Facebooked

It's been a couple months since its IPO and Facebook is looking like a shiny turd. Ok, maybe not too shiny. Did I see this coming?  Well, I won't say I saw it coming because there's no accounting for the crazy of the stock market, but I never could figure out a few things, like.

• How does a company making about $1-2 billion a year, warrant a valuation of $100 billion?
• Running a startup is one thing, running a real company is another. Everyone assumed Zuckerberg was up to it.Why?

I listened to a Planet Money podcast a few weeks back and it was pretty interesting. Talked about 2 guys who bought ads on Facebook and it's questionable whether it was worth it. They also talked about Facebook "Like" farms where, for a price, people will "Like" you. Kinda destroys the whole model.  Anyway, I didn't get in on the IPO or after, and I predicted in 4 years Google would buy Facebook for $4.

Leapfrog

Three months ago I bought some Leapfrog enterprises, they make the children's LeapPad toys.As for the why I bought it, here's their one year chart:

Yeah, talk about missing a train. It's tripled in a year and no one was paying attention.  It came to my notice because it's been in my watch portfolio for years and they reported earning that the analysts didn't like so they got punished. Not bad, but as I've said before, the fact that the stock price changes ANY day due to what an analyst says is about the stupidest thing I've ever heard.  No, I don't respect analyst's opinions very much. It's like looking in a kitchen through a window and describing what the food should taste like.  Yes, I know they do all kinds of interviews with "the supply chains" yet they still miss stocks that take off. Then they blame it on unknowns in the market. Newflash: It's all unknown!  And don't get me started on target prices. Kinda like telling someone the day, hour and minute they're going to die, then ignoring that statement when your wrong. As for how LP has done the past few months since I bought it....

Bam!  I'm up about 18%. 'nuff said....

Even a broke watch is right twice a day....

This week Wellpoint announce they would be buying Amerigroup. By way of full disclosure, I used to work for Amerigroup. I bought the stock a while back and pretty much sat on my +100% return.  When the Wellpoint announcement came out this week my returns shot to over 200%.

I had no idea this was going to happen, and I may not be the smartest bulb on the shelf, but I ain't the dumbest either. I bought at $28.78, the price is now $89, Wellpoint offered $92. Sell, sell, sell.   The question becomes, am I selling too soon?  Here are the possible outcomes I see.
1. The acquisition goes through and the stock goes for $92. I lose about $4 a share.
2. The acquisition doesn't go through and the stock falls back to about where it was before, about $63. I lose about $28/share.
3. Amerigroup decides it doesn't want to be acquired. Not likely, I would imagine this has been discussed for weeks if not months.
4. Another suitor jumps in and offers a higher price. Possible, but I also think not very likely.

So, take the money and run. Yes, even a moron can make money in this market if they are lucky.

Read this article on Netflix. Thinking of buying some stock, but gonna keep an eye on them for now.

Looking for investment opportunities....

Just read these 2 articles on Facebook & JC Penney. Both interesting. My take on Facebook is that bow the hoop dee doo is over I think it will be a generally adequately performing stock over the long run.  I think I might pick up a few shares in the next few days. As for JC Penney, apparently, they just jumped on the screwed train.  I'll wait for them to drop some more before taking a chance. I don't think they'll go bye bye anytime soon, but I don't see them at bottom yet.

My new darling at the moment is Leapfrog (LF). Even though this article says it's "trying to turn a corner" the stock has been buck nutty the last 10 months, I'm talking tripling in that time.

Even Apple hasn't done that! That's right, over the last 10 months this stock has outperformed Apple (see 2nd chart below) and nobody's talking about it. Granted, back in 2004 it was selling in the $50 range, but it seems someone figured out something last year and its kicking.

Inside Job

This is a great podcast on what happened when the markets collapsed! Very easy to understand.
http://www.thisamericanlife.org/radio-archives/episode/405/inside-job

Should we take the money and run?

My biggest barometer into how the stock market is doing is my Apple stock.  But over the past month or so, it's not been the only holding of mine that's down. "The market" itself is down about 100 points.  I don't see much reason for it at the moment, but I think it's a real good time to develop an exit strategy.  I wouldn't put it past this market to hit us with a 3-400 point one day drop and have everyone pooping bricks.

Should you leave stocks along?

Just read this article from USAToday, it talks about how people are turning away from stocks as investments after getting burned badly in 2008-2009.  Let's we honest, these people got burned because they weren't paying attention to their stocks. Yes, the stock market tanked in about 2 days back then, but there were more than enough warning signs. I got smacked a little and jumped out. When the be can or whup booty showed up, I was already on the sideline, and able to jump back in.

The moral is, you have to watch your investments every day, and keep your ears open.

