On the topic of stocks that became a lot cheaper...........lets look at the 11/21/2008 closing prices for the list I originally posted on 10/07/2008 and compare to 10/07/2008 prices.
Stock 10/07/08 Price 11/21/2008 Price
ATVI $11.85 $10.30
KWK $11.30 $5.90
MOS $33.91 $24.94
PAAS $17.09 $12.10
IMA $23.82 $14.04
SBUX $12.28 $7.83
SNDK $18.03 $5.63
Happy Birthday to "retired by 40" and thank you for some excellent tacos and tecate :)
Sunday, November 23, 2008
Tuesday, October 7, 2008
The Sky Is Falling...... The Sky Is Falling
Market down another 500 points today. I wanted to interrupt the book summary and post a list of stocks that I think are getting undervalued and might be attractive to buy sometime in the next two years. I think they are cheap now........but of course what is cheap can get much cheaper. This is one of the challenges of being a value hound........
Keep in mind some of these stocks are classic value plays (i.e. good brand and intellectual property, etc. while others are just commodity plays that have gotten crushed over past few months) - they're only common denominator is I think they are getting cheap....
1) Activision Blizzard - symbol ATVI
2) Quicksilver Resources - symbol KWK
3) Mosaic - symbol MOS
4) Pan American Silver - symbol PAAS
5) Inverness Medical - symbol IMA
It would be nice to highlight these stocks individually over time and talk about where they are, why I think they are undervalued ......... how low they might go and where could they eventually end up. My goal is to do one of these during month of October. Not feeling motivated yet - but maybe this weekend!
Keep in mind some of these stocks are classic value plays (i.e. good brand and intellectual property, etc. while others are just commodity plays that have gotten crushed over past few months) - they're only common denominator is I think they are getting cheap....
1) Activision Blizzard - symbol ATVI
2) Quicksilver Resources - symbol KWK
3) Mosaic - symbol MOS
4) Pan American Silver - symbol PAAS
5) Inverness Medical - symbol IMA
It would be nice to highlight these stocks individually over time and talk about where they are, why I think they are undervalued ......... how low they might go and where could they eventually end up. My goal is to do one of these during month of October. Not feeling motivated yet - but maybe this weekend!
Wednesday, September 10, 2008
Take down the "MISSING" posters and invest the reward money!
The lost dog is back and better then ever! Sorry for the hiatus gentlemen!
I have been playing catch-up in Buffetology 101.
I found this article in Parade magazine which summarizes WBs ideas in a quick and dirty manner.
I thot the hounds would enjoy this;
http://www.parade.com/hot-topics/0809/10-ways-to-get-rich_1
I have been playing catch-up in Buffetology 101.
I found this article in Parade magazine which summarizes WBs ideas in a quick and dirty manner.
I thot the hounds would enjoy this;
http://www.parade.com/hot-topics/0809/10-ways-to-get-rich_1
Sunday, August 31, 2008
Chapter 2 - The New Buffetology
Chapter 2- How Warren Makes Good Profits Out of Bad News About a Company
Key Points from Chapter:
The most important part of the chapter is it adopts a qualifier for the contrarian strategy. In addition to just buying stocks that are down in price and that have bad news and are disliked by the crowd, Buffet applies the additional screen of looking for companies that have some long term competitive advantage. The chapter gives the examples of The Washington Post and HR Block.
Ironically enough the long term competitive advantage of both of these companies is currently being called into question. HR Block has come under much scrutiny over the past few years due to the mortgage business which they started and then sold (Option 1) and Washington Post is considered an oldline media company stuck in the print newspaper business and without a clear way to adapt to the new internet world. As we go deeper into the book I think the authors will highlight what THEY think Warren Buffet THOUGHT about these two companies when he bought them - in other words - the hypothetical competitive advantage that the two had over the long term.
It will be interesting to see how these compare to the curren state of affairs and whether the competitive advantage still exists despite the "short term" pessimism.
Couple charts of the two - you can see that given preferred holding period of "forever" - WB is still killin it with these two...
HR Block
Washington Post
Key Points from Chapter:
- Warren practices a selective contrarian investment strategy.
- Warren recognizes that everyone from mutual fund managers to Internet day traders are stuck playing the short term game. It is the nature of the stock market.
- The bad-news phenomenon goes on constantly - people sell on bad news.
- Companies that have a durable competitive advantage have the economic power to pull themselves out of most bad news situations.
- Warren made all his big money investing in companies that possess a durable competitive advantage.
