In his enjoyable book, The New Market Wizards, Jack Schwager interviewed Stanley Druckenmiller, who formerly managed money for George Soros and later went on to found Duquesne Capital.

Mauboussin's latest essay is "The Failure of Arbitrage." Not essential for his thesis in this particular essay, but still interesting to me are comments he made on trading. He discusses two ways to use human emotion for generating outsized investment returns. One is to ride it, which is what momentum traders do, and the other is to exploit it by finding price/value gaps, which is what value investors and stat arbs do.

In a previous post I mentioned that I've been eyeing the consumer products company Clorox (CLX). I meant to include a link to the company's brands since that's a large part of the attraction--please find it here.

I wanted to share a few (edited) excerpts from analyst reports on the company, showing points for and against investing. Much of the discussion has to do with Clorox being priced below the multiples it historically has received, yet facing the major headwind of higher commodity costs. CLX is trading just under $56.

At March 31, 2008, the company's balance sheet showed $827 million in current assets, including $333 million in cash and equivs, $263 million in restricted cash, and $37 million in short term investments ($24 million of which was restricted). Total liabilities were $503 million, of which only $10 million was long-term debt / capital leases. (10Q here)

Jamba Juice (JMBA) is a colorful, fun brand with plenty of room for store growth. The current base is 707 stores of which 71% are company owned and the rest franchised. Suffering from lousy same-store-sales and depressed consumer spending, especially in California where the company has most of its stores, the stock is trading under three bucks. It was at ten last May.

I've had my eye on restaurant Ruby Tuesday (RT) for a while. I still haven't done proper homework on the stock, but there are few interesting things to look at.

The multiples are suspiciously low: 7.8x trailing earnings, .27x sales, .97x book, 4.8x EBITDA, 2x operating cashflow, 7x free cashflow (OCF-capex). (Sources: Yahoo!, Morningstar; unconfirmed). There are also millions of dollars of insider buying among several individuals.

This is the second installment of an interview with Vestopia Investment Director Dan Knight (pictured at right). In Part 1 Dan discussed the rationale for his long/short strategy. Today Dan talks about his performance in the current high volatility environment and where's he's made--and hopes to make--fat profits.

Eliot: In the first part of this interview, you explained how you short stocks in order to reduce risk and shoot for positive, uncorrelated returns. Let's talk about a recent trade of yours so we can see your strategy in action.

Veteran portfolio manager Dan Knight (pictured at right) practices an investing strategy that has a strong history of outperforming the market. In this interview, Eliot Penn, Dan's fellow Investment Director at Vestopia, picks Dan's brain to learn the secrets of this former blackjack dealer's outperformance.

Eliot: You're a rare bird running your personal portfolio with a long/short strategy where most investors are long only. Why short stocks, especially when the market seems to go up over the long run?

It's hard to write about stocks these days. That's not due to a shortage of interesting ideas out there, but rather to an abundance of volatility. Even if your thesis eventually turns out as predicted, it's awfully easily to look foolish in the short term. But what the heck...

Circuit City (CC) is a stock that keeps getting cheaper and cheaper and cheaper. It closed down another 5.5% Monday. After breaking $30 in 2006, shares have been sliding steadily downhill to the current price of $5.81. Keeping in mind that this stock seems to have no floor, here are a few thoughts on the electronics retailer.

Once upon a time there were two investors, Jack and Jill.

Jack is a professional money manager with a disciplined investment strategy. Jill is an orthopedist who manages her portfolio on the side. Jack knows how to analyze balance sheets. Jill knows how to analyze x-rays.

"Be fearful when others are greedy and greedy when others are fearful" is the oft-quoted advice of Warren Buffett.

Easier said than done. There was fear in WaMu (WM) yesterday. The stock was priced below book value and with an astronomical yield. If you would have bought other's fear, you would be down 17% on the day on your WaMu shares. A few months ago shares were priced in the low 40's. Right now they are at $20.50.

I agree with Daniel Carroll that beta is a stupid way to measure risk. Only he was more eloquent:

I do not believe volatility is a good measure of risk. It measures phenomena that I do not consider to be risk - like the silliness of the market - and it fails to capture very real underlying risks.

This philosophy is shared almost universally by value investors--that market price and intrinsic value are two different things and that volatility of the former does not necessarily reflect change of the latter.

There's an interesting article in the Breaking Views section of today's Wall Street Journal which suggests that The New York Times Company (NYT) has a breakup value far exceeding its current enterprise value.

Here's a summary: