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PROJECTMAYHEM

After calculating last year’s investing returns, including re-invested dividends, I am into year five of an average annual return of 17.7% (Here are my active investments and my total moves). Destroying what that money would have done if invested in an index fund by a whopping 4.4% per year. If I can keep up this performance, our total assets will double every five and a half years. Out of my 52 holdings, almost 90% of them are in positive territory.  Peter Lynch says all you need is 60% make money. In 2012 I had:

Two triple baggers: Netflix (NFLX) (as I write this, it’s now almost a quadruple from when I doubled down), First Solar (FSLR, doubled down here too)

Four double baggers: eBay (EBAY), Euro-trash Lloyd’s Group (LYG), Cedar Fair (FUN),   Bank Of America (BAC)

I haven’t invested this well since 1999 where I sold a tech-heavy portfolio in February of 2000 to raise capital to become self-employed. The following dot bomb would have erased my portfolio if it wasn’t for dumb luck. Since the best investors in the world only hit in the low twenties annually, I have been awoken in a cold sweat at midnight with thoughts of:

I am Jack’s investing genius.

I am Jack’s complete lack of fear, with no worries in the world.

Tyler Durden is starting to take over with his over-confidence and this scares me. Everyone looks like a genius when stocks only go up. Individuals are coming back to the market, which means everybody is talking about Fight Club now. The amount of gains don’t worry me, it’s the speed of the gains. Tyler says “The market has been flat for a decade and not to worry, we are just making up for lost time. There’s always a bull market somewhere.” The narrator says “We have a recession every five years on average and I have just had an incredible five years. We are at all-time highs.”  What to do? I’m going to kill Tyler Durden and trim my portfolio by half. I’m going to be almost 100% playing with the houses money which means I can’t lose (Thanks Jim Cramer!).  If I was anyone else, I wouldn’t be so aggressive, and make sure I had 30% in cash to prepare for the next crash. Maybe its next month, maybe it’s in 2017? It’s impossible to know but disaster is always just around the corner.  Now that the low-hanging stock fruit has been picked my focus this year is to become 100% debt free so we can buy a house in 2015. I think I can get larger returns by reducing my monthly expenses. This is also the first time I have trimmed everything, and the reason I’m doing this is because I like the size of my allocations and I like all of my 52 investments. I want the same portfolio, it’s just going to be half the size.

I’ve been trying to find something to worry about for weeks that’s going send the market lower, and I can’t think of anything. !!! That terrifies me. I told myself in 2009 that if we get back to the 2007 highs, I wouldn’t get greedy. So, as Warren Buffett says, ”Get fearful” and kill Tyler Durden before he blows up our portfolio with Project Mayhem.

Monty

P.S. Scroll down below to see what I’ve been up to since my last article (My Facebook updates)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2/15/2013

After verifying a report I heard that said one thousand invested in tobacco maker Phillip Morris would turn into 3.5 million dollars over 40 years (primarily due to massive reinvested dividends of a hated stock) I wanted to find a similar investment that doesn’t prey on children and poor people. I turn to alcohol for a simple, high margin business model that’s consumed daily worldwide that I’m a big fan of.  About a year ago BEAM was spun off from Fortune Brands to be a pure-play spirits company. That means I get focus, strong brands (Jim Beam, Skinny Girl, Courvoisier, Pucker, Maker’s Mark, Pinnacle, etc.) a small market cap (9.8 billion), with a 1.46% dividend that I believe will be constantly raised throughout the decades as the company grows and compounds. PEG 2. Starting with 1.3% of portfolio.

http://www.beamglobal.com/brands/view-all-brands

2/8/2013

Everywhere I go I see rave reviews of Tesla’s Model S. Normally I avoid the auto-industry as an investment because it’s cyclical, but TSLA is only a 4.5 billion company. Ford? 50 billion. Now, this is because TSLA currently bleeds money, has a huge amount of debt, and only makes one (mainstream) car. However, Elon Musk is the closest CEO I can find to a young Steve Jobs. People that invested in everything Steve Jobs eventually made money. I want to be an Elon Musk investor before he turns TSLA into a 10 billion+ company. I expect massive future temporary declines so I’m starting with a small position, 1.1% of portfolio. But, I’m tired of watching this incredible story unfold without me.

Dunkin Donuts has no public stores in California. This is incredible. It’s just starting it’s west expansion, with plans to open over 300 new stores this year. DNKN K-Kups just saw a 30% increase in sales comps. They also own Baskin Robbins which I love. Nigel Travis, the CEO since 2009, also announced a dividend increase of 27%, so it now yields 2.1%. At only 3.9 billion (Starbucks is 42 billion, which I also own), PEG 1.55, and a brand everyone knows, I’m ready to start 1.1% position. I also want to tell my son he owns shares of Baskin Robbins when we start going there, so I trimmed 20% of his NFLX position in his ESA and bought DNKN with it so he can ride that re-invested dividend for 16 years.

1/29/2013

Computer hardware (Intel, AMD, Nvidia, Seagate, WD, etc.) is being killed by virtualization, and the current titan is VMware. VMW lowered projections and announced layoffs of 900 people today. I’ve been waiting for bad news to hit this company for years, and I’m taking advantage of a 22% one day drop as this stock hits a new 52 week low and started ¼ of a position to make up 1.6% of the portfolio @ 33 billion. PEG 1.40. Hopefully this knife will continue to fall so I can buy more.

1/24/2013

Most people have a hard time of figuring out when to sell. Today is a great example of how I make my sell decisions.

