Wednesday, April 27, 2011

Why Warren Buffett thinks GE NEEDS to buy CREE

Back in the day, when Warren Buffett was looking at buying Coke stock there was one thing...really several, that kept him from doing so. Coke was doing all sorts of things t-shirts, collectors items, nick-knacks, and on and on. But for Buffett, Coke was good at beverages and as soon as they largely abandoned all those ancillary businesses and focused on their beverage business he was in, and in big. Buffett has held Coke stock for decades now and will likely die with that holding.

GE is in a similar place right now as a company. They do all sorts of things: washer/dryers, consumer electronics, airplane engines, smart-grid electrical work, GE Capital (financial services) and on and on. They are a highly diversified industrial company. But, they used to be a light-bulb company. In fact, around the turn of the 20th Century, they were THE light bulb company. GE was lighting. Now, 100 years later, they have the opportunity to be the light bulb company again.

In 2012 incandescent filament light bulbs will disappear off the shelves thanks to a regulation that will leave compact florescent and LED bulbs as our only options. Right now Phillips and GE are the only real competitors in the top end of the LED spectrum. Sure, there are Chinese competitors that compete against GE at the low end of the bulb market...but then GE has manufacturing facilities in China. GE has made a large push into China so that they can have access to competitive sourcing of materials and wages. You know who else has manufacturing operations in China that may just benefit GE? Cree, a $4.4 Billion Dollar company that is the leader in LED technology has been expanding it's manufacturing capacity in China so that it can source from that market. We think GE might want to think seriously about buying this extremely well run company. There should actually be some unthought of synergies between the two companies from their China operations. GE can compete all along the lighting spectrum because of their economies of scale (whereas Cree by itself is focused on the high margin business at the top end of the lighting world).

GE is clearly on a mission to re-brand their image as the eco-friendly industrial. Their "ecomagination" portfolio of products and services should have big, wide-open arms for Cree's LED lighting business since LED light bulbs use about 1/10th of the energy that a traditional bulb does and about 1/3 to 1/2 of what the alternative compact florescent bulbs use. That kind of energy savings has GE's "ecomagination" all over it and would be a terrific addition to its product portfolio. Cree's light bulbs also last years longer than compact florescent bulbs, leading to less waste from light bulbs. Compact florescent bulbs contain mercury and are supposed to be disposed of properly at an approved disposal location. What percentage of compact florescent bulbs do you think are disposed of properly, maybe 15-20%? Just think of the ecological benefit of switching to LED bulbs which can last 7-10 years on a smaller bulb and from 20-30 years for the down-lights that go into the massively popular "can lighting" that is found in most homes. In fact, Cree's new LR6 down-light is being used in the kitchen of every new Habitat for Humanity Home. More important, at least for Buffett, is that this acquisition would take GE back to it's roots: the light bulb. The could once again be the leader in lighting...just like it was 100 years ago.

There are more synergies to add. GE's competitor in the LED lighting space is Phillips. Right now Phillips both competes with and buys products from Cree for use in their LED light bulbs. At a certain point Phillips may be able to go it alone. GE currently buys lighting components, LEDs, etc. from Cree for use in their bulbs. Why not compete on the same footing with Phillips and be vertically integrated (it'll once again bring economies of scale and improve margins in the lighting business). GE has a $214 Billion market cap and could easily swallow a company like Cree (currently $4.4 Billion in market cap), even at a premium as they have $117 Billion in cash ($11/share) of cash on the balance sheet and they have annual revenues of $152 Billion. Acquiring Cree might only be a bump in the road of GE's fiscal year...but with only 4-5% adoption of LED products so far of all the uses they could replace the future for this acquisition may be a bright one.

The synergies don't stop there. GE has a nice airplane business right now. How difficult would it be to add LED lights for those giant dashboards in the cockpits? Heck, think about how many lights there are on a plane period (isle lights, overhead lights, exit lights). Imagine the energy savings if all those could be replaced with long life LEDs...see where this is going?

