whateverworks

The Soap Opera Method of Investing
Wednesday August 01, 2007 : 12:34 PM

I will have had a Marketocracy account for two years this October. I prefer fundamental analysis and long-term investing simply for the entertainment value. Following a company's progress and reading their financial press releases is more fun than watching a soap opera. Therefore, I have always been most happy with long-term investment strategies, or at least long/medium term. I especially like microcap companies because they often have new, exciting, ideas.

I originally started playing at Marketocracy in October 2005 with a Microcap Fund, completing my initial buys by the end of December. I really lucked out because, unbeknownst to me at the time, historically microcap stocks shoot up like a rocket during the first part of the year then plunge like a meteor toward the end. So far my fund has followed this pattern. Overall, I am happy with the long-tem result. However, even if we had a bull market (which we certainly don't), a microcap fund would be an awful choice for a contest running August through December!

StrategyLab is quite a departure for me because it spans a short time period, requiring new tactics. However it is also an opportunity to look for a strategy to offset the annual sinking of the Titanic in my Microcap Fund.

Entries in this blog are my observations, not advice, on stocks and investing.

Dark Shadows
Thursday August 02, 2007 : 10:59 PM

In StrategyLab discussions I've read that soon (meaning days, not weeks), the software will automatically show the list of all stocks in my StrategyLab fund; so I won't duplicate efforts by giving you the list here. Later I'll explain how and why I chose these, particular companies.

I'm still adding stocks and it's been harder than I thought, even though I was looking at large, solid companies this time. After screening for good growth, sterling fundamentals, solid value and upward stock trends, I thought I had a pretty good pool. Then I saw that, regardless of past performance, over the last couple of weeks almost all prices were either flat or down, down, down along with the rest of the market. Maybe not as much as the DOW and S&P 500 but down, nevertheless. So my eligible group became too small. I wanted at least 20 stocks (approx. 50,00 invested in each). Rather than put all my eggs into a smaller basket I decided to find a way to supplement my basic collection.

I tried some pre-set screens based on various gurus' styles to see if I could find a group clearly bucking the trend, but no. Boy, is this country in trouble!

Of course many newsletters and Websites suggest you start shorting yesterday if not sooner. And, indeed, I think anyone who knows how to short effectively will make out like the Grim Reaper in an overripe field. Although I understand the basics of shorting, if I tried it now I'd be in over my head quite quickly. Then I found that there is such a thing as short ETFs. Although we can have no more than 25% of our fund in ETFs and remain compliant that's still enough for a decent chunk on the dark side of the force. So I added SRS (ProShares UltraShort Real Estate) and SKF (ProShares UltraShort Financials). I considered SDP (ProShares Ultra Short Utilities) and will keep an eye on it.

Note to Self: I didn't find a single Website with a screener for prospective companies one could short. Why? It shouldn't be that hard to program.

The Young and the Restless
Saturday August 04, 2007 : 03:16 PM

As expected, my basic screening resulted mostly in companies with market caps of 1 billion and up; however there were a few smaller ones. I decided to keep small companies if they looked OK, ending up with the following 5.

Hughes Communications (HUGH) 912.55M Mkt.Cap. Charts show it started trading in March 2006. This is a new, small-cap company? Wait a minute! This must be Hughes Communications Next Generation. My husband used to work for Hughes starting back in 1972 when good, old Howard was still alive. After he died the company metamorphosed too many times to keep track of and my husband ended up at Raytheon. I'm glad to see the communications satellite part is a successful spinoff.

Madeco SA (MAD) 764.67M Mkt. Cap. This Chilean company makes non-ferrous products based on copper, aluminum, and related alloys. It is not a new company but operates in the (hopefully) expanding Latin American market.

Chart Industries (GTLS) 672.21M Mkt. Cap. Although this is a US company it is selling its products globally. Stock charts go back only a couple of years. It makes engineered equipment used in the production, storage, and end-use of hydrocarbon and industrial gases.

Mesa Labs (MLAB) 77.05 M Mkt. Cap. Mesa makes electronic instruments, supplies, and disposable products for health care and industrial applications. It was founded in 1982 but changed its name and started to grow in 1991/1992. As it is a thinly traded microcap I played it safe and took only a very small position in it. I may wish I'd bought more.

