Twitter As An (On-going) Experiment: An Investor/Trader’s Perspective

WHERE I’M COMING FROM

So I first joined twitter in 2009, when it was a much quieter place compared to what it is today. I was purely an observer/consumer at the time, not a participant or content contributor as I am now. I barely tweeted.

A few months before I joined twitter, I left the hedge fund I was with.  I decided to try something different, and ended up working in start-up land in a CFO/Strategy capacity. Naturally, I ended up following VCs/Entrepreneurs on twitter more than investing/trading folk, as I was interested in learning about the kinds of people I’d be working with (besides, twitter was a barren desert in 2009 compared to what it is today, for finance folk). Between 2009 - mid 2010, twitter’s value to me was not clear, and I did not use it frequently. It served primarily as a source of news/public sentiment/entertainment for me.

Flash forward to Fall 2010: I started trading full-time because I saw an opportunity, (an investment theme) that seemed to offer incredibly favorable risk/reward. I re-visited twitter as I started trading, and  noticed it was one of the better, if not best, platforms for obtaining real time news alerts related to this investment theme. I still remained an observer though, until mid-2011.

By mid-2011, I started tweeting my thoughts about single-stock ideas. If my memory serves me correctly, the stock I started tweeted about the most was YOKU, ticker for youku.com, the Chinese internet video company. It seemed like an obvious short to me when it was trading in the 50s. It was my largest short position at the time,  and could not believe that 9/10 people who tweeted about YOKU never once mentioned a thing about its business. So I tweeted about  YOKU’s business, its slowing growth, 1999/2000 dot com like valuation and my doubts about its viability as a for profit entity. What particularly got my attention was the dot com bubble like valuation, given the fear and low valuations prevalent in the China reverse merger space.

My short YOKU thesis , and tweets was = IPO lockup expiry + Slowing Growth + Competition Risk + Secondary Dilution + China Macro Risk + Dot Com Bubble Valuation + Risk that China RTO Fear moves over to China Internet Momo stocks … Suffice it to say, I felt pain (it melted up to 70 for no reason) before YOKU fell down to 15-20 by fall 2011.

My YOKU tweets got the attention of other fundamentally-oriented investors/traders, probably because my fundamentally-oriented tweets stuck out like a sore thumb nail. @DavidSchawel ( @bondtrader83 at the time ) was the first to notice my YOKU tweets, and we started having twitter conversations. The relationship blossomed, he introduced me to other ‘tweeps’ (short-hand for twitter people) , and that marked the beginning of my full-throttle participation in this twitter finance experiment. I thank David (and many others) who have made this unexpected journey possible.

WHERE I AM CURRENTLY

I need to follow fewer people. There are simply too many tweets for me to process now.  If I want to check out what my stream was saying just 12 hours ago, twitter.com nor tweetdeck don’t allow me to do that, depending on the number of tweets my followers tweeted. Yes, I can lookup what a specific user said 12 hours ago, but I am unaware of an easy way to check what my entire stream was saying 12 hours ago. The one thing that has made it hard for me to unfollow people is, I have nothing against 9/10 people that I am unfollowing/will unfollow.  This isn’t personal. In fact, I look forward to chatting/emailing with people who I unfollow. A follow/unfollow is not a vote of confidence. I simply cannot manage my current tweet load.

HOW TO USE TWITTER: FOR INVESTORS/TRADERS

Okay, I actually believe avoiding useless or even harmful tweeps/tweets is a good place to start. So below, I will focus on what NOT to do, so that twitter can be used to preserve, possibly enhance your wealth. If you simply avoid the tweeps described below, you are more likely to succeed, and find twitter helpful to your investing/trading decisions.

DO NOT FOLLOW OR AVOID THE FOLLOWING:

1. Now-Casters - There are plenty who seem to enjoy tweeting the obvious, stale, non-actionable headlines of the day. They seem to have an obsession with where the puck is now, not where it’s going. A slightly milder, but nevertheless equally useless cousin - those whose tweets focus solely on what everyone else does. APPL this, EUR USD that, blah blah blah. (I’m not referring to those who take a position, or explain why they are long/short…rather those who repeat the same chatter that only takes up space).

2. Armchair Finance/Econ Philosophers - These may seem enticing at first, and may be, if their thoughts/musings are pointing to an actionable investment theme. The problem I find, even among self-proclaimed ‘professional hedge fund managers’ I’ve followed, is most do not do this - most repeat the same macro China, Europe, and US superficial macro-wannabe analysis and theses that I can find elsewhere. No wonder they rarely share investment/trade ideas.  There is one specific tweep I have in mind…if this person were a stock, I’d be massively short him, with 99% expected return.

3. Uber-Narcissists - I’m very glad to know y’all have social lives, are well-rounded, etc…here’s where it becomes a problem - 90% of your tweets are about your personal lives, 9% are ‘now-caster’ tweets, and 1% are incredibly value adding. I don’t need to follow you, because chances are, those 1% gold nuggets will be re-tweeted by others, or I will find them myself.

