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Overlords Investment Conclave [OIC] Recruitment Thread

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SpaceLord
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Overlords Investment Conclave [OIC] Recruitment Thread

Post by SpaceLord » Fri May 18, 2007 11:29 pm

I've decided to start a new thread pertaining to a discussion of investments, especially stocks.

As stated in an earlier thread, I recently bought The Little Book That Beats the Market by Joel Greenblatt. Greenblatt, in the book, gives an entertaining explanation of Value Investing and says that he has come up with a Magic Formula for determining which companies to invest in.

The website for the book is at Magic Formula Investing. Basically, he takes the company's EBIT(Earnings Before Interest and Taxes) and divides that by Net Working Capital plus Net Fixed Assets. The second component is EBIT divided by Enterprise Value(EV). EV is taken to be the market value of equity plus net-interest-bearing debt. To find MFI stocks, just go to the site, enter in your minimum market cap, and the number of companies to return. The top 25 companies will be high on both scores, RoC and EY.

For tax purposes, Greenblatt suggests buying 5-7 stocks every few months for 1 year, and then selling each stock group 1 year later. For tax purposes, he advocates selling winners a few days before 1 year, and net losses a few days after 1 calendar year.

My current portfolio:
  • ASPV $20.10
    OPMR $7.56
    PNCL $17.68
    SHOO $31.69
    AVCI $8.29
    PWEI $32.22
My stocks were just bought a few weeks ago, and I am currently down 3.2%. One problem is that OPMR, a company that processes transactions for websites, including gambling websites, is being investigated by the US DoJ :roll: and has dropped over a dollar this week. I am slightly worried that half of the companies I purchased are no longer on the current MFI list.

Who wants to be part of the conclave? :ninja:
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Post by pengo » Fri May 18, 2007 11:51 pm

if the management and fundamentals are good u can ride out any dips.. thats why you hold for 1 year...at least.

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Post by KingB » Sun May 20, 2007 1:50 pm

Consider me part of the conclave. :D Is this going to be just Value Investing or an investing in general kind of thread?
Currently thinking of something clever.........

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Post by Ender » Sun May 20, 2007 2:20 pm

I recommend against using that formula.

By way of disclosure, I'm an efficient market guy. I've spent quite a bit of time with stocks and options trying to beat the market. It is very difficult because it is impossible to predict the "Black Swan" events, those events that are totally unexpected and uncontrollable but have a huge effect on a stock. For instance look at Apple. Just last week when news that there would be unexpected delays the stock tanked, until the news was proven false. That is one of those Black Swan events that occurs with every company, sometimes it is good sometimes it is bad, but it is never predictable. Your best bet is to spread things out among asset classes and spend your time figuring out the right asset allocation for you.

The Four Pillars of Investing is a great book to get you started, as is A Random Walk Down Wall Street.

My current asset breakdown is like this
US Large Cap
US Mid Cap
US Small Cap
International Large Cap
International Mid Cap
International Small Cap
US Corporate Bonds
Emerging market bonds
US treasury inflation protected Bonds
Foreign currency
Cash
Nasdaq short

I'm still working on the right allocation and I need to work in a REIT. That is the way to play the market if you want to see long term success. You can't beat wall street traders with stock picks over time.

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Post by SpaceLord » Sun May 20, 2007 3:02 pm

Ender wrote:I recommend against using that formula.

By way of disclosure, I'm an efficient market guy. I've spent quite a bit of time with stocks and options trying to beat the market. It is very difficult because it is impossible to predict the "Black Swan" events, those events that are totally unexpected and uncontrollable but have a huge effect on a stock. For instance look at Apple. Just last week when news that there would be unexpected delays the stock tanked, until the news was proven false. That is one of those Black Swan events that occurs with every company, sometimes it is good sometimes it is bad, but it is never predictable. Your best bet is to spread things out among asset classes and spend your time figuring out the right asset allocation for you.
Sorry, I am not planning on sticking to those 6 stocks, I wasn't clear before. I plan to by 25-30 more companies over the next few months. So, after I get 30ish stocks, the "Black Swan" effect won't hurt me much.

As to the efficient market; I posted this in an earlier thread:
SpaceLord wrote:The EMH, as one of its basic tenets, assumes that all investors have rational expectations. Now, that while that is technically true, the problem arises because of human psychology. While I have the highest regard for economics(almost getting a degree in it), I believe that all econ theories are limited by human irrationality.