While it may be a stretch to say that Warren Buffett thinks GE needs to buy CREE...GE might feel that way itself when it thinks about the real opportunity. Just think, Cree isn't exactly a slouch itself. The company has $1 Billion in cash (about $9.87/share) and no debt on it's balance sheet and the company earns nearly $1 Billion in annual revenues. They are already in key markets in China, have intellectual property leadership, and an industry best in class product. Best of all, the acquisition would provide tremendous synergies to GE and fit right into their "ecomagination" portfolio which they tout daily via thier commercials on television. They could even use the Cree "Lighting the LED Revolution" from Cree's Social Media Campaign on Facebook.

We think the deal makes a ton of sense...and we think GE would agree (lets hope they take a look). To learn more about just what Cree does, visit our article on at:

Tuesday, March 15, 2011

Get out of the Game

The stock market price action (that's what you see when you watch the chart of the market tick by tick) reminds me of something I said to a Seminary class years ago. I'm LDS and our youth show up each school day before school (about 6:20am) and we talk with them and teach them about the "Four Standard Works". For us, that includes the Old Testament (Hebrew Bible), New Testament, Book of Mormon, & the Doctrine and Covenants (including the Presidents of the Church).

Waking up this early (many youth are up at 5-5:30am to be at Seminary on time) is a lot to ask any teenager. Waking up early to talk about religion may even make this feat of strength even more powerful. One morning I got all fired up and told them that if they didn't believe this stuff then they are wasting their time being at Seminary. Seriously, other teenagers get an hour or more of sleep EVERY DAY. None of them would even dare wake up at the crack of dawn to go talk about their religion for 45 minutes before high school. They sure as heck wouldn't give up sex, drugs, and rock 'n' roll (OK, so we don't tell our youth to give up rock and roll...but I'm on a roll here)!

The bottom line, if you don't believe in the Church/Religion, then there is no reason to waste time living by it's standards and attending 8 hours of Church every week (3 hours on Sunday, then 5 days a week for 45 minutes in Seminary, and 1.5 hours one night a week to hang out and do something fun). To get the most out of being a member of a actually have to believe what they teach you there about how the world works.

So why all this talk about Church/Religion on a financial blog? This morning, millions of people hit the sell button this morning and I have to believe that many of those people all of a sudden "didn't believe" that they made the right choice when they bought their stock. Don't get me wrong, we sold some things we were up in this morning and exercised puts we were long (we owned the puts to protect big profits we had). But we'll be here all day. We'll be here tomorrow, and we'll be trading for clients for many years to come. Why should we play this game that so many think is rigged? We own stocks/options, we trade, because we believe it's the right thing to do.

When life gets hard, when you don't want to get out of's what you believe that will get you out of bed in the morning. It's true for the stock market and it's sure as heck was true for those kids. You must stick by your guns (when you are right). If you're wrong on a stock...then by all means, sell the dang thing. We've been trying to get investors to sell stock and raise cash for weeks and weeks now. If you did, then you can stay in the dang game right now. But if you were fully invested, all in, with no cash and no hedges...then you probably think about getting out of the game every day. You probably get sick to your stomach when you see price action like we've seen over the last 10 trading days or so.

You know what, maybe you should get out of the game. If you're "all in" with no cash, you don't know what you own (or even worse why you own what you own). If you have no cash right now and you're getting your head lopped off with no end in sight. If you just wont listen to Jim Cramer and do one hour of homework per week per position that you own...then you really should consider getting someone else to be your advisor and getting out of the game.

Stocks can be rewarding, especially when you buy on days like today (usually selling on days like today end up being the wrong move more often than it is the right move). Having conviction (on more than just your religious beliefs) often means that you're willing to stick around to earn the "easy money". That seems strange huh. The "easy money" is the money that's made when the stock gets to its lowest levels. The lowest levels on most stocks happen when the markets look their worst.

What are we doing today? Well, we are rolling positions down and out that we are simply running out of time on. With March options expiration on Friday and trading at $124 and change...we can no longer wait on the 130/125 put spreads that we're short. We are rolling those down and out to April 120/115 short put spreads (and increasing the size to stay profitable).

