Greedy When Fearful

There’s a saying, “The biggest risk is not taking risk” that applies to our investing youth today. Headlines everywhere are talking about how twenty-somethings are shunning stocks and staying with terrible CDs. This is a major mistake that’s going to prevent Generation Text from ever breaking the chains of their day jobs. What they don’t realize is now is the time to take the most risks in their life. If they fail, they have more time to recover than they ever will. Nothing is more valuable than time.

This philosophy is why I like to start the year with my most risky investments first. I’m younger in January than I will be in December. I also like to pretend I’m a professional hedge fund manager, and have to hit a yearly target. I have an entire year for my thesis to evolve. If one of my risky investments tank, I have more time to adjust accordingly before the year ends.  

The majority of people chase performance. They think the stock that did the best in 2010 will also do well in 2011. Though this is true for the best growth stories in their early stages, overall the facts prove this is wrong. Peter Lynch, one of the greatest investors of all time, beat Warren Buffet from 1977-1990 with a 30% annual return running the Fidelity Magellan fund. To understand what amazing performance this is, $30,000 becomes a million in just 13 years when it compounds at 30% (and yet it’s legal for credit cards to charge this rate). Instead of buying that SUV, you could take a flux capacitor, give the money to Peter, and come back a millionaire. Simple enough, right? How lucky his clients must have been to be in the right place at the right time? Unfortunately, no! The majority of his clients tried to time him and pulled their money out of the fund after a bad year and poured money in after a good year. They missed the huge gains and got the big losses. Because of this, they actually lost to the market.

I don’t chase performance, I do the opposite. I look at my biggest losers of 2010, find out why they are losing, and see if my investing thesis still holds. If it does, I like the stock more because it’s cheaper. That’s exactly the case with National Bank Of Greece (NBG), and that’s why I doubled-down. My investing thesis on NBG hasn’t changed and it’s almost been a year. I still don’t think Greece is going to default, and agree with Dr. Bob Froehlich position on the PIIGS. The French and Germans won’t allow defaults because everyone would fall together.

I believe Greece will turn between 2012-2014  because of this data and will sell the position after it’s recovered. This isn’t an investment, it’s a trade.

This is a volatile stock. I bought more of  NBG on January 6^th  when it hit its 52 week low. Thanks to DCA (Dollar Cost Averaging), it turned my 38% loss to a 19% loss. It dropped another 8%, only to rally 16% from its bottom in just three days because of a successful Porteguese bond auction. Portugal is the P in PIIGS, and the market figures if people are still buying their bonds then they won’t need a bailout. NBG is cheap because the market thinks of the PIIGS the same way it did about American banks two years ago.

This is an extremely risky stock. Though buying a stock on its way down can be a great way to lose money, I only need to find one Ford (450% gain) for every four bankruptcies to break even. Those are great odds!  NBG still only represents 7% of my portfolio.  Enough to where it has already helped boost my annual return by 4% in the past 3 days, but it won’t kill me if they default.

If a stock goes to zero you want it to break your leg, not put you in a coma.

Monty

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Sam Adams takes up 1/6th of the Beer Rack space at the Sugarhouse state liquor store in Utah. Nice rack for only 1% market share!

In 1999 when I was practically living at the bars (more specifically, Salt Lake’s Port-O-Call (R.I.P.)), I would always order a Red Bull and vodka. Energy drinks were the latest fad, and you couldn’t go anywhere without seeing a Red Bull or Monster drink on the shelves or in the hands of a college kid. The universe was screaming “Buy energy drinks!!” and due to my most recent obsession with tech stocks, I ignored the maker of Monster Energy drinks, Hansen Natural (HANS). I missed a gain of 6,000%, a gain dreams are made of. Had I just invested one month of my bar tab ($1,000), I would be looking at $61,000 right now.

Watch for trends everywhere. When the universe screams, listen!

I missed the early years of craft brewery revolution too. 840 micro breweries started in the USA since 1980, 470 still exist. I noticed an increase of craft beers at parties but didn’t notice in an investing sense. Then, the universe screamed to me again, and this happened.

1)      Motley Fool’s Stock Advisor David Gardner picked Boston Beer as their stock for June.

2)      A few days later, while at the gym, I stumbled across “Beer Wars” on Netflix and watched it. Boston Beer’s founder Jim Koch was interviewed and made me realize “I’m living through the rebirth of the microbrew revolution.”

3)      My brother-in-law brought over Sam Adam’s Boston Lager to dinner. It’s his favorite beer.

Even though this revolution is well on its way (and has had a lot of casualties), I would rather jump on a moving train that hasn’t reached its destination than miss the entire ride.

