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Marc Gerstein

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  • Why I Don't Watch CNBC [View article]
    This is a wonderful, and completely correct, article.

    I especially applaud Seeking Alpha (a web site whose revenue depends of page views) for publishing it.

    Their decision to do so reflects a level of integrity far too rare today. More typical is the approach of Yahoo! Finance, which has at times suppressed comments I've posted in response to some especially poor articles raising the issue of page-views versus quality.

    So . . . thank you Marc Lichtenfeld and thank you Seeking Alpha.
    Jul 10 10:55 AM | 32 Likes Like |Link to Comment
  • Bill Ackman's Folly With Herbalife: 7 Assumptions That Led Him Astray [View article]
    I understand that in the on-line community, there is something of a bugaboo about "ad hominem attacks," where the speaker, rather than the opinion is put in the cross-hairs. I strongly disagree with this taboo in the context of a setting such as SA. When we deal with what are, essentially, dueling opinions, the nature, capabilities, and motivations of those expressing the opinions is not only relevant but may actually be the only thing on which readers can hand their hats.

    So here, on the one side, we have an experienced, noted MLM attorney (I checked on Thompson and he's not puffing; he's very much for real and is not and industry shill. He's been vocal for distributor interests and has spoken out vigorously against MLM bad apples.)

    On the other side, we have an unknown entity that refers to itself as Quoth the Raven and is a self-described "casual investor making casual observations for the purpose of discussion and open communication and analysis of companies and stocks." Although this entity uses the word "open" it conceals its identity and explains the decision in its profile by stating "There's always a group of people that give me the business about remaining anonymous, and the fact of the matter is in order to say exactly what's on my mind without being politically correct or diluting my thoughts with BS, I need to remain anonymous. The same way there's things you probably don't publicly broadcast on your personal Facebook. I have a family, I conduct business, and I need to make sure that those items are never in jeopardy based on how I feel and what I say about an investment."

    Speaking for myself, I have a family, I conduct business, and I set forth my thoughts without diluting them based on political correctness or BS, yet I have always used my real name and where applicable, my real picture (although I should update the one I use now which looks like #$%^). The author of this article likewise has a family and a legal practice and shares his thoughts without pc or BS. So, too, do many others on SA.

    Now, I haven't spent a gazillion hours digging into HLF. But I have read this article and the anonymous 7-reasons posed by Quoth the Raven (I assume a fan of Edgar Allen Poe), and find it hard to lean too far in one direction or the other based solely on the articles. But I do notice that the market in general including some other very big-time investors who are not easily fooled or scammed are in the Thompson camp. And while I fully understand the angst over the ad hominem thing, frankly, anyone who reads or views investment-related content without contemplating the credibility of the speaker is being reckless with his/her money (something I thought the world learned after the internet bubble and related Wall Street scandals, and something SA has partly learned by requiring ownership disclosures -- Quoth has an axe to grind, as we know through it's disclosed short in HLF -- but still allowing anonymity, which I find repellent when publishing content to readers who may invest on the basis thereon). Hence for me, this issue does turn on ad hominem considerations. And on that basis, I believe Thompson is the compelling choice.

    Father Time will eventually tell us once and for all which view is correct. But for now, if I were to commit money re: HLF (which I haven't and probably won't), the Thompson position is the only one I'd be able to explain to my wife without getting kicked out of the house. Also, as an attorney and an RIA, I believe that if I were to commit client money on the basis of the Quoth position and it were to go sour, I'd be a sitting duck if sued for negligence and compelled to explain my due diligence process.
    Dec 10 11:12 AM | 24 Likes Like |Link to Comment
  • Debunking Dividend Agnostic Assumptions: Here's What Really Makes Income Investors Tick [View article]
    Lawrence, there's more to benchmarking than picking the broadest thing you can find. For income investing (stocks and/or bonds), you need some sort of income-oriented benchmark. Using VTSMX as a benchmark for income investing is like ordering sea bass in a restaurant and bashing it because it isn't sirloin.