VSE Corp. (VSEC) 245.43 M Mkt. Cap. VSE did not show up on my Strategy Lab screening but is part of my MMC (Magic Micro Caps) fund, for which I use different criteria. It has done so well this year, even in the face of the recent slump, that I just had to consider it for the Contest group. Per the Yahoo profile, VSE "provides various engineering, logistics, management, and technical services on a contract basis". Re-reading the whole description, I realized this company is a junior version of Blackwater. Since Blackwater is private and can't be traded, no wonder VSEC is doing well.

As The World Turns -- Episode One
Sunday August 05, 2007 : 03:44 PM

Marketocracy has said that the blog's Portfolio Page should be available some time this week. It will list all current positions including cash and returns. So, once more I am postponing my discussion of basic criteria and overall list of stocks.

With the US given over to the bears for the duration of this Contest I need to beef up my fund with additional, rising, foreign stocks. There may be a bubble about to burst in the recently popular foreign-investing market; however I'm hoping it isn't as drastic as the current US downturn.

How do I find rising foreign stocks? I read the free, overview, "Money and Markets" newsletters on foreign investing then try to find the kinds of stocks they talk about without subscribing to their paid publication. The economies of China and Brazil have both been growing, as you probably know, and they trade a lot with each other. M&M's overall advice is, "If China is buying it, buy it. If China is selling it, sell it." In other words, if China is importing the product, like steel and metals for their burgeoning industrial growth, they'll be sponging up the world supply for some time; therefore a provider's stock will rise. If China has started to sell a product, like cellphones, pretty soon no other country will be able to compete and you'd better sell any unfortunate shares you own.

M&M suggests a look at the growing number of global ETFs based on various countries and styles. However, I have allocated to Short ETFs the small ETF portion allowed in the Contest fund.

A "Motley Fool" article mentioned that a bank stock can be an alternative to buying a foreign ETF because the bank's fortunes are likely to rise along with the economy of the country, or countries, they are supporting. I already found and added India's HDFC Bank (HDB) and Brazil's Banco Bradesco (BBD). Uniao de Bancos Brasileiros (UBB) is another rising bank stock in Brazil I may add. However UBB's price to sales and price to book look incredibly high. Does Yahoo really have the right figures?

Also, articles about global ETFs mention some of the companies they invest in. Look for a blog discussing such a company and you'll find comments about additional promising companies in that country. Look for a list of competitors at a financial-research Website and, in addition to dismally performing US stocks, you often find more, rising, foreign companies.

Here are some candidates I've found so far:
Companhia Vale do Rio Doce (RIO) - Brazilian company in diversified metals and mining worldwide. 112.98B Mkt. Cap.
Gerdau (GGB) - Brazilian steel company. 16.40B Mkt. Cap.
POSCO (PKX) - South Korean steel company. 42.22B Mkt. Cap.
Arcelor Mittal (MT) - Steel worldwide, based in Netherlands. 87.06B Mkt. Cap.
Tele Norte Leste Participacoes (TNE) - telecommunications services in Brazil. 8.18B Mkt. Cap.

These stocks are going up and the company fundamentals look OK. But do the criteria for fundamentals I apply to US companies work for foreign stocks, too? Will all the foreign companies I want trade at Marketocracy? Tune in next time.

To be continued....

As The World Turns -- Episode Two
Tuesday August 07, 2007 : 01:23 AM

Previously: UBB's price to sales and price to book look incredibly high. Does Yahoo really have the right figures? Will all the foreign companies I want trade at Marketocracy?

UBB is still a question mark because other financial information sites show an "N/A" for too many figures. I am going forward with RIO, GGB, PKX, MT, TNE, which I described in Episode One. They do trade at Marketocracy and I have some cash available. Luckily, I recently sold some stocks. I had accidentally double-bought HDB and ROP because, when I thought a transaction didn't "take", I tried a second time. But, as it turned out, Marketocracy was just slow at the moment.

