Archive for October, 2006

• Guy Kawasaki
  Eddy Elfenbein, October 31st, 2006 at 8:48 pm

  Amanda Congdon has a fascinating interview with Guy Kawasaki, a Silicon Valley venture capitalist. The interview has a light-hearted tone, but his answers are very interesting.
  Here’s part two.

• The Biggest Secret on Wall Street
  Eddy Elfenbein, October 31st, 2006 at 1:10 pm

  Here’s an investing secret that many Wall Street professionals know about, but few individual investors are in on. Promise not to tell anyone.
  OK, here goes. Most investors think the succesful investing is about buying shares in some company that’s about to invent the Eight Dimension. Sure, we all know the story about our neighbor’s aunt’s best friend who knew this guy who went to high school with one of the Google guys, and now he’s like totally loaded. Goody for him, but that’s not what investing is really about.
  In reality, some of the best profits can be made in the dullest of industries. In my view, the duller the better. A great example is insurance. For those who don’t know it, insurance can be insanely profitable. It’s disgusting, really (I love it!). Think about it: Insurance is a low-risk business, it has tacit state protection (try driving a car without car insurance) and it can’t easily be replaced.
  Here’s how some insurance stocks have performed over the last 30 years:
  Progressive (PGR)………………………………………….95,548%
  WR Berkley (BER)…………………………………………..30,069%
  AFLAC (AFL)…………………………………………………..23,184%
  Loews (LTR)…………………………………………………..12,597%
  Cincinnati Financial (CINF)………………………………..8,490%
  American International Group (AIG)……………………7,916%
  Selective Insurance Group (SIGI)……………………….7,444%
  Protective Life (PL)…………………………………………..4,617%
  First American (FAF)………………………………………….4,055%
  Old Republic International (ORI)…………………………3,947%
  Meanwhile, the S&P 500 is up about 1,230%.
  I should add that I don’t mean all insurance stocks are great investments. But the cream of the industry is about the best you can do.
  Oh, and I nearly forgot to mention Warren Buffett. Insurance forms the basis of his entire fortune. Over the last 30 years, Berkshire is up nearly 160,000%.

• Playboy Stock-Picking Contest
  Eddy Elfenbein, October 31st, 2006 at 10:47 am

  With the end of October, I’d thought I’d update the 2006 Playboy Stock-Picking Contest. Right now Courtney Culkin, Miss April 2005, is in the lead. Her portfolio is up 47.01% for the year. Courtney’s best stock is Steven Madden (“one of my favorite dress shoe brands”) which is up over 120%.
  Amy Sue Cooper, the Cyber Girl of the Year, is in second at 28.96%. What impresses me about Amy’s portfolio is that she actually gives good arguments for her selections.

  Amgen (AMGN), the world’s largest biotechnology company, and Abgenix (ABGX), a company specializing in the discovery, development and manufacture of human therapeutic antibodies, announced that they have signed a definitive merger agreement under which Amgen will acquire Abgenix for approximately $2.2 billion in cash plus the assumption of debt. This merger could possibly benefit this company tremendously. I am a nurse so this only makes sense.

  That’s beats a screaming bald man.
  Here’s how the other contestants stack up. If I were participating, I’d be on top of Lindsey Vuolo and underneath Kara Monaco:
  Courtney Culkin……………….47.01%
  Amy Sue Cooper………………28.96%
  Deanna Brooks………………..21.44%
  Kara Monaco…………………..15.17%
  Me………………………………….8.47%
  Lindsey Vuolo……………………4.6%
  Pennelope Jimenez……………-0.41%
  Christine Smith…………………-1.78%
  Jillian Grace……………………..-3.56%
  Pilar Lastra………………………-5.16%
  Amy McCarthy………………….-32.74%
  Amy McCarthy is Jenny’s younger sister.

• Does This Look Irrational to You?
  Eddy Elfenbein, October 30th, 2006 at 3:37 pm

  Not to me.
  

• Sysco’s Earnings
  Eddy Elfenbein, October 30th, 2006 at 10:45 am

  Sysco (SYY) reported earnings today of 37 cents a share, which beat Wall Street’ consensus by a penny a share. Due to some accounting charges, net earnings fell to $189 million, or 30 cents per share.
  Also, Lindsay & Co. at Wall Strip take a look at Harley-Davidson (HOG). The stock is up about 40% from its June low.

• How to Combat the Rise of Asia
  Eddy Elfenbein, October 28th, 2006 at 12:41 pm

  Gabor Steingart of Der Spiegel argues for a Trans-Atlantic Free Trade Zone:

  The two camps are divided between Europe and America on the one side and Asia on the other. But so far there has been no shouting, no bluster and no shooting. Nor have there been any threats, demands or accusations. On the contrary, there is an atmosphere of complete amiability wherever our politicians and business executives might travel in Asia. At airports in Beijing, Jakarta, Singapore and New Delhi red carpets lie ready, Western national anthems can be played flawlessly on cue — and they even parry Western complaints about intellectual property theft, environmental damage and human rights abuses with a polite patience that can only be admired. The Asians are the friendliest conquerors the world has ever seen.

