RVB's Market Musings

Sweet on CNBC

2007-05-17T15:06:00.000-07:00

So, Sweet's supposed to be on FastMoney tomorrow. Should be a good time. I'm glad they picked the articulate one. I'd be screwed!

This Blog's Fate

2007-04-19T08:32:00.000-07:00

Hi all - I have enjoyed blogging for the past 2 years, but as I near graduation, CFA Level 2, Employment, and Marriage I am afraid that blogging has fallen in priority.

As such, this message is the final one at RVB's Market Musings.

It is likely that at some point in the future I will return to writing on the blogosphere or somewhere else. I will keep this site alive - the links will continue to work - that is until they don't. The writings will stay up and continue to be searchable by google, technorati, etc. But, my holdings file will not update.

Good luck to you all and I'll talk to you at some other future time...

UPDATE: I do intend on starting a personal web page or a new, more balanced blog...but I have not yet figured out where it will reside. Until then...

Quick updates

2007-03-24T09:48:00.000-07:00

The blogroll on the right has changed a bit. Someone noticed I had yet to move Bill Rempel's link. I also added Wallstrip, Andy Swan, and Howard Lindzon...while removing some others that I have stopped reading.

Quick hit thoughts

2007-03-12T19:44:00.000-07:00

Sierra is getting bought by UNH? This morning, I wondered if UNH was the culprit sending Sierra bad business? Alas, the wonderful people at The Health Care Blog are all over it and it was not UNH, but "one of United's big competitors" (of which there are very few).

The more I use it, the more the blogosphere is proving itself to be a very, very useful research tool. Still not as good as talking to others, but taking a few minutes of traditional media away from everyday and supplanting it with the blogosphere seems to be a very valuable action.

In non-market news, this will never happen again in my life (at least while I am a student): I am getting solicitations to buy tickets from my alma mater, MTU who is playing my current school, Wisconsin , in the WCHA final five. (That's hockey for you non-puck fans). Meanwhile, Wisconsin is sending me the same ticket requests.

Oh, and Congrats to my other alma mater, Kimberly High School, on its improbable march to the Division 1 state boy's basketball championship, bringing the team's winning percentage to .500 in the process. RVB's littlest bro is on the team. GO 'MAKERS!

Unit Labor Costs

2007-03-06T06:41:00.000-08:00

One of the things that I do not have the luxury of is years and years of experience. My adult memory only remembers one recession along with a major market selloff during that time. Even 1995's mid-cycle slowdown is a bit out of my memory - I was in High School. So I am unable to simply recall what it was like back then and try to draw conclusions for today.

Sometimes, this is actually advantageous - one could argue that my decision making becomes much less biased and I am forced to look at data. When it comes to asking the right questions, though, that's where years and years of experience can help. So like practically everything else in life - it's a gray area or a double-edged sword, or insert your cliche here.

Today's headline from Marketwatch states: "Unit labor costs rise 6.6% in Q4, a worrisome signal". When I read this, I always ask about the conclusion part of the headline, "Who says it is a worrisome signal?" This is very important to me because much of the time the conclusion is drawn from data that is purely noise.

So I pulled up the historical Unit Labor Costs. Saying to myself, "Alright, Factset, give me the year-over-year Unit Labor Cost % change...and start at the first available data you have". Below is the chart.

Source: Factset, Ecowin database (click for larger image)

I've highlighted my thoughts. Essentially, not much can be determined from today's data point. While the cost is a bit higher than we had in the slowdowns in '85 and '95 (the only two slowdowns worth comparison), it could be possible that a) the data is revised lower and b) unit labor cost y/y % change moderates.

That being said, on an absolute basis, labor cost inflation is a bit higher than in '85 and '95, and could keep the fed from cutting. That would be bad for stocks.

Are we in a bear?

2007-03-05T15:28:00.000-08:00

This thought has briefly entered my brain in the past week, but I don't think we're in a bear...the data doesn't conclusively say anything's changed. We're just entiering a long overdue correction. The Wright Model (from Jonathan Wright at the Fed) still suggests about a 45% chance of recession, though. If you think the fed will cut, this should be just like '95 again. If not, then more like 1990. Maybe that seems too simple, maybe not but that's what I see right now. If you want higher prices, seems we need commodities to move lower and help cut inflation off so Bernanke et al can swing the machete at 5.25% ...

Update: Upon looking at this entry this morning, I realized that without a picture, the words are fairly meaningless. See below.

Source: Colin Twiggs, Incredible Charts

Healthcare IT Survey just released by AHA

2007-03-01T07:47:00.000-08:00

The American Hospital Assocation just released an absolute GEM of a report on Healthcare IT usage by U.S. hospitals. It really sheds light on how much growth is left for vendors of these systems. It also clearly points out that bigger hospitals have adopted quicker (which is not a surprise) and that the small hospitals face more financial constraints due to their size. This, by the way, is why we own CPSI which targets these small hospitals and has operating cost advantages.

If you are looking for investing in a secular growth area, HCIT is still a great place to be, and adding these stocks when short-term issues arise seems like a winning strategy to me. You just have to get in these names at valuations that are attractive. Below is a table of pure-play HCIT companies and recent transactions in the space. (note that RX is a slightly different biz than the rest)

source: My own numbers, Factset, Mergerstat

disclaimers: I personally own shares in CPSI, but no shares of other co's mentioned in this post.

UPDATE: I should have also noted that DRTE is a different biz than the rest - a CRM business to be exact. Interestingly, in today's news DRTE is being acquired Cegedim S.A. at a 22% premium. EV/Sales is rougly 1.5x

Factset and Alpha Tester

2007-02-28T20:17:00.000-08:00

This semester, we were encouraged to get to know Factset's Alpha Tester package. Wow, is this thing addictive (to me). After spending an hour with the online tutorial, I started testing away. I've built so many screens over the years that I have wanted to backtest, I can literally run a backtest per night if I want to.

Thus far, with the tool I have merely figured out many of the nuances such as which database to grab pricing information from etc. Some of my results have also been fairly intriguing. We have long joked that the Price to Sales ratio was pretty useless (Kenneth Fisher swears by it, though). It turns out this may not be the case...because of the factors I tried (23 of them, mind you) from 1987 through 2005 P/S was the most statistically significant explaining excess returns. I think there may be some serious internet bubble bias however...

I also ran a screen written during my internship here that has been shown to (initially) generate pretty strong returns. Alas, buying stocks from the screen results in a really risky portfolio, so the return can be explained, to an extent. I still have more work to do here, however, because I have learned some new Alpha Tester idiosyncrasies.

Portfolio holding up

2007-02-28T20:14:00.000-08:00

Our equity portfolio in ASAP is holding up pretty well through the selloff. We performed roughly in-line with our benchmark on the selloff day (Tuesday), but today we had a good day. YTD, we are officially 93 bps (0.93%) ahead of the benchmark. (I know this because I'm the one that runs the performance stats every day to make sure our numbers haven't been messed up)

Ding, ding, ding...

2007-02-27T13:00:00.000-08:00

Just caught the close on CNBC. The NYSE floor booed the close. So there's a correction happening, what does this change? Very little, really.

Good news for

Will today be the day?

2007-02-27T09:36:00.000-08:00

...that we get a 2% market sell-off so we can stop hearing about it?

Let's be real - there are far more short sellers today than at anytime in history. I am not speaking about the short interest ratio - I am talking about the percentage of market participants that actually sell short. Maybe this is the reason for a reduction in volatility?

Google piloting secondary market for employeed options

2007-02-22T11:37:00.000-08:00

Google to test-run employee options auction plan (links to original Marketwatch blurb)

Google has chosen 20 employees to test its "Transferrable Stock Options" plan whereby employees can sell their options to the highest bidder. This gets me to wondering, why would Google do this? The first thought that came to me is that Google likes to be innovative and this would be. My second thought is that they believe the stock is priced too high and want employees to be able to cash out without any kind of backdating-esque scandals surrounding options practices.

My next thought is, "Why don't other companies do this?" Maybe we could begin a secondary market for these plans and sell the biz in a few years to an exchange.

Maybe I'm overthinking this altogether and it is a non-event.

Oversupply of funds?

2007-02-21T17:25:00.000-08:00

Take a look at what you see in the graphic above. While 535 stocks in the US and Canada were hitting new highs today, 5,842 Mutual Funds did the same. Borderline ridiculous?

Top Investment Books

2007-02-20T19:46:00.000-08:00

My list of favorite / most influential investment books:

1) One Up on Wall Street - Peter Lynch If I could give my parents one investing book to read, this would be the one. Lynch takes a complicated subject (investing) and boils it down to some simple lessons. Earnings drive stock prices, overpaying can be painful, and the best investments are all around us - just pay attention. Even professional investors should probably read this book once a year to dampen some of the noise we are subjected to daily.

2) Trading in the Zone - Mark Douglass This book isn't technically about investing, rather it is meant for traders. In the end, we're all just traders with different time horizons, anyway, so who cares? Douglass' lessons are all about the psyche needed to partake in our capital markets. This book should be read every year. Its genius is in its simplicity and the visual examples he uses. Anyone with intellectual curiousity will realize the discussion also could help explain many life experiences.

3) Expectations Investing - Alfred Rappaport & Michael Mauboussin This book helps to better explain how stocks are priced...that is it attempts to give a methodology for understanding the expectations of future company performance built into today's stock price. It is NOT for my parents - it uses finance and accounting terms that the layperson cannot understand, which is unfortunate. Nonetheless, the framework of thought is a good one to understand because it helps to understand how stocks are priced and why. The authors created a website to aid with the concepts, too.

4) How to Makes Money in Stocks - William O'Niel This book sort of breaks all the "rules". O'Niel will tell you that the P/E is useless (true from the alpha tests I have run) and that buying stocks high and selling them higher is the key to big returns. Who can argue with his track record? Professionals would simply call O'Niel a momentum investor - the equivalent of a used car salesman among money managers. But, his lessons are quite important and his methodology is tried and true, albeit not for the faint of heart type of investor.

5) The Little Book that Beats the Market - Joel Greenblatt Simple, but effective in its approach to finding stocks that can generate excess returns based on [generally] short term share price weakness in high return on invested capital (ROIC) companies. The book has a free website that gives its top picks at any point in time.

6) The Warren Buffet Way - Robert Hagstrom I like this book because it tells a story and gives great insight into what the world's greatest investor actually did. It also reminds you that traditional thinking does not lead to excess returns. Many managers today still rag on Buffett's methods - most likely because they are jealous of his success (plus he lives in Omaha, not on either coast - adding to the jealousy perhaps?)

7) The New Market Wizards - Jack Schwager Another book that breaks rules. It is filled with interviews of the best traders and money managers out there. What I glean from the book is that the people Schwager interviews are very confident in their ability even after losing tremendous amounts of money. Just wait till you get to the ZEN part!

8) Japanese Candlestick Charting Techniques Many do not believe in technical analysis. Nonetheless, if you want a great reference this is one to keep handy - it contains pretty much all the basics.

My investment library has some other books that I have yet to read and many that I have read but did not put on this list. I also didn't include any textbooks, like the McKinsey valuation "bible" which isn't much of a "read" although its topics are certainly useful for investors. The same would go for anything by Damodaran or any accounting professor (ugh).

Buffet buys UNH?

2007-02-20T19:27:00.000-08:00

This headline last week confused me. Warren Buffet bought shares of United Health (UNH)? What?

This seems out of character for Warren. UNH has a technology product (Ingenix). Granted, he's old (76) and probably knows alot about health care costs. He certainly likes to invest in things he knows - that's one of his famous teachings. Another of his, is to picture "where the business will be in 5 years". This explains his purchase of BUD. He knows that in 5 years, people will still be drinking plenty of beer. Same goes for Coke, See's Candy...the list goes on.

It's also what I find confusing here. I mean, can you say that in 5 years you know that UNH will be around? Probably. But 10 years from now? Investing in managed care businesses comes with a huge array of fiscal policy risks. In fact, fiscal policy is directly responsible for making HMO's the great investment they've been during the Bush administration.

But what if, in 20 years, we figure out that our privatized health care experiment doesn't work and we decide to build a new system a la Canada? Ok, a stretch, but not completely impossible. However, it wouldn't even take that for the managed care investment to go awry. The dems hate Medicare Advantage and significant cuts could wound some HMO's (albeit it would hurt UNH alot less than Humana, for example). (I fully expect this to happen, btw)

So, while the stock is up 4% from the announcement of Buffet's buy, I must admit that I still find this one out of character for the world's second richest man. Then again, he didn't get to be that way by worrying about my thoughts...

Haemonetics (HAE) making software push

2007-02-20T19:10:00.000-08:00

Long ago, I mentioned that I would write about a small-cap blood medical device company named Haemonetics (HAE). I did - you can find a link to my report on the right hand side of this page. Without getting into too much detail (there is plenty in my full research report), I believe the company is well-positioned for growth along with higher margins in the future. Conservatively financed, the company has $7.50 per share in cash on the balance sheet. When I wrote the report, the stock traded at $45 and now trades at $47.25, not quite the bargain it was. Nonetheless, the company has a very strong competitive foothold on this market and I still believe strongly in my investment thesis (after all, I do personally own shares).

Recently, the company has made it very clear that it is serious about its software business by buying IDM Medical Software. This software essentially provides data management capabilities for blood centers. Already growing around 20% this year, HAE's software business is beginning to become a significant revenue contributor to the company. I will admit that I do not yet understand what this means for HAE. I mean, how well can this company, whose core competency has historically been design and assembly (manufacturing) of its devices, run a software company? Clearly, the synergies here are the ability to cross-market the software along with the hardware. But, there is some integration risk now embedded into the business, albeit the risk is still small at this time. IDM is a one-location company with only $6M in revenues. Furthermore, the existing 5D software acquisition appears to be going very well.

The stock is niether a true value stock, nor a high-growth stock. In fact, it is not beating earnings estimates, nor is it a momentum mover. All of this probably explains why it has moved very little in the past year. Yet, something here (read: new product pipeline & cost cutting opportunities) still leads me to believe that the company's future earnings potential is still very attractive. (In addition to me owning shares personally, we do own the shares in ASAP, as well)

Midwest Cold Ideas

2007-02-19T19:11:00.000-08:00

So off the sports, I am thinking that Panera (PNRA) may put up a poor comp number for February on the first Wednesday of March. I mean, the first two weeks of this month, I barely left my couch and when I did it was only when I absolutely had to. Friggin' cold. Period. (PNRA still has a strong Midwest bias in its geographic footprint) I tried to look at weather trends and compare them to the same-store numbers. Alas, I could not detect a significant pattern with precision. However, I do recall the company citing weather in other press releases. Two data points of anecdotal evidence here in Madison also counter my idea. Nonethless, if a poor number comes, it could be another buying opportunity. That said, the company does need to work out growing its same-store sales because lunch is so strong it is getting hard to grow that part of the biz. I'm still a buyer in the low 50's - love the risk/reward there.

We bought some CPSI the other day. At some point, the current softness in the rural HCIT market should ease and the company could trade at 20 times 2+ dollars of earnings potential. This means there could be some 40-plus % upside all the while collecting on a 5% dividend to wait for the turnaround. Seems like a solid opportunity to me - not much downside while there remains some serious upside. For "surprise" investors or momentum players, wait for the next quarter to see Q2 guidance. Backlog is still up 6% Y/Y while analysts think revenue will only grow 2.7% this year.

disclaimers: I do not own shares in either of these companies currently, however, I am planning on buying CPSI tomorrow (2/19)

Some things make no sense...

2007-02-19T19:07:00.000-08:00

First off, why did the Chargers fire Marty who went 14-2 only to hire a guy who, after two head gigs has a losing record? Senseless!

Why won't Ron Rivera be back? It's not his fault that he lost the most important defensive player (not Urlacher, Tommie Harris). He's been doing a heckuva job there in Chi-town. Guess that's good for me. I'm a Packers fan.

2005 all over again?

2007-01-03T11:37:00.001-08:00

Today feels just like 2005 all over again. Anyone else?

Wal-Mart article

2006-12-19T09:40:00.000-08:00

I wanted to link to a a great little article called "The Wal-Mart Flap" about Wal-Mart's positioning, written by Jack Trout in Forbes. I agree with Mr. Trout - Wal-Mart needs to realize it is the low-cost leader and position itself so. It even reaffirmed this fact with its $4 prescription drug-plan. If Wallieworld grasps this and rolls, the stock will probably head up because, let's face it, the company still has alot going for it. It is earning above its cost of capital and that is after years of deteriorated returns and their distribution system is still quite a competitive advantage. Could the release of this marketing exec be signal the start of some needed change at WMT?

RVBXX checkup

2006-12-10T17:49:00.000-08:00

So I bragged about my Value and Income Fund (RVBVI) reaching the 99th percentile at Marketocracy, but I didn't touch on the other fund. To be fair, I've got to talk about both!

RVBXX, My "Smart Buys" fund, hasn't fared as well. For the past year, the fund was in the 49th percentile of all funds. As a result, it has undergone some serious changes and you can see that in the performance.

RVBVX

What you used to see is a very volatile, high beta, fund. This summer, I've focused more on limiting this - it was simply too risky, and though it outperformed to a degree, it didn't compensate for the additional risk.

Lately, I've gone defensive. Thus, you see recently the market has been moving, but RVBXX has not been moving higher at the same pace. If you read my previous post about RVBVI, this is my stance - I'm a believer in the yield curve at this time.