4. Comedian Wannabees - I love humor and try not to take myself too seriously. In fact, people who know me, know that I laugh easily and can be quite the clown. There are some tweeps who claim to be investors/traders, yet 70% of their tweets seem poor attempts at comedy… in fact one of these clowns sent me a direct message several months ago, asking me to re-tweet one of his tweets so he could get more followers. I did…then I unfollowed him. By the way, BarbarianCapital, who I believe is a must follow is NOT this. He’s funny in his own way, but his humor is a tool to share insight, NOT to try to win popularity contests.

5. The One-word Tweeter - There are tweeps who 50% or more of the time tweet 1-5 word, useless tweets. Their tweets are waste of space, pollute the stream, and provide needless distraction.  If you pollute the stream with your ‘lol’, ‘thanks’, ‘buy high fcf stocks’, etc… well, good luck to you. I just hope your investing/trading decision-making aren’t as simplistic, lacking in thought, as your tweets are.

6. The Armchair Short-seller - If you see someone who has never shorted in his/her life, or is not short something he/she is discussing…or uses the word ‘overvalued’ more than a few times … avoid them. There is one specific ‘Armchair Short-seller’ who also happens to be one of the ‘Uber-Narcissists’ …if this person were a stock, I’d be massively short him, with 99% expected return.

7. The Finance ‘Expert’ Turned Political Pundit - Everyone is entitled to share and promote their political views, yet I would avoid following people who sound like they have politics all figured out, and excessively tweet about their naive political views. I’ve studied politics probably 10x more than these folks I have in mind, yet I’m surprised at how smug some of these suckers are…I’ve found an equal number of Republicans and Democrats who fit this profile. I recommend unfollowing, because I’m afraid their investment/trading sophistication is probably no better.

8. Teflon-proof Tweeps - We all make mistakes, I love the tweeps who own up to them, and also field criticism well. Avoid the tweeps who don’t seem to embrace the learning process (e.g. owning up to mistake), and avoid/ignore criticism. The only tweep who has blocked me to this day, is one I called out last fall. He failed to own up to his mistakes, and instead blocked me.

9. The Walking, Talking Investor Quote Generator - If you find someone saying, “be fearful when others are greedy, and greedy when others are fearful.” every time they want to justify some buy decision…unfollow. Their thesis should depend on the merits of the specific idea, not some generic quote they cite as if it were some holy prayer. I’m not criticizing those who cite investors…just those who recite the same bs to justify their investments/trades.

10. The After-the-Fact Expert - People who talk about how obvious something was after the fact…where were they before the fact? Before the news? Before the gap-down 50% or gap-up 50%? These suckers are so loud n noisy, the newbies think they’re actually the brains!  Unfollow those who do not express ex-ante opinions/posts, and only talk about how obvious it is that NFLX went below $100.

“In the end money talks, and bs walks.” - A Hedge Fund Manager

Jim Chanos on Greece

Question: Given your Greek heritage, we’re especially curious about your observations about the situation in Greece?

Jim Chanos: It’s dire for Greece. Clearly the European Union has made an example out of the country. As has been said, the problem with the EU is that it’s a currency union without a fiscal union. The incentives are all skewed. People who say that Germany suffers from having to share the EU with these Southern countries like Greece are missing the point. Germany is very happy to have those Southern countries in the EU, because it keeps the currency
lower than otherwise.

If Germany had its own currency, it would go through the roof, and harm German exports, which are the big
driver of that economy. So in effect what’s happening is that German taxpayers are bailing out European banks, who’ve lent money to the Southern European countries, which are buying German products. The problem is that it’s a political issue and so many people just want to look at it as a financial and economic issue.

There’s an interesting alignment of interests where the taxpayers in the donor countries are upset, and
rightly so. In other words, the typical German taxpayer is saying, why should I pay for this? The other thing is the recipient countries are upset, too. It’s not as if the typical Greek citizen wants this money. They’re not seeing any positive results from the money – it just goes right to the European banks. It’s not financing any new growth initiatives.

I’m not going to apologize for Greeks who didn’t pay their taxes or retired at 42. The stories are out there and they’re all true. But be that as it may, there are an awful lot of law abiding Greeks who are being destroyed by what is going on in Greece now. The new twist in 2011 is that the donor countries installed their technocrats in Greece’s ministries to oversee tax collections and interior policy, and that has really hit a nerve. Now Germany is basically dominating Europe. You ignore that political calculus at your peril.

All of this connects to historical issues, such as how the Germans treated the Greeks in World War II. Greece lost one million people in World War II out of a population of eight million. The only country with a comparable (and higher) ratio was the Soviet Union. In the fall of 1941, after the Germans invaded Greece, they left the Greek government intact but they put Reich’s ministers in charge of all the ministries to oversee them.

