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      « September 2005 | Main | November 2005 »

      October 28, 2005


      I saw a report last night that Deckers Outdoor Corporation (DECK/NASDAQ) was getting slammed in after hours trading. The AP wire had it going for $17 and change. The reason is because the company revised downward its forecasts for the 4th quarter of this year and all of next year.

      Needless to say (but I'll say it anyway), it will be interesting to see how this shakes out in the coming days. And, since I buy everything with a 3-5 year time horizon, in the coming months and even longer.

      Maybe I'm wrong about Deckers. Time will tell. Though I'd rather a bad pick turn out to be dead money and not a blow up.

      October 27, 2005

      "Closed Positions" Listing Added To Site

      My Imagistics International shares were tendered to Oce and the cash showed up in my brokerage account the other day. So Imagistics has been deleted from the "Current Holdings" menu located at the right under the Google Ads. And a new listing -- "Closed Positions" -- been created under "Current Holdings".

      Imagistics and its performance is listed there and others will be added over time.

      As a quick review for new readers, Imagistics International was recommended here in June at $26.60 per share. In September, Netherlands-based Oce made a tender offer of $42.00 cash per share. That's a gain of roughly 58%.

      Yeah, I wish every stock pick worked that well that fast. But, no, they usually don't.

      October 25, 2005

      Diggin' Cheap Stocks

      I stated before that I think Clyde Milton's Cheap Stocks blog is one of the best out there. His latest post lists the top 20 market cap companies trading below net current asset value.

      I hold one of the stocks listed -- Audiovox (VOXX/NASDAQ), which I mentioned in this site's very first post. It was mentioned along with MCI and Korea Electric Power (KEP/NYSE) as examples of the types of stock picks readers could expect to find on this blog. Audiovox and Korea Electric have doubled from their original purchase prices and half of each position has been sold. I continue to hold the rest in the portfolio. MCI, of course, is being purchased by Verizon in a cash-and-stock deal.

      Anyway, back to Cheap Stocks:

      "A few weeks back, your Cheap Stocks editor stated that he was having trouble identifying any compelling companies trading below NCAV. While that sentiment has not changed radically, this weeks report will identify a list of companies currently trading below their NCAV. Keep in mind that, unless stated, no judgements are being made on these companies. Many NCAV companies bear that distinction with good reason: they may be near death. You may notice one familiar name on this list, Discovery Partners (DPII), which we reported on several months back. That stock is down about 15 percent since that report."

      Words of wisdom, no doubt. And I sympathize with Clyde's Discovery Partners pick being down since he reported on it. That's certainly been the case with some of my current holdings. But no value investor claims to be able to pinpoint bottoms (which yours truly has pointed out repeatedly).

      Here's what Clyde says about Audiovox:

      "One of the more interesting ones is electronics manufacturer Audiovoxx, which was trading below its NCAV 3 years ago, and was referenced in a story I published then. At the time, VOXX was trading around $4 a share, and subsequently had a very nice run up, knocking it off the NCAV list. Now, its back on the list, at a much higher price ($13 range)."

      I encourage you to visit Cheap Stocks and view the entire list. I should note here that Clyde reports on his blog that he does not own any of the stocks listed and is not recommending that anyone buy or sell any of the stocks.

      P.S. While you're at it, check out the archives of the Cheap Stocks blog (if you're not a regular reader already). I really like Clyde's theme of digging for cheap stocks that are also undervalued real estate plays.

      October 24, 2005

      You Don't Say

      Bloomberg columnist Doron Levin has a piece this morning entitled, "Investors See Value in Decaying Detroit Assets".

      His column isn't only about General Motors (GM/NYSE). Though I do wish when talking about GM he'd point out there are at least a couple more noted value players investing in GM's common than Kirk Kerkorian.

      But, hey, better late than never. Besides, Kerkorian is better press than guys with first named like "Mason" or "Staley", for goodness sakes. ;-)

      Levin says something you've read me say, only I put it a bit differently. If GM turns out to be a good investment, it won't be because it will return to past glory. It won't overtake Toyota. It will be because it's a case of buying a mediocre company in a tough, capital-intensive business at a cheap price. And then eventually the market recognizes the value.

