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Marc Gerstein  

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  • Dissecting Sirius XM's Subscriber Picture [View article]
    I subscribed to Sirius mainly for Howard Stern and some other talk stations (a couple of sports and comedy), but was quite surprised to find myself spending more time listening to music. It wasn't immediately evident to me why this came about, but I eventually figured it out. Sirius stations often were playing songs I don't have on my phone or iPod and would never have thought to program for on Pandora. In fact, Pandora drives me crazy as did a similar music service Yahoo used to offer (still?); I constantly kept hitting the forward button wondering if I'd like the next song better.

    Bottom line for me: There is a HUGE difference listening to music as audience vs. working at it as a program director. Sirius allows me to just relax into it as audience. Pandora makes me be a program director and isn't even paying me a salary, and frankly, when it comes to music, the program directors at the Sirius stations are a lot better at it than I am.

    Apparently, many others also feel like they are getting good value. In subscription businesses, churn can never be expected to be zero, the the churn rates SIRI has been experiencing, are, frankly, terrific. It doesn't kill the perception of the gross subscriber additions number. The market knows how to look at these things and has long been accustomed to tracking trends in churn.
    Nov 5, 2012. 07:00 AM | 9 Likes Like |Link to Comment
  • The Inefficient Market Hypothesis [View article]
    "by publishing this data - these various strategies are now known and therefore are priced out of the security"

    Relax . . . the author didn't give away any classified secrets. These and many other factors have been widely known for years.

    "millions of eyes and ears focused on the market - not to mention the machines - they don't miss much"

    You'd think that would be so, but reality can throw some interesting curves. Inefficiency doesn't only come from what the market misses ( the larger the market cap, the less it misses). A lot of inefficiency comes from things the market sees and understands, but doesn't care about.

    In fact, phenomenon like CNBC et. al. and the hyper-attention to the earnings guidance game and more recently, the machines may as time passes increase the opportunities for individuals who seek to profit from market inefficiency. You'd be amazed at how un-hip basic fundamental analysis has become given the way modern institutional research groups have come to be dominated by mathematicians, physicists, engineers etc. who can invert a matrix or compute an eigen vector with one hand tied behind their back but who can't spell EPS or PE, and are quite proud of their lack of understanding of fundamental analysis (deriding them as "heuristics"). Another factor is the increasing prominence of folks who care more about technology than fundamentals and are more interested in the gee-whiz effect than actual investment performance (Did you know that if you study and model unstrucutred text in an effort to predict bankruptcy, you'll find that such expressions as "we may default" or "we may have to file for bankruptcy" are statistically significant prediuctors of bankruptcy? I learned this recently at a product pitch given by one of the major institutional research organizations. Seriously. I can't make this up. I'm not that creative!)

    Right now, we're all in a rocky period given the way macro events are playing out. But long term, I think things look better than ever for individuals and others who seek to benefit from market inefficincy, not becasue the big boys can't get it right but becasue their heads are so far up their you-know-whats, they'll choose to not get it right.
    Jul 25, 2012. 04:42 PM | 9 Likes Like |Link to Comment
  • 'Buying Dividend Stocks For Income' Arguments Don't Make Sense [View article]
    I'm really scratching my head over this article. Much of it seems dedicated to refuting ideas I suspect few, if any, readers have. There is a wide variation in the level of experience among Seeking Alpha readership, but it seems like you're aiming well below even the novices here; as if you're writing for AOL Finance circa 1998 (or any one of a number of other finance sites from back then that have long since and thankfully vanished) rather than seeking Alpha circa 2011.

    My specific problem is with your conclusion: "The problem is in looking at high dividend stocks they are looking in the wrong place. There is an asset class that fits the above criteria better than high dividend equities. It is high yield bonds."

    If you want to advocate high-yield bonds, OK. Then do so. But you would owe your readers a heck of a lot more analysis than a single sentence at the end of an article telling equity income investors why they shouldn't do things they already know not to do.

    High-yield bonds are not by any means so simplistic as to justify a throwaway line like you provide. They, too, get hammered in recession, and more so than many realize.

    Here are some factors relevant to consideration of high-yield bonds.

