Thursday, November 29, 2012

Garbage in and garbage out

I looked at the net cash of DECK. It has a net cash / market cap of 46%. Quite impressive. However, the data is almost a year old from Fidelity. I looked at Cisco, the data is quite updated. Hence, the date of the data determines whether it is outdated or  not.

Even with current data, DECK's net cash is about 15% (by rough calculation) and it is not heading to bankruptcy with a healthy P/E. However, it has high long-term debt. In this case, net cash does not tell the entire story.

To get updated info of a company:
Always go to the company's investor relations website, or the SEC Edgar website for company filings. 

Short squeeze


DECK may be experiencing short squeeze. With 50% shorts, it is a stock that could face short squeeze. When it happens, more shorters get out and the stock rises higher. I am careful to buy stocks over 10% short. However, when it reaches over 40% and the company is not heading to bankruptcy like DECK, it could be a buy.

In addition, some hedge fund managers tell each other it is time to buy as the price of this stock has been driven down by shorts too low and too much. Of course, the retail investors lose out when they ride the wagon that is falling to the cliff. A case of greed and fear.

When and how to buy stocks

I wrote:

We need to be careful on most subscription systems. Even some very good ones perform worse in certain market conditions. If it is too easy, there would be no poor folks. However, for myself at least, it will not be smart to ignore a major service like Zacks. Before you use it with real money, you should paper test it and take responsibility when you use real money.

My 3 steps in trading stocks.
1. Market timing. Buy when market trends up and vice versa.
2. Screen stocks.
3. Evaluate screened stocks.

Here is my take in investment subscription services.

Ameka wrote:

Two things determine investment success. One is intrinsic value: an investor must be able to discount cash flows with some certainty, and compare this to prices. The other is cycles: an investor must know where in the business cycle we currently are because intrinsic values depend on earnings, which are a product of the economic environment.
Here is my subscription free source for fair value analysis, screens and market timing:

Wednesday, November 28, 2012

Tom's quality ranking system

Quality is a ranking system developed by the website, they describe it as follows:

Factors used in the Quality ranking system:
Profit Margins - 25% of total
Trailing 12 month Operating Margin (75% of this category)
5-year Average Operating Margin (25% of this category)
Turnover - 25% of total
Trailing 12 month Asset Turnover (100% of this category)
Returns on Capital - 25% of total
Trailing 12 Month Return on Investment (30% of this category)
5-year Average Return on Investment (40% of this category)
Trailing 12 Month Return on Equity (10% of this category)
5-year Average Return on Equity (20% of this category)
Finances - 25% of total
Current Ratio in latest quarter (30% of this category)
Ratio of Debt to Capital in latest quarter (25% of this category)
Trailing 12 month Interest Coverage ratio(45% of this category)

To me its a shorthand way of bringing in the fact that investors will study their stocks and try to weed out those with problems.

Sunday, November 25, 2012

Inflation and deflation at the same time?

As of 2012, we've inflation and deflation depending on what sectors and what yardstick we're using.

The house sector and its associated sectors have been deflating due to the burst of the housing bubble in 2008. When you buy a house at one fourth of the price in some previously speculative areas, it is deflation. Service sector are in deflation as high unemployment drives down wages. Hopefully they will change in 2013.

Many sectors are in deflation due to the economy. It is supply and demand. They are oil, commodities.

However, food prices have been inflated partly due to adverse weather. 

If you use gold as a yardstick, the stock market has not been fully recovered from 2008. Gold was about $500 per oz then and now it is about 1,750. If you adjust the total market values in oz of gold then and now, you do not find a lot of changes. 

I use gold as a yardstick as it has little industrial value (so it will not be affected by the economy) and the supply is limited. Gold prices should correlate with the total USD in circulation, which is affected by how much the government prints.

Thursday, November 22, 2012

A corrupted view on corruption

As Einstein said, "Everything is relative".

There are 50 shades of corruption.

When every powerful man makes money and you don't, you must be stupid and not fit to govern.

Corruption is a bad human nature, but who does not want to get stuffs free without working like welfare, TV hosts and hostess giving stuffs free, lotteries... 

