Maybe a Pine Tree

Tuktoyaktuk or Bust -- A Trip Into the Canadian Economy

2008-06-28T02:49:49Z

If all goes well, this summer I'll drive 19,000 miles and visit 22 national historic parks, 16 national parks, 6 states, 5 provinces, 2 territories and the Canadian Pingo Landmark in one month. I'll follow the path of the 'Ice Road Truckers' as I visit Yellowknife and Whitehorse, drive up the Dempster Highway to Inuvik and then fly to Tuktoyaktuk, NWT. Then, I'll follow the path of the gold rush as I hike 33 miles on the Chilkoot trail, battle hordes of mosquitoes, struggle with blown tires, and sleep in 24-hour sunlight. To some, I'm not going on a 'vacation' this is an all-out 'expedition'.

Too often we fly from one place to another without understanding how the economy, climate, geography, culture, transportation, and food changes along the way. Many of us might know the name of a 5 star restaurant in Toronto (Truffles), but few of us have watched icebergs in Newfoundland, encountered bears at Waterton Lakes, sought seclusion at Battle Harbor, climbed ice-waterfalls along the shores of Lake Superior, or experienced a true Finnish-140-degree-Celsius sauna. We fly long distances only to sit ourselves in a hotel pool and allow ourselves to be pampered. There is a place in life for all that stuff, but life has a lot more to offer, and part of the journey should include the stuff in between. To quote (dare I say) Leonardo DiCaprio from the movie, The Beach:

We all travel thousands of miles just to watch TV and check in to somewhere with all the comforts of home, and you gotta ask yourself, what is the point of that?

The Ross School of Business teaches 'action-based learning' to describe the education provided not only by 'thought', but by 'action' as well. It's a concept that not only listens to the theory, but applies it to practice. I've also the heard the term 'firsthand experience' from Ken Kam at Marketocracy, and it relates to the specialized firsthand knowledge/experience that great analysts and portfolio managers should have. I'm a quant, I've learned from the 'action based learning' and I believe I have some 'firsthand' experience in the quant world, but there are moments in time where I need to visit some of the sectors, industries and companies.

One day I had a student come up to me and tell me a story. He had spent the summer travelling for an investment bank and was required to visit companies that he thought were undervalued with potential growth. Upon visiting one of these companies, he found that their location had nothing on it. It was a vacant lot owned by the company. Smiling, I said to him, 'well, if it's vacant then there is plenty of growth available there'. In a very simple example, he had demonstrated qualitative research; 'action' orientated learning and 'firsthand' experience.

Life should be full of these experiences, but sometimes it isn't. Too often we are consumed by all sorts of things, and never make it past the confines of the town we live in. The cost of gas is certainly high this summer, and many won't travel further than the state they live in, but I'm going to take my stimulus check and drive - and I'll drive far. Why would I visit Canada? Well, the U.S. economy is becoming much more dependent on foreign oil, it has a deficit, a tremendous amount of money is spent on elections, some politicians want to revisit NAFTA, consumer confidence is much lower, the housing market is doing poorly, and it's had some bad luck with hurricanes, floods, tornadoes and fires. On the other hand, Canada has oil, tar sands, diamonds, gold, and potash; it has a surplus, less money is spent on elections, Canadian politics revolves around sexy dress scandals (Julie Couillard), the housing market is doing better, and the north will probably open up to more transportation and commerce. It's in my thought that Americans should pay closer attention to their friendly neighbors up north. Alberta may have lost Wayne Gretzky to the entertainment driven world of California, but as oil prices rise and Alberta prospers... perhaps Gretzky might want to think of moving back?

So I'll drive, and I'll learn more about the journey between 'point a' and 'point b'. Hopefully along the way, I'll learn more about the economy, climate, geography, culture, transportation, and food. I'll mix in with some locals and ask them, 'what do you think?' The quant in me vows not to turn towards the 'dark side' (qualitative research), but I will certainly keep an open mind on the economy, sectors, industries and stocks that I find. Gas prices will be high, at Eagle Plains on the Dempster highway, gas is over $6.25 a gallon; but, life is short and so I'll hike, drive, fly, and take a boat. I want some of that 'firsthand experience' and 'action-based' learning, so I'm going to take my quant view, mix it with some qualitative views, and drive through the Canadian wilderness to Alaska. Money is everything in business, but money shouldn't be everything in a personal life - if you gain a lot of money, but never see the world, "you gotta ask yourself, what is the point of that"?

