Growing up and new ideology part 2

Graham writing came during the Great Depression, this probably led him to have an extremely conservative investment philosophy. His main goal is to not lose money. He figured doing so with companies that have assets valued more than market value. That strategy applied with the Margin of Safety concept would prove to be the building blocks for one of the most popular investing strategy around. If the worst case scenario occurs, the company liquidates and the investor can recuperate the money invested.

This leads me to NED, which by having more current assets than market value was a buy to me. I am speculating that the lawsuit against it will be successfully defended. I am a bit worried about some other aspects of NED:

- Being a foreign company, I am worried about potential misleading (see fradulent) accounting.

- It could be a fake company for all I know, a ponzi scheme, that is a possibility. Though, I did ask people from China if they have ever heard of the company, and if they do in fact sell DLD (Digital learning devices). To which, I was assured that they do in fact exist.

Not being an accountant by trade, I don't know how one would falsify numbers, so I ordered a book on this topic. I hope to learn a thing or two and disect NED's 10-K with this knowledge.

The other company I invested in, Google, is a well known company. I always told myself that I would never invest in a tech company, because the valuations are always very high. But google was selling for a relatively good price (270) and I thought that its future prospect was bright. Following Fisher's preachings, I looked at the possibility of growth coming from Google. They have been growing rapidly since their IPO, and I see no reason why they couldn't continue on this path. They have yet to monetize Youtube, Android. They have a search monopoly, online advertising monopoly as well. I came to realization that I couldn't spend 1 day without seeing a google ad. That plus the fact that they can still grow outside the US, leaves me optimistic about its future. I expect them to grow at a 20% for the next 10 years, followed by a subdued 5% growth for the following 10 years. It is ambitious, I know, but I simply cannot see how a competitor can just overturn google. Switching search engine is not as easy as switching social network (myspace to facebook), especially when google is widely regarded as being the best search engine around.

Growing up, new ideology

My attention diverted from the stock market since my last post on February 16, 2006. Partly because I was concentrated in finishing my bachelor degree in software engineering, which took most of my time. I was also committed in improving myself as a software engineer, a profession that I do like a lot.

I got a job at a large software company shortly after graduation in May 2007, once I got settled in and got comfortable with the daily grind (work is not that exciting), my attention turned back to the financial market; it was pretty much at the right time, it was December 2007. Things has changed quite a bit since my last post, there are so many more blog and websites about the financial markets. I started reading posts about how a recession was looming, how the dollar would collapse, how the real estate market was a bubble. I thought that things were quite expensive at that time, so I decided to keep accumulation money to potential invest it whenever the time was right.

The warnings of a financial meltdown first came to fruition during March with the meltdown of Bear Stearns. Then in the fall, it would seem that every day the Federal reserve would announce plans to save financial companies left and right, after it let Lehman Brothers go bankrupt. Once such an important counter-party went belly-up, the credit market tightened up, and Libor skyrocketed. At the same time, the Dow-Jones went from a high of 14k to around 8k.

Warren Buffett, the person I look up to, made an announcement. He would start buying US stocks, because they were cheap. I am a bit weary of buying US stocks, because as I was about to invest the forex went from 1cad=1usd to 1cad= 0.8 usd. I am of believe that the strenghtening dollar is a facade that will eventually disappear, the fed is printing too much money. As soon as confidence comes back and people starts lending and spending, CAD/USD will be at parity. There was some good opportunities out there for ADR (American Deposit Receipt), one of them, brought up by a colleague at work was for a company that has more cash then market value, basically "Free Money", the potential downside is that they are getting sued for not warning IPO investors that Gross Margin has the risk of being low if the price of their material goes up. I read the lawsuit, and my gut tells me that it will not stand. 

I am still a moderate follower of Graham, where I believe in value investing. But I went on a trip recently, and brought the Philip Fisher's Common stock and uncommon profits, which makes a good point to invest into companies that have a dominant competitive advantage and that invest into R&D looking to new source of profits. He convinced me that although value investing does work, you can only make at most 100% return. Whereas, investing in growing company that using R&D properly, you can 10-bag your returns!

So I currently hold two positions in my US account:

Google - My Fisher stock

Noah Education Holdings - My Graham stock.

I will go on about the reason I picked both of them in my next post. Hopefully it will be soon...

Stocks Thoughts

Although I have to admit that I haven't followed the stock market in a while, school has been chipping away my free time. But, I'm starting to see some results to my stock market "gamble". One of my biggest gainers is Altria, I spotted this stock using what I thought was fundamental analysis: Good Yield, Low P/E and a Good business (it's hard to stop smoking...).

Bought at: $47.47
Priced at: $71.90

% Change of : 51%!

Another Big winner for me is ACP:
I found out about this company through sec.gov, I was looking around for equities that Mr. Icahn owned. When i found out that he owned more than 80% of the company, I took a deeper look into the company. Although it's called American Real Estate Partners, its name could be misleading because it actually extends a little further than that. It owns Sands Casino (gaming business) and other non real-estate businesses.

I bought it because I liked the dividend payment, the book value and the great businesses it owned.

Bought at: $24.01
Priced at: $40.20

% Change of : 67.43%!

Now if only the rest of my picks would be this great ... :(

Among my flops are:
1) Natuzzi (Sofa Manufacturer...) currently doing -34.68%. I have a little confession to make, I didn't do much research on this stock. I invested using MSN guru, which basically told me that Benjamin Graham would have liked this stock...

