Monday, February 27, 2006

Random Thoughts

My portfolio is doing pretty well (up over 9% while the S&P is up around 1%), but I missed out on some gains. I know I said earlier that I would try to buy a stock based on the charts and before I research it, but I haven't done that yet. I checked my list and missed out on some gains...

There were a few good posts over at the Jones Soday board. Stockdiva definitely made some good points and hopefully it brings out some more discussion.
Target had the Jones Soda Valentines Day packages on sale for $5 (two bottles, a cd, and lip balm).
The flavor (love potion #6) was incredibly good.
Also I saw some poster said that their can packages was the same as everyone else. I think their packages are sub-par, because even when I get the ones that seem fine- it falls apart fairly easily.

Are you getting enough sleep?
It looks like I'm in the minority of those who get under six hours. I try to get enough sleep, but it's hard. If I fall asleep by 10pm, I'll end up with around 5.5 hours. On some days I'll go to sleep really early, but I might still feel sleepy. For instance, last night I went to sleep around 845 and I got over seven hours of sleep. I was hoping to feel refreshed when I woke up, but I was still sleepy.

I'm probably going to buy the Schweser online test bank questions for the CFA, which is another $250. I used PassPro and looking back, I would not recommend them because you get a lot of the same questions and they are not too difficult.

I also found this site and it seems interesting. It's set up to test your skills and teach you about financial analysis using Excel. If you buy one of the higher end packages, you get enough credits to earn a Certification in Applied Financial Modeling (sounds cool...)

Wednesday, February 22, 2006

Two more stocks to research

I still have my list of food related companies, but some have increased a bit too much for me and others just don't seem too great. For instance, I was looking at HNZ at $34 and it shot up to close to $37 in a relatively short time span. I'll take my chances and guess that it will come down a bit before any purchases (it's still on my list to research).
Kraft is starting an uptrend but I haven't got around to this one either.
I have looked at CQB because I wanted to see if the stock price found some support. The margins are terrible, but I already knew that. The one thing I'm a bit worried about is if they have enough cash flow to cover their dividends (2.2% yield) and their interest payments. I think in the last quarter they were cutting it close (I don't have the figures/ratios with me). They made a huge acquisition not too long. I think the buy would definitely add sales growth (it was in the packaged salads business- which is one of the fastest growing food segments), but they took on a lot of debt.
They also reported today and came in with a loss greater than expected. The stock is down about 4.5% in after hours and this will give me a little time to continue looking.

Two other stocks I wanted to highlight that seem cheap on a historic price/sales basis are two well known companies and not food related! They are Dell and Intel (INTC). Intel is probably the more interesting story and I'll be watching to see if it can hold $20.

The analysts at my work use a software that takes all the financials from 10k's and 10Q's and puts it into an excel spreadsheet. Then they manipulate the data and calculate any particular ratios they are interested in. I asked one analyst to send me the model for CQB, which he did, but hopefully in the near future they will allow me to sign up for the software (the cost is on a per user basis so they would have to pay). If they did that, it will save me a ton of time looking into companies and I might be able to cover new ones.
I'm hoping something develops by next week!

Monday, February 20, 2006

Some interesting figures

I read a few interesting figures recently and here they are.

There was a survey done and one of the questions was how much have dividends/payouts contributed to overall stock returns. The average answer was 5-20% of total overall stock returns. The return contributed to dividends is actually around 65% and this assumes compounding of the invested dividends. Even if you take out the effects of compounding, payouts still count for 40% of the total return.

Within the last twenty years or so, dividend paying stocks have outperformend non-dividend paying stocks by almost 8%.

This next part is from the Wall St Journal (from a few weeks ago).
One dollar invested in the S&P from 1926 to 2005 would be worth about $2655.
This figure goes down drastically if you remove the effects of inflation, taxes, and trading costs. The same dollar would only be worth $46.59

In other news, my net worth is having a tough month. I've increased it by about $500 so far (with one more paycheck to go), but I had to deal with a few big expenses. Why does it seem that when I was in college I didn't have these big expenses, and now I have to deal with getting new tires and fixing my car? I also planned a small trip for March.

