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RVB's Market Musings

What began here as an avenue to interact and learn has far exceeded those goals.

If you are a prospective employer, please consider this site a place where you can see my passion for investing...

Sunday, April 30, 2006

A quick laugh

Apparently, students at Columbia Business School have far less to do than us here at UW-Madison, or they have a neat finance class where they make movies. At any rate, it's kind of funny.

Healthcare Equipment and Services

I am covering the Healthcare Equipment and Services sector next year. So far my report on the sector is coming along - but slowly. I have some ideas in mind, but no big pieces of analysis done.

I have been studying the wonderfully exciting tables on the Medicare website understanding reimbursement.

Have I bored you yet with this post?

My point is that I've been a little buried lately which is why I have not posted alot lately. Plus, I haven't found any enticing stocks for long or short plays.

However, lately I have been watching Radio Shack - RSH. I want it to rally because I think it is a great short. I'm probably late to this game; the stock's been going down for 18 months. But I still think the business model is horribly broken. I'm hoping to give this a good look this summer, if the stock can muster up some kind of rally.

Wednesday, April 19, 2006

Re: Social Engineering

Robert Stevens, CEO of Lockheed Martin Corp (LMT) writes in today's Wall St. Journal's opinion column
Department of Education data suggests U.S. colleges and universities are only producing about 62,000 engineering BAs a year -- fewer than the visual and performing arts graduates -- and that figure hasn't grown in a decade.

The looming tech talent shortfall will have an impact far beyond any single firm or sector. Science and engineering aren't just crucial for national security; they're critical for economic growth. High-tech industries drive development, boosting productivity and generating good jobs. If the U.S. intends to remain the world's technological leader, we have to act today, inspiring more young people to thrive in advanced-tech careers. It's achievable, as long as government, the private sector, schools and communities work together.

Most people have heard arguments like this before - the US will collapse if we don't start creating more scientists.

As one of those former 62k BA's per year (BS Electrical Engineering, 2000, thank you very much) - I'm torn when I hear people predict such a crisis. Our economic system promotes those who have science degrees to set up shop here in the US versus at home. How many foreign-born scientists and engineers are working for US companies on home soil? In this way, we stay ahead, even if we aren't producing the brains.

But that doesn't seem sustainable forever and that's why so many make such comments. There seems to be a certain truism here.

The fact of the matter is that being an engineer or a scientist in the US isn't prestigious. In fact, it's actually quite the opposite. It's nerdy. Geeky. Mr. Stevens acknowledges this fact and I believe this is the heart of what he is trying to say. We do need to change this image.

But here's where I think Robert's letter goes awry. Do you really think that the government can inspire children to do anything? With governments' big highlights in recent years being Monica-gate, the Bush is a moron campaigns, and forever wasting brain space in minds world-wide with "The Hanging Chad" - most youth will certainly know little about the good things that the government may have accomplished. Schools can certainly help. But a strong paradox which exists in our schools is that most teachers became teachers explicitly because they did not want to be scientists.

The Private Sector certainly has the most to gain from encouraging youth to enter the sciences. But with a constant focus on productivity and meeting Wall St. expectations, the amount required to spend on such programs would be the first thing for any CFO to hack at with the proverbial budget ax. You want to spend 150k on a local high-school outreach program to teach kids to build a control system? How much will that cost nationwide? No way we can hit EPS. Damn. Scratch that. I'll bet even Lockheed's management and Shareholders would agree.

So, Robert, I challenge you to put your money where your mouth is. If your company's future depends on you doing so, let's see you do something about it. But, remember, Robert that your company builds bombs, something not everyone feels inclined to participate in.

While you're at it, round up your Fortune 500 CEO friends and convince them that the long term view needs scientists. Be an example. Pay your engineers. Provide a strong work-life balance. Better yet, make your scientists and engineers really feel important. I turned down TWO jobs at your very own Lockheed Martin myself. It wasn't worth it.

It won't be easy. Many of the engineers I interacted with in my day-to-day weren't happy with their fields. There is nothing more defeating to a profession when those in it are not adamant proponents. High school kids aren't completely stupid, you know, and they can see that they can make more money, feel more proud, and have more fun with a degree in Economics or Business instead. I've been there. And I'm leaving it. The Wall St. rigor stomps out most of the fun - indeed I meet many scientists and engineers who love science but found that practicing it in Corporate America was incredibly disappointing. I'm part of the problem (albeit I did almost head off to a "super-secret" (ha ha) government agency to use my skills in the interest of national defense).

