Posted by Davy Bui on January 6th, 2009 in Enlightened-American Portfolio, Investment Strategies, Reader Questions

Before I get to the questions, check out this morning’s WSJ for details on the latest Chesapeake (CHK) $412M VPP deal.

First question comes from Neil:

Hi Davy,

I enjoyed reading your article on CHK. I am also a value investor and I’m grappaling with a problem that I think you have too. I hope you’ll indulge my rather long question.

It’s well and good to know the IV of CHK but it’s entirely dependent on natural gas prices. As you say, Investing in Natural gas via an ETF would not give you any guidance as to whether or not to sell as you can’t caluclate the IV. However any valuation of CHK obviously has NG as an input.

If your current valuation target is met then you would recalculate your IV based on updated NG values. On this basis you may not sell because CHK is again undervalued. What if in this case NG has become overvalued and then falls, CHK would fall with it and may remain undervalued throughout the fall based on the NG prices of the day. A company could go up 500% then down again all the time being undervalued (based on the spot/forward NG prices).

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More on this topic (What's this?)

Sold Covered Calls on CELG & FCX - Dumped AA, CHK, CMI (My Trader's Journal, 12/22/08)

Chesapeake Energy Will Not Stay this Cheap (The Razor's Edge, 10/31/08)

Chesapeake Energy (Phil’s Stock World - Members S..., 11/27/08)

Read more on Chesapeake Energy at Wikinvest

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Posted by Davy Bui on January 5th, 2009 in Market Commentary

As evidenced by last week’s thinly traded rally and action this morning, the stock market doesn’t want to stay down. By its nature, the winter holidays and the New Year imbue folks with a sense of optimism (except for those who get increasingly depressed during holidays, but I digress). I wouldn’t get too caught up in any rally in equities at the start of the year.

Credit markets are also recovering, which I don’t discount as readily as the stocks rally. While the economic situation is likely to worsen, corporate spreads widened well beyond record levels. My simultaneous worries have been

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Posted by Davy Bui on January 1st, 2009 in Enlightened-American Portfolio

Click here to view the spreadsheet containing all disclosures for my complete equity portfolio, including initial entry points, YTD returns, total returns, etc.

THE ENLIGHTENED-AMERICAN PORTFOLIO SPREADSHEET

• Enlightened-American Portfolio: -15.1% YTD (including dividends)
• DJIA: -33.8%
• Nasdaq: -40.5%
• S&P 500: -38.5%
• DJ WIlshire 5000: -38.7%
• Russell 2000 (smallcap): -34.8%

As you can see, the portfolio finished the year down 15% on the year.  Frankly, I’m not in any kind of mood to summarize the year’s performance or go over my mistakes at the moment. Most likely, I will publish my mistakes of ‘08 later (readers can review my 2007 mistakes here).

In the meantime, I’ve spent much of my vacation catching up on some reading (and even managed to sneak in a non-financial book).  Some quick recommendations:

Despite having a sizable stack of books on my shelves waiting to be read, I regularly hit the libraries and can’t seem to help bringing home a book or four, most of which I won’t get to.  I just happened to pick up this book because of the title. It’s always been my position that, for their situation, most people overestimate the usefulness of so-called retirement investment accounts. Specifically, the lack of freedom, flexibility and liquidity is a heavier price than most people realize.

Nevertheless, picking up a book based solely on the title leads to low expectations and in fact, my expectations were so low that I took no notes. Mistake. The authors crystallize many of the same sentiments that started me on my investment journey.  Their basic premises is that mainstream America, i.e. not the top 10% of the income scale, have been propogandized to readily accept the financial industry’s roadmap for retirement, a roadmap that has been formulated for the benefit of corporations and Wall Street, not for the actual retirees. Not only have regular folks swallowed the bait whole but the moneyed class, through lobbying and political lackeys, managed to structurally imbed these imbalances into the system, all the while touting the primacy of the individual, the entrepreneur and the self-made man (anybody need a bailout?).

I don’t agree with everything in here but there is much food for thought. Of course, what gives the book considerable heft is that it was written in 2002 and recent events have borne out exactly as they called it.  They even discuss the repeal of Glass-Steagall and the forgotten lessons of history to be relearned as a result. The only prediction that hasn’t come true (yet) is the rise of interest rates but I suspect that’s coming.

While I imagine many readers will be put off by the heavy pro-union vibe, the authors are not necessarily Democratic apologists.  In fact, they reserve most of their criticisms for the Clinton Administration. Nevertheless, there’s a heavy sympathetic progressive vibe that conservatives will find troubling and may allow to cloud the ideas in this book.  But readers know I am no fan of ideology and those who still cling to “free-market” primacy must acknowledge the myth of that there was ever a free market to begin wiht.

In a case of too little, too late, I finally got around to Einhorn’s ode to Allied Capital. While I found the non-ALD portions of the book to be very interesting, Einhorn spends most of the book digging (and digging and digging and …) into the accounting and corporate tomfoolery at Allied. Investors of American Capital will recognize some of the same moves, especially the pricing of debt at par while writing off equity.

