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Sal Marvasti
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A professional but independent Quantative Analyst and occasional trader. I believe in the motto, hold for the long term, optimise for the short term; that is ever since my *Market return and market share based optimization modelling *banking IT infrastructure *quantative trading (OpenCL and... More
My company:
Technoor Consulting
My blog:
Technology in finance
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  • Why Selling Google Could Be A Good Move Now

    The point of this article is to highlight four reasons why we think now is a good time to sell Google (NASDAQ:GOOG) if you hold some shares.

    1- Google still makes less money than Samsung on Android despite attempts at revamping the Play store and changing the licence terms. (term change)

    2- Google directors and board members have been reducing their stakes for a while and in the last six months. 70% of shares held by insiders have been sold.

    3- Technical analysis shows Google is on its way back to below $850 range.

    4- No company can grow rapidly once they are a $300 Billion dollar company as Apple has shown. Google is worth $290 Billion dollars when it was trading at $877.

    Android is not making so much money

    Even though Android is the most popular smartphone operating system, it is making more money for Microsoft (NASDAQ:MSFT), via patents, and Samsung via handsets than for Google (See Zdnet article).

    Even though three Android phones are now sold for every iPhone, Google has still yet to fully figure out how to leverage the open system to its advantage. While Android has been great for handset makers, especially Samsung, it's failed to advance the Google ecosystem as much as hoped or make much money. "Ironically, in some cases Microsoft may be making more money off Android than Google, because of patent payments," said Gartner analyst Michael Gartenberg. In other instances, Android has completely run away from Google. Amazon's Kindle Fire is built on Android, but you'd never know it - and the Amazon app store competes with Google's. (The Verge)

    Directors reduce their stake

    The insiders and Google founders have all been reducing their stake in the company despite recent all-time highs. Directors are not good at picking the top, but their selling can indicate long-term valuation bubbles. If they were all buying the stock, we would be more confident in ignoring the fundamentals. According to Yahoo Finance, 70% of all shares held by insiders, have been sold over the last six months.

    Bleak technical picture

    I think the chart speaks for itself. It hit a recent peak of $921 and has been on a general fall since. Furthermore, the bounce back from the $850 support level two weeks ago was lower than the high achieved in May 2013. This indicates it could continue to break down through the $850 support level in the near future.

    (click to enlarge)

    Google's growth flattening

    Finally, it is worth mentioning Google does not look cheap with a market cap of nearly $300billion dollars as well as having a high P/E ratio. Sustaining high growth is not feasible for very large companies. Furthermore, Google only takes in about 7% of advertisement revenue in China. A simple measure of growth in actual cash flow, shows that 2011-2012 cash flow increased by less than 10% while previously it increased by 25%. By the end of this year Google cashflow may even flatten due to competitive pressures. (see source).

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in GOOG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jun 21 1:29 PM | Link | Comment!
  • Swarm Intelligence: How Retail Investors Can Beat The Hedge Funds

    waThis article attempts to investigate a special situation where private retail investors can act in tandem and stop being the group collectively known as the "sub-par investors" in academic research. Without going into econometric modeling, we intend to illustrate how this could become possible; hedge funds can be burned not just by other hedge funds but by swarm tactics. A little like the tiny locust versus the big farmer with his shepherd dogs. I hope you can learn something from this illustrative fantasy "what if" scenario, where the dumb money becomes the smart money. To illustrate my point I will look at one individual stock AMD (NYSE:AMD) which has consistently had over 20% of its shares shorted in recent times. Apple (NASDAQ:AAPL) could also be a nice candidate for this type of analysis. However, AMD is smaller and easier to influence so we will stick with AMD in this example.

    Hedge funds typically squeeze private investors with better research and internal market forecasts combined with large market moving short/long positions. It is no wonder why many private investors fail to make overall profits in the stock market ( Barber-Odeon ). It is very hard to consistently produce profits by buying individual stocks even ones which survive and prosper. Since mid last year certain fundsincreased short positions on AMD . For details you can see Nasdaq, but keep this fact in mind:

    In financial markets, there is an adding up constraint. For every buy, there is a sell. If one investor beats the market, someone else must underperform. Collectively, we must earn the market return before costs. The presence of exceptional investors dictates the need for subpar investors. With some notable exceptions, which we describe at the end of this section, the evidence indicates that individual investors are subpar investors.

    (Barber-Odeon, UC Berkley research paper)

    Short Interest on AMD slowly drops (Dec - Feb 2013)

    2/15/201386,419,30812,711,6476.798435
    1/31/201389,965,03432,081,8322.804236
    1/15/2013101,225,97122,610,9404.476858
    12/31/201299,527,27021,593,0224.609233
    12/14/2012105,621,23129,011,2843.640695

    Let us look at a simple setup. On average there are at least 10 million AMD shares changing hands per day. The majority of this trading is done by institutional / systematic trading funds, as research has long shown (LBS paper). Thus, let us assume only a quarter or 2.5 million of these shares per day are being bought by private retails investors, in the tune of 1000 shares each. That means approximately 2500 retail investors per day. Over one quarter that is 3 months, we have 60 working days. Lets us assume on average, each quarter there are at least 150,000 new private investors who have a long interest in the stock in question. This new group, organizes to link up with 100,000 retail investors whom are already invested in the stock. Together they devise a new scheme to manage risk and make gains. You should note that because

