Saturday, February 12, 2005
The Economist states the obvious
Well, at least it should be obvious: over the long-run, corporate profits can't grow faster than nominal GDP. I wish, however, that the article also mentioned the following:
- There is a big difference between the GAAP earnings that public companies report, and the corporate earnings that are measured in the GDP national accounts (in particular, the latter excludes amoritization and depreciation). Over the long-term, the two should grow at more or less the same pace, but over short intervals, there can be big divergences. The biggest one was during the late nineties, when reported earnings grew very quickly, but earnings in the national accounts did not.
- While aggregate earnings do tend to grow at the same pace as GDP over the long haul, the earnings of the average company grow at a slower pace. The reason is that the total number of companies is always increasing. Moreover, per share earnings tend to grow even more slowly because of share dilution (which historically has averaged about 2 percent of outstanding shares per annum).
- Inflation tends to distort the true measure of earnings. When inflation is high, nominal interest rates are also high, so companies incur much higher interest expenses. This reduces reported earnings. However, true 'economic' earnings do not necessarily decline with inflation, because inflation also erodes the real value of debt outstanding. While this may seem like an esoteric point, it has important consequences. Back in the late seventies, many economists noted that stocks were extremely undervalued because inflation was artifically depressing reported earnings, and that the true market P/E ratio was a lot lower than most people believed. This implied that stocks were extremely underpriced. Those who listened to these words of wisdom and bought stocks in the early 1980's as inflation was starting to come down would have found themselves on the ground floor of one of the greatest Bull markets in American history.
Friday, February 11, 2005
I was goofing around with Ameritrade's trade triggers system, and accidently sold all my PSRC shares at $10.67. Oops. I will repurchase them if they go back to $10.
Another lousy day. Up about $2000 today, but most of that was due to a big bid/ask bounce in AEHR. So for the second day in a row, I underperformed the major indices. However, for the week in totality, I did well. My portfolio gained $6,779, rising to $390,200, which represents a gain of 1.8 percent. This compares favorably to the S&P 500 (up 0.2 percent), the NASDAQ (down 0.5 percent), and the Russell 2000 (down 0.4 percent).
Thursday, February 10, 2005
SMAN's the girlieman
What a lousy day! My portfolio fell $2800. Obviously my decision to repurchase those 2000 SMAN shares at $4.50 yesterday was not the best course of action; the shares are now under $4. Oh well, I still think the stock will go up, and that the shares will be trading over $5 next week. I also sold my shares in BOSC. The stock is up over 30 percent from where I bought it on no news and low volume, so I'm inclined to take my profits and stay on the sidelines for now. I'll repurchase my position if we go back to the mid-twos.
Wednesday, February 09, 2005
SMAN's the man
I try not to check how my portfolio too often during the day since it distracts me from my regular job (playing tetris). Today, however, a bit of serendipity came my way. I opened my portfolio on Yahoo Finance, and what was waiting for me? This little gem from Standard Management, released just a few minutes after I opened my web browser. Well, after a few seconds of hestitation, I placed a trade to buy 2000 shares at $3.15, to add to the 1000 shares that I already owned. It was a good decision. Within half an hour, my limit order to sell those 2000 shares at $4.75 had been filled, and SMAN was at the top of the Ponzidaq's top gainers list. Almost immediately though, I got an major case of seller's remorse, and ended up repurchasing those 2000 shares (fortunately, at a lower price of $4.50 per share). We'll see what transpires tomorrow, but I'm hoping for another good day. Anway, thanks largely to SMAN, today turned out nicely, with my portfolio up $5000, hitting another all time high. In other news, I waded back into GIGM, picking up 5000 shares at $1.50, as the stock is now down 10 percent from where I sold it.
Tuesday, February 08, 2005
More tips on business etiquette
Neville, over at Nevblog, offers three good tips on how one can improve their business etiquette. Personally, when in the company of MBAs, I've always found it useful to precede every sentence that I utter with the words "In my expert opinion..." That really earns their respect.
Squeaked out another gain
Up $1,100 today, thanks to good performance in BOSC, ACY, and SKP, which helped to offset losses in most of my other stocks.
