Saturday, February 27, 2021
Cult Capitalism
Cult members will refer to cult capitalism as revolutionary capitalism. Cult members have their cult leader, who is viewed as charismatic revolutionary genius. This prophet like figure will most definitely have a stage where he will share his revelations. In the past it would be some elevated rock or a hill, or maybe even a cave, today it is Twitter. With his revelations (tweets) this shepherd guides his flock of sheep into unequivocally accepting his instructions. Cults have been around for as long as a cognitive homo sapiens, but mostly present in religions and politics. Today however, we have cult capitalism that is responsible for the largest asset bubbles in modern times. Cult capitalism does not stop with Tesla and Bitcoin. Today, it's witnessed in all asset-classes. For cult members to be fully indoctrinated, they don't necessarily need a cult leader, a logo or a brand name is enough for them to start herding. Some cults have been around few millennia, while most cults end tragically. I think cult capitalism is here to say, humans, just like sheep, are of gregarious nature. However, a very large storm is heading their way, and we will soon see how strong their beliefs are.
Thursday, January 28, 2021
The Mother of all Bubbles
We are witnessing the largest market bubble ever. Larger than 1929, 2000 dot com and 2008 financial crisis. Right now, Tesla and Zoom are the largest short opportunities. Even though short sellers lost 40 billion betting against Tesla, there are hundreds of billions to be made on shorting Tesla right now.
Friday, January 8, 2021
Tesla & Elon Musk
On May 1st 2020, when Tesla's market cap was $133 billion Elon Musk posted on Twitter "Tesla stock price is too high imo"
Today, market cap is $820 billion, more than 6 times higher, making him the richest person in the world, just on the paper of course. What does he think now?
PE ratio is 1700. Since fundamentals no longer apply, why is PE ratio not 3400? Market cap is 40 times revenue. Where is this leading to? Just when I thought I saw it all, this happens. Tesla is the largest asset bubble we have ever witnessed.
Saturday, January 2, 2021
Bitcoin vs Berkshire Hathaway
Bitcoin's market cap has surpassed Warren Buffett's Berkshire Hathaway. Tesla is at 670 billion market cap. Tesla's PE ration is now 1,400. There is zero fundamental analysis in these valuations. When fundamentals no longer apply one has to question the purpose and/or the future of capitalism. Because if this is capitalism, it has every symptom of terminal illness.
Thursday, August 20, 2020
Tesla
On November 22nd 2015 I suggested to many of my good friends and colleagues to buy Tesla stock. Because it was just too cheap. Only one of my friends listened to me and today he is very thankful. Unfortunately, I sold my shares some time ago... I contacted my friend and told him he should exit his position immediately... With almost 1200% ROI in under 5 years, he was more than happy to take my advice. At $370 billion market cap, I just don't see any justification for this company to be valued that much. Even great companies like Tesla led by great leaders like Elon Musk can end up as bubbles.
DK
Wednesday, November 1, 2017
Bitcoin mania
I thought that Tulip mania was the mother of all speculative bubbles, but Bitcoin puts Tulip mania to shame!
All the bitcoins in the word are currently "worth" over $100 Billion. Would you rather have $100B in 4% of Google, Facebook, Amazon, Berkshire Hathaway and Coca-Cola and pre-tax profit of $3.3B annually or all the Bitcoins in the world?
- Bitcoin will not be around by 2030 and AMZN, FB, GOOG, BRK and KO will be worth double what they are worth now by 2030.
Stay away from speculation, it would be funny if it wouldn't be so sad what people get themselves into.
All the bitcoins in the word are currently "worth" over $100 Billion. Would you rather have $100B in 4% of Google, Facebook, Amazon, Berkshire Hathaway and Coca-Cola and pre-tax profit of $3.3B annually or all the Bitcoins in the world?
- Bitcoin will not be around by 2030 and AMZN, FB, GOOG, BRK and KO will be worth double what they are worth now by 2030.
Stay away from speculation, it would be funny if it wouldn't be so sad what people get themselves into.
Monday, March 20, 2017
Hotel Ritz Paris
In 1979 Mohammed Al Fayed purchased Hotel Ritz in Paris for $30 million.
In 2016 a major renovation of the Hotel was completed. 159 rooms.
Average price of the room per night: $950
Nights in a year: 365
Occupancy rate: 85%
Total revenue: $47 million
Total costs: 40% ($19 million)
Net profit before tax: $28 million
Hotel valuation at the yield of 3%: $940 million
Let's say if somebody would offer Mr. Al Fayed $1 billion he would sell the hotel. But let's go back to 1979, if Mr. Al Fayed decided to invest those $30 million into S&P 500 fund, how much he would have today?
S&P 500 fund: $2.4 billion
Coca-Cola: $1.6 billion + dividends ($2.6 billion)
Berkshire Hathaway: $26.6 billion (as the stock price went up 88,670% since 1979)
Obviously recognising the genius of Warren Buffett in 1979 from London/Paris was not an easy task, but recognise the power of American economy in 1979 was easy, no matter where you were located. So again, every major real estate investment that is shown to us a great investment is actually a bad investment. Harrods is a bad investment. Ritz Hotel, bad investment. Every single real estate investment where you were told is great, is actually a bad investment when comparing to S&P 500 over the same period of time.
In 2016 a major renovation of the Hotel was completed. 159 rooms.
Average price of the room per night: $950
Nights in a year: 365
Occupancy rate: 85%
Total revenue: $47 million
Total costs: 40% ($19 million)
Net profit before tax: $28 million
Hotel valuation at the yield of 3%: $940 million
Let's say if somebody would offer Mr. Al Fayed $1 billion he would sell the hotel. But let's go back to 1979, if Mr. Al Fayed decided to invest those $30 million into S&P 500 fund, how much he would have today?
S&P 500 fund: $2.4 billion
Coca-Cola: $1.6 billion + dividends ($2.6 billion)
Berkshire Hathaway: $26.6 billion (as the stock price went up 88,670% since 1979)
Obviously recognising the genius of Warren Buffett in 1979 from London/Paris was not an easy task, but recognise the power of American economy in 1979 was easy, no matter where you were located. So again, every major real estate investment that is shown to us a great investment is actually a bad investment. Harrods is a bad investment. Ritz Hotel, bad investment. Every single real estate investment where you were told is great, is actually a bad investment when comparing to S&P 500 over the same period of time.
Tuesday, March 14, 2017
Harrods
In April 2013 I analysed the investment of Qatari Holding purchasing Harrods in May 2010. The purchase price was 1.5 billion GBP (it was $2.3 billion at that time).
OK, so what would've happened if they had invested those $2.3 billion into a S&P 500 index fund? Well, they would have a gain of 100%. So they would have $4.6 billion. Plus on top of that, they would make 1.8% yield every year from dividends. So in 2010 they would have a payment of $41 million in dividends and in 2016 they would have $83 million in dividends. And when converted back into GBP, they would have 3.8 billion GBP.
Is Harrods worth 3.8 billion GBP today? Well let's see shall we?
Apparently Harrods' pre-tax profit for 2016 was around 150 million GBP, sell that at the yield of 5%, they could eventually sell Harrods for 3 billion GBP.
What if they would invest that money into Berkshire Hathaway, how much would $2.6 billion of BRK.B shares be worth in March 2017? Well they would have $5.9 billion or 4.9 billion GBP, but no dividends.
And what if they would have invested that money into Apple? They would have $9.7 billion or 8 billion GBP. Plus from 2012 they would have dividends of 1.6% yield.
And what if they would have invested that money into Amazon? They would have today $16.2 billion or 13.4 billion GBP.
Was it so difficult to recognise the genius of Steve Jobs in May 2010? Was it so difficult to recognise obsession of Jeff Bezos? I don't think so. Time has shown I was right. You can scroll down and read my comments from 4 years ago when I said Harrods was a bad investment. Whoever recommended this investment to them, they should fire them.
I am sorry, but too much money is being wasted on ego, consultants, and wannabe hedge-fund manager who are just after their 2% management fee.
Damian
OK, so what would've happened if they had invested those $2.3 billion into a S&P 500 index fund? Well, they would have a gain of 100%. So they would have $4.6 billion. Plus on top of that, they would make 1.8% yield every year from dividends. So in 2010 they would have a payment of $41 million in dividends and in 2016 they would have $83 million in dividends. And when converted back into GBP, they would have 3.8 billion GBP.
Is Harrods worth 3.8 billion GBP today? Well let's see shall we?
Apparently Harrods' pre-tax profit for 2016 was around 150 million GBP, sell that at the yield of 5%, they could eventually sell Harrods for 3 billion GBP.
What if they would invest that money into Berkshire Hathaway, how much would $2.6 billion of BRK.B shares be worth in March 2017? Well they would have $5.9 billion or 4.9 billion GBP, but no dividends.
And what if they would have invested that money into Apple? They would have $9.7 billion or 8 billion GBP. Plus from 2012 they would have dividends of 1.6% yield.
And what if they would have invested that money into Amazon? They would have today $16.2 billion or 13.4 billion GBP.