Something like a conversion of my basic knowledge of game theory, economics, and psychology, I've got the impression that EMH's assumption is basically true, if you invest like most people. You get into the market while you believe, due to the current conditions, you can make money. The market, in my opinion, overreacts to indirect changes. For instance, why should any single stock take a downturn because the housing market takes a downturn? Taking advantage of the fickle nature of the market is what Warren Buffett has done the past 40 years. And finding good companies that, for external reasons, have experienced a stock downturn is what he does.
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Post by SpaceLord » Sun May 20, 2007 3:43 pm

KingB wrote:Consider me part of the conclave. :D Is this going to be just Value Investing or an investing in general kind of thread?
Nope, any kind of investing you wanna talk about. I am also interested in getting a discussion going about different investment philosophies. It's already begun. :ninja:
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Post by Pyperkub » Sun May 20, 2007 5:27 pm

SpaceLord wrote:Sorry, I am not planning on sticking to those 6 stocks, I wasn't clear before. I plan to by 25-30 more companies over the next few months. So, after I get 30ish stocks, the "Black Swan" effect won't hurt me much.
Seems like you'd be better off in a mutual fund, with that many stocks to keep on top of.

I like to keep my portfolio lean, 5-10 stocks, and dump the rest into an index fund and a bond fund.
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Post by Ender » Sun May 20, 2007 6:22 pm

The market is efficient, but I think it is for different reasons than you are proposing.

Take earnings season as a "for instance". When companies report earnings after the bell the price instantly reflects whether the company beat or missed earnings. It also accounts for future expectations as in the case of Cisco who beat their earnings but spoke of challenges coming up. That information gets priced in almost immediately.

Another interesting example came when the Fed released their minutes recently. The stock market swung into the negative then quickly back into the strong positive. Evidence of traders trying to interpret what the Fed really meant. Was inflation dead, will growth continue at a good pace, etc.

There are occasions when you can beat the market. If news is released during the day that impacts a company or industry directly then you can make a quick trade before that news is accounted for in the stock price. Like last week when the news hit about Amgen getting in trouble. You could have sold the stock short (or purchased puts) within 5 minutes and made quite a bit of money as the institutional investors reacted more slowly to digest the impact.

It is a very hard game to play, investing in individual stocks. You are competing against guys that know the market moves 100x better than you or I and are paid and compensated to beat it. Even mutual fund managers whose full time job it is to pick 30-50 stocks that beat the market struggle mightily with such a task. Remember, their total compensation is based on beating the market return and 75% of them lose to it.

There are some inefficiencies in small cap stocks, and that is where Buffett makes his most impact. Lately he hasn't been very good at the stock picking game though as Berkshire has been pretty flat relatively. Small caps can outperform especially if you have a stroke of luck.

I would recommend having the majority of your portfolio in index funds and reserve 10% to play around with using your method. Check out vanguard and get the total stock market index, their foreign index, and some bonds with the rest of your 90%.

Just my rough thoughts on it though.

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Post by Mookee » Sun May 20, 2007 6:36 pm

Pyperkub wrote:
SpaceLord wrote:Sorry, I am not planning on sticking to those 6 stocks, I wasn't clear before. I plan to by 25-30 more companies over the next few months. So, after I get 30ish stocks, the "Black Swan" effect won't hurt me much.
Seems like you'd be better off in a mutual fund, with that many stocks to keep on top of.
Yeah.

SpaceLord: You seem really excited about investing, which is awesome, but be careful at the same time. Your other post said that you started a couple weeks ago with about $600. Assuming that you are talking about ongoing investments with about that level of cash over the next couple months, you are going to get ripped apart by commissions to get to 25-30 stocks.

Also, be mindful of burning out. Investing is fun, but keeping track of 25-30 stocks would be a ton of work.

Of course, I don't know your situation. Maybe you're already into a bunch of low cost funds/etf's and you're doing this for fun. I take a small percentage of my loot to dabble in a couple stocks, but the vast majority is in index funds and various cash reserves. Just sayin' that trying to pick a lot of stocks and counting on that as the core of your investment strategy will probably end up frustrating you. It's hard.