One of the things they did was to loot the country of its harvest. Eight hundred thousand Greeks died in that famine of 1941. Almost every Greek family has someone who died in that famine. So this twist has opened up a 70 year old
wound. Keep an eye on Spain and Portugal because they’re next. The other issue that is coming about is cutting your way to growth.

Is austerity key to getting these countries back on track? So far the evidence is pretty poor that it is. We
may look back and say, wow, what a policy mistake.

Source - Graham and Doddville, An investment newsletter from the students of Columbia Business School, Spring 2012

What inspired me to post this is this story - A Greek-american friend of mine, who I attended junior high school, high school, and same college town with, shared the following story http://www.athensnews.gr/portal/9/55847

Is Amazon Resorting to Deceptive Selling Techniques? If so, why?

Amazon.com’s (“AMZN”) stock is one that nearly everyone seems to want to short (especially among the long-biased crowds). In fact, it seems like a stock people go short, citing some fundamental thesis that’s been around for a decade (“high P/E, yet low margin business, deserves lower multiple”), THEN go around looking for reasons to short it. One short-seller told me, ” AMZN is not a stock that short-sellers short.”

I mostly agree. What is funny and ironic is … the loudest fundamentally-oriented cheerleader and bull of Green Mountain Coffee Roasters’ stock on Twitter/Stocktwits in November 2011 (before, during, and right after it gapped down 40%), wrote a piece 2 months ago titled “Amazon.com (AMZN) is the Secular Short of 2012″ http://www.firstadopter.com/2012/03/amazon-com-amzn-is-the-secular-short-of-2012/ The market has disagreed so far. I respect and admire his courage, but am nevertheless skeptical when he talks shorting or valuation. For example, even now, AMZN is actually less expensive than GMCR, on a cash flow basis. You can at least do an intellectually honest DCF on AMZN. You can’t with GMCR.

Don’t get me wrong, I believe there are good reasons and opportunities to short AMZN, but I believe the more compelling reasons are of a quant/macro/vol/fund flows nature. For larger hedge funds, with certain liquidity needs, etc., AMZN, at times, actually makes a lot of sense as a short, either for hedging or purely directional betting purposes. But these are very different reasons.

Anyway, I noticed something very peculiar (to put it nicely) that might be much ado about nothing, or prove that firstadopter is onto something:

I searched for a certain product on AMZN @ 10:29 pm and AMZN claimed - “Only 1 left in stock - order soon”

Fearing that the product may have sold out, I searched again for the same product on AMZN @ 12:29 am and AMZN claimed - “Only 20 left in stock - order soon”

What is going on? It could’ve been a glitch, there could’ve been more inventory mysteriously made available within 2 hours or… AMZN is tinkering with deceptive sales practices. After all, for customers sitting on the fence on whether to purchase a product, perceived scarcity might do the trick.

I’ve noticed similar in the last 2-3 quarters…this happens to be the first time I saved screen shots showing this.

What supports my suspicion is, this product is widely available at other retailers…not to mention, it’s selling on eBay for ~15% lower (new, free shipping, receipt, etc).

Let’s suppose I am correct, and AMZN is resorting to such techniques. Why? The product may be selling way below expectations, and AMZN is forced to do whatever is necessary to get it moving.

The question, as far as I’m concerned, is - does this mean this particular manufacturer/supplier is not doing well? Or is this merely the tip of the AMZN iceberg?

”Misconceptions Play a Prominent Role in My View of the World” - George Soros

”Misconceptions Play a Prominent Role in My View of the World” - George Soros

Confession: I am coming to appreciate and adopt George Soros’ market world view(s),  increasingly with time, like a fine wine that gets better with age. I say this with hesitation, as a good number of my friends find him, his personal life, and/or his politics, distasteful. I once considered myself a Buffett disciple…I read all his letters,etc. I still have a great deal of respect for Buffett, but I find Soros more practically helpful, for the purpose of surviving the ‘den of thieves’ a.k.a. the financial markets.

Why bring up Soros, THE ”Evil Sith Lord” among all “Evil Sith Lords” (hat tip to jokester/fraudster Overstock.com CEO Patrick Byrne for either coining or popularizing that expression, even as it seems to describe him better than those he labeled) ?

The following headline, ”In The Past Week, We Heard 3 Huge Bears Say One Really Bullish Thing About The US” released earlier today by a growing business/financial news concern, seems to justify Soros’ well-documented obsession with human fallibility, reflexivity,etc.

What is the first thing that comes to mind, when you read ” In The Past Week, We Heard 3 Huge Bears Say One Really Bullish Thing About The US” ? The first thing that came to my mind, in my sick, bed-ridden state, was ‘must read this’, because (1) I, and other market participants, pay especially close attention to inflection points in money managers’ stance, and thinking…the headline does an incredibly good job of making me think that macro bears might have become bullish. (2) I am an occasional (if not sometimes ‘fully-dedicated’) short seller, so I’m very curious what others who also short are thinking. I’m wondering to myself  ’what am I missing?”  3. then I wonder who are these ’3 Huge Bears’ ? What did they actually say, and why?