AMR: American Airlines News

2008-06-10T15:19:20Z

The bad news about American Airlines (AMR) puzzles me. The bad news about all the airlines puzzles me. The industry was once considered a luxury; now it's considered a necessity. The industry has a hard time improving margins, relying on high priced oil, while attempting to provide 'cheap' fares. It's an industry that charges money for your suitcase full of clothes, yet also makes news if you don't wear the right clothes (or lack thereof). It's an industry that is under constant scrutiny by passengers, security analysts, stockholders, transportation and shipping. It's a mess, and it's an industry that is probably overvalued, yet it also needs to exist.

So, how do you value something that is worth 'nothing'? When I perform a DCF valuation of AMR, I find a price worth less than $0. That sounds bad to me, yet AMR also has a low PE, price/book, and price/cash flow. In some part, the 'value story' is there. Despite the glimmer of hope, I have to pass.

Perhaps I can find some other redeeming qualities for AMR? Optimism won't come from the 'smart money' story where I see a high short interest and insider selling. It won't come from the 'quality' story where I see a high F-score but low accruals.

It won't come from the 'growth' story where I see some growth, but poor earnings growth. It won't come from the 'econ' story where I'm optimistic on 'industrials', but pessimistic on 'airlines'. So I really have a hard time justifying AMR. I know we need the airlines, but to me this is a gamble, some 'distressed' equity funds might like it, but instead of flying I'll pass on the stock and drive to the Northwest Territories this year.

FNM in a Quant's Eye

2008-06-05T18:14:27Z

To some there is a major benefit to quant analysis, in that it avoids personal biases.
To others, a major complaint of quant analysis, is that it avoids qualitative analysis.

I'm a quant.
I love being a quant, and although I'll try to respect the ideas of non-quants, I'm still a quant.

So, I'll look at FNM as a quant.
I know there are qualitative stories that can be told about all sorts of mortgage backed securities.

But I'm a quant, and so I'll still give you a quant opinion.

My blogs are short as my thoughts are quickly made, and you can certainly disagree with me.
But even in the world of quant analysis, FNM might be a tricky one to analyze.
Nevertheless, here is my quick quant opinion.

Smart money funds - FNM has a high short interest. SHORT.
Value funds - FNM has a nice low price/book and price/cash flow, but it also has a a poor PE. Mixed result = SHORT.
Growth funds - FNM has some positive growth, but poor earnings growth. Mixed result = SHORT.
Quality funds - FNM has low accruals and a low F-Score. LONG.
Econ thought - I'm long on Financials, but short on 'thrifts/mortgage finance'. Mixed result = SHORT.
My valuation - $41. LONG.

My Opinion = SHORT FNM, but some 'value' or 'quality' funds might want to buy FNM.

How to Pick Stocks -- Quick Thoughts on HOV, BGP and VLO

2008-05-29T22:00:25Z

I'm not one to spin stories on stocks, as there are many blogs, newsletters, research reports and forums dedicated to doing just that. When deciding how to pick stocks, I like to ask myself this question:

What type of funds would I pitch this stock to?
Would it appeal to 'smart money', 'value', 'growth', or 'quality' funds?

If I think it would appeal to a variety of funds, then that gives me a 'long' opinion. If I think it wouldn't appeal to a variety of funds, then that gives a 'short' opinion. It's not terribly hard to create this opinion. If a stock would appeal to a variety of funds, then that creates a strong 'catalyst' for the stock, as many funds might be interested in increasing their exposure of that stock. It's a fairly simple story to understand.

So, here are three quick stock opinions.

HOV
Smart money funds - HOV has a high short interest. SHORT.
Value funds - HOV has a low price/book, poor PE, low price/cash flow. Mixed result = SHORT.
Growth funds - HOV has a low sales growth. SHORT.
Quality funds - HOV has a low F-Score and low accruals. LONG.
My valuation - $6. SHORT.
My Opinion = Short HOV, but it might appeal to 'quality' funds.

