Tuesday, January 31, 2006
Shorted GOOG
I shorted GOOG right before the market closed. It was a small trade (only 15 shares). My main motivation was the view that Wall Street analysts had raised their estimates sufficiently high that it would difficult for the company to beat them as handily as it had in the past. Also, I wanted to hedge my position in YHOO, which I knew would probably move in the same direction as GOOG regardless of the results. I will probably take my profit tomorrow because I suspect the analysts will try to sweet talk the stock back up to $450.
January Results
Close but no cigar. I finished the month of January up $51,652 (8.6 percent), a nice performance, but not as good as the Russell 2000, which gained 8.9 percent. However, I handily outperformed the S&P 500 (up 2.5 percent) and the Nasdaq (up 4.6 percent).
Monday, January 30, 2006
The Russell shows some hustle
Although my portfolio continues to be undermined by Marsh, I still managed to gain about $3,900 today thanks to nice moves in many of my holdings, especially PEAK, which continues to move higher since reporting improved earnings Thursday evening.
I might point out that YIWA gained 62 percent today. Of course, as King Lear said to Cordelia, nothing comes of nothing, and in my case, 62 percent of next to nothing is still next to nothing. Going into tomorrow (the last day of January), I am up 8.5 percent for the month, almost neck and neck with the supercharged Russell 2000, which is up 8.6 percent.
I might point out that YIWA gained 62 percent today. Of course, as King Lear said to Cordelia, nothing comes of nothing, and in my case, 62 percent of next to nothing is still next to nothing. Going into tomorrow (the last day of January), I am up 8.5 percent for the month, almost neck and neck with the supercharged Russell 2000, which is up 8.6 percent.
Thursday, January 26, 2006
PEAK piqued my interest
Up about $1,000 today and up about $4,300 yesterday (would have been much more if it weren't for you know who). I picked up 4,000 shares of PEAK right before the close of trading. I knew that they were reporting earnings tonight or tomorrow morning and I figured that considering the stock is priced for disaster, there was little downside. Looks like I was right since the stock got a bit of a bump in afterhours. The Russell 2000 is kicking my ass this week so I need all the help that I can get (plus OCCF looks set to do a belly flop tomorrow... this is two quarters in a row that the company has disappointed).
Tuesday, January 24, 2006
The Usual Suspects
A thoroughly pathetic day: down about $2,400. No surprise as to who the main culprits were: that's right, my old friends (and new enemies) MARSA and MARSB. Despite Marsh's meltdown, I do take some solace in the fact that the stock has fallen on very low volume. This suggests that maybe the fall in the stock is due to some nervous Nelly's bailing out and that insiders can't take advantage of it because they are privy to knowledge about a forthcoming buyout. Optimistic thinking perhaps, but I'll take what I can get.
Monday, January 23, 2006
Stupid *&%$ MARSA
Up $470 today, no thanks to MARSA (and its equally useless cousin, MARSB). Although I am in the hole by over $5,000 on this position, I still have confidence that a buyout will put this stock out of its misery soon, and I'll be able to recoup my losses, and perhaps even turn them into a profit. Hopefully I won't have to wait long because watching the stock slide 5 percent every day sure isn't fun.
Friday, January 20, 2006
The resilient Russell 2000
What an ugly end to the week! For the week as a whole, my portfolio declined $3,819 (0.6 percent). While this performance was better than the S&P 500 (down 2 percent) and the NASDAQ (down 3 percent), it was slightly worse than the Russell 2000, which declined only 0.5 percent for the week.
One common misperception that most investors have is that small caps are more risky than larger stocks. That's true only if you focus on individual stocks. Small caps are more volatile than larger stocks as measured by their standard deviations. However, if you consider a well diversified portfolio of small cap stocks, the small cap portfolio is typically no more volatile nor has a higher market beta than a large cap portfolio. Indeed, during times of market pressure (like today's plunge in the markets), small caps often outperform. During black Monday in the 1987 crash, the mega cap Dow 30 fell 22.6 percent, the large cap S&P 500 fell 20.1 percent, but the small cap Russell 2000 fell only 12.5 percent.