    More important, however, is the thrust of the article itself. She is not at this time advocating any specific investments or income strategy but is attempting to lay out the landscape of income investing and it looks to me like she did a pretty good job capturing the different approaches taken by investors. The article is means to stand in opposition to the straw-man you constructed in your article.
    Sep 3 09:17 AM | 22 Likes Like |Link to Comment
  • Seeking Alpha as a Predictor of Stock Movements and Earnings Surprises [View article]
    I used the link in the article to check the paper and am left with some concerns.

    1. I'm disappointed that the textual analysis protocol used in the research was not discussed. The world understands all sorts of quantitative measures but textual analysis is still quite new. It's hard to assess the study without knowing how you defined positive or negative sentiment. Example: "I wish I could really like this stock and may someday feel that way, if the fundamentals improve beyond where they are now." Would you pick that up as positive ("really like" "improve"), negative (some other clue as to the obvious intent) or be unable to fathom one way or the other? How about "If you see this stock as a dog, I suggest you reconsider." (Negative based on use of the word "dog"?)

    2. I wonder about the impact on your sample by focusing only on articles that key to a single ticker. On Seeking Alpha (and elsewhere), it cannot be inferred that multiple-ticker articles are really expressing an opinion on more than one stock. Just yesterday, for example, I wrote on JVA. I also cited and per SA custom, keyed to SBUX and GMCR, but the latter two were just incidental, to amplify my points on JVA. This is not a one-off. It's very prevalent on Seeking Alpha. And, by the way, don't underestimate the importance of bona-fide multi-ticker articles. Some of the most vehement, widely seen and widely debated articles around here deal seriously with more than one ticker (check how many APPL multi-ticker articles are paired with GOOG, MSFT, RIMM, MOT, and DELL with vehement opinions across the board). I really do have a big problem with the way you had to limit your sample.

    3. I'm concerned about your time horizon, which, essentially, is a day. Are you REALLY capturing social media effects? Or might you actually be capturing momentum effects that spawn the SA article and the next-day stock price performance? Frankly, I suspect this is a HUGE factor in your results especially since you present raw stock returns rather than relative (to the market) returns. During bull markets, you are going to see a lot more positive words. During bear markets, you're going to see more negative words.

    4. Another point relating to time horizon: SA is a very open community and there are some who can and do write for traders with very short-term time horizons. But we don't see much, if any, articles oriented to day traders. One reason may be the audience, who, if you surf around, you'll see don't really fit that category. Another factor is uncertainty on the part of the author as to the editing cycle. I've contributed for a while here so I can usually make a rough guess as to how much time will pass between article submission and its appearance on SA, but I still guess wrong from time to time. Also, the increasing popularity of SA (Go SA!!!!) does seem to be adding to the editorial workload and stretching the turnaround time, not troublingly but when you work with market-hour windows, it can be a difference-maker). I point this out to show how impractical it is for SA or its users to deal with one-day investment horizons. If I were to write about a day trade, I absolutely could not contribute on SA because the investment case will likely go stale before the edited article appears on the site. Based on the nature of what's published here and the audience, a study such as this needs to go at least from t0 to t+20, and some SA folks would argue for a longer time frame. Heck, I'd even be more interested if you show us a t-1 to t0 comparison. For all we know, the authors may be doping a dreadful job and it may be the editorial lag that's adding value! When you deal with one-day time horizons, factors like this are plausible and important. And, by the way, if you do want to publish a study involving a one-day time horizon, besides controlling for general momentum, you will need to disclose your pricing protocol and you should add a slippage factor. (The impracticality of the one-day time horizon on SA makes adds to my belief that you're really capturing a general-momentum effect.)

    5. The SA vs. WSJ comparison is odd. That's like saying the NY Mets play baseball better than do the Miami Heat. It's a valuable statement because suffering Met fans like to think the Mets are better than someone (ugh!), but alas, it's meaningless because the teams play different sports (for the uninitiated: the Miami Heat play basketball). Ditto SA vs. WSJ. SA is all about opinion. Much of what is published here could not be published on WSJ as a matter of policy because WSJ is about journalism, which strives (however imperfectly) to be free from opinion. SA would be more appropriately measured against Covestor, the Motley Fool STARS community, and other venues like that. The WSJ would be more appropriately compared with Reuters or AP wire services, or even Dow Jones items that don't make it into the Journal.
    Apr 14 02:14 PM | 22 Likes Like |Link to Comment
  • Linn Energy: Many Ponzi-Like MLP Blow-Ups To Follow [View article]
    "I honestly never imagined that people would be this abusive."