RVB Value and Income (RVBVI) in top 1%

2006-11-30T07:39:00.000-08:00

My Value and Income fund (RVBVI) has outperformed 99.2% of all Marketocracy funds in the past 6 months and 94.4% for the past year. For more about this fund, you can visit the
Since Marketocracy doesn't show the actual holdings, here they are:

I've gone defensive - as I noted in my last post, I am not terribly bullish right now. The sector bets aren't explicitly made, that's where the opportunities have pointed me. AEOS used to be one of the biggest holdings, but I have been trimming on the way up, despite the fact the stock still looks cheap to me. LUK and WDC are the only new positions - LUK being a bet on the management team and WDC being an internet video / DVR / MS-Vista play (that trades at a ridiculously low 10x earnings.

New economic data thoughts

2006-11-30T07:27:00.000-08:00

From the stream of conscious thoughts desk:

Yesterday was "the big day" for the semester. Now I've three weeks to finish some reports and that's it. I expect my blogging will fill in the time gaps.

Today's PMI and jobless claims numbers are interesting. One data point does not make a trend, so I won't be writing that the world economy is collapsing. But, I'm not one to view the economy through rose-colored glasses either. I just go where the data leads me.

Our ASAP economic forecasting team has been neutral on the economy, but recognized that there was much more downside risk than up. We have been notably bearish towards housing and unemployment and continue to be.

My personal stance is that we're heading towards a mild '08 recession, similar to 1990. IF I am right, I hope it's far enough away so that finding a post-MBA job is still possible!

Profit taking today

2006-11-27T19:15:00.000-08:00

Is today's action any surprise? With the frozen-rope-like upward action since August, we need a mini-correction. Today probably signals it, although the bulls will probably battle back.

Soon, I'll be posting my thoughts on a small-cap company, Haemonetics (HAE). The stock is a pretty interesting longer-term investment, in my opinion. I don't own the stock, although I believe the company I worked for this summer does own it. We own it in ASAP as well.

Housing Starts Chart, updated

2006-11-17T11:20:00.000-08:00

The pink line is a smoothed expected price, based on a long-run average of inflation + 1.5%.

The blue line is the actual pricing data, adjusted by inflation. I start both lines at 100, and see where prices are vs. where they should be. In the background, you can see raw housing starts data from the Ecowin database, gathered via Factset.

Finally, the pink line ends where there is no more data - later data is my prediction.

One's got to think there's no bottom yet.

Kudos to CNBC

2006-11-15T22:34:00.000-08:00

For all of the ragging on CNBC that the blogosphere does, I thought I would recognize something I am currently watching that I find to be very interesting. "Game On! The Unauthorized History of Video Games" is very engaging - I can't yet go to sleep.

I have often found these kinds of reports to be very good. David Faber's Wal-Mart documentary comes to mind as an example of another informative, well-presented, and engaging piece of work.

So, great job on this one, CNBC.

Pondering the future of my blog

2006-11-14T20:25:00.000-08:00

Lately, I'm just not sure what the rules are. How much can I talk about the research I did this summer? What about positions we own in the ASAP portfolio?

Because it's muddy, I've shied away from much of what I used to write about - erring on the side of caution. And I'm not sure then, what that means for the future of this blog, for now. As I really begin to ramp up the job search, it will be interesting to see what happens.

Jump Around at UW

2006-10-30T19:01:00.000-08:00

Ok, this has nothing to do with markets, but someone posted this video and I thought it would be fun to share. My ears can't make out what is being said, and that might be a good thing.

If you want to know what it looks like to see an entire student section bouncing, click play. I'm probably somewhere in the middle of it all. This happens every game between the 3rd and 4th quarters, and is a pile of fun.

Alumni Reunion 2006 - Thanks to all who Participated!

2006-10-29T18:55:00.000-08:00

This past weekend the ASAP Reunion of 2006 (Otherwise known as the Fall Investment Conference) took place. I believe about half of all current ASAP alumnni returned to give current students advice...

I want to give a big thank you to all who participated and helped set it up. It was tons of fun and I feel priveleged that I can partake in future reunions - well, provided I graduate :-)

Thank god we also beat Illinois after falling behind 21-3. Nerveracking. My voice is still gone!

52 years in the market

2006-10-19T22:25:00.000-07:00

Wow, I can't believe it has been two weeks since I last made a post. I'm trying to find the time - we're still spinning our wheels a bit getting the portfolio positioned.

Nonetheless, I felt that the following chart was interesting. it represents 52 years in the market - 1 year S&P 500 returns, GDP growth, the Term Premium (10 year Treasuries minus the Fed Funds rate), and S&P 500 earnings per share.

You may not believe me, but this chart represents many hours of work - scrubbing data, formatting, checking, etc. I have learned alot while doing it, though. A few important points seem to stick out:

-The Term Premium has done a wonderful job predicting lousy markets
-When real GDP growth is above 1%, the market tends to do well.
-Earnings fall quickly when the economy heads south

What you don't see here is a market valuation metric such as P/E, Forward P/E, or P/R (by Michael Alexander). I equate the over / under valuation of the S&P 500 as the amount of gasoline on the fire - whichever direction the valuation suggests the market will go eventually does happen, but the more over or undervalued the index is, the faster it occurs. That may seem very obvious, especially since we experienced this a mere 6 years ago, but it pays to remember this lesson.

Links fixed

2006-10-06T14:23:00.000-07:00

Well, I think I saw some recruiter hits to my website here. Unfortunately, the "Career Stuff" links weren't working for a brief period of time, and I am not certain why. Rest assured they are now fixed.

Housing Chart #3

2006-10-03T09:33:00.000-07:00

Source: Factset Research Systems, dotted red line is at 100 on the right axis for the affordability index (above 100 is considered "affordable")

My main question is, what does it take to get us back where we were in terms of affordability? Prices can correct and are doing so, but they've a ways to go for that to happen!

Housing Chart #2

2006-10-01T07:02:00.000-07:00

Notice how severe the dips in Housing Starts become when the corrections occur. Starts, New Home Sales, and Existing Home sales are all pretty strongly correlated. Employment levels are too (chart 1).

Housing Charts - 1) HMI vs Unemployment

2006-09-28T14:36:00.000-07:00

Over the next week or so, I will post a few housing charts. I'll go slow - one a day. The data doesn't come out that quickly anyhow.

Researching the housing market is some of the work that has kept me away from writing, but the charts are interesting.

First up, housing and unemployment:

Ch, ch, ch, changes!

2006-09-25T21:33:00.000-07:00

You may notice that I have made a few changes. First, I have added a link to the first usable version of my Healthcare Equipment & Services report on the right hand side of the page. This is just one of the pieces we work on in the Applied Security Analysis Program. As always, feedback is welcome.

Second, to make disclosure easier per Seeking Alpha's request, I have added my personal holdings on the right. I mostly own ETF's, so you won't see many holdings (I don't even own any shares of my former employer).

Third, I have changed my nickname from MarketWizWannabe to rvb1977. I outgrew MWW. Besides, you all know who I am anyhow.

Hitwise

2006-09-19T20:14:00.000-07:00

I've written about Hitwise before. Today, while perusing some old stuff that I have yet to read in Bloglines, I noticed another gem. Halloween searches have already begun on the internet. So, if I have Hitwise data, in a few months, I may be able to use it to get an idea of what's kicking but come holiday time. Then can we let the earnings "surprises" roll in?

Of course, this is similar to checking out local malls, too. Combining these two pieces of data might just provide a pretty good edge.

Musings on being busy, apple, oil, and Seeking Alpha news

2006-09-14T17:18:00.000-07:00

Hi all, I hope this post finds you well in mind and body. I am still alive, thankfully. The lack of posts is directly related to moving back to Madison and not quite feeling moved in yet (lots of laundry to do), plus we are trying to get acquainted with a host of new things in ASAP as well as portfolio duties (stock picks and economic forecasts).

I must be the 120 gazillionth person to write about Apple's non-news on the 12th. Maybe the iTV is interesting, but I'm not betting on this particular product revolutionizing our living rooms. Time will tell, I guess. But, it only makes sense that the TV and the PC keep coming together. It has been happening for a while. As an undergrad, I didn't have a TV in my bedroom, but I had an add-on card from ATI Technologies that allowed me to watch TV on my AMD K6-II machine (wow, am I putting the years behind me quickly). And how about the millions of unused S-Port cables on PC's that allow you to actually use a TV as a makeshift monitor? Well, that never took off because of the resolution problem. Nonetheless, maybe it's happening slowly, but the marriage is happening. Right in front of our faces.

Remember on July 27th, when I said I thought Oil Prices had peaked? No? Do you remember when I said I believed it even more on August 9th? Well, so far so good on that call. UPDATED: 10-1, I had the wrong chart here, so I updated with the proper one.

