Sunday, May 27, 2012

How to Identify Winners, Beating the London Whale, and an Interview with Mitt Romney-

Success is not easy, and it is not supposed to be easy.  The whole world admires and embraces winning, and people are rewarded for it, in many instances, far more than they should be.  Failure is not tolerated, and in society today, ridiculed.  However, what most people don't quite get, is that success is born from failure, if a person can learn from their experiences.  So how does one identify people or businesses, or entities which are going to be successful?  What qualities should you look for?
1)  Leaders who are bold and not afraid to lose.  It is easy to find people at the top who are always hedging their bets.  Hedging is a good strategy, especially if you have large gains.  However, to be a big winner, you need people at the top who have a bold plan about what they are going to do, and how they are going to do it.  One such leader is Howard Schultz, the CEO of Starbucks.  I can remember listening to a presentation by him when their stock prices was way down in the dump.  Their strategy was impeccable, and they knew exactly what they had to do.  Not once did their strategy change.  Over time, the company executed and the performance spoke for itself.  Shareholders get rewarded, and the success is played up in the press.  Schultz and his team learn from their mistakes, and are applying those lessons to all areas of the business, in countries across the globe.  If the stock gets pounded again, believe me, I buy a lot more.

Starbucks Coffee Company

2)  Leaders who embrace the challenge, and stick with the task all the way from start to finish.  Many people hope they get an opportunity with a successful business or organization.  However, most often, the real big chances one has are in situations which look very bleak.
I am very familiar with the head coach of the Oklahoma City Thunder, Scott Brooks.  Mr. Brooks has a background which anybody can and should admire. He was not drafted out of college, played a year in the CBA, and made the Philadelphia 76rs when they had Charles Barkley and Maurice Cheeks.  After playing 10 years or so in the NBA, he wanted to coach and had to start by being an unpaid assistant in something called the American Basketball Association.  He landed a job with the Denver Nuggets as an assistant, and then moved to Seattle to work for PJ Carlesimo.  The team then moved to Oklahoma City, and Carlesimo was fired twenty or thirty games in after losing every game by nearly 20 points.

Brooks is given a chance to coach the team as an interim coach, which he embraced.  The team wins 20 or 25 games that year, and the franchise rewards him with a 3 year deal to coach the team permanently.  OKC wins 50 games in his first year, and has now made the Western Conference Finals two years in a row.  Mr. Brooks takes advantage of his opportunities, and they have a heck of a chance to win the NBA championship.  He played young players like Russell Westbrook, Kevin Durant, Serge Ibaka, and James Harden and has stuck with them, sometimes suffering losses which were difficult.  Now the team is poised to reap the rewards of those lessons, possibly for a very long time.  A big thing Brooks has done is to emphasize the essential habit of trying to improve each day.  If you get better every day, over the long term, it adds up to tremendous improvement.
  Oklahoma CIty coach Scott Brooks waves to the crowd after Game 5 in the second round of the NBA playoffs between the Oklahoma City Thunder and the L.A. Lakers at Chesapeake Energy Arena in Oklahoma City, Monday, May 21, 2012. Oklahoma City won 106-90. Photo by Bryan Terry, The Oklahoman

3)  Leaders who are building for the future, as well as executing today.  You should look for organizations who are strong today, but have large ambitions for how to go about growing in the future.  I look for companies who are investing in the largest countries in the globe- China, India, Brazil, Russia, Indonesia, etc, as a way to grow for the future.  You want companies or leaders who place a large emphasis on positioning for the path going forward.  You want to see what plans are in place, and how the group is executing versus those plans.  Many talk about their plans, but you don't want talk.  I want to see action- partnerships, agreements, new stores, new products, goals for next year, three years, five years, etc.  A great example of a company which invests in the future is IAC Interactive- led by Barry Diller (yes, full disclosure, my clients and I own shares in IAC).  Diller is investing in the future, and has his hands in a lot of pots, across the globe.  Will they all work out?  No, but he does not need them to.


IAC.com Home


Nice story in the NY Times about how JP Morgan got unseated by a smart trader-
http://www.nytimes.com/2012/05/27/business/how-boaz-weinstein-and-hedge-funds-outsmarted-jpmorgan.html?pagewanted=1&_r=1&ref=business

Great Interview by Peggy Noonan with Mitt Romney-​http://online.wsj.com/article/SB10001424052702304707604577424642695167400.html

Mobile Shopping is a huge opportunity-​Mobile Online Shopping Holds The Real Opportunity In Mobile Payments

A massive difference in global gas prices-​http://www.bloomberg.com/video/93419911-where-in-the-world-is-the-cheapest-gas.html

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital.
As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.


Here are some Seeking Alpha articles about specific stocks written by Yale Bock.

Sunday, May 20, 2012

Facebook Flops, Steve Nash Invests, Fixing California, and More!

So the Facebook IPO came and went on Friday, and the stock closed 25 cents higher than what it opened at $42.00.  Buying IPO's means you are taking ownership of a piece of a business which is being sold to you by the original founders, early investors, and investment banks whose job it is to sell the shares.   Some of the sellers of Facebook include Goldman Sachs, Morgan Stanley, early Paypal and Ebay investor Peter Thiel, and the earliest founders of Facebook.  In the market, there is a buyer for each seller whenever a transaction occurs.  So, a thinking person asks, why am I buying this company at this price, and what am I getting for my dollars? 

Also, who is selling the stock and what might they know about the business that I don't?  On the day, there were over 570 millions shares traded of Facebook stock.  Usually, it is very interesting to see where IPO's trade 3,6, 9, and 12 months after it goes public.  Google had a very successful IPO, one which I thought was vastly overpriced.  Of course, Google acquired a bunch of businesses like Youtube which were very smart.  Not saying Mr. Zuckerberg's creation won't be as successful, just that time will tell on how things play out.