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Post by Ender » Sun May 20, 2007 6:40 pm

By way of fun (and to give an example of my 'play fund')

I took a chunk of money and invested it in a Canadian Oil Trust, CNE. They were about 12.50 at the time but they paid .16 cents a month (US) in dividends. That to me was crazy unreal. I looked into why (change in law that will affect the company in 4 years) and placed my bet. After 5 months of steady monthly dividend payments I decided to go on margin to increase my dividend payouts. A short while later it started moving up in price as well as paying out the dividends. It was a nice find and I'm very happy with it. I still don't believe I was anything other than hugely lucky, and I'll use the gains to offset some of the losses from earlier 'gambles'.

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Post by noxiousdog » Sun May 20, 2007 7:51 pm

Ender wrote:There are some inefficiencies in small cap stocks, and that is where Buffett makes his most impact. Lately he hasn't been very good at the stock picking game though as Berkshire has been pretty flat relatively.
Eh?

And EMT is only as valid as the publicly accept knowledge put into it. Just because the public thinks it, doesn't mean it's correct.

Proof positive that EMT is beatable is RTU. It's a Cohen and Steers ETF whose underlying stocks are 13% more valuable than the ETF trade price. Source.


---------

I'd be very interested in such a group as long as we focus not on whether or not a stock is a good pick, but instead, why it's a good pick.
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Post by Carpet_pissr » Sun May 20, 2007 8:52 pm

pengo wrote:if the management and fundamentals are good u can ride out any dips.. thats why you hold for 1 year...at least.
quoted forsooth

I'm in, unless by conclave you mean subscribing only to the magic bullet formula theory. :)

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Post by Ender » Sun May 20, 2007 9:01 pm

And EMT is only as valid as the publicly accept knowledge put into it. Just because the public thinks it, doesn't mean it's correct.
There are in fact problems with EMT, but the conundrum is that the problems are so unreliable that it might as well be an efficient market.

Luck plays such a large role in the majority of alpha so as to make it difficult to attribute it to anything else.

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Post by tswright » Sun May 20, 2007 9:02 pm

I'm always up for talking stocks but I am a one hunnert percent dyed in the wool chartist* so my perspective'll probably be a little different than most of youse guys.

*Not, like, head and shoulders patterns and that guck, but trading envelopes, trend following, momentum indicators, volume analysis... that kind of charting.

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Post by SpaceLord » Sun May 20, 2007 10:55 pm

From what I have read, very few mutual funds beat the Dow consistently. And a fund beating the market in the past indicates nothing of how it will do in the future. I wish I could find a relevant study online that say these things, sorry. :?

And it's not really that hard to keep track of the MFI stocks. You find stocks that fit, keep them for around a year at the least, and sell them. It amounts to an hour or two worth of work every 2-3 months. Greenblatt hasn't published the details of his study, but according to what he says, it beats the pants off the market, at least for the study period of roughly 1987-2003.

I still view the EMH as a ideal world model. In an ideal world, the market "knows." In this world, and the NYSE, stocks become undervalued. The EMH assumes, again, that everyone ahas rational expectations. That, of course, is true. But they don't act in a rational manner. When a stock dips, even by a few percentage points, investors bail. When the market has any kind of downturn, people bail.

And I know that even with ScottTrade, and 7 dollar trades, my ability to make a profit are curtailed quite a bit. With, lets say, 45 stock trades annually(assuming one occasionally holds onto a stock) that is 315 dollars a year. If one puts 6k a year in the stock market, that is a bit over 5%. Sucks, I know. BUt right now I can't afford to drop more than 300 a month on my stocks. I am working at paying some debt down too. Perhaps by Sep-Oct I can increase what I put into investments.
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Post by Carpet_pissr » Sun May 20, 2007 11:22 pm

Anyone here hang out on Motley Fool? (the forums, or CAPS)

Since I knew Lawbeefaroni liked to talk stocks, I sent him to check out the CAPS "game" of stockpicking.

It's pretty cool, and damn addictive, and I have actually learned some good investing lessons from it.

Check it out: http://caps.fool.com/

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Post by Mookee » Sun May 20, 2007 11:32 pm

SpaceLord wrote:From what I have read, very few mutual funds beat the Dow consistently. And a fund beating the market in the past indicates nothing of how it will do in the future. I wish I could find a relevant study online that say these things, sorry. :?
You'll be able to find plenty of studies like that. A minority of managed funds beat the indices. That's why a lot of people (including myself) are suggesting that folks invest in an index fund.

