Jamie Dlugosch
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February 2008 Archives
American (Market) Gladiators
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The revival of one of my favorite shows from the late 1980's, American Gladiator, had me thinking about the battles individual investor face on a daily basis. In Gladiators, contestants utilize their strength, agility and speed to avoid behemoth gladiators who are attempting to prevent them from finishing a variety of challenging tasks. It's tough enough to scale a wall, but try doing it with a gladiator tugging at your heels. Sometimes the market acts like it has its own army of gladiators attempting to prevent us from our goals. I'm sure I'm not the only one that physically feels the punishment that market gladiators can hand out in attempting to prevent us from our goal of market beating returns. For example, let's take a look at gladiator - Volatility. Wide swings in the market can throw even the most prudent pro off his game like those contestants on the show. Last week in my inaugural post I laid out a well executed plan that was premised on a portfolio long certain sectors, including homebuilding, and short world markets. Well, not one week later and housing stocks are roaring. Arghhhhhhhh! What to do now? Oh well, I will not let the Volatility gladiator throw me off my game. While it would be tempting to wait for a correction, I'll just have to ignore the short term action and stick with my strategy of establishing long positions in sectors that I believe to be undervalued. I'll do that buying over time using exchange traded funds. The sectors that I will focus on are the homebuilding, consumer retail, technology, and banking industries. For homebuilding I will use I Shares Dow Jones Home Construction Fund (ITB). The I Shares Dow Jones U.S. Consumer Services Fund (IYK) will provide exposure to consumer retail. The I Shares S&P Technology Index Fund (IGM) will suffice for technology sector. In banking and finance I will use 3 different I Shares funds: broker/dearlers (IAI), regional banks (IAT), and Financial Services (IYG). I will allocate $150,000 to each of these 4 sectors beginning with $25,000 positions or 1/6th of the expected total investment. For the banking sector the total investment will be $50,000 in each of the three funds. What is important at the end of the day is sticking to my strategy. The most Rational approach is to adjust our allocations from time to time, but don't get distracted by the day to day gyrations of the volatility gladiator. Jamie Dlugosch | ||
Stealing Yahoo Confirmed?
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On Monday we can expect a rally in Yahoo and a drop in Microsoft. The reason: Yahoo is set to reject Microsoft's $31 per share offer as being too low. According to Reuter's, inside sources are claiming that Microsoft's offer is an attempt to steal the company. Well that's a good one not heard before, right? I think the title to my first article on the topic was, "Microsoft Steals Yahoo?" Anyway, as a fan of Yahoo before the offer the $31 price, while representing a big premium, did not represent the true intangible value of the company. I was honest by saying that I was upset at the offer. It now appears that the board agrees with me. They will not capitulate without getting full price for the company and with the levers they can pull, including entertaining overtures from Google, I suspect they will get a much higher price than the $31 offer. That's the good news. The bad news is that I will have to be a bit upset on the other side as Microsoft's share price might suffer in the short term. In my Bull/Bear article InvestorPlaceBlogs, our bull contributor suggested buying Microsoft after all of this shakes out. That advice will look pretty good on Monday. The action by Yahoo's board will surely put pressure on Microsoft to offer a higher price and the reaction by the market can be expected to be negative for Microsoft. Will it be a 3, 5, 10 percent haircut? Only time will tell, but 5% or a bit more on the down side seems reasonable. If you own Microsoft there is not much to do but hold for the long term. If you are waiting patiently for the final chapter in the story, you may be able to buy Microsoft at a lower price. Unless Yahoo's board overplayed its hand, Yahoo looks almost certain to rise from here. That will be an appreciated outcome for those Strategy Lab Open participants that bought Yahoo even after the announced deal at $31. Cleary this audience knows what it is doing. Congrats and keep up the great work. Jamie Dlugosch | ||
Those Yahoo's Don't Know Nothin
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I sure hope the board at Yahoo (YHOO) knows what they are doing. The $31 offer from MSFT still stands, but was flatly rejected last week. Is this the time to be playing hardball? What an interesting week. The rejection of the bid set off a chain reaction of events including new dancing partners (Rupert Murdoch and Newscorp - NWS) and board members running for cover. It is not a good sign when board members hire lawyers to validate that they are indeed acting in the best interest of shareholders. I can't say that is unprecedented, but holy schmoly batman. Somebody is worried. And what is Mr. Softy (MSFT) doing? Oh, let's just say they are not sitting idly by. Thankfully there was no rush to pay a higher price. Instead, how about waging a little proxy battle? No wonder board members are scrambling. This could get ugly. What about Mr. Yang? His speed dial to Google was in overdrive this week. What are the odds of striking a deal? Not good in my opinion. Yang's options appear limited. He is in a box and he knows it. MSFT knows it too explaining why there was no immediate increase of its offer. On this day of the Daytona 500, MSFT appears to be in the driver's seat. They have the resources, the desire, and the need to get this deal done. The latter, need, tells me the deal gets done at a higher price. Many speculate that $40 or more is what YHOO needs. Well, as I said, MSFT holds the cards so the high end may be less likely At the end of the day, I suspect YHOO goes to MSFT for $35-38 per share. MSFT cannot afford to lose here and winning at $31 may cause trouble with respect to integration. Paying that higher price should push shares of MSFT lower in the short run, but they will recover. I like all aspects of this deal for both parties. Those that don't own MSFT are wise to wait until the dust settles. Hopefully, we get the answer this week. Jamie Dlugosch | ||
