The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

25 July 2010

Fast Track Networking - A Review

Fast Track Networking by Lucy Rosen with Claudia Gryvatz Copquin, is a worthwhile read. This "how-to" guide takes the work out of networking and optimizes a networker’s comfort and success.

Rosen’s suggestions come from years of trial and error. She impressively built her first women’s networking group in New York in the mid-80’s. Rosen notes that rewards abound for a person who connects professionals unconditionally.

Her analogy of networking with dating could not be truer. Every reader can recognize the correlation of attending an event where you know few people, if any, to first date jitters. Rosen provides the readers with easy ways to overcome these fears, and also reminds us how patience has its rewards.

The book focuses on tips for better networking with some great takeaways:
● Do your homework in advance of the networking event
● Get your elevator speech down to 30 seconds, but don’t sell your business
● Listen attentively
● Genuinely try to get to know others
● Don’t mingle for more than 10 minutes with any one person
● How to dress for success
● How to better position yourself in the room, and better ways to work a room
● Easy examples of how to break the ice in introductions (page 51)
● Best networking questions to get the other person talking (page 52)

Rosen discusses the importance of first impressions, and follow-up. She highlights other professionals' stories of how their work translated to improved sales and stronger branding and reputation.

You can never know too many people and Rosen guides you on managing your contacts in "circles of ten." The formation make sense and provides a professional with a semblance of organization to their contacts, with tips on proper maintenance of relationships through regimented contact and the use of social networking.

While her successes in networking stem from the 80’s, this book and guiding principles are up-to-date and relevant to today’s networking world. I recommend this book to any person who seeks to strategically and successfully build his or her business.
-- David M Gordon / The Deipnosophist


18 July 2010

Google/GOOG: Predator or Prey?

This blog began 5 1/2 years ago amid my oft-repeated recommendations to invest in Google/GOOG... but even before those recommendations were my private entreaties elsewhere. Google went public in August of 2004, but investing in its shares at that time was neither layup nor a popular decision: The PLAYBOY interview with the company's co-founders published mere days in advance of the company's IPO angered the SEC for violating a few rules and the company's unusual IPO did not ingratiate the company with powerful Wall Street interests. Many people feared the shares would founder, if not sink, post-IPO.

But a good story never keeps a good stock down for long. And Google had a good story. They kept it quiet, hidden, enshrouded in secrecy and whispers for as long as they could but the IPO busted open just how profitable the company was. And because the company took another non-traditional step of no quarterly guidance to Wall Street, the combination proved profound: secrecy + powerful revenues growth = surprising earnings gains. The stock rose accordingly.

A few people questioned the company's torrid growth, centered on whether Google was and would remain a one trick pony. (Its one trick being search.) In the quest to increase and diversify its revenue stream, the company bought many other companies, both large and small, integrated those purchases sometimes well but more often poorly if at all, offered many new products to its users -- so many new products to so many users, in fact, that its product line became unwieldy with diffusion. (I have registered my own complaints; Google's products that I deem core to my life have become near intolerable with their unreliability to the point that I almost no longer use them.)

Google definitely suffers growth pains -- although most companies would love to suffer growth pains even remotely similar. At some point, though, Google must begin to monetize the many strands of spaghetti they have flung at the wall, and not rely on their one stupendous cash cow, search. Perhaps its new great success will be the Android operating system for mobile, which became a rapid and surprising success. Perhaps Google finally will calculate a method to capitalize on its massive purchase of YouTube. Or DoubleClick. Or AdMob. (This list of purchases could really lengthen the page, so I will stop here.) Not to neglect the home-grown opportunities: GMail, which was so startlingly fantastic when revealed, and now the company allows to whither on the vine. And so on.

Google's revenues have finally decelerated from their torrid pace of growth, as the critics argued, if for no better reason than the Law of Large Numbers, but the company's earnings now pay the price for lazy management, negative growth YoY, as reported last week. Such an event is a cardinal no-no for a growth company; it calls into question your nature as a growth company. Part of the problem at Google, I suspect, is management's utter trust that revenues and earnings would continue to out-pace CapEx and SGA into the knowable, and unknowable future. A difference exists between budgeting and hewing to a budget and spending willy-nilly with the expectation that a revenue stream will continue ad infinitum. Of course, I am not privy to executive level discussions at Google -- it is possible they have another trick up their sleeve.