Was it so difficult to recognise the genius of Steve Jobs in May 2010? Was it so difficult to recognise obsession of Jeff Bezos? I don't think so. Time has shown I was right. You can scroll down and read my comments from 4 years ago when I said Harrods was a bad investment. Whoever recommended this investment to them, they should fire them.
I am sorry, but too much money is being wasted on ego, consultants, and wannabe hedge-fund manager who are just after their 2% management fee.
Damian
Friday, March 10, 2017
S&P 500
On March 1 2017 S&P 500 reached an all time intraday high of 2,400.98. Just 8 years earlier on March 6 2009 S&P 500 was at intraday low of 666.79. That is a gain of 260% from March 6 2009 to March 1 2017. Think about that for a while. 260% in 8 years. Will we ever see S&P 500 at 1,300 level again? That is the question that nobody can answer. However, with such amazing gains, one should be cautious that they tend to translate into large setback sometime in the future. There is no question that S&P will be significantly lower some time in the future, but by how much and when, nobody can answer. It is good to keep that in mind when you invest. So we cannot time the markets, and anybody that says they can, they are charlatans and you should stay away from. But what you can do is the following, this is the closest you can get to timing the markets:
Invest a little bit every month for the next 36 months.
Let's say you enter the market (through a low cost index fund) with for example $1,000 in March 2017 when S&P is at 2,400. So if the market goes down in the next 3 years to 1,300 level, your average would be less than 2,400 and more than 1,300. Maybe somewhere in the middle at 1,750. That is very good. Now wait 10 years. Will the markets be higher 10 years after they reached the low of 1,300 (or whatever the low will be). Yes, with almost 100% certainty I can tell you that they will be. What if they go up again by 260% from the all time low to the new high of 4,700. What if you wait 20 years, or 30 years? When I was born 35 year ago S&P 500 was at 123. Now it is around 2,400. That is annual compounded interest rate of 8.85%. This is without dividends, but also without inflation, so let's say dividends and inflation cancel themselves out. Now tell me, which institution can guarantee you over 35 years an annual return of 8.85% inflation adjusted? Zero! Only one person can guarantee you this and that is yourself, by reinvesting back into the market over a long period of time. The trick is to start when you are young, preferably not older than 35.
This is what should be taught to the 5th graders in schools. Teach your kids to start at the young age. I am teaching my son this now. Put $10 every month now into a low cost index fund and increase that by 10% every year until you are 65 years old, he would have a pension only reserved for those who are at 0,01% of the Western population, and this is something that over 50% of the western population can afford. Obviously your duty as a parent is to invest this on behalf of your kid(s) until they are 18 years old, after that they will get a habit that will be difficult to get rid off. Compounded interest is one of the strongest forces known to a mankind.
Invest a little bit every month for the next 36 months.
Let's say you enter the market (through a low cost index fund) with for example $1,000 in March 2017 when S&P is at 2,400. So if the market goes down in the next 3 years to 1,300 level, your average would be less than 2,400 and more than 1,300. Maybe somewhere in the middle at 1,750. That is very good. Now wait 10 years. Will the markets be higher 10 years after they reached the low of 1,300 (or whatever the low will be). Yes, with almost 100% certainty I can tell you that they will be. What if they go up again by 260% from the all time low to the new high of 4,700. What if you wait 20 years, or 30 years? When I was born 35 year ago S&P 500 was at 123. Now it is around 2,400. That is annual compounded interest rate of 8.85%. This is without dividends, but also without inflation, so let's say dividends and inflation cancel themselves out. Now tell me, which institution can guarantee you over 35 years an annual return of 8.85% inflation adjusted? Zero! Only one person can guarantee you this and that is yourself, by reinvesting back into the market over a long period of time. The trick is to start when you are young, preferably not older than 35.
This is what should be taught to the 5th graders in schools. Teach your kids to start at the young age. I am teaching my son this now. Put $10 every month now into a low cost index fund and increase that by 10% every year until you are 65 years old, he would have a pension only reserved for those who are at 0,01% of the Western population, and this is something that over 50% of the western population can afford. Obviously your duty as a parent is to invest this on behalf of your kid(s) until they are 18 years old, after that they will get a habit that will be difficult to get rid off. Compounded interest is one of the strongest forces known to a mankind.
Friday, February 3, 2017
Amazon
Jeff Bezos is not talented, he is obsessed. Long term, Amazon will be the first company to reach 1 trillion valuation. Amazon reported its Q4 2016 earnings. Revenue $43 billion and $1,56 EPS. Their outlook for Q1 2017 disappointed the expectations. What the hell does that mean? Who was disappointed? So the shares dropped by 4% the next day (today). Why? Their outlook of 33 billion revenue for Q1 2017 disappointed the analysts? I don't understand. Who are these people? This is one of the greatest companies in the world, led by an obsessed individual who wants to make Amazon the greatest company of all times. I guess if you want free money buy AMZN shares today.
Current market cap of Amazon is $390 billion. The only question is when it will be $1 trillion. I give it 5-10 years. Which translates into 150% return.
Damian
Current market cap of Amazon is $390 billion. The only question is when it will be $1 trillion. I give it 5-10 years. Which translates into 150% return.
Damian
Saturday, January 30, 2016
Tesla Motors
Dear all,
Markets are down again. Finally.
This time we are talking serious business. Tesla Motors is currently trading at $25 billion.
This company will be worth minimum $100 billion by 2020. Where can one make 300% ROI in 4 years?
Tesla Motors Inc. is no brainer.
Happy investing.
Damian
Markets are down again. Finally.
This time we are talking serious business. Tesla Motors is currently trading at $25 billion.
This company will be worth minimum $100 billion by 2020. Where can one make 300% ROI in 4 years?
Tesla Motors Inc. is no brainer.
Happy investing.
Damian
Sunday, November 22, 2015
Tesla Motors Inc.
In January 2009 I suggested to one wealthy gentleman to buy Apple stock. He thought it was too risky.
Today I suggest to all to buy Tesla Motors Inc. shares. Buy as much as you can.
Today the market cap of Tesla is around $29B.
By 2020 I know it will be significantly higher. Possibly above $100B. So we are looking at least 250% ROI.
Watch few interviews with Elon Musk, that is all due diligence you need to buy this stock now.
Best,
Damian
Today I suggest to all to buy Tesla Motors Inc. shares. Buy as much as you can.
Today the market cap of Tesla is around $29B.
By 2020 I know it will be significantly higher. Possibly above $100B. So we are looking at least 250% ROI.
Watch few interviews with Elon Musk, that is all due diligence you need to buy this stock now.
Best,
Damian
Monday, August 25, 2014
S&P 500 above 2000 for the first time
Well, here we are again. Almost 10 months since I wrote my first post that markets are too high and people are still greedy for more. S&P 500 has gone up by 191% since March 6 2009, so in less than 5,5 years "The Economy" in the United States has apparently gone up by 191%. Is that possible? Of course not, the stocks are overvalued by a huge margin. There is no more margin of safety for investors.
All time high S&P 500 at 2000 today, on March 6 2009 it was 683.
Enjoy the ride.
Damian
All time high S&P 500 at 2000 today, on March 6 2009 it was 683.
Enjoy the ride.
Damian
Friday, May 3, 2013
Dow Jones Industrial Average 15,000
Dow Jones Industrial Average (.DJI) climbs to 15,000 for the First Time.
In 1921 DJIA was 64, today it is 15,000.
During this time there was:
- Market Crash of 1929
- The Great Depression
- World War II
- The Cold War
- Vietnam War
- Oil Crisis of 1970s
- First Gulf War
- Wars in Yugoslavia
- September 11th, 2001
- War on Terrorism
- War in Iraq (Second Gulf War)
- Financial Crisis of 2008
- European "Euro" and Budget Crisis
There are many things I didn't mention, and there will be more coming. All these events made the markets to either go down or crash. Yet DJIA still went up from 64 to 15,000 in 92 years.
That is an increase of 23,300% or 6.11% compounded annually.
You will not make money by dancing in and out of the markets. Long term only.
Happy Investing!
Damian
In 1921 DJIA was 64, today it is 15,000.
During this time there was:
- Market Crash of 1929
- The Great Depression
- World War II
- The Cold War
- Vietnam War
- Oil Crisis of 1970s
- First Gulf War
- Wars in Yugoslavia
- September 11th, 2001
- War on Terrorism
- War in Iraq (Second Gulf War)
- Financial Crisis of 2008
- European "Euro" and Budget Crisis
There are many things I didn't mention, and there will be more coming. All these events made the markets to either go down or crash. Yet DJIA still went up from 64 to 15,000 in 92 years.
That is an increase of 23,300% or 6.11% compounded annually.
You will not make money by dancing in and out of the markets. Long term only.
Happy Investing!
Damian
Saturday, April 6, 2013
Harrods Purchase in 2010
In 2010 Harrods in London was purchased by Qatar Holding, Qatar's wealth fund for 1.5 billion GBP.
At the time of the purchase, I thought this is a crazy price to pay. With 108 million GBP profit in 2011, it is not so bad, but still crazy investment.
When Mohammed Al Fayed sold Harrods to Qataris, people said it was an excellent return business for him. Let's look back.