The most important part of the chapter is it adopts a qualifier for the contrarian strategy. In addition to just buying stocks that are down in price and that have bad news and are disliked by the crowd, Buffet applies the additional screen of looking for companies that have some long term competitive advantage. The chapter gives the examples of The Washington Post and HR Block.
Ironically enough the long term competitive advantage of both of these companies is currently being called into question. HR Block has come under much scrutiny over the past few years due to the mortgage business which they started and then sold (Option 1) and Washington Post is considered an oldline media company stuck in the print newspaper business and without a clear way to adapt to the new internet world. As we go deeper into the book I think the authors will highlight what THEY think Warren Buffet THOUGHT about these two companies when he bought them - in other words - the hypothetical competitive advantage that the two had over the long term.
It will be interesting to see how these compare to the curren state of affairs and whether the competitive advantage still exists despite the "short term" pessimism.
Couple charts of the two - you can see that given preferred holding period of "forever" - WB is still killin it with these two...
HR Block
Washington Post
Friday, August 22, 2008
Thursday, August 21, 2008
"A" Bottom or "The" Bottom
Value hounds like to find stocks that are "undervalued" - back up the truck and buy major positions and then hold them for a long time or until they become "overvalued."
Most people would agree that "value" is a difficult term to pin down, but most also associate it with certain quantitative measurements such as price to earning ratio, book value, or cash flow.
The problem with these fundamental ratios is that they are based on information that becomes publicly available only once every three months. As a result a lot of value investing is done made on backward looking numbers that may no longer hold true. For this reason, many traders call fundamentals - "funnymentals."
One of the most common value traps that value hounds fall for is that they try to extrapolate past performance (during an exceptional period of growth) into the future. This reversion to the mean approach works great during a normal cycle. During an end game cycle - AKA road to bankruptcy - it does not work so well.
On this road to bankruptcy as the stock goes lower, and lower, and lower many value hounds try to buy the "dips" as it gets cheaper and cheaper. This approach is called dollar cost averaging - or more specifically in this case - "averaging down." The problem with this approach is that it assumes the stock will eventually go back up. However, in the case of bankruptcy the stock goes to $0. At which point it is no longer possible to average down......
This brings to the question when buying something that is down - are you buying it at "a" bottom or "the" bottom. And more specifically - how can you tell the difference? This is really one of the fundamental questions we hope to answer on this blog over the next several months. It is not an easy question to answer.
So on to the photos....... let's try to see some "a" bottoms and one "the" bottom.
Downey Savings - Trailing 12 month Chart
Wells Fargo - Trailing 12 Month Chart
Apple Computer - Trailing 10 YEARS Chart
As you can see from the Apple Chart - if you can identify THE bottom or close to it and accumulate a healthy position at that level.....you can make huge money / returns over a long period of time. Apple 7 year return from 2001 low of $6 to 2008 high of $210 is something like 35X your investment. Those are the kinds of returns that get value hounds excited.
Most people would agree that "value" is a difficult term to pin down, but most also associate it with certain quantitative measurements such as price to earning ratio, book value, or cash flow.
The problem with these fundamental ratios is that they are based on information that becomes publicly available only once every three months. As a result a lot of value investing is done made on backward looking numbers that may no longer hold true. For this reason, many traders call fundamentals - "funnymentals."
One of the most common value traps that value hounds fall for is that they try to extrapolate past performance (during an exceptional period of growth) into the future. This reversion to the mean approach works great during a normal cycle. During an end game cycle - AKA road to bankruptcy - it does not work so well.
On this road to bankruptcy as the stock goes lower, and lower, and lower many value hounds try to buy the "dips" as it gets cheaper and cheaper. This approach is called dollar cost averaging - or more specifically in this case - "averaging down." The problem with this approach is that it assumes the stock will eventually go back up. However, in the case of bankruptcy the stock goes to $0. At which point it is no longer possible to average down......
This brings to the question when buying something that is down - are you buying it at "a" bottom or "the" bottom. And more specifically - how can you tell the difference? This is really one of the fundamental questions we hope to answer on this blog over the next several months. It is not an easy question to answer.
So on to the photos....... let's try to see some "a" bottoms and one "the" bottom.
Downey Savings - Trailing 12 month Chart
Wells Fargo - Trailing 12 Month Chart
Apple Computer - Trailing 10 YEARS Chart
As you can see from the Apple Chart - if you can identify THE bottom or close to it and accumulate a healthy position at that level.....you can make huge money / returns over a long period of time. Apple 7 year return from 2001 low of $6 to 2008 high of $210 is something like 35X your investment. Those are the kinds of returns that get value hounds excited.