    For starters, published "default rates" drastically understate the potential for loss. Back when I managed a high-yield fund, I used to joke that default rates stayed below 4% because once the 4%, level was reached, everyone stopped counting. There may actually have been something to that since there is no official default-rate compilation; each advocate can use his/her own number based on his/her own definitions. And therein lies the problem. Junk bond investors can, do, have, and will continue to sustain huge losses based on events that never qualify for lawyer-like definitions of default, which is where many writers converge. Market prices for bonds can drop to 20 cents on the dollar and often less based on fears of defaults that never actually happen, and in many cases they never recover because to avoid default, the bond terms are renegotiated in ways that permanently damage their values (institutional holders often consent to changes rather than risk bankruptcy where 100% losses can and do occur).

    Credit-protection covenants in junk bond documentation are worthless to all except lawyers who bill by the hour drafting them. If things get dicey, management will always offer to tweak the coupon upward a tad in exchange for modification or waiver and institutions fall into line to vote "yes" because they always want that higher coupon so they can bank what they can before the thing goes totally belly up.

    If you check publicly-traded junk-bond funds like JNK, you'll see they, too, traded a lot lower during the 2008 disaster.One may be tempted to note that many income stocks fell further but be careful. With the stocks, at least we KNEW what the prices were. That is absolutely positively not the case with junk bond funds. Many of those bonds don't trade every day, and liquidity dries up even more during bear markets. The problem is that open-end funds must price all their positions every day, so they rely on pricing services to come up with numbers. When I was running my fund, there were two approaches. One group of pricing services polled trading desks for estimates (dreams?) as to what the bonds might sell for. (When we tried doing it on our own, we heard traders sometimes laugh as they pulled numbers out of their a**es). Ultimately, because this approach could be so flaky, there was a shift to other services that relied on "matrix pricing;" mathematical estimates of where a particular non-trading bond ought to trade based on data relating to observed trades. It cut volatility (the models often didn't budge during dry periods) and, hence, appealed to fund companies. Fortunately, for high-yield investors, the last crisis was pretty short. If the next one lasts longer (length of crisis being more important than depth) and redemptions get heavy, we could see an spectacular disaster in that corner of the market as bonds listed for NAV purposes at, say, 65 on day one get blown out at, say, 15 on day 2 in order to raise cash (this, as I'm sure you know, is essentially the way many hedge funds blew up in the late 2000s).

    Another interesting thing about the high-yield market is priority of protection. Legal textbooks tell us debt comes ahead of equity. In the real world, though, don't be so sure. Bank debt is, indeed,well protected since those obligations do sit at the top of the cap structure and are are privately negotiated, meaning harder bargaining by a smaller number of creditors better equipped to protect themselves who are not limited by SEC disclosure rules in what they can learn since those loans are not in the public markets. Next in terms of "practical" protection comes equity because management holds equity and looks to protect their interests as best they can, often meaning they'll take on as much risk as banks will allow because they can get some serious upside when things work well. Junk-bond holders are bottom of the barrel: these are publicly-traded instruments so creditors can't get info outside the SEC regulatory context; there are many creditors most (probably) all of whom don't negotiate directly with management and depend on a representative to bargain fro them (often piggy-backing on the structures of deals crafted by the banks), and they face a lopsided risk-reward profile; when things go bad, they get totally shafted worse, but when things go well, they can't prosper as can equity holders (the class management represents).

    Bottom line: There is a lot to the high-yield bond market. Perhaps you or others might want to debate some or all of these points. Fair enough. These are my opinions drawn from my experience. But one things is not debatable. It's wrong to offer nothing more than the throw-away one liner you stick at the end of this article.

    Oh, and forget the line about suggesting people should limit high-yield exposure to 5% of their assets: "I would doubt anyone should hold high yield as more than 5% of a portfolio but few investors hold even that. Most of the arguments above also hold to investment grade bonds which also merit a look see my earlier article." I haven't seen you other article, but regardless of what's there, the question remains: Why on earth did you publish this one? Your suggestion that "doubt anyone should hold high yield as more than 5% of a portfolio" seems to me like something you came up with to try to fend off negative comments. Had you really thought high-yield to be worth such a low stake, why did you use that as your punch line. Why didn't you refer to investment grade bonds in the body of the article?
    Sep 2, 2011. 02:43 PM | 9 Likes Like |Link to Comment
  • Why I Am So Bearish: Time to Be a Deep Value Investor [View article]
    "The S&P 500 Index is basically where it was on April 1, 1999, so as an index investor you basically would not have made a dime since 1999 and not only that but would have gone through not one, but two rollercoaster rides that would have caused you some serious stress. Therefore being a passive investor has proven to be the wrong policy to take in the last decade."

