Travis Johnson

Travis Johnson
Contributor since: 2005
Company: Stock Gumshoe
I don't want to quibble with your options strategy, but "window dressing" is not generally used to refer to funds taking profits in stocks -- it's a reference to funds buying up hot stocks near the end of a quarter so they can say they held that stock when they report their quarterly portfolio holdings (ie, buying AAPL on March 25 so they can send out their quarterly portfolio holdings and say, "look, we own Apple! We're so smart! Keep your money with us!")
Window dressing still occurs, it appears, but by most accounts I read it's not as pronounced as it used to be. Any significant impact on a stock from window dressing should hit in the last week or two of a quarter, not in the early part of a quarter as we're in now -- unless you believe that funds bought into AAPL late in March just so they could prove they owned it, then sold it in the first couple weeks of April since they didn't actually really want to own it in the first place.
I can't imagine how frustrating it is for fund managers to be underperforming the index in the first quarter because they failed to own the largest and best-performing (or one of them) stock in the index. That's a lot of "why didn't you own AAPL?" phone calls, I imagine, for hedge fund managers and mutual fund managers alike.
Hi folks -- when you added the charts you mistakenly put in ARRY for Accuray, not the correct ARAY. Thanks!
Interesting perspective, I'm glad to hear it -- but I also don't see much that's similar between the Chinese stock market in 1997 and 2002 and the situation in 2007. In 2002 and 2003, the overall market performance was generally quite weak, the shares ran up nicely in 2000-2001, but fell off for the next couple years.
Though there may be an impact from the party Congress, either positive or negative, I would hesitate from this small sample to say that those changes were caused by the Congress, especially since I have no idea what the news flow was around that time. And I would definitely be careful about comparing the impact on a stagnant and tiny market in 1997 and 2002 to the impact on a much larger, wildly booming market in 2007. Compared to the period from January 2006 to the present, as I read the chart, the entire previous history of the Chinese stock market might as well be a flat line. This Congress might have a short term impact, as you're implying is possible, but probably the announcements made at the Congress, whether positive or negative, will have a far larger impact on this much more news-focused, momentum-driven market ... all just a guess on my part, of course.
This all depends somewhat on Chinese investor philosophy, which I don't personally understand particularly well -- but I do think it's important to consider that there is also a flip side here. How often do individual investors seek to leave hot markets? If you were an individual investor in the Shanghai market, holding A shares that you see climbing better than 100% a year, would you want to sell them to buy shares that have recently gone up much less?
If you're a careful and seasoned investor, that's probably "yes" -- but are average Chinese retail investors careful and seasoned? Or are they similar to the Nasdaq day traders of 1999? Remember, US investors had all the freedom in the world to invest overseas as the nasdaq bubble was inflating ... but did they? Not really -- the real foreign investing boom for US investors came many years after the crash.
This is not to say that there isn't demand to diversify internationally among Chinese investors -- I'm sure there is, particularly to get into Hong Kong shares of companies they know, and for companies with dual listings I expect there will be, eventually, a significant arbitrage opportunity as you're noting. I just don't know that it will be as dramatic as many people are predicting -- there's unlikely to be a mass exodus from the A shares, in my opinion, until after (if) that market corrects dramatically.
Excellent analysis, thanks. As someone who hosts primarily financial services ads on my sites (though almost never mortgage-related ads), I can say that though the overall trend is still for fairly steady growth, the rates and performance of ads on my site did spike in July of this year before dipping and returning to a steadier growth trend.
Incredible -- and the strategy of advertising heavily offline (especially TV) to drive new searchers to your site, as is being tried by Microsoft and Ask (and Yahoo in the past, though I don't know that they do it now), continues to seem like an expensive exercise in self-aggrandizement. I can't believe how many Ask.com ads I see on TV now, I'm very curious to see if that helps them at all to take share -- or at least keep up with the growth in the market -- in the months ahead. To think, Google built this dominance without spending a dime to advertise (OK, that's an exaggeration, but a small one).
I'm still holding, though they do have a bit of a pink sheets discount now. I expect them to still have enough volume to be a viable investment for me, and I think they should still do well (though I continue to be worried about TV competition in S. Africa ... hopefully some of their emerging markets investments will do as well as Tencent and make that less of an issue in the years ahead).