I'm with you, Robert, that this needs to happen. So here's an idea. Maybe the best bang for your buck is on TV. We're already rotting our minds watching TV - but it is not all terrible. Without digging in, I would place a decent sized bet that applicants to Forensic Science / Criminology programs are on the rise because of CBS' crime show phenom, CSI. My generation grew up with MacGyver and Quantum Leap. How about a good spy show - a "James Bond" meets "MacGyver" type of show where the "geek" gets the girl? Perhaps put Discovery Channel's Mythbusters in Prime Time on a major network, where it might do well. Maybe my former CEO, Mr. Immelt who also needs engineers and owns one of those bigwig network channels could pull this off. There aren't any great role-model scientists! Bill Nye the Science Guy? Puhlease! What needs to happen is some momentum, and this might be a beginning. Once it becomes "cool" and people love working in the field, it will begin to take care of itself.

Hello Visitors!

I'm always intrigued when I check the IP addresses of my visitors. I especially don't know what to make of it when potential employers stop by. It was a big decision for me to put this URL on my resume - because I run the risk of being misunderstood. It can be difficult to get incredibly analytical on a weblog. In fact, blogs aren't really meant for long, analytical posts. How many of you read posts longer than 3 or 4 paragraphs?

At any rate, if you are a potential employer I hope you can see how much I love what I do.

I have also noticed quite a few recurring visitors, which of course is nice because it makes me feel like I am writing worthy material. I want to let you all know that, even though I don't know who you are, I appreciate you!

I also encourage you all to leave comments. Just don't spam me. It's not nice.

Back from the Dead!

Travelzoo is back from the dead. The IBD darling of '04/'05 ran over $100 a share, only to fall back down to $17 this year.

This is just a mere observation and not any kind of recommendation whatsoever. I don't know much about TZOO other than I like searching for cheap vacations on the website and that the company actually does have some earnings.

It's a pure trader's vehicle, with a really low float, very volatile price movements, and a high P/E. But, it's a neat chart to look at.

Monday, April 17, 2006

Interesting Day!

Today was a strange day. At around 2pm Eastern Time, the Naz was down just over 1%. Most stocks were down, but things weren't as bad as they seemed. All of my Marketocracy funds - "Smart Buys", "Value and Income" and my Bearish fund all had up days. This is very rare. Let's look a little bit further at what drove today's performance:

Value and Income Fund
Today's big winner was Black and Decker (BDK) (+6.42%), which has done absolutely nothing in the 13 months it has been in the portfolio until Credit Suisse finally realized it needed an upgrade. Where have you guys been? It's about time.

After BDK, shares in Conoco-Phillips (COP), a new portfolio addition, as well as Kirin Brewery (KNBWY), Brascan Corp - er...Brookfield Asset Management (BAM) [recently the name changed] kept the portfolio strong today. Since BAM and KNBWY are non-US companies, it goes to show that sometimes dipping into foreign stocks can be a great diversification tool. What's more is that both of these businesses are incredibly well run. Ask Bill Cara about Brascan!

Smart Buys
Oil exposure was strong here today, as Petrofund Energy Trust (PTF) as the co. announced a merger with Penn West trust to focus on growth. PTF had been in the portfolio not only because of its super high 7% dividend yield, but because the company has been growing rapidly - sort of a best of both worlds in the oil sector. I'll need to do some homework on Penn West, as I am unfamiliar with it. Chesapeake Energy (CHK) also had a nice day. The pop in Oil and Nat. Gas prices obviously had an impact. Overall, however, these are the only two oil names, and they represent just over 10% of the portfolio.

Some of the more aggressive names had great days, also. Core holding Blackboard (BBBB) was up over 3% on no news - indicating that perhaps someone is beginning to add shares. Trident Micro (TRID) - the single largest position in the portfolio - was also up nearly 3%. This name is a play on the lcd monitor / tv world, and has high growth expectations (the company lost 1 cent per share last year). My portfolio management rules prevent me from selling any shares since the stock rocketed immediately after purchasing it (Up 20% in the first month, 31% in the 4 months following). Some would say it is overvalued and time to sell, but in this case the market is telling me that Trident could be one of the big winners of the next couple of years and it's time to ride the stock through it's ups and downs, so long as the bull continues. Revenue growth could reach 100% this year.

