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Marc Gerstein

 
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  • A Triple Play Income Strategy [View article]
    Right; there was another comment above that also referred to using options. I'm not especially experienced with that sort of thing, but it does seem to be a worthwhile part of an income-seeker's arsenal. With market rates and yields as low as they are, having more strategic alternatives is definitely preferable to having fewer.
    Feb 7 10:52 AM | 6 Likes Like |Link to Comment
  • A Triple Play Income Strategy [View article]
    I'm not sure what leads you to assume I advocate chasing yield for yields sake. Recall this from the article: "So be careful about being a yield hog. That approach is risky . . . for real!"
    Feb 4 10:16 AM | 6 Likes Like |Link to Comment
  • A Triple Play Income Strategy [View article]
    I hear you.

    The junk bond component is the easiest component to swap for something else. I presume you've been cautious about the REITs pending more comfort on their prospects and dividend-paying capability, but MLPs seem like a good vehicle.
    Feb 2 05:36 PM | 6 Likes Like |Link to Comment
  • Just One Stock: The Biopharma Veteran Facing a Landmark Stem Cell Trial [View article]
    At the end, you assert that if the company's trials don't produce substantive clinical results, they "better not come back, hat in hand, anytime soon or I'd view that as troubling."

    I'm a bit perplexed.

    As you say, cash is about $100 million and the burn rate has been about $50 million. There is no serious day to day revenue-producing business, so for all practical purposes, this is a publicly-funded R&D shop. Thar's OK as long as investors understand this.

    That being the case, how can they possibly avoid coming back to the market, probably several more times, regardless of clinical progress? What impact night the launch of HESC trials increase the burn rate? How long might it take, even if all goes well, for their efforts with HESC or telomerase to produce revenues and operating profit? Is there any other potential source of revenue/operating profit on the near-term horizon?

    Frankly, I find this stock idea intriguing (though I find it hard to see it as a just-one-stock sort of thing). But if I were going to own it, I think I'd have no choice but to understand that it is, as noted, a publicly-funded R&D shop and I'd have to accept and get comfortable with that, and this would involve accepting and getting comfortable with the fact that there is probably going to have to be a truckload of new funding coming down the pike regardless of the pace of progress.

    Also, I think I'd need a more realistic attitude toward timing. Asking this management for a timetable is not like asking Wal Mart to project sales in the next quarter. Does this CEO even know the difference between a debit and credit or the difference between a revenue and an expense? You can't impose a Wall Street timetable on an activity that, in a more ideal world, might better be consigned to a foundation or government or university funded lab.

    I suspect a major risk factor here is the possibility that investors, analysts, and even hedge funds who had unrealistic ideas about what they were getting into, may harass management to the point of distracting them from being as effective as they should be in doing what they're supposed to be doing. The company wouldn't be blameless; having chosen to get public money, they now have to live with the consequences. Either way, I see this as a very substantial risk factor.

    I'm not in this stock, but if I were, there's no way in heck I'd have the chutzpah to whine about more funding or dilution regardless of how much progress the company has shown at the time of funding. Anyone who can't or won't embrace that has no business being in a stock like this.
    Jan 29 08:18 AM | 6 Likes Like |Link to Comment
  • A Look at Valuations of Google, Apple, Microsoft and Intel [View article]
    "let's map out the rough prospects for the tech stalwarts of today going forward,"

    OK. The article did that.

    "to see where potential values (and overvalues) may lie"

    Am I the only one who failed to see any value discussion at all?

    Value investors can and do fight tooth and nail as to how, exactly, to assess value. But one way or another, it all comes back to some sort of effort to link a stock price to a measure of per-share financial performance. I saw none of that here.
    Jan 18 07:37 PM | 6 Likes Like |Link to Comment
  • What Warren Buffett Is Missing [View article]
    I'm baffled by this article.

    Is it an attempt to make a case for GMXR, NRG, and NRG. If so, it's not persuasive because it really doesn't say much about GMXR, NRG or NCI except some guesswork on whether Warren Buffett could or couldn't buy it which, ultimately, is a "Who cares?" issue. The prior article you wrote on GMXR is more interesting and if you want to make a case for NRG or NCI, that's what you should do.