    That has nothing to do with passive investing. A decision to continuously emphasize big-name large-cap stocks is a very active decision; a bad decision in retrospect, but definitely not a passive one.


    "investors are totally ignoring the multiple negative catalysts that are showing up in droves."

    Can you cite a single day since the beginning of recorded history (which, I suppose, we can pinpoint to Sumeria or some comparable point in time) where humanity hasn't had to cope with at least eight major worries (eight being the number listed in the article to which you link). I'm not being flippant here. I can still recall, when I spoke back in 2002 to financial reporters seeking prognostications, the hostile and nasty reactions I got when I tried to make a bullish case notwithstanding a huge catalog of worries. Ditto early 2009. When I was younger, I, like many, trotted out all the horrible worries plaguing us during the summer of 1982. Bulls were likewise scorned in 1975 for ignoring worries.

    Bear markets, or even significant corrections, don't simply happen because of a catalog of worries. Those are ALWAYS present. They happen because of very specific problems that go directly to the heart of the market.

    I share your worry about the level of stock prices, but my reason is much simpler.

    Stock prices ran too far ahead of fundamentals following the recovery surge that started in 3/09. This is normal following bear markets. That's why initial surges are often followed by corrections or significant sideways movement. We've only had smaller-than-usual doses of both, meaning we continue to need some sort of price-correcting behavior. It could be a decline. It could be stagnation. It could be alternating periods of both. The other possibility is that fundamentals strengthen more quickly and substantially than many expect, but that seems a long shot.

    By citing different reasons for being concerned, I'm not making a mountain out of a molehill. Those who are bearish for the reasons you cite will inevitably remain bearish long after the time comes for them to get back into stocks (those who wait for worries to vanish will have no choice but to stay on the sidelines forever). Those who are bearish because of a here-and-now misalignment between stock prices and fundamentals will have a proper framework for recognizing when it will be time to switch back to a bullish stance. So even assuming bearishness is the right answer, it's also important to have the right reasons.

    Commenting on some of the woes you cite:

    Employment remains weak, but his alone won't bust the market. We've been upwardly revising our notions of structural unemployment for a generation now given globalization and increased productivity. To build a bearish case on this, you'd have to cite why one specific level of employment woe, as opposed to others, can serve as a tipping point.

    QE2 or 2+ or whatever may become a problem or it may not. Increased money supply can lead to higher price levels or increased economic activity or as more typically happens, a combination. The big variable is the velocity of money. We know how to analyze velocity after the fact but unfortunately, we've proven remarkably inept at forecasting it in advance or tailoring policies that can push it where we want it to be. This is why Fed-bashers have so often been left baffled by the market's refusal to act as they thought it should after injection of liquidity. Adding complexity is the fact that even if we do get the forecasts right re: economic activity and inflation, we still don't know the impact on stock prices. Inflation pushes valuation multiples downward. Increased activity pushes earnings upward. Balancing those opposing considerations is enough to make any forecaster reach for a Tylenol.
    Apr 5, 2011. 10:53 AM | 9 Likes Like |Link to Comment
  • The Prudent Yield-Hog: Pushing The Envelope [View article]
    I'm going to write about more specifically a lot of these companies, but one thing I can tell you about CEL is that the payout ratio around 100% doesn't bother me because of the role of non-cash expenses. The dividend is actually about 58% of cash from operations minus capex.
    Mar 4, 2011. 09:10 AM | 9 Likes Like |Link to Comment
  • Jim Cramer Master Class [View article]
    Oh my.

    How many investors (individuals or pros) construct a portflio with the sort of allocations you suggest: "18% Russell 1000 Growth, 29% Russell 1000 Value, and 53% Russell 2000 Growth."

    Look, I'm not a Cramer groupie. But come on. I think you;re straining way way too hard to bash the guy. In fact, your point comes across more like a sucker punch.
    May 21, 2009. 11:59 AM | 9 Likes Like |Link to Comment
  • Does Shareholder Lawsuit's Failure Vindicate Herbalife? [View article]
    Watching the HLF longs and shorts continue to duke it out . . . cool . . . this may be the most entertaining spectacle since gladiators carved each other to pieces in the old roman forum. All that's missing now is for Caligula to signal thumbs up or down as to whether Ackman lives to fight on or gets executed.
    :-)
    Mar 19, 2015. 05:23 PM | 8 Likes Like |Link to Comment
  • There Is Nothing Rotten About This Apple [View article]
    "Once you are tied into the ecosystem, it's not very practical or necessary to change,"

    Have an iPad. Naturally, I got a bunch of apps.