    ..... risky stock is in fixed supply, it must become less attractive in the presence of institutions to clear markets. So, the stock market Sharpe ratio decreases, and its volatility simultaneously increases, relative to the benchmark economy with no institutions. (Basak-Pavlova, London Business School Research)

    Retail investors swarm tactics can make use of this fixed supply of risky stock (short or long it does not matter) to increase the expected return on the stock, thus increasing the Sharpe ratio in way that is transparent to the market at large. This hypothetical group of private investors, we assume, are contrarian and have bought AMD at 10% below consensus estimates right around when the shares are at a high short ratio (>20%). That means in today's climate we assume they bought AMD at less than $2.50 (the current consensus estimate is $2.75 according to NASDAQ). Knowing that the hedge funds are short AMD, these private investors, in tandem go out and purchase AMD products to the tune of an average of $300 each, buying something they previously had not planned to purchase but do not mind having (e.g. AMD tablet, GPU card or RAM). Each investor, then persuades just 2 other people to also buy $300 of AMD products. Let us also assume that 60% of this money reaches AMD as revenue. So AMD receives an extra $540 (from 3 people) * 250,000, or $135 million revenue.

    AMD's expected break even quarterly revenue is about $1.3 Billion since last year's announced restructuring (SA article). In other words, if the private investors band together and buy product, AMD could receive a 10% boost in unexpected revenue. This translates into profits if AMD reaches the $1.3billion break even point. As a results, EPS, in the following quarter, could beat all consensus estimates by +10% thus forcing a revaluation of the market price, potentially as a growing stock. The stock then could explodes and hedge funds attempt to limit their risk by closing their short positions and options. The point I am trying to make is that hedge funds extensive market research would have been in vain as the market for AMD products had grown due to these unforeseen "swarm" events.

    Consensus Recommendation for example stock AMD

    (Source Nasdaq)

    Now consider what happens to the share price of a moderately shorted AMD when it beats estimates significantly, like in December 2010 when it gained market share and beat EPS estimates by over 10%. AMD rose from $6 before Christmas 2010 to $8 just after results. So these investors could expect a 33% return over a 4-8 week time frame. If this holds true, then these investors would have made $825 on an average $2500 investment for 1000 shares ignoring transaction costs, and would have spent $300 on AMD products. In total they would have made $525 profit and would have gotten the AMD product for free. After the short squeeze, the funds would have lost and the private investors would have gained. The reason is simple, no amount of research or market survey would have shown up the unpredictable actions of the private investor swarm. Lacking resources, private investors can move markets if they act in concert. Rather than wait for Bloomberg to run a story "Company XXXX recovers" sending the shares flying, can't we create the news? In the age of peer to peer computing and retail blogs, this may yet become possible.

    Risk management would also be part of this swarm strategy, that is why buying at a price below consensus estimates is important. It mitigates risk of such action. Analyzing the risk of such tactics is fodder for a future article.

    Your thoughts and ideas always welcome.

    Disclaimer: Unless stated otherwise, these views are not the opinion of any of my present or past employers. In addition, we take no responsibility for your gains or losses if you follow our advice. Please speak to a financial advisor if you are unaware of the risks inherent in algorithmically traded markets.

    Our contracting company as a separate business is now providing quantitative modeling and risk management reports. Please contact reports@technoorconsulting.co.uk for details of in-depth risk models and pricing if you are interested in a more quantitative angle to your investments.

    Mar 08 2:45 PM | Link | Comment!
  • USD And Unfair Trade With China - Is France's Bic The Only One Complaining?

    Will the world finally face up to China ? Export to china is far more expensive duty wise than import from china. At some point this trade balance will need to be addressed. It is why I am short USD.

    The BIC Group (Paris:BB) duly notes the decision taken recently by the European Union Commission not to renew the anti-dumping tax on lighters of Chinese origin.

    The objective of this anti-dumping tax, set up in 1991, was not to protect the European lighter industry, but to put an end to unfair competition from lighters of Chinese origin. Its non-renewal justifies the actions of those who have been fraudulently circumventing the tax for more than 20 years, and will obviously favor Asian lighter importers who already hold more than 70% of the European market in volume1.

    (bicworld.com)

    In Europe it is important to note.

    • Chinese manufacturers pay only 2.7% custom duties when entering the European market while European manufacturers are subject to 25% custom duties when entering China.

    BIC is a world leader in stationery, lighters, shavers and promotional products. For more than 60 years, BIC has honored the tradition of providing high-quality, affordable products to consumers everywhere. Through this unwavering dedication, BIC has become one of the most recognized brands in the world. BIC products are sold in more than 160 countries around the world. In 2011, BIC recorded net sales of 1,824.1 million euros. The Company is listed on "Euronext Paris" and is part of the SBF120 and CAC Mid 60 indexes. BIC is also part of the following SRI indexes: FTSE4Good Europe, ASPI Eurozone, Ethibel Excellence Europe, Gaia Index and Stoxx Global ESG Index.

    1 : BIC estimates - total European pocket lighters market (flint and piezo)

    Feb 20 9:43 PM | Link | Comment!
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  • again my model is vindicated. http://seekingalpha.com/a/19wor I didn't need a miss to predict AMD was slightly overvalued.
    Jul 21, 2014
  • Advanced Micro Devices - Is It Still Good Value? $AMD http://seekingalpha.com/a/19wor
    Apr 15, 2014
  • MSFT BUYS NOK devices my analysis vindicated: no profit for Nokia it would sell devices (see last article)
    Sep 3, 2013
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