Stock Insight

Akamai AKAM and Limelight LLNW

2011-10-12T18:41:00.000-07:00

Couple articles for technical background.

Using a CDN - Akamai vs. Limelight (by IT routine, Feb 20, 2009)

Shopping for a CDN (till's blog, June 5, 2010)

Personally I have used Akamai quite a bit when I worked for Autodesk, and I need to use their service to download our own software (for installation purpose). Software companies like Autodesk used to be called "shrink-wrap" software vendor, a.k.a., they ship software via CDs or DVDs. Not anymore, I recall in Autodesk, the new policy is if customer does not ask for it, they don't ship the hard copy. Because customer can download the software and get it earlier that way.

Of course the booming of CDNs (at least from traffic point of view), is also largely due to the popularity of online movies and videos (Netflix, Youtube, etc). The price came down quite a bit due to competition. Thus the stock of AKAM and LLNW did not do well lately. There were rumors about Akamai will be taken over by Google today, but there is contradicting comments right away. My gut feeling is they will eventually got bought. The question is who and when :-)

Dolby DLB

2011-09-26T19:00:00.000-07:00

When I was young, walkman was hot, and I bought this Aiwa walkman after I graduate from college and started to earn money myself. On back of this Walkman, I saw Dolby trademark. I also saw Dolby on music tapes, other audio equipment sometimes. This includes the first CD player I bought (when was it, btw? in 90s).

Dolby Labs, which owns the technology and trademark, went public about 5, 6 years ago (NYSE:DLB). I saw its stock did well until last 12 months. So I decided to bought some today, near its 52 weeks.

With all these iPad, tablets mania, people will consume the music differently, there might be lower loyalty fees from device sales. But the traditional movie theater, and other audio equipment sales should continue. Also, I did not look at Dolby international revenue, but from gut I think they have good representation and potential there.

Market, Berkowitz

2011-09-24T06:29:00.000-07:00

Market was in tailspin last week. Berkowitz, the Morningstar fund manager of the decade, is seeing his key holdings Bank of America (NYSE:BAC), AIG, etc. dropping like a rock, meanwhile he is running out of ammunition (cash). He is putting up a 2000 letter to investors on the fund's website, trying to persuade the investors from fleeing.

At the wealthtrack interview with Consuelo, he is repeating the thesis. I don't know whether Berkowitz will recover from this setback. One thing I do believe: typical investors buy high and sell low, both in stocks and mutual funds.

Separately, the things happened in HP during last 12 months are absolutely amazing. Talking about how many shareholder values have been lost? Can the board of directors of public companies really put the shareholders' interests before their own egos? Reminds me of the movie dumber and dumber.

Why Yahoo board and pundits are so harsh on Bartz?

2011-09-07T20:44:00.000-07:00

Bartz, or Carol Bartz, the former CEO of Yahoo!, was fired by Yahoo board over the phone yesterday afternoon. It's not news Yahoo was not in good shape in recent years, to be precise, ever since Google took the rein (Google did IPO in August 2004). Bartz was put in charge a little over 2 years ago, shortly after Yahoo rejected Microsoft bid, and Carl Icahn took an activist stake.

Some background on Carol Bartz, she was born and raised in Wisconsin, groomed as sales executive at Sun Micro (now part of Oracle), and took the helm at CAD software specialist Autodesk in 1992 and grew the company substantially in her 14 years tenure there. Handed Autodesk CEO to her successor, and stayed as Chairman (woman), until lured by the Yahoo board to help out, which, turns out not a very good "second act".

Some of the notable things people remember is she used some rude words in investor conference call. If the vice presidents (both current and the previous, both male) used those, the media usually say a few words, then become quite. Because Carol is woman, it seems media just can not get over it.

More importantly, for investors, the share price was pretty much flat in her tenure. This is a bit misleading too, because the stock did go up, until recently it came down quite a bit on Yahoo/Alibaba dispute, which brings another point: she pissed off Alibaba chairman Ma Yun (Jack Ma).

Some reports say she was a little arrogant when Jack came to the US for the first visit. There might be some culture issues, because Carol was from midwest, and one generation older than Ma. But Autodesk has decent size business in China, I think Carol knows something about China business and culture. More recently, she used some harsh words mostly for act, because she want to extract some concessions from Ma, without any leverage. Note Ma just spinned off the Alipay business from Alibaba group without the approval of Alibaba majority shareholder: Yahoo. In other words, she was just doing her job as stewart of Yahoo assets.

So, what's the fuss?

Coach, LuLu

2011-09-03T13:26:00.000-07:00

Happened to take a look at Lululemon atheletica (Nasdaq:LULU), it has $711.7 m sales in last 12 months, 137 stores in the US, Canada and Australia, and a market cap of $6.68 billion.

Coach, the luxury hand bag maker, has $4.159 billion sales in last 12 months (about 6 times of LuLu's sales), and a market cap of $15.28 b (about 2.3 times of Lulu's market cap).

One reason why wall street give Lulu a higher valuation is it has a faster growth. But I think the main reason they have a faster growth is their base number is much smaller. Coach is getting popular in emerging market such as China too, while not showing slowdown in the traditional US market.

Bank of America, Buffett

2011-08-25T20:45:00.000-07:00

Today appears to be a happy day for B of A shareholders, because the stock got a 10% lift after the announcement that Buffett is buying $5 billion preferred share (as vote of confidence). But underneath it, the shareholders as of yesterday got a raw deal: Buffett also got 700 million shares of warrants for common stock (strike price at $7.14), before today there are about 10 billion common shares, so that's about 6% dilution, i.e., each share will worth about 94% if Buffett exercise his warrants.

For Buffett he got protected from 6% annual dividend, and 10% premium for early redemption. Note the deal was struck very similar to the deal he stuck with Goldman during financial crisis in Fall 2008, at the time Goldman agreed to pay 10% for $5 billion preferred share. The only difference is Goldman used the opportunity to issue some common stock (aorund $122 per share at the time), and raised $10 billion this way. B of A does not have similar kind of deal. The only thing they achieved is the short term confidence of their common stock price. This seems to me indicating their management is a bit weak.

Looking from another perspective, many people realized the gist of this kind of deal, after Buffett did Goldman and GE deal during financial crisis in 2008, and so called "buffett endorsement" will be less meaningful in that sense. Because B of A can borrow that money from Federal Reserve at 0.25% with no string attached, the way they did this deal seems more for their own benefit (note management usually have meaningful stake of their personal wealth in the company stock).

Let's see. Tomorrow will be another interesting day because the market is expecting Ben talking QE3.

PS, the valuation of B of A on a napkin. B of A market cap is $78 b as of close today Aug 25. They have about $17 b stake in CCB (10% stake), and they bought Merrill Lynch and Countrywide in 2008. ML can be compared to Morgan Stanley which has market cap of $33 b today. This leaves the rest of the bank (commercial bank + mortgage aka countrywide) about $28 b (=$78 b - $17 b - $33 b)

Some estimates the countrywide loss could mount to $200 billion, which I don't believe so. But there will be huge loss, otherwise the market valuation will not be like this.

The market folley

2011-08-09T19:50:00.000-07:00

World stock markets in recent days are in turmoil since last Thursday US time. The S&P downgrade of US government debt only made things worse in the short term. I was also caught off guard on this one. Last Thursday amid the market drop, my main holding Huntsman corporation (NYSE:HUN) went down 30% amid earning miss. Too bad I added some more before the earning couple days ago. And I did average down, oh boy...

My gut feeling is this is not 2008 all over again, although the situation is serious, from Italy to US. I don't know much about Italy, except I know there are a lot of thieves and tourists be aware. For the US, my personal observation is there are increasingly two classes: the upper class and the working class. What do I mean by that? Upper class people don't need to work for a living, the working class have to. Oh, I forgot another one, the welfare class, people who live off the social benefits program. The problem here is working class is increasingly get squeezed.

Robert Arnot

2011-06-16T18:52:00.001-07:00

I was listening to Robert Arnot on Consuelo's Wealthtrack (last year's podcast), Robert said one thing interesting: for every winner there will be a loser in the market, who is going to the loser? The comfort seeking, momentum chasing crowd.

On the other hand, sometimes when the market is terrible, we felt uncomfortable, but overcome the fear and buy into the market, hold on it,...it usually bears fruits.

David Einhorn and Microosoft

2011-05-28T08:07:00.000-07:00

Heard the David Einhorn and Microosoft news. Interestingly I thought about Steve Ballmer tenure in Microsoft, obviously he missed some opportunities, made some controversial moves recently and the stock is certainly doing nothing in last 10 years.

But in my mind, Ballmer is not leaving and will not leave. Bill Gates passed the torch to Ballmer a few years ago when he devotes his full time to charity, and Microsoft is Steve's company now. Though Bill is still the largest individual shareholder, Steve is No. 2 (Source: Yahoo Finance)

Einhorn's stake is meaningless compared to Ballmer's, that is, unless Einhorn can rally other institutional shareholders to support him. At this time, it's not easy.

Yahoo, Alibaba

2011-05-13T13:15:00.000-07:00

Yahoo and Alibaba are back in the news this week, as Alibaba Group sold the Alipay subsidiary (something similar to Paypal in the US) to a company controlled by its Chairman and CEO Jack Ma. The price was low. We knew those two companies are at odds in recent years as Alibaba tried to buy back the Yahoo's stake in Alibaba, and Yahoo balked at that idea. It appears the sale of Alipay was related to that, although officially Alibaba says the sale was to meet China regulatory guidelines.

This whole thing may be more complicated than the media reported. A while ago I wrote a piece on the Valuation Yahoo's Alibaba stake. It obviously took a hit this week. Let's see what happens next.

Disclosure: as of the writing I don't have shares on Yahoo (Nasdaq:YHOO) and Alibaba (1688.hk)

Earned money and mad money

2011-05-09T22:34:00.000-07:00

Dollar and Thrifty Group (NYSE:DTG) got another bid from Hertz recently, and the bid is $76 per share, Hertz and Avis have been involved in the bidding war for more than a year on DTG. The DTG stock has went from as low as $1.xx (middle of financial crisis) to $5x.xx in a year or so.

I haven't done anything with DTG stock, but looking back, it's fair to say from $1 to $50 is earned money if a investor did his/her homework, and hold on the stock. From $50 above, it's all madness.

This probably can apply to many hot stocks, such as CRM, NFLX, Chipotle (NYSE:CMG), Panera (Nasdaq:PNRA) etc.

Couple thoughts: perception of loss/gain, too much trading

2011-02-25T21:51:00.000-08:00

1) Loss (or underwater, aka the stock drops after one buys it) is usually more painful than gain (or above water, refer to the definition of underwater), if they are in the same proportion. So, to adjust the pain, we need to buy stocks which potentially has "up 5, down 1" characteristics

2) Was working on income tax last weekend, had to do a lot of input of cost basis/adjustment for the stock trading. Last year I had some loss from the PALM trade. I found one thing which has been my problem in the past: too much trading. I think too much trading has two downsides:

a) The transaction cost, $7 per trade in Scottrade, it piles up quickly;

b) Perhaps more important in my case, while doing all the trading, I trade away potential big winners (ARMH, NVDA, SII Smith International bought by SLB), while bought and hold the losers (PALM).

What happened to General Maritime GMR?

2011-01-30T21:58:00.000-08:00

The Egypt crisis gave the oil tanker companies some lift, and for General Maritime it seems more like some heat in Winter. I don't know what happened to oil tankers in those years, but in 2003/4 when I was new to US stocks, I paid attention to it, don't remember exactly I bought it or not, but I remember the stock soared at some point. Now it's trading more like a penny stock? What happened to this "my old lover"?

IS Supervalue (NYSE:SVU) a value trap?

2011-01-13T19:50:00.000-08:00

It looks like it. Five, or six years ago, I lived in apartment near Affton/Shrewsberry, and a new Shop N Save store just opened on Watson Road. Before that I visited Shop N Save store in Edwardsville in Illinois and was quite impressed to be honest. Shop N Save is a subsidiary of SuperValue (NYSE:SVU), the stock I paid attention when I was new to US stock market around 6 years ago. I remember at one time, the grocery union had a strike, the big 3 grocery (Dierburger's, Schnucks, and Shop N Save) participated, and I also supported them by not shopping at the stores above. Since I moved to my current home, I no longer have Shop and Save nearby, instead I have slightly upscale Schnucks (across street) and more upscale Dieburger's couple miles away. I used to have friends work at Save-A-Lot (a low end subsidiary of SuperValue), in IT department. But not any more.

Over the years, I saw Trader Joe's start here and there, Aldi's also prop up here and there. All mighty Wal-Mart opened two super-centers in suburban (Chesterfield, Manchester). I can see some of the pressure put on Schnucks and Dieburger's. I can imagine things would be equally hard on Shop N Save, if not more. Because Shop N Save shoppers (blue collar) probably hit hard by the Great Recession in last 2~3 years.

This is probably a glimpse of Supervalue stores in last few years. To make things worse, SVU bought Albertsons at top price in 2006 (before the financial crisis), with a lot of debt. I remember been to Albersons in California once. There are no Albersons store in Missouri. This is probably the crown jewel of Supervalue now. I don't know, I hope things work out for them. Otherwise, we will all shop at Wal-Mart some day. Or Trader Joe's :-)

Economy data and short term volatility

2010-12-04T19:55:00.000-08:00

Ok, I am back.

The stock market is quite interesting at this moment, both US and China. In the wall street, things are looking good for a Xmas rally. In China, the inflation and curbing policies caused some worry and decline of the index.

But I am not going to talk about this. The thing I felt strongly lately is the overwhelming economy data nowadays, and their effect on market volatility. This can be better explained in an example, the us stock market rallied early this week on strong retailer report, and europe bail out, until Friday the government 9.8% unemployment rate on Friday crashed the party. See the following for more details.

http://finance.yahoo.com/marketupdate/overview

This sort of things happens to individual stocks as well, not the economy data, but rather the corporate news and sector trend. For instance, on Thursday Goldman Sachs, the de facto king maker on wall street, updated the entire financial sector, boy, all the bank stocks' big or small, went up.

But this is not my focus today. The thing I concluded on Friday is, if we individual investors (speculators) believe the stock we bought is solid, we can sacrifice a bit daily volatility (up and downs) for long term gains. The longer we can hold, usually means the more flexibility and probability we win the stock game eventually. On the other hand, if we decide to go day trade, and have to close a position every day or fw days, we have less flexibility and usually means we will lose.

Simple principle, but the key is execution.

Spammer stole my Yahoo email and sent out spam mails

2010-01-02T12:04:00.000-08:00

Friends, in case you received an email selling you Viagra online, which appears sent from my Yahoo email. I apologize. Obviously I don't sell those. Some hackers used my Yahoo email and did this. Please ignore that mail. More information (prevention tips) about this tactic can be seen at:

I had my email account hacked into and emails sent out.?

I realized this problem as my Gmail acct is also in my Yahoo address book. Also, one friend asked me "huh"? I think this is not really brand new tactic, and I believe most people already know it. This note is just in case.

Investing in China: I

2009-05-27T21:22:00.000-07:00

I have talked about investing in China many times in this blog. Recently a good friend of my wife asked this question: how to protect her parents retirement (life style) now that they are near retirement?

I think this is a very good question, also a very common one. Recently I read Charlie Munger's book Poor Charile's Almanac, and he said three stocks are enought (diversified) if they are good stocks and the person trully understands it. I agree.

So, let me apply this three stocks approach and run a hypertheoritical portfolio for my wife's friend ('s parents :-)

The first stock comes to mind is 601628.SS, China Life Insurance (NYSE: LFC; HKSE: 2628.HK). I talked China Life couple times, during its Shanghai IPO (secondary offering to be precise), and "Got Yuan" post. I believe China Life is uniquely positioned to take advantage of weakened competitors (China Ping'An and AIG China subsidiary), and this down market.