Bearish Fund
Somanetics (SMTS) was today's biggest short winner, down 6.45%. This medical device small-cap company missed expectations recently, and it looks like it's time to cover this short when the downward momentum ends. The healthcare sector in general has been selling off, which has not helped SMTS. But, the reality is that this company is getting close to a "buy" at these price levels. Growth here is staggering, the company is investing heavily, there's little competition, and at a trailing P/E of 26, the company is getting cheap, since I think the quarter was a glich on the road to prosperity for SMTS.

Aside from SMTS, there wasn't much of note in the bearish fund. In general, this fund has served as a good learning experiment on shorting, because performance has been miserable.

As a reminder, you can always track the performance of any of these funds by clicking on them on the right hand side of this page.

This way, you can call me really dumb, or really smart - whichever you so desire. Just make sure you have a reason.

Wednesday, April 12, 2006

Value and Momentum

There have been numerous academic studies looking at momentum and value investing. A simple search on scholar.google.com provides quite a few hits. I have spoken before of combining the two to attempt to outperform.

I have a belief, though no statistics to prove it yet, that if one combines a trader-like money management scheme to this strategy, overall portfolio risk would be fairly low, with nice profit results. Here, I am speaking of the "risk" as measured in the classical way that most academics do - standard deviation of returns. We humans like returns because we're greedy, but we don't like to see our portfolios fluctuate wildly because we're fearful. (As an aside I am but a novice to seeing these types of academic research papers, but I do believe that most neglect an entire world of things that people at, say, the old Chicago Research and Trading (CRT) or Turtle Traders, or what many hedge funds know but don't share when it comes to managing risk. Blackjack can teach us much about managing a portfolio, yet it seems to be ignored.)

"So what's my point?" you ask. Well, here's a link on MoneyCentral that gives a momentum with value screen. If it doesn't work, you may need to install the MSN Money Deluxe software.

This type of strategy led me to my Feb. 27th recommendation of GEHL - a recommendation that is up nearly 18% in the 1.5 months since being recommended (and is probably going higher)!

Certainly this strategy isn't without its risks - as would be any momentum strategy. Many shy away from momentum, thinking that it is in fact a dirty word among investing, yet most agree that the strategy works. Pure momentum investing would be too dangerous for my blood, because the people in these stocks have little regard for massive selloffs when times get tough. But when the fundamentals are supporting a stock's valuation, what's not to like?

PS - Kudos to those of you who can guess the stock in the chart above.

Tuesday, April 11, 2006

More selling!

What a market...up, down, up, down. It's like a roller coaster. Not much to write about these days.

Panera, PNRA, is getting closer to my 'buy' range near 65, but I'm not the irresponsible type to just buy it then...I can wait for it to look as though it may turn.

I'm not overly optimistic that we will be seeing new powerful highs in the US markets in the next month or so.

In the meantime, I'll continue to do homework - both at school and in the markets.

I should also mention that my BEBE and AAPL picks are still holding up nicely, since the last check-in. BEBE same store sales came in higher than expected, and AAPL has jumped well beyond my recommended buy point at $62. These are both stocks that may not fit the 'value' investor's mold, but they are quality companies that seem to still have pessimism towards their potential, which I think is wrong.

I continue to think they're both good stocks to hold.

Wednesday, April 05, 2006

Panera Bread - 9.3% March Comps

Same store sales at Panera grew 9.3% compared to last year's March (Press Release).

No surprise there. Yesterday, I reported that I didn't expect the number to disappoint. After hours, the stock was back up 1.09 after closing regular trading hours down 2.81.

At this point, "disappoint" might mean any same store sales growth number below 6%. Expectations are very high in the short run. Yet, it still seems that long-term growth rates are being somewhat underestimated. I think this is a mini-Starbucks in the making, although international growth potential isn't as strong. That is partially offset by average ticket prices at Panera being much higher than at Starbucks. (Starbucks has never seen a year below 20% sales growth since its IPO in the early 90's - which defies common economics and thus analyst dcf's)

I am a little concerned, however, at the tail end of this article. 22 stores opened in the first quarter? Sure, this is on pace with last year when the company opened 24 in the first 16 weeks. Winter months are the slowest. But, I'd have liked to see a little bit better push out of the gate for '06. For Panera to get to my expectations of nearly 160 new stores this year this number is inconclusive on the year. Bummer.