    I absolutely positively do not believe that for a single moment.

    James, there is no way you, with your impressive professional resume, can possibly expect anyone to accept the idea that use of the word "Ponzi" in a headline and over and over again in an article would fail to inflame passions. When you were, as you describe, "Chief Global Strategist and Head of International Investments for a major investment bank," I presume you had people reporting to you. Have you never had occasion to caution any of them, or consider with regard to your own work, the implications of particular phrases in a document being prepared for public dissemination?

    Note, too, that I am completely unimpressed by your assertions that you are not accusing anyone of a Ponzi scheme but are instead speaking of a "Ponzi-like" scheme. It seems to me you are calling, here, on your Harvard Law School background to try to position a defense in case Linn sues you for defamation. Good luck.

    The SEC web site ( defines a Ponzi scheme as "an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors." So how is Linn doing anything even remotely Ponzi-like? IOW, how is it, or any MLP for that matter, doing anything remotely resembling the practice of making distributions to Person A from proceeds contributed by Person B? Unless you have evidence that there is no business operation -- that it's a hoax -- it would seem that LIN is taking money from Person A (the buyer of new equity or debt securities) putting it to work in its operation and using the proceeds of its operation to make the payment to Person B. That's not Ponzi-like. We call that doing business in a capitalist economy.

    I had not previously looked at LINN and clicked here only because of the word Ponzi in the headline (I assume you expected that and are happily counting the per-page-view fees) mainly because I started work on a novel -- one can't write about stocks all the time! -- about a Ponzi scheme and figured I check out another example (poor me, what a waste of time; this one doesn't do it). But from what I did see in LINN's SEC documents (you looked didn't you - I can't tell from the article), I see a business with Person B getting his distributions from the cash flows produced by the business. It may not be the best-managed business; it is clearly one that will need constant external capital if it is to grow the payout since MLPs, like REITs, must distribute cash flows rather than reinvest. Whether the external growth efforts here are wise or not does seem to be very much in question as do the techniques used by LINN to account for them. Maybe this causes a blow up. Maybe not. Either way, I see nothing here that is at all Ponzi-like. Unsustainable? Perhaps. Ponzi? Not a chance as you know. Ponzi-like? Sorry counselor, that clumsy spin doesn't work for me.
    Jul 7 02:55 PM | 21 Likes Like |Link to Comment
  • Short Sellers And Seeking Alpha [View article]
    Interesting situation.

    Shorting is certainly a legitimate part of the stock market, and bearish articles in general are valuable. and people always get pissed off by articles at variance with whatever opinions they hold.

    The problem, I think, is not so much the negative articles but the combination of negativity, a short position previously established (front running), and in many cases, low liquidity.

    1. The negativity: The contrast between bullishness and bearishness is not symmetrical. If someone publishes a bullish piece and I disagree, que sera sera. Even if I'm wrong, I lose no cash. My worst case is an opportunity loss and even that may not be if I'm invested in other things that are just as good or better. So a bullish piece I hate really is no skin off my back. A bearish piece is a horse of a different color. If I feel negatively toward it, chances are I'm in the stock and if the article moves the market, I'm subject not to an opportunity loss, but a very real and immediate cash loss -- even if the article is completely wrong. This is why people get so much angrier over bearish articles with which they disagree than bullish ones. It's rational. It's the difference between a possible opportunity loss and a real cash loss.

    2. Ownership: Back when i was at Value Line, we had very strict rules about owning stocks on which we wrote that were designed to get the article published first. We had to give readers an initial chance to act. Only after they had a substantial opportunity to do so could we trade. (And by the way, we didn't self report; all of our trading info was sent directly from the brokerage firms to VL compliance.) Other organizations permit no stock ownership at all by writers. The latter is a bit extreme; I like the idea of analysis done by people who are real investors. But front-running -- trading first and then writing an article designer to push the stock in a direction of your trade, even though it can nowadays be made legal by disclaimers, will always be perceived in the court of public opinion as sleazy, and although media organizations that encourage such front running violate no law, they can still be severely punished over time by the diminution of their brand. Law aside, nothing and I mean NOTHING is worse than getting a reputation for lack of integrity. Please, publish all the exposes you want -- but I guarantee you'll be respected, rather than hated, for it if your authors do so out of a motive to speak the truth, rather than to cash in by pushing a stock in a direction that will make them a killing. And please listen to SA readers in these forums who complain of high-frequency attacks and attacks that lack analytic substance. Recognize them for what they are; a form of front-running manipulation that slipped through the regulatory cracks, but not the purview of the court of public opinion. If you're proud of the exposes, fine, you should be. But nobody will respect you for it until you figure out a way to get control over the front-running problem.