We rolled some of the Freeport McMoRan short 50/45 put spreads we're short out to April (keeping the size and strike's the same). But, since the LOD (lows of the day) the stock has traded back above $50 so we'll hold tight on the rest of the FCX spreads we're short. We'll keep holding onto NFLX, FFIV, and FIRE spreads that we're short. In case you missed yesterday's L@tM, we're waiting until Wednesday to see where markets are before we make final decisions on those names.

We also added to Qualcomm (QCOM) January 2012 strike calls and Potash (POT) January 2012 50 strike calls. Both of these names got hit with the overall market on the open. But, since the gap down, POT is up $2/share and QCOM is up about the same $2. We want to emphasize that having cash ready on the open is when we got the best prices. The same was true for our VIX call spreads that we had on as hedges. We sold our VIX May 17/21 call spreads for $2.75 and let you know real time on Twitter when we did it. We continue to maintain our S&P500 (SPX) 1300/1275 long put spreads in case we see further decline. This $25 spread (which is nearly completely in the money) wasn't selling for anywhere near the $25 it should have been worth on the open (thanks to time value and volatility) so we will hold on until we get prices we want or it gets closer to May and it looks like we need to take action (if the markets rise dramatically).

The stock market isn't an easy place to make money. Your conviction will be tested frequently if you're around long enough. Despite the risks of loss, the opportunities to profit can be regularly found...if you're looking for them and you're ready for them. If you have done your homework, then you need to believe yourself when you see a price that you've been looking for. Don't bail on a stock you believe you're right in just because of temporary market fluctuations...believe in your homework when you do it well.

And those kids that I issued the challenge to stop coming to Church if they didn't believe it...not a single one of them took me up on it. When it comes to my stock market challenge to get out...maybe you shouldn't either.

Monday, January 31, 2011

What I learned from my Son told me to sell Intel (INTC)

Like many parents, I woke up extremely early the day after Thanksgiving to go shopping for deals for my kids. I heard Toys R Us was just nuts (thankfully I didn't go there). I had my sights set larger...a laptop. I figured that Best Buy was going to give me my "best buy"...and that was true...only the people at Best Buy had been there from the night before (who sleeps out in the cold on Thanksgiving night to save a hundred bucks?). I wasn't about to wait in line only to find out that they ran out of laptops before I got to the door.

So, I headed over to HHGregg, a little known competitor that I figured would have some similar deals. I had no trouble getting into the top 50 in line and the store would be open in an hour (unlike Best Buy which wouldn't open for more than 2 hours). I didn't even know what they had at the store...I was just hoping.

When I finally got a circular, I saw that the "deal" at HHGregg was a netbook...not a notebook for $199. Why not I thought? My son is small, maybe he'd like having a computer that was "his size" so I decided not to "waste" my lack of sleep and get the netbook computer and an internet connected Blu Ray player from LG.

I was excited to give my 5 year old his first computer. He uses my wife's all the time and she was anxious to get hers back so that she could do what she needed to during the day instead of waiting until he was asleep. Finally Christmas came and we gave him the netbook. He was very excited to have his own computer...until he used it.

Most websites that are visited by little people offer free games via the cloud on websites like,, This means that parents don't have to buy games (that they'll inevitably get bored with and never play again). It dramatically lowers the cost of giving a computer to a child (since the only cost is the machine they'll use as the internet connection is being paid for by the adults). Well, websites are not built for netbooks. Often the content on the screen simply can't be seen on that little tiny 10" screen. The "web" can't see how big your screen is. Next, this particular machine thought it would be cute to make the up/down keys toggle between page up & up. the middle of a game, pressing page up on a web-based game results in moving the whole screen up & you dieing. I don't know what other people use their netbooks for...but they are terrible. I would have thought these little computers could have been designed by use by smaller people (children).

