CONTROLLED GREED.com

Controlled Greed.com Portfolio Picks Average -3.1% YTD Through Third Quarter of 2007

As a group, the stocks held this year have an average loss of 3.1% through the first three quarters of 2007. That compares to the S&P 500 being up 7.6% for the same time period, according to WSJ.com. For reasons stated previously, I am now factoring in dividends and returns of capital to shareholders in my results. I don’t believe the S&P 500 result reported on WSJ.com includes dividends.

Here’s how each of the holdings covered on Controlled Greed.com have performed so far this year.

BCE Inc. +48.1%
Fairfax Financial +23.6%
General Motors +21.9%
Nikko Cordial ADR +10.6%
Walter Industries/Mueller Water Products Class B +7.8%
Molson Coors Class B +7.7%
Liberty Media (Liberty Capital/Liberty Interactive) +7.3%
Deckers Outdoor +6.1%
3i Group +5.9%
CBS Class B +3.1%
DirecTV Group -2.6%
ArmorGroup International -11.3%
Comcast Class A Special -14.2%
Mueller Water Products Series A -16.4%
USA Mobility -18.8%
Media General Class A -24.1%
Foot Locker Inc. -26.6%
Aiful Corp. ADR -39.4%
Takefuji Corp. -47.1%

The stock picks averaged +9.95% at the end of the second quarter. To go from that to -3.1% means the last quarter was brutal. My last two stock picks -- Aiful and Foot Locker -- took no time at all to achieve double-digit declines after being purchased. Takefuji has seen the bottom fall out this year. And with Media General, USA Mobility and Mueller Water the hits just kept on coming.

Battered and bruised, I remain cautiously optimistic (taking the long-term view) and wait to see what the rest of the year has in store.

Controlled Greed.com "Life of the Blog" Stock Picks Average +29.7% Through Third Quarter of 2007

I’ve made 20 stock purchase recommendations since then launching this blog on April 27, 2005. Here’s how they have each performed from their selection through the third quarter of 2007, listed in the order of being recommended.

NOTE: Results include dividends and returns of capital to shareholders when applicable.

• General Motors was mentioned on 4/29/05 at $26.75. It closed 9/28/07 at $36.70. This position is +49.3%.

• Fairfax Financial was mentioned on 5/3/05 at $132.50. More shares were later purchased for an average cost of $123.16. It closed 9/28/07 at $244.00. This position is +82.3%.

• 3i Group was mentioned on 5/17/05 at $17.74 (adjusted for three subsequent reverse stock splits). It closed 6/29/07 at $20.25. This position is +66.8%.

• Nikko Cordial ADR was mentioned on 5/26/05 at $8.64 (adjusted for a 5-for-1 ADR split). It closed 9/28/07 at $12.55. This position is +66.4%.

• Imagistics International was mentioned on 6/30/05 at $26.60. It was bought by Oce, N.V. later in 2005 for $43.00 cash. This position closed out +58%.

• Molson Coors Class B was mentioned on 6/13/05 at $60.35. The entire stake was sold on 2/13.07 at $82.35. This position closed out +39.6%.

• DirecTV Group was mentioned on 7/21/05 at $15.50. It closed on 9/28/07 at $24.28. This position is +56.7%.

• Liberty Media Series A was mentioned on 8/4/05 at $8.52. The company then distributed to shareholders two tracking stocks, Liberty Capital and Liberty Interactive, this year. I view those two as a single position in the portfolio. Capital closed 9/28/07 at $124.83 and Interactive closed at $19.21. This position is +29.6%.

• USA Mobility was mentioned on 8/24/05 at $26.34. It closed on 9/28/07 at $16.87. This is a prime example of why including payouts is important. Still, this position is -5.2%.

• Comcast Class A Special was mentioned on 11/28/05 at the split-adjusted price of $17.82. One-quarter of the position was later sold at the split-adjusted price of $24.28. It closed on 9/28/07 at $23.96. This position is +34.9%.

