Jeff Kalnitz

My strategy playing the Marketocracy Strategy Lab Open

Rating: 1.18 not yet rated(11 votes)    Vote:

You are logged in as | Logout

My strategy playing the Marketocracy Strategy Lab Open is to play the odds in the midst of a somewhat volatile market, while maintaining a balance between factors I think are important to keep in mind once I decided to enter the contest in late July;

1. I have very little time to play the game, because I work time and a half for a living in media development and sales.

2. I wanted to be able to use my thought process to cull the best of my Open picks to improve the performance of my real life stock portfolio. I rely on this money being motivated in real life so I couldn't afford to take this time without translating my successes to the real world.

3. I wanted to fuse value and momentum investing because I see them as flip sides of the same coin. How can one find value without momentum, and vice versa in a way that both preserves and builds capital through stocks while minimizing risk with the very money I also must rely on to pay my bills each quarter?

4. I needed to hone my strategy down to some sound, basic principles that could at least see me mirroring my investment style and practices in my real investing life. I purchase stocks mostly for medium to long term objectives.

5. I don't like being too risky, because when I get too reckless, I lose money, making my biggest investing mistakes. So instead of trying to blow the doors off the returns through "Hail Mary" style trades, I'm using this contest as a chance to hone my skills to assist me in making money in my ordinary investing life. The more challenging part is to condition myself to explain my reasoning before or during the process of making the trades. But I'll try anyway.

I spend a lot of time studying the renowned successful investors, Bill Miller, Warren Buffett, Jon Markman, Jim Cramer, George Soros, Ken Fisher, and the many other all-time greats. I want to learn from both their successes and their mistakes. And I want to mine and emulate not only their best stock ideas, but also their research and insights acumen too. Of course, on that rare occasion when I see a trend or severely under-valued stock play early on, that gives me the greatest satisfaction of all. Hunches and homework are no substitute for fundamentals and a well-grounded integration of methodology and experience, and I try not to forget how hard it is to actually out-perform the market over a longer time period. Otherwise more than a small percentage of investors would achieve this. Humbleness as preventive medicine is far better than as a cure for rash actions.

As it turns out, waiting until a market correction to buy stocks didn't hurt. By holding cash til the end of August, I ended up with pretty much all my money to buy stocks with, and these picks are up collectively about 4%. So far so good, we'll see what the future holds, as I'm sensing September may be a wild ride for investors. I've tried to weigh my sectors according to seasonal and fundamental supply and demands strength factors.

Comments: 0

All 16 of my stocks continued to stay in the black today, as the market sectors I invested in last week rallied strongly today. I'm up about 5.5% in three trading days, and still have 23% of my portfolio in cash. My original contrarian entry into aapl...

Rating: 1.76 not yet rated(25 votes)    Vote:

You are logged in as | Logout

...in 2002 has now morphed into astronomical gains within my personal portfolio, and similarly my entry into a large position of this stock has paid off handsomely in the three days I have owned the stock in the SLO. I have been heavily invested in Apple (aapl) for several years now, occasionally skimming small portions of profit off my stake to pay bills and pay down credit debt.

On the surface, this looks like a very risky strategy, but having cost averaged in below $10 a share, I don't think even at this lofty valuation level I am overly emotional about a stock that has gone from being a hopeless laughing stock to the darling of Wall Street lately. In fact, as my own personal blog entries http://jeffkalnitz.com/journal/ have indicated for several years now, I think there is still considerable upside in Apple, and it is not a question of if the stock reaches $200, but when this will happen.

Remember when Michael Dell famously indicated he wasn't interested in buying Apple Computer, siting that it wasn't even worth the value of its parts at under $5 a share? To me, this served as a strong contrarian indicator for my initial entry level purchase. Once Steve Jobs returned to the company, the stock was primed to climb a wall of worry and doubting Thomases, and now is worth something like twice the market cap of DELL! Ouch.

