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Marc Gerstein  

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  • Warren Buffett in His Own Words: 23 Timeless Quotes on Investing [View article]
    From the 1996 shareholder letter:

    "a friend once asked me: 'If you're so rich, why aren't you smart?" After reviewing my sorry performance with USAir, you may conclude he had a point."
    Dec 3, 2010. 02:38 PM | 8 Likes Like |Link to Comment
  • Two Conservative Stocks, Stunning Results [View article]
    I've come across both of the companies you mention from time to time, and they're both fine firms.

    But I'm a bit taken aback by the extent of your buying-stocks-is-about... theme. I sort of agree, but wouldn't mount quite so high a soapbox. The longer I'm in this business, the more apparent it becomes to me that there really is no such thing as THE stock market. What we really have is a collection of very different stocks markets that share the same time and space (real or virtual). How else can one explain the success of such polar opposites as, say, Warren Buffett on the one hand and Jim Cramer on the other. I don't think what you do is nearly as important as how well you do it. A good fundamental investor will trump a bad trader. A good trader will trump a bad fundamental investor.

    Buying businesses is all well and good and it is my preferred framework. But as an outsider with very limited information as per the 10-ks, 10-qs, Reg FD, etc. I'm not REALLY in the position of one who would actually step up and buy into the business to become a REAL owner. Also, after I get shares, I have a meaningless vote once per year, assuming I don't forget to do the proxy. That's a lot different from being a real owner with a real voice in the day-to-day direction of the business as a matter of course, not a once in a decade public proxy fight.

    So however appealing the buy-businesses angle is to me, I understand it's just an analytic framework, not a reality. Once I do that, I become willing to allow my framework to also benefit from techniques that serve other aspects of the markets (traders, etc.) if I think they can contribute positively.

    By the way, I have to wonder if you really agree with what I'm saying.

    I see on your profile that you use mathematical modeling. That involves techniques outside the buy-a-business framework.

    I see, too, that you have a commodities background; that you trained commodities traders. That, too, is outside the business framework -- way outside -- given that when it comes to commodities, traders are really interlopers in a market that was structurally designed to accommodate the needs of enterprises that actually expect to take delivery and make commercial use of the commodities covered by the futures contracts. (Hence all the awkwardness investors experience with such things as contango, backwardation, roll yield, and even the need to roll over in the first place.)
    Dec 3, 2010. 09:42 AM | 11 Likes Like |Link to Comment
  • Book Review: 'The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America - and Spawned a Global Crisis' [View article]
    There's no way I'd waste my time reading the book your reviewed, "The Monster ...." which looks from its title like it wants to pin the crisis on evil bankers and spare the victim-customers. Indeed, your review takes them to task a bit for doing just that.

    I'm much more intrigued with your book and I wish you much success for taking an important and courageous stance in an era when it's so easy and popular to whine "don't blame the victim." You're right on when it comes to the notion of "financially stupid" people and I applaud you for blowing the whistle.

    I haven't read your book yet (but I will), but I do have a question up front. Do you distinguish between being financially stupid and financially arrogant?

    There are and have been many who served themselves up as victims because they failed to understand what they were doing. It seems to me, though, that there were also many who became victims who knew what they were doing but overestimated their ability to rise above or beat the system.

    One example would consist of those who knowingly cheated the income qualifications for mortgage. They knew they couldn't afford to carry their mortgages but lied about their income to get mortgages or went for no-income-verification loans offered by bankers sadly willing to help them tie their own nooses.

    We saw plenty of financial arrogance in the dot-com bust as well. There were countless instances of good financial advice being given back then, but countless more instances of financially arrogant newbies dismissing it, often derisively, to follow the lead of others who pandered to their misplaced sense of grandiosity; case in point, the early Motley Fool book wherein the Gardner brothers actually cited reports of extreme overvaluation according to conventional measures as a bullish indicator (they later recanted in a subsequent book, but that came way too late for their first generation of followers who were led by them over a cliff).

    Financial stupidity is definitely a problem and it is curable through education. Financial arrogance is also a problem, and that's a lot harder to cure since we're dealing here with people who know but don't care. What's really frightening is that in the realm of financial education, the financially stupid often wind up learning at the feet of the financially arrogant (see e.g. Motley Fool v.1 and so many others, all of whom I'm sure can be named by all readers).