    Or . . . is this some sort of attempt to tell us something about Warren Buffett? If so, I think you need to step it way up considering he's one of the most written-about investors on the planet (and, probably, on Seeking Alpha) and nobody needs a rehash of basics that were voluminously covered over and over again over the last 20 years. That's especially so since those ideas (based heavily on what others believe about Buffett as opposed to what Buffett actually says and does) may not present all that accurate a picture. You assume, for example, that Buffett won't invest in small caps. That's not necessarily the case. He may or may not choose to own them in his portfolio (we don't know -- the holdings that are disclosed are only the largest; there are others), or he may or may not choose to acquire such companies outright. If you look through the record of what Berkshire has acquired over the years, you may be surprised at its periodic non-conformity to the stereotypes. Buffett is not by any means the humble, folksy-Norman Rockwell type of investor many assume he is. He's actually a very hard-boiled go-anywhere do-anything sort, as evidenced by his dalliances in precious metals, structured derivatives, private placements, etc.

    Charlie, the world does not hear about what a student thinks Warren Buffett is missing. On the other hand, some of your other articles suggest a strong talent for analysis, including a willingness to take very bold stances (i.e. your Life Partner Holdings piece) and build your case.

    If you really really really want to join the army of Buffettologists, then you really need to step it up. I'm not sure, though, that this would be worth the effort. You do good work when you evaluate stocks on your own, and I think you have a lot more upside if you avoid distractions (such as efforts to invoke Buffett) and stick with the sort of analysis you've done in your other articles.
    Jan 7 01:01 PM | 6 Likes Like |Link to Comment
  • Forget BRICs, Try Killer BEEs: The Next Group of Big Emerging Economies [View article]
    Cool name and cool idea.

    Now, you need to create your BEE or KillerBEE index, license it to PowerShares, MSCI or whoever for use in an ETF, and enjoy your royalties!
    Jan 6 12:33 PM | 6 Likes Like |Link to Comment
  • How Many Holdings Makes Sense in Your Portfolio? [View article]
    The association of Warren Buffett and portfolio concentration is little more than folksy public relations.

    The list of investments disclosed in the annual reports is, indeed, small. But you have to read the accompanying text. The annuals disclose only those positions for which the value of the holdings is above a certain amount. There are plenty of other positions that are not listed.

    Actually, he does a lot of things contrary to his home-spun value image, including investing in financial weapons of mass destruction (as I recall, his reason for doing so was something along the lines of his having thought the prices were right). In truth, he beats the market by being a damned good hedge fund manager.
    Nov 4 11:37 AM | 6 Likes Like |Link to Comment
  • Triple Play Income Investing [View article]
    I stated in the article that open end funds, or some diversified collection of funds, would be fine. But let's discuss the numbers you produce relating to HGY.To put is succinctly, I have to reject them.

    For starters, I vehemently object to any analysis that looks solely at 2009, an oddball year (an initial surge from a deep crisis) the likes of which is not likely to be seen for a long time (we hope, because it would take another financial disaster to set the stage for another '09-like year).

    Actually, to the extent you want to look at '09 at all, you really have to pair it with '08, the downside. Moreover, data from both years must be taken with a huge grain of salt because of the nature of junk bond pricing. These aren't like stocks. They don't trade every day. Many can go weeks or months without trading. Much of the pricing that goes into NAV calculations come from what is known as "matrix pricing" where a pricing service (all the funds hire one) estimates a daily price for each bond based on its proprietary mathematical algorithm. Interestingly, Merrill Lynch, the proprietor of the bogey you propose, was one of the leaders in this area. Back when I managed an open end junk bond fund, I had actually terminated a contract with a trader-based pricing service (which was just that, prices set by the firm's trading desk based on where they thought the bond might trade if a transaction were to occur) and hired Merrill Lynch. I wasn't necessarily convinced that matrix pricing was best, but as you undoubtedly know, the mutual fund business is brutally competitive and I felt a need to, for better or worse, get on the same pricing basis as my largest competitors. Back to today's discussion: Needless to say, I'm not inclined to place to much stock in the Merrill Lynch High Yield Master II, especially that 57.4% 2009 number; the S&P 500, it ain't!

    There's another issue you miss. Open end funds are much much much riskier on the downside. That's because they're open ended, which means the fund manager must buy or sell based on shareholder inflows and redemptions. And you can bet your bottom dollar that when the market is tanking and bids are evaporating, mutual fund shareholders are NOT bottom fishing. They're redeeming, forcing fund managers to sell low; very low, very very very low; to hit any ridiculous bids he/she can find simply because of the need to meet redemptions. (In years like 2008, none of them have cash cushions that come anywhere close; if they did, the fund directors would take them to the woodshed for letting yield fall). ETFs need not do this.