Even with an adult using the computer, who may not be prone to playing games on the cloud, 10" screen is just too small. Heck, a notebook computer with a 15" monitor is small...but one can work with it. A 10" screen is 50% smaller than that! If you were doing text only on social websites (and maybe news), without any video...maybe...maybe. But tablets offer that and much more with a device that is frankly more powerful (especially if we're talking the iPad). I just couldn't see continuing to own this poorly designed device. I took it back (along with the Blu Ray player, that I found at Walmart* for about $30 less).

When I got back home, I sold all our Intel stock with it. Intel made an early bet on the adoption of the netbook and many of the devices contained the Atom chip. It has big time market-share in the netbook space. Everyone asked the question about cannibalization of netbooks by tablets when Apple released the iPad (again it was first to define a category). Intel largely ignored the question and said they believed the two could exist together.

I'm here to tell you that they are wrong. I almost didn't write this article, until I saw Intel's blunder this morning regarding the Cougar Point Chipset in which they basically have to recall all the devices shipped from January 9th and stop shipping devices with the chip since the chip leads to progressively poorer performance over time. The issues surrounding the Cougar Point Chip sound a whole lot like the leads to progressively poorer performance over time.

You can buy INTC (that's Intel stock ticker symbol) if you want something that'll act better than a bond since inflation will be coming eventually. The stock pays a 3.5% dividend (better than nearly all CDs and many bonds) and they have tons of cash flow, clean balance sheet, and attractive valuation. But, ultimately, their valuation is attractive and the multiple is low because growth doesn't exist anymore. Intel made a bad bet on the rise of the netbook (a device I think will go the way of the HDDVD that lost to the Blu Ray format). With netbooks only $140 or so less than a notebook...most will do what I do and spring for the full size computer and save themselves the headache of the terrible design of the netbook.

If people want a smaller device, they'll buy a tablet pc (probably from Apple). Instead of betting on the future of looks like Intel should have just called up Apple and asked them if they could make them a chip for whatever device they saw in the future. Instead, Intel tried to get "out front" (netbooks beat tablets to market) and ended up getting whooped by players like NVDA, CRUS, ARMH, and others who made the chips that went into Apple's now industry leading, netbook crushing, iPad. So sell your Intel and just go buy Apple. There are still plenty of haters to convert that will have to buy Apple & take it higher. Besides, Apple only has something like 14% of the personal computer market and probably less of the smartphone market with superior products. Who cares what chips they use inside...Apple is the real investment.

Intel may finally get its act together and go higher…who knows, anything is possible. But there is an opportunity cost to owning Intel…you might not be able to own Apple at the same time. For me, that opportunity cost it too high. I’d rather own no Intel and whatever size position of Apple that is appropriate for your portfolio (not more than 10% of the total holdings). My son is now much happier with his new notebook computer and I'm much happier with our bigger Apple position in the portfolio (we bought more on the big dip on the Jobs news).

Tuesday, January 11, 2011

Why James Altucher is Totally Wrong on This One

James Altucher posted a link to his blog today on Twitter. So, like I usually do, I followed the link and read the contents of the post. I am actually a big fan of James. Ever since I saw him on "China Watch", which was a little video segment on where James would talk about small-cap China stocks for a minute or so. After a while, I didn't see him on so I went searching for everything James had ever written and bought a book or two of his.

Anyway, I was reading through the 10 things James learned from Jim Cramer and I was in vehement agreement until I got to #9 and I have to tell you that I completely disagree with what he said. In parenthesis, as if to sneak it by the reader, he throws out the thought that " "my last book, out in December 2008, was a total flop" to which I have to say "HOG WASH", because that is most certainly untrue.

Let me tell you another story to make my point clear. I pick up the forever portfolio because I think I like Jim Cramer, this guy James Altucher works at, might as well read everything I can to give me an edge. I look up the last book from Altucher and it's "The Forever Portfolio". I read the book, cover to cover, and in it he revealed that he eats out daily and carries a pad with him. On the pad, he keeps a list of great ideas that pop into his head so that he can keep track of them. Then, he finds the right people to put these ideas into practice. James is a man that has started & failed or started and sold many businesses. He has a disease, called entrepreneurship that...if we had an epidemic in our country, could probably cure the recession in one full swoop.