BGP

Smart money funds - BGP has a high short interest. SHORT.
Value funds - BGP has a low price/book, poor PE, low price/cash flow. Mixed result = SHORT.
Growth funds - BGP has a low sales growth. SHORT.
Quality funds - BGP has a low F-Score and low accruals. LONG.
My valuation - $6. SHORT.
My Opinion = Short BGP, but it might appeal to 'quality' funds.

VLO

Smart money funds - VLO has low short interest. LONG.
Value funds - VLO has a low price/book, low PE, low price/cash flow. LONG.
Growth funds - VLO has positive sales growth. LONG.
Quality funds - VLO has a high F-Score and low accruals. Mixed result = SHORT.
My valuation - $60. LONG.
My Opinion = Long VLO, but 'quality' funds may want to avoid it.

Short HOV and BGP. Buy VLO.

Captain Hook says avoid Crocs!

2008-05-10T22:30:33Z

This week CROX announced earnings, and folks got excited and the stock went up 10%, well guess what? I still dislike it and I'll still short this footwear company that seems to act like a volatile biotech stock.

Now, not to toot my own prediction, but back in this article,

I had complained about CROX and made this statement:

"Avoid this one, pick up a copy of Backpacker magazine, read the reviews on hiking shoes and buy something else instead"

And so I got a subscription to Backpacker magazine, I'm reading their Gear Guide and I'm going to buy something other than CROX for my hikes this year. By doing so, I have avoided the -55% drop that the stock has experienced since that time. I don't always get these stock predictions right, but when it happens to go in my favor - it sure feels good.

Now, once again I'll look at the value, quality, smart money and growth stories for CROX.

Value
CROX has a low (nice?) PE and price/book, but it also has high (poor?) price/cash flows. With updated earnings into my model, I get a price target of $13. With the poor price/cash flow, it's a 'short', but the other variables tell me that it's a 'Long'.

Quality
CROX has high (poor?) accruals and a high F-score. Short.

Smart Money
Poor high short interest, but the insiders haven't sold recently. Now, for those who don't think that insider selling counts, what do you think of the insider selling that happened last year when the stock was at $40, $50, $60? Does it make you pause and wonder: Did the insiders know something? Did they think it was overpriced? Should you have thought the same? Short, but if the insiders buy more and the short interest declines, then it's a 'Long'.

Growth
They have very high sales growth, and in my opinion that can't continue. Short.

My Opinion

I think CROX could appeal to some value investors hoping for a turn-around story, it could also appeal to those growth investors that love fluctuating high growth rates. But, with high price/cash flows, high accruals, a high F-score, high short interest, and "abnormal" growth rates, I'm going to pass on CROX and stay 'Short'.

Balmer falls short, You should too!

2008-05-06T02:19:02Z

I heard Yahoo rejected the Microsoft offer, the stock dropped, and I found myself strangely smiling.

Back in Feb. '08, I mentioned in this blog:

"Yahoo is overpriced. Sell. Microsoft is paying too much."

And then in this blog , I gave a small prediction.

"Here's my weird prediction: I think YHOO stock will fall in the next year. I think it's overvalued. Sell. Now, once YHOO falls, then I think there is a high probability that MSFT might make another offer on the company, but this time the stock will be trading at a price lower than $19, and the offer will be at least $5 billion less than the other offer they made."

So far so good, but do I feel bad for the shareholders? Sure.

Is Yahoo trying to do what is in the best interest of the shareholders? Just for fun, go to Yahoo Finance, and look at the Yahoo insider transactions on Yahoo from the past two years. It feels rather odd using Yahoo to look at itself, but let's do it for some fun. Do you see the selling? It sure looks like a director, another director, a former COO, the EVP, a President, and even a 'Chief Yahoo' has sold some shares. I'm afraid to count how much a Chief Yahoo sold. Yet, although they are exercising options and selling some stuff, the Microsoft deal wasn't good for the shareholders? Wow. Shareholders do pay attention - here's a fun exercise, in the next couple months watch to see if there is any insider selling and by whom, and ask yourself, if they're selling, shouldn't you be too?

Why do some analysts make downgrades AFTER the announcement? Do they lack the guts to go out on a limb and make a prediction, or are they just trying to 'play it safe' and keep their jobs? After all, it seems a bit easier to go along with the flow and issue predictions AFTER the event. Perhaps in 6-12 months Yahoo will get another offer from MSFT at a lower price and I'll love to see how many analysts upgrade the stock on that news, AFTER the announcement. At least I had the guts to downgrade it BEFORE the announcement.