Again, I'm just some dude on the internet and there are people posting in this thread that are way smarter than me in such matters. But, 45 trades annually to get 6k deep into stocks is insanity.
I am working at paying some debt down too.
Pay down the debt first. If you're just doing this purely for fun/excitement, then more power to you. If the money really means a lot to you, I'd highly, highly suggest some more reading from other sources.

All just my opinion, of course. Good luck.

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Post by noxiousdog » Mon May 21, 2007 9:14 am

Carpet_pissr wrote:Anyone here hang out on Motley Fool? (the forums, or CAPS)
Yes. I lurk mostly on the Berkshire and REIT boards. Mishedlo is a lot of fun too, but way too busy for me to keep up with.
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Post by raydude » Mon May 21, 2007 9:46 am

I try to follow the Warren Buffet approach - find really good stocks, buy them, and hold them. I personally don't care about the stock price as much as the value I perceive in the company.

For example, when faced with buying 100 shares of redhat at $10/share vs. buying 12 shares of Microsoft at $80/share I don't look at it as a "100 shares" vs. "12" shares comparison. I look at the cash in the bank, debt, and cash flow, and pick Microsoft.

With that, I bought the following stocks at the share price of:

Apple $40.58 in 2005
Amazon $48 in 2005
Microsoft $21.47 in 2002
Dow Diamonds $82 in 2003
Google $416 in 2006
Starbucks $25 in 2005

I'm pretty happy with my unrealized gains so far. I check in quarterly with the financial reports and as long as they're doing well and have sound goals for the future I'm holding them till I absolutely need the money.

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Post by noxiousdog » Mon May 21, 2007 10:13 am

raydude wrote:I try to follow the Warren Buffet approach - find really good stocks, buy them, and hold them. I personally don't care about the stock price as much as the value I perceive in the company.
That is -not- the Warren Buffet approach. Warren will not buy anything unless the price is well within a margin of safety.

The biggest mistake that people make when buying investments is neglecting to figure out -exactly- what it is they are buying. And that thing is all the future cash flows of the investment. It doesn't matter if it's a savings account, CD, bond, oil well, supermarket, common stock, preferred stock, or any thing else.

For instance, if I have a bond that will pay out one penny every three days until $1 per year has been paid for ten years, that bond has a distinct value. If you can't identify that value, you shouldn't be in individual stocks. (Caveats of risk apply; chiefly inflation)
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Post by raydude » Mon May 21, 2007 10:23 am

noxiousdog wrote:
raydude wrote:I try to follow the Warren Buffet approach - find really good stocks, buy them, and hold them. I personally don't care about the stock price as much as the value I perceive in the company.
That is -not- the Warren Buffet approach. Warren will not buy anything unless the price is well within a margin of safety.
Well within a margin of safety as determined by value vs. stock price I believe.

Value being a measure of how much money the company has, how the company makes money, and how they plan to make more money in the future. Not to mention how well one understands the business that the company is in. Rest assured I understand all that for the stocks I have bought.

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Post by noxiousdog » Mon May 21, 2007 10:29 am

raydude wrote: Well within a margin of safety as determined by value vs. stock price I believe.
Correct.
Value being a measure of how much money the company has, how the company makes money, and how they plan to make more money in the future. Not to mention how well one understands the business that the company is in. Rest assured I understand all that for the stocks I have bought.
Ok. And I wasn't trying to single you out. While I don't care about the current stock price so much, purchase price is -everything- and I wanted to make sure it was addressed.
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Amazon Kindle Book Loaning Thread

"To wield Grond, the mighty hammer of the Federal Government, is to be intoxicated with power beyond what you and I can reckon (though I figure we can ball park it pretty good with computers and maths). Need to tunnel through a mountain? Grond. Kill a mighty ogre? Grond. Hangnail? Grond. Spider? Grond (actually, that's a legit use, moreso than the rest)." - Peacedog

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Post by SpaceLord » Mon May 21, 2007 8:47 pm

This thread is good luck!

On a meh day on Wall Street, my stocks gained 6 bucks! :P All the Ramen you can eat, on me! 8-)
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Post by Carpet_pissr » Mon May 21, 2007 9:34 pm

SpaceLord wrote:This thread is good luck!

On a meh day on Wall Street, my stocks gained 6 bucks! :P All the Ramen you can eat, on me! 8-)
Thanks to some overweight Elan holding, my "trading", fun money account went up 6% today, and my retirement IRA account went up 2.6%. I am pretty psyched.

