PRIS, MGM, and Spanish Borrowing

     I am checking back in on a few stocks I've discussed recently.  My worry that the window on MGM might have passed me by (at least temporarily) has been confirmed.  I was not using a stop and MGM sunk below $9.  Why no stop?  Because I strongly believe it is one of the casino stocks that will violently surge up at positive signs in the American economy.  This explanation is insufficient:  it must also be coupled with a belief (which I have) that positive signs in the American economy will be reported in coming months, whether these signs are accurate or not.  In the meantime, MGM has gone up again, coming near my entry point.  I'm willing to wait.
    PRIS was an easy choice this morning.  News of lower Spanish borrowing costs told me the stock would benefit.  Good news for Spain is good news for PRIS.  So far, so good.

MGM

I've been laying low for a while without much activity, just watching things play out in Europe.  I made some money on PRIS but, once it shot up, I got out.  Too much volatility.  Only purchase since I last checked in has been MGM.  Bought it at $9.60 because I felt we were on edge of a positive news cycle at the time and I believe that investors are waiting to pour into casino stocks at the first sign of a turn in the economy.  Not that I believe the US economy is actually turning in any meaningful way.  In any event, MGM has been up to $10.50 or so but I decided to just hang in and now it's back down today to around $9.80.  I don't particularly love MGM but it was below $10 in the right sector, at the right time.  Now we'll see if I missed my window on it. 

PRIS and EU Follow Up

Well, looks like a number of us (Jubak, Cramer, me, etc.) were right and the EU will effectively print money to save its financial system.  This has had a predictable effect on PRIS, which is trading at $4.80 this morning.  Hope you took my advice and got in when it was below $4.  I got out around $4.40, hedging against the possibility that Europe would just fail to act quickly enough to stave off disaster.  Which, by the way, is still a possibility.  On a meta-level, what is really going on?  Central banks, including the Fed, are instituting financial policies which save financial institutions but provide no clear benefit to the average citizen and, in fact, shift the costs to the average citizen.  The hope is that the U.S. and European economies will begin to grow again quickly enough that the bills can be paid.  Precisely what you would expect from policy-makers:  use admittedly wrong methods to prevent worse evils from occurring today and hope for the best down the road.     

PRIS and Carlos Slim

On November 1, 2011, I wrote that PRIS was trading below $4 and was worth more than that, so long as Europe didn't return to the Dark Ages.  It seems that Carlos Slim agreed with me.  Slim's Carso SA announced today that it bought 3.2% of PRIS.  The stock has responded, up almost 17% today alone and roughly 20% from its closing price on November 1.  Hope you got into PRIS.  I did -- I like to put my money where my mouth is.  I bought it at $3.73.

Original Thoughts and Jim Jubak

While I have some respect for Jim Jubak as a thinking entity, I don't generally find myself persuaded by his advice.  Looks like we're in lockstep on Europe, however, as he sees Germany as fighting a losing battle to inevitability in the midst of the EU debt crisis:

http://money.msn.com/top-stocks/post.aspx?post=6db9244f-13a4-4d1a-b91c-a730f3943be3

Follow Up on EU Debt Crisis and Jim Cramer

I'm following up on my last post which suggested that EU money printing is certain, in my worldview.  Namely, the Europeans do not have the stomach for sufficient belt tightening.  Nor do they want to permit widespread default.  So, money printing appears to be the most likely option for them.  I'm not sure why Jim Cramer left that off the menu in his analysis today:

"So we spiral and we spiral, with every auction now turning into a down 1% rout at a minimum, and there are auctions as far as the eye can see and not enough money from different entities to buy them all.

Ways out? Default, which would be devastating but would allow for a new beginning somewhere down the road. Restructuring, budget reform, lower standard of living, increased savings rate to buy the bonds? Obvious. But have you thought about the problems we're having here with our own debt committee?"

http://money.msn.com/top-stocks/post.aspx?post=06080f5e-174c-4214-90ce-b32987bfa8f2

Now, I think there is a limited possibility that I could be wrong and the Europeans will simply fail to be able to agree on money printing before certain countries are forced to default.  It's the option the Russians chose back in the late '90's and they've seemingly rebounded fine.  But the backstop against money printing, Germany, does not want to see default happen.  So the Germans will ultimately be presented with a choice:  print money, make up the difference out of their own coffers, or permit default.  Which would you choose?  And does anyone really believe that the Germans are resisting money printing because, as they say, they remember the lessons of The Weimar Republic?  I don't.

