic comes in. The estimate of $.31/share was by the "experts" who read tealeaves, looked at fortune cookies, whatever, and decided that they knew what this company would report for earnings, even though they were looking from outside in. Sure, they could call suppliers, but that's not all that goes into reported earnings. I won't go into everything, but trust me, there's a crapload of work that is required to develop quarterly financial statements. And the analysts don't do it because they don't have all the details to develop them. So, where do these estimates come from? "Educated" guesses? Magic sphincters? You tell me.
iRobot (IRBT) is up 33% for the same reason: "announcing better-than-expected revenue... "I digress.
The reason I went through all that is to make the point that Akami's shares are up 20% for one reason: the experts were wrong. Had the experts predicted $.35/share and the company came in at $.35/share, the stock would probably not have moved at all. In conclusion, today some folk got rich(er) because some other folk didn't know what the heck they were talking about.
Palm got bought yesterday by HP. I saw that coming. Don't know what HP is going to do with them. Kinda like when FedEx bought Kinkos a couple years back. I think they royally screwed the pooch on that one. I come to that conclusion from the fact that they are dropping Kinkos from the FedExKinkos outlet signs. Say what you will, but when Time Warner dropped AOL from the name, it wasn't because they couldn't afford all those letters on the headquarters. Again, I digress.
I wonder what HP is going to do with Palm now that the iPhone has opened up the "we want phones to do more than make calls" chant. Not that it's the greatest phone ever, but because it has 20-30,000 developers working to make it do anything and everything. Google's Android OS has a chance, mostly because Google has more money than the Vatican. But at the end of the day, the number or people who want a phone to be just a phone is shrinking fast. The more apps, the more useful. The more useful, the more people will want it. My prediction is that the winners in the cell phone race will be those platforms that have the most apps available. Period.

In other news, Eastman Kodak (EK) posted a gain of $119 million, v a loss of $360 million last year. Their shares lost 17%. Yeah, go figure. Again, don't apply logic. The people who made out on iRobot and Akami today weren't any smarter than you, they were just luckier today. By the same token, those who lost on Kodak weren't dumber, just holding the hot potato at the wrong time. Don't let anyone tell you they predicted any of this.

I bought JetBlue Airlines

Yesterday "the market" lost 200 points because, according to new reports, Greek debt got downgraded. Whatever. I did some bargain hunting, looked at Frontier Financial (FTBK) which lost 16% today, but decided to sit tight after reading this article about another company possibly making a bid for Frontier's president and CEO. That just doesn't sound good. Also looked at Netflix (NFLX) which lost over 5% today, didn't do anything today, but if it opens tomorrow and doesn't shoot up, I may buy some. No negative artcies to be found. Today is "mixed". Authentidate Holdings (ADAT) is down 9% today. Can't seem to find a reason for it, but it's gone from $.97 to $.82 in the last 4 days. That concerns me because it wasn't a 1 day hit, it's been a few days now. Can't figure out why though, none of news stories point to anything negative.
Jetblue Airlines (JBLU)is also down another 11% today. They reported a loss of $1 million, but they had a one time charge of $15 million, so maybe investors are jittery about the loss and not looking at the cause. I bought some at $5.72. Already, the market is starting to rebound.
I tried to buy 1,000,000 shares of MBAY but the offer expired. I guess it's some kind of closed trading environment. I would have owned 10% of all outstanding shares for $800. Darn. Why? To be able to say I own a million shares of something, and more to the point, this stock jumps up and down a lot (260% increase one day last week.) This is a pure gamble. The stock value is so low that it would be pretty hard to get lower. All I need is to be in the game once when it does a crazy jump, then I'm out.

Sunday, April 25, 2010

Why I own Apple

There's a story behind every stock I own. Let me talk about Apple (AAPL). It closed at $270/share on Friday, putting me up over 150% in this stock. I have been drinking the Apple Kool-Aid since the early 90s. If there is any stock I have a emotional connection to, it's Apple. I bought Apple originally because I believed in the products. I own several of them, I've always felt the Mac OS was superior to Windows. Steve Jobs is awesome, having put his footprint on computers, music, movies, cell phones and now tablet computers. What I realized early that a lot of the big boys didn't is that the secret sauce is the iTunes Music store distribution model. Just like when they rolled into MP3 players, there were other players on the market in 1999, but none had an easy way of getting your content onto your computer. When they rolled int cell phones, everyone hated their phones, the cell makes and the service providers knew this, but did nothing to make better phones. They left money on the table and Apple's been scooping it up. They leveraged the iPhone Apps into the iPad. I hope that at some point in the future they put forward and backward facing cameras on it. That's when the whole netbook market will implode.
Back when it was $4/share I owned a bit, sold it at about $100/share and made out nice. Wish I had bought a ton more, but again, the goal of investing is to be able to sleep at night. If you can't sleep, you are investing money you can't afford to lose. Sell something. The challenge I have with Apple is when do I sell? They just announced earnings that blew out estimates and the iPad has got a huge future. How high do I think the stock will go? No clue. Will I sell if it hits $300/share? Probably not. At some point, I will sell my initial investment so I'm playing with "house money". I guess I'm saying the estimates of the stock price by the "experts" don't mean much to me. I will sell when I don't think, based on the market conditions, the upside is as big a risk as the downside.

