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    « October 2007 | Main | December 2007 »

    November 30, 2007

    Zen and the Art of James Altucher

    With the single exception of a mention in The Kirk Report, by far the biggest traffic directed to Controlled Greed comes from James Altucher's occasional mentions in his blog column in TheStreet.com.

    So I like James for that if nothing else.

    But I also admire him for something else. He's a great column writer (he might be a great writer, period, for all I know). I'm talking Jim Grant-quality stuff, folks.

    Take his latest piece in the Financial Times. Do you know what one of the signs of a top-notch column writer is?

    The first sentence. It grabs you. In James' latest FT piece:

    In 1985 my dad made $5m.

    Short and attention-getting. Anyone who says otherwise is lying, illiterate, or can't read English. And anyone who can resist reading on must possess no curiosity. Or maybe not a pulse.

    The column details financial ups and downs in his father's life, and his own. James tried lots of different things, including Zen-style meditation:

    All of this is to say: nothing works. The saying, “better to have loved and lost than never to have loved at all” is not true when it comes to money (I’m not so sure it’s true with love either). Better to never have than to taste what feels like immortality and to have to part with it.

    I was able to learn from my mistakes and slowly climb out of the hole, possibly becoming a better person as a result. My dad’s worries ultimately overcame him, and he passed away from a stroke two years ago.One thing I learned in the process, as clichéd as it sounds, is that nothing is worth worrying about. Right now, with the US economy seemingly in collapse, a run on the banks being discussed in the mainstream media and the housing crisis on the verge of depression-like proportions, it’s easy to worry or panic.

    You and I could do worse than to read -- and re-read -- this column. Especially with the New Year approaching. Here's how James Altucher ends this one:

    With persistence, diversification (both in your career and in your investments), and learning to postpone worry for a brighter day, these moments of panic turn into long-term opportunities if taken advantage of. As for me, the internet, plus investing, has paid off for now. But unfortunately my dad didn’t live to see it.

    November 27, 2007

    Talk About Timing: ArmorGroup Stock Plunges

    Here's to great timing, in the worst sense.

    Just hours after posting here about ArmorGroup International (ARG/LN or AMGPF/OTC) still being a bargain, the shares got hammered in London after the company announced its chief executive was leaving and warned that profits would be hit by the fallout from an incident involving the American security group Blackwater in which Iraqi civilians were killed.

    The Financial Times has the details:

    ArmorGroup hopes to appoint a successor within two weeks. In the meantime, Christopher Beese, who has been with the group since 1988, will act as senior executive director.

    “He did his best in a volatile market,” Mr Beese said of Mr Seaton’s performance as chief executive. Iraq accounts for some 41 per cent of the company’s revenue, although that has fallen from 52 per cent last year. The US government, by far the largest client, accounts for some 80 per cent of that Iraq revenue.The shares closed down 20¼p at 29½p, even as the company sought to reassure investors that the contract problems were a “blip”.

    Some blip. Well, there are some good things still going for ArmorGroup -- as you can read from The Rogue Analyst in the UK (a fellow traveler in the shares).

    ArmorGroup came within inches of doubling in price (in USD terms) some months back. If it had doubled, I'd have sold half my position -- a typical practice of mine -- because the company would then become a free ride. Though that didn't happen here, this is a good reminder to me of the wisdom of that course of action.

    The company is definitely cheap. And it looks like it will stay that way for quite some time. I'll stay patient as long as the balance sheet stays strong.

    November 26, 2007

    Why ArmorGroup Remains a Bargain

    You might recall that I bought ArmorGroup International (ARG/LN or AMGPF/OTC) in September 2006. The shares were trading just below net tangible asset value at the time. The stock subsequently rose -- almost doubling in price in USD terms.

    But it has since fallen back -- way back where it was when I bought it (give or take a few cents depending on each day's close).

    That's no fun. Yet we're only a year or so into this. And ArmorGroup remains a bargain -- because the shares are again trading just under net tangible asset value.

    So I'd buy it now if I didn't already own it.

    Should you? Only you can decide that. Just be sure you know the risks involved before jumping in.

    UK blogger Rouge Analyst also has money in ArmorGroup. And you can see why he's hanging onto his shares here.