The EU and Money Printing

Markets rose recently on news that the EU had agreed on a "rescue fund" for its members, the most infamous of whom have recently been Greece and Italy.  Since that announcement, however, Italian bond yields have skyrocketed, presumably reflecting the belief that the rescue fund will be insufficient and Italy, as well as other countries like Greece and Spain, will ultimately default on their debt (basically bonds).  Forces are thus putting increasing pressue on the European Central Bank to print money to buy more EU member sovereign debt and thus act as a stopgap against panic selling of this debt (and a refusal by markets to purchase more of such debt).  Ask yourself:  what happens if the European Central Bank announces that it will print money ("monetize") to buy more debt?  Also ask yourself how likely this now seems.  The first answer for me is "massive rally" and the second is "very."

What About Spain and Portugal?

So we heard much about Greece and now Italy, with respect to Europe's debt crisis.  Forgotten, it seems to me, is that the names we originally heard with respect to the crisis were Spain and Portugal.  Won't it be time for their names to come round again once Italy is "solved," as we will undoubtedly be told that it has been?  What does this mean?  More shocks and more downward moves in the markets.  Particularly, if politicians in these countries think they can make hay about pretending to resist the EU.  I say "pretending" because these countries do not have much credibility when it comes to threats. 

A Greek Hiccup and PRIS

Well, it seems Europe has experienced the temporary (probably) toe stub I mentioned last time.  The Greeks want to vote on the bailout and now some folks are wondering whether the funds the EU plans to commit are enough.  Given the time scale for the EU rescue playing out, this should provide plenty of volatility in the markets for some time to come.  I don't say this from any expert knowledge of the EU crisis.  Far from it.  I'm speaking as someone who asks:  how will the news on Europe be reported?  Rescues, followed by toe stubs.  In short, volatility.  And if the rescue ultimately fails, don't be around that day.  PRIS, a stock I've mentioned before looks to have been unfairly punished today.  It's below $4.  It's worth more than that as long as Europe doesn't descend back into the dark ages.

The Cycle

After my last post about news cycles, it seems that word of European attention to the EU's economic problems has kept the good feelings going.  So, the Dow is around 12,200.  Not that any sophisticated investor believes that the market tracks economic conditions but if you had to pick a general market direction from here what would it be, based on the hand of cards we're holding?  Sure, the stronger players in Europe will backstop the broke (along with China perhaps), but what is the long term prognosis for Europe?  More timely, what if Europe trips in its attempt to halt financial collapse?  These folks have been known to make some mistakes.  What will be the market effect?  And the U.S.?  Typically out-of-touch economists are now pointing to an expanding economy, along with trailing job growth.  Does anyone on the street every day believe that?  What do we have to fill the hole created by the destruction of the housing market and the securitization market that was tied to it?  Job growth since late 2008 gives us the answer:  not enough.  And has anyone in the investing community noticed the civil unrest that is growing in American cities?  This is not to say that the current rally may not continue for a while but I suspect it will come to a volatile end.  I am not fully invested long in this rally but, rather, have kept some limited long positions in CRY and CRWN which I had originally purchased with more of a long term view.    

End of a Cycle?

I've been thinking much more about "news cycles" lately.  For the last week or so, the market has been going up, as we've been in a little pocket of what qualifies as good news these days, i.e. some positive earnings results, news that Europe is really moving to shore up its situation.  Then I saw an article this morning from Jim Jubak suggesting that the Greek crisis is much worse than thought.  Then UPS disappoints, you get the idea.  Sure enough, we're down 200 points plus today.  It will be interesting to see whether this day of bad news takes us back into a cycle of bad news.  There is certainly enough to go around.  But for some reason, folks have been ignoring it for the last week.