As the late Uncle Deng said, "We have to let some folks make money." He did not specify "legally or illegally, morally or immorally".  China has lifted millions from poverty (i.e. starving to death) in last 30 years, so is a little corruption a big deal? I am glad the top Chinese leader finally admits it is a big problem.

Is Microsoft playing fair?

If you go back to history, you can see Microsoft was not a good guy or a fair player. Success is not due to building a better or a new mouse trap, but marketing and management that Microsoft once was a tiger and now a Micky mouse.

There is a rumor that CP/M owners ignored IBM folks' visit and played golf instead. At that time CP/M was the only commercial operating system using disk on PCs. These unemployed, former executives must only afford to play miniature golf, but they have good stories to tell to their grandchildren. Gates licensed one DOS from another company and sold it to IBM for the then new PC.

Microsoft and Apple copied the Window ideas from Xerox's PARC. Did they pay loyalties to Xerox? I guess not. Why does Microsoft ask developing countries to pay loyalties for their own software?

There were better and matured software on word processing, spreadsheet, mail...from other vendors. As a new comer, Microsoft could not compete with them, the marketing genius gave their own versions free (or almost free) to corporations. When they got rid of the competitors, they raised prices and used their corporation legal department to crush down any future competitors. They're the poster boy of product dumping (China is a long, long way from the master).

The multi tasking of Windows was a joint venture with IBM with the product called NT. Microsoft was the wolf that wore the sheep's skin. The IBMers wearing business suites,  white shirts and white underwear were destined to be manipulated like a puppet by the villains.

However, Microsoft has been in a coma for the last decade or more. Hopefully Surface is the first wake-up product. XBox almost did not accomplish the mission when the management almost stopped the enhancement.

Now I have some shares of Microsoft. I hope they start a new era and start to make some money for me. You invest in stocks not because the company is Mr. Nice Guy (with the exception of sin stocks like tobacco and offense companies), but the potential of appreciation at acceptable risk. 

Back to the original comment on misunderstanding of UNIX, C...

UNIX is a product from Bell Lab (now a division of ALU), who has more discoveries other than God. I used to pay them $500 and they sent me a tape with programs, source codes and documentation to run my company's PDP 11. C is a native language for UNIX.

Wednesday, November 21, 2012

Political parties are for the biased clowns

I read many comments on our country and suddenly I understand what is the major problem of our once-great country.

We're all biased especially when we belong to a political party, a social class, or a race. We just echo what our party wants us to say. We do not think individually, similar to Bush's cabinet meetings (I do not care which party Bush belonged to). We're just the slaves or robots to our parties. We spend too much time in arguing for the wrong reason (i.e. politically correct) instead of working on the problems as illustrated in the Congress.

BTW, I'm neutral in politics and am proud not belong to any party.

Judgement days are coming soon

We will have another real estate bubble being burst.

The problem is the government spends too much money in buying votes. Eventually we cannot service our debts and bankrupt.

The low (or zero) interest rate is unsustainable and causes us a lot of problems. It should NOT be used for the prolonged period like today. I do not see the end of it and it will lead to Japan's lost bi decades.

On the bright side, the recent discoveries on the trapped gas and oil would boost the economy. 

The government does NOT really grow money on trees or have a real money printing press. It borrows from us and foreigners. Eventually you have to pay back one way or another.

I have never taken any class in economy and I can understand our problems. What happens to the Ph.Ds in economy who work in the cabinet? Are they stupid (at least by now) or Obama does not want to tell the inconvenient truth to the public? 

The following blog seems to be a joke, but it is not too far from reality. Decide it for yourself.

From Air Force One to Prison One

I read:

Brokers make annual reports to the IRS on dividends, cap gains, etc. The Cayman Islands trustee is under no such obligation. So how do we know if Romney paid all his US income taxes that were due under law? 

My reply:

No, it is called tax invasion and you can go to jail for that.

If Romney were elected, he could go to jail. It is funny how he would govern the country in Prison One and how he would see the foreign heads in his cell during visiting hours
and using the prison phones. It would be a Kodak moment when they tried to touch and kiss each other via the isolation glass. 

When Romney asks whether you want to stay overnight, make sure he means the White House, not the big house.
At least he got free dental care, the first one to get flu shots, free sex change (in Mass.), early release when the prison is full... 

On the bright side, he would be pardoned together with the other turkey on Thanksgiving Day. 