Anyway, why did I buy Apple? I know the product, I see the potential and they have momentum. Is it too late to buy Apple? I don't think so. I think it will pass $300/share this summer. Just my opinion. You decide for yourself.

Tuesday, April 20, 2010

Media Bay is up over 300% in 2 days

Media Bay (MBAY.PK) is up another 72% yesterday, after rising 262% on Friday. It now sells for $.005, I think that's half a cent. Yes, you could have made a killing on it if you owned it last Wednesday, but who'da thunk? Palm, Inc. (PALM) is down 12% today, their head of WebOS resigned ( and it looks like they may not get sold as quickly as they'd hoped. I'll keep an eye on them. My gut says someone will buy them, but they're waiting for the price to drop some more. The company is worth about half what it was 4 months ago, and their cell phones aren't selling to well. Even though the market was up today, a lot of the stocks I watch are down.
Over the weekend I saw a documentary about the Bernie Madoff scandal. It made me think that if anyone thinks my research methodology is weak, what the heck were people with millions of dollars doing? Not just investors, mutual fund managers! The "experts".

Saturday, April 17, 2010

Looking for stock bargains

Before I go any further, I want to make it clear that I am not bragging about my stock picking skills. I have made some decisions that have turned out well, and some that have not (see Enron below). Moreso than luck, I have been blessed. I thank God for waking me up every morning and blessing my family. It is in thanks for His blessings that I am trying to spread a little knowledge
The market is down today. this is a good time to look for bargains, will do so over the weekend. I define a bargain as a stock that's down +5% today for no apparent reason other than the whole market is down. My theory is if they dro 5% for no reason they'll probably go back up 5% soon. A 5% return over a few days isn't bad at all. If I see something interesting, I'll look for headlines for that company, if they didn't screw up royally in the last few weeks I will assume their drop is a market correction. There's probably very few stocks that will show a drop of 20-30% today that I would want to touch. But if a company has some really bad news that causes that much of a drop, and the bad new is not "company shutting down" level, I'll keep an eye on them. Right now Krispy Kreme (KKD) is down 10%, ended the day down 14.9%. Ouch. Thinking about buying Glaxo Smithkline (GSK), based on a company they bought last year that I heard about on an old episode of This Week In Tech. On a day when the market dropped 125 points, Glaxo was up .28%. Go figure. Yeah, my research is that simple.
It's 1:40 PM and the Dow is down 146 points (1.3%) and Media Bay (MBAY.PK) is up 262%. It sells at $.0029/share. Yahoo won't even calculate a market cap on the company. I figure it's probably worth about $800. That's a joke.

Wednesday, April 14, 2010

What is a stock's value and what is the stock market

Let me start at the beginning. What is a stock and why does its price change?
Say you own a small company. Things are going well with your business, and you own 100% of the company. You decide to have an IPO (initial public offering) , take the company "public" and allow others to invest in your company. For this investment, you will/may have to give up some control of the company. Remember, you now own 100% of the company and can make any and all decisions yourself. I won't go into the details of finding a bank to run the IPO, creating a board of directors and a host of other things that have to be done to get to an IPO. So when you decide to sell stock in your company, the first thing you have to determine is the value of your company. Say you decide your company is worth $100,000 and you will sell 1,000 shares representing 40% of the value of the company (again, there are tons of calculations that are done to determine these numbers). You are agreeing to sell an interest valued at $40,000 ($100,000 x 40% = $40,000), so each share of stock is worth $40 ($40,000 / 1,000 shares = $40/share) Say a year later, you are doing great and it's determined that the company is now worth $200,000. The 40% owned by stockholders is now worth $80,000 ($200,000 x 40% = $80,000). Since there are still only 1,000 shares outstanding, they are now worth $80 each. ($80,000 / 1,000 shares = $80.00/share). The stock's value changes based on changes in the value of the company, or it's Market Capitalization ("Market Cap").
This is a very simplistic example. The real question is what is value? To me, an item's value is what you can get someone to pay you for it. Your house isn't worth X is you can't get someone to pay you X for it. The stock market is perfect in this example because it matches up buyers and sellers. When buyers are not willing to pay a certain amount for a stock, its price will drop, until it reaches a price where buyers are again willing to buy. When there are more buyers than sellers, the price will increase. Again, this is very simplistic. During the day lot things happen that impact the buyer/seller ratio of any particular stock, which results in price fluctuations. Value also came into play in the financial market implosion of 2009, but that's a story for another day.