As I type this, I’m drinking Samuel Adam’s Coastal Wheat brew (I’m out of my favorite Blackberry Witbier) to celebrate our starting position in SAM for $66.67 a share. You can see our entire portfolio here.

Here’s is why I think the universe is right and why I love Boston Beer (the company):

1)      Motley Fool’s Tom Gardner says insider ownership is the most important factor in the success of a company. I completely agree. When a company is a person’s baby instead of a paycheck, the company will probably grow to be a grandpa and outlive the father.   Common stock holders of SAM have no voting rights! Only class B shareholders do. Jim Koch owns 100%  of the class B shares and therefore controls most the company.  He owns 33% of the total company. Mr. Koch is a Harvard educated lawyer and MBA that gave up his consulting job to follow his passion.

2)      Boston Beer is younger than me, only 26 years old. It went public the year I graduated high school, 1995, and currently only employs 780 people. Production has only doubled since going public, from 1 million barrels to 2 million barrels. Even though SAM is the largest indie brewery in America they only make up 1% of every beer sold (the two majors Miller-Coors and AB make up 94% of sales). Craft brewers have been growing for five years straight since 2004. Plenty of room for growth! Corporations are people. They live and die just like people. Buy the babies, sell the grandparents.

3)      SAM’s Beers have won 1,424 awards in the past 10 years. First American beer sold in Germany (1985) and they invented the “born on date” in 1988. Named supplier of the year by Outback, TGI, and Darden.

4)      Like Coke’s secret recipe, SAM has a proprietary, protected strains of yeast it uses. SAM has a wide variety of great drinks including: Samuel Adams beers, Twisted Tea, Longshot contest beers, and Hardcore Cider. Also teamed up with the world’s oldest brewery, Germany’s Weihenstephan (founded in 1040 AD) and has a new beer (late 2010) which follows the 1516 beer purity law, the Reinheitsgebot.

5)      They treat their employees and community right. For over 3 years, they have loaned $7,000 (on average) to over 38 New England low income small business owners in the food and beverage industry during the recession via the American Dream Program. They created an employee weight loss program where employees lost a combined weight of 1 ton. Through the Long Shot contest, Sam Adams fans/employees brew their own beers for inclusion in the yearly Long Shot six-pack combo.

Here’s is why I think the universe is right and why I love Boston Beer (the stock):

1)      SAM stock has only doubled since its 1995 IPO and is currently valued at 950 million. Though savvy investors who bought post IPO (late 90s) could be sitting on a 600% gain, there is still a lot of upside here. Anheuser-Busch (BUD) for example is valued at 87 billion, more than 87 times more than SAM. Will SAM be the next BUD? If not, even getting a quarter of the way there will lead to huge gains.

2)      SAM repurchased 211,420 shares of its own stock in 2008 and 2009 at the excellent average price of $33! Well done Jim!

3)      147 million in property assets. I love companies that own lots of land in desirable areas. 

4)      39 million in cash on the balance sheet and zero debt

5)      Increased their cash 5 fold from 2008 to 2009.

6)      From 2005 to 2009 they almost doubled their sales and their net income!

7)      Stock trades only 16 times trailing free cash flow and has a 14% annual growth rate

8)      Generates almost 25% return on invested capital

9)      Stock has had a nice 7% pull back in the past 5 days. Normally I wouldn’t buy the day earnings will be announced but I think the “sell the news” may already be priced into the stock. SAM completely missed yesterdays major rally (indexes up 2%+ on average)

10)   Forward PE of 21 and a peg of 1.73. Not cheap, but still a fair price for it’s growth.

Though this David might not be able to take down the two Goliaths that control 92% of the beer industry, I’m betting that SAM will easily be able to beat its current 1% market share which will lead to major profits. Cheers!

Monty

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Judgment Day for Blockbuster.

I love penny stocks with a million dollar brand and a turnaround plan.

My strategy for buying stocks with the possibility of bankruptcy is to buy more shares every time the stock drops 50%. If Blockbuster drops from $.24 to $.12 that’s a 50% loss. However, if I buy at $.12 and it recovers back to $.24 that’s a 100% gain. This simple math rule can make it quite easy to rack up doubles IF the company doesn’t actually go bankrupt. My cost basis for Blockbuster is now about 10% of my portfolio, which is bordering on too much risk for me. I’m 33, so I still have about 7 more years until our portfolio needs to be more cautious. I won’t be buying more at $.6 however. I’ll either hit the eject button should bankruptcy be announced or ride this thing back up. This is my personal Judgment Day for Blockbuster.

Will BBI (BLOKA) survive?