Virus and Marketing

If you're creating viruses, you want to write on the most popular system(s), so you have larger market penetration. The right choice is Microsoft's Windows and not Apple's OS. It is Marketing 101: Market penetration.

Apple offers a combination of software and hardware, while Microsoft basically offers software only (until the Surface). While you open up your system to other vendors, it is easier for others to write viruses. My theory: The ones who write viruses are the ones who write, sell and profits from the anti-virus software. I can nicely ask my brother-in-law to write a virus and give me the antidote to sell.  It is Marketing 102: Create the market.

It is an disadvantage for Windows to open itself up. However, the advantages outweigh the disadvantages and they include capturing the market share and producing cheaper PCs. It is Marketing 103: Less of two devils.

When you're a developer on Windows (and similar to other system), your view of the product is limited to a small bird's eye. A Chinese proverb says: The size of the sky does not exceed the size of the well surface for a frog inside the well. Does my rough translation work? It sounds so good in Chinese, but not so in English. It is Marketing 104: Foreign translation may not work.

The above is written by one who has never taken any marketing class. :)

Tuesday, November 20, 2012

The inconvenient truth

The low (or zero) interest rate is unsustainable and causes us a lot of problems. It should NOT be used for the prolonged period like today. Buying votes is our problem and buying foreign influence / access is money badly spent.  I do not see the end of it and it will lead to Japan's lost bi decades.

Unless we have plenty of cheap energy to boost the economy and become our major export, we will head to another recession. That's is quite possible with the recent discoveries on the trapped gas and oil.

The government does NOT really grow money on trees or have a real money printing press. It borrows from us and foreigners. Eventually you have to pay back one way or another.

I have never taken any class in economy and I can understand our problems. What happens to the Ph.Ds in economy who work in the cabinet? Are they stupid (at least now) or Obama does not want to tell the inconvenient truth?

Monday, November 19, 2012

Too delicious to fall

Hostess's fall is a bad for capitalism, esp. our style of capitalism. Too many blames to go around. First, the management (and the hedge fund managers) did not update their products to meet the trend of the market.

* Unions are out-of-touch. If your patient is dying, you do not want to shake him hard violently. You need to have plan B when you're bluffing. Betting the entire farm with bad cards is just dumb. It is just common sense.

They're parasites and they will die too when their host is dead. The dream of owning the company will remain to be dream and they never want to wake up.

* The workers are really dumb to let their master manipulate them until they lose out big time. Do you think you can protest and win in this kind of economy and the shaky state of the company?

* The politicians will not bail them out especially it is long past the election. Usually they can blame China for stealing the jobs, but they cannot as these jobs can't be outsourced. Hence, even if it were before the election, they will not gain any help from the government.

It is a lose-lose-lose (management-unions-workers) situation and only stupid folks will get into this situation.

There will be a buyer(s) and hopefully it may save 25% of the jobs and most likely with a clause to get rid of the unions. The new factory workers will be making 20K working for 28 hours week, so they will not be eligible for any medical insurances and other full-time benefits. Hence, unemployment benefits and welfare are not a bad tradeoff.

It is a tough world out there. Be realistic and check who's hiring for similar jobs that pay $50K with benefits. Do not waste your time and energy to ask for the same compensation for your next jobs. 

Will the following be considered as insider's trading?

Say, I have prior knowledge that it is going to bankrupt. I buy the entire stocks of the goodies that can last longer, and sell them on eBay for $10,000 each (deducting $1,000 as the starting bid every day). The fortune is small, but it is better than protecting in the cold for nothing to gain.

Saturday, November 17, 2012

Stuffs school does not teach

Mr. Swing introduced himself in our debate at seekingAlpha:

I started a software business with 60K and sold it 3 years later for 5 million. Then I co-founded an online business and 15 years later (a couple of months ago) it was sold to Pearson for 90 million.

(My credentials: Former linguist of Russian in US Army; PhD in Russian and Soviet studies; 25 years teaching the same area.) 

My reply:
All the gold and degrees in the world will not gain you respect here, but from the way and your content you debate, which I have to admit is quite good from a Ph.D.

Your gold and your advanced degree will not convince anyone in public debates (we're not your students) but give us resentment and contempt. It also turns my jealousy (a bad human nature) into hatred.