I felt foolish and deceived as soon as I read the article. This ‘article’ mentioned Jeffrey Gundlach of Doubleline and Hugh Hendry of Eclectica, to pull off a technically correct,  ’journalistic sleight of hand’. I was wondering to myself, ‘who are you trying to fool?’ The screaming, big picture orientation of these two, for now, is to stay away from risk assets.

( in fact, Hendry in that same letter said ”This makes us bearish on most Asian stocks, bearish on industrial commodity prices, interested in some US stocks, a seller of high variance equities and deeply concerned that Japan could become the focal point of the next global leg down. On the plus side we also believe that we are much closer than before to the beginning of a bull market of perhaps 1982, if not 1932, proportions. We just need the last shoe to drop.“ 

Those who know Hugh and/or meticulously follow his written/oral statements, know that he is very focused on getting the timing right. Straight out of the horse’s mouth:

”Instead, the probability of making money can depend not on the end game but on how we get there: the starting point and transitory events in between have a significant bearing on whether one can ultimately profit from the envisioned outcome.”

Therefore, those of you haggling over his view on US nat gas, or the fact he said ‘interested in some US stock’ … you’re missing the bigger picture point and positioning he’s taking. It’s almost fraudulent, intended to deceive, or incompetent…there’s a chance I could be wrong here…chances are, my gut reaction, as outlined above, represents a minority reaction… but the circumstantial evidence, to me, points more to deliberate deceit.

By circumstantial evidence, I am referring to the pictures used in the article, the glaringly differing sentiments/assertions between the headline, article,and…actual positioning of both Hendry and Gundlach. Oh, also the selective use of certain phrases that they are bullish ‘something’…while deliberately omitting their bigger picture points.

Other circumstantial evidence - I’ve been alerted that this aspiring financial/business media concern, has function as somewhat of a de facto mouthpiece recently to entities who: (1) have all the media coverage in the world, and then some (2) are very biased entities, and don’t go about hiding their biases (3) are prominent members of the ‘priesthood’ of business/financial academia, which unknowing Americans may lend them greater credibility.

Of course, as a market participant who focuses on ‘what is’, rather than ‘what should be’, this is a mild example of the importance of understanding  both perception (especially if the perception is really a misconception, miscommunication) and reality with equal rigor…simply because ‘fallibility and imperfect knowledge’ mean that market participants can and do act on factually wrong or inaccurate information. All the time. In fact, I for one gain conviction to take an ”all-in” type of stance if/when the divide between perception and reality seems so great, that the mere weight of this absurd difference itself could be a catalyzing force.
Anyway, this is all too bad, because I’m usually a fan of the ‘little guy’… I for one have loved seeing this rising business/financial media concern gain greater prominence. I love seeing a promising David slay the Goliaths of the world, and in so doing, make it a better place.

But what is concerning me is that this media concern seems riddled with the same problems that the preexisting ‘old guard’ have, if not worse. Particularly concerning has been the pandering to financial power structures, more than the deceitful use of Hendry/Gundlach’s current investment orientation. So you get rid of one monarchic regime, only to replace it with a populist-rhetoric laden totalitarian regime?  Love Zerohedge or hate them, there is something uniquely American and noble in their mission to speak truth to power (don’t get me wrong, I have problems with ZH too, particularly certain writers on their site; that said I believe it is better to be approximately right, rather than precisely wrong).

In case it wasn’t made clear - I have nothing personal against this media concern. I have no financial interests in rivals, nor have I been  insulted/hurt by them. I want them to succeed, as yet another American success story, especially when our country is starving for successes… especially those that do it the right way.

Besides the David n Goliath narrative, I also want to see them succeed for another reason - the figure running the operation (rightfully)  fell from grace in the late 1990s/early 2000s, and I hope his story is/will be one of ultimate redemption. I believe in America, and part of that means allowing people to fail yet giving them second chances… and seeing some of them live out a beautiful, moving turnaround story.

In fact, it is this Japan-esque ‘saving face’ malady lingering in the financial, political,  & cultural spheres, that I believe is a poison, among many, that threatens America’s longer term viability. I strongly believe we need more people in positions of power, whether in the economic or political arena, who fell from grace, atoned, only to turnaround to do great things. What I think will contribute to America’s decay, is propping the political/economic clout of people who seem perfect on paper, and publicly/privately blind to their own fallibility… I find them the most dangerous/fragile to society.

Enough rambling. I may be making ‘much ado about nothing’… if so, I blame it on my physical weakness/illness (I’ve been bed ridden since yesterday…I feel sicker today than yesterday).

