Friday, October 16, 2009
Borders facing more hurdles
Disclosure: I own put options on Borders Group
Last May I briefly spoke about avoiding Borders Group (BGP) due to competitive pressures form Amazon and Barnes and Nobles in addition to their weak liquidity position when balanced against their debts. Things just got more challenging as Walmart just decided to lower some of their popular hardcover books to $10. Amazon followed suit for which Walmart responded with a cut down to $9. I'd love to be at either of the corporate offices today to listen to what was being discussed. This spells trouble for Borders which is starting to look more like a has been in the book business.
Crain's reported a few days ago that one of Border's flagship stores in downtown Chicago renewed it's lease for one more year. A follow up analysis by Kenneth Leonard points to a simple but valid analysis of Border's prospects. If they can't figure out this location, the outlook is pretty dire.
Tuesday, October 13, 2009
The 3rd Quarter: 10.4% gain
The 3rd quarter has just wrapped up, and it’s time to check into the Ten Grand Chicago Portfolio. It’s been tough staying on top of the investments with my real day job acting up and drawing up my free time. A year and three quarters have passed and the Ten Grand Chicago Portfolio stands at a 10.4% total gain. It’s not much, but considering what the markets went through the last year I am pretty satisfied.
What didn’t work
Not having a playbook. As the markets started to tank, I only had a few companies that I truly felt I understood inside and out. By the time March.2009 rolled around we had hit rock bottom in the markets, yet my playbook did not contain any new companies as possible investments. The only two investments I did make during the first quarter were iShares Canada ETF (EWC) and SPDR S&P500 ETF (SPY). Although the two purchases worked out well, there were other opportunities abound. I simply did not have any upfront research. Research takes time, and it needs to be a continuous activity so as to seize opportunities when they arise. Moving in a bit early on financials and the home builders wasn’t the best move. I had put too much confidence into the checks/balances of the markets and picked up SPDR Financials ETF (XLF) and SPDR Homebuilders ETF (XHB) too early. I honestly did not know at the time just how bad things were going to get when James Cayne of Bear Stearns was caught with his pants down playing bridge tournaments while the company was on the verge of collapsing. These two sectors will recover, but it will be quite some time. What worked
There were a couple of things that did work out well during this economic downturn. I had researched the educational services market quite extensively and discovered DeVry (DV) as a well managed company poised to take advantage of the mounting job losses. As Lehman was collapsing the credit markets came to a grinding halt. Auction rate securities which are the primary vehicles to fund student loans hit some serious turbulence. DeVry took a pretty big hit as it looked liked investors were dumping the company’s stock on fears that lending would be hard to come by. Digging deeper into DeVry’s operations I found their exposure to this credit risk was minimal. From that point forward it was simply setting a lower/upper bound valuation range and moving in/out of this stock as it bounced around. Moving in at the height of fear and pessimism helped setup the portfolio for a nice run going into Q2 and Q3. Many people did not know if our financial institutions were going to survive, and the media had painted a dearth picture about everything. Walking through my local shopping mall to see one retailer shut down after the next was not normal. No one was buying anything. At that point the safest move was to put some money down on a basket of American companies reflected in the Standard & Poors 500 ETF (SPY). Did I know March was going to be the bottom? No. But I did know one thing. Everything around me was screaming fear, which means no one was willing to take risk to buy new cars, new jeans, or new stock investments. The downside risk was pretty slim. That single purchase in March represents the largest total gain in the portfolio at over 52%. We may not see another opportunity like that for some time. Sticking to what I believed in and dropping what I didn’t help limit my losses and setup some nice gains. Companies change all the time. What starts out as a good operation suddenly goes bad. The same applies in the reverse direction. The only way to stay on top of such transitions was to continuously read anything and everything about the companies I invested in, their respective industries, and the overall macroeconomic picture. Dropping Trimeris (TRMS), DST Systems (DST), and NutriSystem (NTRI) proved wise. For the companies I believed in, sticking with ING as every single financial institution was getting hammered was tough. I believed in ING’s management and their track record. Secondly, their Tier 1 capital ratio was managed well through this downturn. I have since exited this position with a 38% total gain. Southern Copper (PCU) was another company that got slammed as commodity prices fell through the cracks. However, this company has always operated with high operating margins and China’s continued GDP strength convinced me to stick with them. Southern Copper now represents my 2nd best pick in the portfolio with a 48% total gain to close out the 3rd quarter. What’s Next?