I think that 5 months from now aapl will be higher than it is today, even after it's most recent run-up. Shorting aapl seems to me too much like playing Russian Roulette, although there is a good chance the stock will pull back after Wednesday's new products announcements.

I have been frequenting the Apple Stores for years now, and this has been a scenario that would make Peter Lynch jump with stock buying joy. Apple just might be the best run retail play in the world right now. Even when the rest of the mall is dead, the Apple Store is usually mobbed. And the difference in the AT&T Stores before and after they found the Apple religion is absolutely astonishing. Everything Apple touches shines with a sheen that looks a lot like a shiny gold bar. With the holiday season upon us (beginning with Wednesday's festivities, and back-to-school buying), we may see aapl reach $175 by year's end, which just happens to coincide with the current SLO's time frame, if I've got that straight. Of course I've been wrong before, just not when it comes to aapl (so far).

Comments: 0

BUY SIRI?! I have been pondering what to buy with my remaining $230,000 cash. The tide may be turning on the merger of XM and SIRI...

Rating: -1.50 not yet rated(2 votes)    Vote:

You are logged in as | Logout

Shall I remain measured, and to some small extent "conservative", given the number of momentus sizzle stocks I already have chosen for this contest? Or shall I live on the edge a bit, with greater risk and the potential for a big pop?

What a double edged sword this question represents. In such a volatile market, buying great stocks on substantial dips is by far the most sensible strategic methodology I can envision without a crystal ball. Look at Jon Markman's recent article http://articles.moneycentral.msn.com/Investing/SuperModels/5StrategiesForASinkingMarket.aspx describing some top market prognosticators' predictions. They are all over the map, even though every last one of these legendary investors is hugely successful over many years!

If they vary so diversely in calling the market's future probable direction, where is my qualification to predict the future? Still, as WFMI recently indicated, sometimes when a stock is given up for a sleeping dog, a single turn of events can provide a 10, 20 or more % appreciation in the stock price almost over-night!

So I've compiled a short list of stocks that while volatile and high risk, could undergo similar appreciation given the right developments. And I pulled the trigger today on 20,000 shares of SIRI (Sirius Satellite) , which as of noon-time was actually up a few percentage points as the braoder market was down.

Yes, it's true- I too can heed the siren's call, and live on the edge, wooed by the promise of quick, "easy" money in a game of high stakes poker. Just don't bet the farm, I tell myself as I take a calculated risk that the proposed merger will see the light of day before this contest is over.

Comments: 0

Apple's (aapl) "Steve Jobs is crazy- the question I've got to ask myself right now is...Just how "crazy"? Because this guy is crazy alright, crazy like a fox!

Rating: 2.14 not yet rated(98 votes)    Vote:

You are logged in as | Logout

"Steve Jobs is crazy- and so is aapl stock's appreciation in price-per-share these last several years. (To cut to the chase, see THE BOTTOM LINE at the end of this article.)

Movie trailer in "that famous movie trailer guy's special voice; "In a world where everybody else is playing checkers, can Apple still play chess at grandmaster level and beat the pants off everyone? Only time, and the well-being of one man holds the answer"...fade to the "1984" TV ad updated for the year 2009.

Or in other words...
"Is Steve Jobs slipping?"

"Is he actually making human mistakes?"

"Will the iPhone miss it's sales targets?"

Even if the iPhone blows past its sales targets, will that be enough to make up for the reduced margins?"

"Is aapl showing signs of cracks in their titanium armor?"

"Does aapl the stock still have legs?"

Or the favorite question I like to occasionally revisit;
"Does any of the above actually matter in the greater scheme of Apple's ongoing achievement of world dominating consistently bankable stock appreciation these last many years since Steve returned to save Apple from irrelevance?"

And the most important and difficult question of all to answer for us SLO contestants (even with a Ouiji Board)- "Does any of this really matter in a contest where patience and foresight are measured more in days and weeks than months and years?"

