Code. Money. Literature.
February 14th, 2008 — contest, stocks
I’ve managed to pull into the lead in the family contest, being down only 5.42% on the year. Buffalo Wild Wings (BWLD) is pulling me through.
| Berkshire Hatha Class B Ord Shs | 0.70% |
| Mindray Medical International Ltd | -19.66% |
| PowerShares Water Resource Portfolio | -8.18% |
| Buffalo Wild Wings Inc | 10.90% |
| Mueller Water Products Series A Ord Shs | -9.66% |
| Central European Distribution Corp | -5.42% |
February 5th, 2008 — stocks
I intended to write tonight about the new catchphrase which I predict will sweep the nation with a stickiness that FTW can only dream of—Wheel suck!—but Roger Ehrenberg’s description of geeks vs. businessfolk derailed me.
Ehrenberg dissects Microsoft’s unsolicited takeover bid of Yahoo. (Full disclosure: as a card-carrying Idiot Retail Investor, I made a trade recently that correctly called the takeover bid but I totally botched the execution on the profit-making side. More on this good news/bad news joke later.)
Ehrenberg cites Michael Lewis to compare the geek culture of Yahoo! to the insular baseball clubhouse of skilled craftsmen whose finesse-based talent is not readily apparent to the casual observer, leading to a somewhat exclusive club wary of those not in the show. In contrast, Microsoft is like the football locker room, where muscle mass and physical presence alone asserts dominance, yielding self-confidence and hubris not found in the cliquish Yahoo! ranks, demonstrated by an ability to work with customers and listen to needs and find the problems to solve.
And therein lies the “train wreck” Ehrenberg predicts—a culture clash that inevitably plays out like one of my favorite shows of the 70s—Superstars. In the wintry off-season, Superstars became the best reason for a kid to watch ABC TV on Sunday afternoon in the 70s. Athletes from different sports competed in a decathalon of events. Forbidden to participate in their own specialties, the athletes could choose from such events as rowing, swimming, bowling, weightlifting and several other sports.
The results weren’t pretty for the baseball players. Maybe it hurt that invariably, the role model for the athletic baseball player ended up being some slow infielder like Ron “Penguin” Cey or a past-his-prime 40-year-old Lou Brock. In 28 seasons, football players won the competition 15 times (I count four-time winner Renaldo Nehemiah as a football player even though he won three seasons as a 110 Hurdler before his NFL career began), and only in 1991 did Toronto Blue Jay .259-hitter Kelly Gruber finally represent for the baseball players.
Does this mean that the Yahoo! culture is doomed, much like Ron Cey coming in last in the 100 yard dash in 1978? Or does it signal that Microsoft’s ability to put its business muscle to use will dominate, like OJ’s triumphant performance in 1975?
I tend to go along with Ehrenberg’s conclusion and predict the more dire outcome–it’s going to end up like Joe Frazier nearly drowning in the swimming competition. Frazier, after admitting he didn’t know how to swim, was asked why he entered the event:
How was I to know I couldn’t unless I tried it?
Given the dearth of winning strategies on Ballmer’s watch during the past eight years of MSFT’s 40%+ stock price slide, that quote might well serve as the retrospective logic and epitaph for this most recent bid.
Wheel suck, indeed.
January 25th, 2008 — stocks
One Asian and European mini-crash, a monster fed cut, and one stimulus package later, here’s the carnage for my 2008 contest picks: down -11.05%, and in second place. Of the collective picks in the contest, only one stock–that blue chip of widows and orphans, PetMed Express Inc (PETS)–is up a stunning 3.14%. On my own picks, my best two–Berkshire Hathaway (BRK.B) and Buffalo Wild Wings (BWLD)–are down just a couple of percent.
January 8th, 2008 — stocks
Here were my 2008 stock picks for this year’s family stock contest. We take the closing price on 12/31/2007, so the current streak of eight straight losing days for the NASDAQ put us all in a big hole.
| Stock | Starting Price | YTD |
| Berkshire Hatha Class B Ord Shs | 4736.00 | -6.78% |
| Mindray Medical International Ltd | 42.97 | -8.03% |
| PowerShares Water Resource Portfolio | 21.40 | -6.45% |
| Buffalo Wild Wings Inc | 23.22 | -7.97% |
| Mueller Water Products Series A Ord Shs | 9.52 | -10.82% |
| Central European Distribution Corp | 58.08 | -5.35% |
| Cognizant Technology Solutions Corp | 33.94 | -9.81% |
| Grant Prideco Inc | 55.51 | -1.44% |
YTD: down 7.08%, and the family pickers are down 6.18%.
I picked these with a little less analysis than I normally do before making a trade, and perhaps relied a little too much on the Motley Fool community recommendations as a screening tool to find eight I liked. I had briefly considered ISRG, but passed on it as too pricey (turns out it is in fact down almost 16% YTD). I picked PHO based on Paul Kedrosky’s love of water (and predictions that “blue is the new green” for 2008, meaning that environmental talk will turn from global warming to the implications for water.