Back to the story. I get this bright idea that I have to somehow become James Altucher's next big idea. That seems logical, right? My friend invites me to the World Money Show and I check out the list of attendees and low and behold, James Altucher is on the list of speakers. Now all I have to do is figure out where he's going to eat breakfast that morning, ask him about the note pad, and somehow fate will take over and my dreams for Magnum Opus Financial will all come true.

Well, I didn't see James at breakfast the morning he was speaking. BUT, I did go to his presentation and I decided to stick around after and ask him if we could have an interview with him for a new series we're launching. At the time, "we" meant me and Rachel (my wife) and this new series didn't even have a name (or a guest beyond James if he even said yes). James graciously agreed to do the interview on his latest book, "The Forever Portfolio" and I went about my day.

That night, it was raining outside so I decided to have dinner at the hotel and when they sat me down, they put me right next to James Altucher. He remembered me from earlier and we struck up a conversation. After an hour of so a good conversation we bid each other farewell and James kept his word, becoming the first ever guest of America's Favorite Trader. The topic of the show, his book ("The Forever Portfolio") of course.

We went on to book Jared Levy, Patty Edwards, Brian Kelly, Anthony Scaramucci, Guy Adami, Steve Grasso, and Jon Najarian. From our one interview came an interview series with exclusive content available only from us. The iTunes episodes of the podcast received thousands of downloads and we are getting ready to launch Season Two this year with even more shows than last year.

It doesn't stop there. Chapter 21 in the book, "Internet Forever; or, Five Mistakes I Made as a VC" helped guide Rachel and I through the process of founding Magnum Opus Financial in March of 2009, becoming a Registered Investment Advisory, striking a deal with tradeMONSTER so that we could trade capital for our clients on their newly created institutional platform (that can now be used to bring other firms on board). Episode 5 of AFT was done from Anthony Scaramucci's office in Downtown Manhattan. I have shook hands with 5 of our 8 guests and been to conferences in Orlando, Chicago, New York, and Los Angeles. We have an invitation to the prestigious S.A.L.T. Conference that Skybridge Capital puts on annually.

We have a daily show on YouTube, a Facebook Page, close to 1,600 Twitter Followers, a Blog and on and on and on. Why recount the successes of Magnum Opus Financial since 2009? The company took off last year and it all started with our very first guest on Inside the Mind of America's Favorite Traders, James Altucher. Where did I get the idea for the show? After I read about the days when James produced a show for HBO I got the bright idea that we could create a show for CNBC. The goal was to make the show so popular that someone offered us money to do it for their network. Without the book, which James apparently considers a total flop...none of this would have ensued and we'd still be wondering how we would make our tiny little company a household name.

So James, my friend, I'm afraid I'm going to have to politely disagree with you about the "failure" of "The Forever Portfolio" and it's impact on the world. They say it's not what you accumulate while you're here that you'll be judged by, but what people say about you when you're gone. Well, I am who I am and Magnum Opus Financial is what it is thanks, in large part, to the many great things I read from that book and I want to say thank you. See, James is a guy that has made himself and others a lot of money in stocks and is getting sick of writing about them. Since starting his blog, "The Altucher Confidential", he's written mostly about life lessons that he hopes to share with the world. His advice has been a rare window into the life of someone on Wall Street who has made, lost, & then made back millions. And, while his financial accomplishments are to be commended. What I think he probably sees as some of the greatest things he's ever done are found in the life of his kids, whom he writes about periodically.

The last book, and so much of his other writing are so terrific, that I hope we can have James Altucher back on the show this year to talk about his new book that should be due out in February. In fact, it just so happens that the World Money Show in Orlando, FL is coming up again; and James Altucher will once again be speaking. Unlike last time, where fate bailed me out on my shot in the dark...this time I have an appointment. I'll be having dinner with James in Orlando and I think this time, I may just be the one to bring the notepad so that I can write down all the great ideas that come out of this year's dinner conversation.