One common misperception that most investors have is that small caps are more risky than larger stocks. That's true only if you focus on individual stocks. Small caps are more volatile than larger stocks as measured by their standard deviations. However, if you consider a well diversified portfolio of small cap stocks, the small cap portfolio is typically no more volatile nor has a higher market beta than a large cap portfolio. Indeed, during times of market pressure (like today's plunge in the markets), small caps often outperform. During black Monday in the 1987 crash, the mega cap Dow 30 fell 22.6 percent, the large cap S&P 500 fell 20.1 percent, but the small cap Russell 2000 fell only 12.5 percent.
Wednesday, January 18, 2006
MAM and TST
Down about $3,500 today. YHOO did move higher at the open this morning, but then failed to maintain the momentum. I think I'll hold this one for a few days and see what happens. I started two new longer-term positions: MAM and TST. MAM is a boring utility play, but it's trading well below tangible book and should show a healthy increase in earnings in 2006. TST is more speculative. It's a Chinese company (big minus) but it has a healthy balance sheet (big plus) and should post significantly higher revenues and earnings in 2006 (even bigger plus).
Tuesday, January 17, 2006
YHOO for a trade
Up about $1,500 today. I picked up 300 shares of YHOO afterhours at $35.28. I think the drop after the close was too extreme considering they didn't miss estimates by a wide margin. I'm hoping that institutional buying tomorrow morning will propel the stock to the mid-36 range, where I plan to take my profit. Considering that the stock kept sliding in afterhours after I bought it, my theory may turn out to be wrong, but live and learn.
Friday, January 13, 2006
TAYD: Shake, Rattle, and Sold
TAYD reported strong earnings today and the stock surged (why can't they release the PR before or after the bell like everyone else?). I've been in and out of TAYD since the fall of 2004 and each time the stock has made me money.
I must admit it was a bittersweet feeling to sell my TAYD shares. I like the company and its prospects and I like the idea of investing in a company that makes products that save lives during earthquakes. But while the earnings were good, they weren't amazing (two quarters ago, TAYD reported revenue and sales that were both higher than what was in today's report, and back then the stock was trading in the 3 dollar range). Furthermore, while the company's guidance that revenue and earnings will be substantially higher in 2006 than 2005 is laudable, that's not a particularly tall hurdle for a stock that currently trades at a P/E of 70. Anyhow, I sold all my shares at an average price of $5.50 per share. Hopefully I will be able to buy them back later at a cheaper price, but if not, there are plenty of other great stocks out there.
TAYD capped off a strong week in which my portfolio gained $25,721 (4.1 percent), outperforming the S&P 500 (up 0.2 percent), the NASDAQ (up 0.5 percent), and the Russell 2000 (up 1.3 percent). In fact, this was the best week for my portfolio since the last week of 2004, when my portfolio gained nearly 10 percent (due to, coincidentally enough, a massive surge in TAYD's stock).
I'd be remiss to end this post without mentioning VTEK's nice 11 percent move today. In my not so expert opinion, that stock is just too undervalued to stay under $7 much longer.
I must admit it was a bittersweet feeling to sell my TAYD shares. I like the company and its prospects and I like the idea of investing in a company that makes products that save lives during earthquakes. But while the earnings were good, they weren't amazing (two quarters ago, TAYD reported revenue and sales that were both higher than what was in today's report, and back then the stock was trading in the 3 dollar range). Furthermore, while the company's guidance that revenue and earnings will be substantially higher in 2006 than 2005 is laudable, that's not a particularly tall hurdle for a stock that currently trades at a P/E of 70. Anyhow, I sold all my shares at an average price of $5.50 per share. Hopefully I will be able to buy them back later at a cheaper price, but if not, there are plenty of other great stocks out there.