The second stock is 601398.SS, ICBC (Industrial and Commercial Bank of China) (1398.HK). To be continued...

Reference: AH share difference

Buffett bets on Wells, US Bancorp

2009-05-25T21:17:00.001-07:00

From Yahoo Tech-ticker.

I don't know about Wells, but I have US Bancorp shares (NYSE: USB). The stock appears expensive if you look at the price book ratio, which is a common metric to measure bank stocks. But USB is a very different bank compared to others, it's a conservative lender. Since I opened my checking account with USB a few weeks ago, I had opportunity to visit the branch, it's clean, and looks much sharp then the Bank of America branches I visited. Maybe, USB could get some deposit base from B of A, amid all the controversies around B of A. The USB stock was obviously knocked down last week due to secondary offering (raise money to repay TARP, or to get out of TRAP to be more precise). Today it got a nice bump from Buffett endorsement.

Reference: gurufocus Buffett buy.

Wuxi Apptec WX Q1 2009 update

2009-05-25T21:16:00.001-07:00

(Update May 19) Sold out my WX positions. I had a second thought on the stock.

(Original) Formerly Wuxi Pharma Tech, the name change was to reflect the US based Apptec acquisition a year ago.

I have bought and sold WX a few times since its IPO in 2007 (Wuxi Pharma Tech looking good; Got some WX again; Wuxi Pharma continues to drop). I sold out my WX position last Sept. (shortly before Lehman's fall). I decided to got back some WX again about 10 days ago. A few things have changed since last update:

1) Since Wuxi cancelled the secondary offering last May, the selling shareholder UOB sold shares to private equity firm Warburg Pincus.

2) WX had to wrote down a large portion of good will because buying Apptec at the wrong time (pulled trigger too earlier).

3) The US big pharma(s) are under more political pressure to provide cheaper drugs (healthcare reform), face patent expiration (e.g. Liptor for Pfizer), and unhappy shareholders (because of dismal return of stocks in recent years). They had to cut back in R&D in some cases.

Despite all that, Wuxi delivered a solid quarter in Q1 2009 (IR web site). The CRO (Contract Research Organization) outsourcing is a big market (about $14 billion in 2006) and still growing. In the near future the western big pharmas will still be the main customers for Wuxi. This reminds me of the IT outsourcing in India, where the demand is mostly from the western developed economies. So the main question is can Wuxi hold its place (about $265 to $275 million) amid all these competitors (west or China/India based service providers)? I don't have a conclusive answer, but here are some of Wuxi's advantages:

1) Scale, talent and cost: not the biggest compared to the industry big player, but it's the No. 1 in China, supply of talent in China is ample. There are other Chinese outsourcing companies, but they are smaller and they did not get opportunity to raise money from capital market. The cost of doing business in China is rising too, but still much cheaper compared to the west;

2) Management: Dr. Ge Li and some of his people have extensive US pharma experience and good relationships with them;

3) Stock price: even after Friday 40% jump, the stock is traded at about twice the revenue of 2008/9 (P/S = 528/270 = 2).

Disclosure: hold WX shares as of this writing.

Appendix: The CRO Market Outlook: Emerging Markets, Leading Players And Future Trends
Key findings of the report...
The total CRO market size is estimated at $14bn in 2006 and expected to grow at an annual rate of 14-16% to reach $24bn through 2010. The market is highly fragmented and the number of CROs worldwide has reached over 1,100 despite continued consolidation.
CROs provide substantial global capacity to drug developers and have become critical contributors to clinical trial activity. Clinical trials conducted by CROs are completed up to 30% more quickly than those conducted in-house by pharma companies.
Of the large, global contract research providers, Quintiles is market leader, with 14% of the global market share, followed by Covance and PPD, holding 10% each. The five largest CROs have increased their market share and now hold 45% of the total market.
The leading CROs are commodity full service providers operating on a global scale. They act as one-stop shops for all services, from preclinical through marketing.
CROs and pharmaceutical companies are turning to strategic partnerships to gain a competitive edge in the global business environment.

Is somebody watching Federal Reserve?

2009-05-21T16:31:00.000-07:00

The answer is "Not Really".

First saw the video from trader1688.

Quote: 简单写几句小结：

这是5/5/2009的一个hearing的片段。当事双方是Rep. Alan Grayson和Federal Reserve Inspector General Elizabeth Coleman。
这个grayson似乎还略有正义感，问的问题是fed的balance sheet。几个trillion的钱去了哪里，借给了谁，有些什么样的监控措施。leh breakdown, 还有fed自己的几个t的 off balance sheet obligations.

Coleman 就纯粹是捣糨糊。注意她的几个关键词，
1. high level review ... but not audit ＝不想知道（level越high，可信度越低）
2. in progress since last september ＝不知道，（半年多还查不到10t的动态？）
3. jurisdiction ＝不归我管
她的回答就是一个复杂版的 i don't know, and i don't track the money.

grayson的结论是 i am shocked to find out nobody in the federal reserve including the inspector general is tracking of this.
（继续旁白ing: greyson啊，去学学中国的厚黑学，shock什么啊，你会习惯的。当然了如果你想借题发挥，拉选票的话，小心俺们人民群众黑了你。）

US Bancorp share looks cheap

2009-05-21T16:30:00.000-07:00

(Update) According to Dow Jones News, USB sold 139 million shares at $18 per share. See the news at WSJ.

(Original) When I say cheap, I meant in relative terms.

My benchmark: Buffett endorsed 2 banks in Berkshire annual shareholder meeting: US Bank (NYSE: USB) and Wells Fargo (NYSE: WFC). Many people did not know current Wells Fargo is not the good old Wells Fargo in the west coast, a little more than 10 years ago Norwest and Wells Fargo merged, and adopted the Wells name. Ok, back to the topic. Both USB and WFC stocks had a fun ride in the last 12 months. But more interestingly, as of today, WFC is down 5% YoY, while USB is down 42%. In the past 12 months a lot things have happened to Wells, the biggest one being the Wachovia acqusition. Both took TARP money. Both issued common stocks: twice for Wells (last Fall and last week), once fot USB (today). But the purpose of issing stocks is slightly different: Wells needed the money for captial, USB needs the money to pay back TARP.

Notice the difference here? While Wells is still working hard to prop up capital required by regulator, USB is preparing pay back the TARP. That tells the fiscal strength of the company.

PS, got the $75 from US bank for the new checking account. Also, the customer representative called back to see if I am happy.

Random thoughts on Berkshire annual meeting weekend

2009-05-13T20:53:00.000-07:00

(Update 04May09) Buffett CNBC interview. (Monday Becky Quick)

I did not go to the Berkshire annual shareholder meeting, partly because of the recession (cost cutting), partly because I sold the stock recently (note: one does not have to buy stock to get the admission ticket, they sell it at $5 on eBay). There are live blog and twitter on the meeting (6 hours Q&A), such as MarketBeat (WSJ), CNBC BuffettWatch and NY Times Andrew Sokin. But there are no webcast, because Warren and Charlie are old fashioned.

Succession plan
I have no doubt Buffett and the board have great plan and good people in line to take over if something happen to Warren. But let's be honest, Warren is 79 years old, we know he lives a much healthy live style than Chairman Mao, but I don't expect he run this thing for 20 more years (as said by David Sokol yesterday). The real problem is: nobody can replace Warren, 2 persons or more combined (Warren's idea of a CEO, and a few investment managers) can make things more complicated. Who is going to make the investment call then: use latest example, the Constellation Energy acquisition decision is made in one day between Warren and Sokol. When new guys come in, can we expect that kind of coordination? If conflicts happen, who is going to be middleman and impose influence? Bill Gates seems like a logical choice. As matter of fact he pledged to be a guardian of Berkshire recently. He got the ownership (as Warren pledged majority of Berkshire stock to Bill Gates Foundation).

Recent Buffett investment decisions
Basically Warren did a few big 10% yield preferred stock deal. Many people cried he overpaid for the Goldman and GE stock, he did not (he got the warrants priced at $115 for Goldman, and $22.25 for GE). But here is my rationale why he did the 10% deal: he must think 10% yield is good considering the risk. We know in the past Berkshire annual return is more than 20%, but now Warren is satisfied with 10% yield. As the ship get larger, it's increasingly difficult to speed up.

Another reason (I think), he want to use up some of the cash (more than $40 billion in early 2008), in case his health situation goes bad, some new guy comes in and does some dumb thing.

Common traits of 4 horseman
Amazon, Apple, Google and Research in Motion. All have founders are still making the call. Interestingly, Bill Gates is still the biggest shareholder of Microsoft, but he is not actively engaged. One reason the stock did not do anything in last 10 years?

Will Newspapers go away one day?

2009-05-13T20:52:00.001-07:00

I remember a few years ago Warren expressed his dismal view on Newspapers future (in his annual shareholder letter). A few days ago Redstone (the controlling shareholder of CBS and Viacom) said something similar in an interview.

"The reason we have not gone to newspapers is because its a slow growth industry and I think they are dying. I'm not sure there will be newspapers in 10 years. I read newspapers every day. I even read Murdoch's Wall Street Journal."

I am a newspaper reader. I subcribed to Barrons and WSJ (paper format). Both my wife and I preferred the paper format, because we can mark on it, and it seems to me I think more when read something on paper (vs. computer). Lately I am seeing some interesting phenomena: the WSJ gets thinner and thinner; sometimes I did not receive the paper.

Business problem of newspapers
Newspaper business was caught in a perfect storm in my mind: as more people get news online (via a piece of paper), Google Ads and web advertising in general is taking away a lot of advertising dollar from traditional print media (newspaper and magazine); auto and housing sectors, which made up a large piece of newspaper Ad pie, are losing money left and right; last year the soaring of commodity cost (from oil to paper) with declining subscriptions, increased the cost of running a newspaper. Other costs, hiring journalists, and labor union are pretty much fixed cost for the newspapers. Also keep in mind, many newspapers had large debt, which put them into undesirable position in this credit crunch (I remember Chicago Tribue filed bankrupcy a few month ago).

How about the online business of newspaper? After all, they can do the display ads or google ads themselves, right? But in this area, they are no longer the local monopoly. Basically they serve as an agent or a distributor for Google (double click) or Yahoo.

What's the future for newspaper?
I cannot imagine the days without newspaper. Maybe I am too old fashioned. Remember 10 years ago we all used landline phone. Now almost all of us go mobile. We can get news from Google, Yahoo or MSN.

Also, if some newspapers survive (in the cyberspace), maybe we can get them from iPhone or Amazon Kindle? Save the trouble for printing/delivery?

Stock misconception: listen to experts

2009-05-13T20:51:00.001-07:00

A guranteed way to lose money: listen to so-called experts. Barrons is a pretty reputable magazine in investment community. I read them, but I don't listen to them. Here is an example: the reporting card of Barrons Roundtable 2008. Every year (Jan) Barrons will assembly a group of experts, from famous money managers to analysts such as Bill Gross (Pimco) to Abey Cohen (Goldman Sachs), discussing the outlook of the year, and each expert will share some picks.

Here is an example how things go terribly wrong (I hope no one copied his strategy).

ARCHIE MacALLASTER'S Picks

PRICE
Company Ticker 1/4/08 12/31/08 Change
Fidelity National Information Svc ** FIS $39.87 $16.27 -22.2%
Hanmi Financial HAFC 7.44 2.06 -72.3
Bank of America BAC 39.85 14.08 -64.7
Lincoln National LNC 54.67 18.84 -65.5
VeriFone Holdings PAY 18.50 4.90 -73.5
Chesapeake Energy CHK 39.32 16.17 -58.9
Hartford Financial HIG 82.95 16.42 -80.2

And another one
ART SAMBERG'S Picks

PRICE
Company Ticker 1/4/08 12/31/08 Change
Ultra Petroleum UPL $71.81 $34.51 -51.9%
MEMC Electronic Materials WFR 81.40 14.28 -82.5
Qualcomm QCOM 37.03 35.83 -3.2
Focus Media FMCN 55.71 9.09 -83.7
Dogan Yayin DYHOL.Turkey 4.44 TRL 0.66 TRL -85.1
America Movil AMX $58.44 $30.99 -47.0
Brazilian Home Builders
Brascan Res. Prop BISA3.Brazil 11.25 BRL 2.47 BRL -78.0
Gafisa GFA $34.59 $9.26 -73.2

Stock misconception: volatility is not always bad

2009-05-11T14:26:00.001-07:00

We often from financial experts that volatility in our portfolio is bad. Or in other words, not only do we want good return, but we also want the path to that is smooth. I think most people would agree with that. My CFA preparation book also talked about this idea in "Portfolio Management" section. So basically this "less volatility" is preached and accepted in investment community.

But in Poor Charlie's Almanac, Charlie challenged that less volatility notion and I think I agreed with him. Bascially he was arguing that this is very similar to (in old days) the Chinese women tied their feet, obviously that would not help them walking.

In another instance, volatility is good for the investment banks in this past Q1, as they made a lot of money selling the bonds (wider spead yield). I think they made money from selling stock options too (more volatility, more expensive the options).

For me personally, I am still learning about this volatility thing. Like "buy and hold", I need to get out of this old habbit of "less volatility bias". In late March I bought some Patroit Coal (NYSE: PCX), but I sold it after 2 days after it went up then down. Today the stock traded about 80% above what I bought :-(

Appendix: Think outside the box
George Soros is the total opposite to Buffett and Munger in terms of stock trading style. Nevertheless, we can learn a thing or two from this another greate speculator. Watch Yahoo Tech-ticker

Reading Poor Charlie's Almanac

2009-05-11T14:22:00.000-07:00

(Update 04May09) CNBC interview.

(Update 01May09) Today PBS Nightly Business Report (NBR) Susie Ghalib interviewed Charlie Munger at Omaha.

(Original) One lesson I should learn from him: trade less.

Two reasons:

1) Transaction cost;

2) One usually makes money from carefully selected bets.

Separately I noticed Berkshire Hathaway stock (NYSE: BRK.A; BRK.B) got a nice bump today, as we approaching the annual shareholder meeting at Omaha. This is typically as I recall last year the stock got a nice bump before the meeting, and then had a sell off.

Disclosure: I no longer hold BRK.B shares. Personally I don't feel I understand the insurance business, and the risk of succession is real. Although Bill Gates pledged he will help preserve the culture of Berkshire (Bloomberg, notice there is also a video).

I thought about attending the meeting (couple months ago), but my idea was shot down by my wife :D

PBS NewsHour doing weekly series on Saint Louis

2009-05-11T14:21:00.001-07:00

(Originally written on Apr 28) Yesterday was series one. The series is about the new stimulus package, economy and comparison of (1930s) new deal with current stimulus package. The first one showed many St. Louis landmark, such as St. Louis zoo, Forest Park (Jewel Box). I did not know many of those were built in 1930s (the New Deal).

StreamVideo link here.

It's said that President will be here for a Townhall tomorrow (Wednesday), to get some feedback for his first 100 days. Suddenly, St. Louis is under spotlight.

Here is a link to "recent programs" at PBS NewsHour.

Is 401k a scam?

2009-04-30T15:55:00.001-07:00

As millions of American workers saw their 401k became 201k since last year, this 401k thing suddenly becomes a hot topic. CBS 60 minutes did an excellent report on this topic.

Watch CBS Videos Online

My thoughts
We can not put all blame to the wall street and the market meltdown (whether they caused it or not). It appears to me as the American baby boomers approaching retirement, some of them sold their mutual fund in their 401k accounts when they saw market crash. On the other hand...