Blockbuster is the first 10-K I have ever read and there is plenty to be worried about. Half of it reads like a Stephen King novel. Here is why I think Blockbuster will fail:

1)      Massive debt. 855 million in debt due to a stupid one time dividend payment (thanks to how Viacom spun this company off in 1999.) They just missed their one time debt payment which could be the kiss of death or means they are going to announce a refinance in August.

2)      Loss every year (over 5 years) except 2006. Domestically, 2005 loss was 583 million vs. 2009 loss of 558 million. I’m actually quite surprised 2009’s loss is so close to 2005 and not larger.

3)      Dozens of mentions of possible bankruptcy and closing operations mentioned in their 10-K.

4)      Extremely competitive. Anyone who sells or rents movies/games. Wal-Mart, Best Buy, Target, Gamely,  Netflix, Apple, Amazon, Red box, GameStop, Satellite, Cable, Internet piracy, etc.

5)      It’s a race to the bottom price wise. Renting/buying movies has never been so cheap.

6)      NCR bankrolled their kiosks. However, they also control price and location of these kiosks. Blockbuster gets 50% revenue from only old releases (26+ weeks old) and only 1-10% on new releases.

7)      No streaming from Blockbuster’s iTunes app. You can only look up physical movie availability.

8)      No XBOX, PS3, or Wii app yet though one has been rumored.

9)      Reverse stock split failed, stock was delisted from NYSE, and management isn’t being direct about it. BBI is now BLOKA.PK and trades on the pink sheets. Visit www.blockbustershareholders.com to read the drama. I love the price from the delisting, but wonder if Blockbuster doesn’t care because they know bankruptcy is going to be filed. Hopefully, they don’t care because they are negotiating a non-bankruptcy lifeline.

10)   Mark Wattles, founder of Hollywood video has sold a half a million of his Blockbuster shares. Is he jumping ship?

Am I stupid for buying even more shares of a doomed company? Quite possibly. It’s a roulette bet, and could go either way. Here is why I think BLOKA.PK will land on black and succeed:

1)      5.5 billion in revenue in 2005 and 4 Billion revenue in 2009. Not too bad considering 2009 was one of the worst economic years in history. Their store movie rentals are hanging in there better than I would have guessed with Internet streaming entering the mainstream.

2)      Aggressive cash conservation strategies in 2009. Reduced costs by 600 million in 2009, plans to reduce by another 200 million in 2010. If they keep this up maybe they can erase that 1 billion debt payment.

3)      Closed 885 underperforming stores out of 7,405

4)      Selling/licensing  international markets to redeploy capital but retain brand and move to a digital strategy internationally.

5)      They hired turnaround specialist Jeffrey Stegenga from Alvarez & Marsal in July to specifically help them avoid bankruptcy.  

6)      Blockbuster is valued at only 26 million! This is pocket change. Netflix is valued at 6 billion.

7)      Game rental subscriptions in store and soon to be in kiosks. Redbox and Netflix currently don’t rent games.

8)      Blockbuster gets the hits 30 days before Netflix and Redbox.

9)      The only brick & mortar store left standing. Hollywood video is gone.

10)      Blu-ray is more successful than I would have guessed. People care about HD TV. This is a huge advantage over what happened to the music industry with SACD and the death of the physical album.

11)   10,000 rental kiosks by end 2010. Currently only 2,000 kiosks are installed.

12)   Blockbuster On demand for 30 different Samsung products, Motorola app to watch movies on HTC HD2, Droid X, PC streaming.

13)   DVDXpress founder, kiosk pioneer and renegade Greg Meyer’s joined the board.

14)   Movie rental market forecast to grow in 2010

15)   Hollywood video founder owns 17 million shares of Blockbuster. 373 shareholders own almost 20% of Blockbuster. The average Blockbuster exec holds between 2-5% of the company. These are passionate people who will do everything they can to prevent losing hundreds of thousands of dollars.

Before reloading at 12 cents, BLOKA is a 60% loss for us. Even with this extreme risk however, I’m still beating the market by almost double. The latest numbers can be found here.

Thanks,

Monty

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This red head bombshell is 19 and hitting the clubs 7 nights a week.

Ms. Netflix,  her stamina is unbeatable.  After missing a 40% move on January 28^th by 2 days, I have been waiting 5 months for a decent pull back to start my position. Maybe the flash crash on May 6^th, 2010, the biggest Dow one-day drop in history? No, NFLX only dropped 2%!  How about the worst May since 1940 in the market? Netflix GAINED 12%. Amazing! It looks like she’s stepping off the dance floor for a quick breather, and I’m starting my position @ $115.75, after a 6% pullback. At a current P/E of 50, a F P/E of 30, this is one expensive stock. However, with a growth rate of 30%, that gives it a PEG of 1.7.  If it’s below 2, it’s growing fast enough to justify the high multiple. Only a 2 star CAPS rating, but I think they’re wrong.