Well, I guess in the context of a flashy, six month stock picking contest where excessive risk and a microcosmic timetable rule like masters of an imaginary universe- it does, a lot.

In SLO, contestants are trying to out-do the next trader before the deadline, without the inconvenient hindrances of short term capital gains taxes factored in, excessive and unsustainable risk, and no other peoples' real money involved. But from the broader perspective as a person with a longer term strategy for the stock these last seven years, I ultimately ask myself the following question periodically before I pull the trigger and sell off additional chunks of the few hundred thousand dollars of remaining aapl stock holdings I have left in my actual "real world" personal non-IRA investment account;

"Will aapl's stock price be lower, about the same, higher, or a lot higher 1,2, 3 or more years from now?"

In other words, I'll put it this way;

That Steve Jobs, just when the investing world thinks they've got him figured out he shocks the hell out of the investing world yet again! That crazy, foolish, mistakes-prone, once-was-great fallen warrior. Has he finally lost his cool and made a major PR boo-boo; an embarrassing, unscripted, opps-ee gigantic mistake?

It's not like he spends months planning and rehearsing new product roll-outs? (Oh wait, he actually does).

Or that he identifies coming trends and continually refreshes their incarnation just when the competition finally figures out how to catch up? (well, o.k., he's got that one covered too).

Too bad he's not a better public speaker/ promotor for the Apple product line! (Oh wait, he's the best in the business)

And if only he could get the hang of continually shocking investors and customers in surprising and unforeseen ways...(Oh wait, that's kind of what we're talking about here with the endless iPhone speculation, rumours, upward guidance, lowered guidance gossip, facts, UFO sightings and so on.

And if only he knew how to simultaneously guide investor expectations lower while more often than not blowing the numbers away... well, you get my point.

Specifically speaking;
Dropping the price of the iPhone by hundreds of dollars, what's with THAT? Pissing off about a million early adopters who paid insane amounts of money to proudly pay additional insane amounts of money to get locked into a two year contract with Cingular/ AT&T, who often payed even MORE insane amounts of money to end their Verizon or T-mobile cell contracts early to switch over. I doubt it is simply lack-luster sales woes, or a rare careless mistake. To paraphrase another living-on-the-edge public figure..."define Crazy". . Sure, Steve Jobs is crazy- crazy like a fox. Because this is precisely aapl's strategy since before the day I walked into a PC store and bought the only Mac Luggable- I mean, Portable, available at the time- for $5,000 plus tax.

Take a look at the recent articles (if you don't have a membership to RealMoney, do a search in www.thestreet.com for thousands of other related articles)

http://www.thestreet.com/p/_rms/dps/cc/20070905/columnistconversation1.html#entryId10378039

http://www.thestreet.com/p/_rms/rmoney/gamesandgadgets/10367143.html

http://www.thestreet.com/p/newsanalysis/techgames/10378503.html

for a few of the suppositions as to the possible cut-throat business logic behind such moves. Also consider that maybe the number of iPhones sold was actually ahead, not behind projected sales estimates.

Either way, consider the fire this lower entry price-point will fuel resulting in massive additional sales for the back-to-school and holiday season. How the price cuts will assuage the wait-or-get-screwed consumer mindset preceeding what will almost certainly be a new, improved, high speed internet and wireless-enabled version of the iPhone by early 2008. And how the whole broo-hah cleverly camouflages how Mac portables and iMacs are popping up on the most unlikely of work-desks and media centers. And how the larger number sold will fuel increased entry into the expensive and closed-end spending pool that is "the Mac experience"! And how the introduction last week of Logic Studio will further bring the professional world and prosumers into the Apple product line fold by extension.

