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  • High Conviction for 10 High Quality Stocks [View article]
    As with any investment commentary, the particulars need to be clarified. My article is written with the assumption that the investor has an appropriate risk tolerance for the volatility and uncertainty involved with equity investments.

    Second, I failed to address overall equity exposure (side note: I have been recommending these stocks as part of a portfolio that currently includes a large % in cash).

    Lastly, even if these free cash flow yields are cut in half permanently, investors still have a 1% spread over ten-year treasuries. And that doesn't include potential long-term currency effects either.

    As always, thank you for your comments. The more challenging, the better.
    Jun 30, 2010. 05:49 PM | Likes Like |Link to Comment
  • There's No Easy Solution for Debt [View article]
    bob adamson--Thank you for your explanation of the big picture. We agree on many points. Specifically, my research also leads me to believe that 2005 was the tipping point. Unfortunately, everyone leveraged up from there and now we're back to 2005 levels of economic activity, but stuck with 2007 levels of debt.

    Another key point of agreement is the observation that current politics are established in a way that does not allow sufficient understanding to properly handle such a complex problem.

    Thank you for your valuable input.
    Ben Gee--Exactly. Almost all economic activity involves money and a majority of international commerce, financial products, contracts, and laws are based on the dollar. It would be messy and would take a long time, but a solution would eventually be found. A state of perpetual chaos is not a natural state for people.

    It should be noted that free market supporters would be wise not to endorse an action such as technical default. Because the dollar is a global symbol of free market capitalism, a U.S. default would surely provide a strong tailwind for other forms of economics/politics. Not to mention, we would lose the privilege of having the lowest real borrowing costs in the world. Scary stuff to think about.
    May 28, 2010. 01:39 PM | Likes Like |Link to Comment
  • Big Blue Has Investors Seeing Green [View article]
    Excellent. I just wrote a positive piece about IBM here on Monday... very little downside and potentially big, big upside. This is one of my highest conviction idea starting from today's prices.
    May 12, 2010. 06:58 PM | Likes Like |Link to Comment
  • IBM: A Nugget in Plain Sight [View article]
    outcastsearcher--Thank you so much for your input. I find input from insiders to be especially helpful, especially on points of disagreement with my findings. While I completely understand your point of view, your concerns don't necessarily point to a bad investment.

    Investing is all about what you get versus what you pay. Even if IBM never grows, it currently has about a 9-10% free cash flow yield with a very strong balance sheet, which the company could use to buyback stock, raise dividends, make acquisitions, reinvest in the business, etc.

    While you bring up valid reasons to leave as an employee, from a competitive standpoint investors must also assess how much of that is also happening with the competition. I am in no position to have any insight there, but I would expect a fair amount of poor business practices in such a large organization that is subject to heavy bureaucracy risk.

    Additionally, take even the most respected companies in the world and you will be certain to find plenty of various level employees in different business divisions who are completely dissatisfied with their employer. I have heard plenty of people describe terrible working conditions at best-of-breed businesses.

    Even if IBM is not able to grow its earnings in the long run, I still would not expect to lose much here, if anything. And if I am wrong, that's why you diversify a little bit. You win some, you lose some. Thanks again for you input.
    May 12, 2010. 06:49 PM | Likes Like |Link to Comment
  • IBM: A Nugget in Plain Sight [View article]
    newbietech--You are right about Apple, but it will be an exception only as long as they continue to innovate. If innovation slows, it won't take long for competitors to offer competing products. Competition is brutally destructive in tech. Outside of Apple, the personal computer is largely a commodity.

    Cre8Value--You are also spot on with your comments. I was generalizing about hardware being commodity-type because most readers will relate to PCs and servers. Their "stack" approach is one of their key competitive advantages. Otherwise, they would be just another IT consulting & software firm.

    Thank you for your high-quality input.
    May 11, 2010. 01:17 PM | Likes Like |Link to Comment
  • IBM: A Nugget in Plain Sight [View article]
    desicon--Thank you for your input... I could not have said it better myself. I always appreciate well-thought input with specific support to a thesis. Without the positives you outline, it is still a good opportunity. Assuming the positives play out in IBM's favor, it is an outstanding opportunity.
    May 10, 2010. 04:37 PM | 1 Like Like |Link to Comment
  • IBM: A Nugget in Plain Sight [View article]
    cyclingscholar--I could not agree with you more. A lot of portfolios are underweight U.S. mega cap stocks, presenting very favorable risk-reward profiles compared to other asset classes. It is hard to go wrong over the long run with higher quality at a cheaper price.
    May 10, 2010. 03:00 PM | 1 Like Like |Link to Comment
  • IBM: A Nugget in Plain Sight [View article]
    bk2003--Thank you for your comment. Perhaps you're right and I don't have any real knowledge of the company's operations, but IBM's operating results over the past decade sure don't look symptomatic of a dead-end company. It has consistently earned extremely high returns on capital and grown free cash flows at a high rate for such a large company. I have no problem holding this for years while management continues to use free cash flows to increase dividends and share repurchases.
    May 10, 2010. 12:51 PM | 5 Likes Like |Link to Comment
  • Beginning of the End for the Euro? [View article]
    LKofEnglish--Your point is noted. I did not want to write a lengthy article on this particular topic providing a background in monetary mechanics. Clearly, currency exchange rates, inflation and interest rates are all intimately related to each other. Thanks for your input.
    May 5, 2010. 02:38 PM | 2 Likes Like |Link to Comment
  • H&R Block Starting to Add Up [View article]
    Thank you for the link to an excellent write-up. I left out some points in trying to keep my article somewhat brief, but I absolutely agree with his analysis. I started watching HRB closely around $17.50, but really wanted to get it at $16.00 for an extra margin of safety.

    In fear of letting a rigid buy discipline get in the way of an excellent opportunity, I may get off my thumbs and add it soon. Thanks again--I always appreciate intelligent input.
    Apr 2, 2010. 04:41 PM | Likes Like |Link to Comment