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Protecting and preserving capital over the long term is more important than growing capital. Particularly devoted to researching cheap stocks of high quality companies, GARP stocks, Magic Formula names, and stocks trading below intrinsic value. Participate long only without hedge when overall... More
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  • Stock Disasters -- 15 Companies That Left Investors Flat Broke

    Over the past three years, the overall stock market is almost flat. Meanwhile, the  "mismanagement" and/or stupidity of the board of directors at several larger firms has led to a complete collapse of many former blue chip and small cap companies. It seems like nobody cares about the bad decisions that took place many public companies that have completely collapsed besides their impoverished shareholders. While many people like to play make believe and think the Easter Bunny is real and that Elvis is living in Hawaii, there are a few people out there like myself who understand that when you are well connected politically, the laws against fraud and white collar theft simply don't apply -- we chose the red pill over the blue pill and can understand that in the Matrix, the gatekeepers hold all the keys and gaurd all of the doors to our success.

    Once, I walked through a bad neighborhood in the Bronx and was stopped, the office stating, "you don't look like you belong here." When KFX Energy loses all of the $500MM that shareholders' invested in the company, nobody so much as lifts a finger to investigate what appears to me to be outright theft but when a guy like me walks through the Bronx I am surrounded by cops. 

    So where is the Constitutional basis for the double standard where a guy who gets pulled over with a joint in his car in New York can get five years in prison and a CEO who cooks the books and loses half a billion in shareholder capital walks away with a golden parachute and not a slap on the wrist but a slap on the back? Put simply, it's "who you know, not what you know!" The Constitution is suppossed to protect our rights to gun ownership, yet if you are caught with a gun in New York you will be put in prison for three years upon conviction. Why is that legal?

    The track record of the S.E.C. is not strong in busting public companies who steal, however the corporate cops constantly berate fund managers and investors for the smallest of details.

    When public company managements and board of director members oversee the collapse of a stock and investors lose millions or even billions the S.E.C. just brushes the obvious failures off as "bad business decisions" -- The S.E.C. I was told once is "not a merit based agency." You can say that again!

    Furthermore, why is the standard for fraud so much lower at public companies than at hedge funds? The answer is that lobbyists and special interest groups don't want the rules changed so that public company executives actually face jail time -- what's obvious is that the books are often being cooked (just look at Chinese reverse mergers), yet the chefs are not going to prison because of lobbying power and corruption. If half of the fraud on the books was discovered, it is my view that several major lenders would have to declare bankruptcy -- all thanks to the repeal of Glass Steagall...

    Here are 15 examples of companies that should at least have income and bonus clawbacks for executives who lost most of, if not all of, their investors' money because of "bad business decisions" -- translation, they either committed fraud or are guilty of being so ignorant that they should have to pay back all of their salaries and bonuses that they earned from the companies they burned... Of course, when a guy like Manuel Asensio starts digging up the facts about corporate fraud, he gets arrested... So, with no further adieu, I give you 15 possible crime scenes worth further investigation:

    AIG -- AIG's losses were summarized very well by Michael Lewis in this Youtube Video: AIG shares are fairly cheap post bailout, and I actually like the stock here as Fairholme is the company's largest outside shareholder. The stock is trading for around 60% of tangible book value and a very low price to earnings ratio. The government appears to be backing out of its plan to sell shares at this low price to book multiple, which shows that Treasury clearly does not care about what the financials are saying and that they feel the books are not accurately reflecting the intrinsic value of the stock. One reason the company shares are cheap is because the government is looking to dump shares below book -- why would they sell a dollar for fifty cents, and if the books are not accurate where is the S.E.C.?

    Lehman -- Dick Fuld, what's in a name? Well, Mr. Fuld is certainly not well liked among former LEH investors, however the company was conveniently skipped over for the bailout -- the company was sacrificed in order to push through the bailouts in my view. One wonders how our regulators decide to "play God" with the financial markets and whether or not any of this is Constitutional. With that said, drastic times call for drastic measures -- although this is of no co -- when asking a rhetorical question the only comfort is in knowing the answers ahead of time... comfort to investors who held a concentrated position in the stock of Lehman Brothers can only be taken by standing up and demanding more answers.