I've found yet more prospective foreign companies:
United Microelectronics (UMC) semiconductor foundry in Taiwan, 11.03B Mkt. Cap.
China Mobile (CHL) telecommunication and related services in Mainland China and Hong Kong, based in Hong Kong, 221.69B Mkt. Cap.
Kookmin Bank (KB) commercial banking services to individuals, and small and medium sized enterprises in South Korea, 27.43B
Petroleo Brasileiro (PBR) based in Brazil, oil from reservoir wells, shale, and other rocks in Brazil, 132.27B Mkt. Cap.
PetroChina (PTR) based in China, petroleum and natural gas related activities, 245.10B Mkt. Cap.
Taiwan Semiconductor (TSM) in Taiwan, integrated circuits and other semiconductor devices, as well as manufacturing masks, 52.92B Mkt. Cap.

However to buy additional stock I have to sell something. I can put off this decision only until I've researched the new prospects further. Frustratingly, my current lowest-performers all have a strong global component even though based in the US. They all have good fundamentals, are not overvalued, and have been written about favorably in the media. The companies I may sell are:

Jones Lang Lasalle (JLL) -- Although this company is in real estate services, it functions globally and has been mentioned favorably in foreign-investing articles. It should be a good alternative for investors who like RE but can't find a good deal in the US market; so why is the stock price falling?

Ensco Intl. (ESV) and GlobalSantaFe (GSV) -- Both provide offshore contract drilling services in the US and internationally. You would think that they would be bear-proof, but no.

Input/Output Inc. (IO) -- IO provides seismic products and services primarily to the oil and natural gas industry worldwide. This is another company with good figures which has dipped more, recently, than I would have thought.

Decisions, decisions!

To be contnued...
__________________________

Guiding Light
Wednesday August 08, 2007 : 10:11 AM

Episode Three of "As the World Turns", which usually appears in this time period, has been rescheduled for Saturday in order to bring you this production of "Guiding Light".

The InvestorPlaceBlogs now have the Portfolio Page live. Therefore, I am finally posting the overall criteria for the main screening for stocks. I used the free Reuters Powerscreener Lite. My idea criteria are listed below. However, applying all of them, stringently, resulted in almost no stocks to research further. Therefore I tried many variations. I needed a good pool because some had recent bad news, were unremittingly flat in spite of good figures, or were in industries to stay away from. At present I am avoiding housing, commercial REITs, utilities, banks, brokerages and insurance companies. With foreign stocks maybe I do not need to worry so much about these industries or interest-sensitive industries in general.

Ideal Screening Criteria:

Sales % Change TTM larger than 20.
Sales 3 Year Growth % larger than 20.
EPS % Change TTM larger than 20.
EPS 3 Year Growth% larger than 20.
If Market Cap smaller than 350, then Current Assets must be greater than Current Liabilities.
If Market cap larger than 350, then Total Assets must be greater than Total Liabilities.
EPS 3 Year Growth % larger than 20.
Price to Book Ratio smaller than 5, preferably smaller than 3.
Price to Sales Ratio smaller than 7, preferably smaller than 5.
Sales TTM larger than 0.
EPS for Year and for Most Recent Quarter larger than 1.
Current Stock Price closer to yearly high than to yearly low.

Preferably, price up over last 2 years, last 1 year, and, especially, recent weeks.
Preferably, paying a dividend.
Preferably, Shares Outstanding smaller than 300.

Price to Earnings TTM smaller than10. Or larger than 10. Tried screening both ways. No Price to Earnings smaller than 10 stocks had the very highest, top notch figures.