A cash birth at St. Mark’s is 65% less than an insured birth. However, if we pay the entire balance within 2 days of birth they give us another 30% off. We decided this deal was too good to pass up so I trimmed 20% off of our top 12 holdings to raise cash to buy a baby. Also, I have had so many major winners recently this could be thought of as rebalancing. Though, even after trimming 20% Netflix still represents 16.9% and is my largest position and I’m not going to take the chain saw to it until the company hits above 16 billion (double from here). Here is how trimming 20% affects the weight of each of my positions. The positions are still large enough they can continue to add massive gains to the portfolio.

NFLX @ 8 billion (from 18.1% to 16.9%), DWA @ 1.5 billion (from 5.7% to 5.2%), DDD @ 3.97 billion (from 5.2% to 4.8%), ARCO @ 2.9 billion (from 3.5% to 3.1%), LULU @ 9.7 billion (from 3.3% to 2.9%), SAM @ 1.87 billion (from 3.2% to 3.1%), CHK @ 12.6 billion (from 2.9% to 2.5%), BNNY @ 625 million (from 2.6% to 2.2%), SVU @ 753 million (from 2.5% to 2.2%), UA 4.81 billion (from 2.5% to 2.2%), NOK @ 15.75 billion (from 2.2% to 1.6%), MAKO 505 million (from 2.6% to 1.9%).

I also started a position of Konami (KNM) to be 1.3% of the portfolio at 2.6 billion. Though the video game industry is in a weak phase, Konami was one of my favorite companies growing up and I’ve wanted to add it to my portfolio for a long time. Though it may not end up being a great investment, I couldn’t resist as it hit a 52 week low yesterday.

1/8/2013

MAKO hit a new 52 week low yesterday, a 10% drop from just two weeks ago, so I increased position from 1.9% of portfolio to 2.4% @ 478 million. MAKOplasty procedures are up 29% from a year ago, which is the number I’m interested in, but only hit guidance in RIO sales which is why it dropped. More info here http://www.fool.com/investing/general/2013/01/07/why-mako-surgical-shares-dipped-then-rebounded.aspx.

1/2/2013

Why is Zipcar up 50% today? Avis just bought them. Didn’t see that one coming at all! I’m selling the entire position at 490 million as I’m not interested in owning Avis and the stock is trading at the purchase price. Though this locks in a total 12% gain for me on the investment, I would have much rather preferred ZIP to stay independent and rack in multi-bagger returns over the decades. If I didn’t buy when ZIP shares were at their 52 week low I wouldn’t have a gain at all. Oh well, hard to be too upset with a huge one day pop.

12/31/2012

Following billionaire T. Boone Picken’s lead and starting 1/4th a position (1.4% of total portfolio) in gas titan DVN. Devon just hit a 52 week low @ 20.8 billion and hasn’t been this cheap since 2009 thanks to greatly increased production which lowers gas prices.  The fourth largest natural gas producer in in America, 29% of their current production is oil, 19% is NGLs, and 52% is natural gas.  I’m a 30 year long term bull on fossil fuels, and have been wanting to add DVN to my energy basket for 3 years now.  1.50% yield, PEG 4.87. High PEG because of low earnings. Decreased my position in BP @ 131 billion from 2.9% to 1.4% to raise cash for the purchase.

12/27/2012

I believe that a surgeon controlling a robot doing hip and knee replacement surgery is far superior to just a surgeon. So, I’m taking advantage of MAKO being near its 52 week low (1/4th of its 52 week high price!!) and adding another ¼ position @ 526 million. After doubling down, it now represents 2.1% of my portfolio (up from 0.8%). Turned a -34.4% loss into -16.% loss. Decreased my position in BAC @ 123 billion from 2.6% to 1.4% to raise cash for the purchase.

12/20/2012

Starting with ¼ position (1.4% of total portfolio) in Stratasys (SSYS) as I believe this is 3D Printing’s Pepsi to DDD’s Coke. 3D printing I believe is going to be the biggest game changer over the next 20 years and I want to own the top players as it’s impossible to know who the winner will be in 2022. SSYS is right at its 52 week high and it was on my watch list all the way up. No more watching. Since it’s only 1.73 billion company however the high price won’t matter in decade, it will just look like a minor blip on the chart. PEG 2.53 which is normally too high for me, but that’s why I’m only buying 1/4th.

12/17/2012

Sold my entire position in RIMM @ 7.3 billion for a 97% gain in 4 months. Ironically this beat my Apple investment  by a percentage point.  I’ll only be buying back RIMM shares if Blackberry 10 lights the world on fire but I think the Mayan calendar has a better chance.

12/10/2012

Preparing to cash in on my dead cat bounce of Blackberry maker RIMM before earnings are announced December 20th and everyone remembers how bad things are again and the stock has to claw its way back on Blackberry 10 hype in Jan.

RIMM is up 67% for me and this is a trade so I will be selling the entire position. I’m using stop loss, which I don’t use to prevent losses, but to sell a stock while squeezing out a bit more profit. It may run until earnings so if it does my order won’t trigger unless it hits $10.50 (the lowest it’s been in 3 weeks). If it doesn’t trigger, I’ll be selling with a market order on December 19th because stop losses don’t help if a stock opens down huge. I use stop losses when a stock is running as it’s already too late when a stock falls off a cliff.

12/10/2012

Adding another quarter position to Annie’s (BNNY) turning a 12% loss into a 6% loss. Annie’s is growing sales aggressively but margins are falling. The company hasn’t even been public a year, is valued at a mere 625 million, so it’s still a baby learning how to walk. I believe the organic trend will eventually become mainstream so the upside is huge here. They currently offer over 125 products in over 35,000 grocery stores. PEG 1.97, increased position from 1.4% of portfolio to 3.0%.