Mutual fund industry grew (and benefited) significantly from the boom of 401k in last 30 years. The "buy and hold" strategy mostly worked well both for employers (cutting pension cost) and money managers. But it only "appears" worked for employees because their gain is mostly on paper before this downturn. Besides "buy and hold" and tax deferral advantages, we were told:

1) Stocks have out performed bonds/money market by a few percentage points in a long tim horizon. This is meaningless if our stock mutual funds got hit while we "hold";

2) Dollar average cost, meaning put some amount of money each month. Looking back we now know if we "dollar average cost" in last 10 years and invested in S&P500 index, we actually lost money.

I think the lesson for us is not to blame the greedy wall street or Vanguard, we should rather educate ourselves more on 401k, and perhaps come up with a better strategy. One thing I will do is:

If ( I >= 65 years old)
{
I will switch some money from stock funds to bond/money market funds;
}
Else
{
Thinking new strategy now...
}

Rosetta Stone, learning foreign language

2009-04-30T15:54:00.001-07:00

First saw Rosetta Stone at the mall couple years ago (the kiosk). More recently saw its Ads on the TV. Today comes a monumental day for the company (bloomberg news, IPOHome, Yahoo Finance), the IPO (as old Warren says IPO stands for its probably overpriced).

Fun and emotion aside, I think this language thing may stick. Before Rosetta Stone, the other public company does language training I know of is New Oriental (NYSE: EDU). New Oriental has harnessed the Chinese market in a very unique way, and it's now the un-disputed leader in English test training in China. The main reason? Basically without the training from New Oriental, normal Chinese students can not score high in the TOEFL and GRE (notice I said normal, certainly I understand there are some exceptional Chinese students, and I happened to meet a few back in college). At the time I took TOEFL and GRE, New Oriental school has not existed in my city, so I took training from the best alternative: Qianjing college. Anyway, they serve similar purposes.

I have not used Rosetta Stone service yet. Nor do I plan to learn another foreign language (English is hard enough for me). But I know there is huge demand in this area. Chinese (mandarin) and Spanish are two popular ones. As matter of fact, my wife has been teaching madarin to some college students and little kids, and she has been enthusiatically studying Spanish and Cantonese these days. I joked with her why not learn Cantonese while at Hongkong (she studied there for one year).

Learning and grasping a foreign language well is hard. I mean, things beyond "good morning", "thank you" (if you count that, I know at least 2 more languages). Any tools making this process easier will be welcome by eager learners. From business perspective "cannot pour foreign language into human's brain" is a good thing (hint: look at fitness club). Also it appears to me, bi-lingual people are in increasing demand in both the business and non-for-profit world. The recent worldwide economy slowdown won't affect that. On the contary, the recession shows the imbalance of world economy (too much consumption in the US, too much export from Asia). In the next 10 to 20 years we should see China, Brazil, India and other emerging economies produce and consume more, while US and Western Europe lose some share of world GDP. Hopefully this will also better balancing the world economy and prevent world economy from meltdown like this one.

So, for the sake of world economy, maybe I should learn Spanish with my wife :-)

Stock lessons: sold the goose too early

2009-04-30T15:53:00.001-07:00

This is typically what happens, shortly after I sold a stock, it becomes golden goose. This can be best exampified by the US Bank stock (NYSE: USB). I bought some yesterday afternoon shortly before close. But I kind got a buyer remorse, thought my $16.50 price is a bit high. More importantly, I don't know how financial stocks will go up and down as the earnings started roll out (WFC, GS), and the stock offering of Goldman. I am also unsettled by the charts: by looking at USB/WFC/JPM etc. at stockcharts.com, it appears to me the bank stocks are topping (higher price, lower volume). So I became nervous and sold it this morning, at $16.78. Shortly after that, USB took off, it closed at $17.89. In other words, I missed the potential gain, again :-(

(Video from Yahoo Tech-ticker)

Traders' market
Made quite a few trades lately. As I read from WSJ, and watched from Yahoo Tech-ticker, this is a trader's market. Financial stocks (banks, insurers, even asset managers such as T. Rowe Price) went up and down, as the news on Mark to market, uptick rule, Public Private Investment Partnership and most recently thw Q1 earning came out.

But when I examine the transaction fee, profit and loss. I am still at a loss this year. The biggest loss is from BRK.B :-(

Lesson learned
Other recent instances I sold a stock too early: STP and PCX. I sold STP when it started to run, at $11.76, it now trades at $14.64. As to PCX, I became nervous again and locked in small profit at $3.93 (at the days' low), it now trades at $4.49 (after its big brother BTU big drop today).

1) Patience, more patience, esp. in this volatile market. There are many opprortunites, as long as we are patient and open minded;

2) Talking about open mind. I was debating between myself about selling USB stocks since last night. I did remove the limit sell order early morning, but I put it back on shortly, and obviously sold it way too early (changed from $17.98 to $16.78). Need to adjust as the situation changes.

3) On a positive note, I did not sell it in low $16 at the beginning of trading hour, which is exactly how I did with WFC couple month ago.

Buffett NRG Energy average cost

2009-04-24T20:37:00.001-07:00

From gurufocus, we can see investor gurus like Buffett's buy and sell actions, usually 45 after the close of a quarter. NRG Energy is an interesting one, because it's going to build the first nuclear power plant in the US for 30 years, and the offer Exelon put up last Oct. (0.485 share of Exelon for each share of NRG). More interestingly, Buffett's Berkshire started buying NRG since last year. Here is the transactions: http://www.gurufocus.com/StockBuy.php?action=buy&GuruName=Warren+Buffett

2Q 08: $42.40 * 3,280,100 = 139,076,240
3Q 08: $35.50 * (5,000,000 - 3,280,100) = 61,056,450
4Q 08: $21.50 * 2,200,000 = 47,300,000

By my calculation average cost Buffett paid for NRG is 247,432,690/7,200,000 = $34.3657

Buying a stock Buffett was buying gives one some comfort because Buffett usually did his homework, and adhere to his rules (business; moat; management; price etc). Buying a stock at discount of the price Buffett paid offers some margin of safety. BTW, NRG closed at $18.33 today, about 50% of the Buffett price :-)

Downside
The main downside of NRG is more than 50% of shareholders already accepted the tend offer from Exelon (they surrendered). Exelon extends tend offer till June 26. So hold on the stocks, just like the Oralce of Omaha does.

My view on Credit Cards: from both sides

2009-04-24T20:36:00.001-07:00

(Update 23Apr09) It seems Obama administration is going to make credit card more consumer friendly (marketWatch). So are they going to socialize the credit card: I mean, you and me (i.e., honest guys) pay the credit cards on time each month, will bail out the deadbeats, after we bailed out the Wall Street ??? We know the credit card companies (the wall street) are not charities. This thing looks more like dumber and dumber.

(Original) Yesterday I mentioned credit card when talking about recurring revenue. Credit card is the live blood of our consumer society. Like commerical paper for business, we (consumers) use (more precisely borrow from) credit card for our daily purchases. At the end of each billing period, we either pay off the whole balance or pay the minimum payment (not recommended from personal finance perspective, but so many people do this nowadays. The customers who carry balance (and pay >10% interest) also contribute the profit of credit card companies. But it appears now credit card companies started to upset their best customrers, amid the credit crisis.

Business
American Express (NYSE: AXP) and Citibank (NYSE: C) pay customer to go away

JP Morgan Chase (NYSE: JPM) charged monthly fee to customers, then gave refund under pressure from NY AG Cuomo (CNN Money story).

Last but not least, B of A (NYSE: BAC) raises interest and minimum payment for accounts with balance. Actually all credit cards do this (Card issuers: raise interest for everyone). JPM raised my minimum payment from 2% of balance to 5% of balance recently.

The main reason credit card do this is not to upset their best customers, but rather as the unemployment rises, credit card default also rises, the card companies need to raise the rate to offset the rising default. As we all know, card companies are not in the business of charity, they lend so that they can make money (from us :-)

Consumer
My tips: separate the cash bonus card (the card one pays off each month) from balance transfer card (hopefully low interest). For me I learned this lesson back in 2000. Also pay miminum payment for the BT card which has a low interest rate until it paid off. This is mostly to raise more cash in this uncertain economy. Acutally Suze Orman, the famous conservative personal finance author recently also recommend "pay minimum", while I have done this already for years. Here is Suze's original word:

"If you have an unpaid credit card balance [and] not much saved up in emergency savings, I need you to listen up. My advice has changed. I want you to only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can"

Big picture
I don't expect the credit card to ease credit in the near term. As the economy continues in recession, one interesting phoenomena is now every card don't want to be the last guy to hold hot potato: means they cut credit limit to card members to avoid they hold the last balance transfer from other cards.

Read this Meredith Whitney WSJ 031109 article: Credit card the next credit crunch, if you have some 20 minutes to spend.

Google Finance stock screener

2009-04-24T20:35:00.001-07:00

(Update 20Apr09) Found this trick in google finance (chart), hold on mouse "up" or "down", the time frame of stock chart extends or contracts.

Stock Screener
Here is an example: market cap $5 b to 25 b; PE ratio 10 to 20; dividend yield 2% to 5%; return on equity 15% to 25% (last 5 years). You can also sort the results by "52 week price change" etc (in ascending or descending order).

Customization: you can add other criteria such as "Return on equity (ave. last 5 years)". The reason I like return on equity is that it means real return for shareholders. Ideally I am more intereted in the free cash flow yield (definition at investopedia).

Range: Google provides default. You can see the price change for all the stocks: -99.86% to 5,094% (52 weeks). Interesting. I left it here so I can see the range (in other words, I am not filtering out any stocks using this criteria).

Results: there are 27 stocks as I ran this in recent days. I found ADP, BNI, TROW, GWW to be interesting.

Another screen: switch to smaller captial (1b to 5b), div yield 1% to 4%, added revenue growth 10% to 20% (last 5 years, match PE 10 to 20). Here is the link. It gives me 10 stocks.

At this time, I mostly use it for fun. I am not seriously use it to pick a stock, yet.

Industry
My complaints on Google Finance. A bit strange, why is Wells Fargo a regional bank, while US bank a money center bank?
Wells Fargo (NYSE: WFC) belongs to Regional Banks

US Bank (NYSE: USB) belongs to Money Center Banks

PS, I remember years ago I used Yahoo Finance java based stock screener. But here is its web based Stock Screener.

PS2, long time ago GSeeker wrote this about Google Finance (in Chinese).

Renewable engery, recurring revenue

2009-04-10T10:04:00.001-07:00

Chinese solar stocks are on the fire these days, mostly due to the Chinese goverment subsidy news (like this one). For me, this solar thing is ONS, not for long term investments at this time. The most worrisome thing for solar, is not the over-supply (competition), is not the volatility of raw material cost (as I understand, the supply polysilicon is way too much down the road), not even the cost of eletricity generated by solar compared to cost of other traditional energy (fossil, and nuclear).

My question to solar makers, is their business model. Can they get recurring revenue like oil companies do? I am not expert on solar energy, but I believe the majority of cost for solar users are the initial investment for solar panel (installtion included). I think there will be maintenance and spare parts, but this is not significant compared to the new solar panels. On the contrary, we got to use our car everyday, and we fill our gas pump from time to time, twenty some dollars for a typical car these days (regular unleaded is $1.99 today here in St. Louis). Not a small amount, not a big amount either.

This reminds me other business which mostly derives its revenue from recurring revenue: food, beverage, drugs, credit card (more on credit card later), maintenance (think W.W. Grainger), software (Oracle is big getting maintenance revenue), online game (addictive nature, but it will fade away eventually as new game appears). On the other hand, business get revenue on one shot deal: Crocs and Heelys (shoes can last a while, plus fashion and taste changes); Xinhua Finance (XFML, now XSEL) and Ninetowns, I don't know what they do these days, but it appears they made money by one shot deals, and no more deals for them.

Another obvious one shot deal of business, is the new car business. The US auto industry is under a lot stress these days, and there are many reasons account for that: over capacity, high labor and retiree cost, quality perception (the problem is fixed but perception exists in customers mind) etc. The dealers and Parts companies derive significant revenue from maintenance and repair, but new cars are the only revenue source for GM, Ford and Chrysler. This is obviously in contrast with the oil companies: making small amount of money for each gas refill. Note car companies sometimes lose money selling new cars.

Pfizer Wyeth arbitrage game

2009-04-10T10:03:00.001-07:00

Pfizer (NYSE: PFE) agreed to buy Wyeth (NYSE: WYE) on Jan 26 2009 (forbes). Quote Forbes:

According to the terms of the deal, each outstanding share of Wyeth will be converted into $33.00 in cash and 0.985 of a share of Pfizer stock, valued at$15.57 per share, based on Pfizer's current price.

Last I checked: $33.00 + $13.60 * 0.985 = $ 46.40 vs. Wyeth current price $42.53.

Hmm, 9% return in how long (one source says the deal could close in Q4 2009).

Potential risk:
0) Pfizer stock drops, because WYE stock is now tied to PFE stock (0.985 correlation);

1) The close could not close by Q4 due to financing or anti-trust issue;

2) Another bidder emerges (whch is a good thing);

Reference: arbitrage explained in Wiki.

Got milk?

2009-04-10T10:02:00.001-07:00

Bought some Mead Johnson Nutrition (NYSE: MJN) shares last week. I wrote about it couple months ago before its IPO. This is one of my defensive plays in this downturn. It appears to me people will not stop making babies in the recession, from my very limited observation. More importantly, after China milk powder incident last year, Mead Johnson's Enfamil is likely to get more market share in China. Yes, China economy growth slowed quite a bit due to the slowdown of export. Yes, people are losing jobs overthere. Yes, Chinese people are cutting back on discretionary spending. But one thing won't get cut is baby's formula. Same argument could be made for India, and Brazil...

Mead Johnson's parent Bristol Meyers Squibb stock (NYSE: BMY) dropped quite a bit last Friday (yesterday). I am doing EMC-VMW type of analysis here (EMC is majority owner of VMW even after VMW IPO).

My question:
How many MJN shares does each BMY share has?
MBS Shares outstanding: 1.98B (Yahoo Finance)

MJN: 30 m shares offering (about 15%, IPOHome)
204.50M (Yahoo Finance), matches 424B4 Final Prospectus, quote 424B4:

Currently, we are a wholly-owned subsidiary of BMS and all of our outstanding shares of common stock are owned by BMS. Following our separation and upon completion of this offering, we will be a stand-alone public company and BMS will own 58.5% of the outstanding shares of our Class A common stock, or 55.1% if the underwriters exercise their over-allotment option in full, and 100% of our outstanding Class B common stock, giving it 85.0% of the shares of our outstanding common stock and 97.8% of the combined voting power of our outstanding common stock, or 83.1% and 97.5%, respectively, if the underwriters exercise their over-allotment option in full. Any shares of Class A common stock issued pursuant to the underwriters’ over-allotment option will increase the total number of shares outstanding after this offering.

*So in summary 204.5 M * 85% / 1.98 B = 0.0878
$27.35 (MJN share price) * 0.0878 = $2.40 (each BMY share has approximately $2.40 value of MJN share).

Appendix:
Bristol Meyers Squibb BMY 5 Dividend Stocks for this Market (SmartMoney mag)
Corporate executives almost always say their stock is a good value. But Bristol-Myers Squibb (BMY: 20.17, -1.16, -5.43%) CEO James Cornelius backs it up with hard cash. He bought $2.3 million worth of shares on the open market last year‹the first big purchase by a Bristol insider in more than five years.