I have been thinking about this all for the past few years, but it all came to a head this weekend when I read this brief report by Eric Savitz...
THE OTHER BIG EARNINGS REPORT last week came from Google. It modestly beat Street expectations at the top line, but missed by a few pennies at the bottom line, as expenses exceeded Street expectations—reflecting in part the fact that the company is bulking up again, adding nearly 1,200 people in the June quarter alone.

While Google (GOOG) has struggled to generate significant revenue outside the mainstream search-ad market, it nonetheless grew revenue 24% in the latest quarter, while ratcheting up its cash position to $30 billion. Google trades for 17 times expected 2010 profits, and 15 times 2011 estimates.

No question, there are tough issues for Google, but it remains one of the best plays on the continued growth of Web content and commerce. Concerns seem well-reflected in the stock; through Thursday, Google was down about 20% this year. For buy-and-holders, this looks like a nice entry point.
The crucial misunderstanding, and one shared widely, is Savitz's penultimate sentence in his final paragraph, "Concerns seem well-reflected in the stock; through Thursday, Google was down about 20% this year." My problem is
1) Friday's wild down day changed the calculation to 25% down for the year from 20% in one fell swoop, which effectively demolishes Savitz's argument that the "concerns are well reflected in the stock." Oops.

Also, and more important, is the notion that
2) Because a stock is lower since some artificial date (in this instance, 1 January), everything is somehow okay for investors to take the leap, and invest. But this confuses cause with effect; effect with cause.

Investing is rarely, if ever, a static endeavor; more typically, it is a dynamic process. Imagine the arcade game with the ducks moving by from left to right but now, they also move up to down, diagonally, and always randomly. And, who knows, perhaps you might move as well. It becomes more difficult to settle the cross-hairs on such a moving target, no? Welcome to the world of investing. Eric Savitz's perspective is... well, quite one-dimensional, though instructional.

You can see investors' indecision easily via the merest glance at Google's chart, especially its weekly basis (the better to capture all trading data since its IPO). An identifiable area pattern builds in that periodicity, a rather large area pattern that carries some measure of significance. A better, more valuable harbinger for investors might be obtained from incorporating such a birds-eye view, rather than one so artificially epochal as since 1 January.

This post continues on Investment Poetry.
-- David M Gordon / The Deipnosophist

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13 July 2010

Apple, Steve Jobs, and the French Revolution

Haughty attitudes and high-handed treatment of customers can go only so far before the peasants revolt. Although likely apocryphal, Marie Antoinette's phrase, "Let them eat cake" inspired a revolution... and a few beheadings. Tetchy people; testy times.

Seems the zeitgeist today is not much different. And when the much revered Apple Inc rushes to market its faulty iPhone 4G, and its users and customers complain complain complain, and complaints home in on its bad antenna, Steve Jobs notoriously says, "Let them eat cake." Er, actually Consumer Reports helps Steve realize he means, 'Let them have duct tape!' (At least it rhymes.) I can see how Steve was confused.

But this new news that Apple Inc is thin-skinned? I, mean, c'mon! Even Microsoft, in its heyday as the Evil Empire, never stooped this low.

And let's not mention the entire Gawker episode in which Apple had the police bust in the apartment door of the journalist who had the pre-release version of the iPhone 4G. Whoa, chill out, guys. You're becoming Appholes, in Jon Stewart's memorable term. You run the peril of fomenting a riot against... yourself.
-- David M Gordon / The Deipnosophist

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Investment ideas

I often receive the question, "Whence come your investment ideas?" (Well, the question is phrased not precisely like that, but its objective is the same.)

Of course, all investors share the same well-spring, the public markets. (Private equity and venture capital, to name only two other investment markets, obviously have different characteristics.) Styles abound, but two predominate: value and growth. Value investors seek to purchase $1 of assets at a present day discount. Growth investors seek to purchase $2 of future value based on presumed continued growth for today's $1 present day price. (Simplistic definitions, these.)

From that starting point, the layers of complexity begin; for example, Warren Buffet melds growth and value into a unified whole, although he leans toward value. He ignores the technology sector altogether, partly because he claims not to understand it, but also, I believe, due to its tendency to have torrid growth... that does not endure beyond a few years, which does not comport with his time frame. (A crucial point.)

But the complexities become even more boggling for the investor: With so many possible investments, which to select? Rule out one style (for example, select growth, or vice versa), and then limit your universe only to growth stocks. Great, that leaves ~20,000 stocks. Now what? Penny stocks or institutional stocks? A bet on growth is a bet on the future, and because the future is unknowable, each asset class enjoys equal opportunity to succeed. (Well, perhaps in an egalitarian universe.) Filters would be of use: a minimum number of shares traded daily, a minimum share price, whatever. Or William O'Neill's CANSLIM.