Wednesday, February 15, 2006


I'm sure most of you have heard about
It's a site dedicated to give you housing prices so you could check out how much your house is going for. From what I've read, the prices seem to be almost in line with other home pricing services. I checked out various homes off of the site and it's really cool. They use a satellite image where they will give you the price of your home and the ones around it.
It's odd how I checked my parents house ($695k...I don't think it's worth that much, but we're in the San Fran Bay Area so prices are crazy), but then the houses right on either side are worth 10k more. All three houses are the same size so I'm not sure how they came up with those figures.

I think the site was started by some of the same people who started Expedia, so they definitely have some experience in this area. I live two blocks away from one of the really nice parts of San Francisco and I was curious to see how much those houses were going for. Some of them are huge, but others are a regular size. I would estimate that the average price was around $2-2.5 million!
Housing prices are crazy

Monday, February 13, 2006

Speculative Stock

I'm having one of those days where I need to get a ton of things done, but I don't have enough time and I need some sleep (so this post might lack some details).

Disclaimer: Before I mention this stock I just wanted to say that I'm in no way saying it's a buy.
This is an extremely speculative and volatile stock, but I wanted to mention it because it seems interesting.

The company is Peru Copper (CUP) and they just came out with a feasibility study on a copper mine they have. Most of the details are in another file that is not with me, so I'm just going to give some general facts. The company was set up as an exploration company looking for copper mines in Peru (I think they are #5 in the world for copper mining). The company found a site called Toromocho and from the looks of the study it seems to have been a nice find.

The next paragraph is copied straight from their press release:
"At an estimated average annual production rate of 272,788 tonnes of copper and 5,387 tonnes of molybdenum for 21 years, the Project pre-feasibility study estimates a Net Present Value (NPV) of US$814 million from commencement of construction and an after-tax Internal Rate of Return (IRR) of 16.0%"
I saw this release and a few things caught my attention. One is the annual amount of copper and molybdenum (both, I believe, have been surging in price lately). The next is that the life of the project is 21 years. The last part is that there's a positve NPV of $814 million and an IRR of 16% (that's pretty nice).

The risky parts with these studies are the base assumptions they make. I've seen some reports that basically say "the share price should be $x because sales will grow 50% for the next 10 years". Having a base assumption of 50% sales growth for 10 years is a reach.
Anyways, back to this case. Their assumptions actually seem really conservative.
Copied straight from the release:
"Using base assumptions of a copper price of $1.10/lb.; a molybdenum price of $10.00/lb.; a silver price of $6.50/oz.; and a discount rate of 8%, the Project has an estimated Net Present Value of US$814 million and an estimated after-tax IRR of 16%. Recent metal prices are considerably higher than those used in the pre-feasibility study. On February 3, 2006 copper was $2.31/lb., molybdenum was $36/lb. (based on a molybdic oxide price of $24lb.) and silver was $9.74/oz."

Taking into account the NPV and the number of shares (including potential dilution from warrants) the end result would be over $8NPV/share.

With the stock at $3.32/share, it makes this case a little interesting. There are risks of course (for instance the mining won't really start till I think 2010), so nothing is happening in the near future except for the company burning through cash (which means that they will probably raise more funds and this will cause dilution in the stock). In some releases there are potential hints of selling the site and it might be able to catch a nice sized premium over today's close.

Again: I'm not recommending this, I just saw the release and thought it was interesting.
If you have any comments, please share

Wednesday, February 08, 2006

Nice Timing

So yesterday I wrote a post about JNJ and that they should be receiving some press since the stock looks like a good value play. Today the stock jumped up over 3% and two more pieces came out on JNJ (besides the one under yesterday's comments- thanks for the link!). S&P upped JNJ to a Strong Buy and set a price target of $67. Then Morningstar came out with an article titled "Five Cheap Companies that Create Value", which can be found here, and I think this was a great article because it also explains the concept of ROIC (return on invested capital). The author also makes a strong case for favoring ROIC over the more traditional ROE (return on equity) and ROA (return on assets) measures.

One last thing on hedge funds (for now) that I didn't include in last weeks posts. I wanted to explain a little on how we pay the traders we use and why we use these particular traders. Some of them are just great to work with and we have a strong relationship with them. Others work with firms that help us out in some way and this is what I want to explain. Let's say a firm has a great sales guy who helps us out a lot. For instance we might be interested in medical companies and he will bring the management of a particular company to our office or set up meetings with the companies. Other sales guys might be in charge of road shows where we'll get to meet more companies. Now in order to pay these guys we can't cut them a check. What we'll do is place trades (use their traders) for some of our orders. So rather than cut a check for $10,000- we'll place enough trades so the commissions total $10,000.