What can I say, I’m a glutton for punishment.

I did get around to one non-finance book and this was it. Pollan lays out the case against the Western diet as the root of most of America’s health issues, past, present and future. While the catchy slogan of “Eat food. Mostly plants. Not too much.” may seem a bit pithy, it makes perfect sense after you read the first part of his book. Highly recommended for people interested in food or health — isn’t that just about everyone?

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Posted by Davy Bui on December 31st, 2008 in Music

With the horrendous year we’ve just closed out, it’s easy to forget that other areas of interest exist in this life. I feel it is absolutely vital to keep myself grounded in other interests outside the financial markets for several reasons.  Mostly, it keeps Davy from being too dull of a boy but also, being immersed in the mainstream financial media (WSJ, Barron’s, FT, Bloomberg, CNBC, etc) eventually takes its toll on me (and most other people, I suspect).  It becomes easy to subtly fall into groupthink and herd mentality if I am exposed to it everyday. Sometimes, stepping back reveals the way forward.

Music is one of these outlets for me to rediscover the “inner contrarian”, so to speak. I was a late bloomer and music was the first avenue to self-discovery.  A recent article in the Wall Street Journal posited that music may be good for your health. So below, I list some of my favorite music from 2008, completely for my own self-indulgence (self-therapy is more like it), but hopefully, readers may find it of some interest.

BTW, my tastes run a bit esoteric than most, though I’ve settled in a bit as I age.  As such, many of these albums may be a bit more adventurous (or “crappy” or “weird” in mainstream-speak) than most readers of this blog enjoy. For a sense of my aesthetics, you can download my last band’s album here and see a bit where I’m coming from.  Perhaps readers will see where that contrarian streak comes from!

Without further adieu:

The Hospitals - Hairdryer Peace

Are you kidding me?  This album is one of these things that changes the way you hear music and forces you to get up and start a band (or would if you were 5 years younger and the market wasn’t crashing so badly). So basically, you’ll either love it or you’ll hate it and in both cases, you’re right!  The band has some songs up on their myspace page for you to sample but dear heavens, if you’re going to listen to it on your computer, plug in some headphones to get some resemblence to how the songs really sound.

Jay Reatard - Singles 06-07

Jay Reatard released two singles compilations this year but this one from In The Red Records is hands down my favorite of the two. His Blood Visions album is probably the best place for newbies but this singles compilation dates from that period.  During my honeymoon, we went on a whale watching ship ride woefully undressed and froze our asses off for much of the ride.  Halfway through, we started singing songs from this album and soon, I was feeling no pain (my wife was feeling some shame, however).  Cheesy?  Yes.  Awesome? Totally.

F*ck Buttons - Street Horrrsing

It’s like someone took the underground noise rock scene of the last few years and cleaned it up for public consumption. Maybe I’m getting old but I likey! Very repetitive, hypnotic, heavy, catchy riffs with gnarly vocalizations over the top.  Good for biking!

Mae Shi - HLLLYH

About half of this album is really stellar with great songs and hooks and I even dig the 10 minute dance send-up of every techno cliche you’ve ever heard.  The other half skews more toward their past rawkous screamy sound. But this album and this band is one of my personal catalysts in reconnecting with the music scene.  I went to their show at the Funcastle which got shut down by the cops after 3 songs but came away imbued with a sense of zest and optimism.  I bought a shirt that reads “I’m Glad You’re Alive” and in a scene filled with irony and cynicism, any music that makes me feel like that shirt is to be treasured.

Mayyors - Marines dot com 7″ & Megan’s LOLZ 7″

The band that proved that everything I knew about local music was wrong. These guys rock so hard, it isn’t funny except that it is when you see them live. I think I piss off Dawson when I say the first 7″ is my favorite but they are both excellent.

Vampire Weekend - Vampire Weekend

The album that proved I’m getting old.  I’m sure five years ago, I would have pooh-poohed this album as overly derivative, bland Peter-Gabriel horesh*t for indie kids even if it was totally untrue because that’s what hipsters do!  I mean, even the Wall Street Journal pimped these guys for crissake; how uncool is that? But now — what’s not to love about great, catchy, well-written songs?  Granted, the first song totally reminds me of Liquid Liquid and other comparisons creep in as the album progresses but almost every song here is a keeper. Maybe getting old isn’t so bad.

See y’all in 2009.

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Posted by Davy Bui on December 22nd, 2008 in Misc.

As the holiday events keep piling up, I’ve slowed my posting down in recent days.  I may post a few times between now and 2009 but for the most part, I’m going to take a little break.  I’ll probably have an exciting announcement when I come back so stay tuned.

I’d like to thank readers for visiting the blog and the great input I’ve received from you. I’ve learned a lot from writing this blog and from interacting with readers and look forward to growing with you all next year.

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Posted by Davy Bui on December 19th, 2008 in Investment Strategies

A question from Fletcher:

“Hey Davy, I enjoy reading your material. I am interested in putting some money into oil, specifically USO. I see you that you really like CHK. Do you see CHK outperforming an oil ETF like USO in the future 1-2 years?”

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