As I've been thinking for many years, none of these recent so-called controversial developments deter me from pondering- the lower aapl stock dips, the more of a screaming buy it becomes. Remember the "plunge" to $8.00? $55.00? $117.00 (about three weeks ago)? From a low of $55, it closed after this latest iPhone price reduction bizarre announcement and new iPod roll-out "back down" into the $130's, a year or so later. Now that's perspective. The beauty of Steve Jobs "the stock appreciator, ring master" is that he knows how to milk the cash cow while cajoling and guiding it to climb a wall of self-induced promotional wall of worry. Without the watering can of resistance, the seed has trouble pushing through the surface. It's a tight rope act at high altitude for sure, but no one does it better than our man Steve.

Of course the future does not necessarily equate with the past so astonishingly prosperously and I don't have a crystal ball and have misplaced my Ouiji Board, but I still wouldn't bet against Steve Jobs, let alone give up on aapl the stock. Just like I wouldn't play Russian Roulette with an almost fully loaded gun. Hell, even Steve Jobs at times doesn't quite comprehend just what an insanely great turn-around specialist he is. Take a look at this link..."Options Trade Cost Steve Jobs $4 Billion" http://www.thestreet.com/_rms/smallbusinesstech/smallbusinesstech/10362142.html

How about this for another "missed opportunity of the decade" award?...
"Michael Dell declines offer to buy Apple Computer" http://jeffkalnitz.com/journal/index.php?p=88

Here's another link, an investing article I wrote in March 2005 titled "Apple stock is up 600% in two years- what's next?" http://jeffkalnitz.com/journal/index.php?p=62

And for more of the articles I've blogged on aapl the stock, and the culture, http://www.jeffkalnitz.com/journal/

THE BOTTOM LINE?
I've been long aapl since about $8 and change. As I've schnitzeled off occasional profits to reduce the risk of losing my hard-earned investment profits by getting too subjective and thereby "greedy", I have always felt a pang of regret. Indeed, I wish I had simply kept adding to my stake. Because, damn, what a beautiful 5 year chart. And 3 year chart. And 6 month chart! There comes a point when a company multiplies its market cap til doubling and doubling again becomes more lumbering, less plausible. The story gets old (think Microsoft). I didn't think aapl was at that point when Michael Dell was rejecting even buying aapl for a fraction of the value of its parts, deeming the assets near worthless. Nor when Leopard's release date was pushed back to shift resources over to iPhone development. Not even when the iPhone, which I had bought on its first day roll-out, was slashed by $200 dollars. Because after the vast appreciation from under $10 aapl stock has seen, the gift that keeps on giving, in probability still has running room.

What I've always liked about Ken Lam's run in the Strategy Lab contests is his consistency. Many times, the same contestant who topped the charts plunges or experiences unacceptable volatility over the longer haul. And that is the best endorsement one can find as to the impressive benefits that Marketocracy, and contests like this one offer the small individual investor. It might as some infer, be a dangerous passing fad signifying a market top bubble. Or then again, it could be part of an emerging broader trend that will finally allow investors to consistently beat the market. Time will tell.

And I am willing to wager that aapl still has legs, with a price target of $175 by the end of January. Let's see- from a recent "low" of $117 to $175- about a 50% increase in stock price per share in well under 6 months... Not bad stock portfolio overall returns if you can get them.

Comments: 0

JK SLO 10 2007 Blog entry - How am I doing so far? What an impressive group of contestants! And another Apple (aapl) blog post on the way soon (Can Apple -aapl- become the biggest company in the world soon (market cap valuation)?

Rating: 1.41 not yet rated(17 votes)    Vote:

You are logged in as | Logout

As SLO approaches the two month mark, I am doing a mental reality check of my strategy, performance and future plans to gear up for the next 1/3rd of the contest.

While I am getting more into the heat of battle, I still find it hard to relate fully enough to the peculiarities of such a high-octane slug-fest in the light of the tried and true investing principles I have held so dearly in real- world investing.

For instance, I evaluated that the market was due for a big correction in August, so I remained 100% in cash close to the first month of the contest. While I missed out on the first 18 points aapl rose by not getting into the market earlier, adhering to my capital preservation/ risk averse approach served me well one more time, as simply by not losing money during this period I handily beat the market while correctly anticipating a pullback.