Mohammed Al Fayed paid for Harrods 615 million GPB in 1985, 25 years later he sold it for 1.5B GBP, profit of 885M GBP.
With annual profit of around 40M (annual average from 1985-2010). Mr. Al Fayed made 1B GBP in profit over the year + 885M GBP profit from the sale. Total profit 1985-2010 1,885 million GBP (1.89B GBP). That is not so bad, right?
Well, let's benchmark it to S&P 500 performance from 1985 - 2010.
Al Fayed brothers finalized the purchase of Harrods in May 1985 and Mohammed Al Fayed finalized the sale of Harrods to Qataris in May 2010.
Performance of S&P 500 from 05/1985 to 05/2010 was 551%.
So if Fayed Brothers would decide to buy S&P 500 index fund for 615 million GBP it would be worth in May 2010 4B GBP with NET profit of 3.39 billion GBP. So, it is safe to say that Mohammed Al Fayed lost 1.5B GBP by investing his money in Harrods and not in S&P 500 index fund. Sorry to say, it wasn't such a good investment after all. S&P 500 index funds are usually purchased by middle-class Americans who are saving money for retirement, and given their track record they are better investors than Mohammed Al Fayed.
With Qataris paying 1.5B GBP for Harrods they will be maybe able to increase the sales, increase the profit, but it will all be marginal in the end, they will have some annual yield (IRR) for 6-7%, but that is it. If they ever decide to sell Harrods they will have hard time finding a buyer ready to pay what they paid for it, so they are even in a much worse position that Al Fayed was in 1985.
Why do people do this? I have no idea. There are so many opportunities out there, why do something so irrelevant as this is beyond my understanding. Investing must be unemotional, just because Harrods is for sale or Mona Lisa or Colloseum in Rome is for sale, it doesn't mean anything if the return on your money is not right. We are talking business here and serious amounts of money. There is no room for ego when it comes to investing.
Just imagine if Al Fayed Brothers would buy Coca-Cola shares (KO) in 1985, they would make a return until today (April 6 2013) of 2,640% and their profit would be 16.24 billion GBP (without dividends!) and not 1.89 billion GBP. By not buying KO shares they lost 14.35 billion GBP. Buying Coca-Cola is common sense, it is the safest investment I can think of. Their yield on dividends today would be 90%. Imagine that! Harrods makes net profit of around 100 million GBP today, they would make 550 million GBP net profit with Coca-Cola shares. Lets not forget, Coca-Cola was a much bigger name and easier investment for Al Fayed brothers than Harrods. Apparently, Mohammed Al Fayed source the money for Harrods from Sultan of Brunei for Harrods, so imagine him going to the Sultan and saying "give me 615 million GBP to invest and I will buy Coca-Cola shares and sell them 30 years later." I don't think he would see any money from the Sultan, but buying Harrods, that "sounds" like a better deal, you own the real thing not just some sugared water. The word of business is unbelievable ridiculous and that is why with just some common sense you can make tons of money.
Owning Harrods means nothing in the world of business. Companies that perform and have a collective of intelligent people running them means a whole lot more.
Happy Investing!
Damian
Tuesday, February 19, 2013
Ackman, Icahn and Herbalife
Bill Ackman, hedge fund manager who runs Pershing Square Capital Management made a 1 billion USD short bet against Herbalife (HFL) stock.
He then went public to say that Herbalife is a pyrimadic scheme company. Basically a modern day Ponzi scheme tricking people into believing they will make money selling their products.
Herbalife is just like Amway and Avon, they are multi-level marketing company that sells these products, they say they are great products, but they just sell normal products, nothing special, but make a huge story around their products and motivate people to sell their products by giving them examples of other peoples' successes who on their on now drive Ferraris, villas with swimming pools etc....
In former Yugoslavia, we had a company like that, it still exists today, it's called Zepter. Everybody was selling cooking pots that basically cook the food themselves, it was all a big lie. It had nothing to do with great cooking, it had everything to do with multi-level marketing and money for the few at the top of that ladder. So, I believe, actually I am convinced that Herbalife, Avon and Amway are just like Zepter. Nothing special, no big difference. All of them exist today, even Zepter.
Bill Ackman is 100% right, it is a Pyramid Scheme, and it is a scam. Nevertheless, I don't understand how can you make short bet (that the stock price will go down drastically) and then go public that Herbalife is a scam company. I don't see how SEC can allow something like that.
Carl Icahn, famous Wall Street investor who is long on Herbalife stock, so he bought HLF shares believing the stock will go up, he attacked Bill Ackman for being a cheater, a liar, etc... Obviously, Icahn cares about his money invested in HFL, so he wants to protect his investment, just as Ackman tries to protect his bet against Herbalife.
Who is right?
Overall Ackman is right. Herbalife is a scam and a pyramid scheme.
However, Ackman is also wrong. He made a short bet and then he went public with his vision of Herbalife. I think that is low and I am surprised SEC allows that.
What about Icahn?
He protected his investment by attacking Ackman. He is both right and wrong. I would never ask Icahn for investment advice, simply because he went long with HLF stock, what a terrible judgment of character.
What will happen?
I don't know, but Zepter is still around. I think people don't mind a scam as long as they are sold a story once in a while that they will succeed one day, and whether it is Avon, Herbalife of Zepter, it doesn't really matter, they want to escape their reality for a while and they want to get burned, because promise of money is involved. Just like Casinos, those will never go out of business.
Morally, Ackman is right, but as an investor, he is wrong and he will lose a lot of money on this Herbalife bet. He is also wrong because he was shorting the stock, there is no reason to do this, it is better to look only long, I would much rather own a stock that I believe will return me a huge investment in 20 years then make a short bet that some company will go bust, what a terrible way to invest.
As you see, brothers and sisters, comrades and friends, this is how billions of dollars are used every single day, by people that are no smarter than you. They just make themselves sound smart, but their actions are ridiculous. Smart investing is all about buying a company you want to keep forever.
Happy investing!
Damian
He then went public to say that Herbalife is a pyrimadic scheme company. Basically a modern day Ponzi scheme tricking people into believing they will make money selling their products.
Herbalife is just like Amway and Avon, they are multi-level marketing company that sells these products, they say they are great products, but they just sell normal products, nothing special, but make a huge story around their products and motivate people to sell their products by giving them examples of other peoples' successes who on their on now drive Ferraris, villas with swimming pools etc....
In former Yugoslavia, we had a company like that, it still exists today, it's called Zepter. Everybody was selling cooking pots that basically cook the food themselves, it was all a big lie. It had nothing to do with great cooking, it had everything to do with multi-level marketing and money for the few at the top of that ladder. So, I believe, actually I am convinced that Herbalife, Avon and Amway are just like Zepter. Nothing special, no big difference. All of them exist today, even Zepter.
Bill Ackman is 100% right, it is a Pyramid Scheme, and it is a scam. Nevertheless, I don't understand how can you make short bet (that the stock price will go down drastically) and then go public that Herbalife is a scam company. I don't see how SEC can allow something like that.
Carl Icahn, famous Wall Street investor who is long on Herbalife stock, so he bought HLF shares believing the stock will go up, he attacked Bill Ackman for being a cheater, a liar, etc... Obviously, Icahn cares about his money invested in HFL, so he wants to protect his investment, just as Ackman tries to protect his bet against Herbalife.
Who is right?
Overall Ackman is right. Herbalife is a scam and a pyramid scheme.
However, Ackman is also wrong. He made a short bet and then he went public with his vision of Herbalife. I think that is low and I am surprised SEC allows that.
What about Icahn?
He protected his investment by attacking Ackman. He is both right and wrong. I would never ask Icahn for investment advice, simply because he went long with HLF stock, what a terrible judgment of character.
What will happen?
I don't know, but Zepter is still around. I think people don't mind a scam as long as they are sold a story once in a while that they will succeed one day, and whether it is Avon, Herbalife of Zepter, it doesn't really matter, they want to escape their reality for a while and they want to get burned, because promise of money is involved. Just like Casinos, those will never go out of business.
Morally, Ackman is right, but as an investor, he is wrong and he will lose a lot of money on this Herbalife bet. He is also wrong because he was shorting the stock, there is no reason to do this, it is better to look only long, I would much rather own a stock that I believe will return me a huge investment in 20 years then make a short bet that some company will go bust, what a terrible way to invest.
As you see, brothers and sisters, comrades and friends, this is how billions of dollars are used every single day, by people that are no smarter than you. They just make themselves sound smart, but their actions are ridiculous. Smart investing is all about buying a company you want to keep forever.
Happy investing!
Damian
Saturday, February 16, 2013
CNBC
I don't watch TV. Yesterday, I was at home, I decide to turn on my TV and watch some news. I quickly changed all the channels and came to CNBC. I watched it for 10min and I must say we live in a ridiculous world. It is a theater with actors, everybody seems to know everything yet everything is either a shocking or breaking news, or both. Investing is not a theater, it is a discipline. Without discipline, investing doesn't mean a thing.