Finally, Congrats to David Jackson and Seeking Alpha for landing a deal with Yahoo Finance. Here's another interesting thing happening right in front of us - The Blogosphere versus Sell-Side research. The battle has just begun. I'm not sure the sell-side even knows there's a battle yet, however.

At any rate, please bear with me through September, as this month my posting will be slow.

Go Badgers!

Sirius Satellite Radio takes an interesting turn

2006-09-05T10:40:00.000-07:00

Wired News reports today that Sirius (SIRI) has added a wireless listening device, which is definitely a strategic shift from the "old" Sirius of a week ago.

Read the Wired News article

I'm not quite sure what this means yet, but it's definitely interesting. Maybe this will be the magic carpet that brings SIRI to profitability???

The RSS Reader Winner...

2006-08-18T06:39:00.000-07:00

...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.

Google is Da Man!

2006-08-14T06:53:00.000-07:00

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 !

Sitting at a Panera Location

2006-08-12T07:28:00.000-07:00

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.

Can Quant Funds Make Certain Markets Less Efficient?

2006-08-11T09:05:00.000-07:00

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.

Yahoo Gadget Gone

2006-08-09T17:54:00.000-07:00

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

2006-08-09T17:12:00.000-07:00

-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.

Checkup: RVB Funds

2006-08-04T14:23:00.000-07:00

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:

RVBVI
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.

RVBXX
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)

2006-08-04T08:04:00.000-07:00

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.

Consumer: Chipotle's Burritos Rock

2006-08-01T07:12:00.000-07:00

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

2006-08-01T07:11:00.000-07:00

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!

Why does blogger???

2006-07-28T09:41:00.000-07:00

Why does blogger:

1) Sometimes "eat" posts?
2) 50% of the time not actually accept an image after it says it has

Two questions I would like answered. Because even though in general blogger is decent, if those two items were fixed it would be great.

I passed!

2006-07-27T18:29:00.000-07:00

All that studying in May has paid off. I passed level 1 of the CFA exam series. One down, two more to go!

PNRA Defense

2006-07-27T16:12:00.000-07:00

As I wrote yesterday, I owe y'all a Panera defense. I've gotten it wrong for about 20 dollars now, and those 20 bucks are in the wrong direction. So what the heck is going on here?

1) Big money hates the restaurants. They're afraid the consumer slowdown is affecting them, and to some extent, that feeling is justified. Like mentioned before, The Cheesecake Factory (CAKE) has shown slowing sales, and so has PF Chang's China Bistro (PFCB). Even Panera has shown slowing same-store sales, falling to under 2% in July. On April 5th, I warned that anything lower than a 6% number could spell trouble for Panera. At least I got that one right. So - big money is selling shares by the boatload, and that means trouble for a high PE stock like PNRA.

2) Same-Store Sales Growth numbers have slowed. Is the consumer eating out less? Inconclusive, methinks. Is it weather? Inconclusive. So what is it? Keep your eyes open.

Combine the fear in the restaurants with the same-store sales numbers falling and overall market conditions and we now see PNRA shares off about 30% from their high. It should have been expected - the chart has been nothing short of a technician's nightmare since March (Pardon me if I don't write about that in my formal equity research reports). Plus, Panera's shares have fallen like this before.

Alright, you say, so why did the earnings report yesterday send the stock into a tizzy? On the surface, Panera said it wasn't likely to make as much as they originally said. But, you really had to pay attention on this call because it was confusing. It turns out, that this Crispani pizza thing is a really big deal for Panera. It requires major training, equipment, marketing and so on and so forth.

Crispanis are coming to a Panera near you, sooner than expected. But what used to look like a nice smooth line running at about a 30 degree angle - earnings, expenses, growth, etc could now get a little lumpy. Expenses are jumping from one 10-Q to another: Q3 will be worse than management originally said, but Q4 will likely be better. Most importantly, there is now some more uncertainty, and I think that's the big reason for the sell off. It pains me that I didn't see this coming. But even if I had, I would probably have maintained that it wasn't a big deal to Panera's business and that the markets wouldn't react like they have. Markets and uncertainty go togther like alcohol and firearms, however.

So now it's up to investors to place their bets on whether or not Crispani will turn out to be good for Panera, or cause its demise. My guess is that it won't cause the bakery-cafe's demise, given the history of successful product rollouts and America's infatuation with pizza. And oh, by the way, there are more menu innovations coming but the company won't say what. But Panera might not earn the $2/share like managment originally said would happen. Would you be disappointed if they only earned $1.90, instead? That would only be 26% EPS growth.

The bottom line is that this story is still a great long-term stock. CEO Shaich has been around the block once before with Au Bon Pain and knows some of the pitfalls to avoid when it comes to managing publicly traded restaurants. But, while the share price knife is falling, there's no reason to try to catch it, even though I have been a buyer ever since $65 was breached.

Time for a Cinnamon Crunch Bagel! Mmmmmmm...

Oil Prices - Peaked?

2006-07-27T13:34:00.000-07:00

The image below makes me think that oil is soon headed lower. It was on the BusinessWeek Homepage. Can anyone confirm that this is on the cover of the magazine?

A Good Blog Post

2006-07-26T06:30:00.000-07:00

In trying to make sure I post daily now that I understand how this works here at my internship, I am at least going to provide a link to something everyone should read today. It might be the only post I get to today...but I hope not, because I am going to have to "defend" Panera today - I'm not sure the market is understanding what's actually being said (though I did warn to wait for the momentum to slow).

At any rate, head over to a blog written by Mike Shedlock for a great read on Moneyball and the Barron's cover implications.

Microsoft: Anti-innovation?

2006-07-25T11:29:00.000-07:00

Just a quick thought here, in 1995, Microsoft started giving away Internet Explorer AFTER Netscape had been the first to market and held a ton of market share. Internet Explorer became the global standard for web browsers soon thereafter.

Since then MSFT has operated as though this strategy will continually work! Wait for for others to innovate, they can copy such innovations and win. So when it comes to innovating, I dare say MSFT is a second-rate company.

The XBOX was a great product. But, it didn't come in and dominate Sony's incumbent Playstation. Maybe that's because they didn't give it away?

Enter MSFT's antivirus program, whose ETA is TBD. For the acronym-challenged, that means I don't think it is out yet. Symantec (SYMC) is the rolling behemoth in this land, although McAfee (MFE) has a strong foot in the ground, too. Will mister-softee take market share here? My guess is not unless they give it away - which is feasible because it is software. But if they don't, I say good luck, but no thanks. My Norton Antivirus is working just fine.

Now MSFT wants to copy the iPod? Puhlease. This growth engine has the horsepower of a golf cart.

Miss Japan got Robbed

2006-07-24T06:37:00.000-07:00

Maybe it's just me, but Miss Japan got robbed from being Miss Universe last night.

Why am I watching Miss Universe? That's a good question with no answer...

Taking heat on SIRI

2006-07-23T17:18:00.000-07:00

I've not spent tons of time thinking about whether or not Sirius will turn profitable. Thus, where SIRI goes from here I have no idea. If you have a good reason to think that they will make money someday and can back that up, I welcome it. It would help all of us - since I don't have the time to really sit back and think about the company and how it might be worth more than the 3 satellites it owns out there in spaceland. Will its fixed costs begin to shrink relative to its revenues? How many subscribers will it take?

But, please, if you send me emails like "Alan" did, you're wasting your time and mine: "you are wrong about Sirius." - Alan

Alan - I'd like to hear why you think I am wrong. All I said is that the stock price getting cut in half made perfect sense. If you have more information, that would be helpful.

Um, duh...

2006-07-20T16:44:00.000-07:00

I just read a line from a Motley Fool RSS feed:

"Everywhere you look, you will find companies that have seen their shares plummet despite good news. ... Sirius Satellite Radio's (Nasdaq: SIRI) shares have been cut in half since peaking two years ago despite blowing past subscriber growth targets."

Um, yeah, but they continue to lose more and more money as they grow subscibers. Adding subscribers doesn't mean value's been added and the stock should go up. Lest we not forget Krispy Kreme Donuts which suddenly sprouted stores everywhere?

SIRI EPS:

source: Factset Research Systems

What's worse, SIRI is not even profitable at the Gross Margin level. Ugh. I'll give TMFBreakerRick the benefit of the doubt - because I'm sure I've written some silly things before too.

Two items of business

2006-07-19T06:47:00.000-07:00

First, I thought this picture was kind of funny. Wish I'd not gotten stuck in traffic to see the Yahoo headline on the top of its own home page.

Second, I thought that we should all read this post by Barry Ritholz concerning technical analysis. I still posit, even after a year in Bschool that it has its place in the investment business. If one ignores it, then he/she is missing out on a useful tool. Pay attention to the comments in the post - they add alot.