These last 30 days of stock trading I have achieved approximately a 9-10% appreciation in stocks, with very low volatility and almost all 21 of my stock purchases seeing gains mostly of from 4% to 23%. Ordinarily, this would be phenomenal but I am only placing in the top 20% of contestant returns. An impressive group of contestants! Also a more concentrated and risk-oriented portfolio would have boosted my returns during the 27 days of trading, but my old forceful habits of risk management are ones I don't digress from easily.

However, considering I have incurred no short term capital gains taxation, if this was somehow factored in, I would be placing substantially higher in real world returns overall relative to more frequent traders, and this was done with half the trading days after staying in cash, and minimal trades.

So my strategy worked quite well to achieve my own objectives, yet may not be sufficiently turbo- appropriately charged to "win" the Strategy Lab Open by numbers achieved alone. Still, I am satisfied because I feel I've managed my "million dollars" both prosperously and responsibly so far, and to me that in itself is success. My real-world portfolio is smiling, and hopefully a bit on the safe side in a volatile period for the stock market. Consistency for me is a virtue, and risk-adjusted returns are valid and necessary to my style of investing.

I am thus far resisting the temptation to throw caution to the wind and trade more aggressively, because the more one plays with fire in the stock market, the more third degree burns tend to damage the flesh and bones of one's portfolio. Otherwise, why are returns of even 12 to 15% considered exemplary long term yearly successes? Because, short term, we are mostly all geniuses, but long term there just aren't many Warren Buffets with 20% plus yearly returns. I always like to keep that in mind as I'm getting especially frisky with risky trades.

I'll be posting a follow-up blog on aapl stock soon, in honor of it reaching a new all time closing high recently.

Comments: 0

Can Apple (aapl) double again, and even become the biggest company in the world soon (by achieving top market cap valuation)? Also, the hidden implications that the iPhone has...

Rating: 1.66 not yet rated(114 votes)    Vote:

You are logged in as | Logout

Can Apple (aapl) double again, and even become the biggest company in the world soon (by achieving top market cap valuation)?
That would mean the stock doubling at least two more times! Also, the hidden implications that the iPhone has made the ubiquitous, annoying cell phone an actually sexy, heroic phenomenon. Those of us who own one know what of I speak. Rather than an annoyance, we are sought out, conversationally and often after smiles greet our ringing iDevices. And for aapl the stock, THAT speaks volumes!

Apple (aapl) historically has fired on enough growth cylinders to propel their engine of growth forward sufficiently to power the stock to ever loftier valuations. The question we ask ourselves repeatedly is how long will this dynamic endure?

I think for at least six months, maybe a year or two. The specifics are important and will self-evidently manifest themselves in the hand revealed by Apple to the rest of the "gaming table" participants- investors, competing tech companies, and the analysts who are increasingly getting hip to aapl at the institutional level, and not coincidentally using the products themselves more and more. I don't think the stock is over-cooked yet, because there are forces and factors at play here that in high probability will give aapl a decisive edge for years to come. In fact, aapl is likely to remain a high-momentum growth stock for some time.

Of course, for this to happen the numbers dictate they would almost have to end up being the biggest company in the world by stock market valuation. And that would be impressive indeed considering the relatively tiny market share of overall computer sales they currently enjoy! Then again, they did recently drop the word "Computer" from the name.

I have read many technical analyses of this or that area of this company's prospects going forward, yet few have been able to peer sufficiently into the Apple crystal ball in order to really comprehend the impact their ongoing secret plans behind the scenes facilitate. And so I think it will go with their latest products releases and for at least a few years to come. It is not really a question of IF aapl will sell enough iPhones, iPods, computers, and so on. Nor if they can maintain sufficiently rosey margins and innovations to stay atop and ahead of the competition. Or come up with another revolutionary or evolutionary industry disruptor.

That said, can aapl double then double again in the near-term? I think so, because my experience with the iPhone, MacBook Pro, iPod, iMac, Mac duo-tower, high end Cinema Display and the incredibly smoothly integrated Apple software that keeps it all humming is only now catching full-wind on the seas of emerging techno-lifestyle habits, and therefore being factored into the stock's future trajectory with sufficient gravitus. This company is positioning itself in the sweet spot of the telecommunications and media industry.

After using my iPhone for several months now, and experiencing the reactions of others to my using it- I think the implications of what aapl is doing here go way beyond the current crunching of data analysis, in order to comprehend just how revolutionary and disruptive this company's forays will be to early 21st century communications. This being the case, Apple's (aapl) convergence insurgence will result in ongoing earnings surprises and a substantial stock appreciation over the next 12 to 24 months, barring unfortunate wild-card developments (such as Steve Jobs getting in big trouble over options, etc).

Will kids- teenagers, twenty- somethings increasingly buy iPods and iPhones in impactful numbers? Yes! As will many of their parents, who will also get the family into Mac laptops, desktops, and loads of software. They will download more iTunes, movies and TV shows, and buy lots of accessories. And aapl's market share will continue to grow quarterly. Because they currently have such a small market share, this is good news indeed. And what will be their next big insanely great new tech product? Could anyone foresee the iPod, let alone the original Macintosh computers and earlier models?

In the meantime, you will see more iPhones popping up in consumers' hands and pockets in an escalating sliding scale of consumer purchases, and the numbers will impress. Not only in the U.S., but increasingly around the world, and they will improve with every version thereby selling in larger and larger numbers. They get fashion, they get sexy, and consumers won't be able to resist splurging, by and buy.

And there is a good chance that business oriented people the world over will increasingly snap up the next few versions of the iPhone, which will continue sporting more and more essential new features necessary to the business class of buyers. That hasn't stopped me from using the heck out of my iPhone in ways that have payed me back many times the purchase price as a profitable business communications pocket device in a few short months.

But what we're talking about here first and foremost is Steve Jobs and company's ability to discover, develop and market the next insanely great consumer tech must-have toys and tools to an extent rarely achieved by any other company. And in such a highly fluid and integrated manner that competitors are often left scatching their heads in befuddlement. And Apple is in fact doing this with a promotional acumen that is unsurpassed. In other words, Mr. Jobs understands what it takes to motivate the money each stage through the process from product development, production costs relative to margins and volume, then the ability to make the necessary adjustments to keep the story fresh yet simultaneously dangerous. Execution has historically been near flawless since his triumphant return as company head, even when it initially appears otherwise (see my earlier blog on the iPhone price reduction "oopsee".

The main question in my mind is if Steve Jobs stays healthy and troubles-free, because as long as he is running the show, it will continue to prove itself the greatest investing show on earth of the big cap stocks. It's kind of like Sam Walton or Warren Buffett. Each year and decade that they were, or are alive had been chock full of technical analysis pro or con. Yet, the early investors in Wal-mart and Berkshire Hathaway have just the same seen their original modest investments make them mega-rich via stock capital appreciation with minimal capital gains taxation. These guys just have the magic touch, and never let investors down for long for many years running. I think we are talking about the same rarified level of management with aapl, and that is why after six or seven years I am still comfortable staying very long aapl stock for at least another 6 to 12 months or maybe longer. Of course continuing to sell, taking occasional profits near the peaks, and buying more again during the valley- pullbacks is the way to go as usual.

All the rest of the equation will be handily formulated, calculated, and executed with skills approximately equaling those displayed in the past, and the stock will with high probability continue to escalate relative to the market indexes. In my estimation, this will be the continued reality, while we investors try our best to keep up with the details and fill in the secret missing technical data to comfort us that our decision to remain long aapl remains a viable and hugely profitable enterprise.

I maintain my price target of $175 or above by January 2008's end.

Comments: 0