We're still #1!

According to a poll encompassing 11,000 business leaders in 131 countries, the United States tops the latest World Economic Forum Global Competitiveness Survey. The top ten consists of:

US
Switzerland
Denmark
Sweden
Germany
Finland
Singapore
Japan
UK
Netherlands

The bottom ten consists of the following countries:

Zambia
Ethiopia
Lesotho
Mauritania
Guyana
Timore-Leste
Mozambique
Zimbabwe
Burundi
Chad

Buffett keen on South Korean market

Warren Buffet thinks that the Korean stock market is still undervalued. Should you take a look at EWY? Just a cursory look at the ETF shows that it's selling at about 13x earnings, 1.7x book, and 0.8x sales. and 6x cash flow. The won has appreciated significantly against the dollar. There might be a case here, but I must admit that I don't know enough about the Korean market to give the proper context to these numbers.

Chipotle Mexican Grille(CMG)

I just read this blog entry from Robert Walberg about Chipotle Mexican Grille. It really ignited a firestorm of responses. All Walberg said was that he doesn't understand the hullabaloo about Chipotle and that the stock was very expensive, especially compared to its peers. Now, in the interest of full disclosure, I must admit that I ate one their delicious carnitas burritos for dinner last night. Read the comments that readers wrote. They can't for the life of them understand how he could denigrate the quality of a Chipotle burrito. It's as if you called their child stupid. While I am primarily a value investor, there is a bit of Lynchian populist in me. This sounds like a classic Lynch buy what you know stock, not unlike his calls on Dunkin Donuts and KFC back in the 80s.
I would agree with the readers who said that Walberg hadn't done his research. If he had, he would've found that not only is the food delicious and the service quick, but he would've noticed the hordes of people(lines out the door often) at lunch and dinner time. Also, as several readers pointed out, many of them are teens, who have tons of disposable income to blow on fast food.
I haven't eaten at Moe's, but I've had Qdoba and it's clearly an inferior, Chipotle knockoff.
Right now, Chipotle is one of those rare growth stocks that is worth the price of admission.

How do you sit and do nothing?

One of the keys to making money as a value investor is to not be afraid to just sit and do nothing. It's boring. It's hard. It's not remotely sexy. Especially in our age of online trading, it's so easy to update your positions or net worth every minute. It's incredibly easy to hear some bad news on Bloomberg TV, CNBC, or Fox Business News, get frustrated and make a dumb move. So how do you avoid this? Turn off the TV. Don't read message boards. Restrict the amount of sources that you read. Avoid information overload. Don't check your stocks every day. Take the broker off speed-dial. Get away from the market regularly and get some perspective.

Is it time buy the homebuilders?

Steve Sjuggerud is one of many contrarians floating this idea. In fact, he sees 500% gains in the sector over the next four years. He points out that after new home prices fell between 1979-82 and 1989-92, the shares of homebuilders soared. This is true, but this was also during a great bull market in general. I would love to know how an index of homebuilders did against the market during this same time period.

The Asch Conformity Experiment, the Milgram Obedience Studies and value investing

Have you heard of this world famous experiments? They're featured in every Sociology 101 textbook. The first experiment deals with the powerful influence of group pressure. Solomon Asch presented showed a group of five students the following figures. Next, he asked a simple question. Which line(A,B,or C) on the right is equal to line S on the left? How could anyone fail this test? After all, the line lengths are clear and unambiguous.
Unknown to the fifth student, the first four students were in league with the Asch. They purposely gave wrong answers. Asch wanted to see, if their wrong answers would influence the fifth student. Well, it did. In 33% of the cases, the fifth student gave the wrong answer at least half of the time. 40% gave "some" wrong answers. Only 25% of the students consistently gave the correct answer.
The Milgram Obedience Studies deal with the tension between authority and conscience. In this series of experiments, test subjects were told that they would act as a teacher and present test questions to another person who was a student. Whenever the person, gave a wrong answer they were to administer an electric shock, one that would increase by 15 volts with each successive wrong answer. As was the case in the Asch Conformity Experiment, the test was simple.
The shock machine bore clearly visible labels that said Slight Shock, Moderate Shock, Strong Shock, Very Strong Shock, Intense Shock, Extreme Intensity Shock, Danger: Severe Shock, and finally, XXX at 450 volts. As the voltage rose, the "student" responded with squirming, groans, and then screams. If the subject wanted to quit, he would be told to continue with the experiment. As was the case with the Asch Conformity Experiment, the test was rigged; the "student" was working with Dr. Milgram.
Before conducting the experiment, Milgram asked psychiatrists, psychologist, philosophers, and sociologists how many subjects they thought would go to 450 bolts. The experts said about one in a thousand. What did Milgram find? He found that 65% of subjects were willing to administer a lethal shock. He later repeated this experiment several times, changing the venue from a science lab to a dingy basement so as to counteract the tendency of some people to defer to a scientist conducting a scientific study. Still, about one half of the subjects were willing to administer a lethal shock. He tried the experiment with women as the teachers. In subsequent experiments, he found that class, race, and ethnicity made no difference.
So how does this relate to value investing? One should be leery of following the herd. How many times have you bought a stock because of a tip, or an article in Forbes, or because some "guru" likes it. There's nothing wrong with taking advice from sources that you respect and trust. You just have to make sure that you're making the decision based on your situation, your financial goals, your risk tolerance, the investment approach that works best for you. The financial press(I am guilty of this as well) is very fond of setting up someone as an unimpeachable authority and then claiming their endorsement. Please remember to do your own due diligence, no matter how trusted the source is. If you lose money, and you will if you invest long enough, let it be by your own actions at least.