After looking at prospects generated by the screen I ended up buying the following companies:
Anixter International Inc. (AXE) 2.90B Mkt. Cap. - communications and specialty wire and cable products, fasteners, and small parts in the United States and internationally.
Ensco International Inc.(ESV) 8.52B Mkt. Cap. - offshore contract drilling company in the United States and internationally.
Chart Industries Inc. (GTLS) 675.29M Mkt. Cap. - engineered equipment used in the production, storage, and end-use of hydrocarbon and industrial gases.
GlobalSantaFe Corporation (GSF) 15.21B Mkt. Cap. - offshore oil and gas drilling contractor in the US Gulf of Mexico, N. Sea, W. Africa, Mediterranean Sea, SE Asia, S. America, Middle East, and eastern Canada.
HEICO Corp. (HEI) 1.13B Mkt. Cap. - design, manufacture, and sale of aerospace, defense, and electronics related products and services in the US and internationally.
Input/Output Inc. (IO) 1.08B Mkt. Cap. - provides seismic products & services primarily to the oil and natural gas industry worldwide
Jones Lang Lasalle Inc. (JLL) 3.34B Mkt. Cap. - real estate & investment management services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
Lincoln Electric Holdings Inc. (LECO) 3.02B Mkt. Cap. - welding and cutting products worldwide
Madeco S.A. (MAD) 749.71M Mkt. Cap. - non-ferrous products based on copper, aluminum, and related alloys plus flexible packaging products
Mesa Laboratories Inc. (MLAB) 80.66M Mkt. Cap. - electronic instruments, supplies, and disposable products for health care and industrial applications
Noble Corp. (NE) 13.43B Mkt. Cap. - services for the oil and gas industry in the United States and internationally
Roper Industries Inc. (ROP) 5.39B Mkt. Cap. - energy systems and controls, scientific and industrial imaging products & software, industrial technology products, and radio frequency products & services

Once bought, this group of stocks promptly started falling. So I started looking at supplemental strategies (see earlier Soap Opera segments).

As the World Turns -- Episode Three
Saturday August 11, 2007 : 03:37 PM

Previously: I've found yet more prospective foreign companies: UMC, CHL, KB, PBR, PTR, TSM. However to buy additional stock I have to sell something. Frustratingly, my current lowest-performers all have a strong global component even though based in the US. They are: JLL, GSV, IO.

Ths week, AXE (Anixter), MAD (Madeco) and VSEC (VSE Corp.) joined the lowest-performing group of stocks. However, AXE and VSEC have enjoyed relative strength in the recent past. Therefore I decided to sell half of IO, JLL, MAD, then buy CHL, PBR and PTR. CHL and PBR have the best stock performance recently. As the rest were a toss-up. I chose PTR, simply because it's a large Chinese petroleum company which has been challenging other large companies in the field.

Days of Our Lives
Monday August 20, 2007 : 10:35 AM

Boring. That's the lead-in for an August 10 "Motley Fool" article which mentioned one of my companies, Lincoln Electric (LECO). Lincoln wasn't the main company featured in the article, Applied Industrial Technologies. But at least it was one of the sister-companies mentioned. The main theme was "boring is good". The author, David Lee Smith, said, "First, they turn out basic components of our industrialized economy.... Second, most never capture the attention of those searching for "hot" investment plays. And third, all have recently reported very solid -- record, in some cases -- quarterly results."

That's my kind of investment!

Unfortunately, none of the companies listed in the article (AIT, ITW, B, KDN, RBC, LECO) have remained bear-proof. As of today they've all drifted lower along with the markets, AIT a little less so and LECO a little more so.

Which brings me to another reason for this ho-hum Monday. Over the weekend I looked for a bear-eating category of industry or "better" companies to invest in, truly swimming against the recent falling tide. I couldn't find any that impressed me more than the companies I already have. Although I hate inaction when things are going badly, no purpose is served by incurring meaningless trading fees. If I knew how to "trade" versus "invest", (and if I didn't have a day job) then I'd be looking for stocks which would predictably surge and recede. Even a bear market has rallies; so a trader can do OK buying on the lows, selling on the highs, and repeating the process. But for myself today is just another morning.

Every day, I scan my companies' headlines, making sure none have been hit with a lawsuit or awakened to find a top officer absconded with all the money. Nothing scandalous has happened so far. There are days when the best thing you can do is wait.

Peyton Place
Thursday August 23, 2007 : 02:49 AM

This entry is dedicated to gossip. I read stock message boards mainly for fun, not for serious investing information. However, when a stock price is moving up or down in defiance of all financial data, the gossip can give a clue as to public perception. Perception may or may not have any basis in logic but it certainly influences the stock price. Plus, occasionally somebody in the industry chimes in with an illuminating viewpoint. Blogs are a little more useful than message board postings but I still take them with a grain of salt.