Any other Elan (ELN) holders out there in OO Land?

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Post by LawBeefaroni » Fri May 25, 2007 10:18 am

I'm in. I just saw this thread now.

Just my NYSE/NASDAQ/AMEX positions, average prices:


HAL $32.00
NYX $92.11 :cry:
PHO $17.70
RWC $4.70
TUES $18.80 :cry: :cry:
UTX $61.93
BA $85.03
PG $?
TSM $10.80
CVLT $17.01
AOD $20.80
HTE $24.38
NOK $17.82
APC $41.12
4 OTC roulette plays

I'm only in love with UTX. Maybe Boeing but I got it in January and at $98 I don't want to get greedy.

Over the past year I've sold:
RICK
PRVT
ACTS
ADSX
TSM
WSCI
JADE
NEOL

All for gains, mostly because I hate taking a loss. TUES would be on that list otherwise. As would most of my pennies.

Looking at:
POT
SPR
WLP

Quickly:

POT is a beast. I started watching it around $155. I hate buying on highs so I waited for it to come in. It ran to $200+. I'm dumb. Still think it's good but just watching for now.

SPR is a Boeing play. I should probably just buy more Boeing but I think SPR is somewhat overlooked and might pop when Dreamliner delivery starts.

WLP. I work in healthcare but I don't have any healthcare stock. I recently checked with corporate compliance and I can now buy healthcare stock so long as I stay below 5% ownership. :lol: Um, shouldn't be a problem. So I like WLP but they're all looking good.

Still doing research. Yesterday would have been a good day to buy but no free cash at the moment.



SpaceLord wrote:For tax purposes, he advocates selling winners a few days before 1 year, and net losses a few days after 1 calendar year.
Why is this? I don't let LT/ST make my decisions for me but if it were close, I'd hold on to a gain to get the long term tax break.


Now I'll get to reading the whole thread...
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Post by raydude » Fri May 25, 2007 10:37 am

raydude wrote: Apple $40.58 in 2005
Amazon $48 in 2005
Microsoft $21.47 in 2002
Dow Diamonds $82 in 2003
Google $416 in 2006
Starbucks $25 in 2005
Just thought I'd share what gains look like for long-term investments. So, based on my portfolio as shown above:

based on 5/25/2007 prices at 10:34 EDT

AAPL (Apple Computer): $112.43, gain 175.08%
AMZN (Amazon): $68.98, gain 40.74%
DIA (Dow Diamonds): $134.76, gain 61.24%
GOOG (Google): $478.80, gain 14.59%
SBUX (Starbucks): $28.53, gain 9.69%

Of course, all of these are unrealized gains. As good as they look I'm convinced they can look even better. So I'm holding them and will re-evaluate next quarter to see if I can add anything to the stable.

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Post by Carpet_pissr » Fri May 25, 2007 11:22 am

Alright, time to share my investing pain with my new-found OO investing brothers and sisters.

The stock? NFLD (Northfield Labs)

The damage? -88%

This was one that I knew going in, was a boom or a bust...I would either be filthy rich, or stinking poor.

It crashed and burned about as horribly as a stock/co/ can.

Curse!

OTOH, my ELN shares are doing well, so it balances out a bit, but I had a stupid % amount of my portfolio in NFLD. STUPID I say.

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Post by LawBeefaroni » Fri May 25, 2007 11:32 am

Carpet_pissr wrote:It crashed and burned about as horribly as a stock/co/ can.
OPBL? NEWC?

:wink:

At least with the all-or-nothing gambles the pain is quick and leaves no time for thought.
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Post by Carpet_pissr » Fri May 25, 2007 11:56 am

LawBeefaroni wrote:
Carpet_pissr wrote:It crashed and burned about as horribly as a stock/co/ can.
OPBL? NEWC?

:wink:

At least with the all-or-nothing gambles the pain is quick and leaves no time for thought.
Horribly enough, I added NEWC to my CAPS (outperform) portfolio days before it crased. Morningstar was singing its praises mightily. Bastards. :)

With winners like NEWC, NFLD, NEOL, and DNDN in my CAPS portfolio, you would think I would be learning something, right? YOU WOULD BE WRONG, SIR! ;)

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Post by LawBeefaroni » Fri May 25, 2007 12:36 pm

Carpet_pissr wrote:
LawBeefaroni wrote:
Carpet_pissr wrote:It crashed and burned about as horribly as a stock/co/ can.
OPBL? NEWC?