If you ever plan to know what is going on in the world of investing, don't watch TV. I suggest reading traditional newspapers, for instance: Financial Times or Wall Street Journal, but most importantly read annual reports. Find a field you really like, like Sports Equipment & Apparel for example, if you understand this business and you are interested to find out more, reading their Annual Reports will be fun. NIKE is a huge company, their Annual Reports are so well written, reading them you can actually learn so much, not just about the numbers, but the culture of their products, their strategies, their marketing, etc... Just please don't watch any TV to find out what is going on in the world of investing. Better yet, don't watch any TV if you want to know what is going on. (period)
Happy investing.
Damian
If you ever plan to know what is going on in the world of investing, don't watch TV. I suggest reading traditional newspapers, for instance: Financial Times or Wall Street Journal, but most importantly read annual reports. Find a field you really like, like Sports Equipment & Apparel for example, if you understand this business and you are interested to find out more, reading their Annual Reports will be fun. NIKE is a huge company, their Annual Reports are so well written, reading them you can actually learn so much, not just about the numbers, but the culture of their products, their strategies, their marketing, etc... Just please don't watch any TV to find out what is going on in the world of investing. Better yet, don't watch any TV if you want to know what is going on. (period)
Happy investing.
Damian
Tuesday, February 14, 2012
Just for fun
Let's do something just for fun:
You've decided to buy some Apple shares as your 2009 New Year's resolution. After heavy partying you wake up with a hangover on January 1 2009, market's are closed, you wake up again on January 2 2009, your head is clear, your thinking is clear, ok semi-clear and you decided to buy some shares. For 3 months.
So from Jan 2 2009 to April 1 2009 - you had 63 trading days.
During these 63 days volume of AAPL shares trade was around 1.7 billion shares, of course Apple has only 933 million shares, therefore some shares were trade more the once in these 63 days. That's quite normal.
Let's assume you have unlimited amount of money or that you are very well connected with some sovereign wealth funds from the Gulf, which is like the same thing as having unlimited cash available.
A professional buyer, fund, investor with the best brokerage houses would be able to buy around 30% of the daily volume. Let's not forget these were fearful days, beginning of 2009, nobody would think about stocks during this period, but you are bold enough to execute your purchases and you start buying on Jan 2 2009. Since 30% is really an amazing result, let's you buy every day half of that, or 15% of the daily volume, your are a semi-professional, or you just play golf too much and you are lazy to buy every trading day. Your average is 15% of the daily volume.
1.7 billion shares were traded in these 63 days. Just to be safe let's say that you managed to work with a volume of only half of that or 850 million shares. For whatever reason you could "only" buy 15% of 850 million shares. Or you bought 127.5 million AAPL shares.
OK, sounds good. How much did you pay for them.
Let see the average price in these 63 days:
Highest trading day price on average was $94
Lowest trading day price on average was $92
Let's say you were only buying everyday when the prices peaked within that particular trading day. There for you paid $94 per shares.
$94 x 127.5 million = $12 billion with all the costs.
You decided to keep the shares until Valentine's day on 14 February 2012 and you wanted to sell it all in couple of weeks.
The closing price today was $509.46 - you started selling at $500. And for the next 3 weeks the share price doesn't really change much, so your average selling price was let's assume $500.
127.5 million x 500 = $63.75 billion
Your profit 63.75 - 12 = $51.75 billion in just 3 years.
If anybody would do this they would be labelled as the greatest investor of all the time. For sure. $51 billion in 3 years, just by investing is impossible.
Why nobody did it? Well, probably because it was difficult for people to foresee that Apple stock would be worth over $500. However, there is another story on the other side of that coin. People were fearful. People were thinking that the world would come to an end. Yes, they did, I remember watching interviews with analysts from CNBCN, CNN saying this was almost worse than 1929. Anyways, people were fearful and nobody would buy anything. Few did, but nothing to such a scale like described above.
Here is the trick (there are no tricks, but this is really a trick, in a way):
90% of people would rather buy AAPL share today at $509.46 than 3 years ago at $94. I am 100% sure of that. People operate by greed and by fear. Again, we are coming back to the same point. 2009 was fear, 2012 is greed. This is so cyclical already my head is spinning.
Learn how to say no to AAPL share at $500 and learn how to say YES when a good company like that is trading below $100.
Happy investing.
Damian
You've decided to buy some Apple shares as your 2009 New Year's resolution. After heavy partying you wake up with a hangover on January 1 2009, market's are closed, you wake up again on January 2 2009, your head is clear, your thinking is clear, ok semi-clear and you decided to buy some shares. For 3 months.
So from Jan 2 2009 to April 1 2009 - you had 63 trading days.
During these 63 days volume of AAPL shares trade was around 1.7 billion shares, of course Apple has only 933 million shares, therefore some shares were trade more the once in these 63 days. That's quite normal.
Let's assume you have unlimited amount of money or that you are very well connected with some sovereign wealth funds from the Gulf, which is like the same thing as having unlimited cash available.
A professional buyer, fund, investor with the best brokerage houses would be able to buy around 30% of the daily volume. Let's not forget these were fearful days, beginning of 2009, nobody would think about stocks during this period, but you are bold enough to execute your purchases and you start buying on Jan 2 2009. Since 30% is really an amazing result, let's you buy every day half of that, or 15% of the daily volume, your are a semi-professional, or you just play golf too much and you are lazy to buy every trading day. Your average is 15% of the daily volume.
1.7 billion shares were traded in these 63 days. Just to be safe let's say that you managed to work with a volume of only half of that or 850 million shares. For whatever reason you could "only" buy 15% of 850 million shares. Or you bought 127.5 million AAPL shares.
OK, sounds good. How much did you pay for them.
Let see the average price in these 63 days:
Highest trading day price on average was $94
Lowest trading day price on average was $92
Let's say you were only buying everyday when the prices peaked within that particular trading day. There for you paid $94 per shares.
$94 x 127.5 million = $12 billion with all the costs.
You decided to keep the shares until Valentine's day on 14 February 2012 and you wanted to sell it all in couple of weeks.
The closing price today was $509.46 - you started selling at $500. And for the next 3 weeks the share price doesn't really change much, so your average selling price was let's assume $500.
127.5 million x 500 = $63.75 billion
Your profit 63.75 - 12 = $51.75 billion in just 3 years.
If anybody would do this they would be labelled as the greatest investor of all the time. For sure. $51 billion in 3 years, just by investing is impossible.
Why nobody did it? Well, probably because it was difficult for people to foresee that Apple stock would be worth over $500. However, there is another story on the other side of that coin. People were fearful. People were thinking that the world would come to an end. Yes, they did, I remember watching interviews with analysts from CNBCN, CNN saying this was almost worse than 1929. Anyways, people were fearful and nobody would buy anything. Few did, but nothing to such a scale like described above.
Here is the trick (there are no tricks, but this is really a trick, in a way):
90% of people would rather buy AAPL share today at $509.46 than 3 years ago at $94. I am 100% sure of that. People operate by greed and by fear. Again, we are coming back to the same point. 2009 was fear, 2012 is greed. This is so cyclical already my head is spinning.
Learn how to say no to AAPL share at $500 and learn how to say YES when a good company like that is trading below $100.
Happy investing.
Damian
Apple $509 / $475B market cap
Apple, Inc. has a market cap of $475 billion.
On January 19 2012 their market cap was $400 billion. The value of the company grew by $75 billion.
Why?
Let's try to analyze.
Apple's revenue for 2011 was $109 billion. Let's say in 2012 it will be 10% higher, so $120 billion. Let's be really optimistic and let's say they will have a phenomenal year with total revenue at $140 billion.
There are 366 days in 2012. So we have to divide $140 billion by 366 days = $383 million daily revenue. Wow. Just realized how much that is. OK. Their profit margin in 2011 was 24%, let's again say they will really learn how to cut costs in 2012, and they will improve their profit margin by 25% (this is almost impossible, but, let's just give the best possible scenarios.) Their profit margin will be 31.25% - let's round that to 32%.
So what do we have here. We have $383 million daily sales and profit margin of 32% so that comes to $122.50 million daily profit for Apple, Inc.
OK - now from January 19 2012 to February 14 2012 have had 26 days.
26 x $122.50 million = $3.2 billion
OK, so the company now has $3.2 billion more cash than on January 19th. Using the best possible scenario for Apple, Inc. the company has made $3.2 billion, but the total value of the company has increased by $75 billion, well the market says so.
What I really think, and it is not a secret right now. Somebody is crazy to buy Apple stock at $420 and keeps buying it until it is $510 - whoever these people are, they are not thinking clearly and I doubt they know what they are doing. If it continue like this Apple needs a week to have a market cap of over $500 billion or half a trillion US dollars. Now that is insane and it has no justification whatsoever for such inflated price.
Today, my son celebrated his 2nd birthday, we had balloons, but none of them was so big. For the next birthday party, I will just buy some stocks.
Learn how to say NO. Happy investing.
Damian
On January 19 2012 their market cap was $400 billion. The value of the company grew by $75 billion.
Why?
Let's try to analyze.
Apple's revenue for 2011 was $109 billion. Let's say in 2012 it will be 10% higher, so $120 billion. Let's be really optimistic and let's say they will have a phenomenal year with total revenue at $140 billion.