• Beer by the Numbers
  Eddy Elfenbein, October 27th, 2006 at 4:21 pm

  From the AP:

  — 1,409: The number of breweries — ranging from brewpubs to national brewers — operating in the United States.
  — 306: The number of breweries in California last year, putting the state first in the country. Mississippi was last with one.
  — $82 billion: The U.S. sales volume for beer last year. Craft beer — beer typically made in small batches by regional or local brewers — accounted for $4.3 billion.
  — 21.3 gallons: The amount of beer consumed per capita last year in the United States. New Hampshire led all states with 31.1 gallons. Nevada, North Dakota, Montana and Wisconsin rounded out the top five. Utah was last at 12.2 gallons.
  — 48: The percent of all beer sold in metal cans last year in the United States. Glass bottles followed at 42 percent and draft beer was at 10 percent.
  — 84.1: The market share held by major U.S. breweries and noncraft regional brewers. Imports have 12.4 percent and craft brewers hold 3.4 percent.

• Third-Quarter GDP
  Eddy Elfenbein, October 27th, 2006 at 10:54 am

  Today’s GDP report was pretty bad. The economy grew by just 1.59% for the third quarter. What concerns me is that this is the second straight below-trend quarter. As a data series, GDP is somewhat trend sensitive.
  Since 1983, when the economy has grown by over 3% for one quarter, it has a 66% chance of growing by over 3% for the following quarter. If the economy grows by less than 3%, then it has a 41% chance of growing by over 3% for the following quarter.
  

• Corrected for Stuff, the Dow Sucks
  Eddy Elfenbein, October 27th, 2006 at 6:17 am

  Daniel Gross has caught the Republicans lying again. It turns out that the GOP is claiming that the Dow is at some sort of all-time high. While this is true in the sense that it’s factually correct, Gross objects to the GOP talking point because the Dow is atypical and Republicans aren’t adjusting for inflation.
  I should add that since Gross’ argument involves the stock market and Republicans, he unfortunately has to continue his bizarre Dow 36,000 fixation—to wit, D36K must be mocked in any article dealing with the market no matter how tangential it is to the article. For other instances, see here, here, here, here, here, here and…oh, you get the point.
  As to the Dow being atypical, I agree, it’s a lousy benchmark, but seriously…it’s not that bad. Combined, the 30 Dow stocks are worth about $4.1 trillion. That’s a pretty big slice of the market, and it’s fairly well diversified. The S&P 500’s $12.5 trillion is obviously much better, but the Dow isn’t coming totally out of left field, or in this case, right field. We can go even larger and look at the Wilshire 5000 which weighs in at $16.7 trillion.
  Of course, there’s nothing special about the Dow 30. The stocks are simply selected by the editors at the Wall Street Journal, and those folks never make a mistake. Well, rarely. For example, Homer nodded bigtime in 1939, when the editors purged IBM from the index. The stock was eventually invited back in 1979, but over those 40 years, IBM gained 22,000%.
  LOL
  What would have happened if the editors had left IBM alone? The Dow would have cracked 1,000 in 1961 instead of 1973, and it would be over 16,000 today. (By the way, did you know there’s a book called Dow 36,000? How fucked up is that?)
  While the Dow is at a new high, the S&P 500 is still 9% off its all-time high, and the Wilshire 5000 is 5.5% below its high. But Gross goes on to say that, “the claim that ‘the stock market’ is at an all-time high simply doesn’t match most investors’ experiences.” That’s not quite correct. If we consider most investors experience to be the broadest index, and include dividends, then the Wilshire 5000 is at a record. True, only 4.3% higher than its March 2000 peak, but it’s there. Also, the Dow’s period of outperformance ended more than four years ago. The bull market has been very kind to the broader indexes.
  As to the inflation charge, it too is correct, but we have to watch ourselves. First, the government’s measure of inflation is notoriously poor. Also, once we open up the adjusted argument, it can go on and on. Soon, someone will say that the market should truly be measured against gold, or a basket of commodities, or other currencies. Any market index can be adjusted down by a clever analyst.

• The Plunging VIX
  Eddy Elfenbein, October 26th, 2006 at 1:41 pm

  For the third time in little over a year, the CBOE Volatility Index (^VIX) or VIX is making a run at 10.
  
  Last Friday, the VIX hit its lowest level of the year. On July 20, 2005 the index dipped below 10 during the day, but it hasn’t closed below 10 in nearly 13 years.
  Generally speaking, the VIX and market move in opposite directions. Here’s a scatterplot of their moves for the past year. The S&P 500 is the horizontal axis, and the VIX is the vertical.