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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...

Tuesday, May 30, 2006

3 days until the CFA level 1 exam!

I like my chances going in. I know the material - so now it's up to me to put the final touches on my brain in the next couple of days. Then it's off to Baltimore for the summer.

In the markets, I am thinking about adding positions to the long side. Panic selling has been rampant for a while now and it looks to me to be just about done. With my internship, "positions" for me will likely be the PWO - Powershares Over-the-Counter broad ETF offering.

By the way, in addition to my Blue Nile post of a few days back I was unable to add at the time - the business is what it is cracked up to be from the consumer side. My experience was great, and the ring is great. Plus - she said yes - which is good!

Tuesday, May 23, 2006

Starbucks and online Music


I just read an article that makes no sense to me. It can be found on The Business Online. article link

The headline reads "Starbucks to offer music downloads"

There are some great quotes in the article. Let's start with:
Starbucks chairman Howard Schultz believes his chain gives Starbucks a huge advantage over Apple as a digital music retailer. Starbucks serves 40m customers a day and plans to open 1,800 more coffeehouses this fiscal year. By contrast, Apple only has a handful of flagship computer stores in key markets.
But, Howard, I need a computer to download music! I can't download songs by plugging my mouse into my $7 latte and connecting it to the internet! Do you honestly believe that people have to travel to these stores to get their music? This quote is ridiculous.

Ok, so next we think about the fact that people do bring computers to Starbucks, and that traffic of 40 million customers is surely impressive. Maybe there's potential? Next quote:
Schultz intends to ramp up the existing wireless internet in Starbucks coffeehouses to provide music downloads.
So let me get this straight. I buy my $7 latte, then I pay the Starbucks hourly internet connection rate, just so that I can download Sir Mix-a-Lot's "Baby got Back"? Maybe, because I paid my connection fee, I'll also pick up some Right Said Fred, too. After all, "I'm too sexy..." Seriously, this hardly seems worth it to me.

But then, just when I'm picking up awful songs of the 90's (that we all know the words to) the store clerk will pick up on my song fetish and tell me that I would also love to hear some Wreckx-n-Effect (nevermind that I actually owned that cd and disposed of it like a frisbee in High School study hall).

Back to serious me - this idea that others help me find music that I might be interested isn't a novel one. BMG music's website does this automatically for me. Before the internet, they did it via traditional snail mail. I'm not an iTunes member, but I'll bet that it, too, can help me find music I might like. RealMedia's Rhapsody does.

I applaud the attempt at innovating a new revenue stream. But I wonder - Howard, have you thought this through?

Monday, May 22, 2006

Hola para Lunes

My Spanish actually is awful, so I probably even made a mistake in my title. Anyhow, I'm just checkin' in for a quick one today. I'm crunching away on CFA level 1 exam studies - making sure I really know my stuff.

Since I have yet to begin my internship, I have time to study. Which reminds me, my blog may "shut down" while I am an intern in terms of stock ideas. You see, my responsibility will be to my employer for the summer. I'm pretty excited about the job, too!

Anyhow, the correction in metals was overdue, and the slide in the overall indices continues - although I think we're approaching a buyable bottom. If I can, I may be adding PETS to my portfolio. The market, courtesy of Avondale's downgrade, is putting it on sale. I like sales :-) Even Avondale, just weeks after its downgrade, may be forced to upgrade it again at these prices.

Also, is anyone noticing that natural gas is currently up 3%? Yet, the natural gas stock index (XNG on the Philly I believe) is down almost 2%, presumably because almost the entire board is a sea of red, and that includes almost all oil-related stocks. One day doesn't mean much, but it could be something to watch for.

Friday, May 19, 2006

Blue Nile - A Buffett Business, but Expensive


I have said this to many people, but Blue Nile is an incredible business. One of Warren Buffett's big reasons for investing in a company is that he tries to envision where it will be in 5 years - and if the outlook is rosy, he's interested.

