The Temptations of Brains (Hewlett-Packard)

Hewlett-Packard has taken a beating lately and rightfully so.  It has had a string of leadership issues and a ton of layoffs.  See the link below for a complete condemnation of the company:

http://theforvm.org/diary/m-aurelius/meg-whitman-job-creator

But...

It still has some very good brains left and it seems to recognize that, if it's to survive, the company must focus on R&D.  See below:

http://www.wired.com/wiredenterprise/2012/02/hp_calculator/

And...HP has brains across a range of scientific and engineering disciplines.  And who knows what patents already in the company's trove will prove relevant and valuable?  So, I have to repeat the conclusion I reached in my tech dogs post:  HP might be worth a long term investment at its current price.  Risky but not that risky -- what are the chances the company will be out of business before it experiences a significant rise in stock price?  Fairly low, I would say. 

All HP has to do is have one or two big successes, led by their brains, to rise again.  They are also in volatile businesses in which the company that was dead last 5 years ago can be No. 1 today.   

Corning (GLW): I'll be Watching

There is an interesting article on Corning and its focus on R&D in today's Wired magazine online.  The link follows.  The last time I recall Wired doing a piece like this was on MolyCorp (MCP), miner of rare earth metals.  The MolyCorp article portrayed the company ready to skyrocket because of the scarcity of rare earth metals in the West (as opposed to China) and MCP's purported lock on rare earth metals mining.  MCP did skyrocket -- for about a day.  It then proceeded to lose about half its value in a stunningly short period of time.  Today's Corning article makes a compelling case for the company as the type of R&D focused enterprise worth investing in.  We shall see how the stock performs in the aftermath of this article...


http://www.wired.com/wiredscience/2012/09/ff-corning-gorilla-glass/

The Dangers of Generalizing

This is not strictly a post on investments but more on habits of mind.  An interview with a White, Southern woman who voted twice for George W. Bush and believes that President Obama is Muslim is a cautionary example of drawing conclusions from too little data or, more precisely, stereotyping.  Based on my description, one might expect that the woman in question is voting for Mitt Romney.  Wrong.  She is voting for Obama, despite her views on the President's religion.  Why?  Because she makes $28,000 a year and doesn't like Romney because, in her mind, he was born rich.  The interview with her is here:

http://news.yahoo.com/southern-whites-troubled-romneys-wealth-religion-050312040.html

The lesson obviously applies in a wider context.  Moreover, it confirms my personal belief that Americans are a more complex group than our leaders (and possibly the rest of the world) believe.  The access to internet and media available to all levels of American society will only magnify this effect going forward.  Indeed, the Republicans are running into some difficulty now in trying to appeal to disparate groups in American society.

A Crack in My Love of Google

I regularly tout Google as the long-term winner of our current tech battleground.  There is its search dominance, its ownership of Youtube (one of the most valuable media properties ever created in my opinion), and Android, just to name a few assets.  Not to mention that it's pushing the envelope in server design and snapping up small tech outfits, one of which might turn out to be a goliath.  Yet, there are some cracks in the facade.  Google has shown something of  a disregard for privacy rights and there are comments like these from programmers, which worry me:

"Google does have an office in Manhattan. You should definitely apply there - I don't think it's an interesting company to work for anymore (and their recruiters are second only to Facebook's in how pathetically desperate they seem when they contact me), but the interview process is really fun."

See more of this thread at http://developers.slashdot.org/comments.pl?sid=2357190&cid=36936764

Hmmm... anecdotal but troubling if programmers no longer find Google interesting. 

Tech Dogs, Lessons of the Past, and a Possible Portfolio

Wired magazine recently ran an interesting article on how Apple was derided as a terrible and failing company in 1997:

http://www.wired.com/business/2012/07/not-dead-yet-the-crappy-company-that-could-have-made-you-rich/.

Some of the quotes from that time period about Apple were absolutely damning.  How wrong they were.  So what, you say, it's too late to capitalize on that information?  Yes, but the point of the article is that there are a number of one-time 800 pound gorillas in the tech space that again look like terrible and failing companies:  HP, Nokia, RIMM (Blackberry), and Yahoo.  Why not create a portfolio of them?  Not all of them will likely rise from the ashes but only one has to experience an Apple-like turnaround to carry the day.  If I had to pick the most likely to do it, I'd go HP, Nokia, RIMM and Yahoo in that order.  Why?  Because HP still has a lot of patents and a lot of engineers.  Same for Nokia and Blackberry to some extent but in a more confined space:  mobile (although a good space to be in if you must be confined).  Yahoo lacks truly valuable technology but has brand and users.

My Facebook Prediction and the Speed of Change

On May 23, 2011, I predicted that Facebook would lose half of its value within 5 years due to loss of users: http://limbinvest.blogspot.com/2011/05/facebook-5-years-50.html .  Arguably, the 50% loss has already occurred but I don't raise the issue to take credit (I fully expect Facebook to lose more value over time), but rather to consider a point:  the world may be moving much faster than my previous conceptions of it would permit.  Another case in point:  one of my first posts predicted that Google would acquire Motorola Mobility within 5 years.  That prediction proved correct but took 5 months.  These are anecdotes to be sure, but I'm now examining my assumptions about the speed of change and the volatility of the world and its markets. 

ETF Tracking Errors

Barron's recently ran a piece on ETF tracking errors.  In other words, you buy an ETF to track a particular index and the ETF does not closely match the performance of the index it is supposed to track.  There are various reasons for the error, including fees, trading costs, and failure of the ETF to match the indices' holdings closely enough.  The article generally notes that tracking errors are small on US indices.  Frankly, this wasn't my understanding, at least with respect to triple short and triple long ETF's, but this isn't the point of my entry.  The article also suggests that foreign index ETF's have greater tracking errors.  Is there an arbitrage opportunity here, e.g. can you sell short one of these foreign index ETF's and then perhaps go long all or many of the underlying holdings of the ETF.  The idea being that your direct holding of the components of the index will outperform the ETF?  This one's not for me, it's a purely institutional trade I think and the devil would be in the details.  Trading costs might simply be too high with respect to buying the index's components.