There are 366 days in 2012. So we have to divide $140 billion by 366 days = $383 million daily revenue. Wow. Just realized how much that is. OK. Their profit margin in 2011 was 24%, let's again say they will really learn how to cut costs in 2012, and they will improve their profit margin by 25% (this is almost impossible, but, let's just give the best possible scenarios.) Their profit margin will be 31.25% - let's round that to 32%.
So what do we have here. We have $383 million daily sales and profit margin of 32% so that comes to $122.50 million daily profit for Apple, Inc.
OK - now from January 19 2012 to February 14 2012 have had 26 days.
26 x $122.50 million = $3.2 billion
OK, so the company now has $3.2 billion more cash than on January 19th. Using the best possible scenario for Apple, Inc. the company has made $3.2 billion, but the total value of the company has increased by $75 billion, well the market says so.
What I really think, and it is not a secret right now. Somebody is crazy to buy Apple stock at $420 and keeps buying it until it is $510 - whoever these people are, they are not thinking clearly and I doubt they know what they are doing. If it continue like this Apple needs a week to have a market cap of over $500 billion or half a trillion US dollars. Now that is insane and it has no justification whatsoever for such inflated price.
Today, my son celebrated his 2nd birthday, we had balloons, but none of them was so big. For the next birthday party, I will just buy some stocks.
Learn how to say NO. Happy investing.
Damian
Thursday, February 9, 2012
Facebook / Apple
With Facebook's upcoming IPO it could value the company at $100 billion and Apple's market cap at $444 billion we are now entering "dot.com/tech bubble version 2.0"
Apple is a great company and does amazing products and Facebook is an equally amazing company that provides great service for their users. That said, they are not worth over half trillion dollars. We have just entered into second phase of craziness and this will correct itself at one point. Seeing Apple's share at almost $480 is a scary sight - It was $78 in January 2009.
Happy investing....
Damian Kosutic
Apple is a great company and does amazing products and Facebook is an equally amazing company that provides great service for their users. That said, they are not worth over half trillion dollars. We have just entered into second phase of craziness and this will correct itself at one point. Seeing Apple's share at almost $480 is a scary sight - It was $78 in January 2009.
Happy investing....
Damian Kosutic
Thursday, January 19, 2012
Google, Inc & Microsoft Corp. - tech stocks
Google, Inc. (GOOG)
Revenues - $30 billion
Net Income - $8.5 billion
Market cap - $205 billion
Employees - 31,353
Microsoft Corporation (MSFT)
Revenue - $67 billion
Net Income - $23.15 billion
Market Cap - $237 billion
Employees - 92,000
Google and Microsoft are very similar companies. They are both unoriginal. They both seem to be blind. They completely ignore the hardware side of the business and they 100% focus on software. Between them they share annual turnover of over $100 billion, they share profits of $30 billion and they have more than 100,000 people working for them on different projects/tasks every day. Yet, they are so unoriginal.
I have a problem with such tech stocks and I try to stay away from them. Because today you probably have 200 people in Google working on some project and 200 engineers in Microsoft working on another project, yet their future may depend on two college students in garage somewhere.
Google and Microsoft in my opinion are not smart enough to realize that if they want to protect themselves from garage-working college students, they need to produce hardware and software and they need to market their products and stand behind them. Ultimately, they will be better companies, and customers would benefit from their products, because they would simply be better products. Software needs a hardware to adapt to, you cannot think that one software can work perfectly on different hardwares, just like one type of engine cannot run on all cars.
Thinking works.
Damian Kosutich
Revenues - $30 billion
Net Income - $8.5 billion
Market cap - $205 billion
Employees - 31,353
Microsoft Corporation (MSFT)
Revenue - $67 billion
Net Income - $23.15 billion
Market Cap - $237 billion
Employees - 92,000
Google and Microsoft are very similar companies. They are both unoriginal. They both seem to be blind. They completely ignore the hardware side of the business and they 100% focus on software. Between them they share annual turnover of over $100 billion, they share profits of $30 billion and they have more than 100,000 people working for them on different projects/tasks every day. Yet, they are so unoriginal.
I have a problem with such tech stocks and I try to stay away from them. Because today you probably have 200 people in Google working on some project and 200 engineers in Microsoft working on another project, yet their future may depend on two college students in garage somewhere.
Google and Microsoft in my opinion are not smart enough to realize that if they want to protect themselves from garage-working college students, they need to produce hardware and software and they need to market their products and stand behind them. Ultimately, they will be better companies, and customers would benefit from their products, because they would simply be better products. Software needs a hardware to adapt to, you cannot think that one software can work perfectly on different hardwares, just like one type of engine cannot run on all cars.
Thinking works.
Damian Kosutich
Apple, Inc - $400 billion mark
Yesterday, Apple stock traded at an intra-day high of $429.47 surpassing market cap mark of $400 billion.
$400 billion. August 1997 - 90 days from bankruptcy. January 2012 - $400 billion market cap. 15 years.
That is a fifth of human's life expectancy in developed world. So if you are 30 years old right now, by the time you are 45 you can also change the world, just like Mr. Jobs, if of course these are your ambitions.
This $400 billion mark is meaningless, it doesn't mean much to any of the Apple employees, it is not the reason why they will continue to make great products, it is just a reminder than in life anything is possible.
"Here is to the crazy ones" (Apple ad from 1997)
Is it worth $400 billion? Well, if somebody is willing to pay $400 billion for the whole business than yes. Yesterday many people bought Apple stock trading at $429. So if you bought one share you are also willing to pay $400 billion for the whole business provided you have the money, probably not. So how come almost 10 million shares were traded yesterday? Well, here we go again, if you notice craziness on the market, just follow it, because this is one place where money can be made after sanity kicks in again. I am not suggesting anything, but in my opinion, Apple has shown that in life everything is possible. From inevitable bankruptcy to the largest company in the world (August 2011) to $400 billion market cap (January 2012). Also, where great things happen, crazy people follow. So, - here is to the crazy ones.
Enjoy.
Damian Kosutich
$400 billion. August 1997 - 90 days from bankruptcy. January 2012 - $400 billion market cap. 15 years.
That is a fifth of human's life expectancy in developed world. So if you are 30 years old right now, by the time you are 45 you can also change the world, just like Mr. Jobs, if of course these are your ambitions.
This $400 billion mark is meaningless, it doesn't mean much to any of the Apple employees, it is not the reason why they will continue to make great products, it is just a reminder than in life anything is possible.
"Here is to the crazy ones" (Apple ad from 1997)
Is it worth $400 billion? Well, if somebody is willing to pay $400 billion for the whole business than yes. Yesterday many people bought Apple stock trading at $429. So if you bought one share you are also willing to pay $400 billion for the whole business provided you have the money, probably not. So how come almost 10 million shares were traded yesterday? Well, here we go again, if you notice craziness on the market, just follow it, because this is one place where money can be made after sanity kicks in again. I am not suggesting anything, but in my opinion, Apple has shown that in life everything is possible. From inevitable bankruptcy to the largest company in the world (August 2011) to $400 billion market cap (January 2012). Also, where great things happen, crazy people follow. So, - here is to the crazy ones.
Enjoy.
Damian Kosutich
Wednesday, January 18, 2012
Apple, Inc.
Today, Apple's market capitalization is $395 billion.
Apple is $157 billion worth more than Microsoft.
On August 6 1997 Microsoft invested $150 million into Apple to save the company from bankruptcy. This was only 15 years ago. In 15 years Apple went from a market cap of $6 billion to $395 billion. That is a 6500% increase in 15 years. In investing this is almost a dream. Well, not quite. It seems somebody has been following the trends.
Kingdom Holding, owned by Prince Alwaleed bin Talal of Saudi Arabia invested $115 million into Apple Computer, Inc. They acquired 5% of the company by April 1997. Price Alwaleed later said the main reason why he invested into Apple is because Steve Jobs' return to Apple.
Apple is not an example of value investing, it is not even a growth investing, since the company used to be big and than almost bankrupt. This is person investing, the reason why the Prince (not the singer) invested is because he believed Steve Jobs will do an amazing job. He did surprise us all.
Find a company that makes great products, even if they are not on the market, just learn about them, follow the trends, read about their individuals, because it is all about the people.
Be original.
Apple is $157 billion worth more than Microsoft.
On August 6 1997 Microsoft invested $150 million into Apple to save the company from bankruptcy. This was only 15 years ago. In 15 years Apple went from a market cap of $6 billion to $395 billion. That is a 6500% increase in 15 years. In investing this is almost a dream. Well, not quite. It seems somebody has been following the trends.
Kingdom Holding, owned by Prince Alwaleed bin Talal of Saudi Arabia invested $115 million into Apple Computer, Inc. They acquired 5% of the company by April 1997. Price Alwaleed later said the main reason why he invested into Apple is because Steve Jobs' return to Apple.
Apple is not an example of value investing, it is not even a growth investing, since the company used to be big and than almost bankrupt. This is person investing, the reason why the Prince (not the singer) invested is because he believed Steve Jobs will do an amazing job. He did surprise us all.
Find a company that makes great products, even if they are not on the market, just learn about them, follow the trends, read about their individuals, because it is all about the people.
Be original.
