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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...

Friday, August 18, 2006

The RSS Reader Winner...

...should be Microsoft. Put the capability into outlook, and big business' enterprise solution is solved.

People probably expect it already....so there's no way to profit from it. Besides, it won't move the needle at that mess of a company. That's a bummer.

Monday, August 14, 2006

Google is Da Man!

Kudos to Hitwise for doing what they do. They noticed that Google removed "Froogle" and replaced it with video search. They also noticed that suddenly Google Video's page hits are soaring.

Geez, I'll bet that Google search page is worth, like, 1 Meeeelyun dollars or something...

If I were a marketing person, I'd be using Hitwise !

Saturday, August 12, 2006

Sitting at a Panera Location

Yeah, I'm "in love" with this company's stock. I need a breakup.

10:15 AM, and traffic is out the door for breakfast. I'd like to get a chance to talk to the manager, but he's just too friggin' busy. It's been this way for an hour. But I don't know if this is the norm for this particular Maryland location or not.

Weather is great, and I'm thinking that this will get people out of their houses across the US, and SSS will rebound.

This store just started selling the Crispani last week. I'll be back.

Friday, August 11, 2006

Can Quant Funds Make Certain Markets Less Efficient?

Today I am thinking about being an analyst. Much of what analysts do is, well, analyze. Ha ha.

But, the numbers we see on income statments and balance sheets rarely tell the full story. Today, while trying to estimate numbers for one of my companies, I am forced to move numbers around, back out other numbers, and try to compare apples to apples. This particular company looks like it trades at a P/E of 19. But, really, the true number is 22. Forward P/E looks like 31. But really it is 20. Return on equity should be near 20%, but it only looks like 14%. This has everything to do with non-cash numbers like options expense, and a few others that I won't bore you with.

My point is not that this is hard, nor am I complaining that these companies do these things.

Rather, my thought is the following - since the numbers typically need adjustments, who does this for "quant" funds? Furthermore, do the quant funds have the ability now, with their size, to move markets? How big have these funds gotten, exactly? If quant funds do have such power, do lumpy numbers make markets more inefficient? For example, a company that has had a continous ROE of 25% might suddenly fall to 10% and show declining EPS. Boom, the computer says sell, sell, sell and price falls, falls, falls. If so, FAS123 might be creating mispricings, no?

I have not looked inside many quant fund engines; in fact I am only slightly familiar with the algorithms of one fund - albeit that fund is large and fairly famous, but I would like to know more.

We know stocks can trade fairly far from their true value. Last I checked, machines can't interpret a conference call and adjust an income statement. So maybe they sell when they really should buy...and maybe they've gotten too big for their own good?

Food for thought.

Wednesday, August 09, 2006

Yahoo Gadget Gone

If you're a regular, which I realize there aren't many of...

I got rid of the Yahoo gadget on the right. It was neat, but it created far too much whitespace at the bottom. I could eliminate that with a hack, but then I was in violation of the user agreement. So, fuggeddaboutit...

Bunches of thoughts

-OIL: A few posts ago, I wondered if the BW story about $100 oil meant a peak in oil is coming. I'm now believing it more. All Monday morning, all I could hear on my XM radio in the airplane was that BP's Prudhoe Bay problems were causing oil prices to spike. All I see is stalling. Seems even the worst news isn't driving prices higher. Food for thought.

Options are weighing on many stocks. We all know about this FAS123R story, but for quick valuations - the kind that practitioners use - this topic just isn't that easy to comprehend. What numbers are we supposed to use in our multiples, really? (If you don't know about FAS123R, just know it means companies are now supposed to expense stock options)

-RSS is a game-changing technology. As is typical of radically changing industries, most the companies that occupy this space will lose or wind up being engulfed by behemoths. IACI's Bloglines is a winner, and my bet on the future right as of today would be Newsgator. The enterprise market, which Newsgator is chasing, is very big. Also watch out for Attensa.

-Panera, Panera, Panera. You're teaching me a lovely lesson. In William O'Niel's book, How to Make Money Selling Stocks Short, there is much discussion given to how lousy professional investors are at short selling. He writes, "All good short ideas start out as outstanding buy ideas." (Panera, cough, Panera) "...several Wall St. analysts are likely to be raising their price targets on the stock, or it may be featured several times in the broadcast and print media...everyone is running around talking about how wonderful it is, it tops." Mr. O'Niel - I'm hearing you.

-The book isn't anything that is overly genius. Yet, why are we all so bad at shorting?

-If you're short PNRA, though, methinks your day in glory is coming to a close soon. I'm still a long-term buyer of your shares. Low 40's has got to be the bottom.

-The small cap space is full of great ideas. More to come on those over the next year :-)

-I'm now a bear on Apple (AAPL). Just lurking, waiting to pounce if my thesis proves true. (I have cashed out)

-As part of my internship, I've learned that being a CEO is an even better deal than what most realize, and most already think they earn too much. Executive Pay Watch

-Rock on Tesla Motors. Really, really cool.

Friday, August 04, 2006

Checkup: RVB Funds

Finally, Marketocracy has updated the fund rankings for the first half of 2006.

I'm pleased that the RVB Value and Income Fund (RVBVI) has earned me a green star for top quartile performance. In reality, it has performed better than that. Here are the stats:

Alpha: 4.38% (and this is the important one)
Beta: 0.80
R^2: 0.57

The RVB Smart Buys Long Fund (RVBXX) has a bit of a different story. I pressed too hard on the accelerator at the wrong time, and you can see that bet has not paid off recently - the fund has fallen rather sharply in value relative to the S&P 500. Rest assured, I am not content with this performance and continue to make changes to get where it needs to be. The addition of some of the inverse ETF's may help.

Alpha: -5.62% (and this is the important one)
Beta: 1.86
R^2: 0.82

Meanwhile, the bearish fund experiment remains just that, hence no update there.

I will continue to work on idea generation and portfolio construction in the two main funds and continue to strive for #1.

Checkup: Kinetic Concepts (KCI)

On Feb. 3rd, I took five minutes and thought about Kinetic Concepts as an investment. After some quick analysis, I wrote "Flush! Too much risk for not enough reward. I'll pass on KCI for now." - referring to the Blue Sky patent battle.

Today KCI lost, and Blue Sky won. KCI is down 43% as a result.

Sometimes a few minutes is all it takes.

Tuesday, August 01, 2006

Consumer: Chipotle's Burritos Rock

Perhaps a little vindication today (not that it's the most important thing in the world). Chipotle (CMG) blew median estimates of 26 cents away, reporting a 57% rise in earnings per share to 31 cents and raised its revenue forecast for the year.

Meanwhile, Reuters headlines report: "Chipotle net income down, sees slower sales growth." Talk about misleading by technicalities. What's the agenda here? Do they feel like they need to tilt the headline to be in-line with the fact that the stock will open lower this morning?

Slower growth? Well, sure, because Chipotle's current growth rate is simply not sustainable. My 5 year old nephew might be able to tell you that! (Watching him eat a Chipotle burrito would be entertaining, though)

Chipotle is healthy, but in the same hated sector that Panera is. And perhaps its valuation is somewhat high in the short term. So we wait, and we can pick up two great companies while the markets adjust.

IPO's: Another inefficient market

This post isn't new news, but a reminder that small caps tend to be less efficient because there is not much coverage on these stocks.

IPO's, on the other hand, tend to have coverage relative to their hype. Google had a bunch of analysts immediately. So did Chipotle. But the difference is that there is no easily viewable track record - and that leads to potential gains because market expectations are scattered.

If you have an edge with an IPO, you can score big gains!