    JPM/Bear Stearns: Jimbo gave potheads a bad name back in 2008. With that said, this company filled with PSD's (Poor Smart and Desperate to be Rich types) and heavyweight traders could not right the ship and management had to sell the company for a ridiculous pittance. Now that Bearcompany is no longer discussed in any of the circles of wealth in America, it is safe to assume that Bear's shareholders are the Poor Smart and Desperate ones at this point... JPM shares look cheap currently at 9X trailing earnings and 7.7X forward earnings. The stock is trading at around 1X book value, but investors should cast a skeptical view of the financial statements given the withdrawal of mark to market accounting, etc.., etc...

    BAC -- BankofMerrillLynchica -- Shareholders got lynched, and BankofaMerill-ica is still making money trading the markets, on almost a daily basis. It almost leads one to believe a conspiracy is afoot, although being cast as a conspiracy theorist is a tough light to stand in -- one day we will all look back and ask ourselves if investment banks should be allowed to take fees from clients while simultaneously betting against them in the financial markets. One thing is certain, if Glass Steagall had not been overturned and the uptick rule was kept in place, none of the fundamental problems that caused the financial crises would exist to such a large degree and Wall Street would be a place where true price discovery and honest dealing rules the day. Currently, Bank of America shares are cheap but could be cheap for a reason. The stock is trading below "tangible" book value, but keep in mind that such book value must be looked at with a skeptical bias due to the errors of the past. BAC trades for under 7X forward earnings and 56% of book value. Although shares appear cheap here, the company's loan portfolio and level 3 assets much be watched closely going forward.

    FMD -- Student loans, shareholder moans... This company fell from the Mid $30's to the low $2's and shareholders will likely never fully recover the money lost in this stock. A simple glance at the stock chart of First Marblehead will give investors an ironclad argument for engaging in wide diversification amongst their stock holdings. FMD shares look reasonable at current prices as the stock is trading at around 60% or so of book value, however, the book value of the company has been falling at a steep rate in the past several quarters. The stock has dropped some 90% from the 2007 highs and tangible book value has fallen from $630MM plus in 2008 to roughly $270MM at the end of 2010. Personally, I feel the stock is cheap but investing in the company is a risky proposition, nevertheless.

    LKII -- Whoops, we lost the diamonds... Lazare Kaplan, which is run by Leon Templesman, has had some problems of late. The company, which used to have over $100MM in net book value, lost almost all of their assets in a brazen diamond heist that has brought the market cap down from $70MM to under $15MM in a little under three years. Investors who lost their money here are likely wondering if Templesman will be giving back his salary and bonuses that he made over the years, but will likely receive little unless the company's insurance policy actually ends up paying back the company for the theft of the company's large tangible book value per share. LKII may very well win their lawsuit against Lloyds and receive their insurance settlement, but even if this happens I have lost trust in management to unlock shareholder value regardless.

    ENER -- New form of energy or old form of robbery? (I coined this company "ENERON" back on the yahoo message board in late 2008) Energy Conversion Devices sure converted a lot of energy in the form of investor capital into losses over the past three years. The stock, which once traded for $85 per share is languishing in the penny stock arena and investors appear hopeless to ever receive their money back. The large insider selling in the $80 range shouldn't help investors with large losses in the name sleep any better at night! It is also a bit concerning that the President of the United States visited the company more than once, or that the company won grants of tax payer money before the stock completely collapsed! ENER appears to be a chronic money loser and a stock I could never recommend at any price. Mr. Stemple et al have proven that talk may be cheap, but that their stock is not cheap at any price.

    HEV -- Electric cars, or electric chairs? HEV was once a $7 stock and today is trading for around a buck. Ask the burned shareholders whether they deserve their fate or if something fishy was going on with the company and I am sure you will hear some pretty emotional responses.

    CCME -- Ads on buses? How about putting the fraudsters on Prison buses! The stock, like many of the Chinese small caps, is still halted and it appears that this "Deloitte Audited" fraud will be paying investors pennies on the dollar if they are lucky... Hopefully someone, somewhere will be doing some hard prison time in the future because of this "highway robbery."

    HQS -- Rich people turned shrimpers thanks to this shrimp fraud! This shrimping stock was halted and even though the company is based in the U.S.A. the business was engaged in something spooky enough to be halted by the exchange... If there is a fraud committed at the company, will anyone serve hard time?

