Posted by Davy Bui on February 8th, 2010 in Market Commentary, Worth Reading (links to articles, etc.)
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That’s what this Bloomberg article suggests:

Weak Dollar Illusory as Correlated Trade Shows Gains

It is always beneficial to confront our own beliefs and analyses. For those of us fearing for the long-term future of the US economy, this article puts a different light on the widely disseminated fact that the dollar has lost most of its value since leaving the gold standard.

Of course, gold is an attractive investment because it is the only credible fixed store of value — this article, even if taken at face value (a very dangerous act), suggests a competitive devaluation is taking place across the globe. At best, the US dollar is not good but rather less bad than other currencies. The case for hard commodities still stands.

In any event, investors will want to hedge their bets no matter which situation plays out: the stable US currency or a dollar collapse. The danger with focusing too much on the  big picture is the difficulty in nailing the timing and finding the opportunities to realize the investment thesis. As such, we continue to pursue a balanced approach to investing, letting the clear macro-economic trends inform part of our decision-process as we look for fundamental value.

For more info, look into our premium research service: EA-Premium.

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Posted by Davy Bui on February 4th, 2010 in Book Reviews
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AUTHOR: Ronald Orol
RATING: 6 of 10

Highlights:

• A strong introduction and overview to activist investing for the uninitiated.
• Good coverage of the various methods activist investors use to agitate for change at target corporations.
• Touches on some history and important milestones, like the junk bond explosion of the 1980’s and the corporate scandals in the early 2000’s.

Weak Points

• Too basic for experienced investors.
• No actionable items for readers after digesting the book.

My rating for Orol’s book may be unfair to some extent but with a title like Extreme Value Hedging, I was disappointed by the lack of investment insights to be gleaned from the book. For anyone familiar with Carl Icahn, Eddie Lampert or Bill Ackman, this book is too elementary to be of much interest.

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Posted by Davy Bui on February 1st, 2010 in Enlightened-American Portfolio
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THE ENLIGHTENED-AMERICAN PORTFOLIO SPREADSHEET

• Enlightened-American Portfolio: -2.3% through Jan, 2010 (my actual IRR, including cash balance)
• DJIA: -3.5%
• Nasdaq: -5.4%
• S&P 500: -3.7%
• DJ Wilshire 5000: -3.5%
• Russell 2000 (smallcap): -5.1%

Our portfolio outpaced all major indices thus far out of the gate in 2010. As always, this outperformance can not be attributed to any sterling market calls. Yes, I was expecting the market to head lower but I had been waiting for most of 2009 for a downturn. While a 40% cash holding could be construed as a market-timing call, most of our portfolio holdings suffered above-market-average drops in share prices due to my heavy concentration in commodities, gold and foreign stocks.

What kept the portfolio afloat is the same strategy that allowed us to beat the broader indices in 2009 despite being wrong on a market downturn — diversifying a portfolio of high-yielding, core value holdings with short-term special situations and options plays. At the heart of this strategy is identifying areas where volatility has been mistaken and mispriced as risk and building confident positions in these situations.

January’s portfolio activity illustrates some of these points:

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Posted by Davy Bui on January 26th, 2010 in Misc., Worth Reading (links to articles, etc.)
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Since I am based in California, much of the past season’s holiday conversation covered an unfortunate topic: the housing market. More specifically, we had more than a few family and friends in various stages of mortgage distress, from being underwater to walking away.

Some people were slightly embarrassed about their situation but in an era where banks, automakers and other corporations eagerly lobby for and accept government handouts, why should the average person be subject to a stigma simply for making an economically logical and prudent decision (walking away from their mortgage)? Most of these folks had no choice due to financial hardship but even if they had the means to hang on, I recommended they walk away.

Today’s Wall Street Journal carries details on a Pennsylvania mortgage relief plan that is gaining  notice in Washington. Living in a post-Bush, Orwellian era where up means down, this plan in actuality provides no relief but merely  postpones the day of reckoning for homeowners/mortgage-slaves. Instead of writing off mortgage principal, the plan provides short-term, low-cost loans to those struggling with their payments. This is akin to someone using their credit card (but with lower interest) to pay the mortgage — it provides no relief at all and actually adds more pressure as now there is both a mortgage and a new loan to repay.

If the financial crisis has shown us anything, it is that banks, Wall Street, et al care only about their bottom line, even to the detriment of the nation’s long-term future. It is high time that consumers approach these financial situations with the same cold, calculating consideration that Wall Street uses when denying mortgage modifications, small business loans, etc. Social stigmas for doing the right thing financially are a relic of a bygone era.

[disclaimer on] Please note that I am not advising any readers to take any course of action. Each state has different laws and each person’s situation is unique. Here in California, mortgages are non-recourse so lenders can only take back the house, which makes walking away a viable option. If you are in a distressed situation, please consult a trusted advisor for help.  [/disclaimer off]

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Posted by Davy Bui on January 20th, 2010 in Politics
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The upset results of the Massachusetts US Senate special election are being widely dissected by pundits looking for explanations and ramifications coming out of this election. The obvious culprit  is “Obamacare” but as with most things in life, the explanation is not so singular. However, make no mistake: President Obama bears nearly full blame for the debacle last night in MA.

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Posted by Davy Bui on January 19th, 2010 in Investment Strategies, stock screen
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The Dogs of the Dow strategy seems to be a popular topic as Barron’s ran a feature article on the 2010 batch a few days after I ran this screen for premium members. Readers can find some useful background and historical results information from the Barron’s site [$].

The Dogs of the Dow is a well-known, simple strategy that selects the ten stocks in the Dow Jones Industrial Average with the highest yield. As members may suspect, we don’t believe in following any strategy blindly but it may be worthwhile to evaluate this year’s pack for possible opportunity.

The ten stocks are listed below:

• AT&T Inc. (T)
• Verizon Communications Inc. (VZ)
• E. I. du Pont de Nemours and Company (DD)
• Kraft Foods Inc. (KFT)
• Merck & Co., Inc. (MRK)
• Chevron Corporation (CVX)
• McDonald’s Corporation (MCD)
• Pfizer Inc. (PFE)
• The Home Depot, Inc. (HD)
• The Boeing Company (BA)

The Dow Jones contains thirty of the largest corporations in the US which means these stocks are well-followed by analysts and retail investors alike. Thus, one would not expect as much mispricing on an individual security basis (as opposed to a sector being mispriced due to being out of favor).

View the Dogs of the Dow valuation spreadsheet page.

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