Wednesday, May 11, 2011
Trading Cattle "Beef Bonanza" in 1860s in America
I once heard a story how cowboys traded their cattle between 1860s - 1880s -period known as "Beef Bonanza". I cannot confirm if this particular story is true, but it goes like this.
Cowboys met to trade cows, and one cowboy, lets call him John would approach Bob and would offer him $100 for 6 of his cows. Bob would say $110 is the minimum price he can accept, everything under $110 would cause him stomachache. John said, ok, let's meet half way at $105, and I will take you wonderful cattle. Bob accepted the offer with some pain. Few week later, John and Bob would meet again, and John would say to Bob, --- listen, I like you cows, they are great, I milked them, and bathed them, I fed them, they are great, but I would like to sell them back to you for $120, since I was taking care of them for 2 weeks. Bob said that he cannot accept the offer, but he is willing to purchase them back for $90 since Bob thinks he sold the milk and made some profit there. John, said that $90 is too little and he will just go to the next cowboy, who will pay $100 or more for them. Bob didn't want to lose this deal, he wanted to make sure he gets his cattle back, he was emotionally attached to this cows and he said to John, OK - $100 for all 6 and we call it even. John replied with a counteroffer of $105 - they shook hands and deal was done.
Turnover $220. No profit.
This story seems laughable and ridiculous, we are observing this event from 21st century and laugh. Yet, this is how they did business, it was all about deals, who gets more deals during great beef bonanza in 1860s to 1880s.
Hundred years from now or probably even less, people will think that our stories of dot-com bubble and financial crisis of 2008 are laughable and ridiculous. I think they are now.
Internet company in 1999 with market-cap of $10 billion and no earnings. Forecast - no earnings. You couldn't even tell where the earnings would be coming from, but the value of this void was $10 billion. You would actually need to come up with $10 billion to buy void with a nice logo and dot-com domain.
It's deeply rooted in people's nature to do this and to keep doing it. We will see it again and again. Again, follow the craziness, whether it is taking place on the downside by investor's being too skeptical or on the upside where they are being to positive. Out of any craziness you will find value. However, it takes character to observe this game on the sidelines with cash in hands and not wanting to play.
Happy investing!
Damian Kosutic
Cowboys met to trade cows, and one cowboy, lets call him John would approach Bob and would offer him $100 for 6 of his cows. Bob would say $110 is the minimum price he can accept, everything under $110 would cause him stomachache. John said, ok, let's meet half way at $105, and I will take you wonderful cattle. Bob accepted the offer with some pain. Few week later, John and Bob would meet again, and John would say to Bob, --- listen, I like you cows, they are great, I milked them, and bathed them, I fed them, they are great, but I would like to sell them back to you for $120, since I was taking care of them for 2 weeks. Bob said that he cannot accept the offer, but he is willing to purchase them back for $90 since Bob thinks he sold the milk and made some profit there. John, said that $90 is too little and he will just go to the next cowboy, who will pay $100 or more for them. Bob didn't want to lose this deal, he wanted to make sure he gets his cattle back, he was emotionally attached to this cows and he said to John, OK - $100 for all 6 and we call it even. John replied with a counteroffer of $105 - they shook hands and deal was done.
Turnover $220. No profit.
This story seems laughable and ridiculous, we are observing this event from 21st century and laugh. Yet, this is how they did business, it was all about deals, who gets more deals during great beef bonanza in 1860s to 1880s.
Hundred years from now or probably even less, people will think that our stories of dot-com bubble and financial crisis of 2008 are laughable and ridiculous. I think they are now.
Internet company in 1999 with market-cap of $10 billion and no earnings. Forecast - no earnings. You couldn't even tell where the earnings would be coming from, but the value of this void was $10 billion. You would actually need to come up with $10 billion to buy void with a nice logo and dot-com domain.
It's deeply rooted in people's nature to do this and to keep doing it. We will see it again and again. Again, follow the craziness, whether it is taking place on the downside by investor's being too skeptical or on the upside where they are being to positive. Out of any craziness you will find value. However, it takes character to observe this game on the sidelines with cash in hands and not wanting to play.
Happy investing!
Damian Kosutic
Monday, May 9, 2011
What is your EDGE when it comes to investing?
I started following the markets in 1997, I was 15 years old, and I didn't know much about the markets, just what I saw on the news. But ever since I saw Wall Street with Michael Douglas, I became more and more interested what this business of equity investing is all about. It was very interesting for me, because everybody seemed to make so much money, and everything seemed moving so fast, I must say when I look back, I was truly impressed by it. People were talking about Yahoo, Microsoft, Hotmail, Ebay everybody was talking about all these companies that I was using on daily basis. My first email account was with Hotmail, I was using Yahoo as my search engine, Netscape as my web-browser, Microsoft of course as the operating system on almost all computers. At the same time, my father at work had a Macintosh, I didn't really like it, but Internet was much faster there than at home, so I would often use my dad's Mac. I also remember when in 1999 Bill Gates net worth briefly surpassed $100 billion! I just could wait to get out of school and start investing, who cares about University, you can skip that, and make some money. At the same time, as the top 5 richest people in the world were all Americans, 3 out of 5 came out of Microsoft, Bill Gates, Paul Allen and Steve Ballmer. Apple Computers was doing very badly, and I felt so sorry for them, because I remember how I didn't like my father's Macintosh at work, I could understand why they were doing so badly.
Just a year later, starting in April 2000, the markets declined considerably, NASDAQ Composite from 5,000 to 3,300 in just 2 weeks. Analysts were saying it was a normal market correction, some said it was because of USA vs. Microsoft monopoly court case, etc... I didn't understand why all these companies declined in value so much. Media was saying that the bubble bursted, and that the stocks were overvalued. By April 2001 NASDAQ Composite was around 1,700 and I understood the concept of overvalued - I started to question so what is the real price of these great companies... Few months later, Sept. 11 2001, and markets dropped further.
By 2003 and 2004 markets seemed to go back to high levels, economy was boosting, everything was working fine. I was a little bit skeptical, I didn't believe this would last, by 2007 markets were so high again. Google (GOOG) was at $724.80 on Dec. 10 2007 and analysts were saying it will go further up to possibly $2,000 a share! That moment reminded me of Bill Gates net worth in 1999, I knew then we are heading in a wrong direction again, even though Google didn't have anything to do with credit crisis. It was all nice and attractive, but this cannot last I said to myself. How can all these analysts and investment bankers and all these professionals value companies precisely to a dollar? I cannot exactly say how much my car is worth down to a dollar, and yet they know how to value complicated businesses like insurance companies and financial institutions, down to a dollar? This didn't seem right, and still doesn't seem right to me.
Well, we all know what happened by September 2008, markets crashed again, this time much harder than in 2000. Warren Buffett called it financial Pearl Harbor. It didn't look good. To cut this story short, we seem to be back on our feet again, the Dow is almost at 13,000 again (up from 6,500 in March 2009) - so it is now safe to say it went up by almost 100% since then. I lived through 2 major market crashes in just 14 years and I know this will be happening again and again. We have to collect cash when it happens so we can buy businesses for a bargain, and wait when craziness seems to be on the upper side and sell them again.
I don't know what will happen tomorrow or in 10 years. But I can tell you that by the age of 29 I've seen things I could never imagine to see. I can tell you that in our lifetime we will see so many things on the markets that we will not believe them again. I will. Because now I know that is all in human nature.
People cannot change their stripes and will always show characteristics of greed and fear. They will always calculate how much they can make and not how much they can lose. They will want to get rich quick. When things go bad again, they will overreact and start selling urgently.
So, what is your EDGE in investing? I know mine, it is long term, always long term.
Happy investing!
Damian Kosutic
Just a year later, starting in April 2000, the markets declined considerably, NASDAQ Composite from 5,000 to 3,300 in just 2 weeks. Analysts were saying it was a normal market correction, some said it was because of USA vs. Microsoft monopoly court case, etc... I didn't understand why all these companies declined in value so much. Media was saying that the bubble bursted, and that the stocks were overvalued. By April 2001 NASDAQ Composite was around 1,700 and I understood the concept of overvalued - I started to question so what is the real price of these great companies... Few months later, Sept. 11 2001, and markets dropped further.
By 2003 and 2004 markets seemed to go back to high levels, economy was boosting, everything was working fine. I was a little bit skeptical, I didn't believe this would last, by 2007 markets were so high again. Google (GOOG) was at $724.80 on Dec. 10 2007 and analysts were saying it will go further up to possibly $2,000 a share! That moment reminded me of Bill Gates net worth in 1999, I knew then we are heading in a wrong direction again, even though Google didn't have anything to do with credit crisis. It was all nice and attractive, but this cannot last I said to myself. How can all these analysts and investment bankers and all these professionals value companies precisely to a dollar? I cannot exactly say how much my car is worth down to a dollar, and yet they know how to value complicated businesses like insurance companies and financial institutions, down to a dollar? This didn't seem right, and still doesn't seem right to me.
Well, we all know what happened by September 2008, markets crashed again, this time much harder than in 2000. Warren Buffett called it financial Pearl Harbor. It didn't look good. To cut this story short, we seem to be back on our feet again, the Dow is almost at 13,000 again (up from 6,500 in March 2009) - so it is now safe to say it went up by almost 100% since then. I lived through 2 major market crashes in just 14 years and I know this will be happening again and again. We have to collect cash when it happens so we can buy businesses for a bargain, and wait when craziness seems to be on the upper side and sell them again.