    Closer to home is a friend of my wife, who asked us to come with her to look at a co-op she wanted to buy. Having been on a co-op board for a decade, it was pretty easy for me to recognize that the building was a basket case and I explained all the issues. The friend dismissed all of my concerns saying "If you worry about so many things, you'll never buy anything." Now, two years later, she's complaining to my wife about the problems in the building (each of which I told her about before she bought) and all the extra money she's being forced to kick in. So how could financial education have helped there? She knew everything she need to know right up front. Her problem was that she was above it all, she didn't care.She was financially arrogant.
    Nov 28, 2010. 10:31 AM | 5 Likes Like |Link to Comment
  • Verizon Should Boost Revenues With 4G Launch [View article]
    "DCF models are easy to use and the assumptions that matter are easy to identify and analyze, and generate a valuation, the issue is not with the model, complexity, assumptions. The issue is that the market drives the market independently from the model."

    I beg to differ.

    DCF models typically require CF projections stretching out 5-10 year, maybe 3 if someone wants to be really aggressive. In the real world, however, forecasting even one quarter ahead is an often tenuous exercise.

    DCF models require cost-of-capital/discount rate assumptions and these are pretty much toss-ups, especially since there isn't even a clear-cut way to define something basic like risk premium. As for risk adjustments, those get worse as betas and ll similar measures are all over the place as time passes.

    How do you cope with terminal value, which, when all is said and done, can comprise a large portion of the final valuation. How do you decide what sort of growth rate to infinity and accompanying discount rate to use.

    The last quoted sentence is especially intriguing. Are you trying to suggest that if the market acts contrary to what your DCF models suggest, then the market can be criticized from ignoring your model?
    Nov 27, 2010. 03:36 PM | 1 Like Like |Link to Comment
  • Verizon Should Boost Revenues With 4G Launch [View article]
    I guess. Perhaps I've spent too much time trying to figure out how to use Trefis models. :-(
    Nov 27, 2010. 03:18 PM | Likes Like |Link to Comment
  • Handling China With Care: ETF Pullback Choices [View article]
    You present a very well reasoned analysis of an important topic and I for one would love to hear more about what you think, particularly insofar as the major political-economic centers (South Africa, Nigeria, Kenya) are concerned. Have you considered addressing these issues by submitting your work as Seeking Alpha articles?
    Nov 27, 2010. 03:17 PM | 1 Like Like |Link to Comment
  • Pfizer Loses in Court ... Again [View article]
    If you're interested in Pfizer or any other big pharma stock, you really ought to check out the movie "Love And Other Drugs." Yes, it's Hollywood and all that goes with it, but given what we know today about how things turned out for big pharma, it's hard to completely brush off the Tinsel Town showmanship.
    Nov 26, 2010. 06:24 PM | 1 Like Like |Link to Comment
  • Verizon Should Boost Revenues With 4G Launch [View article]
    ???? That's not logical (pardon the pun). If you lose money on each sale, then increasing volume would be a bad thing and would be expected to drive the price down.

    jgonion is blunt, but his concerns are quite valid.

    Trefis does a terrible job explaining its model. I was not comforted by what I saw on the Trefis web site. Aside from considerable self praise, the only thing I got from them was that they use discounted cash flow. Finance teachers and textbook authors use the technique all the time because of its theoretical perfection. Unfortunately, in the real world, it's a mess, because it requires a lot of assumptions that cannot be reasonably made. So practitioners are most likely to use it when they wish to impress an audience they assume to be unsophisticated and hence unlikely to wonder about or challenge tenuous assumptions.

    And even with discounted cash flow, it does look as if the Trefis model may be buggy, at least the portion of the app they put into this article. I dropped the 2016 SMS & Internet revenue per subscriber assumption way below what Trefis had and got modest reductions in the target stock price, but then, when I dropped it to zero, the price returned to very close to the Trefis default forecast. Huh??? Besides this illogical situation, my radar is on high alert here because a lot of what Trefis looks at (products that get discussed in the popular circles) is often a small portion of company revenue and profit. Their marketing focus is on Apple, a probable exception. This article, by tackling Verizon, a company with lots of revenue and profit that come from boring things no blogger in his right mind would care to write about, is a whole different ballgame.
    Nov 26, 2010. 06:09 PM | 3 Likes Like |Link to Comment
  • Has Quantitative Easing Actually Helped the Economy? [View article]
    Interesting article. It brings to mind the old monetarist formulation MV=PT (money supply times velocity of money equals price levels times number of transactions, the latter being a proxy for real economic activity). You don't state the formula explicitly, but by the end of the article, you wind up touching on all four variables.