Quantum and Pris (QTM and PRIS)

Well, if you bought these stocks (as I did) after my last post, you won.  PRIS closed at $4.15 on September 23, day of the last post, and has gone as high as $5.02 since then.  QTM:  closed at $1.80 on September 23 and closed today at $2.32.  This bad news/good news cycle just keeps going.  The question is when will it end.  Not soon.  There is so much bad news out there because our economic system has revealed deep flaws, among them an inability to put people back to work (or increase wages over time -- a worse problem).  The good news is also assured, as policy makers try to save their skins by continually announcing new solutions to our angst.  The trick right now is avoiding one of two fates.  The first is being fully invested if the half-solutions of the world's economic leadership result in a next time down, such as we saw in late 2008.  The second is that somehow, despite the bungling, things actually right themselves and you're not fully invested when the markets surge upward and stay there for some time.  Right now, the former possibility worries me quite a bit more than the latter.

Volatility; QTM; Quantum; PRIS

On September 9, 2011, I wrote:  "For now, my view seems to hold:  the markets will be hit by repeated and volatile shocks up and down as the very real bad news is countered by the not so real attempts by policy makers to prop them up."  Seems I'm ok on that prediction since then.  One of my favorites, Quantum, is again riding the elevator up and down.  Unless the company is worthless though, it's current price seems awfully low.  I also picked up PRIS -- Spanish multimedia conglomerate at around $4 per ADR (representing 4 ordinary shares).  This stock has traded as high as $13 per share in the last year.  Somehow, I don't think it's worth that much less now but is, instead, a victim of the flight from Europe (which is, incidentally, not unwarranted).  Plus, it has a low stock price -- an absolute requirement for me these days.

Quantum How Do I Love Thee, Let Me Count the Ways

Yes, I got into Quantum again at $1.76 on 9/6/11 and exited on a stop at $1.89 on 9/8/11.  I have now bought and sold Quantum three times since April of this year for a total 37% return.  If I'd bought and held my original purchase at $2.79, I would now be very deeply in the hole.  Nevertheless, I remain a believer in buy and hold -- sometimes and if you buy after the market has been decimated.  For now, my view seems to hold:  the markets will be hit by repeated and volatile shocks up and down as the very real bad news is countered by the not so real attempts by policy makers to prop them up.  My suspicion about "things being too easy" makes me want to short Quantum now but I think the company is actually fairly valued given its risk and notice that even in the market massacre today, it is holding up.  A good sign.

Edward Thorp on Beating the Biggest Dealer of All: the Markets

See below for a link to an interview with Edward Thorp, famed investor and card-counting expert:

 http://www.edwardothorp.com/sitebuildercontent/sitebuilderfiles/Interview_with_The_Journal_of_Investment_Consulting_2011.pdf


Thorp's interview makes clear that his "quant" strategies enjoyed early success but their advantages were ultimately chipped away by other sophisticated market participants.  Interestingly, he claims to have enjoyed an advantage by employing an early version of the Black Scholes formula.  This makes me wonder if his advantage was truly quantitative or whether he had simply recognized that options were mispriced based on prevailing risk.  So often it seems that economists and academics want to quantify insights which do not necessarily benefit from further quantification.  In any event, far be it from me to question Thorp, who above all is a first class mind. 
    Most interestingly, he claims to now be focused on the question of whether a basket of treasury bills, a stock options index, and options on the index can be used to improve the portfolio's performance against the same basket without the options.  I'm going to give some thought to this myself and report back.

Bank of America; Wells Fargo; Chase; Citi: A Potential Legal Settlement To Watch

For some time now, the largest lenders have been in negotiations with the Attorneys General of all 50 states to reach a settlement regarding the banks' handling of foreclosures, including robo-signing and other practices.  According to press reports, there are only a few holdouts among the AG's and the federal government and the banks are pushing hard to finalize the agreement.  The banks want the settlement because it will insulate them from further liability (or at least so they think) for frankly turning the servicing of mortgages into complete chaos.  The banks' liability to borrowers for their practices is significant.  This is evident from the banks' eagerness to enter into what's been reported as a $20 billion settlement.  If this settlement happens, the market may react by boosting bank stocks.  Keep a lookout for this -- I will.