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How I Won 1st Place In Wall Street Survivor In 5 Easy Steps

How I Won 1st Place In Wall Street Survivor In 5 Easy Steps

On Election Day, I won 1st Place in the Beehive game of Wall Street Survivor set up by my friend and fellow stock-geek Mark Poncelet.  I virtually booked a 14.26% total portfolio gain in 3 months which ranks as one of my best runs ever. That’s almost quadruple of the S&P’s return of 3.79% from August 01 to November 6th 2012. Before I joined the game, I told Mark I would either come in first place or last place with my aggressive, turnaround heavy portfolio.  In Stockland, the seasons aren’t predictable. It’s impossible to know if the seeds you have planted will blossom or if it’s another decade of winter. That’s why I never invest money I need within 5 years, I invest for decades. Thankfully, spring surprisingly arrived early.

Here are the 5 strategies I used in WSS followed by my results and why they did/didn’t work.

1. Diversify, diversify, diversify! Think of yourself as a super-hero baseball player and the universe is the stadium. To win the game, you only need to hit one home run (1,000%+ gainer).  But, it takes 30 years for the intergalactic ball to move from home plate to outside the stadium, so you won’t know the results until you have hit all your balls and wait for them to land. How many swings would you like before you started playing? If someone told you they only wanted one or two swings wouldn’t you think they were crazy? Yet, the #1 problem in real life and in the Beehive competition was people did not diversify. People constantly circled me with gigantic gains because of going all in on one idea followed by gigantic losses. In the end, it was a losing strategy for them.  Remember, if you buy stocks you are in the business of predicting the future. Plan on being wrong frequently.

2. Valuation.

  • Expectations. Stocks move on expectations more than anything else. So, the majority of my picks were so hated that any good news would move them significantly.
  • 52 week low to 52 to week high ratio. I started with a screener to find companies I liked that were trading near their 52 week low.  Then, the further they were from their 52 week high the better.  Netflix being at $57 with a 52 week high of $265 and First Solar being at $18 with a 52 week high of $118 are perfect examples of this. Sometimes those old sellers return as buyers when they feel the water is safe again. Low prices can also attract big sharks. Carl Icahn bought 10% of Netflix and Softbank bought 70% of Sprint during the game because the blood these companies shed was in the water.
  • Market Cap.  I also picked stocks with a market cap below 10 billion. Like a baby doubling in size every year, it’s easy to go from 2 billion to 4 billion.  However, like a tiger growing to the size of a dinosaur, it’s been impossible to go from 500 billion to 1 trillion. Since the Philadelphia Stock Exchange started trading in 1790 there has never been a 1 trillion dollar company. Yet, Google and Apple were very popular picks in the game. If your mega-cap doubled in price how much would it be worth?

3. Turnaround or growth thesis?  I love dividends, but not if I was going to die in 3 months. Since that was the life of the game I only focused on two types of stocks, turnarounds or growth. How are they going to turn around? Do you see a future that nobody else sees? Turnarounds give you big gains if anything good happens to them. “What goes down must come up!” (Popeye). Growth stocks give you big gains if they continue to define a future that’s not in focus yet (“What do you mean people aren’t going to listen to music on CDs?). Figure out where the puck is going before everyone else (Thank’s Gretsky!).

4. Buy and hold. Invest in slow motion. Do not short, use stop loss, or buy on margin. My 2nd largest winner was First Solar. During the game, many ideas were borrowed since players can see other people’s trades. Players that traded First Solar missed the big gains. Netflix, Sprint, and Supervalu’s gains all came in one day. Statistically, there’s only one day a year (on average) where a stock gets the majority of its gains. Predicting the future is hard enough, pinning the exact day is impossible. This is why trading fails. I practice trimming. Buy more when your stocks hit a 52 week low and sell less when they hit a 52 week high.  I sold half of my position at Sprint after Softbank invested in Sprint and pushed it to a new 52 week high, since the game is short. Plant the seed, sit back and wait for it to grow.  Aim for 1000% gains made over decades, not 20% gains made over months.

5. Diversify not Diworsify (Thanks Lynch!).  There were 13 stocks in my Beehive portfolio, and my best 10 ideas took up about 10% each of the portfolio. Study after study has shown that if you want to beat the market, having a somewhat diversified yet concentrated portfolio is the most important. Invest the heaviest in your best ideas. Warren Buffet invested 1/3rd of his entire portfolio into American Express in 1964 when everyone was selling because of a fraud scandal. Since I don’t have Warren Buffet super-powers, the largest I’ll ever go is 1/10th. Still focused enough to add huge gains if I’m right, but won’t kill me if I’m wrong. If you are diworsified and have too many stocks, you will probably end up just mirroring the market. Ironically Peter Lynch who coined this phrase and brought in 30% annual returns owned hundreds of stocks in his portfolio. But, that’s because it’s the weight of the holding that’s important, not the number of stocks. In the game, Netflix started out as 10% of the portfolio and Knight Capital started out as 1%.

 