“On the abstract level, I have turned the belief in my own fallibility into the cornerstone of an elaborate philosophy. On a personal level, I am a very critical person who looks for defects in myself as well as in others. But, being so critical, I am also quite forgiving. I couldn’t recognize my mistakes if I couldn’t forgive myself. To others, being wrong is a source of shame; to me, recognizing my mistakes is a source of pride. Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes.” - George Soros

Apple: Cool yet…Ubiquitous?

Before saying anything else, I would like to emphasize the following: THE PURPOSE OF THIS POST IS NOT TO RECOMMEND BUYING, SELLING, OR SHORTING APPLE THE STOCK.

There are armies of analysts, consumer tech gurus, etc. who understand Apple the Company, its products, and its stock much better than I do. One would hope, therefore, that they’d do a better job of articulating an Apple investment thesis better than I could. So I won’t go there.

What I do somewhat better than the average joe is identify ironies, paradoxes, inconsistencies, and even contradictions big and small. Usually these observations lead nowhere. Occasionally, however, these observations give birth to investment ideas that seem absurd at the time of inception, and obvious later on.

There is a profound paradox that comes to mind every time I think about Apple: How does a company whose products are found anywhere and everywhere, nevertheless stay so ‘cool’ in the public’s/customers’ eyes? How did Apple quietly cruise past Microsoft, the artist formerly known as the ”Evil Empire”, in revenue, market value, and even in earnings, yet is seen more as a Luke Skywalker, and not a Darth Vader?

I speculate that if you understand and ‘solve’ this mystery, you will understand the future trajectory of Apple the business and its stock better than the rest of us…

Memo to Warren Buffett Lovers and Haters Alike

I wrote an (extensive) comment on Warren Buffett on one of the blogs I follow. For my record keeping, as well as possible edification of others, I present to you below:

Context: http://brontecapital.blogspot.com/2012/02/stocks-you-can-fondle-them-and-they.html

John,

I’ve read all (or nearly all; some several times) Warren Buffett’s letters. Suffice it to say, I used to be a fan + admirer.

I appreciate that you give off a nuanced perspective on Buffett. The vast majority of people who opine on Buffett either despise him even while others treat him as if he were the second coming of the Messiah, the Mahdi. Many of these comments in response to this post are a case in point.

Here are my 2 cents, which hopefully is accretive + complementary to yours:

(1) I respect Buffett…nothing more, nothing less, just as an aspiring athlete respects the superstars of yesterday.

(2) I find greater actionable insight by studying Buffett’s words vs. actions throughout the years. For example: Buffett was NOTABLY (and intentionally) MIA from public equity investing for a good chunk of the 1970s.

(3) Buffett has shared his knowledge + experiences freely to the public. His insights are more valuable than a CFA + MBA combined, in my opinion, for money managers. Critics should seriously weigh his positive contributions against their (largely) valid concerns.

(4) Buffett’s exceptional ability to select great businesses from the massive cemetary of losers, is an additional reason his prescription - to own productive assets (e.g. stocks) - is especially dangerous. The “look at me, I can do it!” does NOT mean “So can I!”

The Buffett worshippers would therefore be wise to take his recommendations with a grain of salt, i.e. he’s a better stock picker than the rest of us!

(5) The descriptive vs. the prescriptive - I personally find some of the more concretely helpful material coming from Buffett’s description on how the world works (or doesn’t), rather than his advice on what YOU should do with your money.

(6) Buffett is fallible. He’s said so many times, if I recall correctly. He too can lie, contradict himself and <drum roll> be wrong.

(7) Context matters - Buffett’s AUM has risen with time, as has his strategy, to adapt. This is just one example of why it’s important to take Buffett’s words in the context he wrote/said them. Many (amateur) Buffett lovers treat his words as absolute, context-independent truths; his haters unfairly take his words out of context. Both miss out on the opportunity to learn and grow.

UPDATE (I will add more thoughts as they come,periodically, on this topic)

(8) What’s Buffett’s Politics got to do with his Investment Acumen - There are a good number of friends I love + respect, who have privately shared their not so warm and fuzzy feelings about Buffett with me, due to his…political leaning!

My response: so what? Do you and your spouse share the same political views? Do your sports heroes, role models, crushes, or even other legendary investors share your politics? For the record, I often disagree with Mr. Buffett’s policy prescriptions, but I respect, appreciate, and even welcome that he shares his views publically, because his reasoning, and the case he makes for his views (which I usually disagree with) are much more compelling than others’.

(9) Macro Matters, Straight from the Horse’s Mouth - This is a variation of (7) , but I think it is worth bringing up as a separate item: Buffett credits the USA as a ”rising tide” during his investing career, as one of the important drivers of his success (Specifically, favorable demographic, legal/political, credit + money supply, consumption behavior, and technology/productivity trends). Many of Buffett’s fans, who are dogmatically-inclined, self-described “value investors”, totally don’t seem to get this..even as it has come straight out of the horse’s mouth! The Buffett haters, too, miss his open admission, don’t credit him for at least being a savvy opportunist.