Riding the Quantum (QTM) Train -- Again

By way of confession, I've indulged my bad habit of short-term trading again.  One of my favorite low price stocks, Quantum, dropped significantly during the recent market dips.  I bought at $1.85 on Aug. 22 and sold out yesterday at $1.97.  My purchase was based on several principles.  First, Quantum is volatile.  While this volatility could work negatively, it could also result in a quick bump up.  After the market dips, my instinct was that there would be a bump up.  Second, Quantum is worth more than $1.85 and was beaten down by the market crashes.  The corollary to this is that Quantumm, while Quantum might sink further in the near term, it was a safe investment long-term.  Third, Quantum is an acquisition candidate, giving me another way to win.  Fourth, I believe that for some time we will be looking at repeated and significant market dips and upward surges.  Why?  There is a lot of bad news that will keep hitting markets because the world economies are not in good shape.  Nevertheless, there are a lot of very powerful, wealthy entities both here and abroad that are invested in continuing to trade whatever economic conditions and these entities will produce surges.  There are also governmental forces which have a strong interest in keeping markets rising or at least stable.  These competing forces will continue to do battle for some time, since neither promises to run out of steam for the foreseeable future.  Did any of the aforementioned factors enter into my modest win on QTM?  1, 2, and 3, in my opinion.

Google and Motorola Mobility: Leaks?

After taking a very brief time to celebrate being right on my call that Google would buy Motorola Mobility (http://limbinvest.blogspot.com/2011/05/google-will-acquire-motorola-mobility.html), I began to think about recent events.  Motorola Mobility was inexplicably going up last week in the midst of the market's crash.  I thought nothing of it at the time, other than to tell myself that perhaps others were finally recognizing the value I had seen, even in the midst of chaos.  Now, however, the rise does seem curious.  I am not the only one to wonder if, perhaps, some folks knew about the acquisition in advance and acted on it:

http://blogs.wsj.com/deals/2011/08/15/was-there-advance-word-of-google-motorola-deal/?mod=msn_money_ticker

Google (Goog) and Motorola Mobility (MMI): I Was Right

I'm always wary of the dangers of ego but I told you all about this one back in May:  Google will buy Motorola Mobility.  Only, I predicted a five year time horizon, not five months:

http://limbinvest.blogspot.com/2011/05/google-will-acquire-motorola-mobility.html

It's good to be right about something this big but you're only as good as your last pick, so I'm going back to my studies...  

Low Priced Stock Performance During Market Crash

Apparently, low priced stocks have performed quite a bit better than their peers in the recent dark days of the market:

http://seekingalpha.com/article/286358-surprisingly-smaller-stocks-went-up-when-the-market-dropped?source=msn

Anecdotal (very) evidence of the low price anomaly. 

Google Revisited: I Sold

Like anyone else, I like to point out when I'm right (unlike many, I'll also point out when I'm wrong).  Here's what I said in a recent post about whether I should sell Google when it spiked to over $600/share:

I bought Google at $537 per share (after in an earlier life buying it at $247 and selling at $320 -- there is perhaps another lesson there).  As some of you may have noticed, Google has spiked dramatically to over $600 per share after reporting earnings.  I do believe that it's worth much more than $600 ultimately but it's tough not to sell it after the recent upswing because I think the world generally is in for more negative economic news which will once again depress Google. 

The bolded language has been validated.  I sold while Google was still at $615.  It's now at $547.  One for the win column but I am the last person to beat my chest.  Back to the desk...

Correlating Unemployment, TV Watching, Crown Media,and Hallmark

Consistent with my low price anomaly strategy (one among several, admittedly), I've been taking a look at Crown Media Holdings (CRWN), which operates the Hallmark Channel.  It's trading around $1.70/share, has a well-known trademark (courtesy of Hallmark itself), and has recently secured the services of a well-known celebrity in Martha Stewart.  These are assets I can understand at a price I like.  Thinking about Crown a lot led to a sudden curiosity:  has the elevated unemployment rate of recent years led to an increase in television watching?  Apparently, there is some evidence for this:

http://moneyland.time.com/2011/06/23/americans-spend-more-time-sleeping-watching-tv-brewing-beer-is-unemployment-the-reason/

There is another thing I find appealing about the Hallmark Channel -- the generally innocent level of its programming.  I've been feeling recently that parents may soon start rebeling about the general slumming down of TV programming (and perhaps American life in general which takes some cues from TV).  See Miley Cyrus' tattoos or virtually any show on ABC Family for an example of what I'm talking about.  The Hallmark Channel has wholesome programming and a wholesome image.  Won't American families ultimately want more of this? 