So, following are the Yahoo boards' gossip for some of my StratLab contest companies. (I'll take the blame for my own typos and incorrect spellings. Those in quotes are not my fault.):

HUGH - Hughes Communications, Inc. It is actually UP 26.98% since I started this contest. Why? Why? Sure, it has decent fundamentals. That's why I chose it. But so do all my sinking stocks. -- Well, darn! No Yahoo message board at all. No current comments at Marketocracy (since the spin-off), that I can find. No blog entry (via the Yahoo Finance blog links).

HEI - HEICO Corp. It is up 11.68%. Again, I think the company deserves it but that doesn't make it rise. One Yahoo message board poster says, "Not alot of analyst on the stock for the past two years. I think this is changing right now and that is why the stock has shot up recently in a TIGHT market." No blog entry via Yahoo.

CHL - China Mobile Limited. Up 10.07% Lots of positive message board entries. More meaningfully, three positive blog entries (via Yahoo), two of them at Seeking Alpha, which has some credibility.

PTR - PetroChina Co. Ltd. Up 2.48%. Three blog mentions, one a buy recommendation, which is always nice. There are a number of board postings but mainly gossip:
"Chairman of PTR has been arrested."
"It's not the Chairman of PTR, but the chairman of sinopec. "
"That is right, he was the chairman of sinopec, not ptr."
Another poster asks, "Is Petrochina the next Exxon?" (Of course I think it is but that doesn't explain why the stock is up.)

ROP - Roper Industries Inc. No blogs. This company has the usual type of messages. By "usual" I mean that people say things like:
"This is a great stock." "No it isn't." "Is so." "Is not." "So." "Not."
Who is letting all the 3-year olds post on message boards?

The above are my only picks which are UP at present. All the others are down; so I looked at messages for the 5 lowest companies.

VSEC - VSE Corp. This stock is at the bottom with -19.39% as of today. Yet, not long ago it was at the top of my list, one of the few companies which was up. There are 2 positive blog features at Seeking Alpha. On the message boards one poster says, "If you can't stand the risk, buy with a trailing stop. I got out last time when it went down 10% (after rising 20+%)and bought back in after it was down nearly 40%." Some message board people believe it goes down when peace is in danger of breaking out. Others believe it will inevitably go up, overall. Sadly, that's what I think, too.

MLAB - Mesa Laboratories Inc. -16.77% as of today. This is the company I took only a small position in because it looked (and still looks) promising but is so darned small! Unsurprisingly, there are no blogs. Surprisingly, messages are civilized and intelligent:
" Earnings were good...did not deserve a 10% drop. This market is irrational."
" You're absolutely correct, but the 10% drop shouldn't be a surprise with a low float stock...."
" Look at the big picture. A micro-cap like this needs big % earnings and revenue increases to survive. This latest earnings state displayed a trend from the previous that was not that exciting. A stock that does less than 20 million in revenue better have the potential to do 50 or 75 million a few years down the road or they are eventually headed for single digits. Clarrification. When I said survive I ment survive being a growth stock. Obviously this is a very nice little company with good management and products."

MAD - Madeco S.A. -12.39%. No blogs. On the message board, a warning post said, " MAD PROFIT FELL 53%..... Sell short." Was this a slight exaggeration? The news at Reuters said: "...Chile's Madeco first-half net profit falls 36.5 pct". The company Website said, "En el segundo trimestre del año la Compañía alcanzó una utilidad neta de Ch$6.301 millones, implicando una disminución del 54,0% comparado con los Ch$13.708 millones alcanzados igual período de 2006." So it sounds like the message poster was reading Madeco's own announcement. Of course, part of the reason costs are up right now (and profits down) is the fact that the price of copper has risen. I hoped some poster or blogger might point toward an online article, in any language, analyzing the bigger picture, but no such luck. I'll probably sell but would like to get more information, first. This is a good example of how international investing increases your homework tenfold!.