• Deckers Outdoor was mentioned on 10/18/05 at $20.92. I later sold one-third of the stake for $30.08, then later sold more shares for $46.80. The remaining shares were sold on 2/15/07 at $63.58. This position closed out +131.

• CBS Class B was mentioned on 2/16/06 at $25.61. It closed on 9/28/07 at $31.50. This position is +27.6%.

• Media General Class A was mentioned on 3/21/06 at $47.05. More shares were purchased for an average cost of $44.76. It closed on 9/28/07 at $27.51. This position is -35.7%.

• Takefuji Corp. was mentioned on 4/20/06 at $62.50. More shares were purchased on two separate occasions for an average cost of $49.18. It closed on 9/28/07 at $19.83. This position is -57.4%.

• Mueller Water Products Series A was mentioned on 7/19/06 at $15.88. I nibbled on a few more shares for an average cost of $15.64. It closed 9/28/07 at $12.39. This position is -20.3%.

• BCE Inc. was mentioned on 8/6/06 at $23.01. I later sold one-quarter of the stake for $36.31. It closed 9/28/07 at $40.05. This position is +75.0%.

• ArmorGroup International was mentioned on 9/7/06 at $1.03. It closed on 9/28/07 at $1.30. This position is +31.4%.

• Walter Industries was mentioned on 9/27/06 at $43.21. Mueller Water Products Series B was later spun off from Walter. On 5/18/07 Walter Industries was sold at $29.49 and Mueller Water Series B was sold at $15.78. Taken as a single position, these two combine for +28.9%.

• Aiful Corp. ADR was mentioned on 7/10/07 at $6.60. It closed on 9/28/07 at $4.00. This position is  -39.4%.

• Foot Locker was mentioned on 7/25/07 at $20.87. It closed on 9/28/07 at $15.33. This position is -26.6%.

In all, the stock picks made on this blog have averaged a gain of 29.7% during the life of this blog. This has been a painful quarter, which will be even more evident when posting YTD results for the stock picks.

Five points need to be made.

First, these are not “annualized” results or year-to-date results. These are simply how the stock picks have performed since being recommended. I will post YTD results next.

Second, as stated, these results include dividends and returns of capital to shareholders. I did this because not doing so distorted the performance of my stock picks -- especially in cases like 3i Group and USA Mobility.

Third, I factor in partial sales. Regular readers know I’ve taken partial profits in stocks such as BCE, Comcast, Fairfax Financial and Nikko Cordial over time. Factoring in these sales (and purchases when averaging down) gives readers a more accurate view of this blog’s stock picking performance.

Fourth, these are not “audited” results. They’re just my calculator and me and I’m subject to correction.

Fifth, I live in the US so I track my portfolio in US Dollars. Someone following my picks and residing in Canada, the UK or another country may see results better or worse than mine.

Forbes Flint: GM-UAW VEBA "Quackery"

This Forbes column by Jerry Flint was published on September 24 -- before the General Motors (GM/NYSE) and UAW agreement was reached. Meaning it may be dated. But I've just read it and want to post it because Flint's auto industry observations are always worth considering. And in this case, he observes that the idea of a health care trust is a "gimmick."

He ends this piece with this:

A health care trust, if it happens, may look good today, but one day it will come back to haunt GM. Just like the deal. You remember that one: It was so clever of GM to extract itself from its obligations to Fiat that you overlooked the $2 billion price tag. That $2 billion was the money that launched the Fiat turnaround.

It will be interesting to see what Flint writes now that the deal has been struck.

Cutting New Worker Pay in Half

No shortage of news reports on the General Motors (GM/NYSE) deal with the UAW. Bloomberg reports the agreement includes a "new class of jobs" that pays about half the current rate, breaking with the UAW's tradition of equal earnings for union members.

A couple of interesting bits:

"This is a really big deal,'' said David Lipsky, a professor of collective bargaining at Cornell University in Ithaca, New York. "The UAW has always prided itself in being an egalitarian organization: `We all hang together, with equal treatment for everyone.'''