TAYD capped off a strong week in which my portfolio gained $25,721 (4.1 percent), outperforming the S&P 500 (up 0.2 percent), the NASDAQ (up 0.5 percent), and the Russell 2000 (up 1.3 percent). In fact, this was the best week for my portfolio since the last week of 2004, when my portfolio gained nearly 10 percent (due to, coincidentally enough, a massive surge in TAYD's stock).
I'd be remiss to end this post without mentioning VTEK's nice 11 percent move today. In my not so expert opinion, that stock is just too undervalued to stay under $7 much longer.
Thursday, January 12, 2006
More Marsh
Up about $3,600 today. I bought more shares of Marsh (I now have 1,000 shares of MARSA and 2,500 shares of MARSB). Don't worry Marsh Mouse, our time will come. Soon Marsh will be bought out and we will both have plenty of cheese to eat.
Wednesday, January 11, 2006
Rolling along
Up about $3,900 thanks to nice moves in GV, NSYS, PCTI, and MACE. Now back to Lost...
Tuesday, January 10, 2006
What's the difference between ATA, ATA.TO, and ATS?
Big day today. My portfolio gained about $9,700 thanks to nice moves in CRNT, ATS, and MNDO. What's the difference between ATA, ATA.TO, and ATS? If you are one of Cramer's homegamers, apparently there is no difference. Cramer recommended shares of ATS Automated Tooling on yesterday's Mad Money. Since this is a Canadian company traded on the TSE, the ticker symbol was ATA.TO. However, that appears have thrown many booyaheads off track, with the result that they shoveled their money into two unrelated companies, ATA and ATS. Up until today, I owned the latter. I was a little reluctant to part with my shares since I still like the company's fundamentals but when a stock runs up 25 percent for a bad reason (which is quite different from no reason), one just has to take some profits.
A reader asks how one calculates the beta for a portfolio. Technically, this is done by running the regression y - r = alpha + beta(m-r) where y is the percentage change in the value of the portfolio, r is the risk free rate (typically the rate on a 30 day t-bill) and m is the market rate of return (typically this is the rate of return on the a very broad index fund although strictly speaking, the market rate should include all assets, including real estate and human capital).
If one wants to get fancy, they can augment this regression by including factors that may help to further explain alpha, such as the whether the portfolio is geared toward small capitalization stocks and value stocks (the size and value factors, typically labeled SMB and HML). Increasingly, market technicians are also using what's called a momentum factor (typically labelled UMD), which historically has outperformed both the size and value factors (by a very large margin, I may add). The daily and monthly returns for these factors can be downloaded from Ken French's website.
A reader asks how one calculates the beta for a portfolio. Technically, this is done by running the regression y - r = alpha + beta(m-r) where y is the percentage change in the value of the portfolio, r is the risk free rate (typically the rate on a 30 day t-bill) and m is the market rate of return (typically this is the rate of return on the a very broad index fund although strictly speaking, the market rate should include all assets, including real estate and human capital).
If one wants to get fancy, they can augment this regression by including factors that may help to further explain alpha, such as the whether the portfolio is geared toward small capitalization stocks and value stocks (the size and value factors, typically labeled SMB and HML). Increasingly, market technicians are also using what's called a momentum factor (typically labelled UMD), which historically has outperformed both the size and value factors (by a very large margin, I may add). The daily and monthly returns for these factors can be downloaded from Ken French's website.
Monday, January 09, 2006
ARC Wireless
Up about $2,900 today. I've added a new penny stock to my portfolio: ARC Wireless (ARCS.OB). On the surface, ARC Wireless looks like your typical avoid-at-all-costs penny stock. However, what makes it different from other penny stocks is that it is likely to join a very elite group of companies, including some luminaries as TZOO, ADBL, and TRLG, which have graduated from the bulletin board to a major exchange.