:wink:

At least with the all-or-nothing gambles the pain is quick and leaves no time for thought.
Horribly enough, I added NEWC to my CAPS (outperform) portfolio days before it crased. Morningstar was singing its praises mightily. Bastards. :)

With winners like NEWC, NFLD, NEOL, and DNDN in my CAPS portfolio, you would think I would be learning something, right? YOU WOULD BE WRONG, SIR! ;)
Oh, crap. NEOL. I actually traded some NEOL at the beginning of the year. :oops: I need to add it above.




Looks like deja vu again...strong start grinding to a halt today. It's the Friday before a long weekend but I thought things could run a bit. Volume should die now that derivatives and bond markets are closed early. Oh well.
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Post by SpaceLord » Tue May 29, 2007 6:31 pm

Update!

In this abbreviated week, the market, in general, was up slightly. Consumer confidence was up a bit, and I believe the Fed meets tomorrow.

My portfolio, on the other hand, was up 2%. 8-)

The fluctuations in the market amaze me. I feel a correction is coming soon, and I am waiting for it, cash in hand. :ninja:
They're going to send you back to mother in a cardboard box...

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Post by LawBeefaroni » Wed May 30, 2007 10:03 am

Might be a choppy day. Rough open but if recent history is any indicator, the DJIA will finish green.


Personally over the short week, Boeing is marching right along. Energy/Energy services (HTE, APC, HAL) are flat but mostly strong. Tech (CVLT, TSM) up slightly. TUES is crap as usual. Everything else fairly flat.

POT split and I'm watching it closely now for a buy. SPR is looking better as Dreamliner orders continue to roll in and initial delivery approaches. I read their 5/7 10Q and their risks are a bit scary but I'm still liking them. Their secondary offering seemed to go off ok.

How about that Coldwater Creek (CWTR)? There was some buzz over the options on Friday. Wish I had some spare cash then.
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Post by raydude » Wed May 30, 2007 10:12 am

Bought more AAPL (apple) stock last week at 113.95 after another look at their fundamentals. I figure it has more room to grow, especially with the iPhone about to come out this year. I figure AppleTV will catch on fire too, with being able to view youtube videos (with a 3rd party mod).

I debated trying to time it, but I figured my time is worth more doing something else. Plus I'm in it for the long-term so what looks like a high now will probably be lost in the noise 5 years from now.

It worked for me with the Microsoft buy (also bought near the high at that time).

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Post by LawBeefaroni » Wed May 30, 2007 10:26 am

raydude wrote:Bought more AAPL (apple) stock last week at 113.95 after another look at their fundamentals. I figure it has more room to grow, especially with the iPhone about to come out this year. I figure AppleTV will catch on fire too, with being able to view youtube videos (with a 3rd party mod).

I debated trying to time it, but I figured my time is worth more doing something else. Plus I'm in it for the long-term so what looks like a high now will probably be lost in the noise 5 years from now.

It worked for me with the Microsoft buy (also bought near the high at that time).

Keep a close eye on it after the iPhone launch. It will have excellent numbers but the average investor will be disappointed with the market share. Nokia and Motorola absolutely dominate and iPhone sales will look like peanuts. My guess is that the usual suspects will use this perceived weakness to drive it down. They might not be able to if the actual product gets typical Apple press but it should be fun to watch.

Not to say you need to do anything, it's a good long termer, but it's always interesting to pay attention.

More fun:
Last update: 5/30/2007 10:21:46 AM NEW YORK (AP)--The American Civil Liberties Union said Wednesday it is suing Jeppesen Dataplan Inc., a subsidiary of Boeing Co. (BA), saying it provided secret CIA transportation services for three terrorism suspects who were tortured under the U.S. government's "extraordinary rendition" program.

The cases involve the alleged mistreatment of Binyam Mohamed, an Ethiopian citizen, in July 2002 and January 2004; Elkassim Britel, an Italian citizen, in May 2002; and Ahmed Agiza, an Egyptian citizen, in December 2001. Mohamed is currently being held in Guantanamo Bay, Cuba; Britel in Morocco; and Agiza in Egypt, the ACLU said in a statement. Details of the claims were being released at a Manhattan news conference.
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Post by noxiousdog » Wed May 30, 2007 10:40 am

You guys frighten me.