Your objective is to:
1) Identify the leading theme for the market's next up leg;
2) Whittle the list to a manageable few;
3) Know, really know, those few companies that pass your filters;
4) Know, really know, the often subtle tells of each stock's trading action 
that are precursor to big moves in one direction or the other, which you could identify because you do not monitor a list 100s of names in length.

What you do not want to do:
5) Buy old names. A former growth leader that no longer grows is no longer a leader, and its shares certainly will be no leader; avoid it like the plague.
6) Buy yesterday's cycle's winners. Why purchase for your portfolio an investment that has a ceiling as to high it could rise? 

(These two items are similar, but not the same.)

Investing is difficult (enough); you, as investor, are presented with multiples of reasons why you should not buy, or not hold, your winning leader of an investment. So you do not buy, or you sell, or worse you trade out of it. ("I will re-purchase on the dip." A dip that never comes.) Why complicate matters? Find your core truths, simply expressed as your investment objectives and risk tolerances ("To make money!" is insufficient), and then the investment style and asset types you prefer, adjust the filters to your liking, and then enjoy some measure of success.

Slightly more to investing than this simple, simplistic bit, of course, but it is a good beginning.
-- David M Gordon / The Deipnosophist


05 July 2010

A rocket-ride to Hell

To begin, a snippet from David Rosenberg (Gluskin Sheff)...
Is it the correction that is unusual, or is it the fact that in a matter of 12 months, the S&P 500 managed to shoot up 80% — and amidst the weakest recovery in real final sales in recorded history? The few times that the market had ever rallied so sharply off such a deep interim bottom were both in the 1930s, and we saw a pullback of around 40%. So, the reversal of the past three months very likely has further to go, and, sadly, many market participants are still not braced for it. The old buy-the-dip habits die hard.

The 12% slide in the market in Q2 wiped out $1.6 trillion of paper wealth off the books. In a particularly ominous sign, the 3.7% decline in the S&P 500 this past week stood in stark contrast to what we usually see this time of year because seasonally, the equity market rallies three-quarters of the time heading into the fourth of July festivities — the 4.6% decline so far this week stands in stark contrast too.

Taking the year as whole, with the S&P 500 off nearly 8%, this goes down as the worst first half to any year since 2002. That year, if you recall, was an aborted recovery as opposed to a classic double-dip; however, it didn’t really matter because a market priced for over 3% and got basically near zero growth in the second half of that year, did not bottom until October...
You cannot complain that I did not warn you, though; in fact, I bored you to tears with my frequent warnings throughout December 2009 and Q1 2010. Bottom line: The market built a top during Q1 2010, and broke down during Q2. I stated almost as often that the oil sector would be especially weak due to technical factors inherent in its own group and sector chart, and would lead the market lower because of its 15% weighting in the S&P. It has done just that, and then some -- but, even so, who could have known about the downside outlier that BP represents, which exacerbated the sector's and, by extension, the market's decline?

For equities, this moment, here now, is difficult, troublesome, perilous... and exhausting. I quote market analyst par excellence, Tim Villano:
The high-probability trade to new lows has occurred; ES 1020 hit easily, and the 1005 mark tested. These lows have the appearance of a daily, wave-5 movement.
As an investor who watches each tick, it is difficult not to apply some greater meaning from the market's one-way trajectories, especially now with the predominantly negative ticks. How could the market's rocket-ride to Hell not mean the economy sucks and that people will lose their jobs and thus be unable to pay their bills, which will cause a feedback loop that only worsens the downward death spiral in the markets and the economy, and back to the markets, feeding ever-deeper declines?

See what I mean? But often, market action has no greater meaning; its import is for the market and not the economy, although 2008 is an obvious and notable exception. The responsibility lies heavy on the investor, as always: Is a given moment one of (heightened) risk or (increased) opportunity? Is this moment one of (heightened) risk or (increased) opportunity?

Yes, good questions. And what about this one: What transpires next for the markets? Find out on Investment Poetry where this post continues and concludes.
-- David M Gordon / The Deipnosophist


The 24 Types of Libertarian

Pretty self-explanatory... and very funny!

[click on image to enlarge]

-- David M Gordon / The Deipnosophist


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