      That's a big "if". Admittedly, a bigger "if" for some folks than for others.

      And if I'm right, there will be pain involved for those in the auto industry. Levin writes:

      "The upshot probably will be a smaller, leaner, and possibly more profitable U.S. auto industry, perhaps even leading to increased ownership by foreign interests."

      That means plant closings, layoffs, lives impacted. I don't rejoice at that prospect. Yet what's the alternative? Keeping everything going as is until the ENTIRE company goes under and EVERYONE loses their job? Even the UAW knows that's no recipe.

      October 21, 2005

      The Mindset Of A Contrarian

      This column by Michael Lewis gives us perfect insight into the mind of a contrarian.

      No, it's not about undervalued stocks. It's about New Orleans real estate right after Hurricane Katrina hit.

      Yet the thinking process displayed by the London investor Lewis profiles almost gives me goose bumps it's so dead-on.

      Why? Because it is exactly the same thinking process we should be using to be profitable long-term stock investors. Check this out:

      "Most people aren't contrarians, in their lives or their investment decisions. They have no gift for leaning against prevailing sentiment, and if the hysterical reaction to Hurricane Katrina did anything, it created a prevailing sentiment: Everything was insistently desperate, terrifying, doomed, and it was deeply unfashionable to think or feel excited or interested or opportunistic. (You don't get fear in moderation, or in just the right dosage; you always get 10 times more than you need.)

      "The speculator not only understands this, he exploits it; other people's emotions are his raw material. He isn't self-conscious about his reaction to the suffering of others. If he has to think, consciously, 'Everyone is frightened, but as I'm supposed to be one of those contrarians, I'll now be brave,' he'll never make his move. No, the mere sight of a herd stampeding in one direction causes him to leap in the other. The consensus that New Orleans is a place to get out of inspires in him a genuine desire to get into it."

      Obviously, I'm not saying we should do "B" just because the crowd does "A". It's not enough to go against the crowd just for the sake of doing so. The crowd may be right about GM. And Deckers Outdoor. And USA Mobility. And so on. I don't think so, but they could be. Only time will tell.

      But "the crowd" was saying Imagistics International was a lousy business because it relied too much on fax machines in an age of email. "The crowd" thought that MCI was dead in the water coming out of bankruptcy. And "everyone" knew that Japan would never come back.

      You and I have been around long enough to know what they say about conventional wisdom is true.

      The fact is, so many in the crowd are hard-wired in such a way that renders them incapable going against popular sentiment. This fact is something we can profit from.

      Now, remember something. I posted previously that trying to pick stocks based on natural disasters is largely futile. Despite the screaming headlines, most natural disasters aren't big enough to disrupt the entire economy of the nation. And it's near impossible finding publicly-traded stocks so small that the majority of their earnings are derived from the impacted area.

      So understand that this post is about a MINDSET -- not about buying the stocks of Louisana companies or whatever.

      The strategy Lewis describes about investing in New Orleans real estate simply illustrates the MINDSET we need to thrive as value investors. Believe me, I'm no real estate expert.

      Though Lewis' last paragraph rings true:

      "But someone, somewhere is about to make a killing in New Orleans. Somewhere there is a hedge fund manager stealthily buying up New Orleans real estate, or a venture capitalist quietly creating a New Orleans fund, or a 26-year-old would-be entrepreneur who, having been rejected by Harvard and Stanford business schools, is deciding to make his empire in the ruins. And, as loathsome as he will seem in retrospect, I find him hard to dislike right now."

      I'm with ya, Michael.

      October 20, 2005

      Reader Question On Buying Foreign Stocks

      A reader named Jeffrey posted a comment to the previous post. I'll give my reply here because I hope it will be helpful to others. He asked:

      "How do you actually purchase a foreign stock like Nikko Cordial from a U.S. brokerage account? I once tried to buy some shares of Nestle which trades OTC but got no where, even though it is a huge company. Also, where how do you find out about the financials of a company like Nikko Coridal which is listed on neither the NYSE of on NASD? Thanks in advance."