This stock is ignoring the market because things have never been better for Netflix. 3 million iPads were sold in 80 days, and Netflix is the #1 app for the iPad. Wii (50 million users) support just started. PS3s (25 million users) and Xboxes (30 million users) are just starting to use Netflix.   Netflix is spending to increase their on-demand library, preparing for the future. With “only” 14 million subscribers, there is a massive amount of growth potential. If Netflix’s subscribers were to quadruple, that would still be only half of the gamers out there.   NFLX is currently valued close to Blockbuster’s 2002 prime, with a market cap of 5.6 billion. This concerns me, but with no retail space, and a rock solid income stream subscription model, I can see Netflix easily hitting 10 billion within the next 5 years. 

Hopefully this stock will cut in half within the next year, so I can buy more.  But, I learned my lesson after missing a 120% move while waiting for a hangover that never came.  It’s Friday night and I’m buying the next round of shots!

Monty

P.S. I also doubled-down on our JPM position @ $38.54 and I posted our entire portfolio here:

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Ever hear Warren Buffet’s advice “Rule #1, never lose money. Rule #2, never lose money. ” ? That “advice” annoys me because not only is it obvious it isn’t helpful and is snarky. I prefer “I would rather fall through the basement than the roof.” Basically, to focus on the downside, the upside takes care of itself.  The stock market isn’t rational so buy when prices are so low the downside is minimal. You won’t even break your legs if you fall through the basement.

A 12% (23 billion) drop is a MAJOR over reaction IMO to BP’s oil rig accident. Another example of front page news making a great buying opportunity.  From what I have researched, worst case scenario the cost will be around 3 billion. BP’s insurance will cover around 1.5 billion of the cost.

FPE is 6.53. PEG is 1.6. Market cap 165 Billion. Price/Book 1.58. 4 star CAPS rating.

With the yield being at 6.39%, this is like being on the other side of an auto-loan. Even if the stock goes nowhere, it will still pay the average S&P 500 return via dividends. Add DRIP (Dividend Reinvestment Plans) to the equation to a tax free Roth IRA and this pick will DESTROY the averages.

BP has been on my radar since they bought Devon’s (DVN) international assets in early March. I need more international exposure so adding the UK to the mix is perfect. Oil and natural gas is a great lifetime investment and I’m kicking off my oil/nat gas basket with BP!

Monty

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I’m launching my stock picking dairy with this pick as it sums up my favorite investing advice, “Be Greedy When Others Are Fearful” (Warren Buffet) and my favorite Greek God, Gamblor.   Gamblor is said to be the God of speculative investing (Homer J Simpson). When panic makes the front page, that’s when I put my chips on the table. On Tuesday, the headline “Greece downgraded to junk” caught my attention and NBG, which was on my wish list, had a 15% pullback. Only 15%? As you know, Greece going bankrupt has been looming for a while now and NBG has fallen from $8 to under $3 since October 2009 (for a total 60% pullback.) Perfect! Thank you Motley Fool Global Gains for putting NBG on my radar. NBG is priced for death but long term, I think it will be just fine, mainly thanks to Turkey. Here is why I’m buying NBG:

1. Largest bank in Greece lending $68 billion to Greece customers
2. Foreign lending makes up 29% of bank loans. NBG owns Finansbank and has branches in Turkey, Bulgaria, Serbia, Romania, Albania, Cyprus, and Macedonia. Turkey makes up 43% of NBG’s earnings and has been growing 18% per year!
3.  NBG is one of the most highly capitalized banks in Europe with a strong brand name.
4. 30% of Greece’s debt is owned by the French and Germans. Greece won’t go bankrupt.  IMF director said Wednesday “We have to do this because if we don’t fix it in Greece, it may have a lot of consequences on the rest of the European Union.”
5. The details of the Greek bailout should be announced this weekend
6. Price To Book is only .62!
7. FPE of 5.23!
8. These facts were provided by Motley Fool’s Tim Hanson & Nathan Parmelee and they actually visited NBG in person. Tim and Nathan have a great head on their shoulders.

I add money every month so all my positions are bought in increments. I try to keep my cost basis to around 5% of my Portfolio. Enough to count if I’m right, not too much pain if I’m wrong.  You only need one home run to kill the market so I take a lot of swings.  I have a huge tolerance for risk, and a 30 year timeline. So if my investments drop 50% or more I think “Should I buy more?” This is an extremely risky investment.

Monty

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