    So if I'm understanding your points correctly, M has been increased via quantitative easing but velocity of money dropped so net, net, there has been no change in the left side of the equation, and hence no change in the right side either.

    The wild card is if or when when velocity will pick up. You touched this issue. Presumably, the banks will at some point get tired of sitting on low-return reserves, meaning they'll boost lending the result being voila . . . an increase in velocity.

    So what happens to the right side of the equation if/when V rises. Opponents of QE/QE2 fear P will rise while T stays static or lags, meaning we get an inflation problem. The best case scenario would be for T to rise while P stays static or lags. There's really no way for us to know until after the fact. :-(

    OK. Now that we have the economics nailed down, let's think behaviorally. What would the world look like if we got the bad scenario: P rises and T falls shy. We'd be seeing companies putting through lots of price increases. Assuming the employment situation remains bad and that consumers remain strapped, are the price increases likely to stick? Based on what we've seen in the last generation, I'll stick my neck out and suggest consumers have become incredibly adept at finding ways to resist price increases, whether by just saying "no," or getting more sophisticated in their willingness and ability to comparison shop or substitute. I find it hard to envision a scenario where price increases will be able to stick unless buyers (not just consumers, actually, but business buyers too) get some breathing room; i.e. an ability to accept price increases without going hysterical.

    Going back now to MV=PT, I'm finding it really hard to imagine a big increase in MV being sucked up mainly by an increase in P without T coming along for the ride, an acceptable outcome (I think we need to assume the Fed has decided it will tolerate more inflation if we can get more economic activity).

    It'll be really interesting to see how all this plays out.
    Nov 24, 2010. 12:00 PM | Likes Like |Link to Comment
  • Appreciating QE2: ETF Pullback Choices [View article]
    For the most basic question, when I refer to days, I'm referring to trading days, or, what more die-hard traders might describe as "bars."

    As to the other questions, bear in mind an important overarching context: There is not such thing as THE best approach. That is one of the worst myths propagated on the investing public. There are countless approaches out there, many of which are diametrically opposed, which all have the potential to succeed. What's important is to pick a sensible approach that meshes with one's goals.

    The questions you ask really get into the what-am-I-trying-to-do zone. For me, a weekly re-balancing is pretty aggressive. Most of my other models re-balance every four weeks. I choose such approaches because the sorts of things I usually like to look at and think about need time to develop. Use of a 120 day period helps me bring some of that quality into this weekly strategy. I could probably use 125 day, 113 days, etc. but we always must at some point draw a line. Going to 90 or 50 days would probably put me oh the other side of the line, one where my selections will be tied to faster-moving factors.

    Sharpe vs pure volatility measures is a huge topic, one that's way too big for this context. I guess one way to summarize would be to suggest that volatility pushes more in the direction of short-term factors, where big moves either way could more easily come from more fleeting factors. As one stretches time, one might be less impressed by big moves that are tied more to big risk; use of Sharpe helps filter out exposures like that.

    I know a lot of this sounds a bit odd; slow-turning factors used in technical analysis, which we usually thin of as being a faster moving type of strategy. In truth, the boundaries are gray rather than black and white, and I suppose this is technical analysis for people who, deep at heart, really like fundamentals. I do it for ETFs because unless one is a really terrific top-down analyst, there really isn't much opportunity to do fundamental; analysis on ETFs. As you can see from the articles, I'm not doing to-don analysis at the start; I'm using top-down analysis to try to explain what the technicals are saying.
    Nov 22, 2010. 09:21 AM | Likes Like |Link to Comment
  • Appreciating QE2: ETF Pullback Choices [View article]
    When portfolio123 adds this function to ETF simulation, as I expect in the near future, I'll test ideas along these lines.