But that’s hardly the only reason analysts like this drugmaker, which has nearly $20 billion in annual sales. The company makes one of the world’s top-selling drugs, Plavix, a blood-thinning agent. Along with its partners, it recently introduced new drugs for rheumatoid arthritis, hepatitis B, HIV/AIDS and cancer. It has more than $8 billion in cash, which it can use to make acquisitions or license drugs from other firms. And it expects to increase earnings 10-15 percent this year.

The big challenge for Bristol is what to do about the “patent cliff” it will face in 2012, when three of its biggest sellers, including Plavix, face competition from generic drugs. Those three drugs account for more than a third of sales, and analysts worry that the pipeline, while promising, doesn’t include enough potential hits to fill the hole. One key will be whether Bristol’s restructuring plan pays off. The firm has been shedding slow-growth businesses and cutting costs. It plans to spin off part of its Mead Johnson nutrition unit to raise more cash. Cornelius has outlined a strategy of buying a “string of pearls”‹small but profitable biotech drugs that could make up for patent losses. He’s also signaled that he’ll be disciplined with the cash; he dropped out of the running for ImClone last year after Eli Lilly trumped his $5.4 billion offer for the biotech firm.

Perhaps most compelling is the stock’s value compared with other big drug companies. The shares trade at a price/earnings multiple of about 12 times estimated 2009 earnings of $3.8 billion‹a 15 percent premium to the drug industry average. Yet Bristol is increasing profits at more than double the sector’s rate. And it offers one of the highest dividend yields. Says S&P equities analyst Herman Saftlas, “If they hit enough singles and doubles, they’ll offset the lack of home runs.

Q1 2009 Results: 401k and Rollover IRA

2009-04-03T16:29:00.000-07:00

They are all in stock funds.

Old 401k (Hewitt): down 11.8%
Rollover IRA (Vanguard): down 11.78%
New 401k (Vanguard): up 133.97% (this is due to new contribution, I started new 401k in Nov 08, so there is an easy comparison here)

Noticed my portfolio balance in Vanguard is about even compared to the end of 2007, when I started the Rollover IRA. Consider this is after I made signigicant new 401k contribution since Nov 2008. So much for long term investing concept. I need to rethink how to better managing my retirement account.

S&P is down about 11.7% in this quarter.

This "Wang Yang Bu Lao" thing on credit rating

2009-04-01T17:03:00.000-07:00

(Update) Big bro started to act now.

(Original) We all know the stock rating game: I mean those "buy", "hold" and "sell" rating usually issued by sell side (brokeage) analysts. They are mostly not objective, because at the end of the day the dealers want to sell you more stocks, regardless they are good or bad. At the height of this analyst game is Goldman "conviction buy", my question for them is why there are no "conviction sell"? Presumably, one can use a sell list to short stocks?

Oh well, Michael Lewis, the former Soloman bond salesman, described the analysts in his "Liar' Poker" very well. So I won't keep beat on them. My focus on this little article is on the credit rating (bond rating) game. We all know the credit rating agencies (agencies may have mislead some to think they are independent organization, they are really for-profit companies) have been under attack for the debale of housing/mortgage markets because they had been slept in the same bed with the issuers of MBS (mortgage backed securities).

One interesing phenomena I saw recently is now that the horses are all out of barn, the credit rating agencies (excuse me, companies) decided to raise the fence in the barn. In Chinese we call it "Wang Yang Bu Lao" 亡羊补牢 (baidu). It's better than doing nothing, but it also put more stress on the horses who want to get back to the barn (higher fence). In the case of companies who need to refinance, the cost of raising new debt will be higher. For instance, Ingersoll Rand (NYSE: IR), had to pay 9.5 to 9.625 coupon (interest rate) for $600 5 year notes, compared to same term treasury notes at 1.75% (source: Bond Expert seekingalpha). Quote:

"Ingersoll Rand (IR) is BBB+ and lowered guidance recently. They are on watch for another downgrade.

Against that background they chose to issue 5 year notes today. They are talking a coupon of 9 1/2 to 9 5/8 . That is pretty wide to the 5 year Treasury at about 1.75 percent."

What does this mean for investors?
As I was reading a few weeks back, there are only a few AAA US companies: ADP, Exxon Mobile, Johnson & Johnson, Microsoft and Pfizer. Recently GE and Berkshire lost their AAA status. I noticed yesterday US bank debt also get downgraded. Basically it will raise the borrowing cost for the companies (e.g. Berkshire had to pay 282 basis points over same maturity treasuries for its $750 m notes).

Jund bonds (high yield): be careful. I remember shortly before WaMu's seizure by FDIC, its bond was downgraded to "C" or "D" status by rating agencies. So a lesson learned for me: when a bank's debt becomes highly speculative, its common stock is probably worthless.

My Berkshire Hathaway proxy vote

2009-03-31T18:23:00.001-07:00

I sold my remaining BRK.B share last week, and got some US bank (NYSE: USB) shares instead. The main reason I sold BRK.B is:

1) I don't really understand the valuation of the business, which is 50% insurance + 50% manufacturing, housing, retailing etc. I have no idea for insurance and the whole thing is too complicated (big) for me.

2) I feel while Buffett escaped the worst market in 2008 with relatively few wound, he has appeared too much in public (CNBC?), and may have spent too much time with people he felt comfortable with (CEOs of Goldman Sach etc.). In other words, I hope he spend more time in Omaha, doing his thing/improving himself, rather than "start get into bubble".

For the similar reason, I decided not to worship him in Omaha this May, although I understand the chance of seeing the great investor becomes slimmer and slimmer as time goes (as I told my wife :-)

That's OK, at least I voted with my best judgement. I will explain why I voted against some of the directors if you are curious.

GM is NOT too big to fail?

2009-03-31T18:22:00.001-07:00

(update) CNNMoney appears to agree with me. When did I sound like MSM (main stream media)?

Obviously, that's how the US goverment thinks. When bailing out the AIG, they were saying AIG is a systematic important institution, and they just could not let it fail. And here is the bailout (handout details).

As many people already noticed, Goldman and some European banks got more than $10 billion, notice that's a B. Not the silly $165 million bonus the media was all over in last 2 weeks (keep in mind 1 billion = 1000 million, or 1 million = 0.001 billion).

Back to GM, I don't have much sympathy for its CEO Rick Wagner (whom I think will do much better than most working people anyway). But how about the retirees, who have worked while life at GM and now counting on the pension for living expense? Now the US goverment bailed out the well-to-do bankers (both domestic and allies), but not want to bail out the retirees from car makers? I bet the the retirees can use money much better (like buy food and medicine) compared to the bankers.

WOW. I don't feel so great to live in so called greatest nation on the earth any more.

Questions for Warren in this year annual shareholder meeting

2009-03-31T18:21:00.002-07:00

Also collected here.

1. Why invest in Utilities? Does not Utilities need a lot of capital, what’s the difference between Utilities and the original Berkshire (BRK.A, BRK.B) textile business? You did explained in your letter that utilities can deploy capital for a decent return. And I read this old article "Why Buffett is buying utilities" from MSN money (Jim Jubak). Do you agree some of what Jim said?

2. Why keep American Express (NYSE:AXP) and Moody (NYSE:MCO)? Don’t we see the permanent demage of consumer credit, and the rating companies? How about Wells Fargo (NYSE: WFC)? Why not sell all Bank of America (NYSE: BAC) shares (noticed you did sell half last year)?

3. Derivatives. There are a lot crititics on this, and you have explain this very well in the shareholder letter. But, as I read “Poor Chariles Almanack”, Charile is much more cautious on derivatives, and its systemantic risk (chain effect of credit risk form counter parties). What's your comments on over the counter derivatives market in general?

Will add more questions when it pops up.

Disclosure: I sold my remaining BRK.B share yesterday. No positions on the other stocks being mentioned.

Response on Geithner Plan

2009-03-31T18:21:00.001-07:00

Toxic asset plan, or Public Private Investment Partnership (PPIP).

Charile Rose
Hedge fund manager's perspective: Daniel Alpert is a managing director of Westwood Captial and Thomas F Steyer is Co-Managing Partner of Farallon Capital Management (total about 22 mins)

NPR/On Point
Banks, Bailouts & the Obama Plan, this lasts about one hour.

Short version
Last but not least, here is an interesting video on Youtube "Hey Paul Krugman"

The Geithner Plan

2009-03-24T21:42:00.000-07:00

The plan
Tim Geithner (WSJ): My Plan for Bad Bank Assets (aka Public Private Investment Partnership, PPIP); Treasury dept press release.

Notice the PPIP will leverage the TALF program launched by Fed recently. Here is a picture explains how PPIP works with TALF. (click to enlarge)

I think it's important to read those before reading others comments, no matter a guy is nobel laurate or a blogger. Blackrock and Pimco, two large asset (bond) managers, appeared like the plan.

Psychology Book
Influence: Science & Practice by Robert Cialdini

Protectionism on the rise?

2009-03-22T19:15:00.001-07:00

I was expecting Coca Cola's proposed Huiyuan Juice acquistion go through, but obviously things did not turn out as I expected. While the free trade people in the US are upset by this, they should remember in 2005, the US congress shut down China CNOOC proposed buy of US oil company Unocal. Signs of more protectionism in the US (besides the anti-free trade measures in the stimulus bill, recent trade dispute with Mexico).

Debate on H-1B
On the other side of the pacific.

(Financial Times) BofA withdraws job offers to foreign MBAs; (Forbes) Chuck Grassley hurts America.

Durbin-Grassley anti H-1B bill; (Economy Times) Microsoft reply to the bill; (Seattle Times) Proportion of H-1B workers at Microsoft won't change after layoffs.

A twist
Interestingly (on the other hand), I read from WSJ, that some people proposed encouraging the immigrants to buy houses in the US to prop up the slumping housing market. Seriously I do think this country could use more money/investments from the world.

CBS 60 minutes

2009-03-22T19:14:00.001-07:00

It appears CBS 60 minutes have hit two runs in a row. Last Sunday they had current Fed chairman, Ben Benanke on the show. This coming Sunday, they will have President Obama. Also, Mr. Obama is going to appear at Jay Leno's Tonight show this Thursday 3/19. Those two shows (I mean 60 minutes vs. Tonight show) are totally opposite in terms of their style: 60 minutes is usually serious while Jay Leno's late night talk show is light hearted.

With the leaders started appearing in public, talking up about the economy, maybe the worst of the financial crisis finanlly is over? :-)

Watch CBS Videos Online

(CBS 60 minutes show last Sunday, about 43 min in full length. I include the full show because I think the other topic eat healthy is also VERY important).

Stock buy backs got Borders into financial trouble

2009-03-22T19:13:00.001-07:00

google finance (NYSE:BGP) cash flow, note the numbers in bold

In Millions of USD
52 weeks ending 2008-02-02 52 weeks ending 2007-02-03 52 weeks ending 2006-01-28 52 weeks ending 2005-01-23
Issuance (Retirement) of Stock, Net 7.60 -122.70 -238.30 -132.50
Issuance (Retirement) of Debt, Net 43.40 303.30 -1.40 6.80

I has been a Borders customer for a long time, just feel sad to see my favorite bookstore got into such a big financial trouble. But again, they (the former management) kind dig a hole themselves: bought back stocks from year 2004 to 2006 (spent $132.5 m, $238.2 m, $122.7 m). Then scambled to borrow $303.3 m in year 2006, and borrow and issue stocks in year 2007 (too little too late).

Business wise, I think the popularity of iPod/iTune almost killed the music CD sales, and the rise of Amazon (low cost) affect book side of business.

Pershing Square (Bill Ackman) has a 33.62% stake in Borders (gurufocus). BTW, his BGP holding has dropped 96% of its value, according to Gurufocus.

The man who knew (CBS 60 minutes)

2009-03-12T17:36:00.000-07:00

Harry Markopolos blew the whistle on Madoff long time ago. But sadly SEC did not listen. Here is the CBS 60 minutes video.

Harry did a mathematically simultation to prove Madoff is a crook. For ordinary investors, I think the signs I mentioned earlier (too good to be true; 10% annual compound return is very hard to achieve etc.)

Watch CBS Videos Online

This emperor has no clothes

2009-03-12T17:35:00.000-07:00

Cramer Stewart saga goes on.

Madoff will go to jail, for life. He deserves it. Just thinking how many people (esp. the older people) lives turned upside down because of his ponzi scheme.

How many clothes-less emperors still out there?

Lesson for ordinary investors
Refer to John Bogle, 6 lessons for investors. Get self educated: get a little finance and psychology lessons, so that one knows more than Dow (S&P should be the real benchmark), compound annual return of 10% is not bad at all, fear and greed etc.

I also think there are 3 types of financial advisors in money management business.

1) Crooks like Madoff and Allen Stanely: this is minority.

2) Most people fell into this category, mediocre. I remember one of my colleagues told me last Sept. his broker told him buy GE at around $22, because he thinks that's a bargain price for a blue chip like GE. Oh well, we all know how it worked. Most brokers are people who passed series 7 or 63 tests, but have not much idea of accounting and finance. They learned about stocks mostly from CNBC or something like that. How can an average investor beat the market by listening to those guys (or ladies)?

3) The heros. Buffett was one (he had a partnership before the Berkshire Hathaway, in a broad terms, his Berkshire is still in money management business). Peter Lynch. Bill Miller (before 2007).

Mark to market hearing

2009-03-12T17:34:00.001-07:00

A bunch of politicians (accounting newbies) questioning accountants
C-span video here.

All right, more finger pointing. Now people (oh, I mean Wall Street and their friends at Washington) are blaming mark to market (wiki), for the financial crisis.

This is almost same as blaming starbucks for one's coffee addiction problem. Coffee, if consumed modestly, is good. But if one drinks more than 6 cups a day, he/she basically will get caffeinated.

Similar thing can be said to M2M, M2M is not the cause of this downward spiral, the overly leverage IS.

When politicians started play with accounting rules, I think rational investors will become really nervous.

Greenspan: don't blame me

2009-03-12T17:33:00.000-07:00

Alan Greenspan, the former Fed chairman wrote an article The Fed Didn't Cause the Housing Bubble on WSJ to defend himself. He was saying his low fed rate from 2003 to 2005 is NOT the cause for the housing bubble, and current financial crisis. Interesting stuff. I remember Oct. Anderson Cooper (CNN) did a series of 10 most wanted culprit for (financial) collapse, and Mr. Greenspan was No. 6. The English article on CNN360 is not easy to get, here is Chinese translation.

Anyway, I don't want to get into those political stuff. My point is, probably he has his share of mistakes. Of course, he is not alone in all this. It takes a meltdown of the whole system for us to get here, from regulators including the broader goverment (democrats and republican; congress and presidents), from business to consumser, from wall street to main street, from US to China,...each made some convenient choice without thinking the long term.

But the human nature when we hear the blame, we will say: no, not my fault.

Psychology 101: denial is the first response we hear bad news.

Tang Wei Zhen: Chinese Madoff

2009-03-11T21:35:00.000-07:00

Tang Wei Zhen 唐炜臻 (company) claimed to be Chinese Buffett (as shown in the following 11'24" video, link here). But apparently he is Chinese mini-Madoff. Chinese story here (hutong9).

Couple points to spot warning signs:

1) If something sounds too good to be true, it IS too good to be true;

2) If someone claims he/she can predict the market, run, not walk away from him/her;

3) (Specially apply to Chinese) If someone claims to be Chinese Buffett, obviously he/she is Madoff.

Tim Geithner on Charlie Rose

2009-03-11T08:00:00.000-07:00

Link here.

Don't tick off Jon Stewart

2009-03-08T13:05:00.000-07:00

link here.

Seriously, I think Jon revealed some of the problems in the financial media in general. It's time to turn off the TV, and do some own home work?