      I bought the ADRs (American Depository Receipts) of Nikko Cordial in that are listed in the "pink sheets" of the over-the-counter market in the US. The symbol is NIKOY and they trade very thinly, so be sure to use limit orders if buying this security. I could have bought the ordinary (common) shares that trade in Tokyo through my broker (see below) but chose not to.

      When I do buy ordinary shares of foreign companies (such as 3i Group PLC), I use the Global Trading Desk at Charles Schwab. It's not as convenient as buying online. You need to call a toll-free phone number during normal business hours (US east coast time). If your broker couldn't execute a trade for Nestle (or any other foreign stock), you should ask them why and if not satisfied with their answer, change brokerage firms. We're in a global economy, and there's no excuse for any broker not being able to execute the trade for you.

      Finding the financials of foreign companies like Nikko Cordial is more difficult. The first place is check is (subscription required). I also visit Reuters and Yahoo. One of the best sites to check is, but they charge now. Another option, though one I don't find particularly useful, is visiting the company's web site. Most foreign companies have English language versions of their sites up and running.

      I hope I've answered your questions, Jeffrey. Thanks for visiting my blog and I hope you'll continue finding it of value (pun intended).

      October 19, 2005

      Midweek Meanderings

      Assuming you've gotten over all the excitement resulting from yesterday's stock purchases -- 2 in 1 day! -- here are some things that you may (or may not be) find interesting.

      General Motors
      John Dorfman's latest Bloomberg column is about him stealing stock ideas from other professional managers. He mentions Mason Hawkins and Staley Cates of the Longleaf Funds and their owning 5.5% of General Motors stock (as of 6/30/05):

      "Conventional wisdom says that General Motors has been losing market share for three decades, makes cars inferior to those of Japanese competitors, is saddled with large pension and health-care obligations, and will be crippled by rising interest rates. There is bankruptcy talk, in Barron's magazine among other places.

      "As investors buy into this grim scenario, GM shares sell for only 0.09 times revenue and 0.68 times book value. That's cheap even for a stock like GM that is rarely expensive."

      Regular readers of this site know I've always thought Longleaf's ownership of GM shares (and that of Brandes Investment Partners) was a more reliable sign of the company being undervalued than Kerkorian getting into the picture. Hats off to Dorfman for making a good point regarding the auto giant.

      What's more, while on the subject of GM, Bloomberg's Doron Levin has written an even-handed piece on the modern realities facing the UAW.

      Nikko Cordial
      In the "for what it's worth" department, Nikko Cordial ADRs (NIKOY/OTC) are now the largest position in the portfolio. This is partly because GM and Fairfax Financial (formerly dueling it out for top honors) have come down a bit, but also because Nikko Cordial has benefitted from the recent good news in Japan.

      This isn't surprising. Nikko Cordial is Japan's 3rd largest broker and heavily engaged in investment banking. So the company's fortunes (and stock price) have risen as both the Japanese and the world rediscover the slowly improving landscape of what used to be called "Japan Inc.".

      Japan still has problems -- deflation, debt and credit issues. Yet Nikko Cordial is perfectly situated to benefit from the near-term incremental improvements being made in the country. The fact that it has a solid balance sheet, is increasing its dividend payout and buying back stock is pretty cool, too.

      Investment Manager Holdings
      All the above brings something to mind. My hunch is that the vast majority of this blog's readers look at what their favorite money managers own. I know I do. And I know managers look at what other managers own.

      But you can't just go by that -- because they all buy different things while remaining true the value orientation. (That's something Warren Buffett pointed out in his "Superinvestors of Graham-and-Doddsville".)

      Besides, if you and I were just buying everything that, say, Mason Hawkins and Staley Cates were buying for the Longleaf Partners Fund, we might as well just invest in the fund itself (when it reopens to new investors).