    Festival of Stocks at Fat Pitch Financials

    George of Fat Pitch Financials is hosting this week's Festival of Stocks. It's the 64th edition of this particular blog festival. There's lots of interesting stuff sure to prove worthwhile for anyone involved in investing in individual stocks. So stop by and check it out.

    November 23, 2007

    Why Prem Watsa Has Never Been More Bearish

    Derek DeCloet reports in today's Globe and Mail:

    The global credit squeeze is in its "early days," says investor Prem Watsa, who is so bearish that his insurance company has stashed the bulk of its $18-billion investment portfolio into ultrasafe government bonds.

    The head of Fairfax Financial Holdings (FFH/NYSE) thinks the US could see a market slide similar to the long bear market that struck Japan in the late 1980s.

    "We raise the question, why can't the Japanese experience be repeated in the U.S.? We think it could be," Mr. Watsa said.

    "I was in Tokyo in 1988-89. They said: 'We work together, we're not like the Americans, we're not going to let this happen, we're not letting our stock price come down.' Well, the bear market went 15 years," Mr. Watsa said. "So today, you ask your American friends and they say, 'We're not like the Japanese, we're free enterprise, we face the problems head-on. We react. We're not going to hide the stuff like the Japanese did.'"

    This further into the piece:

    Mr. Watsa suggested the decision to put 75 to 80 per cent of Fairfax's portfolio into government debt - "for the first time, I think, ever" - reflects his view that credit markets will take a long time to digest the problems in the U.S. real estate and mortgage business. "We don't know how bad the recession's going to be, so credit is going to be tough," he said. "You're going to have these big losses, the banks are going to have big losses. So we are worried."

    Perhaps we should all be. You know I've been buying stocks recently. But I'm buying stocks of companies,not the market. And I'm taking a long-term view of things. I'm willing to weather short-to-intermediate downturns because I believe the holdings will, on average, come higher on the other side. Only time will tell what happens.

    James Grant on Ben Graham

    Earlier this month, Jim Grant of Grant's Interest Rate Observer addressed the Center for Jewish History in New York. His topic was "My Hero, Benjamin Grossbaum."

    You can read the text of Grant's remarks here.

    Towards the end, he speaks of Graham's masterpiece, Security Analysis:

    "Security Analysis" is Graham's legacy and testament. It is a comprehensive guide to investing as investing was defined and practiced in the early decades of the 20th century. "Value investing" is the name posterity attaches to Graham's approach to seeking out securities that afford the buyer a margin of safety. Graham himself called it simply—"investing." It might trouble his shade to know that even after seven decades of financial evolution, only one Wall Street tribe—the one that styles itself value-seeking—consistently strives not to overpay. We are a kind of cult. For the mainstream, it is as true today as it was in 1929 that value is nearly the same as earning power. Certainly, to judge by the 2007 credit crackup, balance-sheet analysis isn't much more faithfully practiced today than it was in the days of Calvin Coolidge.

    It's a pretty long piece. You may want to bookmark it or print it out to read later. But anyone devoted to the value approach will find this worthwhile reading.

    November 22, 2007

    Buying Whirlpool

    Wednesday I bought Whirlpool (WHR/NYSE) at $73.25 per share. The stock closed the day at $76.03. Whirlpool is the world’s largest manufacturer of household appliances.

    The market cap is almost $5.8 billion with approximately 78 million shares outstanding. The stock is trading at less than 10 times estimated 2008 earnings and one-third annual sales. The dividend yield is just over 2%.

    Whirlpool stock traded for $118.00 this summer but has come down significantly.

    Why? Primarily because the company’s fortunes are seen as being tied to the US housing market. Yet Whirlpool reports that just 18% of US shipments are linked to new residential construction -- with more than two-thirds of shipments going for replacement purposes.

    Plus, Whirlpool shouldn’t be thought of as a domestic US appliance outfit. A recent Barron’s Online article reports that the company makes 20% of the world’s major appliances -- including washers, dryers, refrigerators, freezers, dishwashers and ranges. The company expects double-digit growth outside the US, especially in Latin America and Asia.