Sorry, forgot to note that I still do own Intuitive Surgical. I don't own any of the other companies mentioned, aside from Berkshire Hathaway.
Travis
Apologies to you and Ton.
It's only a pink sheet because it's primarily traded in London -- I assume Goldman Sachs holds their shares in London. You can check out the ticker CLE on the LSE for more info -- thanks to all the chatter about carbon trading from California and the potential for federal movement on this, the shares have tripled since November. I've looked at this one before, too, and I regret not buying shares a few months ago, but haven't felt confident enough in their moneymaking ability to join in as a long term holder -- it's an odd business, partially run by true believers and owned by voluntary participants who operate more or less as nonprofits, and partially trying to become a modern, for profit exchange. If we get to the point that there is a globally accepted commodity in "carbon credits" I can't help but believe that there will be many competitors to facilitate the trading thereof.
Of course, it might still be an opportunity to get in on the ground floor of a tremendous business ... the risk just makes me nervous, especially because it's so news-driven and has climbed so quickly. I'd love to read more analysis of these guys.
Cheers,
Travis
Oneguysinvestments.com
My argument that the similarities have gotten "just a little bit stronger" refers to the fact (as I noted above) that Gayner, like Buffett before him, recently joined the Washington Post board. As I said in the note, it's just a small thing that I found interesting ... but I suppose the headline by itself is a bit of hyperbole. That's not why I bought shares most recently. I like Markel's specialty focus, their commitment to only selling profitable policies, and their use of long term growth in book value as a measure of success (and the fact that bonuses for management are based on 5-year book value growth, not on share price appreciation or reported earnings). The relationship between the book value and the share price has fluctuated significantly over the years, from priced under book to priced well above the current roughly 2X book, but as long as their underwriting performance and investment strategy continue to add to the book value I'm reasonably confident this investment will work out for me over the next ten to twenty years.
And that's how a market is made ... thanks for the comments.
Markel doesn't techically have private equity investments, perhaps, I'm not the judge for what to call them, but has acquired interest in non-publicly-traded companies, both of which are local to their VA offices. It may end there, or it may not (my guess is that they will continue to explore this area, but I have no inside knowledge).
It is of course partly tongue in cheek that I refer to any company as "the next Berkshire" -- there is unlikely to be another one of those, nor another Warren Buffett, but I think Markel has enough of the right traits to make it an excellent investment for the long term. Whether today's price is too high is a matter for judgement and personal interpretation, but for my time horizon and outlook for the company, I consider it a fair price (I don't think it's hugely undervalued). Though they have exhibited spectacular performance in the past, I don't believe they've reached their maximum density -- they remain a fairly small company with, I believe, plenty of growth potential both in the US and overseas.
Sorry, that's an embarassing mistake -- you're right, of course, it's Blackstone, not Black Rock. Apologies.
Travis
Bill,
I agree with you -- it worries me the extent to which Sears is cannibalizing its future for near term cash flow. It might work out great if Eddie Lampert is indeed able to reinvest that cash effectively (as he has in the past), but I'd be worried that if he's trying to build the next Berkshire Hathaway he's doing it on a fairly weak foundation and will soon have to have some great performance from other investments if they're not able to grow the Sears business (not unlike the way Buffett had to shed the weak textile business that got him started). It's admirable that he's focusing more on profitability than on sales growth, but that can only work for so long. Great turnaround so far, shaky future in my opinion.
Thanks Mahesh. And FYI, I had a typo in the share price -- my buy point was $51.32, not $53.02 ... sorry (hasn't yet crested above $53 this week, though the index had a nice bump today).
Cheers,
Travis
Stephen, sorry I wasn't more precise in my characterization of Chico's year -- it's true, they did have a nice blip up in the year following their IPO, followed by a significant decline that may have outpaced this year's 50% decline (it's hard to tell from the historical charts, since the price has gone up so much that the early years are a flat line that doesn't emphasize the dip from a split-adjusted 60 cents or so to 20+ cents.
In some ways, I think this year is worse than those early years for Chico's, but largely because the company has grown so much larger and expectations are much higher, so that a mathematically smaller decline and "less bad" performance makes for a worse year, but that's all in your perspective -- when it comes to earnings and stock price, it's true that this was Chico's worst year in ten, and their worst year as a mature company, but not quite their worst year ever.
Thanks for catching that.
