Saturday, December 31, 2011

It's Been a Good Year

Time to count sheep. I just calculated my IRR for this year: 7.9%. Not much. But much better that S&P 500 (0%), never mind Nasdaq Composite.

I hope to do better next year. You never know, of course. But I think I learned something this year.

Happy New Year, everybody!

Friday, December 30, 2011

Taking Profits in Intuitive Surgical

I love this company. Intuitive Surgical (ISRG) is a true paradigm changer. It makes surgical robot systems Da Vinci, which are adopted around the world. Initially systems were almost exclusively used for prostate removal. Many analysts tried to predict Da Vinci sales based on this. They were completely wrong. FDA approves new uses of the system all the time, hospitals around the country are experimenting with even more new surgeries.
Company has all components for continues explosive growth. Da Vinci is the only robotic system which has FDA approval. Which means it has a moat, speaking in Buffett's terms. A lot of revenue comes from service and spare parts sales, which is a very stable source of income. New surgeries means new sales.
Why am I selling? First of all, I'm selling only a small part of position. Even after this sale, ISRG is the second biggest position in my portfolio. Again, I love this company. But profits are made to be taken. Discipline trumps conviction. Stock almost doubled this year. And my initial investment into company has quadrupled. Any reason is good enough, taken all together, they told me: take the profit. At least some of it.

Full disclosure: I still have significant long position in ISRG.

Thursday, December 22, 2011

Closing Logitech

One more trade gone bad. My worst trade of the year.

I bought Logitech (LOGI) as a trade on return to averages. After stock went down about 20% I thought that it should return back to 200-day moving average. Market didn't agree with me.


1. There was sharp fall in most tech in the middle of the year. It was a good hint for me to close the position. I ignored it. My bad.

2. I misjudged market reaction to the failure of Google TV device, produced by Logitech. I thought that projected sales of the device weren't that great in the beginning and failure wouldn't count for much in the balance sheet. Market ignored the financial side and decided that failed hype should be punished.

3. Last, but not least. I need to put strict time limits for any technical/quantitative trades. It creates discipline which trumps conviction in the long run.

Why I Sold Intel

I closed position in Intel (INTC) today. Decision was made when I heard a preannouncement a week ago. Intel said that revenue for the quarter will miss the mark by smothing likt 15%. They claimed floods in Thailand and subsequent deficit of hard disks reduced production of PCs, and demand for Intel CPUs. Well, it figures.
What was surprising is the reaction of Wall Street. Quarter earnings estimates were cut, but just a little bit. I couldn't believe it when I saw it. Look at the income statement. There are two major expense categories: "Research and Development" and "Selling and Administrative". For Intel, that's essentially fixed costs. I feel that INTC is going to miss initial profit estimate by 25-35%, not by 14%, which is current consensus.
Intel is a great company. It will recover. And it pays great dividend. I think it will fall hard after reporting for the current quarter. It will be time to back up the truck. For now, I prefer to take profit and wait for a good moment to get back.

Full disclosure: I still hold small INTC position on my IRA account.

Wednesday, December 21, 2011

Why I sold Goldman

I bought Goldman Sachs (GS) in the beginning of 2010. My main idea was that if banksters are crooks and earning big money, I want a piece of action (and it's legal!) Reality interfered. All financials are down (lucky me, got rid of everything else long time ago). It doesn't matter if GS is full of crooks, or management is bad, or it's just bad luck. They lost. I lost with them.

This is not a usual tax related sale. Size of the position and loss I'm taking are not big enough to make any difference. It's a strategic sale. I don't believe in financials right now and I don't want to go into next year with them. Position is closed and forgotten.

Tuesday, December 20, 2011

AT&T Is Not Buying T-Mobile! I'm Happy

That's great news! I was outraged when heard about the deal in the beginning. But it looks like Justice Department is doing its job, at last. If antitrust enforcement was really good in this country, Ma Bell wouldn't even think about it. But enforcement was lax, so they decided to try. No way.
It's especially good news for T-Mobile (DTEGF.PK) customers. AT&T (T) is consistently worst cell company in the country. I've been there, couldn't wait for 2-year contract to end.
T-Mobile wants to find a buyer? Maybe Vodaphone (VOD)?
Full disclosure: no positions

Cleaning Up More

Closed position in Morgan Stanley India Investment Fund (IIF) today. Another trade which became an investment. I am not sure if this conversion was right or wrong. Result is bad, sure, so it was wrong. I still feel that India is punished for wrong reasons and I'm still holding a significant position in India Fund (IFN). But it's a season of selling for tax reasons. This is a first time in my investing life I'm doing it. Thing is, I sold a lot of positions, taking a lot of profits, did some profitable trading and received a lot of taxable dividends. Now is the time to take some losses too.

Friday, December 16, 2011

Waiting For Santa

There are two questions (in no particular order) for the last two weeks of the year.

Are we going to have Santa Claus rally?

What is the window dressing trade for year end?