    When it came to retire a junky Blackberry, I decided I couldn't bear to deal with the tiny iPhone screens so I got a Samsung. Perhaps my biggest surprise was how EASY it is to change ecosystems or in my case, have two simultaneously. Most apps are free and even the pay apps, even the more expensive pay apps, amount to chump change. apple ditched DRM on music a while back. With my most expensive app, Documents to Go, I didn't even bother to try to see if I could apply my iPad registration to the Samsung. I just paid again; no big deal.

    That's the dirty secret of wireless ecosystems. These aren't moats. they're puddles a three-year old could easily step over.

    " and many consumers prefer the walled garden of the Apple ecosystem to the open nature of Android."

    I know I heard that before . . . . oh yeah . . . AOL, circa 1999.
    Apr 23, 2013. 07:33 AM | 8 Likes Like |Link to Comment
  • The Prudent Yield-Hog: Pushing The Envelope [View article]
    I'm perplexed at what you want to know that you aren't getting. You acknowledge that 27 factors are listed along with their weightings. How is that a black box? I'd say that's about as clear a box as you're likely to see on Seeking Alpha or, I suppose, any source of market commentary. Did you also check the first (March 1) article on this model? That one had more in the way of general approach. Generally speaking, though, the word safety must be interpreted in the context of this openly yield-hog strategy. Diminished probability of a near-term cut is all I seek (and since the model is meant to be re-balanced every three months, I define near-term as three months).

    "with the exception of Vector Group, none of these stocks has a dividend-increase streak as long as five years. So how safe are these yields"

    Last five years? We've had a horrendous financial/economic crisis that walloped dividends all over the place. You can certainly stand firm and demand five years of increases if you wish, but you will not be pursuing a yield-hog strategy. That's fine. There are many different kinds of income strategies and I've written about others too. But each strategy needs to be evaluated in terms of what it seeks to do.
    Mar 7, 2011. 09:11 AM | 8 Likes Like |Link to Comment
  • Just One Stock: The Small Manufacturer Dominating the Rescue Hoist Market [View article]
    I'm not sure if this should be directed to Mr. Vanasek, the hedge-fund manager or Mr. Aycok, the Seeking Alpha editor, but here goes:

    Why is this stock being featured in this high-profile editorial context? What am I or any other reader supposed to do with the information?

    Is there a hope that readers will be interested in learning more about the hedge fund and, possibly, becoming investors assuming they are qualified in the context of hedge funds?

    Is there an expectation that readers will find the stock appealing and want to buy it?

    In terms of the latter, I have to frankly confess that I didn't really absorb much from the discussion of the company because I couldn't focus; I couldn't get my mind away from the horrible liquidity (Does the fund REALLY have a 35% return; is there any chance such a return could actually be realized absent a private buyout?) and the possibility that the company may go dark.

    Even if a buyout can be arranged and a nicely profitable selling opportunity surfaces, there remains the question as to whether it would be worth the risks associated with liquidity and going dark. There are plenty of other fish in the sea, even in the sub-micro segment of the market, that have produced comparable or better returns without these special risks.

    I'm completely baffled by the point of this piece.
    Jan 12, 2011. 06:02 PM | 8 Likes Like |Link to Comment
  • An Undervalued Micro-Cap Dividend Stock With a 9% Dividend Yield [View article]
    I like the idea of an undervalued micro-cap with a big yield but have trouble with this one.

    For starters, the company fundamental data in the tables, while accurate, is misleading because of a huge Jun qtr. 2010 one-time tax credit that more than doubled EPS. That distorts the growth rate, the returns, and the PE.

    I'm also a bit perplexed by the dividend policy. It seems this company is quicker than most to skip payments in the occasional periods when earnings are weak. In a very strict textbook sense, that might be argued to be a sound policy, as opposed to the usual practice most companies follow wherein they try to smooth things by maintaining the dividend even in bad times if at all possible. But as theoretically sound as management's practice (letting the dividend vary more closely with earnings) is, it does detract from the 9% yield. You have to assume there will be quite a few missed payments as you hold the shares that will bring your realized yield below 9%.

    The stock may still be fine. I haven't taken the time to re-work the numbers with more realistic assumptions. But I do think a substantially revised analysis would be needed before one could make a case, whether income or otherwise, for CLCT.
    Dec 3, 2010. 04:02 PM | 8 Likes Like |Link to Comment
  • 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
  • Why Apple Stock Makes Me Nervous [View article]
    Typo alert?