I don't know what will happen tomorrow or in 10 years. But I can tell you that by the age of 29 I've seen things I could never imagine to see. I can tell you that in our lifetime we will see so many things on the markets that we will not believe them again. I will. Because now I know that is all in human nature.
People cannot change their stripes and will always show characteristics of greed and fear. They will always calculate how much they can make and not how much they can lose. They will want to get rich quick. When things go bad again, they will overreact and start selling urgently.
So, what is your EDGE in investing? I know mine, it is long term, always long term.
Happy investing!
Damian Kosutic
Tuesday, March 15, 2011
Why are markets crashing? Herd Mentality!
I talked about herd mentality in the last few posts, something interesting to observe. The question is why are markets around the globe plunging because of this tragedy?
1.) Bank of Japan injected $184 billion into the financial system to fight future market turmoils, but NIKKEI still plunged over 17%. However, the Japanese banks will now have $184 billion to spare to rebuild the damages. Who will get this money?
2.) The damages are now estimated at around $170 billion! We can easily make the connection when we compare that number to $184 billion the central bank injected into the system. This is $170 billion that will spend. Who will get this money?
3.) Therefore unprecedented economic activity will unleash. Japan's economy will circulate with quarter of a trillion dollars in the next year or two. Again, who will get the money?
For starters, construction companies with earth moving machinery - Komatsu, Mitsubishi, Hitachi, US companies, like Caterpillar, they will make loads of money on restructuring the damaged areas, it is just mind-blowing. What about steel and copper? Japan will need millions of tons of steel. Nippon steel and ArcelorMittal - just think of how much steel they will have to provide to Japan!
For instance, Nippon Steel is trading 17.20% below the closing price on Thursday. Why is this stock trading low when it is inevitable to predict how much steel they will have to provide to rebuild devastated areas. ArcelorMittal is trading 28% below its 52-week high, you can find bargains by just simply analyzing the stock. Again, I am not suggesting any stocks, I am just showing you how to find bargains.
Another idea that crossed my mind. Solar and wind energy. Japan has proved that they can build nuclear power plants that can resist earthquake magnitude of 9, but they will always struggle with tsunamis and salt water, which is not that good for nuclear plants. Maybe they will heavily invest in wind power on the east cost of Japan and move the nuclear plants more inland.
Finding bargains in times like this is not difficult, you just have to understand the business, I am personally deeply invested in Energy/Commodities and Construction sector, so I understand this is my field of competence and you have to disconnect from the herd mentality.
Remember, $184 billion will be spent. Most of the money will go to construction companies, commodities such as steel and copper and energy sector, especially oil, but also solar and wind power.
Happy investing!
Damian Kosutic
1.) Bank of Japan injected $184 billion into the financial system to fight future market turmoils, but NIKKEI still plunged over 17%. However, the Japanese banks will now have $184 billion to spare to rebuild the damages. Who will get this money?
2.) The damages are now estimated at around $170 billion! We can easily make the connection when we compare that number to $184 billion the central bank injected into the system. This is $170 billion that will spend. Who will get this money?
3.) Therefore unprecedented economic activity will unleash. Japan's economy will circulate with quarter of a trillion dollars in the next year or two. Again, who will get the money?
For starters, construction companies with earth moving machinery - Komatsu, Mitsubishi, Hitachi, US companies, like Caterpillar, they will make loads of money on restructuring the damaged areas, it is just mind-blowing. What about steel and copper? Japan will need millions of tons of steel. Nippon steel and ArcelorMittal - just think of how much steel they will have to provide to Japan!
For instance, Nippon Steel is trading 17.20% below the closing price on Thursday. Why is this stock trading low when it is inevitable to predict how much steel they will have to provide to rebuild devastated areas. ArcelorMittal is trading 28% below its 52-week high, you can find bargains by just simply analyzing the stock. Again, I am not suggesting any stocks, I am just showing you how to find bargains.
Another idea that crossed my mind. Solar and wind energy. Japan has proved that they can build nuclear power plants that can resist earthquake magnitude of 9, but they will always struggle with tsunamis and salt water, which is not that good for nuclear plants. Maybe they will heavily invest in wind power on the east cost of Japan and move the nuclear plants more inland.
Finding bargains in times like this is not difficult, you just have to understand the business, I am personally deeply invested in Energy/Commodities and Construction sector, so I understand this is my field of competence and you have to disconnect from the herd mentality.
Remember, $184 billion will be spent. Most of the money will go to construction companies, commodities such as steel and copper and energy sector, especially oil, but also solar and wind power.
Happy investing!
Damian Kosutic
SNE (Sony Corporation) - Continuation #2
Here is what media says about Sony
"Sony Corporation (NYSE:SNE) reported its several operations and Sony Group sites and facilities are affected by the Pacific Coast of Tohoku Earthquake and tsunami, and the company is monitoring the status of each of these sites on an on-going basis, while also considering the most effective recovery measures. The company also responded to reports of widespread power outages by voluntarily suspending operations at several sites. The company is currently assessing the full impact of the earthquake, tsunami and related power outages on Sony’s businesses and consolidated financial results.
In addition to manufacturing sites, the company’s Sendai Technology Center (Tagajyo, Miyagi) ceased operation due to earthquake damage. While certain production sites in Japan have been moderately affected, there has been no report of employee injury or facility damage, and operations continue. The possible damage at other Sony Group companies in Japan is currently being reviewed. Also, Sony Chemical & Information Devices Corporation, Kanuma Plant (Tochigi Prefecture), Sony Energy Devices Corporation, Tochigi Plant (Tochigi Prefecture) and Sony Corporation Atsugi Technology Center (Atsugi, Kanagawa) temporarily suspended operations on a voluntary basis, to assist with the alleviation of widespread power outages."
The stock opened today 15% lower from its last week Thursday price, which means by now market capitalization is down by $5.2 billion. Earlier I assessed Sony damages at a maximum of $100 million, which really is an exaggerated figure, but to be on the safe side I assumed $100 million. The company lost on its market value by $5.2 billion!
Again, I will not suggest any stocks; I used Sony only as an example to see how markets react to certain events. From time to time stock markets offer good bargains due to a herd mentality of people; I use these opportunities for the benefit of my fund.
Happy investing....
Damian Kosutic
SNE (Sony Corporation) - Continuation
Since March 10 (a day before the earthquake in Japan) until today, SNE stock fell by 10%.
Market capitalization of SNE before the earth quake was $34.5 billion, now it is $31 billion. If you were to buy the whole business today, you would pay $3.5 billion less on Monday then on Thursday last week. The total damage to one plant is around $10 million according to the media. Production has stopped for 2 days in 6 out of 10 plants due to power shortages, total production loss cannot exceed $50 million, so let's say for the sake of easier calculation and comparison that the total damage to Sony business globally is $100 million. On NYSE the total damage was assessed to be $3.5 billion or more if the stock continues to plunge.
Let's see what will happen with SNE in the next few days.
Damian Kosutic
Market capitalization of SNE before the earth quake was $34.5 billion, now it is $31 billion. If you were to buy the whole business today, you would pay $3.5 billion less on Monday then on Thursday last week. The total damage to one plant is around $10 million according to the media. Production has stopped for 2 days in 6 out of 10 plants due to power shortages, total production loss cannot exceed $50 million, so let's say for the sake of easier calculation and comparison that the total damage to Sony business globally is $100 million. On NYSE the total damage was assessed to be $3.5 billion or more if the stock continues to plunge.
Let's see what will happen with SNE in the next few days.
Damian Kosutic
Monday, March 14, 2011
SNE (Sony Corporation)
I said I will not recommend any stocks on this blog, but I will look at certain stocks to make some short analysis and comparison.
Today I am looking at Sony Corporation (SNE) traded on New York Stock Exchange (NYSE). I deliberately chose the stock traded on NYSE to reflect the idea better.
SNE opened today at $30.95 which is 7.5% lower from the closing price on Friday. Of course, this is due to earthquake and tsunami catastrophe that hit Japan on Friday. Sony is a Japanese company and all Japanese stocks have been influenced by this terrible catastrophe.
Sony Corporation has little to do with the earthquake and its price shouldn't be influenced so much by this event. Their global headquarters are in Tokyo and they haven't been effected by the earthquake nor tsunami. Most of its production is outside of Japan, media reports that Sony has 10 plants in Japan and that they are closed due to power shortages, which is true, however they are small operation centers and have little to do with production of bigger consumer products which are mostly produced in China. Six out of this ten plants are currently offline due to power shortages, one plant was damaged by tsunami.
We now have 3 Nuclear power plants that have now been effected by tsunamis. However, we have to keep in mind that Japan has 53 nuclear power plants, 3 have been damaged and 1 is offline, therefore we have 49 power plants that are working. I am sure the power shortage that now in Japan effect some one million people will be sorted out very soon.