The Return of Apple

Yesterday Apple shot up about 7% after losing 13% over the last few weeks. Yes, Apple, the darling of all investors was slowly losing market cap. I had been watching this phenomenon (and crying) and trying to figure out why. I spent a few days searching but came up empty. Then on Tuesday Apple announced quarterly earnings. Sales of iPhones and iPads were ridicu-stupid. I mean iPad sales up 150% year over year. That's WTF territory.  But why had the shares been dropping? 

Apparently, "analysts" were concerned that sales of iPhones to US carriers were slumping.  Maybe they were, but overseas Apple turned this muthuh out.  What's sad is that for the last 2 weeks Apple's stock price, and the millions of investors who own APPL have seen their assets decline because some analysts had a gut feeling. A gut feeling that was wrong. They were only looking at one aspect of the company. Kinda like saying GMs in trouble because blue Chevy Volt sales might be down in Chicago on Tuesdays.  The US market is not the end all and be all.

Too bad that these same analysts will be making more predictions today. Even worse, people will be listening.

Etch-a-Sketch: The stupid continues

I've said before, many times, that the stock market is NOT logical. There are whole networks, websites, blogs (like this one) and every other kind of social media devoted to explaining, predicting an "understanding" the stock market. And just when everyone starts believing they got it nailed down, stupid rears it's ugly head.

This past week, one of the officials for one of the presidential candidates mentioned "Etch-a-Sketch" during an interview on TV. I can't say that was the total cause, but on Thursday Ohio Arts (OART.PK), the company that owns the Etch-a-Sketch, went from $4/share to $9/share. And they hadn't made any announcements.  And the volume that day was about 800 shares traded. That's not a typo. What about the PE ratio? What's Ohio Arts' beta?  Did the sector see a boost? None of that mattered. As it never has.  The stock went up over 100% because it's product was mentioned. Period.  Nobody necessarily bought any more Etch-a-Sketch's, the company didn't announce record earnings. Their product got mentioned. And somebody with 800 shares sold them and made about $4,000.

Today the stock is back around $4. Stupid went back to sleep.

Unexpected Consequences

Recently the restaurant across the street from "my office" (Panera Bread) shut off their free wifi for about 2 weeks.  Since my office only allows you to be online for 30 minutes at a time (to cut down on traffic), it's common knowledge that if you have to stay online longer you log onto the other restaurant's wifi (I'm on it now) and surf all day.  I wonder if Panera saw a decrease in business over the last 2 weeks, and if so, did they realize it was because of a competitor?

Smackdown

I don't know why, but the market opened and is down between 1-2% in 15 minutes. Good time to look for bargains. Those stocks that are getting beat down because the rest of the market is.

Linsanity: there's gold in them thar benches

Jeremy Lin is the hottest ticket in NY right. You know the story, this guy was undrafted, cut from 2 teams this year, sitting the bench, got a chance and has been averaging over 20 points a game every since.  The Knicks have only lost once in their last 10 games, prior to that their record was 8-15.  Now the question everyone is asking is "how did so many teams miss that he was that good?"  I'll tell you how. The same reason coaches flock to the NFL Combine every year looking for the next great talent, but miss on pretty much 90% of their picks. Here's an article on the top 100 worst NFL picks. Granted, it's just someone's opinion on how bad these picks are in the realm of badness, but there's no disputing none of these guys set the world on fire. Yet they all went to the Combine and they all did well in it. 

Coaches missed Jeremy Lin because instead of looking for talent they played it safe. They had certain players that were highly paid so they went with them.   The Knicks had Carmelo Anthony and Amare Stoudemire but could only win 8 of 22 games. This guy comes off the bench and leads them to 7 out 7, including a 38 point performance against the Lakers.  Is he all that special?  Not really, there have been many players who have led their teams to a string of victories. But how many people have dropped 38 points on Kobe Bryant's Lakers?   Every team has their 7 man rotation, meaning unless the game is a straight up blow out, these are the only guys who will get any meaningful minutes. How do you evaluate a performer who's getting 4 minutes a week out of a possible 240?  You don't. You pick your 7 and let the rest of the team get scraps, garbage minutes.  You focus on your starting 5 against your opponent's starting 5 instead of using all 10-12 of your players to attack his 5.  You can't tell me a fresh, hungry Troy Murphy is not better than a tired Pau Gasol.  If not, why is he on the team? When the Dallas Cowboys had their last great Superbowl run (2 of 3) it was mostly because Jimmy Johnson was rotating players every down. As a result, they were always pretty fresh, facing guys who had been pounded on for the last 6-7 straight plays.

My point is that if more coaches coached instead of "giving the fans what they want" (newsflash: fans want wins.) more coaches would probably find more gems on their benches.  Guys who could change the team for the better if given the opportunity.  Had it not been for fluke injuries, Jeremy Lin would still be sitting at the end of the bench, or at home, and the Knicks would be looking at yet another really, really bad season.  Instead, the word "Playoffs" is being not whispered, but yelled in MSG.