    3. Low liquidity: If someone publishes a hit piece advocating the shorting of Tesla, Amazon, etc., who cares. These are incredibly liquid stocks that don't move in response to any particular opinion. If someone publishes a hit piece on XYZ Inc, that sells for $3 and trades 5,000 shares per day if that, it's an entirely different matter . . . especially if the author is front running. Surely I shouldn't have to elaborate further on this.

    In sum, vigorous debate between longs and shorts is great. Uncovering frauds is great. Front running is not.
    Aug 2 01:23 AM | 20 Likes Like |Link to Comment
  • Investing Like Buffett: 5 Ways to Achieve Legendary Returns [View article]
    Having been a Buffett watcher for many years, including having been the first analyst to initiate regular research coverage of Berkshire when I was at Value Line, a situation that gave me opportunities to talk regularly with Buffett, I've come to the conclusion that he is every bit as brilliant as people think he is (actually, more so) but that when it comes to his public persona, he's got something of a playful streak and that you have to be careful about how you react to the things he says. If you ignore what he says and look only at what he does, you're apt to see a very different sort of "investor."

    We know, for example, his famous one-liner to the effect that derivatives are financial weapons of mass destruction. Yet he invests in them when he finds instruments priced such that he thinks he can make money. (His affinity for and admiration of Goldman Sachs goes deeper than a well-timed, well-priced investment opportunity.)

    We know, for example, his statements about investing in businesses he understands. Less obvious, however, is his willingness to roll up his sleeves, study up, and do what it takes to make darn sure he's able to understand businesses that intrigue him, such as insurance, and especially the more exotic reinsurance aspect of the business. You actually acknowledge this tendency in Part 3 of your article using a different example. Many say he avoids tech because he doesn't understand it. Actually, he understands the dynamics of tech (hefty investment needs, ever--shorter product cycles, etc.) well enough to know it doesn't appeal to him meaning he often has no motive to bother learning the particulars of the companies.

    We definitely know his recent quotes, the ones you reiterate, about pricing power trumping good management (which sounds like a tortured way of talking about economic moats, a term that has become vastly overused today to the point where it's easy to see why he'd prefer to dodge a cliche). Yet he has made many other statements over the years expressing the importance of good management, even to the point of often bragging about how he won't acquire a company outright unless it has a management team that can and will remain in place. (He hasn't always been right, but I can't think of a time when he went in on day one knowing he was buying into managerial mediocrity.) Those who watch what he does, as opposed to what he says, likewise cannot help but notice a that he has over the years invested in companies in brutally competitive areas that do, indeed, have to sweat every time they try to raise a price.

    We know, for example, how he says he values fundamentals. We also know he values speculative trading opportunities, as evidenced by his inclination toward speculation in silver.

    Ultimately, Buffett has done a magnificent job crafting a homespun folksy image -- the Norman Rockwell of investing -- that investors love and revere (hence the frequent presence of Buffett-inspired articles on Seeking Alpha). If I were the dean of a business school, I'd probably want to add to the curriculum a course in public relations that focuses entirely on Warren Buffett.

    The reality, though, is that much of Buffett's success comes from just plain raw genius, as opposed to particular set of rules, or principals or guidelines. Perhaps the most poignant thing I ever heard him say about himself was about how lucky he was to be alive at time when the only skill he had, allocating capital, could be valuable. Had he been born with that skill at other times, he said, he might have just become lunch for a wild animal.