Blue Nile is the Borsheim's of my generation. Like Ebay and Amazon, Blue Nile isn't going anywhere anytime soon. My generation is comfortable buying items online, even if said items are as expensive as they are on Blue Nile. That has been an argument against the company in the past, but as time rolls on, I see this argument diminishing. The biggest problem I see with Blue Nile is that the company is severly undermarketed. There are so many people out there who have never heard of it. Wall St. types typically know it, because it has been a great small cap/growth story. And that certainly is good for business - having Wall St. on its client list. But the general consumer has not heard of it, and that represents a two-fold problem. First, the obvious one is that Blue Nile isn't reaching potential customers. The second problem is that the door may still be ajar for someone else to clone the business model. Until more marketing efforts create an even stronger brand, this remains a bit of a risk.

But the company is certainly off to a fantastic start in its first 6 years. It may be a little hard to grow at a rate that some other companies do - because it is in the jewelry business. But, going back to that 5 year question - Where do I see Blue Nile in 5 more years? Doing more business than it does today. And 5 years after that, it will do more business than it did during the previous 5. Probably alot more.

The stock trades at 45 times earnings, which certainly isn't cheap. But, in the e-tailing sector, stocks like Ebay and Amazon also trade at or above 40 times earnings. So on a relative basis, one could perhaps argue that the stock is roughly in-line with its peers. But, the stock certainly isn't "cheap" as Mr. Buffett would like. Nor has it existed for 10 years, as he would like. But if he were comfortable with internet stocks, I think he'd love Blue Nile.

I am intentionally not getting too analytical with this post, because of the analogy to Warren's investing style. The bottom line is that if you're an investor who would like to own a solid business for many years to come, Blue Nile is worth putting on a shopping list. If the market makes it a relative bargain, it's probably worth pushing some of your chips towards ticker NILE.

Thursday, May 18, 2006

Microsoft

In an interview earlier this year, I got in a soft argument about Microsoft and whether or not it was a "great" stock. Mind you, the interviewer was a large cap growth manager and seemed to be a pretty nice guy. He set me off a bit when he stated that it was a great stock because it had 85% gross margin, and traded at 13x Free Cash Flow. The real number was 18, I believe, but I digress.

The point is that in the past year or two, there was glowing optimism towards MSFT. Seemingly every fund on the Planet already owned it. It could do no wrong. It is creating cash like crazy, and like I mentioned before, the margins are great. The "moat" is incredibly wide. It IS truly a great business. But during that interview in December, I disagreed with the man on the other side of the table because in my mind, what wasn't already known? The market EXPECTS Microsoft to have those margins. It expects the monopoly that it has in the operating system world. In my mind, what upside did MSFT have? Furthermore, who was left to buy it to push the stock higher?

Enter the sellers. Suddenly, the media and masses have begun to poo-poo MSFT. The negativity might finally force the expectations lower for Microsoft lower. Please, Mr. Market, keep doing it.

I used to "hate" MSFT stock - as recent as a month ago. Now that others are starting to hate it, maybe it's not so bad?

Tuesday, May 16, 2006

My New Toy

I bought a Sandisk Sansa e260 today. I think it's an iPod nano killer. Well, at least until the next iPod nano. The early software bugs that the e200 series had seem to be worked out - I can't replicate the song problems, or the sound noise at low levels.

It's really easy to use and it's not much bigger than a nano. Plus it has an FM tuner, video & photo playback, and voice recording, none of which the nano currently has.

As an Apple shareholder, I'm not that nervous - although you may ask why I would buy the Sandisk product. I think the next nano will trump the Sansa - but both are great products. Plus, with the nano, you get the iPod brand name, something that Sandisk doesn't have. I wouldn't be caught short either SNDK or AAPL - they're both great tech companies with plenty of upside!

Monday, May 15, 2006

A funny...

Bill Cara's blog may be 1 billion times better than my own. Yes, that's one billion, or about the amount of money our government will spend today on stuff that it doesn't need...but I digress.

Anyhow, check out this post by Mr. Cara. Great stuff!

Tuesday, May 09, 2006

Some quick thoughts

Chipotle (CMG) had a blowout announcment and the stock is up over 10%

Blackboard (BBBB) also had a great announcement, and the stock is up close to 15%

United Healthcare (UNH) goes down every day. At some point, I think we need to consider picking some up for the long haul.

Sandisk's new Sansa could be an iPod killer. Even I am thinking about getting one. Meanwhile Apple (AAPL) is having a hard time closing above $72. Of course, Apple itself knows all too well that the superior product does not always win with consumers.

Patterson Dental (PDCO) looks like it might be a bargain here.