A lesson from the crash of 1987?

On October 19th, 1987 the Dow Jones Industrial Average endured the single greatest one day drop in its history: a staggering 22.6%. This day would be christened Black Monday. Some say the precipitous fall was caused by a market that had simple gone too far too fast, others blame portfolio insurance. Regardless, the market rebounded and actually finished up for the year. What lessons can you take away from such an event? Today in The Wall Street Journal, Justin Lahart examines the age-old creed to "buy on the dips." How much sense does that make? True, it worked in 1987, but I what could one have seen back then that would've told you that the country wasn't going into a recession? What signs were there that the bull market would last another twelve years? None. buying the dips would've been an act of more reminiscent of blind faith than calculated analysis. Buying dips works in a bull market, but becomes desperate averaging down in a bear market. That is not to say this tactic can't be judiciously applied. If you are a long-term value investor, you want to buy companies as cheaply as possible. Buying the dips helps you accomplish this.

Great advice from a finance professor

This video starring Stephen Brown was on TheStreet.com. Mr. Brown, is the Daniel S. Loeb Professor of Finance at NYU's Stern School of Business. It's probably the most practical, common sense approach to the debate over whether or not the market is efficient and how one should invest I've seen in a good long while. I am very suprised that it came from an academic. If only most financial advisors were at honest and candid as this guy.

China is a value play

This may seem like sacrilege, but it's true. China is just getting started. This bull has a long life ahead. I know that the market has been red hot. Don't ignore that. In fact, don't invest just yet in China. Wait for a pullback. It'll come. Just put FXI or CAF on your watchlist and be patient. If you're interested in individual stocks, take a look at PTR. It's trading at discount to both Western integrated oil & gas companies and Chinese ones.
I know that Warren Buffett just sold his stake. Many would say that he did so because he sees a top. I don't know why he sold. He's held this position for five years and has made seven times his money. Maybe he just decided that he wouldn't get greedy. Maybe he sold because he found a better place for Berkshire's capital. My point is, do not buy or sell these stocks or any stocks for any reason other than personal ones. Look at your portfolio and see how it fits.
There will be selloffs. Please don't get scared out of your position because everyone is predicting certain doom or an overheating of the market.

Citigroup earnings down 57%. Duh!

They pre-announced two weeks ago and came clean about how bad business was. The market loved them for it. Now the call comes out and they get hammered. Still, they say the market is efficient! Here's the transcript for the Citi earnings call. There is very little new information. The writedowns were a bit worse than the they thought, but not by a shocking amount. The earnings actually came in higher than expected. If you take the time to read the transcript, you'll find out that Citi is actually growing fairly nicely, a lot of it organically. They are expanding significantly internationally and high margin businesses like Global Wealth Management is growing at a good clip. This company is executing, but no one cares to notice. Chuck Prince is not Sandy Weil. This is not the 90s. Analysts need to de-anchor their thinking from that era.

Time to look at Ethanol stocks

Obviously, this is a contrarian play. If you've read BusinessWeek, The Wall Street Journal, Slate or The New York Times in the last few weeks, you know that things are getting worse in the ethanol patch. Corn ethanol is a boondoggle, there's over overproduction, distribution is bad, cellulosic ethanol is years away. These are all very true, but I think that they'll work these things out. Let's face it, the corn lobby is too powerful to let the money spigot in Washington from being turned off just when things are getting interesting. Ethanol, in some form is here to stay.
So how do you make money from it? First, you have to wait. Let the problems get worse. Don't worry, they'll get worse before they get better. Then, there will be a rash of bankruptcies and consolidation. A few strong players will emerge. Invest in those companies, the acquirers, as opposed to trying to figure out who the acquired will be. Right now, I have my eye on Andersons Inc.(ANDE). This company is already fairly cheap(P/E of 14, P/S of 0.45). Andersons is actually more than an ethanol play; they also sell fertilizer, are in the railcar business, and they also sell home and building supplies. While the rest of the sector has been getting killed for the last year, Andersons is actually up 35% The company has little debt, so I think that it shouldn't have problems buying one its rivals once things really get bad.