YHOO, I think you should have taken the offer - sorry, short YHOO.

Ahknaten Oils up ADM and Lets it Slide By

2008-04-29T23:53:12Z

Today the earnings came out for ADM, and so I'll give you my opinion - short.

Following my traditional method of analysis, I look at these stories:

Value - Nice low PE and price/book, but poor price/cash flow. My conservative valuation gives me a price target of $33. Short.
Growth - Nice sales growth (not too low, not too high), and nice positive (increasing) earnings momentum. Long.
Smart money - Nice low short interest, but the insiders are selling, that's not good. Short.
Quality - High accruals. Short.

So, perhaps ADM would be fitting for a growth fund, but if I was pitching this for a value/blend/smart money/quality fund... I'm sorry, short ADM.

Ahknaten -- R.E.P. TSO

2008-04-15T05:21:02Z

Someone out there is bound to criticize how I value energy companies. They're going to talk to me about oil reserves and potential finds, and mention upstream and downstream, how oil should be at $150 or $70, biofuels that cause hunger, and how they like DIG DUG. Someone is going to point out that I'm going to talk about a company that is in my portfolio and someone is sure to notice that I have a large position in one of those companies. Some may even realize that I need to sell that particular position at some point to diversify a bit, as 24% in one position is way too large. Then, perhaps I'll complain about an energy company and it'll remind me of the time I complained of FXEN (down -150% with respect to the XLE) and how the Yahoo message boards lit up and attacked me personally. Oh, sometimes I'm wrong, sometimes I'm right, this is just an opinion folks.

So, I'm going to talk about two stocks - TSO and REP, and I'm going to do the usual arrangement on those stocks that I like to do.

REP - Long

Yesterday was a nice day for REP (up 17%) on news that the oil field they have interests in, has significantly more oil than previously expected, and that they might get acquired by China National Petroleum Corp. Cool. That sure helped out my portfolio. My initial position in REP was placed as it had the value story (low PE, price/book), the quality story (low accruals, F-score), few analysts, a growth story, and when I did a valuation of it in eVal I got a price of about $28 Euros ($44 USD). Oh wow, with the momentum today, perhaps some analysts will choose to cover it now and look super smart. Long on REP, but perhaps I'll start selling some soon.

TSO - Short

Today wasn't so bad for TSO, but it wasn't great. Not so cool. I have held TSO at some point, but not anymore. It has somewhat of a value story (low PE, price/book), and although I get a valuation of $42, the quality story isn't great (high f-score, high accruals), and after seeing the last quarter's EPS numbers the growth story isn't all that great either. The stock could be a 'value trap', and so I'll stay away for now. TSO makes me nervous - short.

Ahknaten -- POT might be legal in B.C. but...

2008-04-08T22:38:10Z

Although pot is legal in British Columbia, it's not legal in Saskatchewan - nor should it be.

Short POT.

Although I love Canada and I have a bias towards Canadians, I think POT is overvalued. Doing the usual procedure I follow in eVal (valuation software), I find a target price of $63, much lower than the current price of $176. POT has a high PE, a high price/book, a high F-score and high accruals - so I'm concerned, as it doesn't have the value/quality story that I would like to see. It has quite a lot of analyst coverage already, so I don't see many more analysts taking coverage of the stock. It's quite possible that more analysts might 'drop coverage' on the stock, and if that happens, that seems like a strong negative catalyst to me. After all, some analysts love to cover stocks that they like, but they seem to drop coverage on ones they hate. Weird, isn't it?

Would you like a few nice chemical companies to look at?
How about: DOW, FOE, LZ, MEOH, NCX, OMG, POL and SHI

I'm sorry; I'll pass on POT and get addicted to another stock.

Ahknaten -- Today Is...

2008-04-01T04:08:41Z

Today,
I fired the Fed, decimated the Sarbanes Oxley Act, annihilated the Up-Tick rule and voted on American Idol.

Today,
I believe the markets are efficient.

Today,
Wall Street adopted the Finnish market system and the overnight rate was dropped by 300 basis points.

Today,
I'm Warren Buffet, Gordon Gecko, Jim Cramer, Bud Fox, Kai Trump, Peter Lynch and Richard Sloan.