ARC Wireless intends to do a reverse split in the near future as part of an application to trade on either the AMEX and or the small cap NASDAQ exchange. Of course, there is no guarantee that this will occur, but considering the company is profitable and has a strong balance sheet, I think the probability is high that this will happen. And in the meantime, the company's fundamentals should keep the stock from falling too far below 10 cents. I'm in for 80,000 shares. My thanks to the reader of this blog who pointed this company out to me.
ARC Wireless intends to do a reverse split in the near future as part of an application to trade on either the AMEX and or the small cap NASDAQ exchange. Of course, there is no guarantee that this will occur, but considering the company is profitable and has a strong balance sheet, I think the probability is high that this will happen. And in the meantime, the company's fundamentals should keep the stock from falling too far below 10 cents. I'm in for 80,000 shares. My thanks to the reader of this blog who pointed this company out to me.
Friday, January 06, 2006
What a week!
The first week of 2005 was the worst week for the markets, and chances are that the first week of 2006 will be the best week for the markets. And what a week it was, with the S&P 500 gaining 3 percent, the Russell 2000 picking up 3.9 percent, and the red hot NASDAQ blasting off to a 4.5 percent gain.
My portfolio did reasonably well this week, gaining 3.2 percent. While this is not as good as the Naz or the Russell, I am still satisfied with the result. Since mid-2004, I've been trying to create a portfolio that has a high expected return but is fairly uncorrelated with the Russell 2000. I've more or less succeeded: In 2005, the alpha for my portfolio was 0.8 percent per week and the beta was only 0.31. Loosely speaking, this means that my portfolio was only 1/3 as volatile as the underlying smallcap index. Actually, what's rather strange is that my portfolio's beta was lower when measured against the Russell 2000 than against the S&P 500. Indeed, when I ran a four factor Fama-French regression, the coefficients on the size and value factors were statistically indistinguishable from zero, which underscores the fact that the microcap stocks that I own are inherently different from the small cap stocks that make up the Russell 2000 (it's also possible that to some extent, my pattern of trading negates the correlation between my portfolio and the Russell 2000).
Anyway, enough techno-babble. I made a couple of trades today. I sold 2,000 of my 5,000 shares of TRT and used the proceeds to further increase my position in MNDO. MNDO is now my biggest holding, followed by NSYS, VTEK, and PCTI.
My portfolio did reasonably well this week, gaining 3.2 percent. While this is not as good as the Naz or the Russell, I am still satisfied with the result. Since mid-2004, I've been trying to create a portfolio that has a high expected return but is fairly uncorrelated with the Russell 2000. I've more or less succeeded: In 2005, the alpha for my portfolio was 0.8 percent per week and the beta was only 0.31. Loosely speaking, this means that my portfolio was only 1/3 as volatile as the underlying smallcap index. Actually, what's rather strange is that my portfolio's beta was lower when measured against the Russell 2000 than against the S&P 500. Indeed, when I ran a four factor Fama-French regression, the coefficients on the size and value factors were statistically indistinguishable from zero, which underscores the fact that the microcap stocks that I own are inherently different from the small cap stocks that make up the Russell 2000 (it's also possible that to some extent, my pattern of trading negates the correlation between my portfolio and the Russell 2000).
Anyway, enough techno-babble. I made a couple of trades today. I sold 2,000 of my 5,000 shares of TRT and used the proceeds to further increase my position in MNDO. MNDO is now my biggest holding, followed by NSYS, VTEK, and PCTI.
Thursday, January 05, 2006
Took my profits in TOA
Can't win 'em all: down about $1,600 today. Meanwhile, the NASDAQ keeps rolling on. Either the market is ready for a massive breakout, or it's overbought. My suspicion is the latter. With that in mind, I sold my shares in TOA. I wouldn't normally sell so quickly, but TOA has moved up more than the other homemakers, and I think there is a strong risk that the market will correct in the next few days. I'd rather sit on the sidelines and try to buy back my TOA shares at a lower price. Perhaps I'll regret this decision, but as they say, no one ever went broke by taking a profit.