Bottom line, the last book, "The Forever Portfolio" wasn't a set my life on a course that humbles me to this day. Who knows what I'll get out of the next one...who knows what anyone will get out of it. But, people often say that if you touch just one, then it was all worth it. Well James, I may be the only one for the last book (but I doubt it) and I'm willing to bet the next book will change someone's life as well. Thanks to you for writing about so much more than stocks, more than money, more than finance. Thanks for stopping to share a few things about life with us because THAT (life) is the real commodity and so many of us are short it right now in pursuit of something else with a $ sign stuck before it. What we should all do is short all the time we waste and get long those things we can never get back in life once our time is gone like time with our kids and other loved ones, time spent with a good book, and a good conversation with a friend. Who knows if I made a dime trading anything off what was in "The Forever Portfolio". What I do know is that I'm a lot further along the road to success than I was when I started, and that book was one of the things I read on the way. I'm looking forward to dinner next month. I'll see you in Orlando my friend.

Monday, November 15, 2010

They Just Don't Get the Fed

No one gets the Fed. Everyone is confused. Everyone is upset. And NO ONE gets it.

Not too long ago the Federal Reserve, which is NOT the government by the way, announced that they are embarking on a cruise, the QE2. Ok, ok, it's not really a cruise line, it's an abbreviation for Quantitative Easing, Round 2. It means that the Federal Reserve, a private corporation, is going to buy US Treasuries...and we at MOFinancial say THANK THE HEAVENS.

Lets give you a little background on the situation. For more, you can check out our older post entitled "Bail on your Bonds". Inflation is coming...seriously, it's coming. Look at food and energy prices and you'll see that inflation is upon us. You know what loves inflation? Stocks. Do you know what hates inflation? Bonds.

It's a simple: When interest rates go up (they're at zero now...sooooo, you tell me a situation in which the next rate hike isn't up), then bond prices go down. Bonds always trade with market interest rates (outside of the inefficiencies that exist in the markets temporarily). When a bond doesn't have a market interest rate, the price will decline until it reaches a market interest rate. So, as the Feds eventually raise rates to head inflation off at the gap...bonds are going to get WHACKED!

Now, here is the genius of the Fed. What's the one way NOT to lose money on bonds? That's right, hold them until maturity. Given the average age of a bond buyer (somewhere in the 50s or 60s) because of the asset class being viewed as "safe" and "conservative" , it is unlikely that these investors will even LIVE to maturity...let alone hold the asset until maturity (if they're holding 30 year bonds). When they pass away, the funds will be liquidated by eager beneficiaries who will realize what should be massive losses at that point thanks to a higher federal funds rate & inflation (which will destroy the principle value of those bonds).

Another problem? Do you really think investors will hold treasuries of the 10 & 30 year variety when they start going down as rates go up? Heck no! No bond fund manager is going to stand around and watch their fund price get hit week after week...they'll lose their jobs. Thanks to an inflow of $16 Billion Dollars last year, those guys have a lot of firepower these days to do massive damage by hitting the sell button. It'll be like yelling fire in a crowded movie theatre & watching everyone hit the door at the same time. When individual investors see what the institutional seller is doing to the price...they'll jump in and hit the panic button along with them.

What is the solution? Just take a quick look at QE2. Ben has $600 Billion in firepower to go out and buy treasuries that are floating around out there. That is enough to buy up every penny of the $16 Billion that flowed into the individual investor held Mutual Funds last year PLUS some. This gives individual investors a "buyer of last resort" to offload their treasury holdings so that they can swap into smarter investments like clean corporate debt, high yield bond ETFs, Emerging Market Sovereign Debt, REITs, and high yielding equities. All of which are better choices right now than the long end of the treasury curve...heck, better than the short end because of low yields. Because the Federal Reserve is an institution and not an individual, they can afford to hold the bonds to maturity without giving a darn about the principle since they'll collect that bond interest the entire time & will be made whole at maturity. Heck, they may even take the interest & go buy some real assets like corporate debt (which would be a terrific idea when bonds get hit as they raise the fed funds rate).