Today,
I published an academic paper called, "Give Up and Go Home". It spoke a lot about efficiency, synergies, exogenous and out of sample tests that I conducted while taking into account lagged periods, database errors, bid/ask spreads, transaction costs, taxes, inter-temporal shocks, solar winds, betas, tobin's q and other alphabet soup letters. Robustness checks were utilized with spearman, pearson and petainen windsorized coefficients, and correlations with Fama/French 2,3,5.5 and 100 factors over time, industry and cross-sectional variations while factoring in SOX and LTCM events, as well as disposition effect tests, accrual anomalies, and momentum/value/smart-money/quality controls. Also noted was that all the thoughts were my thoughts and did not reflect the thoughts of other seemingly smart people and if I made some errors then they were my dumb errors and I was certainly not as smart as I thought I was. It was published in a number of journals, but they incorrectly gave my name to someone else.

Today,
I'm going long on gold, GOOG, AAPL, and every momentum stock I have ever bashed, and short on managed health care and insurance.

Today,
Men are right. Women are wrong.

Today,
Someone will donate a lot of money in my name. I might get lucky and have a urinal named after me.

Today,
I love Photographic Products, Agricultural Products, Coal and Consumable Fuels, Thrifts and Mortgage Finance, Life Sciences Tools & Services, Airlines, Home Entertainment Software, Forest Products, Wireless American Telecommunication Services, and Gas Utility companies.

Today,
I bought a pair of CROX, made a call on my I-Phone and installed a solar panel on my pink cat.

Today,
Housing starts, consumer confidence, same store sales, and GDP rose to historical new highs. Oil dropped to $60, gold dropped to $600 and the deficit was given to "O-il Canada".

Today,
I created the next Bear Stearns, befriended Eliot Spitzer and fired Kwame Kilpatrick from Detroit.

Today,
Hotel saunas in America are hot instead of cold, and a spa near Mt. Tremblant knows the real meaning of the word, "loyly".

Today,
The honorable and glorious Stephen Colbert, of 'The Colbert Report' will mention my name, or my blog, or invite me on his show.

Today,
Jon Stewart will do the same. He too is honorable and glorious, but if Jon is reading this, then he is cooler than Stephen and if Stephen is reading this, then he cooler than Jon.

Today,
I love spelling Bloomberg in word puzzles.

Today,
I hate Tires and Rubber, Tobacco, Oil & Gas Drilling, Multi-Line Insurance, Managed Health Care, Office Services & Supplies, Electronic Manufacturing Services, Diversified Metals & Mining, Integrated Emerging Market Telecommunication Services, and Multi-utility companies.

Today,
I became a Sith Lord and was hired by Overstock. Light-sabers are on sale.

Today,
I conceived a child.

Today,
Is April Fools.

Ahknaten -- Queasy LDK

2008-03-31T23:46:30Z

LDK is a strange company to analyze. In the past year the stock has fluctuated from $20 to $77 and the volatility alone has been quite remarkable. When I made a valuation model in eVal, I found a price target for LDK of $44, but that assumed that the company could keep growing at least 38% for each of the next 5 years. Is that reasonable? If I dropped the sales growth to 10% in the 3rd year, I got a price target of $22. Is that reasonable? In some manner the company has a low PE and an alright price/book, but from another angle, I get concerned with the price/cash flow and high accruals. The accruals play a role in providing a high f-score to the LDK stock. In my virtual funds, I have gone neither long, nor short on it. I really think there are much better information technology/semiconductor plays out there. Note -- I haven't even mentioned the word 'solar' yet. This past week at the University of Dayton they had a RISE conference, and quite a few economists/strategists were bullish about alternative energy - and although some like the solar story, I'm not confident yet at entering that particular boat. This stock makes me feel a bit queasy, and for that reason, I'm going to say 'short' to LDK. Pick something else, this stock seems more like a 'gamble' to me.

Luster Lost and Dull Gold (Gold I Have None)

2008-03-23T22:46:32Z

I'm not an economist, but I like to short gold and I think it is worth about $616. I compare gold to the gold stocks, and those stocks seem quite overvalued to me. This might not be the 'correct' method (if there even is a correct method?) at analyzing gold, but I'll use it as my method. So, when I make an aggregate valuation on gold stocks, I think they're overvalued by 33%, and applying that valuation to gold, I get a price target of $616.