Monty’s Beehive WSS Portfolio   August 1st-November 6th 2012
Company Gain/Loss Why it did/didn’t work Starting Weight
Netflix (NFLX) 33% Worked.  Hated in August but then loved at Value Investing Congress 2012Netflixed   book is out in October and thinks Netflix will see Amazon like recovery.   Suddenly, Carl Icahn buys 10% of the company. 10%
First Solar (FSLR) 32% Worked. Everyone thought   solar meant Solyndra but then  First   Solar kills estimates in the 2nd quarter with a 45% earnings beat. 10%
Sprint (S) 30% Worked. Jim Cramer points   out Sprint is cheap and unloved and suddenly Softbank buys 70% of Sprint. 10%
Supervalu (SVU) 25% Worked. The nation’s 3rd   largest grocery chain hasn’t been this cheap since the 70s due to poor sales   and shrinking margins. Suddenly there’s a rumor a private party is in talks   with JP Morgan Chase for a 5 billion loan to buy the chains and the stock   pops. 10%
Electronic Arts (EA) 21% Worked. Nothing major   happened. A minor earnings beat and lowered guidance in October. This stock   was just too hated when I bought it that just OK news moved the stock up. 10%
Dreamworks (DWA) 19% Worked. Madagascar 3   grossed 734 million worldwide which lead to nice beat and raise on November 1st. 10%
Hain Celestial (HAIN) 7% Worked. Beat and raise in   August and they announced they are buying several brands from British company   Premier Foods. Did you know Hain sells over 2,000 products in Whole   Foods? 5%
JC Penny (JCP) 5% Worked, but just barely.   This stock moved as high as 30% in the game based off of free haircuts. I’m   not joking.  I thought this was stupid and   was going to ride this out before earnings but it gave up most of its gains   before the game ended (a day before earnings which were terrible).  I won’t really buy JCP until a good quarter   arrives. 10%
Yahoo (YHOO) 4% Worked. Everyone is   excited about how well the new ex-Google CEO Marissa Mayer is doing. 5%
Chesapeake Energy (CHK) -1% Didn’t work. US’s largest   Natural Gas producer had a GAAP loss of 2.1 billion on Q3 earnings but this   stock is already left for dead so it only dropped a percent. 10%
Chipotle (CMG) -7% Didn’t work. Had almost   20% revenue growth from the year prior but didn’t meet expectations.  When a growth stock doesn’t blow away   expectations, the stock price falls. 5%
Knight Capital (KCG) -17% Didn’t work. After losing   80% in one day due to a trading algorithm which lost 440 million in a half   hour I was hoping for a dead cat bounce.    Didn’t get one. But, it was only 1% of the portfolio so no big deal. I   threw a joker into the deck.

11/28/2012 update. Only a few weeks later and KCG received a buy-out offer from Getco and jumped 35% in one week. Timing is everything.

1%
Arcos Dorados (ARCO) -19% Didn’t work. The Latin   America McDonalds is doing great but suffering from a Brazilian Real currency   that’s depreciated 23% against the dollar. 4%
Total 3 Month Return (Compared   to S&P 3.79%) 14.26% 100%

You might be laughing that I’m blogging about my performance in a game.  But, I didn’t play the game like it was a game. I played it like it was real to see how my strategies would fair against competitors who were playing with fake money ($10,000). In fact, my best investments actually ended up mirroring my real-life investments. I personally own all of these stocks except Sprint, JC Penny, and Night Capital.

Monty

P.S. Scroll down if you want to see what I’ve been buying and selling since my last post.

11/14/2012

McDonalds Latin America (ARCO) hit a 52 week low yesterday so I doubled-down @ 2.3 billion and turned a -26.8% loss into a -15.3% loss. This was caused by currency problems that reduced earnings. However, same store sales were up 6.5%, organic revenue up 11.6%, and 103 new stores opened in 2012. Those are the real important numbers. Increased position from 1.7% to 3.3%.   PEG 1.34, 2.17% yield.

Decreased BP position @ 128 billion from 4.3% to 3.1% to raise cash. PEG 4.90, 5.33% yield

11/09/2012

I hate, HATE buying a stock (ZIP) after it has a one day pop of 28% but this is what I get for not sticking to my discipline and not buying more of my stocks when it showed up on the 52 week low list two days ago. I said “I’ll wait until January and add it to my fear basket.” Zipcar increased EPS 5 fold, a massive beat and raise with today’s report. Details here: http://www.fool.com/investing/general/2012/11/09/zipcar-beats-on-both-top-and-bottom-lines.aspx . Since the fundamentals have greatly improved and the stock still trades 50% below its 52 week high, is only a 484 million dollar company, I’m acting now. I believe it’s going to run since the facts have changed and the market cap is so small. Increased my position from 1.0% to 2.3% in portfolio. Here’s my original article I wrote as to why I like Zipcar and I still believe in this thesis. https://greedywhenfearful.com/2011/08/19/my-bet-america%e2%80%99s-love-affair-with-the-automobile-died-in-the-20th-century-zip/

Decreased Nucor (NUE) from 2.5 to 1.2% to raise cash for my ZIP purchase. Children have slowed down our aggressive saving (but I’m trying to change that).  I chose to lighten up on Nucor as I decided I really don’t want my dividend stocks to be cyclical, I want them to be secular. Rock solid companies that grow money every month no matter what the country is facing.

10/05/2012

Jim Cramer went over a Goldman Sachs report on 10/1/2012 that made a good case stating that Yahoo’s core business is trading for only 1/7th of its value. This is a nice margin of safety for a potential turnaround with a new CEO (Marissa Mayer of Google fame). Placing a small bet (Only 1% of portfolio) on YHOO to see if this 19 billion company can actually turn. Peg 1.33.

9/14/2012

This market is ON FIRE! It’s INCREDIBLE! DOW and S&P near all-time highs. So…getting fearful now that people are greedy with both US and Europe printing endless amounts of money.

Way too many of my positions are near their all-time highs and 52 week highs it’s making me uncomfortable. Raising cash by reducing the following positions by an average of 20% in the portfolio:

CIT, KORS, FDX, MSFT, INTC, LULU, UA, GOOG, EBAY

9/12/2012

Sold 30% of JPM shares @ 151 billion to lock in gain of 14.6% on those shares and raise cash. Reduced total position from 3.5% to 2.0%.

Used cash to buy 3D –Systems (DDD) @ 2.10 billion to buy another ¼ position as it’s decreased 10% since my original purchase. Now makes instead 3.2% of portfolio instead of 1.7%. PEG 2.53.

9/11/2012

Starting position in Kimberly-Clark (KMB) @ 32.58 billion to make up 1.5% of portfolio. My wife’s pick to ride what we believe to be the next baby boom (KMB makes Kleenex, Scott, Huggies, Pull-Ups). I like the 3.6% yield and 1.8 PEG rate.