Recent Bank Ads on WSJ

2009-03-07T20:44:00.001-08:00

We know CEOs of some of the nation's largest banks are buying their companies' stocks, to show their confidence on their respective company.

It's also interesting to see some of the leading banks are putting up a lot Ads on Wall Street Journal. I took some pictures here from WSJ in these days and share them here.

(Citi bank shows a happy couple/home owners who got mortgage from Citi)

(This JetBlue ads encourage CEOs to ditch their business jet and use the discount carrier)

(In this Ad Bank of America is saying they are provding vital service to community)

(OK, this one needs a bit more explanation. Wells Fargo had to cancel a Vegas trip for its top sales person because of public anger. Note Wells took the TARP money. Here Wells is putting up a reconginzation letter for those sales people. Quite difiant, huh?)

PS, I found this video about Citi Bank nationlization a bit funny. Warning: don't watch it in office or with your kids. A lot of F words.

Glass half full? Glass half empty?

2009-03-07T11:48:00.000-08:00

Week in review 030109 to 030709

We are officially in Obama bear market (source: Bloomberg), in other words, the stock market (i.e., Dow industrial for most people) dropped 20% since President Obama took office in Jan 20. Yesterday S&P 500 briefly touched 666 (the number of devil), pretty scary, huh? I am sure this economy/financial crisis has been the hot topic in many kitchen table, or office cafeteria. The financial media is also taking the crisis as oppertunity -- we have seen numerous experts, panel discussions, such as the "Help Wanted" talk last night on CNN money, which is mainly talking about the Feb. job (loss) number: 650,000. This number is actually small, if we put it into perspective that 20 million Chinese migrant workers already lost job since the end of last year (read my friend Bo Peng's article if you are interested).

If one person listen to all these news without checking out the real world, e.g., visiting Wal-Mart (NYSE: WMT) or McDonald (NYSE: MCD), one may think we are near to the end of the world. But as famous investor/businessman Warren Buffett said in his 2008 annual shareholder letter: America had been in much worse condition, and had came back from all these situations before. May I add "dido to the world". For me personally, 30 years ago I walked to attend village school in southeastern China, and now I work as a software engineer in the midwest US. Although my wife often joked we got stuck here (to some extent I agree), I think progress has been made.

What's your risk tolerance level
Generally, the older a person gets, the less risk tolerance he/she likes to take. But age is not the only factor, I think personality also plays an important role, e.g., my wife does not like the potential loss of investing in stocks. She prefer CD or bonds (safe interest) much better.

Be greed when others are scared; vice versa
Back to this famous word said by the famous guy from Omaha. I think it's very applicable these days. When the pension fund, mutual fund and hedging funds are selling because of redemption, or for the fear further loss (same thing can be said to many retirees and working adults), the deal becomes sweeter. This is a time for us to take a deep breath, do some homework, and start picking the potential winners...

Bank nationalization: II

2009-03-07T11:43:00.001-08:00

This is the second part of my thoughts on bank nationalization, I hope President Obama and his finance team can read my blog, as they are thinking through the "bank rescue", the No. 1 issue facing this country, and the world economy for that matter.

As I said in my previous post, bank nationalization appears bad for the existing shareholders of bank common stocks, in the sense they will get wiped out or diluted. But I also said this is merely "mark to market" for them, whether they want to face it or not, the day of reckoning will come soon or later. In the mean time, when we are waiting for the eventual take over of some of the nation's largest banks, consumers and business get scared, they either withdraw money and put under their mattress (consumers), or stopped investing and started hiring freeze/travel freeze/lay off (business). This will have spill over effect on the world, as we are living in a increasingly globalized economy. When the rumor of China new stimulus started, the US stock market started to rally. You got the idea.

I can understand the Americans are not warm to the idea of nationalization of nation's largest banks. But the president can not lead by polls or the noises in stock market. He should take a deep breath, look at the problem, make a hard decision, and SELL the "bank nationalization" to the American people. There are other important issues, healthcare, energy, jobs, etc. It's good show he flew to Ohio to give a speech with 25 new police recruits, showing the fruits of stimulus package. These are important things, e.g. an affordable healthcare system is vital to the US business and nation's economy. But apparently all these can not be the No. 1 priority: the banks. Without a healthy banking system, the modern commerce just won't run. I also understand he need more experienced staff to run the finance, and the big banks. Maybe he can ask some help from China. I mean, Chinese has the most experience running nationalized banks, and it looks to me (actually according to International Accounting Standard) those banks are pretty healthy. So why not being a student once a while? Why American should always be the teacher :-)

Note: it's also in China's interest for US have a healthy banking system, a healthy credit, and confident consumers. I am sure if President Obama asks, Chinese will help. I know I will.

PS, my friend Bo Peng wrote some thoughtful articles regarding the "how to deal with toxic assets/accounting standards" (Whatcha Gonna Do When 1+1 No Longer Equals 2), and "bank nationalization" (Re-privatization, Not Nationalization).

S&P 500 10 years chart

2009-03-02T17:51:00.000-08:00

March 04 1999 to Mar 02 2009, courtesy of Google Finance.

Two thoughts pop up by looking at the charts:
1) We probably have not hit bottom yet;

2) The drop in mid 2008 till now is so sharp, 50% in one year :-(

BTW, I think it's a good idea to stay away from the market these days. Learn from the Oracle of Omaha.

Leveraged ETF pitfall (from MorningStar)

2009-03-02T07:52:00.000-08:00

MorningStar link here.

More about ETF at Wikipedia. The bottom line is I feel those ETFs are not meant for long term investing, because of the leverage and their trading strategy.

Dow 5,000?

2009-02-27T15:59:00.001-08:00

I remember years ago (in dot com era) there is a book named Dow 36,000. Obviously that predication was a laughing stock becaue Dow crashed in year 2000. No I am not trying to make a fool of myself, my title Dow 5,000 is merely to reflect today the Dow and S&P dropped to 12 year low again (source: bloomberg).

Seriously, I think as Citi (NYSE: C) got partially nationalized, whether the US gov wanted to admit or not, at the same time the 4Q 2008 GDP in the US dropped more than 6% year over year, the downside will be more limited compared to upside, if we look at long term (I mean at least 5 to 10 years). I am not trying to make a fool of myself predicting when is the exact bottom, maybe 2009, maybe 2010, or even 2011, who knows? The situation is still pretty bad, considering BoA (NYSE: BAC) is still not nationalized while trading under $4, the unemployment rate in California exceeded 10%, GE finally cut the dividend (how about Wells Fargo, time to forgo the dividend?)...China's stimulus plan, while bold, appears not getting much traciton considering after all, China is NOT decoupled with the rest of the world.

For the time being, I am thinking about dividend paying stock (not the JPM or GE type, who cannot make the dividend, the ones can keep paying dividend), with strong long term fundamentals, if I have some cash. Also, food/staples is probably the only safe place, if things really really go bad. Time to shop at Wal-mart (NYSE: WMT), maybe?

Tomorrow, the Oracle of Omaha, Mr. Buffett is going to release his annual letter to shareholders, expect a rough ride. I will tight my seat belt.

Bank nationalization may not as bad as it sounds: I

2009-02-27T15:58:00.000-08:00

What is nationalization
This is my understanding. Usually a company has 3 types of capital: debt, preferred stock, common stock. In terms of ownership the equity holders (common stock holders) own the company. We say they borrow from the debt holders: in return they pay interest and principle to the debt holders down the road.

In the case of bankrupcy, debt holders have priority over preferred holders, preferred have priority over common, etc. (note all debt are not euqal too, some are senior than others, some are secured, some are not).

Back to the topic. Suppose goverment is taking over Citi. The US gov is getting both the potential downside and upside of the Citi. In other words, the gov will assume the liability of Citi's debt and will own majority of the common stocks (in the case of F2/AIG, they owned warrants equivalent 79.99% of outstanding stocks). So the existing shareholders are diluted, as you can see from the share price of Fannie/Freddie/AIG. The gov can be more stringent if they like. Current law limits goverment ownership under 80%, otherwise the gov needs to combine the balance sheet of those companies into its federal goverment balance sheet (we know US gov has big deficit/debt these days, so the gov is unlikely to expand its balance sheet).

So in other words, nationalization is "mark to market" for exsting shareholders (their securities). Not good news for them.

To be continued...

Buying books from Borders

2009-02-21T08:57:00.000-08:00

I have been a Borders customer for a long time, most times buying coffees while studying (reading books) there, from time to time I also bought some computer or finance related books, such as Effective C++, My Life as a Quant, etc. One benefit of buying books at Borders (compared to Amazon) is getting the book right away, vs. waiting and waiting (I normally use Amazon free shipping option which typically takes a week). We know time is money in many cases.

Recently I bought two books from Borders, one is Cocoa Programming on Mac OS X, another one os Pro C#, both with 40% discount (available to Borders members only, free to join). With the 40% discount, the books are about the same price at Amazon. For instance, the list price of Pro C# 2008 is $59.99, it's $36 after 40% off (before tax). Amazon price is $37.79.

(Source: NPR Market Place)

Inventory
Book sellers like Barnes Noble and Borders are under tremendous pressure amid the competition from Amazon, and the slowdown of the economy. Yesterday I read from WSJ that Borders are laying off 136 people from its HQ (12% of its corporate workforce). So they are doing cost cutting, driving efficiency. This leads to one problem for customers, very lean inventory. Sometimes they just have one book for a title. In this case the customer will have to order from the store.

I don't know whether Borders will eventually survive this downturn, I hope they will. That's one reason I shopped there (to support them). Otherwise we will have to buy books online and for me personally, one fewer place for study.

Berkshire Buffett COP Conoco Phillips stake

2009-02-18T18:13:00.001-08:00

In these turbulant days, investors, ordinary and professional alike, look for directions from investor guru more than ever. Of course among gurus people pay attention, is Warren Buffett quarterly stock holdings change: people are interested in what he bought and what he sold, some (like yours truely) tried to understand his move and thinking, and follow him if makes sense. To avoid copycats, Buffett usually tries to delay his 13G filings as late as possible (within the deadline of SEC, or other regulatories). He famous sent a regular mail to Hongkong Securities Exchange after he sold the PetroChina stock, postmarked by the deadline of HSE.

Back to topic. Yesterday was one of those days Buffett filed his holding change. There are some confusions about his Conoco Phillips (NYSE: COP), Jim Cramer even says Buffett is selling America (to counter Buffett own NYTimes op-ed piece "Buy American I am"). Note when Buffett said "Buy American I am", he meant he was buying stock from his own account (not the Berkshire Hathaway). Well, selling America or not, the most important thing in investing, is not let your patrotism or other emotions to influence you. I did a little digging about Buffett COP holdings, partially for fun, partially because I bought some COP lately.

At gurufocus on Sept 30 2008 Berkshire Hathaway has 83,955,800 shares. On Dec 31 2008 some source such as 247wallst says the stake reduced to 79.896 million, which is confirmed by the page 4 of 13G form: OBH, Inc...79,896,273 shares. But obviously some readers forgot to read the page 2 and 3, which says Buffett and Berkshire owns 84,896,273 shares of COP (5.7% of outstanding shares). The 13G form also listed significant holdings of COP shares by Berkshire Hathway subsidiary such as Geico and National Indemnity Company.

So what's my point? I think the takeaway is "read carefully, do your own some research" before "hear some news from so called experts, then jump into conclusions".

The end of rampant consumerism

2009-02-18T18:10:00.000-08:00

From Yahoo Tech-ticker.

I am sure car companies don't like this, so as the jewery makers, Nieman Marcus, Saks 5th Ave. etc etc.

The most interesing point I heard from this clip is American consumers recently shift from overspent 6% (negative saving rate of 6%) to a saving rate of 3%.

Ingersoll Rand: huge write down, stock still up?

2009-02-11T14:18:00.000-08:00

This morning, Ingersoll Rand (NYSE: IR), the diversified industrial company makes procucts to air conditioner (Trane) to Schlage locks, reported its Q4 2008 earning this morning. Some highlights: it wrote down $3.7 billion (pre-tax, $3.4 b after tax) from Trane acqusition, or a loss of $10.56 per share. Interestingly, the stock went up about 15% in today's trading. Why?

Some are saying the reason is the Q4 earning is above guidance (and street expectation).

On June 5 2008 Ingersoll closed the Trane deal, the shareholder of Trane received $36.50 cash per share plus 0.23 share of Ingersoll stock (closed at $43.83 on June 5 2008). Trane had about 200 m shares outstanding at the time. So the deal was

(36.50 + 43.83*0.23) * 200 m = $9,316 m or $9.32 billion

To put it in some perspective, as of today Feb 11, 2009 the market cap of IR is $5.59 billion. Obviously IR overpaid Trane by a big amount (more than $3.7 billion). On the other hand, all the Trane air conditioning business, plus IR traditional business (climate control, industrial, securities), are sold for $5.59 billion (much less than the Trane deal). The economy recession and the freeze of credit market are the direct cause of IR business slowdown. But when we think longer term, if we believe the world population will use more air conditioner and eat more frozen food, we should be bullish on IR.

Discover Card

2009-02-09T16:51:00.001-08:00

Who is better positioned to weather the recession (or depression as some people like FT Martin Wolf said), American Express (NYSE: AXP) or Discover Financial Services (NYSE: DFS)? I got some DFS last week so my opinion maybe biased, but wait: I hold Berkshire Hathaway (BRK.B) which in turns holds significant number of AXP shares so I think I am ok here.

Fun aside, I think DFS is better positioned in this downturn because their consumer (like yours truely) continue to use them for daily stuff. On the other hand, American Express, which derives significant amount of revenue from high end consumers and business travel, has experienced and will continue to experience challenges in the near term. It's about affordability or necessity.

Secondly, Discover Card appears positioned their consumer loan portfolio more conservatively (compared to other card issuers), according to its IR web site. Its exposure to California and Florida (two hard hit areas in real estate market) are smaller compared to others (16% vs. AXP 26%, Investor Presentation 012909). It's also conservative in terms of credit limit. I have been using their cash for 10 years and I always pay bill on time, but the credit limit is still much lower then other Master Cards I have.

Last but not least, the brand. For me personally I have used its cash rebate credit card for 10 years, and I think it is the best cash rebate card. BTW, I always prefer cash rebate over other airline milage card or bonus points card. As I read more I understand Discover is the leader in cash rebate card.

Also, a little note to clear confusion. Many people compare MasterCard (NYSE: MA) and Visa (NYSE: V) to Discover, this is natural but not comparing apple to apple. MA and V are not card issuers, they derive revenue from transaction service (Chase, BoA, etc. are the card issuers in those cases), Discover dpes both: issue cards and provide transaction service (more revenue from issuing cards or extending credit to consumers). In other words, Discover and American Express carry the credit risk, while MasterCard and Visa don't. This partially explains the divergence of stock prices of those companies in last few years, amid the credit crunch.

Mead Johnson going IPO

2009-02-06T08:32:00.000-08:00

I remember reading this last year, this morning I read it from Yahoo Finance. Here is the prospectus at SEC, and here is a glimpse at IPOHome. It looks like they are going to IPO on Feb 10 (from the roadshow, again from IPOHome).

I think most people heard about their product enfamil (Amazon, Wiki), the infant formula, whether one has kids or not. For instance, I don't have kids now, but I bought some enfamil for my friends back in China last year. On first glance, this is a good IPO. If they trade around the $21 to $24 range (the IPO price range), I may get some. In this recessionary environment, I think most parents still feed their infants with best formula (if possible). This is especially true back in China.

Mead Johnson was a division of Bristol Myers Squibb before this IPO. Some background about this spinoff from the deal. The company plans to pay 20 cents quartly dividend. Like the EMC/VMWare spinoff, the parent company is only selling a minority stake (10% to 20%). I think this combined with current market condition, is the reasons why this IPO did not receive much attention lately.