Some Strange Things About Search

This is not an investment idea per se but does bear on the topic.  I've gotten curious about how one would check how often a particular search term is used by folks using Google and Yahoo.  It seems that the quick way of finding this out is to use Google Trends and Yahoo Buzz. Both of these services also list the "top" searches for a given day.  There is something puzzling about the results, however:  there is almost no overlap between the most popular searches reported by Google and Yahoo.  Now, I understand that the companies may calculate search numbers differently but no overlap whatsoever seems to me very odd.  I'm going to look into this further and set up a separate blog to track and explain this.

To Sell Google or Not to Sell Google, That is the Question

I bought Google at $537 per share (after in an earlier life buying it at $247 and selling at $320 -- there is perhaps another lesson there).  As some of you may have noticed, Google has spiked dramatically to over $600 per share after reporting earnings.  I do believe that it's worth much more than $600 ultimately but it's tough not to sell it after the recent upswing because I think the world generally is in for more negative economic news which will once again depress Google.  I'll think on this some more but why do I think Google is worth much more?  A host of reasons but compare it to Microsoft, which is arguably a proxy for similar growth.  Google began life trading at less than $100 per share.  It now trades for 6x that.  I dare say that Microsoft is now trading at far more than 6x its initial offering price.  Yes, I know, there are differences but rough measures in these instances are useful, I think.  Also, new computers using Google Chrome are selling quite well.  One more step toward the browser as operating system, the "dumb box" computer accessing a smart cloud, and Google eclipse of Microsoft.

Low Price Anomaly: Cryolife

Here's another stock I liked so much that I bought it because it fits with my low price anomaly theory.  The company is Cryolife, which makes medical devices, is a leader in tissue preservation methods, and has developed other products such as surgical adhesives and foams.  It's low priced and, while in a competitive industry, it is a growth market.  It also has significant intellectual property.  I'm willing to wait until it is in the right place at the right time.

Investing in Lawsuits

Ted Frank is what you might call a "professional objector," which means he is in the business of objecting to class action settlements. Ted had an interesting investment angle leading up to the outcome of the Supreme Court's decision in Wal Mart v. Dukes -- a massive class action case against Wal Mart alleging gender discrimination. Here was his premise:

Over the years I've been surprised when the stock market strongly reacted to judicial decisions that seemed like obvious outcomes. This surprises me: I don't have inside information; institutional investors have the ability to process the same public information that I do; the efficient market hypothesis predicts that this public information should already be reflected in the stock price; thus, if I can predict a ruling, the market can, too, and shouldn't treat it as a surprise when, say, the Illinois Supreme Court reverses a multi-billion-dollar judgment against Philip Morris, which bounced over 5% that week in December 2005. But apparently, the trial lawyer strategy to artificially depress stock prices to pressure defendants into settlements has an effect of creating market inefficiencies.

I'm very confident that Wal-Mart v. Dukes will result in a reversal of the class certification in the enormous multi-billion dollar class action against it. But the things that make me confident in that result—the briefs, the tenor of the oral argument, the language in AT&T Mobility v. Concepcion about the importance of protecting the rights of unnamed class members—did not produce movement in the market price of Wal-Mart stock. This leads me to suspect that the market is undervaluing the probability of reversal, and will be surprised when the Supreme Court does reverse later this month.
It's always bothered me when economists make clever predictions but aren't willing to bet on them, Julian Simon a notable exception. Here's a hypothesis that won't take twenty years to resolve; if I'm right, aren't I stupid if I don't make a quick profit on this predicted market inefficiency. So I've put my money where my mouth is: with the dip in stock prices last week, I invested a bit over 10% of my net worth in a leveraged bet that WMT stock will bounce this month when the Supreme Court releases its decision through purchases of July and September out-of-the-money call contracts.