Rolling the dice on PSRC
Trying to catch a falling knife is never easy. But I've decided to try it with Palmsource. Although the stock has been hitting fresh 52 week lows on an almost daily basis for several months now, I think we've reached bottom. The company is now valued at about $150 million, and in my view, is a good acquisition target. Even if it doesn't get acquired, it is profitable and has plenty of cash. And most importantly, it is in the hot smartphone market, and continues to have a nice piece of the OS market for smartphones. Yeah, I know, it's got lots of competition, and has struggled to find licensees beyond PalmOne. Also, it doesn't have the ultra low P/B and P/S ratio that I usually look for when buying stocks. But my gut tells me to buy, and that's what I did: 1000 shares at $10.15 a piece.
Monday, February 07, 2005
Still managed a gain for the day
When I checked my portfolio around noon, I was up nearly $4,000, but by the end of the day, the gain was only $1,500. Oh well, still not bad considering the markets were down a bit today. I noticed that SINA was down over 20 percent after the market close on really lousy guidance that it released along with its earnings report. Ahh..the memories. SINA was both the best trade and the worst trade that I ever made. I bought 1,000 SINA shares way back in 2001 for about $1.50 per share (when the shares were trading below their cash value!). That was the best trade I ever made. However, I sold most of my shares at around $7. That was the worse trading decision I ever made. However, all was not lost: I did keep 200 souvenir shares that I eventually sold for about $45 right before they peaked. I reckon I sold my shares to this guy.
Friday, February 04, 2005
Up about $4,600 today, which brings this week's winnings to $8,759. My portfolio is now worth $383,421, up 2.3 percent from last Friday. This compares to a 2.7 percent gain in the S&P 500, a 2.5 gain in the NASDAQ, and a 3.9 percent gain in the Russell 2000 . Thus, this marks the second consecutive week that I have underperformed the major indices. However, I have still outperformed the indices by a healthy margin since the beginning of the year.
Thursday, February 03, 2005
A new record high
My portfolio was up about $1,000 today, thanks to nice moves by OUTL and BOSC. Good enough for a new all time high. I sold my shares of AGMX this morning after the company released an SEC filing that (in my view) appears to indicate that most of the liquidation proceeds will go to preferred stock holders. I also sold all my shares of GIGM after the stock ran up more than 15 percent in the two weeks since I bought it. Now that I've sold all my shares, I reckon there is at least a 95 percent probability that it will go up 30 percent tomorrow (it never fails!).
Wednesday, February 02, 2005
Martha the new Trump
Looks like Martha will star in her own version of the Apprentice. Well, hopefully she will do for her company what The Donald did for his shareholders. You know, I was reading his book, but I just couldn't get past Chapter 11...
A decent day
Shares in ASIA fell 7 percent today because of a downgrade by some clown analyst at Merrill Lynch (great call by the way: they don't say anything when the stock is above $10; then they downgrade it to sell when it falls to $5, where it's trading only 30 percent above cash value and still profitable. Amazing that there are actually suckers out there willing to pay for such "research".) Anyway, despite ASIA, the rest of my portfolio held up well, and I finished the day up $3,200. In other news, I sold 1200 of my 2000 shares in COLL at $5.81 (the other 800 didn't get filled in my limit order). Considering I was sucker-punched into buying those shares on Monday, I feel happy to have gotten rid of more than half of them at a slight profit.
Tuesday, February 01, 2005
Sold my ARNA shares
I neglected to mention in my earlier post that I also sold my shares in ARNA today. Frankly, I forget why I bought them in the first place.
Glad I didn't short Google
My portfolio managed a $1,300 gain today, thanks to a modest rebound in COLL (though the price is still below where I "bought" my shares yesterday). I sure am glad I resisted the urge to short Google today; shares hit an all time high after the company released another great quarterly report. I continue to think Google is way overvalued, given the company's huge market cap and low barriers to entry. However, the lesson I learned this fall when I lost $6,000 shorting Google is that I should be more careful when trying to short high momentum stocks. As Keynes once said, markets can remain irrational far longer than most investors can remain liquid. For now, I will stay on the sidelines and wait until the irrational exuberance for Google shares has faded.