Barron's = Public Disservice

2006-07-16T17:43:00.000-07:00

Upon more investigation into the aforementioned Barron's articles, I found this to be entertaining:

"...Apple's stock is cheaper than it has been for a long time. It's changing hands at about 25 times the consensus estimate for this fiscal year's earnings...Although a price/earnings multiple of 25 may look steep compared with the
broad market's 17, it's reasonable in view of the company's growth prospects: The consensus is for earnings growth averaging 20% a year over the next five years."

Then in the very same magazine, another writer puts the following logic to keyboard (keep in mind that Panera will grow earnings at least 25% this year, and more likely closer to 30% annually for a few years to come):

"...EVEN AFTER ITS recent selloff, Panera fetches a lofty 31 times '06 estimated earnings..."

So, 31 times forward earnings is expensive for Panera, but not Apple? But, Apple is expected to grow slower?

This is where publications confuse investors who are trying to learn this game. We're not doing a service to moms and pops out there, we're doing a disservice.

Yeah, Apple and Panera are in different industries...and we could talk cashflow...yada, yada, yada. The point is that there is so much mumble jumble out there, we're better off NOT paying attention to it and thinking like Peter Lynch instead (BTW - if you click on that link, buy that book because it's perhaps the best investing book ever written - and I don't get any kind of royalties).

Maybe I, like Mr. Lynch, have never met a share I didn't like. Shrugg...

Lack of a Cool Title for this Post, Hence Let's Call it "More on Panera"

2006-07-16T15:16:00.000-07:00

Barron's ran an article this weekend on Panera (Thanks, Jas, for pointing it out). In the article, several analysts and a money manager are interviewed about the stock. BB&T may have a good piece of info: stores opened last year average less sales than the rest of Panera's stores. This could be a problem going forward. However, I'm not sure how significant this number is just yet, because new stores are seeing even better "honeymoon" openings than last year - new stores now sell 45k per week vs. 41k a year ago. So which number is right? I think it's unclear.

There are some other good points - Panera is showing a lower return on capital and most restaurants are starting to see a consumer crunch. Indeed, it looks as if margins are falling. However, Panera has just now begun to expense stock options, so the data may not be correct (admittedly, I haven't gone back and made the appropriate adjustments yet, I'm waiting for Q2 results). We'll know much more on the call in a few days (the 26th) And as for a consumer crunch - who knows if Panera will be affected? I'm not seeing it, and niether is Ron Shaich, Panera's CEO:

"...looking at this over 25 years I will tell you I have not ever seen any of our businesses and in particular in this business, go up or down in any material way on macro consumer phenomena. You know if anything when there are matters that seem to effect macro, macro consumer issues when there was a fire gas crisis when 911 hit, if anything Panera seemed to benefit in some way as people stayed close to home and we were seen as a neighborhood kind of experience. I would further add that, generally for our consumers – I think our consumers tend not to be the most penny pinching. By their very nature of they have chosen to spend a little bit more for something they perceive as higher quality. And I think you know for most of our consumers, a sandwich one way or the other is not what is going to define their economic health. And you know I – and so I think that what we have traditionally seen is certain concepts that are at the effect of macro consumer trend and larger ticket durable items affected in a material way in recession and in economic crunch. That’s a long way of saying that I hope we are not – I don’t expect that we’re going to be back here in a month or 2 months or 3 months or 6 months saying that the consumer environment has changed, such that our comps or sales have been affected by that. Now, that’s what 20 odd years say to me, we will see what happens."

Most agree that Panera is a great company with a concept that works. But now we're starting to see disagreements about the stock. According to the article, there are 3 SELL ratings, citing 30% downside. Ok, maybe that 30% downside is there. Maybe it's not. But, when the analysts talk about Panera trading "higher than its industry" to strengthen this case, I find that odd. Here is a quick table of some prominent public restaurant companies. It would make sense that Panera gets a higher multiple.

[photo missing - blogger not accepting pic uploads at the moment]

What's more is that because of its price point, it's conceivable that more people will head to Panera, not less. "Hey John - want to go to Applebee's for dinner?" "No, I think we can save some money if we go to Panera instead." I dunno - it's just conjecture.

A few things that I am surprised to now hear the company talk about: 1) It looks like there could be a move to more urban locations - downtowns, etc. The company has avoided this in the past - doing a great job at controlled growth 2) Management has reorganized itself to support the growth. I read this as "Panera knows it's on to something big and now they're getting ready to take it to the next level." 3) I wasn't even looking ahead to 17% unit growth, I was being more conservative. Rest assured if that story plays out, Panera, already a 15-bagger from its IPO, will beat the S&P going forward.

Right now, the market is focused on the negative. The momentum in the stock is clearly down. Technical analysis of the stock paints an ugly picture, too. Yet, the company still appears to be on track to grow 30% this year.

I guess we have to pick a side. Who's right? Mr. Shaich or the analysts? My money's with Ron and when this downward momentum subsides, I'll be checking the story again - to make sure it's still in tact. Then I'll finally be a shareholder.

PS - Panera had its first-ever "Analyst Day" this year. Anyone can view the slides, and I'd encourage all to do so.

New additions

2006-07-16T14:53:00.000-07:00

I added a link to my resume and sample research reports on the right hand side of my blog. Please click on one and let me know if it did or did not work - because my web hosting space is at UW and I did test it, but with my permissions, not an external person's.

Thanks for visiting!

Pandora is Cool - Really Cool

2006-07-14T07:50:00.000-07:00

I just encountered "Pandora". What a kick-@ss website. Granted I've only spent 10 minutes with it.

Techcruch alerted me about the site, via an RSS feed: "When did Earthlink Get So Cool?"

Already, internet users are catching on.

As a Rhapsody user, I know the songs I know and no more. Rhapsody's recommendations - well, quite frankly they suck. I hear the same about iTunes. Pandora's recommendations are really good. My quick office poll has people in agreement.

So, now I am a Pandora user. My next question is, can someone copy it? It seems fairly easy to do, but my user experience will keep me more informed. I can tell you that I will get MUCH MUCH more horsepower out of Rhapsody by using Pandora. In fact, I will now keep my subscription because I have found the place to help me keep my Sandisk (SNDK) Sansa full of fresh music that I like. Fresh is important in music. There is real value there - the question remains if it can be recognized

Quick restaurants still appear to be ok!

2006-07-11T06:13:00.000-07:00

Like I've been saying - quick casual is still rockin'. Cosi reported 5.9% better sales this past quarter compared to a year ago. Cosi isn't the quickest in terms of food-ordered-to-chomping speed, but it's not bad either - similar to Chipotle (CMG) and Panera (PNRA).

I won't make the same mistake again and think that these establishments are the same as Cheesecake Factory (CAKE), California Pizza Kitchen (CPKI), etc... They're different.

Cosi happens to be the worst of breed stock in this space, but is beginning to look compelling as it may finally reach profitability.

Random conglomeration of thoughts

2006-07-07T16:18:00.000-07:00

On Home Depot - the stock sure looks cheap to me. I am no fan of Nardelli's militant style - I think it's detrimental to intangible value - but tangible value seems pretty doggone compelling.

On Panera and Chipotle - these things are not prone to the same things that PF Chang's, California Pizza Chicken, and The Cheesecake Factory are. The selloff in these stocks is unwarranted. They're still not deep value stocks but in terms of probabilities, Panera could be bought here. There is way more upside than downside. But let's let the downward momentum play itself out. If we're entering a bear, you can probably get these guys even cheaper. For what it's worth - I had to leave Chipotle the other day because the lunch line was spiraling throughout the store and out the door. It was like the Kollege Klub that at 2AM on a Friday night (for those not in the know the KK is a bar on the UW campus known for finding Mr./Mrs. right now)

On Chesapeake Energy - Dammit, Aubrey. Stop the financing already. I'm scared you're screwing us shareholders and that the money you think you need means that we're near the end of the road in this cycle. I may find a different place for this capital, despite your apparent value.

On Gold - see Billcara.com. Also, check out this chart (this link will probably only work for a few days until the url changes). People continue to disbelieve me that gold will be volatile but mostly boring in the short term at this point. That selloff probably had something to do with margin calls. Commodities can be painful that way, despite what my more intelligent ASAP colleagues seem to believe. Let gold rest for a while. Long-term I'm still bullish. Short term I am napish, at this point. Is that a word?

On Radioshack - A new CEO and the stock is up 4 bucks? Short squeeze. Unless they change the name to reference something more hip than radios, I think they're screwed. Maybe Julian should go buy the name "Electronics Boutique". Lesson to entreprenuers: Don't reference particular items in your business name - you could wind up being associated with one thing only, and worse, that thing could be a fad!