Too bad Debate 101 (together with humor, common sense, humbleness and charm) are not taught in any college I know of and this is the major reason why our education system fails.

Mr. Swing, I'm just having fun with you. I do not hate the rich as I'm quite rich by my own humble standard which has the lowest shade of gold in your eyes. I must have too much free time from my unproductive but humble and charming life.

BTW, debating with such prestigious folks must boost up my humble but charming social standing.

(My credentials: Former ITer; MS from a second tier college that does not even offer any  doctorate degree; 30 years in IT making peanuts; self-taught investor with common sense and very humble and very charming personality.) 

Friday, November 16, 2012

Good site

Will take a deeper look.

Thursday, November 15, 2012

The rich and the poor

Conflicts between the poor and the rich

The rich, the middle class and the poor.
If I were making more than a million dollars a year, I would consider giving up my US citizenship and moving to some island where I do not have to pay much for taxes. I can live like a king just with the saved taxes. Besides patriotism (paying back to the adopted country for me), we should make this decision similar to evaluating the potential appreciation and risk of buying a stock.

The middle class like myself who cannot migrate with the entitlements that I already have paid for are suffering and will suffer more with more taxes coming.

The poor are taking advantage of the middle class. Since there are more poor than the rich, the politicians have to satisfy this group. However, the poor will suffer too when more from the middle class will become the poor after the heavy taxes that will affect us personally and the economy.

How the classes are formed.

My theory. How we become rich or poor.

* Becoming rich.
1.       Via inheritance.
You have to ask God why if you do not belong to this group. When you was born in USA instead of in Haiti, you already hit the jackpot.

2.       Taking chances.
We all take chances in life on some opportunities, which could turn out to be traps and make us poor instead.

3.       Hard work.
Our family should teach us to work hard at an early age.

4.       Save hard.
You should not be punished for saving money.

5.       Smart.
It could be part of the inheritance. It is important to some but not to most of us in the middle class.

6.       Luck.
When you take chances even with educated guesses, a lot of time luck plays an important role for its success.

* Becoming poor.
1.       Lazy.

2.       Spoiled by our generous welfare.

3.       Big spenders.

4.       Unfortunate.
      Born poor. Lost in taking chances.

We should help the folks in category #4 only.

The ultimate democracy?

It is controversial but it could be logical at the same time on how we allocate our taxes.

We should tell the government how to spend our taxes by establishing what percents of the taxes on what category such as war, welfare, social security, education, research.... via ballots.

If you do not pay tax last year, you cannot decide on this. This is called ‘representation with taxation’.

Thursday, November 8, 2012


To conclude my thoughts on this thread:

* I did buy ALU at $1 but with half of my current bet for a stock.

* After reading the comments and two articles plus some previous articles from WSJ, I change my opinion on ALU. I'll not buy any more. It has same chance to go to 50 cents or $1.50 in a year for the following reasons.

* To go to 50 cents.
- The company is not recovering esp. with the global recession that I expect to continue with Obama's policy and the EU crisis.

- It could bankrupt if they cannot service their long-term debts that is larger than the entire market cap.

- The problem is not management as the stupidest fool cannot make it that worst. However, they have to lay off more than the announced to save some cash.

- The problem is China, namely Huawei. I have friends retired from Lucent and one still working in Bell Lab. I estimate their average compensation is over $200K for top engineer (some have patents) and researcher (most are PhD from top universities). Chinese engineers and researchers have a fraction of this compensation.

China is a major market for Huawei and when it IPOs, it would add wings to its already strong body; a public corporation will attract professionals and leaders esp. for this size. China's huge market will be a good customer base for Huawei.

It reminded me of one apparel stock I owned. It could not compete with low-wage country even before lifting the embargo to China. When the management did not do anything positive, it will die.

* The reasons it will go to $1.50 next year.
- Cisco may buy it with a combination of stock and cash and it is better than giving dividend (that has raised the stock price and great for those who have options).

Cisco does not have the state-of-the-art technologies that ALU, Huawei and Ericson have. It will be a strategic buy but 2B plus the hefty debt is not too easy to swallow.

- EU intervention with US's help.
EU is a mess now and I do not think they can bail it out. I expect they will encourage EU and USA to buy ALU's products and stop Huawei.