      Take the topic of investing in Japan. Famed value players like Longleaf, Tweedy Browne, Peter Cundill and Marty Whitman have ALL invested heavily in the country beginning in the last half of the 1990s. (Interestingly, Buffett and the Templeton folks weren't.)

      Yet, as much as I like Nikko Cordial, the only major value manager I've noticed investing in the company is Cundill.

      Why aren't the others? I have no idea.

      What does it mean? For us, it means it's sensible to see who owns what. But at the end of the day we have to make up my own minds.

      October 18, 2005

      Adding To USA Mobility

      I added to my stake in USA Mobility (USMO/NASDAQ) on Monday. The stock closed the day at $25.53, which is down from the price of $26.34 when it was first mentioned here on 5/25/05.

      New readers can read the original rationale for owning USA Mobility by clicking on the company name in the "Current Holdings" menu at the right under the Google Ads.

      Buying Deckers Outdoor

      I bought stock in Deckers Outdoor Corporation (DECK/NASDAQ) on Monday. Deckers designs, manufactures and produces footwear and markets its products under 3 brands: Teva, Ugg and Simple.

      The shares closed Monday at $20.92. They were trading as high as $49.12 last December.

      Like everything I buy, Deckers has problems. It has reduced financial estimates twice during 2005. Weather was a big issue. The Teva line has relied on "open toe" footwear and unseasonably cold weather killed sales in key markets. Inventory skyrocketed, a bad sign for any company selling retail products. And there are concerns that its products are "fads" -- despite a brand's popularity (and Ugg has been very popular), fashion trends can change quickly.

      What's more, Deckers is repositioning its brands under new President and CEO Angel Martinez. Repositioning takes time. And that's when it is successful. Remember, nothing is guaranteed.

      I note that LOADS of people must hate this stock. shows short interest as percent of public float is a whopping 64.5%.

      For the quarter ending 6/30/05, Deckers' was trading at 1.66 times book value, 1.58 times sales and 9.95 times earnings. The market capitalization is roughly $255 million and there's no dividend. The current ratio is 4.04 and the quick ratio is 1.56.

      Deckers reports 3rd quarter results next week. They should give us an indication of things to come.

      Sales for Ugg were up 170% the first half of 2005 over the first half of 2004. But the 3rd quarter is the start of the Ugg selling season and the company is carrying a lot of Ugg inventory. How this line performs in the most recent quarter could portend how the rest of the year goes. The company is looking to expand the Ugg product line and increase sales to men.

      Teva sales are traditionally weak in the 3rd quarter, so I'm not looking for anything exceptional to be reported next week. Martinez has stated that Teva's sales have been inconsistent over the past few years. This line looks to be his prime repositioning project. The company is spending $2.9 million in media marketing for Teva alone in 2006 -- up from just $800,000 in the past year.

      The Simple line seems to be making progress in its year-long turnaround, gaining new accounts such as The Sports Authority.

      Martinez and his management team apparently understand the importance of selling global brands. They are expanding their distribution network, investing in new products and spending the marketing bucks to promote them. Will all this kick in and give us a run-up in the stock price?

      Time will tell.

      NOTE: Deckers only has approximately 12 million shares outstanding. PLEASE, if after doing your own due diligence you decide to buy this stock, please use limit orders.

      UPDATE 12/17/05: I sold a third of the position in Deckers Outdoor Corporation Friday morning for $30.08 per share. The stock ended the day at $30.31.

      UPDATE 9/25/06: I sold some of my position in Deckers Outdoor Corporation early Monday at $46.80. The stock closed the day at $48.09. With this last sale, I've gotten my original capital out of the investment and Deckers Outdoor becomes a free ride. It remains a full position in the portfolio -- accounting for more than 4% of total assets. I still like the company and its management. But its stock isn't the bargain it was in the Fall of last year.

      October 17, 2005

      New Orders Placed

      Finally, a little action might take place in the portfolio today with the placement of 2 orders.

      The first will be an addition to one of the current holdings. And the second is to buy stock in a company that designs and produces footwear.

      If these go through I'll post more about them later today, this evening or tomorrow morning.


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