How did it work out?  Not very well.  According to Ted:

In the stock market, you can be wrong and make money, and right and lose money. It's better to be lucky than good. I'll liquidate today, and take a loss of over half my bet. C'est la guerre. I've made bigger financial mistakes in my life; I've had single trips to Las Vegas where I made more money than I lost on this three-week bet. (Heck, I'm an economist who understands opportunity cost. I lose more money than this every year I devote to the Center for Class Action Fairness instead of being a for-profit lawyer.)

An Individual Investor's Advantages

I was moved recently to think about where an individual investor's advantages might lie against his professional counterparts. The spur was a James Altucher interview on investing, in which he suggested that you think about where your edge lies against the pros (and other investors) before you make an investment. Put aside for a minute the case of an individual with very particularized knowledge about an industry who very well might know more about a certain market than pros with access to professionally produced information. I'm talking about the individual who picks up Smart Money and sees a stock recommended in an industry he knows very little about.
It seems to me that the individual can (but may not have) an edge in the following areas:

1. Courage to stick with an investment (pros have to show performance over shorter time frames)
2. Longer time horizon to stick with a stock and for it to realize it's assigned potential (same as number 1)
3. Greater powers of imagination in terms of visualizing what a stock and its industry's potential are
4. Higher risk tolerance

These are general advantages, to be sure, but not at all trivial. The first two, standing alone, might be an argument against turning your money over to "pros," as they very well could outweigh any disadvantages the amateur investor has.

Low Price Anomaly In Practice: Quantum (QTM)

Here's a report on a low-priced stock I bought which paid off. Anecdotal to be sure but I've become an adherent of this so-called anomaly and will continue to report in on results.

Stock: Quantum (QTM)

Purchase Price: $2.79
Sale Price: $3.42
Holding Period: 54 days

Return: 22.58%

Avocados and Demographic Investing

I can't take credit for this idea but read it in a Value Line special situations newsletter. The premise is that you look for growth. Where does the U.S. have a lot of growth: its Hispanic population. So look for investments that will prosper as the Hispanic population grows. Value Line suggested avocado growers, since Hispanic food incorporates avocadoes to a greater extent than European-derived American cuisine.  Come to think of it, Sushi in the U.S. seems to use a lot of avocadoes and Sushi restaurants also seem to be on the rise.  Take a look here:

http://www.californiaavocadogrowers.com/

Low Price Anomaly

Here's an interesting link to an old article on how low priced stocks performed on the Johannesburg stock exchange: not well. So what? Well, it collects some papers on the U.S. stock exchanges showing that low priced stocks outperformed higher priced counterparts over time. My analysis of my own portfolios has led me to conclude that you're generally better off buying lower priced stocks. And I mean under $10, or better yet under $5. The phenomenon is apparently well known in the literature and it's called the "low price anomaly."

www.iassa.co.za/articles/045_1997_04.pdf

Facebook; 5 years; 50%

In five years, Facebook will be worth no more than 50% of what it is now. Why? Because the people who use it now will grow tired of it or they will have more competition for their time from new sources. The people who don't use it yet will want something new (remember MySpace?) that helps them form their own online identities. As an example of both of these phenomena, check out Like a Little (http://likealittle.com/home). With internet sites like Facebook, you're not competing for dollars but for time (or attention, if you will). There is a finite amount of time (24 hours times number of people with internet connection). Ultimately, Facebook will fall to this unalterable law, as have so many others already. See also Ebay auction numbers for the quickly dwindling appeal of what seemed like the hottest concept ever less than a decade ago.

Google Will Acquire Motorola Mobility

Greetings to all. Let's get this blog started with a bold prediction which, frankly, is this blog's business. Google will ultimately buy/acquire Motorola Mobility. Smart phones are going to be too important to the world going forward for Google to feel comfortable allowing third-party manufacturers to handle development. Google already has a close relationship with Motorola Mobility (MMI), having developed the Droid together. Also, Motorola Mobility's spin off from the former Motorola reflects, I believe, its own suspicion that this deal could ultimately happen. I know what you're thinking: if Google buys Motorola Mobility, it will alienate other smart phone makers using the Android platform. True, but that will ultimately not prove to be enough of a barrier to this deal. Time frame: 5 years.