    The guidelines so many of us associate with Buffett are fine and many investors would improve their lot if they were to use them. (Actually, looking at the 100%-owned Berkshire businesses may teach us a lot more than looking at the equity portion of the insurance unit's portfolio, which is what so many Buffett watchers obsess on.) But nobody should assume they are actually investing like Buffett, unless they own Berkshire stock.
    Feb 23 11:13 AM | 18 Likes Like |Link to Comment
  • An End To Our Relationship With Yahoo, A New Era For Equity Research [View article]
    "As long as you're changing your rules/format, I would encourage you to limit the number of articles published by the same authors (we all know who they are) who repeatedly publish totally "useless" garbage. I don't think it's done for some minor compensation, but for ego reasons or (for money managers) to attract new clients just from replication of their names/faces over and over again.

    These articles actually harm the reputation of your website. "

    Wow, and I thought I was the only one bothered by authors who publish a huge number of articles. Aside from some that are obviously generated in order to demo product, I'm quite concerned about the obviously human authors who do it. I know how much time and effort it takes to do a legitimate analysis, and in the past year or so, my pace of SA submissions (never more than modest) has dramatically slowed simply because I don't have time to do much. That leads me to wonder if the high-frequency-human publishers do it because they have nothing better or more lucrative to do; i.e. are unemployed and looking to scrounge pennies-per-page view from wherever they can. (I always figured if I ever had the misfortune to find myself out of work, I'd amp up my SA output; and assuming SA is still going strong when I retire, as I hope, I'll definitely contribute more.)

    I have no problem with products or managers promoting via SA publication (that's pretty much what the author base was back before SA started paying contributors); promotion is part of life and commerce and this is a pretty good way to show what you're about or what your product is about. But with the others, high-frequency publishing sends a horrible brand message. I was all set to subscribe to a newsletter published by a guy I follow, but when I opted to accept SA's real-time alerts of articles from particular authors, that was the first time I perceived how frequently the guy publishes. That caused me to refrain from subscribing because now, I wonder if he's really as good as my first impression suggested.
    Jul 25 03:22 PM | 17 Likes Like |Link to Comment
  • Investors In Common Stocks Must Get Valuation Right; Here's How [View article]
    It would seem that the same conclusion could be reached a lot more quickly by going to Yahoo! Finance and noting that the PEG (PE to estimated LT Growth) ratio is 1.31 for SHW and 0.70 for CSX.
    Mar 9 01:53 PM | 15 Likes Like |Link to Comment
  • Herbalife Throwing Money At Its Problems [View article]
    "The facts are the facts -- Ackman is short, no question about it. And, he's preaching his case the same exact way that longs preach their case on a million different stocks every single day."

    Really? Please name, one by one, longs who preach their cases on a million different stocks every day through the sort of PR blitzes mounted by Ackman. This request isn't nearly as burdensome as it might seems. I suspect the headcount is somewhere around zero.

    So what exactly is your argument? Are you suggesting that a company that tries to defend itself against an unprecedented PR campaign openly designed to destroy the company and drive its stock price to zero is evil? Longs aren't giving you grief because you're short. They're giving you grief because they reject your logic.

    And as to disclosure about where sales go, who cares! What planet are people living on? I assume that 100% of the products sold by HLF are used by those who are called distributors and the whole MLM thing is a cute and in my opinion silly game. (Personally, I have more respect for product distributed through more conventional channels -- but that's me.). That's why I'm not a fan of the business and don't own any of these stocks. But the fact that I don't like a business doesn't make it a scam.
    Feb 28 11:42 AM | 14 Likes Like |Link to Comment
  • Why Isn't Microsoft's Strategy Working Anymore? [View article]
    Sometimes, I wonder it there is a tendency to over-strategize. I'm not a tekkie, not even close, but I have noticed that over the years, my willingness to use or not use Microsoft has more to do with how good it is than with all the fancy strategies, business models, market positionings, and so forth.

    Example: IE vs Netscape. About a decade or so ago, when I was doing a rock music web site for an ex girlfriend, I noticed that it was so much easier to code fancy effects on IE than Netscape. So I became a fan of IE. It had nothing to do with Bill Gates' behaviors or strategies. It was simply s mstter of IE being more workable. Period. Later, when my web design days had passed, I switched to Firefox because I like tabbed browsing. I had no political bone to pick with Microsoft. When IE 7 came out with tabs, I checked it out. But I hate it because it feels too heavy and takes much longer to load. Again, nothing fancy, I'm just picking the product I like better.