The New Buffettology - Chapter 1
The book "The New Buffettology" is summarized following each Chapter. I will breakdown those Chapters on the Value Hounds Blog so that we can discuss and review. I will also use Wells Fargo as the stock which I will apply the fundamentals of the book too, so that we can collectively understand why Buffett invests in this stock, and come to a conclusion if this should be a stock in our portfolio.
Chapter 1- The Answer to Why Warren Doesn't Play the Stock Market - and How Not Doing So Has Made Him America's Number One Investor
Chapter 1- The Answer to Why Warren Doesn't Play the Stock Market - and How Not Doing So Has Made Him America's Number One Investor
- Not interested in popular investments of the day.
- Has discovered that the vast majority of stock market investors, including mutual funds, are short-term oriented; they buy on good news and sell on bad.
- The short-term stock market mentality sometimes grossly undervalues the long-term prospects of a great business.
- WB likes to buy on bad news.
- WB's genius lies in his ability to grasp other people's ignorance about the long-term economic worth of certain business.
With the bust of the mortgage bubble, the market seems to be fearful of all banks regardless of their solvency. The negative headlines of Citibank, IndyMac, Downey S&L, the entire banking industry is getting crushed on Wall Street. This holds true for even Wells Fargo whom seems to have managed their corporation which much more focus on the long-term than those whom appear to soon go BK. While WFC is down just 6% YTD, they are down 24% in the last year. However, the chart reflects that over the past 5 years WFC has seen an increase of 13% and most impressive, the stock is up 77% over the past 10 years.
Tuesday, August 19, 2008
My value investing origins
Many many years ago when I first began investing, trading, participating in the markets (around 1999) I was 19 years old. I was first and foremost a value investor.
I have had mixed results with value investing. At times I have fallen for value traps and lost a lot of money (or at least it felt like it at the time), over several years and the residuary pain and discomfort that was left led me to an avoidance type behavior with my investments and trading.
I have also identified some great value investing opportunities that I would have liked to participate in earlier (e.g. Frontline - symbol: FRO and Sandisk - symbol: SNDK). I profited from both but no where near the potential that was available.
The thing that fascinates me most about value investing is the concept of the baby thrown out with the bath water. Because most of the professional money that is invested and traded in the markets moves like a herd in out of the popular sectors, when any given sector gets trashed over several years - the diamonds get massacred along with the rough.
Lets take the tech sector between 2000 - 2002 - absolutely decimated. Hidden among the wreckage however were Apple Computer (symbol: AAPL) and Research in Motion (symbol: RIMM). Well timed value investing could have accumulated major positions in both for a cost of $10,000. That investment would be worth $500,000 to $1,000,000 today. UNLEVERAGED.
So how do you distinguish the value traps from the value opportunities. We hope to find out over the next several months / years. I believe a system or method needs to be adopted that at a minimum incorporates the following:
1) Fundamental Analysis
a) dividend analysis
b) balance sheet analysis
c) cash flow analysis
2) Technical Analysis (re: charts)
3) Sector Analysis (company relative to others)
4) General Economic Analysis (bear vs. bear market, recession, or growing economy)
a) consideration of deflation v. inflation - how it affects the sector
5) Catalysts for end of the bear in the sector
I have had mixed results with value investing. At times I have fallen for value traps and lost a lot of money (or at least it felt like it at the time), over several years and the residuary pain and discomfort that was left led me to an avoidance type behavior with my investments and trading.
I have also identified some great value investing opportunities that I would have liked to participate in earlier (e.g. Frontline - symbol: FRO and Sandisk - symbol: SNDK). I profited from both but no where near the potential that was available.
The thing that fascinates me most about value investing is the concept of the baby thrown out with the bath water. Because most of the professional money that is invested and traded in the markets moves like a herd in out of the popular sectors, when any given sector gets trashed over several years - the diamonds get massacred along with the rough.
Lets take the tech sector between 2000 - 2002 - absolutely decimated. Hidden among the wreckage however were Apple Computer (symbol: AAPL) and Research in Motion (symbol: RIMM). Well timed value investing could have accumulated major positions in both for a cost of $10,000. That investment would be worth $500,000 to $1,000,000 today. UNLEVERAGED.
So how do you distinguish the value traps from the value opportunities. We hope to find out over the next several months / years. I believe a system or method needs to be adopted that at a minimum incorporates the following:
1) Fundamental Analysis
a) dividend analysis
b) balance sheet analysis
c) cash flow analysis
2) Technical Analysis (re: charts)
3) Sector Analysis (company relative to others)
4) General Economic Analysis (bear vs. bear market, recession, or growing economy)
a) consideration of deflation v. inflation - how it affects the sector
5) Catalysts for end of the bear in the sector
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