Tuesday, March 11, 2014

Why I Reduced Restoration Hardware Position

It looks like I found this stock too late. I like the stores, I'm sure that they sell stuff appealing to rich home owners. But there is a small problem. There is nothing unique in the stores. OK, they recover, restore and sell beautiful (and not so much, but beauty is in the eye of the beholder) pieces of hardware for home decoration. But... Last Saturday I went to Home and Garden show. There were a lot of companies selling restored hardware. Granted, they don't have variety of Restoration Hardware (RH) stores. But it's just a matter of time.
Another problem: one of the reasons I bought the stock in the first place was the fact that CEO was Italian. Well, that CEO is gone.
I am not sure I want to close the whole position. I might as well be wrong. I am thinking about it.
Disclosure: I am long RH.
Additional disclosure: Positions can change any time.

Friday, March 7, 2014

I Am Ashamed To Be Russian

I don't write here on political matters. But, the situation is way too dire.

For the first time in my life I am ashamed to be Russian. When USSR entered Afghanistan, I was young and poisoned by Soviet propaganda. Later, I was happy when USSR fell apart. I thought that I could live in free Russia. By 1994 I found out that people of Russia don't want to be free and responsible for themselves. Now I live in USA, I am US citizen, proud of my new country and relatives are the only link to my former country. But now Russia invaded Ukraine. This is war. It doesn't matter that nobody died yet. Naval blockade, occupation of Crimea and its almost certain annexation are acts of war. And it doesn't look like the end. Russian military already probed approaches to Ukraine borders in the North (shortest way to Kiev). They retreated, when found out that Ukraine military are ready to meet them. Will they retreat next time?

I know a lot of people in Ukraine. My heart is with them. I wish them all the luck, they need it.

Ukraine sovereignty was guaranteed by US, UK and Russia in 1994 (Budapest agreement). Looks like this was just a piece of useless paper. US and UK don't want to defend Ukraine in any meaningful way and Russia is an aggressor. According to Budapest agreement, Ukraine surrendered all nuclear weapons on its territory to Russia. I don't think they are happy about it now. The lesson is clear.

If Putin is not stopped now, Baltic countries will be next. This looks like beginning of World War III.

My heart is with Ukraine.

Слава Україні! Героям слава!

Thursday, February 6, 2014

Annual Portfolio Review

Annual Portfolio Review [Edit or Delete]0 comments
Feb 6, 2014 3:59 PM | about stocks: ARMHDSWDCIXEADSYFBGOOGHSBC,LRLCYMMMPIIRHSAN
Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.
Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.
Strategy. As I already mentioned in my blog before, political environment doesn't look good for the economy. Strategy changes: increased cash cushion, reduced long positions, more trading around positions. This estimate is not changed, despite huge bull run on the end of the last year and extremely bearish beginning of 2014.
Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.
Google (GOOG)
Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.
Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.
No changes since last review.
Plan: Hold, trade around.
ARM Holding (ARMH)
Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs
No changes since last review
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold, trade around.
Facebook (FB)
Not the only social network company worth investing anymore. But the most profitable so far.
No changes since last review.
Risk: Wall Street hates the company.
Plan: hold, trade around.
DSW Inc (DSW)
Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.
Added to position since last review.
Risk: Any retailer is a high risk company. Anything can go wrong.
Plan: hold.
Restoration Hardware (RH)
Creamer's recommendation. As a part of research, I visited a local store. And liked it a lot. Company sells various home improvement stuff, mostly restored old furniture and other decorations. There is no real competitor in US, because unlike others, this company got style.
Added to position since last review.
Risk: as any retailer, RH is a high risk company.
Sold since last review: Red Hat (RHT).
Banks / Financials
Banco Santander (SAN)
Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles. This is also can be placed in International part of the review.
Reduced position since last review.
Risk: Currency fluctuations, more problems in Eurozone.
Plan: Hold.
HSBC Holding (HSBC)
As far as I know, the biggest bank in the world. European, more to the point, British. And UK loves her banks.
New position.
Risk:currency fluctuation, another financial crisis.
Plan: hold.
Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.
Airbus Group (OTCPK:EADSY)
One of two big aircraft manufacturers. As Cramer would say, we love duopolies. Company has at least 8 years of backlog.
New position.
Risk: currency fluctuation.
Plan: hold, add on weakness.
Polaris Industries Inc (PII)
One of the best recreation equipment manufacturers out there. Local (for me) company as well.
Traded around position since last review.
Risks: another recession, people don't like buying discretionary items in recessions.
Plan: Hold, reinvest dividends.
3M Company (MMM)
Most innovative company in Dow Jones index. Another company headquartered in Minnesota.
Added to position since last review.
Risk: another recession, management mistakes.
Plan: Hold, reinvest dividends.
Diana Containerships (DCIX)
When Cramer recommended to by Diana Shipping (DSX), I did some analysis. I think material intensive growth in China is over, country is trying to change growth model to less material intensive. Which means less demand for general cargo shipping in the world (i.e. raw materials). Which, in turn, means that DSX is dead money. Not only China demand for raw materiel is not growing, but also a lot of general cargo ships have been built in the last 10 years. Less demand, more supply, no profit. I decided to go with DCIX, because it owns container ships, which should do good when trade is growing. So far, stock didn't live to expectations and I am not sure it's not a mistake.
Risk: multiple risks related to supply/demand in container ship business.
Plan: Not sure. Thinking about it.
Sold Applied Materials (AMAT) since last review. Also bought and then sold FIAT(OTCPK:FIATY).
l'Oreal (OTCPK:LRLCY)
I wanted to buy cosmetics company for a while. Most of cosmetics are produced by diversified companies, which is not exactly what I wanted. I don't care about toothpaste, razors and cotton swabs. l'Oreal is a pure cosmetics company, located in France, fits the bill.
No changes since last review.
Risk: management, competition, economic downturns.
Plan: hold.
Fixed Income
I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on stocktalk of Seeking Alpha.
Disclosure: I am long ARMH, DSW, DCIX, EADSY, FB, GOOG, HSBC, LRLCY, MMM, PII, RH, SAN.
Additional disclosure: Positions can change any time.