    You may not have seen this fully reflected in the NAV research you've done. (From what I can see on Morningstar, it's partially reflected.) That's becasue, as noted, the NAVs don't refect actual prices achieved in the marketplace. They are mathematical assumptions. But to the extent of the NAV trends that were published, we see some big drops on the way down in '08 (with '09 being mainly a readjustment), and I can pretty much assure you a lot of open-end junk fund managers did some serious Prevacid or Pepto Bismol intake as their stomachs churned wondering, each day, if their fund would still exist at day's end becasue they knew they couldn't sell holdings at anywhere near the prices assumed inthe NAV calculations. (I actually did get an ulcer during such a crisis. Heck, just thinking back to it now, recalling how I went down to accounting every day when it came time to calculate NAV and standing over the shoulder of the guy who did my fund and literally shaking as I watched the process . . . I still feel a shudder.)

    You can see some impact of this on HYG's pricing. Compare its NAV and market prices for '08 and '09. Notice how the market price didn't go down nearly as much as NAV in '08, but didn't bounce nearly as high in '09. Such exceptional "tracking errors" were not unique to HYG. They happened often in fixed income in gneral (matrix pricing extends beyond junk) prompting the folks at IndexUnverse.com -- the most intelligent Indexation/ETF site I've seen anywhere -- to suggest, given the oddities of NAV numbers, that the market prices might actually have been more reasonable; i.e. based on some sort of price discovery process. Fortunately, the crisis didn't last long enough for that hypothesis to fully examined, but knowng what I know about NAV numbers, I suspect they were on to something.

    So in sum, regardless of what you think you're seeing from open-end fund numbers, I would continue to prefer ETFs becasue for better or worse, we know (i) that fund managers don;t have to blow out their holdings by hitting scavanger bids, and (ii) shareholders can buy and sell at the prices they're seeing on the stock exchange. It's not a big deal in a normal economy so in most year, open end can be fine. But if things are looking bad out there, I wouldn;t be caught dead in an open end junk bond fund regardless of what sort of NAV numbers get bandied about.
    Oct 28 10:47 PM | 6 Likes Like |Link to Comment
  • Africa Opportunity Fund: Unappreciated, Underestimated And Undervalued. [View article]
    This is a tough one. I have the soul of a contrarian and did well in the '80s and early '90s with developing market closed ends (especially in Latin America), and I've always thought, regarding Africa, that someday it has to happen. So far, though, I've been right to sit out two decades while others (e.g., China) jumped ahead. Yet even now, I still think of Africa as someday . . . .

    But here are my concerns about your thesis.

    1. I wonder if your contarian spirit owes more to habit than genuine analysis. I've noticed from my own work that contrariansim isn't what it used to be. In this, the information age, we can still disagree with Mr. Market, but we should work harder to do so. We can no longer simply brush Mr. Market off as the manic-depressive ignoramus he was back when Graham first spoke of the archetype.

    2. In terms of a case for Africa, I absolutely positively hate the resources angle. I know it's tempting to see this sort of thing in a positive light. But for reasons that perplex the daylights out of me, history is not supportive. Throughout history and right through the present, for whatever reasons, resource-rich countries are and remain hell holes. Case in point: resource-rich Africa still, even through the industrial and now post industrial age, being remaining on a slow cart to nowhere. Venezuela, Russia, and Nigeria are loaded with oil. Anybody want to pack up and move there? Israel is the only Middle East nation with no oil, and the only Middle East nation with a functional society. South America has resources, yet migration continues to flow north, not south. And it may even be more than just resources and countries. I've been in the business world and have covered stocks for a lot of years and any time I heard companies boast about being "asset rich" (including some I had worked for), mediocrity or worse followed. Darned if I know why this is what it is (maybe I'll become a sociologist in my next life and figure it out); maybe it ha something to do with resources-asset endowment leading to complacency. I don't know. But until I see resource rich countries find a way to stop being losers, I'd rather invest in the resource-poor countries that prosper by exploiting them. And speaking of exploitation . . . .

    3. I also hate the Chinese-investment-in-... And I'm not the only one who hates it. So, too, do the Africans, who are getting sick and tired of seeing China pour so much money into the continent in ways that benefit only China and accomplish nothing worthwhile for Africans. You know the story of the ugly American imperialist who is universally hated around the world? That was Chapter 1. Chapter 2 looks like it's becoming the ugly Chinese imperialist that's hated around the world with the beginning of the chapter set in Africa. Unless the Chinese suddenly start caring (cough, cough) invest in China, not their commercial victims.

    4. Are you worried, though, about Chinese corruption? You should be. Burt Africa is part of the problem, not the solution; check the research and indexes from Transparency International. But at least China has domestic peace (so far). That's still not the case in important parts of Africa. Heck, I'm still waiting for Goodluck Jonathan (President of Nigeria) to figure out he really needs to change his first name to something more appropriate to his populous but still horribly messed up (thank you England) country; perhaps Lifesucks Jonathan.

