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
Tuesday, March 15, 2011
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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