Cisco is successful in doing so arguing with security reason. It is not a valid reason as some of the internet traffic has been routed to Huawei's products already.

It is too risky for me and there are plenty of safer bargains else where.

Saturday, November 3, 2012

Making over $100,000 without working!

Some one forwarded me the following article. It is not too hard to understand the problem of this country. It is not the rich, not China (actually China saved GM from the second bankruptcy), but the poor who take advantage of the middle class and our constant involvement in foreign wars.

The rich who lay the golden eggs just fly to another country when they're taxed to the maximum.

The question is how we pay for these parasites and for how long before we're bankrupt if not already.


It seems that every couple of days New Orleans loses one of its treasured ENTREPRENEURS .

(Not shown is the obituary about a 25 year old guy)

Let’s get the players straight before we go on with this..


His Companion : Kawanner Armstrong

His Sons : Christian Allen
Kwan Allen
Larmondo Allen, Jr.

His Daughters : Deidra Allen
Larmenshell Allen
Lamonshea Allen
Larmomdriel Allen
Larmerja Allen
Korevell Allen
AT AGE 25 - He had 9 Children.

His Father: Burnell Thompson
His Mother: Esther Allen
His Stepfather: Bruce Gordy

His Brothers: Burnell Thompson
Edgar Thompson
Wil Willis
Danta Edwards
Reshe Edwards
Mattnell Allen
Burnell Allen
Lester Allen

His Sisters: Shannail Craig
Lekiksha Thompson
Gwendolyn Carter
Jessica Willis
Katina Gordy

Grandparents: Delors Allen
J.C. Allen
Anna Laura Thompson
Will Thompson



He was 25 and had 3 sons and 6 daughters.
NINE welfare recipients collecting $950 each .....

That equals $8,550 a month!
Now add
Food Stamps ,
Free medical, Free school lunches,
and on and on

Do the math... $102,000+ /year.

Anyone out there, sittin' on their butt while reading this e-mail, making
A HUNDRED GRAND doing nothing?

Now that, to me, is a real Entrepreneur.




$11,700,000 PER YEAR...
(And demands 100% the Taxes Paid by 1,000 avg. taxpayers)

And THAT is why this once great country is


Are you the investor also the owner of the business

It cannot be to me. If I have 20 stocks, I do not have the time to run 20 businesses. I do not have to hire, fire, plan... I do not put most of my eggs on a business as most business owners do. It is just saying to a policeman or a fire fighter I pay your salary. It is only true for your ego and nothing more.

Who are the owners that will affect the companies' strategies? Not you as a retail investor, but the big mutual funds, pension funds... and then the insiders who usually suggest how you should vote.

I ignore all these vote requests as I usually have about a hundred of stocks (less today). I do not even have time to read all their suggestions.

To illustrate, the hedge fund who owns most of Sears shares pretty much make the decisions. I made money on Sear not by keeping Sear as a company, but trading the Sear stock.

The decision to trade a stock for me is the potential appreciation of its stock price (via many researches by others). I trade the company by a click of the button, and there is no emotion attached to the button as I'm not the owner but a investor.

Frankie's misadventure

Frank wrote:

Here's the thing small investors have to remember. Quite often the market gets it TOTALLY wrong. There is a herd like mentality amongst investors and stock analysts that is quite extraordinary to behold. Now, of course, it does help if you understand what you are doing, but quite often all it takes is common sense to work things out.

Currently I am holding a stock, which I bought 9 months ago. I should mention that before I buy any stock I do a rigorous analysis of what I'm buying. I will not buy a pig in a poke. And I loved Decker Outdoor at $90. I'm the kind of guy that will crawl in and around the financial statements and examine a company from every conceivable perspective. They are the company that make the UGG boots that women love. Now the thing about DECK is that its a simple company with a simple business which is easy to understand. They make boots and foot-ware and have acquired a bunch of companies that sell niche footware such as sports shoes etc. But UGG is its major brand. At the moment its responsible for 87% of the company's revenues.

So you can understand my astonishment as I watched the stock plummet by some 60% over the past year. On closer examination it appears that investors (particularly analysts) are freaking out because DECKs inventories have increased substantially over previous years. Moreover, sales have slowed and input cost have risen dramatically. Because of a combination of factors, its been a Frankenstorm of a year for DECK. DECK's had its worst year in a decade. But as bad as its been, the company hasn't actually lost money. Just that this years earnings haven't been as robust as prior years.