The stock market continues to sell off because of fears about Europe.  The sell off reminds me of 2008 in that it is a slow motion train wreck which builds during each day, and passing week.  Ultimately, there is a climactic event like Lehman crashing.  In this case, it may be Greece or other countries leaving the European Union, and then the bank runs which follow.  If you are an owner of stocks, it is a time when your holdings lose market value.  However, in looking back on 2008, it also is a time when you get presented with opportunities to buy companies at prices which you would have never thought possible.  Are we there yet?  Depends on how you see things and what companies you are looking at.  Saw an article in today's NY Times about how selection of companies does not matter.  Maybe not, but Warren Buffett might not agree with that premise, and he has done pretty well.

Steve Nash, the great NBA player, has gotten into the investment world through venture capital and angel investing.  Great player, and hope he does well-http://www.forbes.com/sites/kurtbadenhausen/2012/05/16/steve-nash-brings-his-nba-skills-to-the-boardroom/


A nice editorial written by a proponent of capitalism of what is wrong with California and how to fix it-http://www.bloomberg.com/news/2012-05-16/yes-there-s-a-case-for-staying-in-california.html
California

Interesting viewpoint on treasury bonds, which I think are the worst investment anyone could ever make today.  Time will tell but right now, seems like I have been wrong for three years-http://online.wsj.com/article/SB10001424052702303360504577412553217790184.html?mod=WSJ_hp_LEFTTopStories

Finally, a very good article summarizing how serious the Greek situation is-http://seekingalpha.com/article/602951-thoughts-from-the-front-line-dr-frankenstein-s-europe

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital.
As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.


Here are some Seeking Alpha articles about specific stocks written by Yale Bock.

Tuesday, May 15, 2012

Can We Please Get Serious?

Boy oh boy, it has been one heck of a week. So, lets do some commentary on the state of affairs, shall we? Last week, President Obama announced his support of legalized marriage for gay citizens. Let's think about what the United States currently is facing as far as its financial situation is concerned. We have 50 trillion dollars in unfunded liabilities in social security and medicare. The country is running deficits in the trillions, approximately 2 trillion per year. California, the 7th largest economy in the world, announced its fiscal deficit is $16 billion (it thought it would be only $9 billion), and the governor wants to raise income tax rates for those who make over 250K per year to 13%, on top of the federal tax rate of 35%. Something like 35 out of 50 of the states are running fiscal deficits. We have the GSA administration scandals, the Solyndra loans that went bankrupt, we are still dependant on foreign oil, and what is our leader concerned with? Yup, marriage rights for gay citizens. Are you serious? I guess Mr. Obama is leading with respect to his viewpoint on human rights, but from a financial perspective, he takes a pass on every tough issue. Just my opinion, and everyone is entitled.

Last week, Jaime Dimon of JP Morgan Chase announced the bank is on the hook for at least a $2 billion dollar write off for a bad hedge, and it may be more. As a shareholder of Chase, I am very familiar with Mr. Dimon and his leadership abilities. He was hired from Bank One, which he took over and turned around. I can recall a few years ago reading the whole risk management section of the Chase annual report and spending a few hours digesting it. When you have to learn risk management for the CFA exam, you find whatever you can to help you pass the test. You get one shot a year at passing, and you don't want to take it again.

Anyway, risk management is not easy and there are lots of issues to cover. You have operations risk, business risk, financial risk, trading risk, position risk, currency risk, allocation risk, and you are relying on others to oversee each section. Just as important, the goal of any business is to make money, not just limit risks. Banks have to take their deposits and put the excess cash somewhere, usually in loans or securities. To the extent a bank makes good loans and good decisions about the securities they own, a bank should be a profitable business. Indeed, Chase is very profitable, to the tune of $20 billion or so a year, depending on a host of factors. Banks do make mistakes, and usually it involves leverage, or borrowing too much money, especially short term money. The media and politicians are going crazy over the bad hedge with renewed calls for more regulation. California is the most regulated state in the country, and we see how that is working out. You cannot regulate good judgement or morality, but why bother trying to tell a publicity seeking politician that.

So the market has been scared to death because of the never ending European debt crisis. It looks like Greece is going to leave the European Union and revert back to their own currency. Well, get it over with, and if they need to get rid of Spain, Portugal, and Italy, they should take care of all of them at once. It won't be easy trying to work out the mess, and it looks as if many citizens in the old countries are starting to pull their money out of the banks. Again, these countries have regulations everywhere you turn, so how is that working out again? For those of us taking a beating in the market, my strategy is to put my head down and keep buying stuff I own which is getting cheaper by the day. I know it is risky, but you can have all the treasury bond you want, I will keep buying BP.

Nice article in the wsj comparing Chris Christy and Jerry Brown. I admire Christie's backbone, but he should be quiet about Warren Buffett. Still, compared to Jerry Brown, not even a contest- http://online.wsj.com/article/SB10001424052702304371504577404503988018824.html

Yes, I am a republican, but if ever there was an article to show how hypocritical the president is- http://online.wsj.com/article/SB10001424052702304371504577404540474095790.html?mod=opinion_newsreel

I know, hard to believe, but the much maligned Groupon finally turned a profit. Growing like a weed and profitable now- time will tell how things turn out for them-http://www.bloomberg.com/news/2012-05-14/groupon-reports-profit-as-overseas-growth-boosts-coupon-business.html

Great article about a health care startup- http://http://techcrunch.com/2012/05/15/healthinreach-merges-with-pricedoc/

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital.
As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

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