    Another reason for investor caution on Whirlpool is the uncertainty surrounding Sears -- Whirlpool’s biggest customer. But the acquisition of Maytag in 2006 (and Whirlpool’s revitalizing of that brand) means the fate of Sears is much less of a concern. Maytag gives Whirlpool distribution reach into 95% of appliance outlets, up from 75% before the purchase, and most importantly entry to Home Depot.

    This is yet another holding of Meryl Witmer’s firm. And her firm added to Whirlpool in the last quarter. What’s more, Whirlpool Chairman and CEO Jeff Fettig bought $843,290 worth of the company’s stock (paying $84.33 per share) in the open market in October. Of course, the actions of Witmer and Fettig guarantee nothing about future stock performance.

    What are the risks with this pick? Primarily unfavorable changes in business conditions in the company’s markets; further increases in raw material costs (which have been a problem); and delays in achieving benefits expected from acquiring Maytag.

    In all, I find Whirlpool stock compelling at current prices. But as I always caution, please do your own due diligence before adding this name to your portfolio.

    November 21, 2007

    New Order Placed

    I placed an order with my broker this morning to buy stock in a global manufacturer and marketer of household appliances. Assuming the order gets filled, this will be a new position in the portfolio and I'll post my rationale for buying later today or this evening.

    November 20, 2007

    Mobius: Gulf States Moving to Currency Basket

    You've certainly read and heard reports speculating on the US Dollar's future status as the world's reserve currency.

    And regular readers certainly know I follow (on a somewhat regular basis) the views of Mark Mobius. I don't buy or sell stocks based on his thoughts, but I put more stock (pun intended) in what he thinks than most of the talking heads on cable TV.

    That's why this report from Dubai catches my eye:

    Economists are seeing that the UAE and other GCC states will move away from US dollar peg to a basket of currencies, although no "dramatic impact" is expected, as they are gearing towards a stronger economic integration.

    "I don't see any choice but perhaps to move to a basket of currencies," said Mark Mobius, executive chairman of Templeton Asset Investments, at the opening of the one-week DIFC Economic Forum. "With its booming economies, the region is moving towards a basket of currencies."

    What does this mean? I have no idea. I'm not a top-down guy. But I do find it all interesting and worthy of staying current on.

    In the meantime, stay focused on buying value stocks. Hold for the long term. And remain confident that -- with spikes upward here and there -- the US Dollar will continue eroding over time. After all, that's been the case since 1913.

    GM's Wagoner Back on the Hot Seat?

    Not with the Board. But it's looking like Rick Wagoner is for some on Wall Street. Shares of General Motors (GM/NYSE) were north of $40 a month ago -- and now are back under $30.

    John D. Stoll has a typically fine article on Wagoner and GM in The Wall Street Journal.

    It's a bit frustrating that GM stock is now basically back to where it was when I first recommended it in April 2005 at $26.75. (My personal average cost is in the low $30s since I originally bought a chunk at $37 in February of that year.)

    But, hey, maybe I should stop typing. GM traded in the teens not too long after I first mentioned it here. ;-)

    You'll read me say something now I've said before. I think GM is a supertanker and it takes a lot to turn one of those around. GM being a major turnaround, we sometimes take two steps forward and one step back. It may feel like one step forward and two back, but that's not the way I see it right now.

    If you're a fellow GM shareholder at entry prices similar to mine, my advice is to stay patient and continue taking the long-term view. That's what I'm doing. You have to make up your own mind.

    From the linked WSJ piece:

    Some investors say GM's long-term outlook remains encouraging. "The silver lining is that on the automotive side of things, the business model is probably a lot better," BNP Paribas automotive-trading specialist Brad Rubin says. "If they hadn't done the restructuring, GM would have without doubt had to file Chapter 11." Instead, Mr. Rubin says, "GM weathered that storm."

    "I think there is a lot of concern around ResCap," ValueWorks Chief Investment Officer Charles Lemonides says, noting there are short positions in about 50 million GM shares, or nearly 10% of the shares outstanding. Still, Mr. Lemonides, whose firm owns 300,000 GM shares, insists, "Sure there is a lot of risk, but it doesn't exist to GM shareholders. [And] even if there were a risk to us, General Motors Corp. is still a buy at $27."

    Be sure and read the entire piece, if you subscribe to WSJ.com.

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