And:

GM will offer buyouts to entice existing workers who would be classified as non-core to leave, and the new pay structure would apply to their replacements, the people said. Current workers wouldn't have their pay cut.

"The company likes it because it cuts compensation costs and the union can swallow it because the people affected aren't going to vote because they don't exist yet,'' said Richard Block, a labor professor at Michigan State University in East Lansing.         

GM-UAW Deal

While the General Motors (GM/NYSE) deal with the UAW doesn't guarantee the stock will prove a good investment, it certainly increases the odds.

If you're a Wall Street Journal subscriber, you can read a typically-excellent overview of the deal (plus a good bit of historical background) here.

And Bloomberg has a good article on how the deal allows Rick Wagoner and GM get back to the business of selling vehicles. An interesting bit:

"If I were General Motors, I would be extremely happy,'' said Michael Robinet, an analyst at CSM Worldwide Inc. in Northville, Michigan. "This could very well be Rick Wagoner's legacy to the company.''

Yeah, it well could. Regular readers of this blog know I always took an even-handed view of Wagoner. Back when Kirk Kerkorian was involved, people were talking of bringing in Carlos Ghosn, and getting rid of Wagoner, I felt that GM's problems wouldn't be solved by getting a new CEO. It wouldn't be a magic bullet.

I wasn't pounding the table to keep Wagoner. But I wasn't among the lynch mob crowds wanting him to be shown the door. Besides, I pointed out at the time that GM's top five or six shareholders held most of the company's stock -- including smart folks like Southeastern Asset Management and Brandes. So people a lot smarter -- and A LOT more powerful -- than me could decide who ran GM.

And they apparently did -- by more or less doing nothing. Which meant leaving Rick Wagoner and his team in charge.

In time, that could always prove to have been a bad move. It doesn't now, though.

I'm not suggesting it's time to whip out the glasses and start popping corks. But with Rick Wagoner GM has taken some major steps in bringing that time closer. And he deserves credit.

Report: GM-UAW Deal Getting Close

The Wall Street Journal is reporting that General Motors (GM/NYSE) and the UAW are working on the final details of a new four-year labor contract "that would create a multibillion-dollar union-run retiree health-care fund and allow the auto maker more flexibility to hire new workers at lower cost." The report was posted on WSJ.com not long after midnight US east coast time. So a new agreement could be announced Wednesday morning.

Or not. More from the linked article:

At the same time, the agreement under discussion would assure the UAW that GM would make continued investment in the U.S., these people said, in a time when the auto maker has looked increasingly abroad for growth.

A deal wasn't final last night and details have yet to be completed, these people said. Individuals familiar with the process cautioned that the situation could remain fluid until UAW President Ron Gettelfinger and the UAW leadership formally sign off on a deal.

Still, considerable progress had been made on a proposed agreement that included all major economic issues, including wages, pensions, benefits and plant investments, said the people familiar with the matter.

GM-UAW Dance

Well, the UAW members have walked. It won't mean much in the short term, but if it become a long-term strike then things get ugly.

Most don't expect that to happen. I don't either. I just hope it doesn't become a case of conventional wisdom (because you know what they say about conventional wisdom).

If you can believe the reporting on this story, the hang up is future job guarantees for the UAW membership. That may be a tough nut to crack, because Rick Wagoner and GM management have certain realities. And Ron Gettelfinger has to convince the union's membership that he's fighting aggressively on their behalf and not readily giving away the store.

Anyway, the good thing is that talks have resumed. Gettelfinger reportedly has always been on good terms with Wagoner and Fritz Henderson. You can bet they're saying a lot more in private than public.

If you subscribe to The Wall Street Journal, you'll read the finest coverage of this story anywhere here. And Bloomberg's reporting of the UAW walk-out is here.