Friends don’t let friends buy BAC

2009-02-04T21:14:00.000-08:00

(Update Feb 5) It appears BoA CEO Ken Lewis bought additional 200,000 BAC shares yesterday (source: bloomberg).

(Original Feb 4) Today Bank of America stock (NYSE: BAC) fell below $5 the first time since 1990s. The company was in trouble earlier this month as the loss from Merrill Lynch turned out to be much bigger then originally thought. There are lots of talk about the potential nationalization, as the rumor also hit another big troubled bank, Citi group (NYSE: C). Some retail investors got excited about the “appears cheap” price, and they bought into the stock and hoped for a big profit in near future.

Don’t !!! Although the insiders of BoA, including its CEO Ken Lewis, bought a bunch of stocks on Jan 20 when the stock dropped under $6 briefly (and around the same time, JP Morgan CEO Jemy Dimon bought JPM stocks), the insider buy looked more like the “confidence showing stock buyback” nowadays. Note in the good old days, companies bought back stocks because they felt the stocks are really cheap. Nowadays many companies bought back stocks to prop up stock price, or to offset the excessive stock awards to its employees. This “Ken Lewis” smelled more like a show to me, just like the Obama’s blaming Wall Street excessive bonus (before he hand out another round of carrots to banks soon).

The Bank of America common stock, in my mind, is a short term long option whose outcome very much depends on how the US government wants to get in return for support. The government won’t let BoA fail, whether they create a bad bank or not. BoA is just too big to fail. But they can not get nothing for the support either. So the most likely outcome is common shareholder will get wiped out. Another thing, much technical, is mutual fund usually can not own bank stocks trading below $5. So the selling pressure will be there for at least a few more days.

With many solid companies stocks traded at reasonable or attractive price, why risk your hard earned money in the BAC?

Joining Club Fitness

2009-02-04T09:37:00.000-08:00

What is the best investment one can make in 2009? Invest in yourself: health, family, financial knowledge, job skills, business skills,...among all I think health is the most important because without it everything else will get hit or become less meaningful.

Amid growing belly I decided to do something about it this year. I used to have access to treadmill when I was living in apartment and working for my previous employer. Now I work from home, I need to find a fitness center. Not that I can not walk/jog outside, but you know the winter and summer in St. Louis are not that friendly. I asked the people at Fitness Edge (who does personal training), and they told me about Club Fitness. So I went there right away last Friday afternoon. They have 2 monthly plans: $14.95 and $19.95. I picked the latter plan because it gives more access in terms of time and locations, and it's still under the reimbursement limit of my current employer fitness benefit. I have been to the facility a few times, and the only complaint I have now is it's getting crowded in the evening (5 PM).

Interestingly, I thought about a pedometer would also do the job, and now pedometer app for iPhone are available on the iPhone App store (iTune store), such as this one.

Blackberry everywhere

2009-01-30T12:42:00.001-08:00

Since I have done some travel lately, I have oppertunity to see people in the airport or airplane. It seems to me Blackberry is everywhere. I remember Blackberry was popular a few years ago (also from airport impression), not it's almost pervasive. There are lots of coverage on Blackberry recently such as: 1) Obama does not want to give up his Blackberry; 2) The Blackberry Storm, first touch screen blackberry launched by Verizon wireless, although sold about 500,000 units in its first month, received mixed review from consumers (the bugs). Of course, I noticed people checking on emails and looked like they are VIPs, which reminded me the default signiture line of Blackberry email: sent from my wireless device. Interestingly, iPhone copied this idea and has this "sent from my iphone" line.

But I see one problem in the Blackberry revolution. Last week my Blackberry browser stopped working. I did some online search and found that Blackberry has 4 browsers (source: crackberry). Isn't this insane?

One thing Yahoo Mail beats GMail
I have been using GMail for quite some time (since 2004), but I have not switched to GMail yet. GMail has some nice features such as group email threads, and integration with Google talk. But I found one more feature I liked about Yahoo Mail lately: the full header feature. It tells me all the information about sender, the path, etc. This feature alone helped me solve a mystery of return path (address) lately. So go Yahoo go !!!

CFA level I Dec exam result

2009-01-28T14:26:00.000-08:00

This morning, 9:05 AM, CFA Institute web page is again hit hard: I mean all the people are trying to log in and see the results of CFA level I exam last Dec. After about I waited 25 minutes, just before I entering the customer meeting room, I am seeing passing rate: 35%. This is similar to the June passing rate (35%). After I entered the meeting room, entered the user name and password again, and here is the result.

Level 1: Pass
......

Cool. But the customer meeting started right away, so I have to withhold my feelings. Compared to the June results, I did better on "Financial Reporting & Analysis", but worse on "Ethical & Professional Standards".

Here are the details.

Here is the June 2008 results

New Year and Hotel frequent guest programs

2009-01-25T10:05:00.001-08:00

Happy New Year!!! The Chinese New Year of ox, or bull (or cow). If you missed making new years resolution on Jan 1, this is another time to make up.

Hotel Frequent Guest Program
Like Airline frequent flyer programs, there are hotel frequent guest programs. And I joined two lately: Hilton HHonors and Mirriott Rewards. There are some tangible benefits to those programs, such as getting the points for the hotel stay and redeem them sometime later. One thing I noticed interesting, at least something I was not aware of, is that hotels sometimes assign better rooms to its frequent guests.

I learned the lesson the hard way couple weeks ago. My co-worker and I checked in the same hotel, he got a room of his preference, while I got a room near the ice-box and vending machine. Luckily the machines did not make much noise. But later on I learned the reason is I am not enrolled in the frequent guest program. So what did I do? I signed up online on the second day, and I am getting all the points for my stay, and even got the credit for my last month's stay at the same chain hotel. This is one thing hotel programs are more lenient than airline programs: they give credit to previous stay (in last 31 days in this particular case), while airline programs don't give credit to previous flights (before enrollment).

Hopefully, as I travel more in my new job, I can get enough points in one program which allows me and my wife to go vacation somewhere.

Buffett on NBR (PBS)

2009-01-23T16:44:00.000-08:00

Berkshire Hathaway (NYSE: BRK.A; BRK.B) has not done well lately. Nonetheless, Nightly Business Report (PBS) interviewed Buffett. The topic ranges from new administration, recession and investing. The interview is about 30 minutes long.

Interestingly Susie Gharib tried to ask particular investment advice, Buffett declined politely.

Banking crisis?

2009-01-23T16:15:00.000-08:00

The following was written on Jan 20 2009 (the Obama Inauguration day, the day DOW dropped about 4%).

It seems the financial crisis has been more like a banking crisis these days, with the RBS virtually nationalized by the British goverment, and Citi and Bank of America increasingly can not stand on its own. The No. 1 and No. 2 US banks according to market cap, J.P.Morgan (NYSE: JPM) and Wells Fargo (NYSE: WFC), are also under pressure today, both hovering around $20 and $15, respectively.

(Source: telegraph.co.uk)

Of course this all happens today as the new US president sworn into office. It appears to me the market does not like the stimulus package proposed by Obama team, or the uncertainty around it? Plus the controversy around his treasury secratery pick. All this bring uncertainty to the market, and we know the market does not like uncertainty.

What will we go from here? Will all the big US banks taken over by the federal goverment? It seems unlikely because this country lives or dies on the private business or entreprenuership. With goverment controlling large banks, it will be like (dare I say) China.

My thoughts on Bank of America (NYSE: BAC)

2009-01-16T15:39:00.001-08:00

Bank of America is back in the news because they asked and got $20 billon from US govement, to back the loss from Merrill Lynch acquisition.

(Source: Yahoo Tech-ticker)

Personally I like Bank of America, ever since I became their customer serveral years ago. Two benefits of being BoA checking acct cosumer: 1) Their branch and ATMs are all over the country; 2) In addition to that, since I travel to China once a while, I like the fact I can withdrawl Chinese Yuan (RMB) from China Construciton Bank (CCB is BoA Chinese partner), without transaction fees. CCB is also a large bank in China and their ATMs can be found in many places.

Now to the investing of BoA (NYSE: BAC). Did I say investing? With the stock price of BoA approach to $7, it seems to me it's more and more like speculating. I remember someone (Jim Cramer?) once said any bank stock traded under $5 is speculative.

I agree with that statement. When BoA made the CountryWide acqusition, I was a little surprised. But when they announced the Merrill deal on Sept. 16 weekend (the weekend Lehman went bankrupt), I was puzzelled by its CEO's quick decision. At the time I suspect BoA got two things going:

1) They liked MER, the brokerage business;

2) They were either under pressure from Treasury (Paulson) to do the deal, or they got words from Treasury (about gurantee the loss from MER) to do the deal.

Now it is apparent point 2 is valid. Nothing wrong with Nationalization of banks, in fact the nation banks in China (e.g., CCB) did ok in this economy downturn. But I guess this is different in the US. The US economy lives or dies on the private business and entrepreneurship. Now some of the financia large institutions (Citi and BoA), the heart of this country economy, got largely nationalized.

(Yupoo: China Construction Bank in Shanghai)

Back to coding

2009-01-12T20:14:00.000-08:00

Good reading
I found John Bogle's 6 Lessons for investors (WSJ op-ed, Jan 8 ) to be good. A few years ago I read John's Little Book of Common Sense Investing, and was not impressed by it because at that time the market was very hot. Now it all makes sense to me. John is the founder of Vanguard group which is famous for its low cost and index fund.

Back to coding
New year also means doing something new, so I went to my first computer related user group meeting for many years (Lambda Lounge). Interestingly, the meeting location Appistry is just 5 minutes walk from my home.

BTW, I decided to take up the Objective C these days (in my own time).

In the news (week in review Jan 06 to Jan 11)

All mighty Wal-Mart finally missed street estimate, stock tanked; Apollo group (the parent co. of Univ. of Phoenix) stock went up nicely, on the other hand.

Palm Pre: Palm is pulling probally the last rabbit out of hat, to counter attack iPhone and Blackberry. Palm was a pioneer in PDA and smartphone (Treo), but lost in competition in recent years.

Citi's trouble is not over yet: on Thursday Citi allowed bankrupcy judge modify mortgage, quite significant news for housing martket.

Then on Friday the news broke that Citi was in talk with Morgan Stanely on merge its Smith Barney brokerage with the latter's Dean Witter. From the WSJ it appears to me the US gov is not willing to put money into Citi indefinitely, without seeing the light at the end of tunnel. So they want Citi to find its own fund source, and slim down if possible. Obviously Smith Barney is one of the best pieces remaining at Citi.

All Ponzi's disciples

2009-01-08T13:31:00.001-08:00

Madoff story continues to occupy the news these days (e.g., this one from NYTimes). Yesterday, Satyam, the No. 4 Indian IT outsourcer, broke the news with giant accounting scandal (BBC news, wiki: Satyam).

But the story does not end here. In my mind, there are many other ponzi schemes in our lives, and sometimes people just ignore it for various reasons (don't want to face reality; irrational exuberance etc).

Big ones
Dot com technology bubble: new stock holder (trader) bail out previous stock holder (trader);

Housing bubble: new home owner (speculator) bought high from previous home owner (speculator).

Note in both cases the wall street played a central role, pumping hot IPOs in the dot com era, and pumping mortgage backed securities (MBS) all over the world in housing bubble. The only difference is second time the MBS (along with CDO and CDS) brought down the house (notably, Bear Stearn, Fannie and Freddie, Lehman Brothers, and AIG; Citi Group, Merrill Lynch, Goldman, Morgan Stanley etc. also got hurt).

Potential
Social security and Medicare: the new contributors (working people you and me) pay monthly for the elder people, there is a forecast that social security and medicare will run out of money by 2017/18 if the current payout and pay-in schedule keeps in the same.

Small ones: Focus Media?

This one is more subtle. Focus Media (Nasdaq: FMCN) was doing very well in last few years since its IPO, in terms of earning and stock price. Then it hit a wall last March when its wireless subsidiary "spam messages" story broke. And more recently Sina (Nasdaq: SINA) announced the acquisition of Focus Media core media assets. But how did FMCN do well since its IPO? Well, one way to do it is acquisitions, a lot of acquisitions. Another more subtle tactic in the acquistions, is FMCN sold ad. to distributors at high prices, then bought all those distributors at higher price? One may ask how can they fund this? Well, we know companies have mainly two ways to fund its expansion: equities (issuing stocks) and borrow from banks (debt). FMCN did secondary offering twice after its IPO (if my memory is correct), at pumped up share price. While its CEO and founder selling this holdings left and right, ordinary investors were left holding the bags. Sounds like a ponzi scheme?

Of course now the bag is left to the Sina shareholders. Of course the management of Sina must think there are other naive investors are willing to hold that bag as long as the management tells a compelling integrated media/ad. story.

Tough times ahead for China Mobile: I

2009-01-05T06:35:00.001-08:00

Summary: the issue of 3G license (news here), the immature domestic standard being assigned to CHL, and no cool handset. All these combined with the slowdown of Chinese economy is creating headwind for China Mobile near term growth.

China Telecom (NYSE:CHA, the landline operator recently acquired CDMA business from China Unicom) is ramping up the new CDMA + WiFi strategy, the sky wing (tian yi) plan (English:labbrand; Chinese: Hu Langlang Sina blog); I also saw the sking wing 189 promotion when I was in China. Service wise, CHA is giving the customers both broadband internet and mobile service in one package. The price is quite competitive.

To be fair, China Mobile (NYSE:CHL) is not standing still, it's launching the 188 number with TDMA very soon. But I am seeing at least two problems: 1) Lack of WOW handset (e.g., iPhone) to attract Chinese consumers (Chinese: asun0104 blog); 2) The lag of TDMA compared to mature 3G standard WCDMA.

More importantly, the existing GSM business will slowdown quite a bit as the Chinese economy in the coastal areas cools, due to slowdown in exports. As many migrant workers go back home (factories shut), there are less need for them to talk/text to family back home. Similar thing can be said to business communications.

New shoes and new mattress

2009-01-04T12:58:00.001-08:00

I ordered this Asics GT-2130 from 6PM early this Monday ($46 including shipping). The regular costs $95. It arrived yesterday and got plenty of cushion. 6PM is doing a sale on many Asics shoes. (click men or women on the left to refine results).

Today we ordered this Simmons BeautyRest Harmony Firm mattress from MattressGiant this afternoon. Here is a review from ViewPoints. And some tips on selecting mattress.

I remember a few years ago an old lady (who sells mattress) told me good shoes and mattress are essential to one's health. New year provides another opportunity for us to refresh things. We can not only get things (we need/want) at bargain price, but also do we help the economy. Feel good while spending the money, right?

New Year Resolution?

2009-01-02T13:07:00.000-08:00

Summary of 2008
Aren't we glad 2008 is finanlly over? I am sure most people (who are not hiding under rocks) are. On a positive note, most of us survived from the crash (so far). But we do learn a lesson or two on economy and market: live within means, don't over extend yourself, and don't borrow heavily and bet...I think those simple rules will apply in year 2009 and going forward too.

On a personal note, I changed my job in 2008, right in the middle of financial crisis. While it's definitely a comforting thing to do, I thought it was time to move forward, and I will try to make it successful. Also, I took CFA level I (twice) in last year. Like the financial market turmoil, the CFA test did take some toll on me. While the outcome is still unkown, I think in a way I already achieved something: a systematic approach to look at equity and bond.

401k/IRA performance
Old 401k at Hewitt -36.30% (6/30/08 to 12/31/08, was managed by Vanguard before June 30);

Vanguard Rollover IRA -38.7%, that Rollover IRA was opened last Dec.;

New 401k not meaningful (started Nov. 15, duration too short).