Would you like some potential gold short candidates? Take a look at the list I update at Earnings Torpedo. On the list, 7% of all stocks listed are gold and 57% of the material stocks are gold stocks. So I would avoid NG, RGLD, SA, UXG, VGZ and WGW. In my 'IAK' virtual short fund: NG, VGZ, TRE, RGLD, MNG and SA are being shorted; and within my 'LTCM' fund (yes, I have a sense of humor), VGZ and RGLD are shorted.

I love Canada, and I'm sad to see some Canadian stocks on there. Sorry, short Canadian gold. If you short Canadian gold and you realize that the Canadian dollar is tied to oil/gold/materials in Canada, then you might want to ask yourself - what about the Canadian currency? Short that as well? It's possible that the currency went up too far and too fast. Just recently the Canadian dollar had its largest one day fall in 46 years. It was an incredible drop. But before you think I'm shorting the Canadian $$, I'm actually optimistic about the Canadian economy. Unlike the USA, they have a surplus, and they actually have debates about how they might have too much of a surplus. That sounds like a much nicer debate than worrying about living in a deficit.

Speaking of Canadians, I'm surprised that the Prime Minister is suing the opposing party for speaking against him on some issue. (He thinks that they are slandering him, they think they're telling the truth). This particular issue puzzles me - shouldn't opposing parties be allowed to accuse the other? Imagine if Clinton, Obama, McCain sued each other every time the other made a statement that they thought wasn't entirely true. Sad, isn't it? Is that hurtful to democracy? I'm not sure. I'm just puzzled by it.

Goldman has the word Gold in it; I think it's worth $167, short it. You probably know my opinion on financials. Go long on insurance, short the rest. It's a gutsy move, but I like taking contrarian picks. Actually, for my financial fund I like about 50 stocks (not all are in the fund), but not one of those belongs to the investment banking sub-industry.

Like I said before, I'm not an economist, but I'll give my opinion - I just wish others had some 'sisu' (Finnish word) in their blood and made an opinion as well.

Ahknaten - My Mid-Term Report Card (a critique of my blogs)

2008-03-21T22:57:48Z

Grade: B+
You can give me whatever grade you like.
I thought it would be fun to look back at some of the blogs I had written. Last week, Cramer told his viewers to buy BSC. We know what happened to that stock, and if you missed it, check out The Daily Show for a nice funny recap. I'm not sure if it's fair to criticize the Cramer's in this world? Each blogger makes mistakes, and our estimates aren't always right. We're here to provide an opinion, entertain, create a discussion, but we're not always right. I just hope that I'm right more than I'm wrong. So, here is a recap of the themes in my blogs and the results so far.

Strategy Lab Players
Ahknaten - Me versus Them - Who will win the Strategy Lab?
Grade: C+

I made this prediction:

1st - High IQ -- Diversified
2nd - Guru Investor - Quant Guy
3rd - All Star Team - Respected Guru
4th - CAPS Commando - Boring Indexer
5th - The Amateur - Creative
6th - Dog Pound - Story Driven

Here are the rankings, so far:

1st - High IQ
2nd - The Amateur (+3)
3rd - CAPS Commando (+1)
4th - Guru Investor (-2)
5th - Dog Pound (+1)
6th - All Star Team (-3)

Congrats Amateur and High IQ, you're doing great! So far, my prediction with High IQ, CAPS and Dog Pound is fairly good. I'm quite disheartened that All Star and Guru Investor are not doing better than I expected. I'm not surprised that Dog Pound is close to the bottom and CAPS is close to the center. Although All Star isn't doing well at the moment, he had some great timing with his journal entry, "Why the Banks Won't Bounce Right Bank", as it mentioned BSC before the monumental collapse. My quant fund isn't doing great, so I might be in the same boat as Guru Investor. CAPS Commander is staying near the center of the pack, but his portfolio reminds me of a boring index fund. I'm quite impressed with The Amateur and his picks. He might have an advantage as he is picking short candidates and the others might not pick shorts for a variety of reasons. They're too afraid? Not allowed? Bad press (people like to hear 'buy', instead of 'sell')? They're pitching stocks they own?
If we went long on the 'best' stocks from that blog, and 'short' on the worst stocks, here are the results:

Long: GOOG -8% CEL 3% CVD -5% VLO -19% E -7% NKE 8%
Average -5%
Short: BWLD -1% HYTM -53% LUFK 3% GROW -18% BEZ -9% SBCF -1%
Average -13%
HEDGE SPREAD = 8%, S&P 500 = -4%

Momentum Stocks

In academics, many are against technical analysis, but there is some evidence of momentum strategies. In particular, momentum strategies that work off of earnings (increase in earnings, surprises, and "post earnings announcement drift (PEAD)") have worked historically. I like 'momentum', but I dislike 'technical analyses'. I'm quite sarcastic at blogs and "hot" stocks that people like, simply because they like the charts. I'm not a fan of technical analysis. There are some out there who are quite talented at technical work (like wildmap), and although I disagree with technical analysis, I will listen to it. Just because it doesn't work for me, doesn't mean that it works for someone else. So, I love bashing momentum/technical stocks. Here are the results for the momentum blogs:

Ahknaten Likes AAPL Tables -- Apple Part Two
Grade: C+
Short: Average return = -18%, S&P 500 -13%
CROX -69%, JNPR -30%, GMST -30%, AMZN -18%, NOV -27%, FCX -19%, RIO 3%, RIMM 16%, VIP 9%

Master-ahknaten-Card and Momentum
Grade: A+
Ken Kam made a nice call on MA, as it went up 49%. Congrats.
I was wrong on that one, but my short picks rocked.
Short: Average return = -39%, S&P 500 -13%
MA 49% CROX -74% CRNT -64% BPHX -58% FTK -67% SNCR -56% JRJC -59% NWK -56% CEA -50% ZNH -50% EXM -52% CORT -38% ACH -47% APPY -41% BCSI -43% CFSG -38% ASTI -52% DRYS -37% TBSI -30% HEM 17% CALM 37%

Momentum DRYS -- Ahknaten & Momentum
Grade: D
Short: Average return = -20%, S&P 500 = -15%
LCAPA -88% UAUA -52% DISH -41% EBAY -27% GOOG -31% AMZN -23% CELG -23% CSCO -26% AAPL -20% PCAR -16% SCHW -14% ORCL -12% BIIB -12% AAUK -21% RIMM -10% MITSY -13% NTRS -4% ESRX 4% GILD 13% HCBK 16%

Ahknaten - SIRI ously Losing My Patience and Other 'Hot' Stocks
Grade: D-
Short: Average return = -5%, S&P 500 = 0%
CROX -27% ICON -18% NTRI -2% SIRI 2% NCMI 0% VMED -7% WYNN 1% RHD -30% LULU 3% CKXE 1% GRMN 2% GME 18% TRYB -9% XMSR 1% PENN -9%

Other Stock Picks

NOKIA and Saunas
Grade: A
Long: NOK -1%, S&P -7%

Ahknaten UFPT
Grade: A+
Long: UFPT 24%, S&P -9%

Ahknaten doesn't like AAPL
Grade: D+
Short: AAPL -4% (down -33% from high since then)
Long: GIB -8% CSC -25% XRX -10% NOK -13% CHT -29% TMX 1%
Average Long: -14%
S&P -10%, XLK -14%

Ahknaten and NVO
Grade: A+
Long: NVO 11%, S&P 500 -15%

Ahknaten: Contrarians, Apple and Britney Spears
Grade: A
Short: AAPL -29% GOOG -39%, S&P 500 = -12%

Ahknaten -- Don't Give up on Financials, Think Insurance
Grade: D+
Long: Average return = -10%, S&P500 -10%, XLF -13%
ACE 2% AEG -28% AFG -13% AHL -2% AIZ -2% DFG -22% HIG -19% INDM -7% NAVG -9% PNX -5% PROS 21% RLI -12% SLF -21% SUAI -32% TRH -10% TRV -6% VR -8%

Ahknaten -- Ya Microsoft!
Grade: A
Short: YHOO -5%, S&P 500 -1%

Ahknaten -- YHOO DRYS
Grade: D-
Long: ACLI -14% ALEX -8% DAC -13% DRYS -26% -- Average = -15%
Short: RLOG -8% SBLK -4% ULTR -45% -- Average = -19%
S&P 500 -1%