    BQI -- Billions invested, Billions lost... Investors are surely not pleased with their results in this stock, which was once thought to be the best play on Oil Sands in the world. The stock which traded for over $6 just a few years ago is now languishing around $.41 cents, although the book value is around double the current share price, giving investors some hope that they will receive some money back eventually.

    DPTR -- Kirk Kerkorian, where's the lawsuit/takeover? Investors who have followed the stock know that this is not Kerkorian's best investment of recent years -- the mogul has an average cost basis over $7 while the stock now trades for around $.77 cents per share. Talk about a heartache for the aging billionaire! DPTR stock is trading for a market cap of just $209MM while the company has around $489MM in net tangible book value. I feel DPTR is a reasonable below book investment and that shares could double from current levels. With that said, any large correction in oil prices will make hard to reach oil in the U.S. shale deposits less attractive and economically viable which will hurt the tangible book of DPTR. I will be watching this stock closely as the company appears to be cheap at current prices.

    MOVI -- Gone but not forgotten... "Dude where's my money?" That's a movie title that should replace "Dude, Where's my Car" in the minds of investors who lost it all in Movie Gallery stock. The company made a bad mistake leveraging up to buy Hollywood Video, yet the executives who ran the company walked away tens of millions of dollars richer... "It's good to be the king!."

    GM -- Investors lost it all... but executives made a pretty penny! Flying to Washington in private planes to ask for bailout money, $75 an hour workers threatening to go on strike, public bailouts of the company, and angry taxpayers are all parties of interest in this corporate failure. It's good to see people back to work, but sad to know that so many of the old shareholders were wiped out by this company in the past. GM appears to be making the same mistakes as always, and I would not own the stock because of a failed business model. Moreover, I feel shorting the stock seems like a better trade than buying and holding the name.

    KFX -- KFX was trading on the AMEX, which experienced traders know affectionately as the "Scamex." KFX was a big deal back in 2005 when investors were made to believe that the company had discovered an entirely new source of fuel which was never before put into commercial use -- kind of like a publicly traded cold fusion K Fuel was pitched as being the replacement for fossil fuels, but just as all make believe hustles in the hood end in poverty and heart ache, low and behold it turns out that K Fuel was never profitable for the company and KFX languished into the abyss of shareholder total loss... We are all still waiting for the company's executives and board members to do prison time, but alas we will have to wait a bit longer while the S.E.C. busies itself surfing the web.

    To make a long story short, if you thought the ghetto has a lot of con artists and gang members, start trading stocks for a living and you will realize nothing is more corrupt or "gangsta" than today's financial markets. The P.R. machine and fluff article publications of the main stream media love nothing more than being paid pumpers -- I think "pumping" is most likely the bread and butter of several stock news services! Lesson to be learned, investing in the stock market is like playing poker in a sketchy Indian Casino -- it "seems" legitimate but your gut makes you wonder if the whole thing isn't rigged at times....

    Disclosure: I am long BAC, AIG, BQI.

    May 13 1:03 AM | Link | Comment!
  • The Bernanke Put: The QE2 Rally and Why I'm Over It
    The tired rally in stocks that is simply coming from the increase in money printing and supply of more debt and leverage into the system is getting really boring and mindless. Stocks are not cheap, executives are not anymore shareholder friendly than in 2008, and nothing has been done to fix the system so that the same type of crooked nonsense is not repeated in financial markets. With that said, all we have done so far was to paper over the problems in the short run by applying Band Aids and poking fingers into the holes in the leaking dam that is the U.S. Government and the United States Dollar.

    The Chicken and the Egg politics are not fun for anyone, and it appears that the Republicans are not serious just as much as the Democrats don't understand compounding interest rates on debt coupons. Gold is the big beneficiary right now and the "money" metal is climbing to new highs as I write this. Investors in the Silver Bull market that I have been writing about for almost a year have made tremendous gains and commodities in general have risen more than stocks -- so for the average American was QE2 "good"? I would argue that QE2 was absolutely not good for the working man while benefiting the rich.

    That being said, the Ryan Plan and Obama's Plan are both likely unworkable, but at least Obama's plans recognize poverty and suffering as a more than a line item in the budget. Cutting taxes for the people making millions a year is just too Banana Republic at this juncture, and I am surprised that the Ryan plan argues for more tax breaks. Obama will likely seize massive support from not caving on more tax breaks, as these moves were highly unpopular with the 45% of Americans who aren't paying taxes this time of year, as sad as that fact truly is, it's a fact.