One last note: I'm meeting with a friend tomorrow because he's interested in starting a business or side project. I have the capital and he has the computer expertise, so something may work out...(if something does, details will come in the future).

Monday, February 06, 2006

Where's the talk on JNJ?

First of all, I'm sure someones writing about Johnson and Johnson (and if you have some links, please put them in the comment section).
I'm semi-surprised I haven't been reading too much about the JNJ valuation. Right now everything seems to be about Guidant, Boston Sci, and if JNJ will buy St. Jude Medical (STJ).

JNJ has been sliding from about April, when it was near $70, to now when it is under $57. Much of this slide is due to uncertainties regarding the merger, if they are buying STJ, and how will they promote growth. On a very basic valuation level it seems to be on the cheap side compared to its historic average. It's price to sales ratio is about 3.37. It hasn't been this low since 1996! Over the past decade or so it has ranged from about 3.5 to 5.5. So on a price/sales basis it looks relatively cheap (but this is definitely one small part). Now in 1996 it had profit margins of about 13%, but today they are around 20%.
I wouldn't be surprised (once certain issues die down a bit) if some publications (Barron's, Fool, etc.) comes out with an article about JNJ- because if it keeps on sliding, it will be worth a second look.

Thursday, February 02, 2006


Hedge fund analysts/traders/managers talk about returns in two ways: bips and alpha.
Bips is just an easier way of saying basis points (bps). One hundred basis points is equal to one percent. So you might hear a phrase "we're down 300 basis points for the month", and this would mean they are down 3%. They also use this phrase when talking about position sizes relative to the fund's total assets. "Disney is up to 30 bps" meaning DIS makes up 0.30% of the fund's assets.

What type of returns are hedge funds shooting for?
This of course depends on the strategy. Some funds are short-only, which means they only short stocks. Other funds specialize in certain areas (distressed, etc.) while other funds remain true to the original title of a hedge fund. Basically a hedge fund was *suppose* to hedge risks, but many hedge funds these days do not follow this definition. They take on more risk for more return.
An average hedge fund might consider being up 25bps in a day a good day. I think this will give an idea about the types of returns hedge funds go for.

Alpha is a measure of return greater than a specific benchmark. If a fund is tracking the S&P and the S&P returns 5% while the fund returns 8%, they will say they generated 3% of alpha.
Alpha is key with hedge funds because this is how they justify their fees. A typical hedge fund will charge 1% of assets (not too bad), but then take 20% of the profits! So a few good years for a portfolio manager can set him/her up for life (kind of). If you have a great reputation you can charge even higher. Steve Cohen (SAC capital) is basically a legend in the business. He takes 50% of the profits! With his record of returns he can justify this and he's made his investors a ton of money.
It's all about generating that alpha!

Wednesday, February 01, 2006

January Month end

January turned out to be a very good month. My stock holdings did okay, some nice cash inflows, and only a few big cash outflows. I didn't keep track of my expenses as best as I wanted to, and hopefully that will change in the future. I did have some one time expenses: school, school books, CFA notes, registration fees, parking permit, etc.
Overall I'm happy with the month and I started off 2006 on a good note to hit my year end goal of $60,000 (although I have a ton of more work to do).

Here's how I ended January:
My brokerage account had some strong gains (over $800 this month) because my stocks had a good month. Overall my stock holdings increased 6.5% and I received another dividend from NTE.
The other big cash inflows were due to my bonus and raise (although it seems like taxes took a ton away!)

January Net Worth: $41,188
This represents an increase of $8,764 from December's net worth. In percentage terms, I increased my net worth by 27% from December.
*This will not be the norm!*
On average it seems I've been increasing my net worth anywhere between 4 and 7% and this is what I expect in the future.

Today I set up a third ING account. I have my regular savings accoung, a Christmas fund account, and now I have a Vacation account. I set it up so it will take $20 per week from my bank account and I might not include this in my net worth calculations. My goal is to go to a different country per year, but for this year I don't plan on going till late 2006 (if possible).