Why is this important to investors? Because it's easy as an investor to have this same play it safe mentality..  Pick one or two stocks and let the rest of your portfolio languish. Remember, every stock has the opportunity to be a star.  Watch them all, and act accordingly.

We gonna ride this business model until it completely dies....

This coming weekend is the annual NFL Pro Bowl in Hawaii. Yeah, they still play it. I watch about 2 plays every 4 years.  Here's my problem with the Pro Bowl. Well, I got a few actually:
- The best players aren't there.  Years ago, the Pro Bowl was played the week after the Superbowl and included everyone chosen. Given the 2 weeks between the season and the Superbowl, the Pro Bowl was almost played in March. That's a lonnnnnnnnnnnng season.  Not to mention pretty anti-climactic after the Superbowl. So, someone had the bright idea to play it BEFORE the Superbowl.  Here's the problem, football is a contact sport. So the two teams in the Superbowl (the two BEST teams in the league) don't send anyone because the last thing a coach wants is his starting QB hurt in the Pro Bowl and missing the Superbowl. And you can't blame him one bit. So the Superbowl teams don't send anyone, and the alternates now get to go to the Pro Bowl.


- Nobody plays hard.  In 1998 Robert Edwards tore his knee up in THE ROOKIE FLAG FOOTBALL GAME ON THE BEACH at the Pro Bowl.  He was able to return a few years later, but you have to wonder how much shorter his career was due to that injury. If you watch the game now, linemen aren't really blocking, more likely they grab each other and stand up. And you can't blame them one bit.  Yes, there is a lot of prestige associated with going to the Pro Bowl, but it's still the Pro Bowl and if you are going to get hurt in a game, better it be during the season when it counts than in the Pro Bowl when it doesn't.

If you ask the organizers of the Pro Bowl, they'll point to the record rating that the game still gets. They will probably ask "why can't we have an All Star Game?  Every other sport has one."  I repeat, football is a contact sport.  Ratings aside, I think it's kinda boring.  I think it would liven things up to have a skills competition for the linemen ala "The Superstars", and the backs & receivers can go against the defensive backs in a passing competition.  When you minimize the potential for injury, players will embrace the game.
Now I think it's more a "just don't get hurt" game.

Who's to blame for 2008 and why banks still don't get it?

I watched 60 Minutes a while back and they talked about how even though Sarbanes Oxley was in effect in 2008, no CFOs have yet to be prosecuted for signing off on false or incorrect information. It's kinda like folks have been complaining for  years that you shouldn't play with matches in the house, you still do, your house mysteriously burns down, but no one's to blame.  The problem, as the President put it, is that unfortunately most of the deeds that were done on Wall Street were not illegal. That's scary.  You can tank a global economy and not have done anything illegal.

Because of what happened, ie, a ton of crap mortgages were written, many large banks have found themselves in the position of holding mortgage portfolios worth billions on paper, but worth used toilet paper in real life. The really  crazy thing is, and maybe it's an attempt to placate their shareholders, the banks are willing to slowly let these mortgages continue to drag down their balance sheets for years or decades to come.  Here's an example:

Homeowner X has a mortgage worth $200,000.  The house is only worth $125,000. Homeowner X, for whatever reason, cannot pay the $200k mortgage.  The bank doesn't offer to really work with Homeowner X, and as a result he or she is foreclosed. The bank loses the $200k mortgage and its associated cashflow, and now has a house they have to sell for something, anything, to get some of their money back.  Until the house sells, if this is a responsible bank, they have to keep the grass cut and keep vandals and squatters out of the property. And every month they get more and more of these properties.  Best case, they sell the house for $125k and write off $75k loss.Homeowner X, who would have been willing and able to pay a mortgage based on $125k has his credit beaten. And every month banks are taking a nibble of the turd sandwich they helped make.

Here's what the banks should do:
First communicate with their shareholders that they have X billions in suspected mortgages that will likely not be repaid in full.  The choice is either to keep nibbling at them for the next 20 years, or bite the bullet turd write them all down over the next 6-12  months.  Then they go to Homeowner X and renegotiate his principal to $125k. And Homeowner X cannot refinance the mortgage for 10 years.Yeah, it sucks, but that's life. In addition, they make the deal that if in the next 20 years he/she or their estate sells the house for more than $125k they split the additional revenue 50/50 with the bank.  It gives the homeowner an incentive to still try to get the best price possible in a sale and the bank still has the potential to recoup some of what they've forgiven.  But the real beauty is that the bank gets the crap off its books, while still having upside potential, and Homeowner X doesn't get a credit rating of 142.

The problem is the banks are trying to have their cake and eat it too.   So long as they drag this out, it will continue to be dragged out.