Cheers,
Travis
Thanks Wayne -- glad to hear someone else is interested in this one, though I think the price might really pinball around a bit since it's so hard to give it a firm valuation at this point. Once they're on the AMEX and have a bit more of a track record it may become a little easier to assess their prospects, hopefully the price will have climbed a bit by then as they gain exposure.
While there are various lockup periods for small holders, I think, and one of those just expired last week, the main lockup period requires some significant patience: The big holders have a lockup on about 60 million shares for four years, so 3-1/2 years to go. And of course, they may not want to sell even then.
I'm inclined to be somewhat concerned about the MA valuation, too, as noted by the FIG trader, but if all else was equal and I didn't have the concerns about competition and antitrust issues I think global cashless payment growth could easily justify the high valuation. In other words, if I was convinced that Visa and MC could maintain their shared duopoly of international cashless payments without cutting their rates, I'd buy in a heartbeat even if I didn't think MA could take market share -- the pot will be big enough that the way its split will be less important.
Thus, the fence I'm on. I haven't looked in as much detail at COF or AXP, I just like the sector in general -- so thanks for the valuation comments.
Thanks for the clarification.
Now this is something I've never heard about before -- I don't know anything about this company, but as someone with awful dental problems I was thrilled to hear this. A vaccine against cavities and tooth decay would probably be squashed by dentists if they were given the opportunity, since it would destroy their livelihood, but I really hope they succeed in developing this. Hopefully they'd try to sell it through pediatricians instead of dental offices, and I wish them the best of luck.
I don't think IMAX screens are a fad, they've shown they can draw significant crowds to even marginal movies for many years, and in my opinion the experience is signficantly differentiated from a standard theater to mean that they should perform better than the multiplexes, and that they stand up better than a standard movie does to the in-home competition -- but I can't argue that they have an awfully difficult debt load and clearly some management problems. As I said, I wouldn't advise anyone to buy shares in this one ... but a small piece of me thinks the downside is overdone.
I don't know much about Kyphon, but from what I know it's much more specialized and so probably quite a bit easier to forecast ... so I can't tell you how ISRG compares. I don't know if you want to pay a premium for ISRG, and clearly there is a growth premium on this stock, but I think it's more than reasonable given the potential growth -- the company believes they've reached about 10% of the potential installed base they can have in the US, which, if at all a fair assessment, gives us many years of dramatic system sales and procedure growth. We'll see, but I'm very encouraged by growing gynecology use and the continuing research studies that detail the impressive efficacy of the ISRG system.
Bill -- thanks for your informed comment. In the big picture, I absolutely agree that these Trusts were a mess that the government clearly had to clean up in some way before all corporations opted to convert ... but I understood that the campaign promise by the current government was that they would leave the trusts alone, especially after the liberal dithering over trust taxation last year really brought the conservatives to power. I know it's silly to rely on campaign promises, and I suppose the Telus and BCE news really put the fear into them that a change had to come immediately.
I think it's probably the right thing to do (for Canada, if not for me) to change the trust rules significantly, especially because of the tremendous advantage they give (gave) to foreign investors. But as one who is much more accustomed to following US politicians, I'm really shocked that they were willing to take the heat for this and make such a dramatic change that seems to be unpopular. I would have guessed that they would have done something much less dramatic, and that they would have waited for a few years -- until the oil-driven budget surplus disappeared, to give them political cover -- to do anything about it.
I think it's probably the right thing to do, but I'm quite surprised that they did it -- and that the change is as severe as they're proposing. It's really unfortunate that they didn't do something about trust taxation three years ago, before they became so widespread and popular.
In regards to PDS, I'm still of two minds -- that four years really is throwing me off and I'm not sure how to value the impact, though with roughly a 30% cut to the dividend expected (just from taxation, regardless of any corporate decisions) it appears that the market is discounting half of that decline immediately and may slowly account for the rest over the remaining time. The potential business strength of PDS is the wild card, of course, and that really depends on the price of natural gas price over the next several years -- which might as well be the rosetta stone for all the ability I have to decode it.
Thanks,
Travis
Error correction: I've got biotechs on the brain these days, the folks testing AS&E's equipment are, obviously, the TSA, not the FDA. Sorry.