New Year Resolution
It seems we all like to do those kinds of plannings, then things fall short during execution. I saw Amazon offered a top 10 New Year's Resolution list (link here, note this is a STLPlace referral link), quite innovative.

For me personally, I like to do less with TV and Internet, partially to be offset by radio. Besides NPR, I found couple Chinese online radio stations to be interesting. Such as this one (CRI pop) and that one (CRI easy FM). Also I plan to do more C/C++ programming, after almost 2 months break :-)

Last but not least, more exercise.

What a year

2008-12-31T07:44:00.001-08:00

S&P 500 index (google Finance), the US bench mark index used by many mutual fund managers, dropped 38.49%. Even the greatest investor guru of our time Warren Buffett could not escape the bear attack, his holding company Berkshire Hathaway (NYSE:BRK.B) dropped 32%.

(In 2008 S&P 500 index dropped 575.24 points or 38.91%, from 1478.49 to 903.25)

But the US investors should feel lucky, when compared to the Chinese investors. Shanghai composite index (SHA:000001), the benchmark index in China, dropped 65%.

Now I understand why Buffett he would rather live in the US :-)

The following is from Yahoo Tech-ticker:

Last minute tax saving tips

2008-12-30T06:55:00.000-08:00

1) Pay the Jan mortgage by Dec 31;

2) If you own small business, buy the stuff you need to buy anyway by Dec 31;

3) Sell the losers in your stock portfolio: I mean those true losers that you don’t expect them to come back. Some people sell their losers and buy them back in Jan. Perdsonally I never tried that, and don’t recommend it (there is possibility violate IRS free ride rule). Another strategy, which avoids messing around with free ride rule, is sell a stock (say GE), and buy a similar stock back (say Emerson). This may work better for mutual funds (e.g., there are many S&P 500 index funds).

Focus Media came of age

2008-12-29T13:54:00.000-08:00

Some random thoughts on Chinese IPOs: Home Inns, New Oriental, Focus Media (Sina).

Home Inns

I stayed at Home Inns Zhongshan Park this time. This is a relatively new Home Inns hotel (it was operated as Shanghai Ningxia Hotel before joining the Home Inns family recently). One block away, I saw another Home Inns hotel: the 7 stars hotel which has been acquired by Home Inns this year.

New Oriental
Happened to see a New Oriental school near the Home Inn hotel. It appears their business is clapping along very nice, especially in current difficult economy.

Focus Media
One of the big news last week when I was in Shanghai, is Sina decided to acquire majority of FMCN's LCD Ad business. The story of FMCN unbelievable growth is over. Interesting FMCN still kept its AllYes internet business.

Separately, XFML, which has been traded as penny stock lately, continued to experience problem in the market. Read this Chinese news (from 21cbh) if you know Chinese.

Panera lowered price?

2008-12-28T08:34:00.000-08:00

I am back. I came back to St. Louis last night, after a bumpy ride from Shanghai to Chicago, and a delayed flight from Chicago to St. Louis, both due to weather. This morning I went to the Panera bread, and I found they lowered the price of souffles by at least 20 cents. Interesting considering the current economy environment.

I had similar feelings on Dec 26 when I talked to a taxi driver in Shanghai. He was saying fewer people are riding taxi these days. In normal days he could make 800 Yuan (revenue) by 11 PM, but recently he could barely make 700 Yuan by that time. On the surface, things are still quite rosy in China. My friend told me it's "people mountain people sea" in Guang Hui Plaza on Christmas eve. From I read from the Eastern Daily, the Christmas shopping rose about 20% in Shanghai year over year: I bet the US will take that number and run, but this is not a good number according to the Chinese standard. The real challenge for Chinese goverment and business, is how to restore the consumer confidence and keep economy growing at a decent rate. It is not going to be easy because China relied mostly on foreign exports, infrustrure build up and more recently real estate for GDP growth in last 30 years.

Did I say real estate? The scary word of the year. While the authority is very nervous and reversed almost every measure used to curb the excessive bubble in real estate market, trying to restore the home buyer's confidence, the reality of Chinese real estate is not good. A reality check should come soon or later, if we believe the price can not be away from the intrinsic value forever.

Air fare deal
Last but not least, Northwest is doing a promotion from Shanghai to North America recently.

Christmas 2008 in Shanghai

2008-12-28T08:32:00.001-08:00

Forget about recession, check out the properity in Shanghai :-)

For more pictures, visit my Shanghai_2008 albumn at yupoo.

A small incident

2008-12-17T00:34:00.000-08:00

Cell phone, or Shou Ji (mobile phone) as being called in China, is a daily necessity in China. Everyone, I mean pretty much everyone from the migrant worker to company CEOs, got a cell phone, because they need to talk to someone. Yesterday, I got into a small incident because I don’t have a cell phone with me.

I went to Shanghai South Railway Station to pick up my wife, because she got my phone, I was without a phone. I waited outside the station as her train arrived. First, I asked a guy who is calling someone if I could borrow his phone for a minute. He was a nice guy and agreed. But obviously my wife did not follow my instruction and went to another exit, while I was anxiously waiting. The nice guy already met his friends and left. I had to ask for help from other “not too nice” people. First I asked a guy who look like a white collar worker, to add some incentice I offered one Yuan (CNY) which in highsight is not a good idea. The guy refused. I went to asked a middle aged lady, she refused too. So I was helpless. I saw a migrant worker who was text messaging and asked the same question. He looked at me suspicously. When I offered one Yuan, he said firmly “No”. I left hopeless, and said angrily “all right, I will offer $50″. That did the trick. The young boy realized I was probablly not a bad person, and he offered his phone free of charge. At the same time, my dear wife showed up and cleared my “falsed guilty”. I appoligized to the young boy couple times.

Afterthought
Frist, China has a huge trust problem in the society, some bad guys do a lot of tricks to take advantage of people in public places. So as word of caution normally we should not respond to someone ask for help on the street. Because it could be a trick.

Second, (probably a bit subtle but important point for me) I wish I could did the same thing to the white collar guy, I think deep in my heart I still have some presige over migrant workers, although I am one of them as I told my wife.

Jim Rogers

2008-12-15T11:51:00.000-08:00

I read the Hot Commodities book by Jim Rogers in the trip. I have read the book a few years back when I was much novice to the investing, and I understand Jim is very outspoken and he is very bullish on China. But I did not find his book as exciting as I read it the first time. As matter of fact, as he wrote his book in 2004, some of his prediction broke down already:

1) The natural gas in the US. Due to the huge find in Haynesville and other un-conventional places, the NG price has fell to 5 years low.

2) One of his thesis for commodity bull is Americans want to live in McMansion and drive SUV. Well, the housing bust and the $4 gas have put a huge dent on this American dream.

3) China's incrediable growth in last 30 years. It appears to me this is going to slow down, at least by a bit. China can not grow like that for forever; and Chinese can not expect to live like Americans with big houses and big SUVs due to limited land and other resources.

Other interesting points
I read some other interesting points, such as the stock market and commodity market has a negative co-relation (they go in opposite direction), and the cycle of the two markets in last 100 years. Jim put up some economic reasoning (mostly commodity cycle) but not as compelling as Buffett's 10Dec2001 Fortune magazine article. In that article Buffett argued the interest rate and inflation are two key factors determining the return on equity. Also I think Jim painted a too-gloomy picture of the future of the US.

PS, personally I don't think Jim Rogers is a Grand Master in the investment world. But I could not find another category for this post, plus he is famous in China. So...I put him here for now.

In Shanghai now

2008-12-15T11:43:00.000-08:00

Have some interesting stuff to say about the trip. But I could not connect to my own blog STLPlace. So I am using this backup place.

Couple interesting things:

1) Saw lots of Chinese college kids on the airplane. More and more Chinese parents send their (only) child to the US for high school and college.

2) Hot temper of traveller and flight attendent. The guy behind me got a verbal fight with the Cantonese host (he is a guy). Eventually an American hostess came to calm the customer. I guess American has the older hostess for a reason: they have the patience.

3) Shanghai impression: first impression was not good because I felt the air is dirty at PVG airport and the bus. But once I am settled in hotel and went out for food, I felt at ease walking down the street and I loved the Gui Lin Mi Xian.

Buffett U of FL talk

2008-05-10T17:00:00.001-07:00

A bit long. It was a talk Buffett gave to MBA students at the Business school at University of Florida, in 1998 (10 years ago). But I promise it's both fun and educational :-)

Chinese translation (中文)
English (PDF) (24 pages).

Google Video (88 minutes) original link here.

He talked about "chewing gum business" in the talk (address to question: What makes a company something that you like).

Proud to be a Berkshire Shareholder

2008-04-27T20:19:00.000-07:00

First appeared on:
http://www.stlplace.com/2008/04/03/proud-to-be-a-berkshire-shareholder/

My wife used to joked with me: you always tout some stocks when you buy, then after it crashed, you will say it's a crap (XFML, Heelys, LFT, Crocs).

I think I won't say that for Mindray, and hopefully no hard feelings for BRK, either.

Sold Mindray MR
I sold my remaining Mindray (MR) shares just now, here are the reasons:

Mindray was doing OK up to this point. But I think it may have overpaid for the DataScope patient monitoring business. It paid 202 million, while the business has revenue of 162 m last year. The unit was not profitable according to one analyst, which I believe because I also did a little research myself. The cost structure of DataScope is higher than Mindray; the US medical device market is tough and will be tougher in the credit crisis. Note the hospitals usually need to borrow from banks to finance the new medical devices.

On other hand, at $31.88, the stock is not cheap (PE ttm of about 45). The company expects to grow revenue and earning by 40% this year.

Bought Berkshire BRK.B
I bought one share of Berkshire Hathaway (BRK.B) at $4349.89. This is Buffett's company. If you have read my blog for a while, you know I have great respect for the Oracle of Omaha. Its main business (insurance) will be tough in the near term, but Warren has did some smart acquisitions lately (the Israel company, and a domestic diversified company, I could not remember the names but believe it or not, sometimes those unknown companies made a lot more real money than Crocs)...Although he scaled down the equity investing (relative to the big purchase mentioned above), he has continued to make money in stock market, notably the $3 billion profit from PetroChina last year.

One thing about BRK.B stock: it's not very liquid. I read note from Yahoo MsgBoard that people used to sell some BRK.A stocks in Jan., because many of those shareholders are old people (they have the stocks for years), sell in Jan. has some tax deferal benifits.

I think the liquidity has improved lately, because now Bill Gates foundation will sell some of the shares donated by Warren each year.

My self imposed trading limit
As I said in my Q1 grades report, I did too many trading (45 times) in last 3 months, and decided to control the trading from now on. The goal is 45 times in the remaing 9 months, that comes to 5 times a month.

Oh, well, I sold some RIMM yesterday, plus the two trades today, now I only have 2 trades left in this month's quota. Can someone open a Scottrade acct using my reference, so that we can both get 3 free trades :-)

Why China Mobile CHL is a buy: IV

2008-04-04T09:23:00.001-07:00

Two important news about China wireless arena yesterday.

1) China Mobile finally started the long awaited trial of TD-SCDMA 3G network (read Chinese news story 1 , and 2 from XinhuaNet). Some features of 3G include the video conference/phone, TV program, etc.

2) The new (lower) roaming fees takes effect.

I think 2) may have slightly negative effect on CHL's earning, while 1) is insignificant and we will not know the success of 3G/TD until 2009/10.

(Picture from XinhuaNet: people are lining up for 3G phones)

Valuation

As I read the "equity" section of CFA books, I spent some time calculating the earning, dividend growth rate of China Mobile in last 5 years. As shown in this spead sheet, the Compound Annual Growth Rate (CAGR) for earning (2002 to 2007, in RMB) is 20.52%, and CAGR for dividend (in HKD) is 44.23%.

One reason for the disparity of earning and dividend growth rate is they increased payout ratio quite a bit in recent years, from 19% to 46%. This could change if they decided to move forward with 3G commerial launch, because 3G captial spending (network infrustructure) will not be trivial. It is reported ( Chinese news from 21cbh) China Mobile was aggressive on depreciation (conservative from accounting point of view), so hopeful that will offset some of the new spending.

Why China Mobile CHL is a buy: III

2008-04-02T12:10:00.000-07:00

There were some big news in the US wireless arena last week. Verizon and AT&T won the auction of some new wireless spectrum, Google did not win the spectrum (see the details at NYTimes). Do you know how much Verizon paid for the new spectrum? $9.6 billion. Imagine a similar scenario in China, how much does the 3G license cost in China? As far as China Mobile (and China Unicom and Telecom) is concerned, it's null, zero, no cost.

What? You must think this is crazy. How come the goverment gives away the license for free? Well, the No. 1 reason is the goverment is the biggest shareholder of all those big wireless/telecom companies. If they charge a big fee, essentially they are putting money from left pocket to right pocket. So why bother.

Moat analysis
What does CHL got?

(CEO Wang Jian Zhou at annual report, from iphonebuzz.com)

1) A top 10 Chinese global brand, which consists of 3 sub brands: GoTone/quan qiu tong (white collars), shen zhou xing (everyone) and dong gan di dai (mobile internet), quote in Chinese:
中国互联网盈利的最大市场是向手机用户发送移动梦网内容。中国有超过5亿的手机用户，是美国、日本、德国和英国使用人数的总和。近一半多的手机用户都向移动梦网门户网站定制了手机铃声、笑话和图片。每下载一次这些内容花费几分钱，费用中大部分流向门户网站，手机运营商则通过人们转发笑话、图片等获利。一次下载费用虽少，但数亿用户数次行为的累积足以形成不菲收入。

2) A national distribution channel, including rural areas.

3) A network (behind the scene), I can get signal when I was in Jiu Zhai Gou (May 2005).

4) Management: Wang Jianzhou and his team has experience both in industry and the goverment. Note the latter one is also important, because in China goverment has the final words on a lot things (such as give away spectrum or 3G license).

The potential downside
The biggest worry is the goverment made China Mobile pick up the slack for the deployment of the domestic brewed 3G standard TD-SCDMA (Wiki). Some people worry CHL will waste lots of money on TD/3G deployment, without consumers' buy in. Because in China consumers always want the best (usually not the domestic) technology. This is evident in the popularity of foreign products in cars, cell phone (Nokia, Samsung), MP3 player (Apple) etc.

Spam SMS:
A portion of SMS sent everyday is spam. This is been reported in the Focus Media wireless division's recent spam SMS scandal, in which millions of spam message being sent to cosumers. China Mobile publicly appologied and vowed to stay clean of all this. But we know they make money even from spam messages, so there is a conflict interest here.

Why China Mobile CHL is a buy: II

2008-04-01T14:01:00.000-07:00

As you may aware, terrible things happened in Lasha (China) a few days ago. It is reported 5 young girls who worked for an apparel shop were killed in the riot (in this particular case, arson set by the thugs). I noticed the last text message one of the girl sent to her father is: Don't worry about me, dad. 最后一条短信："不要担心我". I certainly wish things would turn out differently for the girls. But on the bright side, I think her family at least got some pieces of their girl's last moment. This reminds me of a related event. On September 11, 2001, some people who buried under world trader center tried to call their family members, or text messaging, and some got saved that way. I'm sure you have heard similar stories about cell phone saving people's lives too.

So what's my point? We are increasingly living in a mobile world nowadays. From business point of view, the enablers of this technology can make a fair share of profit, while providing reliable service to the consumers (hopefully mostly for entertainment, not life or death situation).