8/28/2012

http://cubify.com/ is the future and I’m tired of watching these gains pass me by. Started position in DDD @ 2.35 billion to make up 2% of the portfolio. Reduced ATVI by 50% to raise cash, now makes up to 2.1% of portfolio. PEG 2.57.

Do tech patents actually mean something now? Does RIMM have any mobile patents worth anything?

With 1.8 billion in cash and a patent portfolio estimated at 1.8 billion that equals 3.6 billion. Current market cap: 3.8 billion. At this price I’m betting (Vegas style gambling) on a patent buy-out, so making a 1.6% position in portfolio.

8/27/2012

Sold 30% of BAC shares to lock in loss of 28% on those shares. Reduced total position from 6.3% to 4.6%. Main reason to raise cash and BAC was one of my biggest holdings. Now, I can purchase NOK to make up 1.8% of portfolio at 12 billion.  Apple winning a major patent victory against Android (Samsung is largest Android reseller) is enough catalyst for me to dip my toe into the Microsoft Windows Phone 8 world. Maybe scared vendors will start pushing Microsoft? Balance sheet is pretty ugly though and hardware tech is hard so this will be a Vegas-style trade for me.

8/8/2012

Starting position in Arcos Dorados (ARCO) to make up 2.2% of portfolio @ 3 billion. ARCO is the exclusive franchise of McDonalds in Latin America. Double the population of the US yet McDonalds only has .0003% locations per person there. McDonalds has .005% locations per person in the US. Will it be just as addicting in Latin America?

Sold 20% of FUN shares to lock in gain of 45% on those shares. Reduced total position from 4% to 3%.

Sold 20% of FDX shares to lock in gain of 25% on those shares. Reduced total position from 3.5% to 2.4%.

8/6/2012

Starting position in Hain Celestial (HAIN) to make up 2% of portfolio @ 2.50 billion to pair with Annie’s. Whole Foods Market stocks more than 2,000 products made by Hain.  Why buy the WFM middleman when you can ride the organic wave at EVERY grocery store? Hain sells wherever organic groceries are sold. PEG 2.05.

Will Netflix repeat Amazon’s history? I think it will rhyme.

Will Netflix repeat Amazon’s history? I think it will rhyme.

In July 2011, Netflix (NFLX) was valued at 16 billion, everything was perfect and people spoke about Netflix with reverence. When they say stocks are priced to perfection this is exactly what they are talking about. Then, the CEO did something stupid called Qwikster and drastically raised prices and customers left in droves. The cost of content increased and many new releases got pulled from their on-demand catalogue. Competition from Hulu and Amazon ramped up. US subscriber growth has slowed. Fast forward to yesterday and Netflix hit a new 52 week low losing 80% of its value from the top and making it worth 3 billion dollars.  Here’s 3 reasons why the market hates Netflix:

1)      Netflix isn’t profitable. Netflix is investing heavily outside the US and who knows if the concept will work in other countries?

2)      Netflix has no moat. It doesn’t matter if they were first in this business. Anybody can put up a website and provide the same product.

3)      Netflix has razor-thin margins. With competition from everywhere, it’s almost impossible to make money when the lowest cost provider wins.

Now, re-read those three reasons but replace Netflix with Amazon. That’s exactly what everyone was saying about Amazon in 2001 after the dot com bubble burst.  Amazon was a 50 billion dollar company and dropped to a 3 billion dollar company from 2000-2001. More than a 90% loss in just one year.  Fast forward to today and Amazon is worth 100 billion dollars. Anyone that dove in after the dot bomb has made 33 times their money.  Fortunes are made when the nerdy underdog gets the girl and wins the game. Not when the arrogant jock scores yet another touchdown.

Netflix will never be as diverse or as good as Amazon is. But I do think history will rhyme a bit. What goes down, must come up! As long as you don’t go bankrupt. Here’s 3 reasons why I think I can sextuple my investment in Netflix by 2016 and am doubling down today.

1)      Netflix has first-mover advantage and this is huge.  Investing heavily in international expansion while losing money in the short term is exactly what they should be doing to hit my 2016 price target.  They brought in almost a billion dollars of revenue last quarter and only 65 million of that was international.

2)      The majority of customers will stay with you if you have a great product at a great price. Netflix has been doing a great job this year keeping people hooked as the average subscriber watched 40 streaming hours of content in June. Those are record breaking numbers and people got mad at CEO Reed Hastings for bragging about his customers watching a billion hours of content.  Amazon and Hulu will be taking market share but this isn’t winner takes all. I think Netflix will be Coke, Hulu will be Pepsi, and Amazon will be Dr. Pepper. Even if I’m wrong on the order profits still ahead.

3)      Netflix brings in about $7 per user. Currently, they have no profit but just in 2010 they were making 7.5% per user.  They actually beat earnings guidance by 5 fold last quarter. They have around 36 million subscribers and only 3.73 million are international. Once their international expansion is complete, I think they will easily hit 7.5% again. If Netflix can keep its lead as the Internet takes over the world, eventually it will follow the path of every other major American brand and actually have more international subscribers than domestic. If that happens, anyone jumping on the train now will be rich.

Now, I’m not going all-in or doing anything stupid here.  When you are trying to predict the future always plan to be wrong. We own 40 stocks and even after doubling-down Netflix only makes up 10% of our holdings. We have at least 5 years for this to play out.

 

Stat

NFLX

Price (Market Cap)

3 Billion

Cash And Equivalents

508 Million

Long Term Debt

400 Million

FPE

54.16

PEG

91.15

Dividend
And Yield

N/A

Price/Cash
Flow

2.40

Price/Book

4.51

ROE

24.30

Motley Fool
Caps Rating

2 stars

Size of Position In Portfolio

Increased from 4.9% to 9.4%

 

Monty

 

 

 

P.S.:

Below are also other stocks I have purchased since the last update. My wife recently made some picks today to further diversify our holdings.