    As to Excel vs 123 and now Open Office, I favor Excel becase it kicks you-know-what in terms of its ability to macro. 123 never made it our of the stone age. Open Office is pretty good, but still not quite there. So again, I'm just going with what works better for me.

    I have an iPod and not a Zune. Do I even have to explain!

    On my last laptop purchase, I had it set up with XP, not vista, because I wanted it to move at reasonable speed.

    As to wintel vs mac, I still remember during the heyday of the battle being at Kinkos with a Mac and trying to figure out how to take a floppy disk out of the drive. After nearly half an hour, and when I was starting to slid a pen into the drive to pry it out, some Mac fan had mercy and came over to show me I had to drag the disk drive icon to the trash. Oh yeah, THAT was intuitive! (I assumed doing so would erase the contents.) And of course there was Conflict Catcher software to correct crashes that strategists tell us never occur with Macs; those obsolete one-button mouses; the absence of a delete or backspace hey (I can't recall which) on the Mac keyboard ... hey, Microsoft and pc didn't win only because of predatory practices. There are many who find Apple computers to be long on boasting (and long on pricing) but short on delivery.

    Going forward, I think the prescription for Microsoft is really quite simple. Don't su**! If they put out good stuff, they'll do fine. Too few observers give them credit for this as they rose to prominence; yes they imitated and yes they marketed, but often in the glory years, they were a bit better, way more so than critics admit. If they put out junk, they'll flounder. It's really quite simple and more important now, with the industry mature, than it was in the days when they could make so many first-time sales.
    Jun 8 10:16 AM | 14 Likes Like |Link to Comment
  • Netflix CEO Reed Hastings Responds to Whitney Tilson: Cover Your Short Position. Now. [View article]
    Personally, I don't have a position in NFLX stock and don't care which way it goes except insofar as this bull-versus-bear debate makes for a nice spectator sport (hence my reason for reading the Tilson article and this one)..

    But I have to say I'm very deeply troubled by this particular piece.

    I've been an analyst since 1980 and over the years have had countless conversations with executives -- one on one, in meetings and on conference calls -- and have never seen any executive, much less a CEO, come straight out and issue a specific recommendation for his/her company's stock. Generally, it is presumed management is bullish. The typical course if for the executive to explain the company's business, discuss its opportunities, and address the risks but at the end of the day, keep hands off when it comes to saying "buy" (or "cover the short") with respect to the stock.

    That could easily have been done here with some modest editing. I presume Mr. Hastings vetted this with Netflix legal and I'm a bit surprised they didn't edit or if they did, I'd be surprised Hastings rejected the edits. All that needed to be done would have been to delete the cutesy language wherein Hastings encourages his good buddy Tilson to cover the short.

    Yes, I know there's a safe harbor disclaimer at the bottom. Perhaps the lawyers said that was enough. In a strict black-and-white sense, it is. But while the law may not have been violated here, good sense and executive etiquette were definitely trampled, and if corporate lawyers and executives are going to take the position that pasting in some mandatory legal boilerplate is sufficient to allow CEOs to do cheerlead for their stocks, that would be sad. I'm sure the lawyers who allowed this to go through are familiar with the phrase "slippery slope." I think Hasting just delivered an important kick to start this aspect of securities law moving down the first part of the hill.

    And by the way, from my own experience, the few CEOs i did encounter over the years who did edge close to the line of accpetable comemenatary (albeit none nearly as close as Hastings in this case) . . . well, let me just say owning a portfolio of those stocks would not have turned out to have been wise.

    Reed, judging by your photo, you're obviously young by CEO standards, quite young. Please chalk this thing up to youthful error and don't repeat. Again, you should talk about and even advocate for your company. Just stop giving advice on NFLX stock. when you get into habit of standing so close to the edge of legality, sooner or later you run the risk of losing your balance and falling over in the wrong direction.
    Dec 20 09:23 AM | 13 Likes Like |Link to Comment
  • It's Official: Mr. Market Believes Apple's Growth Story Is Over [View article]
    "Mr. Market really doesn't think Apple is capable of further growth, even though he won't admit it"

    This is not correct.