Rethinking an idea

2006-07-05T18:17:00.000-07:00

In an April edition of the Milwaukee Journal Sentinel, I recommended the Cheesecake Factory (CAKE) and Panera Bread (PNRA).

Cake hasn't fared well since the article interview: down 21%. Ouch. What did I miss?

The company isn't growing like it was, and there is a very simple reason why: patrons are no longer willing to endure the waits associated with eating at CAKE. It's not the food - the food is still delicious. What I believe is going on is that the company isn't growing its store base fast enough. The newer stores tend to drive same-store sales growth AND top-line growth. The days where these establishments increase same-store sales at a rapid pace is ending - the newness is wearing off.

The story is changing...and I would steer clear of CAKE.

Meanwhile, the Panera story remains in tact. We just need a bit of a sale in the stock.

Sue the wealthy!

2006-07-05T18:11:00.000-07:00

If Apple weren't a goliath these days, with 8.2 Billion in cash and a remarkable brand, it wouldn't be getting sued. Where are the lawsuits against the little guys accused of the same thing?

A Story on CHTR - Returning my Cable Modem

2006-06-07T20:31:00.000-07:00

On Friday, I had to return my cable modem to the local Charter Communications (CHTR) office.

One look at a chart of CHTR is pretty telling. The stock is currently at $1.14 - down over $4 from it's 5 year high around $5.50. The company hasn't made a penny in over 20 years.

I don't know much about this business, but I do know this - my own eyes and ears were not impressed with the customer service operation last Friday. Some places just have a knack at creating work environments that are unfriendly and hostile. And then contempt sets into the worker's minds - there's nothing the employees can do - it's just "how it is" -> that's the culture. It's not god awful wherein people don't stay in their jobs. Let's face it, as Thoreau once said, "The mass of men lead lives of quiet desperation."

Back to the story. 5pm on a Friday. Semi-long line. The counter people don't want to be there, and the people in line don't want to be there. So, what you have is an unpleasant situation to begin with. Let's call this the lighter fluid on the fire.

A man towards the end of the line (right in front of me) decided that it made no sense to wait - after all he was simply there to drop off his digital cable box. So he, creatively I might add, set it on a desk adjacent to the counter people with his name and some other information. As he approached the door, one worker noticed what he'd done and forcefully informed him that this was not a good idea. Charter's policy is that he MUST have a receipt and that there's no guarantee that he won't be billed for not returning this equipment because it may somehow go unreturned.

Last time I checked, it's not good to yell at customers, right? Ok, well, he's no longer a customer anyhow.

Furthermore, I thought to myself further...why do we need a receipt? Who in their right mind would steal a digital cable box, other than to perhaps give it the beating that the Office Space characters gave their famous "PC Load Letter" printer. The box can't work anywhere. Something seemingly so simple as returning equipment could be done with not THREE counter workers, but one, or a part time person, right? Why do they have this policy? Because "it's always been there?"

It gets worse. The counter worker continually reminded each and every subsequent person that stepped in the door that this was just not good. Something was seriously breaking down her (and Charter's) paradigm. It's not her fault - she's just doing her job. My guess is they have a morale problem and it's infected the company.

Dangerous stuff. Almost impossible to cure.

Three minutes later the man returned with his cell phone to take a picture of the equipment lying on Charter's desk. Like I said - pretty creative.

3 days until the CFA level 1 exam!

2006-05-30T17:41:00.000-07:00

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!

Starbucks and online Music

2006-05-23T10:04:00.000-07:00

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?

Hola para Lunes

2006-05-22T09:06:00.000-07:00

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.

Blue Nile - A Buffett Business, but Expensive

2006-05-19T06:01:00.000-07:00

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.

Microsoft

2006-05-18T16:30:00.000-07:00

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?

My New Toy

2006-05-16T16:53:00.000-07:00

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!

A funny...

2006-05-15T05:48:00.000-07:00

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!

Some quick thoughts

2006-05-09T10:34:00.000-07:00

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.

A quick laugh

2006-04-30T21:53:00.000-07:00

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

2006-04-30T21:12:00.000-07:00

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.

Re: Social Engineering

2006-04-19T22:28:00.000-07:00

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!

2006-04-19T21:44:00.000-07:00

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!

2006-04-19T10:39:00.000-07:00

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.

Interesting Day!

2006-04-17T17:59:00.000-07:00

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.

Value and Momentum

2006-04-12T15:55:00.000-07:00

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.

More selling!

2006-04-11T20:02:00.000-07:00

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.

Panera Bread - 9.3% March Comps

2006-04-05T19:03:00.000-07:00

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.

Check up

2006-04-04T19:21:00.000-07:00

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**
Company	Recommendation	Date	Return
Handleman Co.	Long	14-Feb	-15.8%
bebe Stores	Long	16-Jan	+10.0%
Coast Distrib. Sys.	Long	16-Jan	-2.3%
United Parcel Service	Long	13-Dec	+6.4%
Cognizant Tech. Solutions	Long	13-Dec	+23.4%%
PetMed Express	Long	23-Jan	+8.5%%
Caribou Coffee	Short	17-Feb	-15.8%
Boston Scientific	Long	17-Feb	-9.4%
Gehl	Long	22-Feb	+22.1%
Apple Computer	Long	30-Mar	-1.9%
Comstock Homebldg	**Long Swing	23-Feb	+10.8%
		Average	+3.4%
		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.

Avoid:
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

2006-04-04T15:57:00.000-07:00

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.

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

2006-04-03T18:59:00.000-07:00

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.

An Apple a day...

2006-03-29T19:46:00.000-08:00

...could lead to a healthy portfolio! Apple Computer (AAPL - chart) seems like a good, low risk play at this level, having pulled back to a low 30 multiple, and its 200-day moving average. The stock is certainly all about the iPod, and last quarter's earnings report wasn't enough to push the stock higher because they said they expect $4.3 billion in revenues for this quarter and the street wanted $4.8. Should that mean Apple's market cap get reduced by 28%? That doesn't seem logical, does it? I mean, Apple pulled in $5.7B in its last reported quarter and the street expected $5.04 - that, my friends, is crushing expectations. However, we must think about the potential negative. Perhaps the revenue guidance means Apple's growth is slowing drastically. But, even at 4.3B for this quarter, Apple's growth rate compared to the same quarter last year would be 32.5%. I'd be willing to pay 33x trailing earnings for that.

Let's take this further and think rationally (some people just look at the financials and stop there - that's scary business to me). Has anyone been to a mall lately? Those Apple stores are still as crowded as any college bar on this campus on a Saturday night (okay, there aren't lines waiting to get into the stores that I've been to). The big pullback of '06 looks more like profit-taking to me than any actual fear that the company can't continue to sell the heck out of those iPods.

With a little checking, we can see that shares were exchanging hands quickly in Q4 '05, but like I mentioned before, the stock has not performed well in '06. I'm curious to see the update to these filings in a few days. Regardless, I think this selling is overdone. I also love the fact that 7 analysts rate Apple a "hold". That keeps expectations down. Apple is still a buy, and this selloff reduces some risk. One interesting thing that may be worth keeping an eye on, however, is that Sigmatel - a flash memory supplier for the iPod Nano and Shuffle - cut its guidance partly because inventories are building up.

Still, at $62, I wonder how bruised the Apple needs to be in order for its shares to fall much further from here.

Finally, can we petition Mr. Jobs to change Apple's ticker to IPOD?

Next AAPL Earnings Release: April 19th, After Market Close

Big day for the Nasdaq!

2006-03-29T15:45:00.000-08:00

Actually, today was a broad rally in the markets. Typically, stocks do well when the Naz is doing well. The Naz was up 1.45% today, which is on the high end of recent volatility. Volume was 2.4 billion, about 20% higher than average.

Apple Computer +6% on over 80 million shares
Shufflemaster +9% on almost 4 million shares
Ameritrade +9% on over 20 million shares

...again you get the idea. You can go to Uglychart to see a list of new highs. Notice that there there were 427 new highs and only 29 new lows. That is strength in numbers!

The weakness I predicted on March 7 never really came to fruition, as the indices have just consolidated sideways since. This, along with a day like today leads me to believe that there is more strength than I anticipated, at least among tech stocks with the Nasdaq making a new high.

Medium-to-long term, I am concerned that we will see a short recession and bear market. But, for the short-term, things look alright.

Why I still like Panera Bread (PNRA)

2006-03-21T16:31:00.000-08:00

Summary: Buy point: $65 (if you get a chance) Thesis: Stronger-than-expected growth for years to come

I'll admit, I'm late on this post. Call it "fashionably late" because I'm still here before the next same-store sales update in April. Hey, I don't get paid to do this stuff (yet) and I have real committments at the University of Wisconsin.