Year 2007 result
China Mobile (CHL) released its year 2007 results on March 19 (PDF file here). Here are the highlights:

. Turnover (Revenue) reached RMB357.0 billion, up by 20.9%
. EBITDA of RMB194.0 billion, up by 21.6%
. Profit attributable to shareholders of RMB87.1 billion, up by 31.9%
. Total subscribers exceeded 360 million, up by 22.6%

By any common measures, the performance of past year is good. But the US ADR (CHL) tanked following the announcement. Why? I think some analysts are looking a this as "glass half empty" rather than "glass half full". Quote the Bloomberg :

``The penetration rate in the urban areas is high and almost everyone has a mobile phone, so there are more growth prospects expanding into the rural areas,'' said Teresa Chow, who helps manage $1.1 billion at RBC Investment Management Asia in Hong Kong, including China Mobile shares. ``Income levels in rural areas are rising, so that is a big growth area.''

"The carrier's gain in subscribers hasn't been matched by an increase in customer spending as the company focused on rural areas, where the average annual disposable income last year was 4,140 yuan, a third of the 13,786 yuan for urban residents..."

I think another growth driver is the data service for unban users. But the real fear among analysts about China Mobile is the re-org and (upcoming) 3G deployment, which I will talk later on. For now, I am looking forward to getting the dividend, which they announced on the report, that's will be 1.99 HKD per share. Since each US ADR is equivalent to 5 ordinary shares, I will get 10.00 HKD (about $1.50) for my CHL.

I am not keen to the dividend (the money itself). It's the way they pay out the dividend, more than 40% of profits each year, gives me confidence on the company's profitability. This is opposite to companies like China Ping'an, whch asked money from shareholder again and again. (Do you think Ping'an will deploy the money wiser than yourself :-)

Also, China Mobile will not affected by the business cycle. They derive 80% of revenue from consumer spending (20% business). So I consider this is a very rare secular growth stock from China.

Why I think China Mobile is a buy: I

2008-03-30T16:43:00.001-07:00

First a bit background.

Re-org of China telecom industry
All the big players: China Mobile 中国移动 (CHL), China Netcom (CN), China Telecom 中国电信(CHA) and China Unicom 中国联通 (CHU), are majority owned by the state. In the widely anticipated re-org plan, the goverment will try to create more competition in wireless arena (right now CHL is much bigger than CHU); and save the fixed line operators, as CHA and Netcom are losing landline subscription to mobile phones. China Unicom, currently the smaller rival of China Mobile, will sell its CDMA network to China Telecom, and meanwhile CHU (with its GSM network) will merge with China Netcom.

This means China Mobile will have a new competitor, China Telecom (which ironically, is its former parent); and a more focused/strengthed older riva (Unicom)l. But the math is not the deciding factor here.

First, it may not easy to divide up the two networks of China Unicom. More importantly, as we know: a frog is still a frog after you kiss it. China Unicom will still be the underdog after the split. As to China Telecom, it will take time for them to move from fixed line to mobile world (no offense to the hard working people at CHU and CHA).

Meanwhile, China Mobile is signing up new subscribers (2.5G) from rurual areas, and offering data service or second line to users in cities. As shown in this Chinese news (source: 21cbh), and the company's English web site.

Interestingly, the CEO of China Mobile, Wang Jianzhou, went to Zhejiang Univ. management dept., where one of my brothers went. Note I am not saying Zhejiang Univ. is better than the US college I went (connecting to Yesterday Sprint fiasco story), I am saying it's important for CEO to study and know managent.

I will talk about the huge hype around 3G and deployment delay (related to reorg) in China later on.

De-leveraging, moral hazard, friends and recession

2008-03-30T16:41:00.001-07:00

I heard a lot of buzz words in this Bear Stearns crisis, $100 oil, Spitzer scandal, global housing bust...world. Just list some new words I found interesting:

De-leveraging
This one is easy for me (because I don't have much to leverage on). I was a little astonished by the leverage ratio of investment banks such as Goldman Sachs (see the GS balance sheet here) and Bear Stears. As of Nov 2007, Bear Stears has (in thousand dollars)

Total Liabilities 383,569,000
Total Stockholder Equity 11,793,000 (Net Tangible Assets $11,793,000)

Debt/Equity ratio is 32.5, in other words, they control $32.5 of asset while they have $1 to back it up. If they lose 3% in their assets (due to investment loss), all their equities are gone. Because Bear is heavily invested in mortgage back securities (MBS) and MBS pretty much went to trash can lately, I think a 3% loss is easy to achieve. (Therefore the bailout and fire sale of Bear in the weekend).

By Comparison, king GS is slightly better. As of Nov 2007, GS has (in thousand dollars)

Total Liabilities 1,076,996,000
Total Stockholder Equity 42,800,000 (Net Tangible Assets $37,708,000 )

Debt/Equity ratio is 25.1

No moral hazard
People who make and sell toxic coolaids got rescued by Bush and Co., after people who bought toxic coolaids got bailed out by the "Hope Now".

What about the good people (like you and me) who never involved in the toxic coolaids business (being a producer or consumer)? Should we got an honary mention somewhere? Mr. President?

*Coolaid analolgy was stolen from my investor idol Warren Buffett.

Friends
Bear and Spitzer fell for different reasons, but they have one thing in common: they don't have many friends, or be more precise, they don't have any friends who can throw help when they needed most.

Interestingly as reported in the news, Bear Stears was asked to participate in LTCM bailout by Fed in 1998, all the Wall Street investment banks joined, Bear declined. Some say this time Fed got its revenge. We all know Spitzer don't have friends in Wall Street, but it surprised me he seems did not have any friends in politics.

Recession
The US is already in recession. But it appears things are not bad because as I saw on TV, a dozen of egg cost about $4.50 in New York, and about $6.50 in London (I am sure the average income of Londoners are lower than New Yorker). Japan has been in recession since 1990, and it seems most people there still survived and had fun. When Germany joined the "Euro zone", the inflation is much higher than the inflation we have in the US now.

My point is life probably will be tougher for average Joe, but it won't be as bad as people in Germany and Japan. Because many underlining strength of US economy is largely intact: innovation, immigration, financial system (yes thanks to Mr. Paulson and Mr. Bernenke)...

Sub-prime credit crisis unfold

2008-03-17T17:05:00.001-07:00

(source: www.stride.co.uk)

Last Monday was one year anniversary of sub-prime (and subsequent credit crisis), here is an interesting time line I found at BBC. Quote:

8 March (2007)
Biggest US house builder DR Horton warns of huge losses from sub-prime fall-out.

12 March (2007)
Shares in New Century Financial, one of the biggest sub-prime lenders in the US, were suspended amid fears it might be heading for bankruptcy. See the New Century entry at Wiki here.
...
A year later (lots of bad things happened in the past year):
...

14 March (2008)
Investment fund Carlyle Capital fails as the credit crisis spreads from sub-prime related products to other mortgage-backed investments.

14 March (2008)
Bear Stearns receives emergency funding, after its exposure to mortgage-backed investments undermined confidence in the bank.

It appears the Bush Administration (Fed Reserve, Treasury Dept.) started to react to the crisis Last August. I think it may help the situation if they have acted earlier. But it's also a tricky problem for goverment and regulators, they seem always do things behind curve. On other hand, if they act too early, they could jump the gun and shoot their own foot.

Anticipate, not react: my lesson learned
That's why I don't want to be a politician or economist. To me this is just too hard. I think being investing in stock market is hard enough for me. I am sure many investors will share my view for the past year.

In hindsight I felt nervous about my stocks (especially Crocs) on August 16. The Crocs stock recovered, went back up after the big drop, and I lost my alertness. The Oct 31 Q3 earning was another warning sign, but I still have some false hope. Did I sound like the Bush administration? Note the great investor Warren Buffett already sold his PetroChina position on last August, while I am still hope for "one more bubble".

Fortunately, or unfortunately (depends on how you look at it), I decided to sell my specalative stocks since early Jan. 08, and built a solid porfolio since then. Don't know the result yet as I am still under water, but one thing I am sure is I can get better sleep at night, without Crocs and Longtop.

Coffee, espresso, coke and investing: II

2008-03-10T12:50:00.000-07:00

The Coca Cola stock vs. Starbucks stock
In last 10 years (Mar 6 1998 to today Feb 28 2008), according Google Finance, SBUX went up from 4.93 to 18.78 (+280%, split adjusted, SBUX has not paid any dividend). That's about 14% price appreciation annually.

On the other hand, KO went from 68.66 to 59.56 (-14.44%). But there is a caveat, Coca Cola pays out a cash dividend each quarter, so we should adjust the dividend when calculate Coke's return.

Use the discount Present Value (PV) method, and the 10-year dividend for KO. For the sake of simplicity, let me use the dividend from year 1998 to 2007. There is just a few cents difference if I use 3 quarters dividend in 1998 and one quarter dividend in 2008. The following are the dividend history for Coca Cola in last 10 years (in dollars).
1998: 0.60
1999: 0.64
2000: 0.68
2001: 0.72
2002: 0.80
2003: 0.88
2004: 1.00
2005: 1.12
2006: 1.24
2007: 1.36 (+59.56) = 60.92 (that's the year 2007 cash flow, as if we sold the stock at the time)

Using my financial calculator Cash Flow function (initial cash out flow $68.66) the KO's internal rate of reurn is -0.0092%, that's flat!

So from mathematically sense, an investor would be better off buying SBUX on early 1998 (vs. KO) for 10 years.

Why Buffett bought Coca Cola stock, not the Starbucks?
Well, firstly he drinks a lot Coke (he doesn't drink coffee), as I saw from the CNBC show "Buffett goes global", coke is the main caffeine source for Buffett. But that's not the only reason Buffett bought coke (KO).

Note Starbucks (SBUX) came to public in early 1990s, while Buffett started buying Coke in 1970s (not in 1998), when he started build up his stock portfolio for Berkshire Hathaway.

Would Buffett/Berkshire Hathaway better off selling Coke and buying Starbucks in 1998?
We should know Buffett is not just looking for the numbers I calculated above when he looks for investments (he has his own criteria such as moats, or competitive edge in an industry). Also, he used different yard stick to measure investments (some of them are not numbers).

One thing I noticed Coke has grown into No. 1 soft drink in China and many developing countries in last 10 years. This means future growth opportunity for them.

Also Coke pays out cash dividend every quarter, just like a can of Coke gives 34 mg caffeine (stimulus) every a few hours for Mr. Buffett. We all know Mr. Buffett is best person in the world of allocate capital (use the cash for investments, or put it in the bank if he does not find any interesting opportunities).

Coffee, espresso, coke and investing: I

2008-02-29T08:26:00.000-08:00

The caffeine effect
Which one has the most caffeine? A tall (12 fl oz, or 355 ml) brewed coffee, a tall latte with one shot of espresso (both at Starbucks), and a can (12 fl oz) classic Coca Cola?

Your instant answer maybe the latte (espresso), but the correct answer is the brewed coffee. According to Starbucks Nutrition By the Cup (PDF), 12 fl oz coffee has 240 mg caffeine, one shot espresso (1 fl oz) has 75 mg caffeine. As to Coke, I saw it says "caffeine content: 34mg per 12 fl oz".

I don't know what is the appropriate amount of caffeine a person could consume daily. My guess is one small cup a day should be ok for most people. I think it also depends on person's health condition (weight, height, habbit of drinking). But just like many other things in life, moderation is the key. A cup of regular coffee will get one refreshed in the morning (it has caffeine equivalent to 7 cups of Coke). But when the initial effect of coffee goes away in a few hours, he/she will resort to another coffee. And so on. I think we can be more easily get caffeinated that way.

(picture souce: will work for food)

On the other hand, while a coke will give a person a little stimulus, without knocking out him/her. And a person can drink 3 or 4 coke a day (assume he/she exercise to burn the calories), while still consuming half the caffeine of a small coffee (tall is Starbucks fancy word for small 12 fl oz coffee).

One tip: I understand Starbucks is not just a coffee house, it is also social place for many people. If you don't want to have caffeine but like the taste coffee, order the decaf (that's di yin ca fei 低因咖啡 in China). Starbucks does offer a variety of other drinks (including tea) as well.

In the next post, I will discuss the relative stock performance of Coca Cola and Starbucks.

VISA IPO

2008-02-28T14:08:00.001-08:00

Yes, the long anticipated credit card giant is filing for the IPO. Here is its S1 prospectus. I have not read the S1, but from what I read (from MSNBC), they are going to raise up to $10 billion. That's the largest IPO in US since 2000, and it's the category of China ICBC's IPO couple years ago (1398.HK).

My gut feeling of its IPO is two fold:
1) It will be priced (relative terms) higher than MasterCard IPO couple years ago, the reason goes as follows: MA went up from $40 to $200 in that period. Now people who missed the boat on MasterCard IPO will try hard to get on the Visa ship, thinking they can get the return like MA did.

2) current market condition is not friendly for IPO, because the big investment banks are in financial difficulty now. So, do they expect little guys (like us) to hold the bag?

Business wise, we all know the credit card transaction is booming. From developed countries to developing countries, everyone is addicted to the plastic, as shown by the following pic (from Visa prospectus).

Visa is an Olympics sposor, so pack your visa card if you visit Beijing this August :-)

(Update Feb 28) My friend LaoZhang (author of StrengthTrader.com) wrote a good piece about Visa IPO (in Chinese), here is the link.

Two strikes on CROX

2008-02-28T14:05:00.000-08:00

Last two quarters earning report has dragged Crocs stock from $75 to around $25. Many analysts, bloggers, pundits, pretty-much-everybody-wears-shoes (and consequently knows the shoe business) think the stock price is reasonable now.

That is, assume Crocs can unload its massive $250 million inventory successfully. By success I mean they did not give it away to charity, or dump it to PayLessShoes.

Let's forget the financial analysis, technical analysis for a minute, just think a shoe company attributes its very success to sophiscated supply chain management, got an F grade on it. A lot progress has made in global supply chain management in last 10 years: many great companies have cut inventory level down (think DELL?). Some Japanese car maker (Toyota) even tried Just-In-Time manufacturing (zero inventory). Oh well, one can argue they are mostly manufacturers not retailers. But Crocs has been mostly a manufacturer too.

The bottom line is Crocs got two strikes in a row, one more strike they are out.

(update Feb 25) I read this article about CROX from theStockMasters. Very funny article, but I don't think CROX is a stock worthy of our long term portfolio.

Confidence level

2008-02-28T14:01:00.000-08:00

1) Yahoo Message Board, many other stock bbs (the world renown mit for one).

2) Many articles on Seekingalpha etc.; many articles written by bloggers and financial journalists (people who make a living on writing or talking, not on investing). Jim Cramer and guys on Fast Money (blog dedicated to them) should also fall into this category. Sometimes I found we can almost use those as a reverse indicator: for instance, if Cramer says buy, take it as a sell :-)

Shui Pi, the famous financial journalist and chief editor of ChinaTimes probablly should get 2.5.

3) Sell side analysts; Management with lots of stock options. Sell side analyst makes a living by help selling stocks. Management with stocks options tend to focus on stock price in the short term.

4) Fund managers. But I will also be discrimitive on those appears on CNBC...some are good, some are not (Jim Cramer). One question always bothers me: why would they share the picks? Jim Rogers belongs there (although he is not an active fund manager, his track record is very good). Add Boone Pickens (Oil).

My friend Zhu Ping (Guang Fa Fund) also belong to this category.

5) The Masters: Buffett, Lynch, Bill Miller...not those guys rarely tried to predict the economy, the market; and they rarely give out stock picks either. I think I will try to learn from them :-)

Exceptions: while I am talking about things in general, there are always exceptions, as I listed some financial blog web site under "financial" and "pro", which I would recommend.

Bottom line: all these information should help us make wise decisions; not the other way around (confuse us, and prompt us to make wrong decisions).