    5. Finally, there's the trading liquidity of this specific fund and the miniscule size of the continent's financial markets. Oy vey.
    Aug 16 01:13 AM | 5 Likes Like |Link to Comment
  • Is It Wrong To Take A Position In A Stock And Then Write About It On Seeking Alpha? [View article]
    "Why let everyone know what you own or not? Isnt your portfolio supposed to be kept confident or private away from prying eyes of Wall Street?"

    Yes, absolutely . . . so long as you choose to remain private. But the public markets are subject to certain rules, and when you choose to publicly disseminate your opinions on stocks that you own, you have chosen to waive that right. So if you value privacy, stay private. If you go public, than live with the choice you have made.
    Aug 7 12:28 PM | 5 Likes Like |Link to Comment
  • SodaStream: Why I'm Not Paying $32 For SODA [View article]
    This brings back fond memories -- of an early 1980s cover article in New York Magazine explaining why the personal computer peaked and would never catch on as a mainstream thing. (I'm not making this up: I can still recall the family of four on which the author focused (and held up to sarcastic ridicule) and talked about how the younger child would go every night to sit at his"puter." (And as I recall, even GMCR attracted many a skeptical article like this back in its early days. Ditto energy drinks.)

    FWIW and speaking for myself, I have to disagree with Seth Golden; convenience is a huge factor for me. So, too, is the variety of flavors (I used to drink Cola all the time, now I rarely do favoring instead, fruit flavors.)

    I'm expressing here an opinion on the category, not necessarily the company. If GMCR (or someone else) comes up with a machine anything like the one described by the author, I'll certainly give it a look and probably switch to it if it really is that good.
    Aug 6 08:43 AM | 5 Likes Like |Link to Comment
  • Angie's List: Portrait Of A Catastrophe [View article]
    Very weak effort at analysis; seems mainly to vent personal rage at Angie. (I clicked on one of those pictures assuming it link to a video of the commercial. It doesn’t. Not sure why the author is so obsessed with Angie’s picture.)
    I never heard on the company before seeing this article on SA. (That alone is probably a red flag; I’m on Yelp all the time.) But I was curious to have a look and upon having done so, I saw problems with it that the author failed to include in his inept emotionally-charged diatribe.
    First, while I don’t object to the notion of paid membership (I’m fine with paying for value received), I gave up in frustration trying to find on the site what, exactly, the fees were. Apparently, there is no way I can get to it without submitting my e-mail address. Bad idea. If you make it hard for the prospective customer to price your services, the customer will likely perceive there’s a good reason you chose to do that; i.e., an excessive price. Compounding that, we have no sort of “sampling,” whether that come in the form of a free trial (even a day or so would be better than zero) or some other form of limited viewing. It’s hard for a prospect to get comfortable.

    Meanwhile, while I understand the temptation of commentators to make comparisons to Yelp and Craig’s List, such a framework is badly flawed, especially when it comes to comparing growth rates and traction. Yelp is huge in little ticket kinds of things consumers use all the time; restaurants, delis, coffee shops, etc. One can easily find reason to consult Yelp, if not daily, then several times per week. That’s a powerful magnet to draw traffic that can then discover Yelp reviews of other categories. With Craig’s List, it’s the classified-ad nature of the site, especially apartment rentals, etc. – it is, quite literally, the modern version of the old newspaper classifieds which, back in the day, was a big driver of newspaper use and revenue. Angie’s List, on the other hand is a horse of a different color. It aims more at low frequency often bigger ticket items like home repair or health care. So right from the get-go, we’re dealing with a lower volume operation. (Low volume means ad revenue isn’t viable nor are per-use fees, hence the resort to membership fees – if only it would be easier to figure out what they are). Even the most dedicated member could easily go months, or even a year or more, without feeling a need to check the site. (Youy can get that with Craig's List too, but the latter at least pulls in volume through broad access, no fee to the customer, which contributes unique use volume as a substitute for frequency per use volume). Given ANGI's low-volume model, I think the revenue growth rates it's posting are actually pretty impressive (assuming it will be able to retain -- I haven't looked up that data, which I assume -- hope -- is in the 10-K). But looking at SGA, I’m guessing customer-acquisition costs are high, though I haven’t taken the trouble to confirm that because . . .

