Monthly Archive for July, 2008

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Another Plateau

Posted on July 13, 2008, 1:48 pm. 0 Comments

I started this cycling season as a Cat 4 and upgraded to a Cat 3 in fairly quick order. As a Cat 3, I took 2nd in a straight Cat 3 race, 4th in a 2/3 race, and yesterday I took 4th overall in a Pro/1/2/3 race and also took 1st among the Cat 3s in that race. There was only one pro team in that race, and then a fairly even mix of 1s and 2s and 3s. There was break a little before halfway on the first loop; I bridged over a little after the main field turned around at the halfway point. In the breakaway group, we shelled three or four guys, but we also gained the rest of the pro cyclists as three bridged over to us on the second lap.

Even sitting behind the pro team that was doing most of the work was a tough job, especially with the summer heat. If I had to go any harder my legs would have cramped up and I would have had a huge problem trying to finish the race.

Being able to do so well in a tough race, I feel like I’ve summited yet another plateau of fitness. I’m down to what I call my “fighting” weight of 138 (my weight fluctuates between 138 and 143). I can only imagine what would happen if I cut ice cream and beer out of my diet…

Nonetheless, I’ve accomplished both of my goals this season: (1) upgrade to Cat 3, and (2) finish first in a race. My only remaining goal is to finish 6-gap in under 5 hours.

Unreasonably High Expectations: Viewing Obama Like a Growth Stock

Posted on July 13, 2008, 1:05 pm. 2 Comments

Writing for American Thinker, Kyle-Anne Shiver describes how McCain could win the election in a landslide victory. The three important factors are time, the anti-Obama vote, and Obama’s own arrogance.

I myself favor McCain, believing he will win a close election. I follow the Intrade prediction markets very closely and right now Obama is trading at 65.3 and McCain at 31.2, which seems very lop-sided to me. With over 100 days to go until election day, this spread has to narrow. People have very high expectations of Obama, and when he is unable to meet those high expectations whenever he makes a mistake or when he breaks another promise (e.g., recently voting for the FISA bill with immunity to the telecoms intact) his ratings will fall dramatically.

I think of Obama like I would a popular growth stock. When investors are irrationally exuberant with their expectations of companies and prescribe unreasonable growth expectations upon a company, when that company fails to meet those expectations, its stock price falls precipitously. The price of the stock will usually fall until it is in line with its fair value. Perhaps it will fall below fair value. I view Obama the same way. No doubt he’s got a great campaign and talks a good talk and he gets a lot of people fired up, but I will be really surprised if he can hold up this sort of popularity until election day.

Beer and An Old Closed End Fund (Oh, and Indy Mac Goes Under)

Posted on July 11, 2008, 7:14 pm. Closed

George Will correctly states we wouldn’t be where we are today without beer.

Did you know that Adams Express was started in the 1800s, became a closed-end fund in 1929, and has paid a dividend every year since 1936? (via Investingfromtheright)

Oh, and did you know that the FDIC just took over Indy Mac, a bank with $32 billion in assets? (via FDIC, Marketwatch)

Buffett’s Prediction on Effects of Growing Trade Deficit Turning Out to Be True

Posted on July 10, 2008, 8:32 am. 0 Comments

Chrysler Building

Warren Buffett wrote an article for the November 10, 2003 Fortune about the negative consequences of America’s growing trade deficit. In the article, Buffett tells the story of the citizens of Squanderville and Thriftville. The citizens of Thriftville work hard to produce goods for which the Squanderville are willing to pay.

The Thriftville citizens accumulate a large amount of Squanderville bonds. The Thriftville citizens get nervous about the ability of Squanderville citizens to repay the IOUs, so Thriftville citizens decide to sell some of the bonds back to Squanderville and to use those proceeds to purchase Squanderville land, figuring that it would be harder for the Squanderville government to renege on physical land as opposed to paper IOUs. Pretty soon, Thriftville owns all Squanderville land.

America is Squanderville. Soveriegn wealth funds have been buying hundreds of millions of securities of American companies and American real estate. The New York Times has a recent story on how foreign investors are purchasing “trophies” and choice real estate. The recent purchase of the Chrysler Building by the government of Abu Dhabi is just one example. If we don’t want to be owned by foreign nations and we don’t want our grandchildren working to pay off our debts, per Bufffett’s advice we must attempt to correct the trade deficit.

But maybe we shouldn’t be worried. As Coyote Blog points out, America has experienced similar periods of angst, citing the 1980s panic of the Japanese buying up America. Nothing horrible happened then and perhaps nothing horrible will happen now.

Furthermore, Coyote Blog writes, “The fact is that holding our debt and owning US assets gives China (and other nations) a huge shared interest in our stability and continued prosperity.” This observation is true, but I still think we and our descendants are going to be working a lot harder and much longer in order to pay off our debts than if we had less debt.

Will Sears Bail Out Low-Priced Fashion Retailer?

Posted on July 10, 2008, 8:17 am. 0 Comments

On Tuesday, the New York Times and Wall Street Journal reported that Steve & Barry’s, a clothing chain that tried to undercut competitors by selling celebrity fashion and shoes for less than $10, was preparing to file for bankruptcy protection. A private company, Steve & Barry’s had been one of the fastest-growing retailers in the country, “opening hundreds of stores selling clothes under the names of Sarah Jessica Parker, Venus Williams and Stephon Marbury.”