So to all you holders of Treasuries out there...individuals, PIMCO, China, everyone...go sell your US Government to the Fed because Ben is buying. You can thank him later for saving your rear end, and your retirement savings. We'll probably get some inflation out of all this...which means Ben will make your 401(k), IRA, and even your house go up in value...not a bad days work for a guy who no one but Jim Cramer seems to understand. We're with you Jim, Ben may just be the man of the Century after being Time's Man of the Year. So to Ben & the Fed leaving on the QE2...BON VOYAGE from Magnum Opus Financial!

Tuesday, October 26, 2010

Timeframe is Everything

It was 11:31 on October 20th and I was blown away. Yesterday we were down over 200 points in the DOW and the Bears jump out of every corner they've been hiding in and tell us that the world is going to burn to the ground.

The same news stories get trotted out over & over in an attempt to level the banks to the ground. TV analysts, uninformed news casters, and nay-sayers blast negative press via every avenue they can think of to get the market to fall off a cliff.

At the end of Oct. 19th, the DOW finished down 166 or so. The day looked rough, but the market closed up 60 points above its lows with earnings from the likes of Wells Fargo, Westerm Digital, CREE, and others due out after the bell or the next morning.

All that really matters in the price of a stock (eventually) is the earnings. It's a simple math problem. Figure out what the "market" will pay for a particular stock, multiply by the full year EPS and anyone with a calculator can figure out a price target for a stock.

While there are an endless number of macro news stories, rumors, economic readings that can and will move a stock...they are ultimately irrelevant. In fact, almost (and I stress almost as the financial sector, especially the banks, have been obliterated thanks to endless negative press) everything BUT earnings is irrelevant. As a trader, or rather, a value investor who is willing to participate in the markets intraday and refuses to accept a terrible price for what I want to own; the wild swings (especially at the open) give me a chance to buy good merchandise (stocks & options) at great prices...if you're watching.

So, while I think that the wild oscillations of the market are quite overblown over the short term...I would never wish them away for anything.

Take NetFlix for instance. The stock ran up to $127, only to pull back to $98 because earnings were "bad". Well, I was on that conference call when they reported in July and we doubled down on our short put spread trade...should have added calls to it, and the stock rallied from $98 to the current level of $171. The endless negative stories on the stock were vastly overblown & the stock is up near 100% from that recent low. If you didn't do your homework on the stock, you probably were one of the sellers when the stock broke $100 to the downside & you are still kicking yourself.

How about The company reported and the stock went from $123.77 to $97.92. Again, the cloud had burst, all these stocks were going to zero, and you were supposed to hit the sell button (according to the "talking heads"). The stock is now back up above $110 and you could be up over 10% from those recent lows...or at least sold 85/75 put spreads when the stock broke $100 to take advantage of the elevated volatility in the stock.

I can go on. The Wells Fargo Conference Call was terrific because it told us that the formula is really 8 to 1; meaning that for every $8 Billion in mortgages someone tries to make a bank take back, only $1 Billion in actual real losses results. This told you that Bank of America, Citigroup, and all sorts of other banks had a MUCH lower liability than the news media has stated.

Bottom line, there is no substitute for doing the homework. Knowing your stocks, listening to the conference calls, and watching the markets often means that you are much less likely to fall prey to the endless negative news that executive producers believes is why people tune in to watch one trainwreck after another.

If you want to watch endless trainwrecks, watch the first few weeks of American Idol or go pick up an issue of US Weekly. There should be plenty of "news" that no one needs to know that "everyone" will be talking about the next day at work. But as for stocks, ultimately, the only thing that matters is what they earn & what multiple the market will let them trade with.