Volatility Ahead for Emerging Markets

James Morton is Cundill's London-based investment manager running a new emerging markets fund for Canadian investors. He's the subject of this article in The Globe and Mail in which he says volatile times are ahead for emerging markets and the euphoria caused by the US Fed rate cut won't last.

The move by the U.S. central bank indicates "quite serious concerns" that the bursting of the American housing bubble is starting to affect growth, and that an economic slowdown is more of a risk than inflation, he suggested in an interview.

Even more significant for him was a move a week ago by U.S. home builder Hovnanian Enterprises Inc. to discount its homes by as much as 30 per cent. "That's a pretty steep markdown," he said. Builders will have to reduce their inventory, and that probably means bad news over the next few months for the job market and U.S. economy, Mr. Morton suggested.

"While interest rate cuts help, they take time to have any kind of impact. So I don't think they can ameliorate the problem in the next six months. "If the United States was to go into a shallow recession next year at some point, that would obviously be damaging for global growth," he said during a visit to Toronto from his base in London.

Over the longer term, he said there is still "a lot of mileage" left in emerging markets for investors given that developing countries contribute over 50 per cent of the world's gross domestic product (GDP).

Morton gives some specific stock picks in the linked article. One of them, Lonrho PLC, I looked at a while back but couldn't get enough information to convince me to pull the trigger. Then (of course) it rose in price a good deal. It has since come down a bit, but it is still up significantly.

Comcast in Barron's (Again)

Eric Savitz writes a bullish piece on Comcast in this week's Barron's -- a month after the publication ran another positive piece by Jay Palmer. If you're not a Barron's subscriber, you can read a short Reuters report on the article for free.

Savitz quotes Craig Moffett, cable analyst at Bernstein Research, on how hard it is to recommend Comcast. The stock is down 16% this quarter, significantly underperforming both the broad market and industry sector. Moffett rates the company a buy. And I would buy it myself if I didn't already own it.

Comcast is actually one stock I bought I've never suffered much with while owning it. As you know, I own the Class A Special shares trading on NASDAQ under the symbol CMCSK. I got in at the split-adjusted price of $17.82 and the Class A Special shares closed Friday at $23.70. So even though the stock is down it remains in positive territory as far as the portfolio goes.

That's refreshing. Especially when it looks like my Japanese consumer lenders and Media General (MEG/NYSE) holding will guarantee that I spend my retirement years dining in soup kitchens. ;-)

Cundill Manager on Currency Hedging

With the Canadian dollar achieving parity with that of the US, you might wonder what portfolio managers north of the border think about it all.

At least one thinks not too much about it -- because his investments are hedged:

"We're effectively hedging away the currency risk,'' said Andrew Massie, vice-president of investment management for the $7-billion Mackenzie Cundill Value Fund. "There's an opportunity cost (to hedging) when the dollar is weakening. But, when the dollar is strengthening, it really does help save our bacon,'' he said, referring to investors and fund managers. "Being both, I'm rather happy about that,'' added Massie, who spoke to a group of investment advisers in Regina Thursday.

Massie, who has been with Cundill Funds for 23 years, said Cundill Funds managers have been hedging their funds against currency risk for 20 of the last 30 years. In fact, hedging investments by buying futures or options has been part of the Cundill "value investment strategy'' since Peter Cundill started managing the funds in 1975. Certainly, hedging has protected the Mackenzie Cundill Value Fund from the negative impact of the strengthening dollar.

"We hedge as matter of strategy, not as a matter of policy,'' Massie said. Of course, hedging can't protect investors against a stratospheric rise in the dollar, which could have grave consequences for the export-oriented, resource-based Canadian economy. "If we saw the dollar at $1.25 (US), I don't know what would happen in this country. I certainly hope we don't see that."

Regular readers know I don't engage in hedging, primarily because it's just not economical for me to do so. And it's no big deal -- over the long term -- because studies show that over a decade hedging is a wash. But there's no doubt currency swings can make a big dent (or provide a big boost) to stocks over a shorter time horizon.