Wednesday, January 04, 2006
More MARSA
A power-packed day today. My portfolio zoomed ahead by about $6,700 thanks to nice moves in many of my holdings. Heck, even Bozo managed to get a piece of the action. Actually, I much prefer it when big gains in my portfolio are the result of huge gains in only or two stocks. This allows me to lock in my winnings by selling the high-flying stock. Broad based rallies like the one today, where most of my stocks go up a bit, make it difficult to take any money off the table.
Nevertheless, I'm still trying to rotate some cash towards some of my more beaten down positions. With that in mind, I bought another 1,000 shares of MARSA. I really think this company will be sold soon. I don't know what premium the buyer will pay, but I reckon the stock could spike 20 to 40 percent on any announcement (of course if the stock keeps drifting down, by the time the announcement comes, I may still be in the hole!)
Nevertheless, I'm still trying to rotate some cash towards some of my more beaten down positions. With that in mind, I bought another 1,000 shares of MARSA. I really think this company will be sold soon. I don't know what premium the buyer will pay, but I reckon the stock could spike 20 to 40 percent on any announcement (of course if the stock keeps drifting down, by the time the announcement comes, I may still be in the hole!)
Tuesday, January 03, 2006
TOA has a home in my portfolio
The market is off to a roaring start in 2006. While my portfolio wasn't quite able to match the stellar moves in today's major indicies, I still managed to gain about $5,300.
I picked up 700 shares of home builder Technical Olympic (TOA). While I do side with the prevailing view that the real estate market has topped, I am not in the camp that believes that there will be a major meltdown in housing prices (at least not for the foreseeable future), and given the cheap multiples at which home builders are currently trading, I think this is a good time to pick up a few shares of some of the more undervalued names, and TOA is close to the top of this list.
One of the things overlooked during the recent discussions about the inversion of the yield curve is the fact that this inversion may help the real estate market. Most mortgages in the United States are still contracted at fixed rates and hence are driven by movements in long-term rates, which have barely moved up as short-term rates have climbed. This is a plus for the housing market.
Of course, many mortgages, especially in the most speculative real estate markets, are floating rate and hence leveraged to short-term interest rates. However, what many people do not appreciate (or perhaps do not understand) is that an inverted yield curve implies that the bond market expects short-term rates to decline (otherwise one could earn unlimited profits from shorting long-term bonds and using the proceeds to purchase short-term bills, which pay higher interest). Thus, if the bond market is right and short-term rates decline over time, this will also help the housing market.
Still, housing stocks have been very volatile lately and while it looks like they have bottomed, I will be watching TOA closely. Although TOA has a home in my portfolio, I will try to make sure that it doesn't overstay its welcome.
I picked up 700 shares of home builder Technical Olympic (TOA). While I do side with the prevailing view that the real estate market has topped, I am not in the camp that believes that there will be a major meltdown in housing prices (at least not for the foreseeable future), and given the cheap multiples at which home builders are currently trading, I think this is a good time to pick up a few shares of some of the more undervalued names, and TOA is close to the top of this list.
One of the things overlooked during the recent discussions about the inversion of the yield curve is the fact that this inversion may help the real estate market. Most mortgages in the United States are still contracted at fixed rates and hence are driven by movements in long-term rates, which have barely moved up as short-term rates have climbed. This is a plus for the housing market.
Of course, many mortgages, especially in the most speculative real estate markets, are floating rate and hence leveraged to short-term interest rates. However, what many people do not appreciate (or perhaps do not understand) is that an inverted yield curve implies that the bond market expects short-term rates to decline (otherwise one could earn unlimited profits from shorting long-term bonds and using the proceeds to purchase short-term bills, which pay higher interest). Thus, if the bond market is right and short-term rates decline over time, this will also help the housing market.
Still, housing stocks have been very volatile lately and while it looks like they have bottomed, I will be watching TOA closely. Although TOA has a home in my portfolio, I will try to make sure that it doesn't overstay its welcome.