Google hit $600! So what?

Don't break out the champagne. Please, no confetti or balloons either. Six hundred is a nice round, big number, but does it mean anything? Maybe, if you're a financial journalist. Should you get excited? Not unless you buy new highs or are a momentum trader. Lehman Brothers has come out and said that it's going to $714. How in the hell do they know that, especially since Google gives NO guidance? Well, alot of it is tied to rumors of a GPhone. Also, The New York Times reported yesterday that Google is getting into the mobile phone software business. this is a bold move that will create new competitors for the company, ones like AT&T and Verizon who aren't bumbling fools like the gang at Yahoo!. I am not saying that the boys in Mountain View don't run a fine company or that it isn't a good investment. That's for you to decide for yourself. I'm just saying that hitting $600 is not news.

Fund my Mutual Fund: The Run in VMWare (VMW)

Fund my Mutual Fund: The Run in VMWare (VMW)

I found this post and was flabberghasted by the earnings multiple on this company. It's straight out of the dot-com era looniness. VMWare, which was recently spun off from EMC, makes virtualization software. Don't be embarrassed. You're not the only person who was ignorant of what this is. In layman's terms, virtualization software makes it possible to run several operating systems and applications on the same computer at the same time. A common use of virtualization software is consolidating server space.
This looks like a tremendous short opportunity. It's selling at gargantuan multiples and the most recent 10-Q has hinted that greater competition from better capitalized companies and lower operating margins are on the horizon. Plus at some point, EMC is going to dump the shares; I can't see them wanting to hold on to 86% of this company forever. Cisco and Intel are also major owners of the stock. This probably won't begin to happen until next year, as tech usually outpaces the Q4 rally. Also, they do a large and increasing chunk of their business outside of the United States so they should escape alot of dollar-related pain. I'm going to follow this company, specifically insider sales by these three companies, until they next report earnings. They should provide a clue on how the operating margins are holding up.

Top 10 Money Honeys

1. Erin Burnett
2. Bambi Francisco
3. Farnoosh Torabi
4. Deborah Kostroun
5. Brittany Umar
6. Maria Bartiromo
7. Julia Boorstin
8. Margaret Brennan
9. Sharon Epperson
10. Louisa Bojesen

Jim Rogers and the value of patience in investing

If you haven't read the Jim Rogers interview in Market Wizards, you should do so immediately. It's a really good primer on a) sticking to your knitting and b) being patient. Jim Rogers co-founded the Quantum Fund with George Soros and retired before Soros became a household name. These two were an unstoppable paring; Rogers was the analyst and Soros did the trading. These guys invested in everything everywhere; they were global macro before the term came into vogue.
Rogers invests with conviction. He finds a cheap sector, studies the hell out of it, and then waits. If nothing looks good, he'll park his money in Treasuries. As he puts it, he"waits until there's money in the corner to pick up." It sounds simple, but it's hard, really hard. Most of us have to put in a order. We love the action, the sense that we are doing something brilliant that we can then brag about on message boards or to our friends. Activity is the enemy of the true investor. Warren Buffett has often said that he wouldn't care in the stock exchanges closed down for a few years. He buys a business, not a stock certificate.

Top Ten Investing Mistakes I've Made

When it comes to investing, just like Sinatra, "regrets, I've had a few." I've assembled the top ten of about a thousand that I've been inexperienced enough to make and in some cases, stupid enough to repeat. You'll probably see a few that you've done.

1. Investing money that would be better used for something else like paying of debt or building up an emergency fund of 3-6 months. There is no easier way to get an 18% return risk free; pay off your credit card debt.

2. Following stock tips. I am probably most ashamed of this habit. It's a lethal combination of laziness and greed.

3. Trading when I should be investing. I don't have the correct temperment to make money as a trader. I am either in early or overstay my welcome when it comes to short-term moves.

4. Not doing enough research. Screening is not research. It's just the beginning.

5. Not investing regularly. You should make investing a monthly bill that you pay to yourself.

6. Trying to get rich quickly by buying penny stocks. This is an excellent way to lose money...quickly.

7. Chasing performance. I have NEVER made money momentum investing. Many people do. I can't. I get too greedy.

8. Ignoring the benefits of diversification. The only free lunch on Wall Street. Don't go overboard though. Only have as many positions as you can monitor effectively. Also, don't forget about rebalancing.

9. Monitoring investments to frequently. There was a time that I checked the value of my holdings every day. Now I do it about once a week. Eventually, I'd like to make it quarterly.

10. Being inpatient. This is really important as a value investor. It helps your patience if your stocks pay dividends.