With my spring break travel plans getting foiled at the last minute, last week I read the new Panera 10-k and updated my revenue/earnings/valuation model. It's not all I did, I had an internship interview and the NCAA tournament was on at the end of the week so I saw some couch time (The Badgers lost big, but hey, there's always next year).

At any rate, my initial thoughts were that the Panera dough ball is rolling downhill - in a good way. It's not taking much effort for this little restaurant company to achieve that one-in-a-thousand success that few companies can find. In restaurants, I'm not sure we've seen this since Starbucks (SBUX). Perhaps the most interesting thing that was said on the latest conference call is that when McDonald's (MCD) advertises healthy salads, Panera sees its traffic increase!

The Good Panera has carved out its niche among chain restaurants nationwide. It has strong breakfast, lunch, dinner, catering, and take-home bread businesses. Not many restaurants can make such a claim. In fact, I'll bet you can't name ONE. That's the beauty behind this place - it's successful in all these businesses and yet does not compete on price. Panera gets to charge its customers a premium because its clientele are willing to pay its higher prices for higher quality food.

And yet, it seems like it's so simple to duplicate. Walk into any Panera store and the place looks eerily similar to Atlanta Bread Company (private company, smaller chain) or Cosi (COSI, unprofitable). Or maybe it looks like your local trendy coffee shop. So why can't other companies copy what they've done?

The brand and food - With 877 stores in the US, Panera is now big enough such that consumers can travel to other cities and still have an idea of what they'll get. And it's tasty, quick, and healthy (if you want it to be)
Management has played the game before - The CEO, Ron Shaich, has "been there done that" with former franchise Au Bon Pain. He's seen what The Street likes and dislikes, and knows that the suburbs are where the money is in this space. This is perhaps why Cosi is struggling. He also understands what it means to actually visit sites and listen to what customers want.
Menu innovations - The Via Panera catering business is perhaps the best example of a Panera innovation and in its 2nd year of existence, it already represents 4.5% of revenues. At the current moment, they are piloting a flatbread pizza offering, called a Crispani. Even when the Atkins diet peaked in 2003, Panera did what it could to keep health-conscious customers happy by developing low-carb items and its top-line still grew by 25% Not bad for a "bread" company.

The Bad The picture isn't completely rosy. This time around, the "risks" section was three times larger than the last 10-k. Oh, but we want real analysis, not just qualitative mumbo-jumbo like that, right? At any rate, the company did go much more into detail about potential risks. Heck, they even mentioned bird-flu as a possible risk. Would bird flu sink Panera's stock? I am not so sure, because after all, this is about the last restaurant that comes to mind when I think about chicken - it's not Panera Chicken company. I have yet to see them really advertise the chicken, despite the fact that the anti-biotic free chicken has been a big piece of discussion in the K's and Q's, plus conference calls. Fortunately, suburb eater-outers aren't reading these reports in the masses! Still, it's hard to know what could happen to PNRA if bird-flu becomes a major US issue.

My biggest concern has to do with ownership of the stock. First, management does not own an overwhelming portion of Panera's shares. CEO Shaich owns the rights to roughly 5.2% of the common shares, and holds 93% of the preferred shares (14% of voting rights). Overall, management has the rights to roughly 7.1% of the shares. Second, major funds like Capital Research (American Funds), Fidelity, and Baron have been selling shares. Capital unloaded nearly 50% of its stake early last year. This leaves me to wonder who has been buying lately to push the stock higher? Have momentum investors been buying? This could mean that PNRA may fall hard on any kind of unexpected news and cause some bloodiness in a portfolio. Of course, this could mean an opportunity :-)

In terms of earnings there is still some correlation to gasoline prices. Restaurant trends could somehow see consumers shift to other kinds of food that isn't healthy, fresh, or quick, or suburb dwellers could stop eating out altogether (but these seem unlikely right now). Furthermore, the company has decided to significantly increase its amount of self-insurance against workers health and injuries. Finally, with 60+ stores in Florida alone, a major hurricane could have a significant short-term impact on PNRA results (weather issues in general could have impact if geographically pertinent). There are always other risks, too, but these come to mind before any others.

The Bottom Line My target price for Panera is $85. There is enough pessimism towards PNRA's longer-term growth prospects which is causing the shares to be undervalued, despite its huge gains. This presents a scenario where PNRA can continue to exceed expectations. With that being said, PNRA is a fairly volatile stock and I'm looking to May which I believe could be a tough month for Panera to come out with a big same-store sales growth number. Could a "slip up" in May lead to an incredible buying opportunity? My analysis shows that below $65 is a great place to add PNRA because the reward-to-risk ratio would be extremely favorable. At $73 the stock is worthy of a small position, and if PNRA can find $65 consider it a gift.

Google launches Google Finance

2006-03-21T05:59:00.000-08:00

Today Google launched "Google Finance" where you can type a ticker and get information about a company. My guess is that Google feels it needs this feature to provide a complete solution for web users, because MSN and Yahoo both have finance sites as well. Ironically, I figured I'd just use GOOG as the first ticker I typed in (link). Below are my initial thoughts to the newly unvieled site:

PROS
-It's fast; loads quickly
-The interactive chart with the news catalysts is a great little timesaver
-Blog posts appear - google is taking blogging mainstream; this will help. I find blogs to be a great source of information for investing
-Latest discussion posts appear. I believe however, that this will eventually just show a bunch of stock bashing and consequent insults towards other posters, if Yahoo! finance message boards are any representation of what's to come.

CONS
-Company Financials section isn't very useful
-Page actually contains little information
-No "historical prices" download possible like with Yahoo!
-After signing in, the page forgot that I wanted to see a 1 year chart, not an intraday one
-They had an opportunity to get the "Next Earnings Release" on the front page, and they didn't. MSN still wins this one with its calendar.

Overall, the page looks to me to be more of a Portal to information about a company than an actual place to do any kind of real research. MSN and Yahoo certainly provide more thorough information, although Google's page may be the quickest place to visit for news stories and understanding crucial news items that move a stock. Only time will be able to tell how useful I will find the site to be.

Internship Update

2006-03-17T07:19:00.000-08:00

If you are in the business and could use some help for the summer - I am still actively seeking an internship. My main criteria is that I will get to meet some talented people and I will learn from them.

There are a few good leads in the pipeline and I think that something will be locked up soon but until then, I would like to hear what you have. If you read my blog, you should get an idea of what I am like but I can provide you with a sample of more in-depth research than you'll see on this site.

Chipotle - Results are in

2006-03-15T12:08:00.000-08:00

I am closing the Chipotle poll on the right hand side of my blog. The final votes are in and, surprise, y'all are undecided! Only 19 votes is weak, though, and I have the sitemeter stats to prove that far more than 19 people visited my website! How hard is it to vote???

I had the opportunity to listen to the conference call two nights ago. There wasn't alot that I learned from the call, but I got a good number to use - $0.66 per diluted share in '05. (I am deducting the earnings from the tax-loss credit). That means that currently CMG trades at about 76 times trailing earnings. Perhaps this is why there is so much indecision among you out there! RBC agreed and slapped a "sector perform" (whatever that means) on the stock.

At any rate, the prospects for Chipotle remain pretty strong and the stock will likely be a good performer over a 10-year horizon. But, expect it to continue to be quite volatile.

Selling resumes

2006-03-07T16:50:00.000-08:00

I had to sneak in a few minutes today to write. Today's small recovery at the end of the day in the indices was misleading. Many top stocks got annihilated today:

Jacobs Engineering - Down 6.7%
Fluor - Down 6.6%
Banco Bradesco - Down 4.2%
GFI Group - Down 9.3%
Ceradyne - Down 7.41%
Eagle Materials - Down 9%

...you get the picture. Leading stocks are getting beaten up.

Next I'll post some charts that show what prompted me to say that selling was likely to continue in my post yesterday.

All of these charts point to continued pressure in the short term. (Click for larger images) I guess this means I can focus on my coursework and less on looking for stocks to buy!

Note: you may say that the MACD is not showing divergences, it looks similar to the actual signal from the indicators. This is true. The point is that the indicator itself is diverging from the actual indices.

Now, are these charts the most important thing in the investment world? No, absolutely not. In the long run, economics prevail. These indicators can help long-term performance, however, even if all that you use them for is to avoid a big loss.

So, the underlying market action is ugly. And I just said that in the long run economics prevail. Well, we're getting some lousy economic data recently. The output gap has spiked downward (GDP growth slowing), and longer-term interest rates are again on the rise - presumably slowing down the housing market. Slow housing means a slower consumer. Is this the start of a recession? Perhaps not yet, but I see lower equity prices in the immediate future.

I'm on Vacation...

2006-03-06T18:57:00.000-08:00

not really. I'm actually on vacation next week, not this week. That means I have a big midterm on Friday and a case due this week in which we are trying to numerically value Manchester United's brand. Hence, you may not see much from me this week, but I should be back to full blogging action starting Friday afternoon (thus I'm on vacation from blogging).