    But ultimately, if anyone wants to make a short case for ANGI, I’m shocked at the omission of what may well be the most compelling argument; a confusion between whether the business model is geared toward reviews or Groupon-like promotions (the Angie’s List “Big Deal”). I think Groupon is the dumbest idea so far to emerge in 21st century commerce and that it serves to piss off customers and merchants equally (notice, for example, on Yelp, how many one-star customer reviews revolve around misunderstandings by the consumer and/or the merchant about what the groupon customer is supposed to get). There’s no way I’d ever let a tradesmen work on my home through a groupon-type arrangement where they enter the door presuming I’m a cheapskate demanding something for nothing: Way to get your home messed up! I wouldn’t even consider for a nano-second a long position in ANGI as long as it persists in its neither fish nor fowl strategy and continues to try to emulate the stupidest company on the planet by pushing the “Big Deal.”
    Jul 9 08:32 AM | 5 Likes Like |Link to Comment
  • Dividend Yield Vs. Dividend Growth Revisited - Does It Matter? [View article]
    How wonderful it would be if things could be so simple.

    1. The reinvestment assumption is unreasonable. In the real world, we'll have one of two scenarios. (a) The investor does not reinvest but chooses instead to use the money for necessities and/or luxuries. If you want to model it scientifically, you have to work with a utility function that includes consumption. (b) This article assumes reinvestment at a constant rate. The probability of that occurring for more than a trivial period of time is near zero. Interest on interest is likely to occur at rising rates or falling rates, and that, in turn, will impact that value of principal.

    2. You also need to factor in the probability of the expected scenario being achieved. A 12/0 stock is very unlikely to deliver 12/0 because the probability is high that the dividend will be reduced or eliminated (which, of course, will also impact principal because no matter how certain one is that the present stock price/yield already discounts the possibility of a dividend reduction, it never seems to turn out that way when the event is announced). Similarly, a 0/12 stock is very unlikely to deliver 0/12 because the higher the expected growth rate, the less likely it is that the expectation will be achieved (and 12% is quite good in the context of today's economy and financial markets). If you want to really try to push return, probably something in the 3/5, 4/4 or maybe even 5/4 range may be the place to aim, so long as you're diversified and aware of the company fundamentals and don''t just rely on a chowder for anything other than something to enjoy at a seafood restaurant (historical dividend growth rates can be a poor indicator of future growth rates).

    3. No matter what you do, be aware of the likelihood that going forward, interest rates will stagnate (best-case scenario) or rise. Either way, the epic declines we've seen are over because of proximity to zero. So pretty much all the historic numbers will have to be viewed with tremendous skepticism. You'll have to stay very aware and very agile. No income portfolio can simply be bought and held.
    Jun 21 09:41 AM | 5 Likes Like |Link to Comment
  • Amazon: Are We There Yet? [View article]
    "Best Buy could be interesting once the sales tax advantage is removed."

    This reminds me of a time years ago when I covered airline stocks. A bunch of low-cost airlines formed and each CFO confidently explained that "an airline seat is a commodity" and that their victory in the marketplace was inevitable given their low (non-union) cost structures and the low prices they charged. And every single one of those carriers quickly went bankrupt because as it turned out airline seats were not even close to being commodities. Many other things counted as well or even more: convenient schedules, comfortable planes, good customer service, etc.

    Best Buy is not suffering because Amazon's has low prices. Best Buy is suffering because Amazon has stuff, something it's increasingly impossible for brick-and-mortar stores to claim,and also because if you want to buy any of the scant stuff BBY has, or try to get info, you have to deal with the infamous blue shirts, the geniuses whose most frequent answer to a question is "I don't know" or "I'm sorry, I'm not familiar with this department." It's why Amazon is kicking Barnes & Noble's butt, and why they kick the butts of others in other retail categories. Amazon has; the other guys don't. Of course te other guys have web sites too nowadays. But there's a big difference between a web site that's easy to find things on, easy to learn about products, easy to pay, etc. versus web sites that just plain suck. (Notice how Nook is a failing business, despite being cheaper than Kindle and despite being more favored by quacks who write tech reviews; the successor to the prior generation of idiots such as those at Consumer Reports who once hailed the Texas Instruments 99/4A as the best pc on the market, until the Coleco Adam came out and opened the eyes of the moron contingent. SA comment threads on AMZN are far funnier than anything one can find on the comedy Channel!

    No matter, the haters will continue to rant. They think they're casting Amazon in a bad light. Actually, though, all they have zero impact on the market and are really doing is showing how jealous they are that others succeed more than they. Bezos haters, Jobs haters, Gates haters, Hastings haters. LeBron James haters, Yankee haters, it's all the same. So go on folks. It's hysterically funny to watch ; it's like slowing down to gawk at a highway pileup. ;-)
    Apr 8 06:47 PM | 5 Likes Like |Link to Comment
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