Michael Kors (KORS).

My wife’s a huge project Runway fan.  Only been public 8 months and started opening stores in 2007. 58% increase in revenue last quarter with a gross margin of 58%. Same store sales increased by 36%.   KORS opened up 71 new stores last year. Michael Kors owns 6.5% of the business. 181 North American Stores.  46 International Stores.

 

Stat

KORS

Price (Market Cap)

7.87 Billion

Cash And Equivalents

106 Million

Long Term Debt

0

FPE

29.50

PEG

1.33

Dividend
And Yield

N/A

Price/Cash
Flow

45.30

Price/Book

16.72

ROE

32.30

Motley Fool
Caps Rating

2 stars

Size of Position In Portfolio

Starting with 1.9%

 

Starbucks (SBUX).  My wife’s favorite addiction. Consumers are worried about economy and showed slower consumer traffic in June and July. 30% off all time high it hit in April. 1.58% dividend.

Stat

SBUX

Price (Market Cap)

33 Billion

Cash And Equivalents

1.1 Billion

Long Term Debt

549 Million

FPE

20.51

PEG

1.30

Dividend
And Yield

1.60%

Price/Cash
Flow

17.30

Price/Book

6.38

ROE

25.90

Motley Fool
Caps Rating

3 stars

Size of Position In Portfolio

Starting with 1.9%

 

 

Annie’s (BNNY). Only been public 5 months and riding the organic movement. Our son loves their food! Net income increased 17% with latest quarterly report. In 2011, the company generated $20 million in profits on $117.6 million in sales, up from $96 million in revenue in 2010 sales and $6 million in profits. The company offers over 125 products, which are sold at over 25,000 retail locations.  There are over 35,000 grocery stores in the United States alone. This is a positive for Annie’s because the company can grow its distribution within the U.S. by 40%.

Stat

BNNY

Price (Market Cap)

709 Million

Cash And Equivalents

560,000

Long Term Debt

12.8 Million

FPE

42.41

PEG

1.85

Dividend
And Yield

N/A

Price/Cash
Flow

-258

Price/Book

10.16

ROE

N/A

Motley Fool
Caps Rating

1 stars

Size of Position In Portfolio

Starting with 1.7%

 

Also had a lot of winners  over the past two months so followed the philosophy of “Buy More 52 week low sell less 52 week high.”

7/18/2012.

Buy more 52 week low.

Supervalu (SVU), the 3rd largest grocery chain in America is now at a 35 YEAR LOW @ 492 million. Massive debt (6.3 BILLION) and Walmart, Target, and dollar stores are eating their lunch. Can they turn it around? At least they are immune to online sales. PEG -.059. Increased position from 1.3% to 2.3%.

7/17/2012

Sell less 52 week high.

Cedar Fair (FUN) owner of Knott’s Berry Farm hit a 52 week high today @ 1.79 billion. PEG 2.24. Sold 20% of position to lock in gain of 48.2% on those shares. FUN now makes up 3.6% of portfolio instead of 4.8%. FUN is up 50% for the year and gold only up 1%. So far my call of amusement parks being a better investment than Gold is correct! https://greedywhenfearful.com/2011/12/16/3-reasons-why-amusement-parks-are-a-better-investment-than-gold-fun/

7/12/2012

Buy more 52 week low.

Supervalu (SVU) hit 52 week low today @ 575 million. OUCH, a one day drop of 50%!! PEG .35. Increased SVU position from 1% to 1.6%. In one day this turned from a massive dividend story to a turnaround play. CEO Herkert says SVU is still profitable, bankruptcy isn’t on the table. This means eventually the stock will recover and the dividend will come back. By 2017 I believe I will be happy about this investment.

7/11/2012

Buy more 52 week low.

MAKO hit 52 week low today @ 637 million. OUCH, a one day drop of 40%!! PEG -.79. Increased position from .7% to 1.2%. They sold 9 one-million dollar robots instead of the projected 11. I never expected robotic surgery to be a smooth ride so this doesn’t surprise me at all. But, a 40% sell off for missing by two and lowered guidance? Classic over reaction!

7/2/2012

Sell less 52 week high.

Boston Beer (SAM) hit 52 week high today @ 1.59 Billion. PEG 3.14. Sold 20% of position to lock in a gain of 85% on those shares. SAM now makes up 3.7% of portfolio instead of 4.6%.

6/18/2012

Buy more 52 week low sell less 52 week high.

EBAY hit 52 week high today @ 54.87 Billion. PEG 1.30. Sold 20% of position to lock in a gain of 72.7% on those shares. EBAY now makes up 2.1% of portfolio instead of 2.8%.

 

 

 

 

Imagine baskets full of cash instead of trash

The crisis in Europe seems endless. I started buying into the panic in 2010 with the National Bank Of Greece (NBG) to take advantage of a turnaround. Fast forward two years later, and my original investment is down a massive 89% and I’m still waiting. Thankfully, this kind of pain I am numb to.

During the crisis of 2009, I was at the gym thinking “This collapse is a GREAT opportunity! But, I’m not prepared for it. What’s the secret to landing massive gains during a crisis?” I think I have come up with the correct answer, and I believe it’s cash and baskets. Much like the picture above but replace debt with cash. Thankfully here I am two years later and I realize I missed the baskets part. But, I do have more cash than I did in 2009 ready to be deployed.