In other news, RVB's Market Musings has become part of the Seeking Alpha network. You'll note that I use my actual name on that site, however this site will remain anonymous - not that it matters a ton. It's an honor to have been invited and now to be a contributing member to the site, since it is a conglomeration of mostly professionals in the biz and is part of Forbes "Best of the Web" for investing blogs.

Finally, I sense some serious selling to take over the markets soon, if not now. Sure, the investor's intelligence survey is bullish for now, but that can stay bullish for a while. Other indicators do not look so bullish. Check out a few of the "Market Health" indicators on the right of the page. 10 year rates are rising, too, which is bearish for stocks, although rates are still low. If I get a chance, I will post a more in-depth look at what I am talking about, otherwise, stay tuned until the weekend.

Output Gap - Negatively Correlated to S&P 500 Returns?

2006-02-28T20:19:00.000-08:00

Recently, I reiterated the fact that I do have some "quant" in me. Minus the PhD, of course.

I carry around a book so that when I get an idea of a quantitative market experiment, I jot it down. The book is filled with ideas. Tonight I got an auto-email from the St. Louis Fed that the GDP stats were updated so I dug in. My cleats kicked some dirt, the batter's box disappeared into the dust, I spat a couple two, three times, and - oh, wait, that goes back to my baseball days. Anyhow I felt that I would share the beginning of one of my ideas with y'all. There's more work to do on this yet.

The below chart is kind of hard to understand. Mostly, you want to note that when the blue area is negative, the pink area is positive. This means that, in general, when the US GDP Output Gap is negative, the S&P returns for the quarter are positive.

Like I said, it's a beginning, but for now, it appears as though so long as there aren't drastic changes in the trend, the logic holds. Excel even says that there is a negative correlation, but I am not quite sure that it is statistically significant. I still need to look at time-delays and trending within the data. Another general observation could be that it appears that and output gap that drastically drops off leads a market decline. Let me once again reiterate that this data is not perfect and we all know generalities are tough to live by. But, it's the beginning of an experiment and it appears as though there is promise in it. I would love any input or prior knowledge of such an experiment.

Back to my roots (a little bit)

2006-02-28T18:39:00.000-08:00

Tonight, I go back to my roots a little bit. Just a little. Back to the engineer in me who knew nothing about fundamental analysis (I'm learning now, but did you know there are probably billions tied up in the markets with absolutely no caring about fundamentals whatsoever...) and then we'll support my idea with some fundamentals.

The photo to the right sure isn't me. I'm not female, and if I were I still probably wouldn't be that attractive. Nevermind that however, the photo depicts an example of the clothes sold at perhaps my recently favorite retail stock, BEBE Stores (BEBE). As you may be aware, I have posted about BEBE before. Unlike my latest pick, HDL, this one has been a winner since first mentioned January 16th. It is nice to be right sometimes, although that is not what drives me as an investor - ultimately it is to grow my account size! (luckily, HDL isn't killing the account yet)
Photo borrowed from Bebe Stores Website)

Here's a chart that should hopefully speak a few words (Click to enlarge):

Now to a quick look at some ratios. BEBE got cheap on a multiple basis in January, dipping below 19 times next year's expected earnings, considering that it's growing at 20+ percent. So I got long before the last report and got the "surprise" that was expected (expectations had been beaten down presumably because of the pessimism surrounding the stock). Now, the stock has retraced to the level it was at immediately after that "surprise" - probably because of general economic news and market performance. Now BEBE is back to trading back at 22x next year's expected earnings. Of course, if the economy does go to pot, then next year's earnings are probably over-estimated and BEBE will not perform well. Thus, this isn't quite as good as the sub-19 P/E for next year's earnings we got a mere 6 weeks ago, but it's still awfully attractive.

And compared to the rest of the market, it looks like we are getting another chance at a stock that's gettin' dissed. My take on this lack of respect is quite simple. Until late '03, BEBE had a great history of missing earnings expectations. "What!?" You say!!! "I don't want my stocks to do a whole lot of that!" But, since its current CEO, Gregory Scott (and much of the management team) took over in early '04, the company had beaten every single quarter until two quarters ago. At that time, expecations had gotten rather high, and BEBE was no bargain. But then the market overreacted on the miss and sent the shares from a pricey $31 to nearly $13. The bottom line is that BEBE has had a much better earnings stability track record under this regime and times have been lucrative.

With BEBE back near $17 and 22 times next year's earnings, the stock looks attractive - with probably more upside than down.

Another prior BEBE post

Handleman MMQB

2006-02-27T19:38:00.000-08:00

The following comment was left and I thought I would pull it out of the comments for you to read:

MONDAY MORNING QUARTERBACKING--WARNING SIGNS THAT WERE FLASHING:
#1-Revenues for the second quarter of fiscal 2006 improved prior to the year ago period because of ACQUISITIONS--NO ORGANIC GROWTH! #2., 48% of the increase in past revenue was attributable to a strengthening of local currencies. #3--LOST MAJOR CUSTOMER IN 2Q to a competitor. #4--Co. in current year was having trouble getting a HANDLE [no pun intended]ON COSTS: Direct product costs as a percentage of revenues was 82.1% for the second quarter ended October 29, 2005, compared to 79.8% for the second quarter ended October 30, 2004. #5. CFFO SHOULD FOLLOW PROFITS-- Company was reporting positive operating profits--bit cash flows were coming in USING CASH! #6--Just because company is buying back its own stock does not necessarily mean its a good investment--could be masking EPS weakness, for less shares outstanding = higher EPS!

Finally-I have followed HDL for 20 years [even when i was a retail broker for Merrill Lynch. Company has always intrigued me--Back then--figured Company would benefit from switch to CDs from LPs...later-switch from VHS to DVDs. Upcoming GRowth catalyst(s) UPGRADE to HD-DVD and/or BLUE-LASER DVDs???

Enjoy your musings!
David J Phillips, Publisher
www.10qdetective.blogspot.com

David gives us some great insights on HDL and what is going on. I still believe the market's reaction to this report is overreaction because, to me, the vast majority of this information was known before the earnings release (David would agree)...with the exception being just how bad the margins in the business are, and that the declining trend is a continuing pattern. The Crave Entertainment acquisition is not helping this situation at all. I, however, am sticking by my belief that HDL is undervalued, but I won't be touching it for a little while until the dust settles.

The interesting piece David gives us is his speculation on HDL's potential market to grow in. I'm not so sure about it, though. Time will tell. I want to know why Handleman is losing customers. If any of you out there know off the top of your head, please leave a comment! I will be tied up in classes for a few days and may not get to it.

Handleman gets a big haircut

2006-02-24T07:25:00.000-08:00

Handleman, a value stock pick of mine recently, is currently trading down 15%, after reporting only 68 cents in Net Income for Q3. Compared to the $.94 it made during the same quarter last year, this is unimpressive. They are still on track to possibly make the $1.30 on the year, however.

HDL bought about 500,000 shares back recently, too. This reduced the floating shares by approximately 2.4% - not too drastic, but it reiterates that the company believes its shares are undervalued.

In the report (summary), they noted that music sales were down 6.2% - although this number doesn't include services like iTunes. Services like iTunes epitomize Handleman's troubles - people don't need to buy CD's at stores, so the business is shrinking, although revenue did grow slightly due to an acquisition.

The report was not optimistic for the company. Sales in their core business are down, and margins have been cut 3%. The picture isn't pretty, but perhaps deep value investors finally have Handlman at a price they want. Consider that the company should still produce near $1 in free cash flow while trading in the high $9 range today, and the $0.32 dividend is still being paid.

That being said, we should wait for today's dust to settle before moving in on this "cigar butt" value investment play. It is a dying business. I would expect selling to still have continued pressure on the stock, and since it only has 20 million shares floating, it could be a volatile one for a few days.

Hey Homies...

2006-02-22T19:08:00.000-08:00

The title of this post is intended to be a horrible pun, *grin*. There has been some talk about the Homebuilders being cheap. The Wall St. Journal actually had an article about this today. Bill Miller of Legg Mason was said to be buying them as is David Einhorn of Greenlight Capital who likes MDC.

These guys might be on to something. MDC's forward P/E is 5.5...of course that's assuming that MDC earns a whopping $11.77 a share next year. Everyone thinks the homebuilders are done, 'cept these guys. "The bubble's bursting!" the bears say. I know I have promised to be bolder, but right now I am kind of in the middle here. I lean towards the bulls. If I had to take a position, it'd be a bullish one, but I'd buy some insurance on it! Maybe the way to play these guys is a nice bull spread. Hey, I like that idea!

I think there could be a long trade in CHCI coming, too. Keep your eyes open for a near 2 pt. pop in it.