Ahknaten - "C" me blog; "C" me run
Grade: A
Long: KIE (insurance) -1%
Short: C -12%
S&P 500 -2%

Ahknaten -- Crocodile Weight Loss (CROX and NTRI)
Grade: A+
Short: NTRI -9% CROX -28%
S&P 500 -4%

Ahknaten -- GOOG selling stock? This is not NEWs!
Grade: A-
Short: Average return = -1%, S&P 500 = 0%
CRM -5% SAPE 0% SNCR 5% GOOG -3% MORN -3%

Ahknaten -- Manage This -- WLP, CI, AET, HUM and HNT
Grade: C-
Long: Average Return = -1%
WLP 1% AET -3% HUM 12% HNT -14% CI 0%
XLV -1%

Ahknaten -- Bye Bye BIDU (thanks Viking Warrior - I guess the title is not original?)
Grade: A (I would give myself an A+, but the title is overused)
Short: BIDU -22%
S&P 500 3%

Ahknaten -- Bye Bye BIDU

2008-03-15T04:36:30Z

Short BIDU. I get a price target of $69.

There are some folks who take BIDU's PE and compare it to GOOG's PE, and by doing a bit of simple math (438*3.2=1402) they figure GOOG should be worth about $1400 and then they blog about it. If you take the PE's and reverse the process and lower BIDU's PE, then you get a price target of about $84. Personally, I hate these simple PE calculations, but it gives you a picture how people come up with some crazy simple price targets.

I don't see a 'smart money story' as BIDU has a high short interest.
I don't see a 'value story' as it has a high price/book, PE, price/cash flow, and I price it out as $69.
I don't see a 'growth story' (even though it has high growth), because that high growth cannot continue forever (and more than likely high estimates are based on high ROE terminal estimates).
I don't see a 'quality story' as the accruals are high.

So, I don't see a convincing story for BIDU that would make me feel comfortable pitching it for a fund that deals with smart money, value, growth, or quality.

Bye bye BIDU. Pick something else.

Ahknaten -- Manage This -- WLP, CI, AET, HUM and HNT

2008-03-12T20:50:58Z

This week, managed health care stocks were hit as some companies announced cuts in their forecasts; but, if you're looking for some health care stocks, this might be a good time to buy. Let me try to explain. I'm bearish on health, but I'm bullish on managed health care. In my diversified portfolio on Marketocracy (click here), I have 0% in health care. In my virtual diversified portfolio for this blog (click here), I have 0% in health care. In my health care portfolio (click here), I have 52% in managed health care. So far, those bets have paid off for me. Since the health care sector has underperformed the S&P 500, that underweighting helped my diversified portfolio; however, the overweighting on managed health care, has helped the health portfolio. The health portfolio has had an incredible 130% return since inception, as compared to the XLV health spider's return of 18%. Moreover, the portfolio has achieved that return without relying much on volatile bio-tech stocks. In fact, I have a short-only health fund (click here), that has recorded a return of 83% vs. the S&P 500 in the past two years, and about 78% of that is in bio-tech companies. NOTE - BE CAREFUL OF 'HOT - HIGH GROWTH - HYPE - MOMENTUM' TYPE STOCKS! Not every biotech company you read in a blog or elsewhere will solve whatever problem they're working on.

So, I am bearish on health, but if you must have some health stocks, I'd recommend picking up some managed health care companies. Why? Well, many of them have a low PE, price/book, price/cash flow, accruals, short interest, F-Score, along with some growth and momentum. So the value, growth, and quality stories are still fairly good in my opinion. They're not the best stocks out there, but they're alright for a health portfolio. In fact, I've held WLP, AET, HUM, HNT, and CI for many years now, and I've certainly enjoyed the returns. Since my first purchase, WLP is up 20%, AET is up 147%, HUM is up 71%, HNT is up 9% and CI is up 104%, and I still hold some of those in my health portfolio (I need to sell some as I have a stop loss in place, but I might pick them up again in the next week or so).

Would you like a few price targets? (note - some of my target prices are lower than current prices).

WLP (target = $68)
AET (target = $36)
HUM (target = $44)
HNT (target = $34)
CI (target = $32)

Short health, short bio-tech and long on managed health.