Friday, January 24, 2014

Why I Bought Airbus

My apologies to my readers. I promised article yesterday, but writing it now, about 10 AM Central time.
So why Airbus (OTCPK:EADSY)? Well, try to find another industrial company which has orders for 8 years ahead. I know another one, Boeing (BA), but Boeing is in US, and one of my investment theses is that Europe just started recovering. So if there is a choice between similar US and Euro companies, I choose Europe.
When I'm looking at Airbus (and at Boeing for that matter), I ignore all noise about new exciting products (A350, Dreamliner etc.). What matters is core business. Core business of Airbus is A320 family. Company has backlog for 8 years at least. Producing 42 aircraft a month is not enough, so company is going to increase output.
As usual, I can't ignore dangers. First of all, it's competition from Boeing 737. But demand is so great, there is a place for both companies (BA also has about 8 years backlog). Second danger is from Bombardier (BORAF) and Embraer (ERJ), both of which are developing their own 120 seat aircraft. This danger is not significant so far. Reasons: planes are not ready yet, they only compete in part of A320 segment, A320 has a very good history with airlines.
Disclosure: I am long EADSY, .
Additional disclosure: I have no positions in other stocks mentioned. Positions can change any time.

Thursday, January 2, 2014

Closing FIAT: Declaring Victory

When I bought FIAT (OTCPK:FIATY) in November, I listed my reasons. I also mentioned that I like the stock below $8, but might reconsider if it goes up a lot.
Now it happened. Stock jumped because FIAT bought the remaining part of Chrysler. I'm not sure that reasons for this jump are valid, so I declared a victory and closed position. 20% in less than two months is good enough, and I'm not sure stock really worth that much.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Tuesday, December 31, 2013

Great Year! What Next?

As usual, I'm trying to see market future based on three metrics.
Fundamentals
Usually the most important metric. And it's not clear now. On the positive side, economy is growing. Not only in US, in the whole developed world. On the negative, we have two metrics on the top of the range: S&P P/E ratio, currently 20.32, is much higher than average (about 15) and quite high for non-recession times. Profits as percent of GDP, currently above 12.5% before tax, are at all-time high. It doesn't mean that market is at the top. But to make market growth sustainable, GDP should grow faster. Fortunately, it does grow at around 3.5% last 2 quarters. In short, fundamentals are neutral to slightly positive.
Technicals
They are gr-r-r-r-r-r-reat!. Except for the fact that almost every stock index is overbought. But, as we know, overbought condition can be worked out as a function of price or as a function of time. And trend is your friend (unless it's the end).
Sentiment
Scary. I mean, the sentiment is very, I would say, extremely, bullish. I don't remember such sentiment since the end of 1998. Of course, we had one more year of huge growth left then. But it all ended bad. The only bright spot: most people are still reluctant to invest in stocks, it's still a market for professionals. So there is a room for expansion yet. But if average Joe doesn't come to the stock market soon, things might get really ugly. Because bullish sentiment usually means that there are no buyers left.
Conclusion
I write to explain to myself what I think about market. Started this article with a bearish feeling, which was helped by the fact that the last quarter of 2013 was obviously huge window dressing by (grossly) underperforming funds. But, with technicals very bullish, fundamentals neutral to slightly bullish and bearish sentiment I have to come to conclusion that things aren't that bad and we might still have bull market in 2014. Of course, a lot of things can happen and even without major events market can behave quite unexpectedly. But I think the best idea would be to be brave, take some risks and make money on the long side.

What A Year! 23.9%!

Yes, my investment accounts (not counting one pure fixed income account and retirement accounts) made 23.9% this year! Well, that's below 31.5% of S&P total, but I still have some fixed income and cash on my accounts. My long term performance (since February 1998) jumped 13.8%, which still beats Dow, S&P, Nasdaq or almost any index you can find. Maybe you can't beat the market, but I can. Well, anybody can. It's just a lot of work.
Anyway, I'm raising my champagne tonight for the New Year.