(10) Buffett is Not Responsible for the (occasional) foolishness of his fans - How many times have you heard someone’s investment thesis (or justification) for buying some piece of shit stock (excuse my French): “Warren Buffett said, ‘Be greedy when others are fearful’ ” - I have, and I’ve paid dearly, more so than not.

What scares me is seeing ‘investment professionals’ who ought to know better do essentially the same thing, citing that quote as if it were some holy mantra. Hugh Hendry described these folks as “lazy contrarians”. I’ve found ‘lazy contrarians’ can most certainly make money on these trades, but for reasons that are independent of the originally articulated thesis. That’s fine, but they don’t seem to acknowledge this…and I fear their risk of blowing up increases, with each subsequent ‘success’.  ”Pride cometh before the fall” Memo to Buffett haters: Buffett is not responsible for the poor judgment and mistakes of others.

(10)

David Einhorn From Yesterday & Hugh Hendry Past Comments

http://platform.twitter.com/widgets/hub.1326407570.html

David Einhorn Q+A at Columbia Business School, February 10 2012

Source: http://www.benzinga.com/general/hedge-funds/12/02/2336213/benzinga-exclusive-david-einhorn-comments-on-apple-tv-gold-and-jap

Top value-oriented hedge fund manager David Einhorn is speaking today at the  Columbia business school. This afternoon, Einhorn, whose comments frequently  move the markets, spoke about the prospects for Apple TV, gold and Japan in  addition to commenting on a number of other stocks in which he holds positions.

Einhorn remains positive on Apple and believes that the company can succeed  even if its TV (about which rumors  are swirling on the internet) does not. Einhorn said that it will be  important for the TV to be revolutionary. He told the audience that he still  likes Apple without taking the potential of  Apple TV into consideration. As of the end of the third quarter of 2011,  Einhorn’s hedge fund Greenlight Capital had a roughly $600 million position in  AAPL, making it the fund’s single biggest holding.

Einhorn also said that he is still long gold (his fund’s second biggest  position as of 9/30/2011 was the Market Vectors Gold Miner ETF (NYSE: GDX) and it has also been widely reported that  Greenlight has a massive physical stash of the yellow metal stored in private  vaults).

Speaking about Japan, the hedge fund manager said that out-of-the-money options in Japan (presumably on JGB’s and the Yen) are mispriced and will be very profitable if the European debt crisis makes its way to that country. A  number of prominent hedge fund managers are shorting Japanese Government Bonds  and the Yen on the expectation that Japan, which has the world’s highest  debt/GDP ratio, will be swept up in the sovereign debt crisis.

Speaking about some specific stocks, Einhorn said that he looked at investing  in Walgreens (NYSE: WAG), but does not currently have a position. He said that  hobbling Research in Motion (NASDAQ: RIMM) has critical mass problems, but that the  company’s balance sheet is not that bad. He said while the stock wasn’t a great  investment at current levels, it wasn’t a short either.

Speaking about Dell (NASDAQ: DELL), which he owns, Einhorn said that the  company was smart to buy back its stock at $15.00, but has paid too much for  some of its acquisitions. He added that DELL’s business is trading at around 4x  earnings when backing out the $7 per share in cash the company has on its  balance sheet.

The Greenlight manager said that he is still short Green Mountain Coffee  Roasters (NASDAQ: GMCR), which has fallen from a high of $116 in September to  $62.87 on Friday. Einhorn stated that there were 20-30 ways for his short thesis  to play out. He also mentioned another one of his high profile short positions -  St. Joe (NYSE: JOE)  - arguing that the company’s land holdings are worth around $7 per share and  that efforts to develop some of its real estate in Florida have not been  successful.

Source: http://merrillovermatter.blogspot.com/2012/01/hugh-hendry-as-plasticine-trader.html

Is Radioshack a (Perma) Value Trap or Will Buyout Rumors Save the Stock?

In afterhours on Monday, January 30th, Radioshack (RSH) announced a profit warning, sending the stock lower in after hours as well as in the pre-market the following morning. Since then, the stock has been trading at levels not seen since March 2009; in fact, the lowest closing price it traded in March 2009 was $6.70/shares. RSH traded at $7.29/share as of today’s market close. So why did the market react the way it did? Is it an overreaction, and a great buying opportunity, or is this profit warning, and subsequent market reaction, a preview of what’s to come?

First, the Bad News:

(1) Q4 Earnings to Disappoint Relative to Expectations & Prior Year’s Q4 Earnings - Diluted earnings per share for the 2011 fourth quarter are expected to be in the range of $0.11 to $0.13, compared to $0.51 per diluted share reported in the 2010 and analyst expectations of $0.37 for quarter, according to I/B/E/S Estimates. So RSH profit warning came out 1/3rd expectations!