Anyone remember Goldman Sachs at $133 when the Government was going to erase them? Probably not because you never went long down there and missed it. Well, consider Bank of America your 2nd shot at glory...but keep in mind, time-frame is everything ('cause this story wont turn around overnight). The book value of the stock is closer to $13 and they have about $70/share of cash on hand and do business with about 50% of America's Households. I'm not saying that I'll be right tomorrow, or next week. But eventually, earnings are all that matter and BAC will have them.

Wednesday, October 6, 2010

How the Apple iPhone brought Verizon & AT&T to their knees

Who is happy about Verizon FINALLY getting an iPhone? The answer may just surprise you...

Years ago, Apple approached Verizon about this crazy idea that they use the success of the iPod to launch their own phone. Apple wanted Verizon to carry it exclusively on their network and they said: "Sounds lets see it, first." Apple told Verizon that unless they had an exclusive deal with a carrier...they weren't going to make the phone in the first no upfront view of the phone...just had to trust that it would be appleriffic.

Verizon said no, they moved on to AT&T...and clearly the answer was a yes. Here we are, 4 generations into the iPhone and it has been RUMORED that Verizon would get an iPhone for YEARS now. In fact, ever since the iPhone came to AT&T it has been rumored that Verizon would get one. Today, we finally found out that Verizon is finally getting their own iPhone.

So, who is excited about this new release? It's not Verizon, it's not AT&T, and it's sure as heck not Research in Motion (the maker of the Blackberry). It's Apple. They really don't care who carries the that it's the most amazing phone in the universe. I don't think they will ever give back their choke hold on the mobile phone industry. I wouldn't be surprised if they made an iPhone nano to compete in the dumb phone market...just to steal the lunch money of the "other guys".

Ever since Apple has came into it's own in 2001 when it destroyed the diskman (remember those from Sony...wait...if you're under 20 years old you've never heard of Sony)...Apple has been destroying the market cap of companies the world over with new product introductions. You don't believe me? The market cap of Microsoft (MSFT) in June of 2001 was $392 it's $213 Billion (down 45% since the iPod release). Let look at Dell. It was $70 Billion in 2001...enter the new iMAC...and now it's worth $25.9 Billion (down 63% from 2001).

Research in Motion, the maker of the Blackberry was at $26 Billion in market cap when the iPhone came out in January of 2007. It grew to $78 Billion in May 2008 only to see Apple release the iPhone 3G, 3GS, and iPhone 4. Their market share is now back down to $26 Million and slipping (a loss of 67%). Finally, Sony...remember, the maker of the diskman and the walkman that we all used before the iPod. They were $68 Million in market down to $31.65 million (a decline of 53%).

Apple destroys market cap wherever it goes. You cannot compete. Their products are better, faster, crash less, are cooler...and are flat out easier to use thanks to the MAC OS.

So, what happens to Verizon when they get the iPhone...Millions of people will dump their "I need a college degree Blackberry to use 25% of what this phone can do" Blackberry Storm, Torch, or whatever the heck they have and get an iPhone. People who left VZ to begin with so they could have an iPhone will flood back. In about 6 months the Verizon network will be as bogged down as AT&T. But I thought Verizon's network was the best? You put that many data hogs on the same're going to weigh down the network. iPhone users are going to find out that it doesn't matter who's network you're on. Millions of people all streaming data to their iPhones constantly will drag any network down.

When Verizon can't draw new iPhone users to their "network"...guess what's the only tool left for Verizon and AT&T to fight each other with? You guessed it...price. I don't want to be around when they start a price war...well...not as a shareholder that is. It will be a race to the bottom like you have never seen before and shareholders of both companies will be in the crossfire. As Jim Cramer always says: "Competition is the enemy of profits".

But, really...all of this is old news if you saw our Lunch @ the Market from 09/02/2010. AT&T sold off on the news today 2.5%...can't say it'll end there so be careful. In case you missed Lunch @ the Market (L@tM) from September, here you go:

So, today Apple, the toast is to you! Good luck to Verizon and AT&T in their upcoming price war...may the lowest price...I mean :-)