    "But as an investor, the current valuation of Apple shares ($260.83 at market close on June 1, with a peak on April 26 of $272.46) makes me nervous."

    Surely you meant to comment on the stock's PE, rather than just the price level. Right? (wink, wink)
    Jun 2, 2010. 02:06 PM | 8 Likes Like |Link to Comment
  • Wow: Judges Now Nixing Lenders’ Foreclosure Claims Entirely in Court [View article]
    Actually, anyone interested in this situation should read the complete Gretchen Morgenson article. The summary provided here is completely unsatisfactory.

    The extent of PHH's inability to establish its legal status as a creditor was quite substantial, so much so, that a ruling in its favor could easily open the door to courtroom larceny; foreclosures initiated by fake mortgagees.

    I have no idea from the facts described in the Morgenson article if PHH is legit or a fake. Apparently, the judge who studied the full evidentiary record, was not persuaded.

    It is possible that PHH is for real. If so, and if they are going to sustain an unjust loss, it looks like it would be their own fault for not properly following standard age-old procedures for documenting their legal rights. Sorry PHH, but being in a hurry to cash in on a securitization boom is no excuse for failure to follow clear procedures that are well understood even by first-year law students.

    And sorry Edward Harrison and Grechen Morgenson, this is not an aspect of a debtors revolt.It's just a matter of the legal system doing what it's supposed to be doing, applying the law. This is not just a technicality folks. This is very serious.

    Actually, in a sick way, I sort of hope PHH wins on appeal. There are a lot of really really nice homes in my area. If I can foreclose on them without having to prove I own the mortgage, wow... the heck with investment research. I'll make a heck of a lot more money through court-sanctioned larceny. Who knows, maybe this can be so big, a bunch of us seeking Alpha writers and readers can get together to form a company to do it, and even raise money in an IPO! Perhaps Trump Tower can be our first phony foreclosure.

    I like this . . . com on PHH . . . win that appeal!!!!!!!!
    Oct 25, 2009. 03:09 PM | 8 Likes Like |Link to Comment
  • Commodity Index Funds: The Good, The Bad and The Ugly [View article]
    Contango refers to a situation wherein a futures contract trades above fair value, which is computed based on the spot price,interest rates, and time to expiration. At expiration, the contract's value must necessarily equal the spot price.

    Because commodities are futures contracts with expiration dates, no investor can buy and hold. The best they can do is rollover into a new contract as expiration approaches. when contango is present,they'll pay a premium to do this, and that can really cut into the returns one might expect to see based solely on examination of spot price trends. (Backwardation is the reverse, where the futures trade at a discount to fair value and rollover creates a bit of a windfall. But in rising markets, contango is more likely.)

    That said, i stilll would not necessarily describe commodity ETFs as speculative (I'm not a fan of the ETN). Whether they are or not is as we see for stocks; it all depends on what's happening in the market. Sometimes, commodities attract huge amounts of hot money investing and reach prices that are, indeed, speculative. Other times, when the hot money goes elsewhere, commodities can look quite conservative. It's just like stocks. Instead of relying on a pat formula, one must look at what's going on.

    My personal opinion is that right now, commodities look fairly reasonable. The next significant move in global demand for tangible goods is more likely than not to be upward, supply seems unlikely to keep pace, and the ot money that was all over commodities a few years ago seems to now be sitting in the spectator section. As to contango, look at how an ETF handles the last commodity rally. It'll provide a clue as to how effective their rollover strategy (how close to expiration they go before doing the rollover and how far out they go with the new contracts) has been. Chances are it won;t change since these rollover protocols are locked in via prospectus; ETFs don't have fund managers playing hunches. But that's my opinion. If I'm wrong, it will probably be because I'm too optimistic about economic prospects going forward.

    As to blanket statements that one should have 5% in commodities, I reject all statements that suggest X% in such-and-such asset class. In all case, the appropriate % depends on the risk-return inclinations of each investor, and, of course, market conditions.

    Commodities aren't magic. It's just another investment and like others, it should be subjected to basic fundamental analysis (and technical for those into that) and favored when the analysis says "yes" and avoided when the analysis uncovers too many red flags. (By the way, I think the importance,nowadays of tangible goods production is why we've seen commodities become much more correlated with stocks.)
    May 11, 2009. 12:07 AM | 8 Likes Like |Link to Comment
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