What is "the stock market"?
The stock market is literally thousands of stocks, all moving in their own directions for their own reasons. When you hear that the market was up or down on a certain day, they are usually referring to either The Down Jones Industrial Average or any other number of indexes that are supposed to gauge the general direction of the market. The problem is that the market is too big for any index to truly tell what happened in the market. If you go back to the crash of October 1987, you could find 30 stocks that did not drop in value that day. Same thing for the tech bubble pop in 2000 and the train wreck of 2009 If your portfolio happened to contain those 30 stocks, and only those stocks, the "crash" didn't effect you. My point is that an index is only as good to you if the direction of the index mirrors the direction of your portfolio. Everyday.
Since this is a blog about investing, I guess at some point I have to talk about what I'm investing in. Here's what I own and the return as of today:
Apple Inc.128.68%
Aetna Inc. Common Stock4.05%
AMERIGROUP Corporation Common S17.35%
American International Group, I6.10%
American Express Company Common243.19%
Bank of America Corporation Com12.57%
Citigroup, Inc. Common Stock4.03%
Capital One Financial Corporati16.47%
Walt Disney Company (The) Commo40.83%
eBay Inc.27.47%
Ford Motor Company Common Stock212.15%
Genworth Financial Inc Common S7.34%
Level 3 Communications, Inc.35.86%
Mastercard Incorporated Common58.44%
Procter & Gamble Company (The)- 4.08%
Research In Motion Limited9.97%
Starbucks Corporation23.72%
TJX Companies, Inc. (The) Commo2.66%
Toyota Motor Corporation Common4.19%
Xerox Corporation Common Stock55.59%
Yahoo! Inc.5.07%

As you can imagine, I bought a lot of these stocks last year when the market cratered. Somebody famous said do what everyone else isn't, or something like that.

Sunday, April 11, 2010

My philosophy on investing and the stock market

Here's my philosophy of the stock market: It is not logical. It moves based on a million people making a million decisions for a million different reasons a million times everyday. It's like an ocean liner that has a million blindfolded people rowing to make it move. Everyone is rowing in their own direction, and the ship just meanders around. Every so often, enough people by chance happen to row in the same direction at the same time and voila, the ship moves a few inches in that direction.
I only invest in stocks. I don't do any SWAPS, calls, puts or any other type of derivative. I don't invest in T-bills, bonds or any other debt. Why? Because I don't understand them as intricately as I would like to nor do I have the time to sit and learn. TO INVEST IN ANYTHING YOU DO NOT UNDERSTAND IS STUPID.
I don't invest in mutual funds because, to make a long story short, I can lose my own money for free. Win or lose, you still have to pay the fee. If an advisor can guarantee me a return substantially higher than the market PLUS his fees, then we can talk. The day a money manager guarantees a specific return on an stock within a certain time frame is the day I consider using his services. Until that time, I can throw darts at a wall (like the WSJ used to do) and, in my opinion, have just as good a chance of getting a decent return as an investment advisor.

Don't let the smooth taste fool you. I have done the hard analysis of looking at 5 and 10 year returns, looking at the industry and individual stock beta, and analyzing the charts. All that hard work and research didn't, in my opinion, increase my chance of making a good return. Why? Because, to use another metaphor, it's like looking at all the addicts in a crack house and trying to predict which one is going to overdose next, recover or die. It's trying to apply logic to something that is illogical. With crackheads and stocks, there are too many different things that can impact an event. To continue the drug addict metaphor, to even begin to predict the outcome of a drug use event, you would have to know the quality of the drug, the quality of all drugs used in the past, the outcome of each event, the length of time between each event, the physical and psychological impact of each event, the physical health of the addict, the family health history of the addict .... See my point? Then, what's the likelihood of a police raid? another addict harming the addict in question to steal his or her drugs? an earthquake? the crackhouse collapsing? the addict's family doing an intervention? or 50,000 other things that could happen? Take that same approach to stocks, what's the likelihood of someone deciding they should invest and choosing a stock in a specific sector alphabetically? Let that happen 100,000 times in day and boom, the stock moves. Even on days when there is no news about a company, it's stock moves. Why? Beats the daylights out of me. Think about that the next time someone tells you they understand the stock market.

Having said that, I do conduct some research and when I mention anything I buy I will try to tell what I read and why I chose to buy or sell what I did. Some very educated advisors or financial experts might call my style crazy. And they may be right, but at the end of the day it's not the style that's important, it's the return. And I have had it backfire. I bought ENRON at $1/share, and sold it a month later for $.05/share. But I have also made about 200+% on one of the cell phone companies about 3 months ago over a 2 week period. Call it luck, whatever. It's about the money.

Speaking of returns, i am not rich. I have to go to work everyday and plan to have to do so for a few more decades. I say that to say that I don't invest more than I can afford to lose. The number one rule of investing is to be able sleep at night.

What about the Peter Lynch's of the world? Dude was good. I think I heard him say in an interview once that he would ask his kids what their friends were buying. Based on those conversations, he would decide what to invest in. That always stuck with me. Not charts and historical returns, what were kids buying.

What do i think of financial advisors? I have no opinion. I think for some people they provide a very valuable service, depending on the person. I personally have no use for their advice.

So, why am I doing this? I like to spread knowledge, I have taught investment workshops in my church and I like to see the lightbulbs go on.