    The QE and debt party stock rally will likely come to an end soon, and then when we have run out of options, I hope the idiots in government have a new solution for what ills us -- maybe we can cut elected official pay and ban campaign funding altogether and do things the way they should be done -- via the number of Facebook friends one has, lol...

    In the end, politics, just like today's markets are pigs with a lipstick plastered smile... You want to avoid both at all costs, but since we have to save some money for what's coming next, the time to be cautious is in front of us... Hedging your stock and even bond positions seems prudent and owning some farmland or gold coins also does not seem so dumb from a financial perspective. Shares in high flying tech stocks like BIDU at 95X earnings and 37 times revenues. Long term investments are not made in companies at 95X earnings but speculations however are what we call investments in companies that are markedly overvalued like the Russell 2000 (NYSEARCA:IWM). Investors should view speculation as good s, however, are not only in bull markets and not in bear markets or bull market tops.

    Happy investing

    Disclosure: I am short IWM, BIDU.
    Tags: BIDU, SPY, IWM, QQQ
    Apr 18 1:39 PM | Link | Comment!
  • Why Chipotle is Worth 30% Less Than the Current Market Cap

    Why is it that on Yahoo Finance news organizations such as the here: and here:, and here: often only give one side of the story on a given stock?

    Most of the time, this bias is toward high growth companies that trade at absurd valuations. As a rational value investor and long short equity trader, I am often amazed at how a little fluff news article can rally an overvalued stock for months and months with the simple stroke of the keyboard. Many Americans are too naive to do their own homework and research on an individual stock and simply read the "news" that comes out on a daily basis to see if a given stock has positive or negative "news" momentum (IE does everyone else like it or not). Over the past few days, for example, Forbes has written several articles on why OPEN is going to trade higher even though that company already trades for an obscene 183X earnings (a metric any rational value investor would consider totally insane!).

    Chipotle is one such company that constantly receives bullish pumps by the news agencies each day. The Motley Fool is often the most bullish and I have yet to see them write an article on why a given stock is a short (aside from a good call on HDY which I also was bearish on). Their article recently entitled "Chipotle Mexican Grill's Management is Creating Value" here: is just one such article which is basically a pump -- of course CMG is creating value, it's just not creating enough value to justify a 50 PE burrito play.

    One technical reason to worry about the CMG Burrito Bullet Train is that Chipotle traded for $275 or so just after earnings and crashed to around $230 or so per share in just a couple of weeks. Today, the stock has reached $272 again, which to me suggests strong resistance as well as a high RSI standing in the way of newly bullish longs. 

    Look, I am a New Mexico native, and I truly understand the goodness and tastiness of the burrito as well as the taco-- and even the occasional taco salad. That said, I would never pay 50X for even the best cloud computing stock as the risk is simply too great that the future will not pan out the way the financial media and the pumpers would like to believe it will -- the higher the valuation, the higher the risk.

    Is this contrary to everything happening in the markets today? Yes it is, 100% opposite of what everyone on Wall Street is doing at the moment -- I have never seen a market so caught up in the "business model" as this market is today. Chipotle is seen as a "mid tier restaurant growth play" with significant upside potential. In reality, CMG is a burrito stock trading at nearly 50X earnings while projecting a low to mid single digit same store sales gain for full year 2011 -- hardly the revolutionary growth rate that is needed to push a stock to 60X trailing earnings.

    In the end, I am not advocating a short position as much as I am pointing out the sheer insanity of today's stock market. If you want to own a stock like CMG, make sure to sell a deep in the money call against it or put in a stop loss order. Now you may begin the personal insults and attacks in the comment section below that I have grown so fond of when writing articles on stocks which are being held up by "sky hooks."

    One strategy I like to use when shorting a stock is to sell Call options on the name instead. The May $280 CMG calls, for example, can be sold for $13 per contract, which is more than enough profit for 46 days worth of risk on the trade in my opinion.


    Disclosure: I am short CMG.

    Additional disclosure: I am short 10 CMG June $260 call options
    Mar 08 12:07 AM | Link | Comment!
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