Today, news reports confirmed that Steve & Barry’s filed for Chapter 11 bankruptcy protection. Of particular interest is that the company’s management have held discussions with Sears Holdings Corporation (SHLD) about a possible bailout or an acquisition of some of its labels. Today’s AP news story also included the views of two analysts regarding a possible Sears deal. One analyst says this would be a bad deal, just two poor companies trying to get together. The other analyst disagreed saying that there would be a lot of people willing to go to Sears or Kmart for cheap, celebrity fashion.

As for my own personal opinion, I trust that Eddie Lampert will do the right thing. If Sears acquires Steve & Barry’s, it will be because Lampert feels it is an undervalued business or that it will help Sears become more of a retailer.

For more commentary on this story, visit ValuePlays.

Fortune’s 40 Best Stocks On Which To Retire

Posted on July 9, 2008, 9:54 pm. 2 Comments

Fortune recently listed 40 of the best stocks on which a person can retire. They subdivide the list into 5 categories: growth and income, bargain growth, deep value, small wonders, and foreign value. As I am on the road to becoming a value investor, the “deep value” stocks are what interested me the most. So what type of stocks does Fortune consider to be deep value?

First is Applied Industrial Tech (AIT), a maker of bearings and transmission components that is a “cash-generating machine.” Second is Carlisle Cos. (CSL), a maker of construction materials, roofing and tires that “has weathered the housing crisis and should post double-digit profit increases for the next few years.”

Third is Cascade (CAE), a parts maker for forklifts and other industrial trucks. Fourth is National Presto Industries (NPK), maker of stuff from diapers to ammunition and appliances. Fifth is Pfizer (PFE), the huge pharma company.

Sixth is Regal Beloit (RBC), maker of energy-efficient motors. Seventh is UST (UST), which does chewing tobacco like Skoal and Copenhagen. And last is VF Corp. (VFC), owner of clothing brands like North Face, Wrangler, and Vans.

All these stocks have current ratios of 2.1 or higher, meaning that they all have very low debt and will most likely be persevere through the current credit crunch and economic downturn. Also, they have very low P/E ratios: all or 13 or below, except for UST which has a P/E of 16.

I myself owned VFC during 2007 making a decent short-term profit. The fact that its mentioned as a value stock makes me want to go back and look at it again. I’ve also been eyeing Phizer for 6 weeks. I know that some of its drug lines are about to expire, but still, the stock’s decline and super-low P/E ratio for such a huge company boggles my mind.

Bruce Berkowitz has lately been mentioning healthcare and pharmaceuticals as good value picks. I agree that this is a good area to be in at the moment as there seem to be an abundance of unliked stocks in this sector, but it would be prudent to choose four or five different stocks in order to diversify against risk.

Can Sentiment Turn Any More Sour on Sears?

Posted on July 9, 2008, 7:27 am. 0 Comments

searsOut of all the stocks I follow, Sears Holdings Corporation (SHLD) has received by far the most negative and sour treatment. People have even claimed that bankruptcy is a certain destination for Sears. Feeling that sentiment can’t get much worse and that Sears and its leader Eddie Lampert are sorely misunderstood, I finally bought some shares of SHLD yesterday.

Great investors like Bruce Berkowitz of Fairholme, Bill Ackman of Pershing Square Capital Management, and Bill Miller of Legg Mason have all been invested in Sears for some time. Eddie Lampert is also a substantial shareholder, controlling just under 50% of shares.

But aside from following the lead of great investors, Sears is undervalued for two main reasons: its real estate and brands. If you’d like a more substantial explanation of why Sears is a great investment, just take a look at all of the posts on ValuePlays about Sears.

“The Market Can Be A Cruel Mistress”

Posted on July 7, 2008, 7:47 pm. 0 Comments

In Season 3, Episode 9 of the T.V. show News Radio, Beth who inherited some money asks Mr. James, the owner of the radio station, for some stock advice. Mr. James refuses to give out stock tips, saying that if one tip goes bad, he’s going to lose a friend.

Here’s the final exchange between Mr. James and Beth before he relents and teaches Beth how he invests:

Mr. James: You be careful because the market can be a cruel mistress.

Beth: Well so can I, but that’s not how I want to make my money anymore.

If you watch the entire episode, you’ll find out how the easy money is made.

On a sidenote, I felt that News Radio was an underrated show during its time on air. Phil Hartman is especially funny in his role. Watching Phil in News Radio always reminds me of how great an actor he was.

The Roots of a Value-Investment Philosophy

Posted on July 6, 2008, 12:45 pm. 2 Comments

I’ve had the good fortune of a friend loaning to me Seth Klarman’s Margin of Safety. Having recently read The Intelligent Investor by Graham, I must say that the price for which people are selling Margin of Safety is a bit exorbitant. It is a great book, no doubt about that, but I see it as merely a condensed and updated version of The Intelligent Investor. The book is more accessible because of this, but the concepts are very similar.

Anyways, not knowing if I’ll ever get to see Margin of Safety again, I’ve already read it once and I’m now rereading it and taking some notes. The following are my notes on Chapter 7 of the book. Continue reading ‘The Roots of a Value-Investment Philosophy’

Obama Increases Lead Over McCain on Intrade

Posted on July 1, 2008, 11:27 pm. 0 Comments

Well, Obama has increased the gap on McCain over at Intrade. Here are the charts (click for full-size).

070108 - McCain vs. Obama - Intrade

You’ll see that McCain is trading at the same level he was back in late January, a time when he had not even clinched the Republican nomination.

I still think this large gap will be closed by election day; a good opportunity to make some cash. If you buy McCain now at 30.4 and by November 3rd McCain is trading at 45 (a very conservative estimate I think), that’s an annualized return of 332.25% if my calculations are correct. Not too shabby.