Some of the smartest minds I follow won’t even invest in banks as they are black boxes that could contain cash or atomic bombs and it’s almost impossible to know which one. Take the most recent story of best-of-breed CEO Jamie Dimon and his loses that could pile up to 5 billion in JP Morgan Chase (JPM). He runs the company, is one of the best in the business, and billions in loses slipped past him! What most people don’t talk about though is that banks are immune to becoming obsolete. Yes, they could go bankrupt from bad loans, but money is going to be here a hundred years from now. Everyone is a potential customer. These two reasons are why I will always be invested in the banks.

My investing thesis here is that I’m going to pick six of the cheapest banks in Europe, one for each country (though most overlap), and bet they all don’t go bankrupt. They are cheap because they are weighed down with huge amounts of debt and uncertainty. But, if I have just one or two successful turn-arounds in my euro-trash basket, I’ll make money. I can wait decades. If they all go bankrupt, it won’t hurt much either as each position only represents only 0.4% of the entire portfolio. I also prefer making my own baskets over ETFs so I have 100% control over allocation. If a bank runs 600%+, I would want to sell that position but not the position that’s down 89%. You can’t do that with an ETF.

Euro-Trash Basket

Bank Country Price Price To Book Value
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) Spain 31 Billion 0.59
The Governor and Company of The Bank of Ireland (IRE) Ireland 4.12 Billion 0.31
Lloyds Banking Group plc (LYG) UK 29.64 Billion 0.40
National Bank Of Greece SA (NBG) Greece 1.16 Billion
The Royal Bank of Scotland Group plc (RBS) Scotland 20 Billion 0.18
Banco Santander, S.A. (STD) Spain And Latin America 57.65 Billion 0.53

Who will survive?

Monty

P.S. If you haven’t been following my page on Facebook, here is what I have been up to since the last article.

6/8/2012

Buy more 52 week low, sell less 52 week high. Under Armour (UA) hit 52 week high on 6/8/2012 @ 5.39 Billion. PEG 2.07. Sold 20% of position to lock in a gain of 73.7% on those shares. UA now makes up 4.5% of portfolio instead of 5.5%.

6/6/2012

Buy more 52 week low, sell less 52 week high. Since the 52 week low list has been full of my stocks, picked up more of:

First Solar (FSLR) @ 1.10 billion. Increased from .5% to 1.0% portfolio. PEG .17

Zip Car (ZIP) @ 4.12 billion. Increased from 1.1% to 1.4% of portfolio. PEG .73

JP Morgan Chase (JPM) @ 32.77. Increased from 2.8% to 3.7% of portfolio. PEG 1. Jamie Dimon losing 5 billion? BUY!! He’ll make it back.

Groupon Falling For 4 Months After It’s IPO

Groupon Falling For 4 Months After It’s IPO

On Friday, May 18th 2012 Facebook (FB) will be making over 1,000 millionaires. Early employees, private investors, etc. have shares they bought for around $1 a share (or less). With Friday’s price probably easily hitting $41, this will be an instant 4000%+ gain. Forget Farmville, Friday will be Facebook Hot Potato.

Those insiders that are allowed to sell, will instantly sell their shares in the aftermarket to someone like me for $40. I’m going to buy a small position (about 2% of our total portfolio) to see if I can pass the hot potato to another sucker for around $60 or even higher.

Facebook reeks of Dot Com hysteria. Senior citizens, my friends, family, co-workers, everybody is talking about the Facebook IPO. Bubbles are a great way to make quick gains if you sell before the POP! This is a trade, something I rarely do. My strategy is to buy in the after-market at market open, then put in a stop loss market order right before market close price. What this means is, if Facebook opens at $40, closes at $60, I put in a stop loss at $55. If FB ever falls below $55 the eject button is automatically hit and I’ll easily have a 30% gain. Sure, this is nothing compared to the 4000% gain the insiders are getting, but, it’s still a possible 30% one day gain. Then, I’ll watch it for a year or so, wait for Facebook to come crashing back down to earth and be hated, analyze the fundamentals,  and find out if it’s an investment or not.

Now, I tried this strategy with Groupon (GRPN) and it completely failed because the stock went down after the IPO. I only lost 10% on GRPN before I hit eject so no big deal. But, Facebook is much more loved than Groupon.  Will Facebook really go DOWN after the IPO? Will I be the only person to lose money on the Facebook IPO because I was a sucker and bought in the aftermarket? All of the professionals say this is a fool’s game. But, I know I’m standing on top of a bubble, I think that makes it a Fools game.

Monty

5/21/201 ****UPDATE****

I never thought the peak of the Facebook bubble would happen before the after-market sale. I was initially excited that I was able to buy my shares at $42, thinking, it’s only 10% above the IPO price of $38. To my surprise the stock ended FLAT, at $38. It was a bad day for the whole market (S&P down almost 1%). But, the good news is, the public is smart. I was the sucker! They knew Facebook shouldn’t be worth half of Microsoft. They knew that if they were rich enough to have 100 billion to buy the company outright, it would take them one hundred years to make their money back. Right after market close a 15 billion lawsuit was announced against Facebook stating that they were tracking user’s activities even after users have logged off the site. Then, on Sunday, Jim Cramer on Meet The Press yelled that Facebook was a  “Sell! Sell! Sell!” even at the IPO price. I was hoping for an up market day which would hopefully boost Facebook but decided to be cautious and put in a $35 stop loss market order just in case it tanked. Well, today the S&P is up 1.6% and Facebook is down 11% to $34 and even further in the after-market. I lost a quick 15% but thankfully had some free referral trades to ease the pain. It’s only down from here! I wouldn’t be surprised to see Facebook at a 10 billion valuation over the next decade which would put it’s stock around $4.