What amazes me is that so called "sophisticated" analysts are running around like Chicken Little saying, "the sky's falling in, the sky's falling in". Analysts have been writing all sorts of nonsense that makes me wonder how they got their job in the first place. Amazingly it appears that many analysts don't have a clue how real businesses operate. I'm not going to get into the details here because you can read up on the stock on seeking alpha for yourself.

Suffice it to say, you have to take a lot of what these people say with a huge pinch of salt. So what have I been doing? I've been buying the stock all the way down.

You have to realize that just because a stock is declining is not necessarily a bad thing. The most fundamental lesson that Buffet teaches investors is that the cheaper you buy a stock the greater your return will ultimately be. I initially bought DECK at $90. Currently it is trading at under $30. Of course, I would love to have been able to look into the future and known that I could purchase the stock at under $30 just 9 months later. But that just isn't reality in the stock market. What I can do as an investor is average my price down. And that's precisely what I've done and what I will keep on doing. The lower it goes the more I will buy. Because I've examined the company very thoroughly. Ultimately I know I am going to do very well thank you very much. Because I'm not interested in buying the stock for a quick flip of 100% or 200%. I'm in it for the long haul. Over the long haul I expect DECK to increase by many multiples of my original cost. And the lower I can get my price down the greater my ultimate return will be. And sooner or later the company is its going to pay me dividends which will also increase over time.

Life's good if you're an investor. You can take advantage of other peoples stupidity. But one thing you will learn is not to take too seriously everybody else's opinion. In many respects its totally irrelevant. 

My reply:

Hi Frank, thanks for sharing your experience. A bad one could be more important than a good one for us to learn and avoid similar problem. I will save it in my blog for future reference. Let me add my two cents and please argue whether they're valid. This is one way to learn.

* I had a similar experience with CROX. It was manipulated by shorters, It is similar here as your DECK has almost 40% (short interest as a % of outstanding sharing from Fidelity).

It is being manipulated by large hedge funds and retail investors could not be the leader of the herd. I doubled down on CROX and it lost another 25% and finally on the last double down that made more than 100%. However, the whole deal is a losing one.

* I advise not to place extra bet on a losing stock. However there are exceptions. Let's take a look.

- The P/E is 7. Quite good. However, I have not checked the expected P/E and I bet it will not be as good.

- Can it recover? Most likely so. Their main problem was due to the warm weather last year. Most likely it will not repeat unless we've a prolong global warming.

Unlike the ugly but indestructible shoes by Crox, it needs replacement every few years - a good point for DECK. It is a high-end product and you need a good economy to support it - a negative point for DECK.

- With this low price, potential to appreciate... I placed some buy orders. I put money where my mouth is.

* At one time, we said 'Crox is no Deck', and now we say 'Deck is no Crox'. The point is the stock and market changes and we have to adjust to it.

* I prefer to 'buy low and sell high' than 'buy high and sell higher'. Deck and Crox are good examples.

* Diversification should be emphasized again. If you have 20 stocks instead of 1, you still have a good sleep even losing 60% of one stock.

Hope it turns out good for you. 

Thursday, November 1, 2012

Buffett's miserable performance in last 3 years

No one invests in a 3 to 5 years timeline. However, we change strategy in 3 to 5 years (actually I change far more often esp. when there is a reason to).

Buffett did not perform in last 3 to 5 years. Do you remember Fidelity's Magellan Fund? It was great for a while and I invested in it riding the wagon. Then it did not perform due to it was getting too big (and the fund manager knew the problem and he quit to save his glory). I moved all my Magellan holding to other fund and spared me the non performance of years to come.

Many fellow investors did not abandon the Titanic for the following reasons: 1. They believe it will come back (and they never did), and 2. Try to save the huge capital gain tax if they have it in a taxable account. The result is losing opportunity to make money by switching to other funds.

The rear mirror is always clearer. However, if you do not learn from history, history will repeat itself. Do you think Buffett's funds will appreciate for sure? No one can predict the outcome correctly and consistently. To me, there are more problems down the road like who will lead the group....