Investors fear that Sony plants will be offline for more than few weeks according to some media, and this will cause significant loss to its production. Again, small production of micro-chips and research centers were effected by the earthquake, majority of larger consumer products like TV sets and computers are produced in China. All these factors create fear and investors are now dominated by fear concerning not just Japanese stocks but also European and American companies.
People's psychology works this way, they think like a herd, and they either overbuy or oversell the stock based on certain events.
Imagine a Japanese farmer owning a land with cattle in Peru (which many Japanese farmers actually do). How can you justify that the price of his land and his cattle decreases by 7.5% due to a disaster in Japan? Answer is simple, you can't. This exactly the case of Sony today.
Finding value has a lot to do with herd mentality, observe what people are doing, like today for example, and you will most often find some value in stocks.
On other note, my parents are journalists, my father has visited over 40 nuclear power plants in the United States, Canada and France during his career. So I was influenced in some way by nuclear power and journalism during my life. Media is doing a terrible job reporting on nuclear "disaster" in Japan, there is a huge difference between what happened and what media is trying to say "may" happen. Nuclear power plants are one of the toughest built structures, if not the toughest. There is absolutely no danger, or I should say the danger is so small that the reactors will explode and that a nuclear disaster will unleash that it doesn't deserve such a dramatic portrayal by mainstream media.
All our thoughts are with Japan and its wonderful people!
Damian Kosutic
Today I am looking at Sony Corporation (SNE) traded on New York Stock Exchange (NYSE). I deliberately chose the stock traded on NYSE to reflect the idea better.
SNE opened today at $30.95 which is 7.5% lower from the closing price on Friday. Of course, this is due to earthquake and tsunami catastrophe that hit Japan on Friday. Sony is a Japanese company and all Japanese stocks have been influenced by this terrible catastrophe.
Sony Corporation has little to do with the earthquake and its price shouldn't be influenced so much by this event. Their global headquarters are in Tokyo and they haven't been effected by the earthquake nor tsunami. Most of its production is outside of Japan, media reports that Sony has 10 plants in Japan and that they are closed due to power shortages, which is true, however they are small operation centers and have little to do with production of bigger consumer products which are mostly produced in China. Six out of this ten plants are currently offline due to power shortages, one plant was damaged by tsunami.
We now have 3 Nuclear power plants that have now been effected by tsunamis. However, we have to keep in mind that Japan has 53 nuclear power plants, 3 have been damaged and 1 is offline, therefore we have 49 power plants that are working. I am sure the power shortage that now in Japan effect some one million people will be sorted out very soon.
Investors fear that Sony plants will be offline for more than few weeks according to some media, and this will cause significant loss to its production. Again, small production of micro-chips and research centers were effected by the earthquake, majority of larger consumer products like TV sets and computers are produced in China. All these factors create fear and investors are now dominated by fear concerning not just Japanese stocks but also European and American companies.
People's psychology works this way, they think like a herd, and they either overbuy or oversell the stock based on certain events.
Imagine a Japanese farmer owning a land with cattle in Peru (which many Japanese farmers actually do). How can you justify that the price of his land and his cattle decreases by 7.5% due to a disaster in Japan? Answer is simple, you can't. This exactly the case of Sony today.
Finding value has a lot to do with herd mentality, observe what people are doing, like today for example, and you will most often find some value in stocks.
On other note, my parents are journalists, my father has visited over 40 nuclear power plants in the United States, Canada and France during his career. So I was influenced in some way by nuclear power and journalism during my life. Media is doing a terrible job reporting on nuclear "disaster" in Japan, there is a huge difference between what happened and what media is trying to say "may" happen. Nuclear power plants are one of the toughest built structures, if not the toughest. There is absolutely no danger, or I should say the danger is so small that the reactors will explode and that a nuclear disaster will unleash that it doesn't deserve such a dramatic portrayal by mainstream media.
All our thoughts are with Japan and its wonderful people!
Damian Kosutic
Friday, March 11, 2011
Japanese Earthquake / Tsunami Crisis Response
Anybody who has been to Japan will tell you this: they are extraordinary people devoted to the tasks ahead of them and finishing them in the best possible way. They will never settle for good, they will always seek for improvement, with Japanese a progress is a matter of continuation and it doesn't have a finish line.
Today, they have experienced one of the hardest earthquakes in their recorded history, many people have lost their lives and many more are missing. All my condolences go the people of Japan.
One thing I know about Japan. Their engineering, attention to detail and preventative efforts against earthquakes have today saved millions of lives. They have already done more than half of the job, I put all my bets that they will be ready and going in few years. Like always, we will look back with awe and ask ourselves "how did they do it..."
Hard work, attention to detail, outmost devotion, and last but not least their continuous effort to make things better and better is a huge lesson and a reminder for humanity at large.
With love and hope for Japan!
Damian Kosutic
Thursday, March 10, 2011
NASDAQ Composite March 10 2000 - March 10 2011
Just a quick and interesting observation.
On Friday, March 10 2000 (today 11 years ago), NASDAQ Composite peaked at an intra-day high of 5,132.53, it closed at 5,048.62, this is the all time high for NASDAQ.
On Monday, March 13 2000, the dot.com bubble bursted and it declined in 19 months to an intra-day low at 1,108.49 on October 10 2002. A decline of 78%!
Today, NASDAQ is at 2,700, almost 150% up since October 2002.
Again, greed dominated until March 10 2000, and this was unprecedented greed. Bill Gates net worth at the time was $100 billion, because Microsoft shares were traded at almost $60 (split adjusted). Craziness was dominating the market.
As a value investor what I do is I follow craziness. I look where craziness is taking place on the market, in 1999 - 2000 it was tech-stocks, in 2006 - 2007 it was the housing/credit market, once every 10 years we will have a heavy craziness taking place somewhere on the market. It is not difficult to spot it, but it is important to pay a close attention to it and be ready when the bubble bursts and the market goes south, this will create a value for future investing.
In the words of Warren E. Buffett "...be fearful when others are greedy and be greedy when others are fearful."
Happy investing!
Damian Kosutic
On Friday, March 10 2000 (today 11 years ago), NASDAQ Composite peaked at an intra-day high of 5,132.53, it closed at 5,048.62, this is the all time high for NASDAQ.
On Monday, March 13 2000, the dot.com bubble bursted and it declined in 19 months to an intra-day low at 1,108.49 on October 10 2002. A decline of 78%!
Today, NASDAQ is at 2,700, almost 150% up since October 2002.
Again, greed dominated until March 10 2000, and this was unprecedented greed. Bill Gates net worth at the time was $100 billion, because Microsoft shares were traded at almost $60 (split adjusted). Craziness was dominating the market.
As a value investor what I do is I follow craziness. I look where craziness is taking place on the market, in 1999 - 2000 it was tech-stocks, in 2006 - 2007 it was the housing/credit market, once every 10 years we will have a heavy craziness taking place somewhere on the market. It is not difficult to spot it, but it is important to pay a close attention to it and be ready when the bubble bursts and the market goes south, this will create a value for future investing.
In the words of Warren E. Buffett "...be fearful when others are greedy and be greedy when others are fearful."
Happy investing!
Damian Kosutic
Wednesday, March 9, 2011
Dow Jones Industrial Average from 1921 to 2011
In 1921 Dow Jones Industrial Average (DJIA) was 64, today it is 12,200. The question is how could you lose money in this period and the fact is that many people did.
In these ninety years between 1921 and 2011 we had the Great Depression from 1929, Pearl Harbor, Second World War, Korean War, Cuban Missile Crisis, the Cold War, the Vietnam War, Oil Crisis, Stock Market Crash of 1987 or Black Monday as we know it, Gulf war and invasion of Kuwait, wars in Yugoslavia, September 11th 2001, War on Terrorism, war in Afghanistan and Iraq, and the Financial Crisis of 2008. A lot of events and many more I didn't mention that worked against the markets and the trend was still upward and by what margin, an increase of 18,900% in 90 years or 6% compounded annually + dividends.
The lowest point was 41 in 1933 and the highest point was 14,164 in October 2007, so from 1933 to October 2007 Dow increased by 34,300% in 74 years or 8.21% compounded annually. So we have navigated between fear and greed, fear in 1933 and greed in 2007.
Post 2008 lowest point of DJIA was in March 2009 and it was 6,547. That is a decline of almost 54% in less than 17 months. Again in October 2007 people were navigating by greed and in March 2009 by fear. I cannot predict markets and nobody can, I cannot tell you how the market will open tomorrow as many couldn't tell you how the markets would open the next day on September 10th 2001. However, we can be sure of one thing. In the next 10 years we will see the markets decline by 25 - 35% or even more, this will be again a very good opportunity for value investors who are looking for bargains. Since March 2009 DJIA hit a new post-crisis high of 12,391 in February 2011 - that is an increase of 88% in 23 months.
I know one thing, you will not make money by dancing in and out of the markets, this is how many people before you have done it and they have lost money between 1921 - 2011 when Dow advanced 18.900%. You have to find an opportunity when to buy, like March 2009, and hold it for as long as you can, and you will do more than fine over a long period of time.
Sell when the market is dominated by greed (October 2007) and buy when market is dominated by fear (March 2009) and think long term, only long term.
Happy investing!
Damian Kosutic
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