I have started to dig into the mobile industry. Yes, the iPhone, the apps ,the Android, the Bold, the buzz, the hype, and the “cool” people whipping out their smartphones wherever I am, have all piqued my interest in this industry. The focus won’t be on the handset makers, but on the service providers. Not necessarily the Verizons, ATT, or Oranges of the world, but more on the players in the emerging markets. TurkCell (TKC) a provider of wireless service in Turkey and Eastern Europe is sporting a 23% gain in the portfolio since purchase. I am now pulling out the magnifying glass on America Movil (AMX) a Latin American company providing wireless service in South America. South Africa’s MTN and India’s Baharti Airtel have recently shuttered merger plans. Cisco's latest aqcuisition of Starent signals the vast changes that will shape the mobile/wireless industry in the years ahead. Smartphones, 3G networks, and emerging markets present an interesting concoction that needs to be looked into. Things are a cookin’
What didn’t workNot having a playbook. As the markets started to tank, I only had a few companies that I truly felt I understood inside and out. By the time March.2009 rolled around we had hit rock bottom in the markets, yet my playbook did not contain any new companies as possible investments. The only two investments I did make during the first quarter were iShares Canada ETF (EWC) and SPDR S&P500 ETF (SPY). Although the two purchases worked out well, there were other opportunities abound. I simply did not have any upfront research. Research takes time, and it needs to be a continuous activity so as to seize opportunities when they arise. Moving in a bit early on financials and the home builders wasn’t the best move. I had put too much confidence into the checks/balances of the markets and picked up SPDR Financials ETF (XLF) and SPDR Homebuilders ETF (XHB) too early. I honestly did not know at the time just how bad things were going to get when James Cayne of Bear Stearns was caught with his pants down playing bridge tournaments while the company was on the verge of collapsing. These two sectors will recover, but it will be quite some time. What worked
There were a couple of things that did work out well during this economic downturn. I had researched the educational services market quite extensively and discovered DeVry (DV) as a well managed company poised to take advantage of the mounting job losses. As Lehman was collapsing the credit markets came to a grinding halt. Auction rate securities which are the primary vehicles to fund student loans hit some serious turbulence. DeVry took a pretty big hit as it looked liked investors were dumping the company’s stock on fears that lending would be hard to come by. Digging deeper into DeVry’s operations I found their exposure to this credit risk was minimal. From that point forward it was simply setting a lower/upper bound valuation range and moving in/out of this stock as it bounced around. Moving in at the height of fear and pessimism helped setup the portfolio for a nice run going into Q2 and Q3. Many people did not know if our financial institutions were going to survive, and the media had painted a dearth picture about everything. Walking through my local shopping mall to see one retailer shut down after the next was not normal. No one was buying anything. At that point the safest move was to put some money down on a basket of American companies reflected in the Standard & Poors 500 ETF (SPY). Did I know March was going to be the bottom? No. But I did know one thing. Everything around me was screaming fear, which means no one was willing to take risk to buy new cars, new jeans, or new stock investments. The downside risk was pretty slim. That single purchase in March represents the largest total gain in the portfolio at over 52%. We may not see another opportunity like that for some time. Sticking to what I believed in and dropping what I didn’t help limit my losses and setup some nice gains. Companies change all the time. What starts out as a good operation suddenly goes bad. The same applies in the reverse direction. The only way to stay on top of such transitions was to continuously read anything and everything about the companies I invested in, their respective industries, and the overall macroeconomic picture. Dropping Trimeris (TRMS), DST Systems (DST), and NutriSystem (NTRI) proved wise. For the companies I believed in, sticking with ING as every single financial institution was getting hammered was tough. I believed in ING’s management and their track record. Secondly, their Tier 1 capital ratio was managed well through this downturn. I have since exited this position with a 38% total gain. Southern Copper (PCU) was another company that got slammed as commodity prices fell through the cracks. However, this company has always operated with high operating margins and China’s continued GDP strength convinced me to stick with them. Southern Copper now represents my 2nd best pick in the portfolio with a 48% total gain to close out the 3rd quarter. What’s Next?
I have started to dig into the mobile industry. Yes, the iPhone, the apps ,the Android, the Bold, the buzz, the hype, and the “cool” people whipping out their smartphones wherever I am, have all piqued my interest in this industry. The focus won’t be on the handset makers, but on the service providers. Not necessarily the Verizons, ATT, or Oranges of the world, but more on the players in the emerging markets. TurkCell (TKC) a provider of wireless service in Turkey and Eastern Europe is sporting a 23% gain in the portfolio since purchase. I am now pulling out the magnifying glass on America Movil (AMX) a Latin American company providing wireless service in South America. South Africa’s MTN and India’s Baharti Airtel have recently shuttered merger plans. Cisco's latest aqcuisition of Starent signals the vast changes that will shape the mobile/wireless industry in the years ahead. Smartphones, 3G networks, and emerging markets present an interesting concoction that needs to be looked into. Things are a cookin’
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