BRK.B appears to be a safe port in down years. The rest are just small to midcap stocks that I think have the potential to appreciate significantly if the market does turn around.
January 7th, 2008 — stocks
In 2007 my extended family had a stock picking contest. Seven of us picked eight stocks over the New Year’s weekend and invested a hypothetical $100,000 per person evenly distributed, with $12,500 split among the stocks.
Collectively, this represented a starting universe of 53 stocks, funds and ETFs (three stocks were picked twice). The complete list of stocks and performance can be found here.
The overall results were fairly impressive based on most vanilla benchmarks. The total return of the portfolio was 15.82%, beating the S&P 500 by 9.9%, the DJIA by 9.39% and the NASDAQ composite by about 6%, but trailing the NASDAQ 100 by 2.85%.
Edwin J. Elton and Martin J. Gruber’s “Modern Portfolio Theory and Investment Analysis says that you can achieve optimal diversification with a portfolio containing 20 stocks, after which adding additional stocks reduces the risk only marginally. The seven of us each did a little diversification within our local universe of eight stocks, and at a higher level, the life situations and demographics of the seven of us—spanning six decades and half the country—appeared to create additional diversification. Although none of this was a rigorous application of modern portfolio theory, in most cases some amateur thought was applied to attempt to diversify.
One question is raised: could you base a fund on the premise of not only diversification of stocks, but diversification of stock pickers each attempting to act rationally? Or is that just the definition of an index fund?
Best stock picks: Nintendo, (+145.6%), Amazon (+141.4%), Apple (+132.9%), Southern Copper Corp (+122%) and China Mobile ADR (+103.4%).
Worst picks: Compucredit, (-74.7%), Chicos FAS (-56.1%), Bear Stearns (-44.84%) (2 picks), Citigroup (-46.23%), (2 picks), and McGraw Hill (-33.2%).
Another interesting note is if all the picks that two people had in common—Johnson and Johnson, Citigroup and Bear Stearns—had been rejected based on groupthink, the overall return of the portfolio would have been 21.1%. This is probably just coincidental, but it also might indicate that popularity of a stock in such a contest can indicate a bubble. Or touts finally getting the word out to the typical retail investor.
| Mrs Firebones | +44.25% |
| The Sis-in-law | +39.76% |
| Yours Truly | +16.18% |
| Brother #1 | +7.04% |
| Brother #2 | +4.60% |
| Mom | +4.08% |
| The Nephew | -5.20% |
| Berkshire Hathaway Class B | +32.36% |
| Devon Energy | +36.97% |
| eBay Inc | +7.83% |
| Emulex Corp | -17.45% |
| Vanguard Pacific ETF | +8.75% |
| Nice Systems Depository Receipt | +10.32% |
| Tele Norte Leste ADR Reptg 1 Pref Shs | +47.64% |
| Matsushita Electric Industrial ADR | +3.03% |
I missed big-time on Japan and the Pacific, choices all based on punditry and a desire to go global to boost returns (since I thought domestic would only be up 4-5%).
Let your winners run. A couple of participants commented about their past common mistake of selling a winner after a small gain, say, selling Apple after a rise from $50 to $80 and missing out on the $80 to $200 run. Taking a look at the portfolio of the winner, you can see this in action:
| Abercrombie & Fitch Co | +9.00% |
| Johnson & Johnson | +2.61% |
| Boston Scientific Corp | -31.99% |
| Medimmune Inc | +69.00% |
| Nintendo Co Ltd Depository Receipt | +145.61% |
| Apple Inc | +132.90% |
| Costco Wholesale Corp | +31.70% |
| Medtronic Inc | -4.85% |
Nintendo and Apple more than compensated for the Boston Scientific loss. Had Nintendo and Apple been sold after 60% gains, the actual 44.25% winning return would have dropped to 24.43%. This is something that most investors learn eventually—sell your losers and let your winners run—but retrospectively reviewing a contest like this shows why.
Global matters. Again, hard to draw a conclusion from a single year, but the top 3 pickers had 29% portfolio exposure to international stocks and funds; the remaining 4 pickers had only around 9% exposure.
Eight stocks are not enough to consider yourself diversified. Two of the three poorest performers had significant subprime exposure, with 25% of their stock in financial services. Of the top 3 performers in the contest, the financial services exposure was only 4.17%, and that single stock (Goldman Sachs) was the only one in the collective portfolio to dodge the subprime bullet. This isn’t a hard and fast lesson—the contest rules which mandated equal investment in each pick magnified errors in diversification. For a stock picking contest, this is okay; for creating a real portfolio, it’s not.
In the upcoming year, we have five pickers so far: my, Mrs Firebones, Firebones Jr., The Nephew and The Nephew’s Bride-to-be. Later, I’ll post their 2008 picks (with December 31, 2007 closing price). Given the down market so far this year, this should make for an entertaining ride.