(2) Lower Gross Margins - Gross margins is expected to be approximately 35%, compared to 41% in the 2010 fourth quarter. Makes you wonder what’s going in. RSH claims, “The decrease reflects a shift in mix within mobility sales towards certain lower margin smartphones and mobile devices; a higher percentage of mobility sales in the overall revenue mix, largely driven by the Company’s expansion of Target mobile centers; and the impact of a more promotional holiday season.”

(3) Blame it on Sprint? - The Company’s results for the fourth quarter are due in large part to the underperformance of the Sprint postpaid wireless business and reflect further unanticipated changes in Sprint’s customer and credit models. These changes resulted in fewer new and upgrade activations and a decline in Sprint postpaid revenues in the fourth quarter compared to the 2010 fourth quarter and compared to third quarter 2011. In addition, fourth-quarter results reflect a highly promotional holiday season and ongoing pressures on consumer spending.

(4) 2012 Earnings to Be Lower than 2011′s - we look for 2012 net income to be down compared to 2011, with very challenging comparisons in the first quarter and sequential quarterly improvement in the remainder of the year.”

(5) Inventory Slightly Up - Inventory at Dec. 31, 2011, stood at $744 million compared to $724 million at Dec. 31, 2010.

The Silver Lining (?):

(1) Q4 Sales actually looks OKAY, slightly above estimates - Total net sales and operating revenues from continuing operations for the 2011 fourth quarter increased approximately 6% to $1.39 billion compared to $1.31 billion for the fourth quarter last year. Comparable store sales for company-operated stores increased approximately 2% during the 2011 fourth quarter.

(2) Cash balance up year over year - RadioShack ended the fourth quarter of 2011 with a cash balance of approximately $590 million, compared to $569 million at Dec. 31, 2010. Cash is down sequentially, but there may be a seasonal explanation (needs to be better understood).

(3) No more Buybacks..but Dividends Paid Quarterly Starting 2012 - RSH changed the annual dividend payout to a quarterly payout beginning in the first quarter of 2012.

Note: RadioShack expects to report final, audited 2011 fourth-quarter and full-year financial results on Feb. 21, 2012, before the open of trading on the New York Stock Exchange.

MY TAKE: I’m not in a rush to make a decision on the stock, until the 10Q comes out and management has a chance to give more color into the disappointing quarter and outlook. I don’t sense that longs have capitulated… a higher div yield and/or bigger discount to tangible book value would suggest to me that they have, which then would look interesting to me.

Full disclosure, I went long RSH in December, in the mid $9s, and sold in early January just under $10/share. I dodged a bullet. I currently have no stake. Here is my take as

(1) Valuation: Looks cheap, but not stupid cheap - Shares looks cheap on a price/tangible book basis, as it trades just shy of tangible book (9/30′s). However, if the earnings for Q4 is a proxy for Q1 earnings, my fear is the following: Full year 2011 EPS looks like will be around $0.70/share, which puts valuation at around 10x P/E . That seems reasonably cheap, but given the negative language for Q1 2012, it’s reasonable to wonder if RSH can’t go any lower. After all, if Q1 eps were to suck badly, and the rest of year were still improve ‘sequentially’, we could still end up with a low 2012 eps. What if 2012 eps came out to around $0.50/share? That would seem not cheap.

Having said all this, one wonders if 6.86% dividend yield adequately compensates for these risks, or at least attracts a bid, preventing a panic capitulation. There are some REITs, such as CLI, that have comparable, yet arguably contractually ‘safer’ dividends than RSH. I wonder if buyers will, as a result, require higher yield as compensation. I, for one, would initiate a decent sized long position, if the yield was around 10%. One complicating factor: Ben Bernanke.

I don’t see immediate liquidity/solvency risk, which may be a reason, coupled with a decent dividend yield, the stock has a bid. Also, my guess is the market perceives its risk of obsolescence to be lower than, say, a Research in Motion

(2) Do the quarter, and full year’s numbers validate the bears’ thesis, that this is a (slowly) dying business, that may bleed indefinitely - John Hempton over at Bronte Capital wrote a decent post “The Forthcoming Irrelevance of the Australian Electronics Retailer” http://brontecapital.blogspot.com/2011/12/forthcoming-irrelevance-of-australian.html He makes a reasonable case that many of these consumer electronics related retailers are doomed for long-term, albeit possibly slow/stretched, bleed to death.

(3) The Amazon + Mobile Provider Retailer Threat - One wonders why a consumer would purchase a cellphone, or even electronic accessories, if amazon can offer a lower price? Why not walk into Radioshack, look around, and then order from elsewhere? I guess one could ask why payday lenders, overpriced convenience stores, etc.  exist as well. Without understanding the current, and prospective RSH consumer behavior, it seems precarious to short the stock at these levels, or to go concentrated long as an ‘investment’.