    Right now, I'm open to going wither way, or even adding a second model. On the one hand, concentration like this weeks' silver situation can be off-putting. On the other, the weekly re-balancing makes me open to things i might find troublesome over a longer horizon, and I do often find concentration in this context interesting (like the message the market seems to be sending right now.)
    Nov 18, 2010. 12:09 PM | Likes Like |Link to Comment
  • Why Are Scorned Investors So Excited to Buy GM Shares? [View article]
    This is an incredibly poorly reasoned article. Aside from the bizarre segue into the diversification cliches (I thought the topic was GM), the points you raise about what happened with GM in the past are irrelevant.

    An investment in new GM will succeed or fail based on what happens with the post-bankruptcy company. Bulls expect new management, a new balance sheet, a new cost structure, the diminution in key-rival Toyota, etc. will lead to good things for the company and the stock. Bears believe there's enough carryover from the old company to the new to offset any beneficial impact the changes might have.

    You could argue either way and wind up with a good article, especially here, since the issues are so debatable.

    What you cannot honorably do is ignore all the relevant issues and simply suggest that new GM stock is bad because of all the horrible things that happened pre-bankruptcy. (Every experienced investor knows how some of the best opportunities are to be found in things that caused pain in the past.)

    Investors need to check their emotions at the door and look dispassionately toward the future, drawing on the past only to the extent it helps them formulate reasonable expectations about the future. In this instance, investors need commentary that helps them determine whether the new GM will significantly differ from the old GM.

    I understand you are a journalist and that journalists tend to succeed when they rile up readers' emotions, which is what it looks like you're trying to do. Judging by the first three comments, it looks like you may be accomplishing that. I've always found it interesting how much fuss there's been over the years about analyst integrity and accountability. I wonder when the media will start shouting about the lack of accountability when it comes to reckless and misleading financial journalism. Oh wait, that will never happen since journalists would have to be blowing the whistle on themselves.
    Nov 17, 2010. 10:28 AM | 4 Likes Like |Link to Comment
  • 13 High PEG Stocks That Are Headed Down [View article]
    PEG ratios above 2.00 have often tended to be troublesome, but it's important to take care how its calculated. For this sort of thing, it's usually better to use a growth rate that relates to a longer time period. It's also important to evaluate the credibility of the growth rate used. It that is off, so, too, is the PEG calculation.

    Separately, I have not looked closely at any of the stocks on your list, but just a quick scan of the table you present suggests to me that PEG ought not be considered, one way or the other, for any of these stocks. When i see PEs like 199.2, 77,5 etc., it's obvious that there's an oddball number in the computation (obviously, in this case, something dealing with EPS, perhaps an unusual cyclical mess, perhaps a writeoff, etc.), and that some other method must be used to assess the stock. No single method is sacrosanct for all stocks for all times and I can see at a glance that PEG (which I actually use quite a bit), especially as you seem to define it, is not relevant to any of these.

    No method is so great that it can be applied in such a way as to eliminate common sense, and that says something coming from me, a long-time devote of stock screening and ranking who probably goes further than many in working with numerical formulations. But still . . . ya gotta keep common sense in the picture.

    Interestingly, I'm not even necessarily disagreeing with the four write-ups you provide. I just wish we could get rid of the table and the PEG references and just let the rest of the analyses stand on their own.
    Nov 12, 2010. 04:13 PM | Likes Like |Link to Comment
  • Pharma Phobic: 5 ETF Pullback Choices [View article]
    Interesting. With two trading days out of five already gone, I'm not going to take the slippage to add it now, but will keep it in mind it SKOR shows up again in the future.
    Nov 12, 2010. 04:02 PM | Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    He did own it. (I and Buffett am quite able to distinguish between Dairy Queen and McDonalds.)

    It is absolutely vital that any Buffett watcher understand that the listings in the annual do not come close to being complete. The annuial report makes that very clear.

    As I wrote in the main article, back when I covered BRK for Value Line, I (as well versed as anyone in Buffett fol;klore) was caught by surprise at seeing reference to an investment in MCD in a news clipping. I was surprised and double-checked by calling Buffett to confirm, and he did. I think that's about as good a source of info as can be had.

    If you find this hard to come to grips with, then it's a signal that you need to re-asses you understanding of Buffett, which was a goal of the article itself.
    Nov 12, 2010. 10:28 AM | Likes Like |Link to Comment