ESV - Ensco International Inc. -12.05%. How on earth can this decent offshore contract drilling company be down? Message board posters wonder the same thing. One poster says, "ESV isn't down due to GOM fears, its down because management has allowed the street to become comfortable with a 7 forward multiple. ESV management could pop the stock 20% tomorrow by simply putting out a press release stating they are done with their newbuild program, and will be returning all excess future capital to shareholders in the from of buybacks and dividends." Is he right or is this hot air? By the way, the stock also has three nice blog mentions.

GTLS - Chart Industries Inc. -11.11% No blogs. No message board at Yahoo. Hey, that isn't fair. It's big enough, trades enough, and has been around long enough to deserve a board, A Google search even suggests that Cramer mentioned it once.

AXE - Anixter International Inc. -11.06% Some postings but no informational messages. Not even entertaining, off-the-wall rants. There is one blog mention and one, really great, blog plug. Alan Brochstein, CFA, says, "I have always been impressed with the industry (specialty and coaxial cable and wire distribution) as well as how well run the company has been."

It is always gratifying to see people agree with me and, of course, I can always dismiss the others as idiots.

General Hospital
Saturday August 25, 2007 : 02:20 PM

"Sweet are the uses of adversity." (Shakespeare, "As You Like It")

This is true but you have to know HOW to use it. Adversity shows you what needs mending but not necessarily how to mend it.

I should explain that although I've had a fund at Marketocracy for almost 2 years, it consists of microcaps and nanocaps, the kind of companies I'm most familiar with, though not the ones I'd necessarily invest in with real money. WIth Strategy Lab I'm experimenting with somewhat larger US companies and also with foreign companies, trying to find a diversified, stable group.

For microcaps, history shows that most of their growth comes early in the year and that they decline in the second half. In addition, if the stock market goes down microcaps really plunge because when people get scared they dump the smaller, therefore shakier, companies first. Last year about this time when the stock market slid I hung onto my declining stocks thinking I'd simply outwait current conditions. That was a mistake! Looking at top-ranked Marketocracy microcap funds, I saw that although they, too, had started the slide, they pulled out of it much more rapidly. Those managers must have immediately taken steps to modify their holdings; so, belatedly, I did too. I also found that when a small stock started a big slide it had a very hard time stopping it, much less reversing it, regardless of the quality of the company's fundamentals. Looking at my Yahoo portfolio in which I track my sold stocks, although some have recovered the majority are still in the doldrums or worse. Most of the less disasterous stocks I kept and the new ones I added went up very nicely in Spring 2007.

Therefore, I made up my mind that this year I'd use the annual dip to identify which stocks had the best holding power and more quickly replace the weaker ones. As we know, the dip has turned into a dive. The S&P is down -1.33% for the quarter and up only 0.54% for the month-to-date. My Microcaps are down -7.25% for the quarter and down -4.06% for the month-to-date. My larger Strategy Lab companies are down -4.05% for the quarter and down -2.95% for the month-to-date. I believe I've contained the annual disaster in the microwave fund much better than I could have a year ago.

However I am disappointed in the performance of my Strategy Lab fund with its supposedly sensible mix of good US and foreign companies. So far, the bear market is showing me that my choices weren't as foolproof as I thought. Time will tell. Hopefully the Strategy Lab fund will continue at Marketocracy past the year-end finish of the contest so that I can modify the experiment on a continuing basis.

Dallas
Friday August 31, 2007 : 10:44 PM

This week I sold Ensco Int'l., Inc. (ESV) and Noble Corp. (NE). Actually, only ESV is in Dallas. NE is in Sugar Land, TX. Close enough. ESV cut its third-quarter earnings guidance because of ongoing weakness in the market for its jack-up rigs in the Gulf of Mexico. NE shares fell after the company said Chevron Corp ended early a contract for a rig in Nigeria. Both companies have some of their operations in the Gulf of Mexico and one related article mentioned that there's a lot of drilling competition in that area. Classic investing advice is to sell ASAP on bad news. It is tempting to hang on to see if maybe the situation isn't as bad as it seems. This is one of those times it would pay to have much more knowledge of the oil field. But when I don't have in-depth knowledge, nor the time available to gain it, the only course is to adhere to the sensible advice.

It's hard to imagine any company in an energy field doing badly long term. However for purposes of this competition I'm interested in the short term and that makes the decision even easier.