Just purchased DreamWorks Animation (DWA) at 1.43 Billion, right near their all-time low. This is my wife’s pick as she loves watching their movies with our son and thought the stock looked cheap. I confirmed the valuation analysis to decide on size of position and read their latest 10-K. We decided to go with a large position, 7% of portfolio, because of how ridiculously cheap it is. Yes, never in the company’s history has the stock been so low. Trading at book value (what the company is worth if it was liquidated), these are Warren Buffet prices.  Facebook just paid 1 billion for Instagram. Dreamworks Animation is only slightly more than INSTAGRAM? YES!

DWA is just a baby and getting in at the beginning is how fortunes are made. It has only been public since Spielberg and friends spun it off in 2004. They have only released 21 films, which is amazing considering they are now on a release schedule of 5 films every two years. Racking up intellectual property with hits like Kung Fu Panda, Bee Movie, Puss In Boots, Shrek, How To Train Your Dragon and this company is just learning how to walk.

Stocks are always cheap for a reason. Physical sales of home entertainment have been declining since 2005 due to the increased popularity of streaming/renting/piracy.  3D mania has finally settled now that the industry has finally realized over-priced tickets with glasses are not the future, it was just Avatar. DWA also just paid a massive 289 million to a previous stock holder due to a one-time tax benefit change.

My biggest concern is the home entertainment decline and the future of theaters in general. When people have wall-sized screens at home and quit going to the theaters, my bet is they will have a business model figured out. With a low valuation, no debt, and 116 million in cash I think it’s a good time to bet on the future of our families and their massive amount of children.

Can you imagine a world where our children don’t watch cartoons? I can’t. Playing with toys that aren’t based on movies with brain-washing amounts of commercials and product placements (a la McDonalds)? If this isn’t the future then I’ll be a lot more concerned about being a slave for our alien overlords than losing money in an investment.

Monty

Stat

DWA

Price (Market   Cap)

1.43 Billion

Cash And Equivalents

116 Million

Long Term   Debt

0

FPE

15.74

PEG

1.76

Dividend
And Yield

N/A

Price/Cash
Flow

3.0

Price/Book

1.05

ROE

6.4

Motley Fool
Caps Rating

4 stars

Size of Position In Portfolio

7%

Every year I always have at least one investment that doubles. More often than not, this is a turnaround story.  Today’s losers might be tomorrow’s winners. Here are the three steps I use and some examples of the companies it’s worked on:

1)      Make a shopping list of your favorite companies.

2)      Spend a minute each day at market close browsing the 52 week low lists (NYSE and NASDAQ). When any of your favorite companies hits a 52 week low find out why.

3)      Is it a short term problem or a permanent problem? If it’s a permanent problem, sell. If it’s a short term problem (10 years or less), buy! Diversification is crucial here. Lots of swings will lead to a home run.

Some examples from my personal portfolio are:

Ford (F): Bought at $2.56 a share on April 2009 when Mitt Romney was saying the auto companies should go bankrupt. Everyone thought they would. Ford did not declare bankruptcy. By August 2009, Ford hit $8 a share. More than a 300% gain in four months.

Mako Surgical (MAKO): Bought at $22.43 a share on August 2011 during the American debt downgrade panic which took everything down with it.  MAKO is now trading at $42.12 a share. Almost a 100% gain in nine months.

Netflix (NFLX): Bought at $77.58 on October of 2011 during the Quickster debacle. Netflix now trades at $106. Almost  a 40% gain in six months.

Now, this system isn’t perfect by any stretch. Step 3 requires great judgment. It is what separates Warren Buffett from us mere mortals. I bought GM with Ford, and GM went bankrupt. I’ve been buying National Bank Of Greece (NBG) for 2 years waiting for it to turn around with the Euro crisis. Time is your biggest asset. This is great for keeping you engaged and excited. Also, it will just help you find a double from a potential bottom on one purchase. I bought Netflix as high as $205 a share. Picking tops and bottoms is impossible. However, by increasing the amount you invest as a stock falls you lower your cost basis as you wait for the turnaround. Like a pyramid, as you get to the bottom your purchases grow in size. Though I started out with a cost basis of $205 with Netflix, my average cost is now half that. This strategy is more of a way to use a Thor sized hammer on your favorite investments. “Thor, Might God Of Thunder! Hammer thy average price into thee ground!” (I’m really excited for The Avengers).

At market close yesterday, Electronic Arts (EA) hit the 52 week low list. This is one of my favorite companies and a major player in our video game investing basket (Currently Activision Blizzard (ATVI), Electronic Arts, Nintendo (NTDOY.PK). That covers step 1 and 2. What about 3? Well, the video game industry is in a period of decline, a period of major transformation. Facebook and  other mobile gaming from companies like Zynga and iTunes have lowered the profits and increased the competition. Can the legendary EA survive and thrive within the next decade? Or, will they fall the way of Atari, Sega, Midway, etc.? The video game industry is incredibly difficult. But, with 1.5 billion war chest of cash and 500 million in debt from buying  Zynga (ZYNGA) rival PopCap,  I think so.  They hold some incredible franchises (Madden, The Sims, Mass Effect) and are strongly moving into social network games through PopCap (Bejeweled, Plants Vs. Zombies). My old class mate Evan Bell even worked on their latest hit Star Wars: The Old Republic and invited me to be a beta tester. The game looked absolutely incredible but my slow computer couldn’t handle it.

Today EA is losing the stock market war against Zynga.  With a current valuation that’s almost half of Zynga (5 billion vs. 8 billion), I think they will be tomorrows winner.

Will EA be my 2012 double?

Stat

EA

Price (Market   Cap)

5.27 Billion

FPE

13.83

PEG

1.08

Dividend
And Yield

N/A

Price/Cash
Flow

317.20

ROE

N/A

Motley Fool
Caps Rating

3 stars

Size of Position In Portfolio

Increased from 0.3% to 2.3%.

Monty