Cheers,
Travis
Thansk for the comment, Tony -- I think we're jumping the gun a bit to sell here while sales are still climbing and industry capacity will continue to be constrained for at least a year, but I could easily be wrong (and often am). I am watching the situation much more closely now, and may well sell half of my holdings in the very near future -- but I don't think the shares are overvalued at the moment so I'm being patient. Perhaps too patient, we'll see.
Excellent writeup -- I've been thinking about this, too, though I have nothing to do with the hedge fund industry. It seems like the whole meaning of a hedge fund has become completely bastardized over the last few years as they've become so popular -- what used to be funds designed to help institutions moderate risk and perform reasonably well in all market conditions, have become funds that are expected to provide ridiculously high returns without risk, with the idea that there's some magical formula of derivatives that hedge fund managers possess that will allow them to offset all of their risk.
I agree, anyone who invests in anything with that kind of expectation should take the hits that are coming to them with a smile. And when I'm feeling particularly uncharitable I'd go so far as to say that anyone who invests in an irresponsibly overleveraged hedge fund that collapses should be partially liable for any losses even beyond their invested capital -- I think that one simple piece of regulation would go a long way toward making investors become much more aggressive about evaluating the black boxes they're investing in, and hopefully force out some of the charlatans to make room for sage managers like Barry Ritholtz. When funds take risks that could hurt the overall market, like LTCM a few years back, I'd like to see their investors forced to bail them out before the rest of the market or the government has to step in -- I don't think hedge funds need government oversight, but I would like to see them have a lot more oversight from their investors, too many of whom seem, from an outsider's perspective, to take the same "don't tell me how you do it, just get me results" attitude that the HP board apparently took with their leak investigation.
Very interesting, thanks for doing the math. I must admit to being a bit surprised that Oil Services is so far down that list, and that nonferrous metals is so much lower than general mining. This makes me want to take another look at some telecom and pharma stocks.
Congratulations to David and everyone at Seeking Alpha, that's a great accomplishment ... and I expect Yahoo's blog content to put Google Finance's blog section to shame, thanks to the SA editorial crew. I hope your servers are up to the challenge :)
Travis
Robert,
This is undoubtedly true -- but does it mean anything? After all, the margins of 2% or so are pretty typical of grocery stores, whether that margin comes from a fee the customers have to pay or a slightly higher price. Increasing sales without increasing the customer count is the only way to become less dependent on the membership fee, and in many cases that means relying on customers to buy bigger ticket items like jewelry and electronics and furniture ... which, as you can see from your BJs chart, generally happens more often in the fourth quarter with holiday shopping. That was also the problem with Costco's results this past quarter, with lower than expected TV and furniture sales. Expanding gross margins overall would be bad for business, in that it would get rid of the value proposition, so they need to keep opening new stores, bringing in new members, and hoping for some incremental increases in sales to give a little boost to profit margins. I do find it interesting that the profit these stores make is roughly in line with their membership income -- but sales and membership fees can't really be separate in the scheme of these business plans. The stores are designed to make the payment of that membership fee seem attractive, as high renewal rates show, and overall margins for these companies are generally in line with the large discount retailers and grocery stores that are their competition.
I haven't found Costco cheap enough to buy yet, but I remain tempted ... I'm hoping for a couple more bad quarters to drive the price down.
Cheers,
Travis
Thanks Miriam. No worries.
Just FYI for any confusion this may cause -- this initially appeared on my site in July, 2005 and, while I'm still interested in some of these companies circumstances have certainly changed. I wrote recently about news at Costco, and opted a while back for UBS over Citibank, and am very glad that I didn't buy JVA and wistful about the opportunity I missed with Motorola. TRMD is close to where it was back then and I still find it intriguing, but if I were putting together a new list today it would be significantly different.
Thanks for the comment, though I wouldn't characterize the patent opponents as larcenous. I think at its heart this is a dispute with good arguments on both sides, and my reading of the patent doesn't give me much confidence that Blackboard will enjoy a nice revenue stream from royalties in the years ahead. I expect the prior art put forth by opponents will be very compelling when this is litigated or disputed, though I could easily be wrong.
But I also think this will help shake out smaller operators, which is good for Blackboard, and I think BBBB should remain dominant in their niche whether or not they have patent protection for their entire product portfolio. The important thing for the success of Blackboard's business is the strength of their customer relationships and the impact of their sales force -- not their patent.