35% Revenue growth is a nice quarter, but at this point, still not enough to get a major move in the stock. We need a sale!

PNRA is still on my shopping list hoping I can some day see $65 or below.

Tuesday, April 04, 2006

Check up

I write alot about companies and ideas - some trading, some investing, and perhaps some psychobabble too. Hopefully the psychobabble is somewhat entertaining or humorous - or both. Regardless...I would be remiss if I did not occassionally go back and look at my recommendations to see how I've done. After all, nobody is right all the time.

Stock Pick Performance
Handleman Co.Long14-Feb-15.8%
bebe StoresLong16-Jan+10.0%
Coast Distrib. Sys.Long16-Jan-2.3%
United Parcel ServiceLong13-Dec+6.4%
Cognizant Tech. SolutionsLong13-Dec+23.4%%
PetMed ExpressLong23-Jan+8.5%%
Caribou CoffeeShort17-Feb-15.8%
Boston ScientificLong17-Feb-9.4%
Apple ComputerLong30-Mar-1.9%
Comstock Homebldg**Long Swing23-Feb+10.8%
Avg. w/ Stops+5.5%

**CHCI was a trade recommendation - for details on how it would have worked, contact me - it actually entailed 2 trades, one loss and one win, for a net result of +15%

I wish that the performance were more impressive. However, I calculated the performance using my stop loss strategy, which puts performance on these picks at 5.5%. In the months represented here, I am happy with this performance, but qualitatively I think it has slightly underperformed the S&P 500. Most of these calls are fairly recent, however, and perhaps more time will show outperformance. Furthermore, I believe that position management techniques would also help drive even better performance because, for me, it helps to leverage my winners and flush my losers.

As for the postions, it looks like I was wrong about Handleman - and would contine to watch the stock for another possible opportunity below 9.

PetMed has pulled back on a silly downgrade and I like it here. Boston Scientific looks to be an early call. It looks like the downside will continue. My two favorite positions are Cognizant and Gehl. I think there are alot more legs to these stocks and would be adding on any pullbacks.

Other recent calls:
Shopping List:
Panera Bread - Buy on a weak comp number and bottoming selling pressure. I visited Panera again on Saturday. Lines to the door most of the time I was there. I don't think the weak number is coming this month. Reward/Risk just isn't quite where I want to be - frustrating. (Any kind of advanced strategy that bets on increasing volatility might be an interesting idea here). Management shakeup announced today.
Blue Nile - I just can't figure this thing out.

Kinetic Concepts - too much risk for the reward. Stock has risen 12% since this post, but I still think it's a difficult place to be.

Simplifying my duties

On the right hand side of the page there are links to two of my "funds" which are managed via Marketocracy. These funds have been under my supervision for quite some time and have been fairly successful thus far.

I had a few other "experimental" funds, but I am no longer managing them as a result of time pressures. My theory is that more attention to detail will yield even better results for both my Value and Income Fund and my Smart Buys fund.

I should mention that the site, as neat of an experiment that it is, has its limitations and quirks. First, I'd love to run a "long/short" style of fund and be able to put on positions that involve more than just common stocks. But - I can't. At any rate, even with its limitations, the fund has found some investors whose performance at picking stocks is simply phenomenal, and cannot be considered luck. Check out the performance of a few: JNavin (blog), Wildmap (website), and ahbahb.

Monday, April 03, 2006

RVB's Blog traffic = price action we like to see

If RVB's Market Musings were a stock, it's ticker would obviously be RVB (is a self-link the equivalent of using my own name in the third person?) . COOL could perhaps also be on the list (and I believe that it's available). Surely, my girlfriend would pitch DORK to my board of directors. Of course, it would be cheapest to use a four letter ticker than RVB, since it's cheaper to list on the Nasdaq! At any rate, according to blogshares, my share price is up 92% since its IPO (data as of March 17)! I owe it all to you who read. I'll keep writing if y'all keep readin' (I might even keep writing anyways).

While you may think that this data a true waste of time, my defense is simple. I need a study break. There are only so many academic articles I can read about "Optimal Capital Structure" and "Raising Capital" before I fall asleep. So, rather than rely on my sleeping drool as the sole firefighting mechanism for saving my precious $86 course packet from my pumpkin-spice cented candles, I browse. It's safer and cheaper...although if I perish in a fire because C. Smith from U-Rochester puts me to sleep with his babble, at least my family will know the name of the culprit. I guess there's risk in everything we do.