UPSIDE (albeit improbable) SURPRISES:

(1) The oft-ridiculed Buyout Rumors…come true - Even as Radioshack has been the butt of all jokes, and rumors, of PE/MSFT, etc buyout rumors, what if it actually were to be considered?

(2) The Ron Johnson effect - A low probability (as perceived by most of us), but high impact event would be if some Ron Johnson type figure were to enter the scene. I speculate that the hype alone could get the stock up 30-50% from current levels…on the hope of a ‘renaissance in brick n mortar retail’

(3) Ability to Survive/Adapt May in Itself Provide upside surprise…eventually - You have to admit, Radioshack has actually survived through the times, even as various electronic gadgets have gone extinct; without an immediate catalyst for death, the optionality of survival may in itself provide surprise.

SilverCorp: What Should You Do?

FULL DISCLOSURE: I have no stake in SVM, nor have an opinion on SVM. I do, however, have a knack for fraud detection and have been fairly successful with identifying fraud. I may at some point do more serious work, which may or may not lead to a long or short position.

OVERALL RECOMMENDATION- I believe that you should not own or hold SVM unless you have proof (or at least very compelling, detailed set of evidence) that falsify the critics’ concerns, or at least renders them immaterial. Otherwise, stay away.

(1) My Personal Take - I’ve read the critical reports regarding SVM; I don’t understand the claims well enough, nor have enough conviction at this juncture, to long or short the stock at this point. Bear in mind, in the past I’ve reviewed similar types of claims and had more conviction to short;

(2) Muddy Waters/Alfred Little Track Record -  Those who are short the stock - Muddy Waters and Alfred Little - have been the best of breed when it comes to identifying fraudulent concerns; do not trust me, go examine the facts. Do not be satisfied simply with what others have to say; rather examine the claims, counterclaims, and check against facts. You’ll likely to come to agree with me.

(3) Ad Hominem Attacks - going after the messenger, the superficial - does not help arrive at the truth. Anonymity of the accuser does not add or subtract to the claims he/she make. I would not recommend using anonymity, accreditation (or lack thereof) as arguments to undermine the claims of the messenger. I’ve seen dozens (conservatively 30-40 companies just within this year), like Sino Forest, CCME, LFT, to name a few, who do the same exact thing; they attack the messenger, rather than the message. Don’t be fooled by attempts to distract from the core concerns.

(4) China/Fraud Expertise - If you do not understand business practices in China, do not, as a knee jerk reaction, criticize those who are. Also, if you do not understand fraud, do not as a knee jerk reaction, criticize those who are experts on fraud. Examine the facts and claims. Don’t take the CEO or anonymous short seller’s word for Gospel. Look underneath the surface and see what validity their claims have.

(5) What Fraud is - Fraud is such a scary word, but ultimately, at heart, it simply means ‘misrepresentation’. Sorry to break it to you, but that’s the real world; people exaggerate, lie, cheat, and steal. The question then is not whether there is fraud (as there usually is in life), but to what degree; what you really should care about is: is this fraud material enough to move the needle? It’s one thing for management to lie (as they usually do); it’s another for those lies to be so egregious that the stock is worth a fraction of what it’s trading for.

(6) Truth About Short Sellers - Contrary to popular belief, a short seller does not want other short sellers to pile on; they want owners of the stock to sell. Please get this straight before you immediately assume there’s some kind of short seller conspiracy; it’s not in their economic incentive to do so, as more shorts only worsens risk of short squeezes and makes borrowing shares more difficult, and more costly.

7) Certain Behavior has Predictive Power - In my experience (and experience of those with with much more experience than I have) whenever a CEO/mgmt team attacks the messenger and does not address the claims in detail, it’s a huge red flag. I’m not saying it proves fraud, but the narrative is generally not favorable to those long the stock (on a non trading basis).

(8) How to Approach Fraud Accusations as a Long -  If you’re long the stock, you have it all wrong if your approach is: I won’t sell unless fraud is proven. Proving fraud, I assure you, is tricky. By the time fraud is proven, the stock has generally already lost 80-99%  of its value.  Markets after all, anticipate. Your approach should rather be: I won’t buy/hold, unless I can prove there is no material fraud, or at least have a sufficient set of facts that makes me comfortable. Don’t be married to positions or opinions. Do not underestimate the intelligence of fraudsters.

(9) Just say no to Coat-tail Investing - Don’t buy or hold simply because so and so owns and/or is buying. You’d be surprised how incompetent, careless, and ignorant billionaires  and funds can be…or you’d be surprised how clever fraudsters can be. Not to mention, we all make mistakes.

(10) Audits/Auditors - If you place your trust in audits/auditors, study frauds of the recent and older frauds (the famous ones as well as less known ones). After doing so, you’ll probably come to the same truth that I have: audits/auditors are not designed to detect fraud.  As such, relying on them to prove no fraud…let’s just say there are scores of folk who have lost fortunes with that logic.

(11) Don’t trust anything or anyone, when fraud is of concern. Only verify and confirm.