Paying 33 times earnings for a company that has failed more times that it has succeeded. sheesh. This thread is just about the exact opposite of what I was looking for.
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Post by LawBeefaroni » Wed May 30, 2007 10:59 am

noxiousdog wrote:You guys frighten me.

Paying 33 times earnings for a company that has failed more times that it has succeeded. sheesh. This thread is just about the exact opposite of what I was looking for.
So make a case against it. I know you use more than just P/E to value a company.
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Post by raydude » Wed May 30, 2007 12:00 pm

LawBeefaroni wrote:
noxiousdog wrote:You guys frighten me.

Paying 33 times earnings for a company that has failed more times that it has succeeded. sheesh. This thread is just about the exact opposite of what I was looking for.
So make a case against it. I know you use more than just P/E to value a company.
Isn't that part of the reason why companies do stock splits? To make the stock price appear psychologically more appealing to an investor and make the P/E more "reasonable" ?

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Post by LawBeefaroni » Wed May 30, 2007 12:31 pm

raydude wrote:
LawBeefaroni wrote:
noxiousdog wrote:You guys frighten me.

Paying 33 times earnings for a company that has failed more times that it has succeeded. sheesh. This thread is just about the exact opposite of what I was looking for.
So make a case against it. I know you use more than just P/E to value a company.
Isn't that part of the reason why companies do stock splits? To make the stock price appear psychologically more appealing to an investor and make the P/E more "reasonable" ?
E is per share. A split doesn't change the P/E. Say you have a 2:1 split and $3 EPS with a price of $50 before the split. After the split you have $1.5 EPS on a price of $25. EPS is the same, P/E will be the same.

Simple calculation for P/E: Share price / earnings per share. In both examples above, the P/E would be around 17.





Splits are done for numerous reasons. Some might be psychological but they don't change the P/E.
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Post by noxiousdog » Wed May 30, 2007 2:31 pm

LawBeefaroni wrote:
noxiousdog wrote:You guys frighten me.

Paying 33 times earnings for a company that has failed more times that it has succeeded. sheesh. This thread is just about the exact opposite of what I was looking for.
So make a case against it. I know you use more than just P/E to value a company.
There's no reason to. At a 33 p/e and with apple's track record, there is too much risk involved for me to be comfortable with. There are plenty of other investments with a safer return.

Apple has two products of any note. Ipods and music licencing deals. Their moat is their brand. If there is any damage to that brand (which there's a lot of fad in that brand), they lose their moat and will suffer competitive pricing pressures. At a 33 p/e you're assuming that they can do roughly quadruple their ipod/licencing sales in a mature market, which would allow their price to rise by 50% and would set their p/e at a mature company 17. How long will it take to quadruple their sales? Minimum 4 years. In a rapidly growing market, they've increased their sales by 5 million each of hte last two years. 5.5M from 04->05 and 5.4M from 05->06. So on a percentage basis, their growth is significantly tailing off. And if they're only growing at 10%/year in 2011, that's barely worth a 17 p/e. So you're looking at a 50% return in 4 years. Which is less than 12%/yr for a whole lot more risk. No, thank you.

Is it possible they could expand their product lineup? Sure, it's possible. But until the Ipod, how market changing product have they had?

And you're looking at a lot of Steve Jobs premium too. He's already left once.
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Post by LawBeefaroni » Wed May 30, 2007 2:58 pm

I passed on AAPL at $85 around December. I had the same feelings about it being overvalued as you do.

And yes, it is their brand lets the stock have a 33 P/E multiple. It's the fact that any new product they introduce will have the same brand power that the iPod does. The iPhone, appleTV, Leopard or whatever the next O/S is. I'm no fan of their products and I don't own any of their stock. But I'm fairly convinced that their brand name, public perception, growth prospects, and legions of fans will continue to justify the high multiple. The strongest of those being their growth prospects. Investors salivate at growth and see Apple as someone who could introduce a white plastic coated turd and sell it. Because of that, the price will continue to go up. I hate the company. I respect the stock.

As for the growth numbers, I'm not sure what you're talking about. QoQ I see sales at $5.2B Q207 v $4.3B Q206. That's roughly $900M over one quarter, so what, 20% rev growth? EPS QoQ is like 80%. That's the growth that's getting a 33 P/E. Not 5M in sales YoY (were you talking about units?).

Quickly, from S&P for AAPL EPS:
2007 $3.58E
2006 $2.27
2005 $1.56
2004 $0.36
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