2) GM, which has this weird ongoing situation with Kirk Kervorkian, I don't know what the hell he's doing, bought in May to sell in December to rebuy now...This whole debacle has costed me -22.40% with GM. Talks of bankruptcy aren't going to help my case made for GM a couple of months ago, as they are losing money quarterly and it will only be so long before they run out of cash flow.

3)SHLD, I bought KMRT a while ago because of the hype surrounding Mr. Eddie Lampert becoming the next Warren Buffett and possibly turning KMRT into an investment vehicle a la Berkshire-Hathaway.

I'm very uninformed about the current situation of this stock, so the negative change in stock price could just be a simple fluctuation of the stock market.

But if there's a lesson to be learned is that you shouldn't invest on hype. But time will tell if this actually will pan out well for me or not. Currently doing -13.85%.

I will now try to always invest in company that offers decent dividend yield.

SEARS HLDGS CORP

Having Sears in my portfolio has been an interesting experience to say the least. Headed by a very competent investor and manager in Eddie Lampert, i'm confident that i've made the right choice by buying KMART back in november 2004, he's been cutting cost and selling unprofitable stores. Nothing spectacular, but he gets the job done. Sears reported a first quarter lost, which dipped the stock from 155 to 140 in the last few days. No panic on my part, loses are a part of business, what matters is the big picture, keeping your calm in down times and not making big mistakes. I'm curious in knowing what Sears is going to do about the competition that is Wal-Mart, selling unprofitable stores can only be sustained for a certain amount of time. They need to bring in revenue, what is in Mr. Lampert's head??? He could pull a Buffett like move, by diversifying with the excess cash into other industries. I can't wait to see what happens next.

On other news that affects me, Natuzzi, has been underperforming for me... Not making as much money as they did the previous year, they are in a commodity business and I know it's not the best thing to buy into. But they are a italian based company and the biggest manufacturer of sofa in the world? (not sure about that statement, but at least in Italy they are)...Shares are going for 8.80 and i'm considering making a go at it, the book value is at 10.70...They had an atrocious year and still managed to make money...I'm just concerned about the fact that Natuzzi's information is very scarce and it's difficult for me to follow it since there's no news on their part! Maybe scarceness is the key to make money ... I'm just thinking about the difficulty to find information on Standard Oil in the 1910-1920's which kept normal investors at bay, but made active investor very rich...It's all about going the extra mile for the money, if you aren't ready to go for it, you won't ever make money! There's too many analyst for Microsoft these days, i'm not any more clairvoyant than any of them, so i should stick to small to midcap companies with good balance sheet.

GM Part 2

Today, Kirk Kerkorian's investment company, Tracinda Corp., made a move to buy up to 9% of all GM stock, pushing the stock to a price of 32.40$ up 4.63$ or 16.67%. Finally someone confirming my belief that buying GM at 28$ wasn't such a bad idea.

Although I could have and probably should have waited it out a little more, it dropped down to as low as 24.67$, but things like that can't be foreseen. My only regret is that I bought it the day after the price plunge. I should have listened to Benjamin Graham's advice in letting the market calm itself down before making a decision. That move could have been potential bad, if somehow GM declared for bankruptcy or something along those range. But with the investment of Tracinda, I'm confident that Mr. Kerkorian won't allow GM to file for bankruptcy, he has too much money at stake.

GM

The past week has truly been wild for the market, the dow is down about 400pts in the last five days alone. But honestly that doesn't preoccupy me much, as i'm confident that in the long run this won't affect me much.

I do have a stock that has taken a beating in the last week alone, GM. GM is the largest american car company, but it has been having a lot of trouble competing with the asian competitor. Their market shares are dropping as people acknowledge the higher quality car made by Japanese car maker. It has approximatly 300 billion dollars in debt and 36 billion dollar in cash according to Yahoo! Finance. The bookvalue of each share is 49$ and it's selling at 25$.

I believe that GM would be a descent investment for anyone looking to hold for long term. We all know about the car industry trend, it is a very cyclical market. GM has to start cutting cost, bring out more innovative car designs, focus on quality and all will be well.

Merger Mania

Wow, big news today...Came back from school and saw a merger deal completed and an merger in action. I'll start with the one that got finalised first, the Molson-Coors merger and then follow-through with the Gillette/PG merger.

Molson is an important corporation in Canada and I don't see the benefit of such a merger. The beer industry is very brand loyal. I, myself, am a heineken beer drinker, and i don't see myself purchasing any molson or coors product anytime soon. I'd like to check back in three years and see how this merger benefitted the shareholders, I see this evolving into a mediocre merger, two average company merging in hopes of being more competitive in a brand loyal industry.

Now, on to the more interessing topic!

The Gillette and Proctor Gamble merger, now this merger makes a lot more sense to me. Gillette is the number 1 in razor accessories and proctor gamble is number 1 in consumer products, a marriage of the best in their respective industries. I've always liked a good horizontal expansion, now the newly formed company will have products being used in most of the houses in the US (and that's probably an understatement). Those who shave probably use Gillette, those who shower use pantene pro-v or head and shoulders or the other products from P & G. I can't wait to see how this will develop in the future, now it's very important for these two companies to take the process slowly, there's no hurry in the integration process. One can only imagine how ecstatic Warren Buffett is, he will get a share of the most popular razors,toothpaste, shampoo, soap and detergent brand in the US.

Mr. Buffett owns about 33% of berkshire hathaway which in part owns 10% of gillette. And at the end of the merger, he would be receiving 93million shares of the new company, he likes whole numbers so he'll buy stocks until he gets 100million shares of the new company that would have about 2.5 billion shares. Which would be about 4% of a company that will have revenues of 60 billion dollars a year.