    Valuation starts with PE but is about much more than that. Apple's price/sales was 3.6 as of yesterday's close, and that is very high; the SP 500 median is near 1.5 and the median for hardware makers is about 0.6. Amazon, the e-commerce giant Apple is aiming to compete with via iTunes, has a price/sales of 2.0. So when it comes to growth, in terms of selling product, Mr. Market continues to see Apple as a stupendous powerhouse.

    The low PE tells us Mr. Market questions how long Apple will be as effective at turning sales to profits; i.e., how long its margins can stay so high (well above what would be considered good in hardware or e-commerce). Mr. Market believes Amazon will continue to sell gazillions of gadgets but expects the level of profit per gadget to diminish over time.

    Is Mr. Market right? Father Time, the ultimate referee, will eventually render judgement. Meanwhile, authors and readers can have all the fun they want debating (arguing) over whether Apple's margins are or are not at the top of a mountain looking downward. And the advantage is that this theme would actually make sense and would be much more likely to help the SA community look at Apple in a more analytically sound way.
    Jan 25 09:31 AM | 11 Likes Like |Link to Comment
  • The Misplaced Mania Over Dividend-Paying Stocks [View article]
    I think the article falls into the "all else being equal trap."

    If all else is equal, then the author is correct and money paid out by a corporation reduces its value by the amount paid thereby resulting in a neutral outcome. But in the real world, all else is usually never equal. We have two big issues along these lines when it comes to dividend policy:

    1. How much can shareholders earn on dividends they receive vs how much can the corporation earn by retaining and reinvesting the money? Responsible executives are supposed to pay dividends if they believe shareholders can earn more, and this necessarily varies from company to company. Some bona fide growth companies make reasonable decisions to retain. Others retain based on corporate macho and squander the resources.

    2. What are the implications for risk? Dividends paid give shareholders opportunities to fine tune their risk profiles by shifting some return out of equities and into other assets. Failure to pay dividends forces and all or nothing stance viz. equities.

    3. Consumption is a legitimate use of investment return. The article presumes supposes the economic utility of consumption is zero. We live in a world where people have personal expenses, not a world of investment textbooks. Real people in the real world can't always reinvest 100%. Dividends are one way to raise cash for consumption.

    I find this, and other similar seeking Alpha articles interesting in that they are 180 degrees the opposite of the sort of things I was reading back in the 1970s when I was in school; back then, companies that didn't pay dividends or paid very skimpy dividends were put on the rhetorical defensive and were constantly being pressed to justify themselves. Go figure.
    Jan 10 09:09 AM | 11 Likes Like |Link to Comment
  • Apple's Valuation: The One Article Every Investor Should Read [View article]
    What a preamble!

    "This will be one of the most important articles I'll ever write on Apple's (AAPL) valuation, and it's the one piece that every individual investor should read. . . . "

    It's a shame an article so boldly introduced fails to address one of the most interesting aspects of AAPL's valuation, the stark divergence between AAPL's P/E ratio (and others in the P/E family) and its P/S ratio, which is quite high relative to Apple's traditional hardware business and its newer specialty retail business (iTunes).

    While P/S is not the default metric of choice for valuation (as many learned the hard way a decade ago), it remains very valuable for the insights it can sometimes provide in odd cases, such as this, where pretty-much anyone who can spell PE knows Apple's PE ratios are low, yet an obviously huge contingent among those who invest real money persistently refuses to move them higher. (I seriously doubt there;s an investor out there who will read this article and say "Holy cow, I thought AAPL was trading at 30-50 times earnings. Now that Andy Zaky tells me the P/E is only in the teens, I've really got to back up the truck and buy a ****load of AAPL shares!"

    You correctly observe, in the article, that you "have repeatedly stated that the only valuation metric that matters is the one the collection of fund managers care about." Yes. Now you need to actually do that by addressing the P/E - P/S relationship and discuss why you think fund managers are wrong when they refuse, as they are obviously doing, to push the stock higher; a move that would raise the P/E (which would, in a surface-level analysis) seem OK, but which would also push the already-very-high P/E up to even greater heights.

    I think you owe it to your readers to go beyond the surface when you describe your article as "the one piece that every individual investor should read."
    Jun 7 11:57 AM | 11 Likes Like |Link to Comment