Santa was detected well beyond horizon in the end of November. Then he disappeared from the radar. Todd Harrison still thinks that reverse head and shoulders pattern in S&P is not broken, I'm not that sure. We'll see.

Window dressing looks strange. If I'm not mistaken, everybody is selling everything, with exception of muni bonds (I'm glad that I have a significant overall position in several muni CEFs). Another exception: very small number of Nasdaq large cap stocks (GOOG and ISRG in my portfolio). Can we profint from it? I don't know. The most obvious sell-off is in commodities, but swings there can be very big in a very short time and it's a dangerous game. And don't tell me to use tight stops: as they say in London Tube, mind the gaps. Gold behaves strangely. There was a headline on CNBC couple of days ago: "Gold drops 3 percent on Technicall Sell-Off, Euro Fears"". I thought it was a bad joke, looked for similar headlines in Google, there are dozens of them! Come on, people, gold should go up on fears, not down. I think we see a breakdown of the parabolic chart. Two months ago everybody was buying gold, now last fool owns it already. And some fools forced to sell on margin calls.

I'm sitting tight.

Full disclosure: At the moment of publication author had long positions in GOOG, ISRG and muni CEFs:  BTA, CEV, MZF, NMO.

PS. Events in Russia are developing fast, and accelerating. I don't know how they will end, one thing is clear: there will be changes. My heart is with people who went to the meetings in Moscow and other cities on Dec 10. There will be more meetings tomorrow, on 24th and later. The white ribbon below is the symbol of, I hope, new Russia.

Wednesday, December 14, 2011

Short Term View

Common view: this market is defined mostly by Europe, and metrics don't matter. Common view is usually wrong. Well, I correct myself: common view is usually right, but you can't make money off it. You make money when common view is wrong and you can see it before others. Disclaimer: I don't claim such powers, just trying to make a penny. And another.


Ugly. The only bright spot was perfect reverse head and shoulders formation in S&P, but it's got broken today.


US is surprisingly robust. Stocks should reflect future earnings, right? Well, earnings are great, and they might be even better in the nearest future. The main problem is Europe. Some people say: "so what, US only exports about 5% to Europe, even 10% drop is peanuts", Well, US and Europe are tied together with millions of different connections. Physical goods is just a small part of those connections. Money flows between us are much, much bigger. Europe is going into recession next year with high probability. I think market is trying to discount effect on US markets.
In short, fundamentals are good short term, but uncertain long term.


Funny. I don't have other definition for it. Every time S&P is close to 1250, sentiment is bullish. Every time index drops close to 1200, it's bearish. Sentiment follow market now, I think we can safely ignore it.

And here's the problem: market doesn't have a direction. Doug Kass mad a great call for this year, predicting range bound market. So it is. Even Santa Claus rally failed to materialize so far.
I'm keeping oversized cash cushion and trading the range. Today I opened 3D Systems (DDD) long position again. I think it moved into 14.50 - 16.50 range for now.

Friday, December 2, 2011

Blame Dollar Carry Trade

Financial press looks like blind wise men from the old story: when asked to describe and elephant, one said it was a rope, another one, a column, and a third one, a pipe. What to we see in press lately? European debt crisis, withdrawals from hedge funds, (hyper)inflation which can't ever materialize and intervention of Central Banks. And nobody can see an elephant in the room. Well, almost nobody.. Howard Simons of has this article and couple of others.

In short, in the last couple of years, banks, hedge funds and anybody who wanted and could do it, borrowed dollars (cheap) and bought securities around the world with much higher yield. Underlying idea was that Fed is printing dollars like crazy, that dollar has nowhere to go but down and it looks like an easy and sure way to make huge money. Of course, people always forget that there is no easy and sure way to make money. Fast forward to July 2011. Hedge funds started big attack on Eurozone sovereign debt. There were lots of publications in press how this debt is unsustainable and why some (or many) countries will be forced into default. I don't think all of this press was paid for by hedgies. But significant part of it certainly was. Result: yields on debt are up, but, what is more important, Euro fell more than 10% related to dollar. And this is the level of currency fluctuation which kills carry trade dead. I don't know all the details, they are mystery even for SEC, but it looks like the main reason for MF Global  collapse.

I'm afraid, that MF Global collapse is just peanuts comparing to the size of the problem. We are talking hundreds of billions, if not trillions, of dollars. Coordinated intervention by Central Banks tells me that trillions is a better guess. And dollar carry trade is not restricted to Europe.

We are not out of the woods. Eurozone politicians still don't understand the size of the problem. The other parts of the world are still to find out.

Commenting on the action of Thanksgiving week, I wrote that it looked like margin call action. I think I can further qualify it as a margin call related to dollar carry trade unwinding. Some people think that this problem is not related to US. After all, Europe is only about 10% of US exports. Yeah, right. And one collapse of a big European bank can easily topple all world financial system. If dollar carry trade to unwind fast, we will import huge, massive deflation from Europe.

What investment decisions can be made? The only thing I can think of is to increase cash cushion and hope for the better. Big bank collapse is not a tradable event, everybody would suffer, the question is: how much.