Archive for April, 2015

May is a Week Away

Saturday, April 25th, 2015

April 25, 2015

Here I sit, Saturday afternoon,  at peace with  my year to date Wall Street performance ,  but nervously speculating on the NFL College Draft which starts Thursday evening. The source of my anxiety is the New York Giants and whom they will  chose with their number 9  first round pick.

For me, my preoccupation with the NFL draft is the ” Go Away “. phase of  “Play Till  May, Then Go Away ”  and I want to thank Wall Street for allowing me to sell 70% of my holdings into strength this week..

I am happy to say I’ve out performed SPY from November 1 until now by a score of 5.76% to 4.41%.  Of the 5.76% total profit , 85.5% is  in my pocket and waiting to be re-deployed.  My year runs from November 1 till May 1 and re-starts November 1, unless there are compelling reasons to be invested between May  1 and October 31.

I’ve seen the first two weeks of May wipe out a big chunk  of my year to date winnings more than once, so, this year I’d rather take the risk of losing a bit of the upside instead of  half my winnings in just a few days,  with me in full financial and emotional  retreat.. ….even though I do believe strongly this market is headed higher due to macro factors such as relatively low interest rates compared to earnings yields.

While the  concept of ” Play till May ” is based on fear, this year it has allowed me calmly  to rebuild my cash reserve to allow me to purchase  at attractive prices should the opportunity arise after May 1..  If I am wrong. all I’ve lost is some opportunity  profit and I’ll re-enter the market after May 15 if conditions are as compellingly positive as they have been until now..

So, at this point, I am alert to a buy point.  I am not a seller.

Now, all I need is for the Giants to draft that tackle from Iowa and someone on Wall Street’s crowded  balcony to stand up and  shout ….FIRE !

 

Richard Maurice Gore

 

DISCLAIMER:  I do not offer or sell advice, accept deposits, commissions or fees or make any offer to “run” your money or act in your behalf. I  am unlicensed.  What I do, entirely at your risk, is allow you to peek over my shoulder to see how I go about attempting to earn a living using my own liquid financial assets.  These Posts are primarily for me to follow how my thoughts are evolving into strategies that win for me.  I still have a lot to learn !    RMG

 

 

Disclaimer

Sunday, April 19th, 2015

April 19, 2015

I have been advised to incorporate a ” disclaimer”  in my Posts to protect myself against capricious lawsuits based on people saying they lost money relying on my advice..

I reviewed the ” boiler plate ” it has been suggested I use and I have decided that I can use plain English sufficiently well to thoroughly denigrate my reputation for reasonable financial thought and analysis.  By the same token, it has been suggested I can protect myself best by suggesting you place yourself in the hands of a registered financial adviser.   I’m not about to do that because the whole point of this blog is to encourage you to learn to be your own adviser.

I do not offer or sell advice, accept deposits or make any offer to ” run ” your money or advise you.  What I do, at your own risk, is allow you to peek over my shoulder and see how I go about attempting to earn a living using my own liquid financial assets.  These posts are primarily for me to follow how my thoughts are evolving into strategies that win for me. I still have a lot to learn.

To save time and ink, at the end of every Post I will refer you to the Archive containing the above

Richard Maurice Gore

Bank Robbers, Inc

Tuesday, April 7th, 2015

April 6, 2015

There are three parts to my evaluation of a company for  an investment  of up to 5% of my liquid assets.

Management is the key determinant in each step of my evaluation..

A )  The Past  –  The creation of a competitive  product or service by  managing  resources in a sufficiently skillful manner as  to give the product a fighting chance to sustain and enhance  its market success.

B )  The Recent Past  … The  management of existing  resources by the current  CEO and his team to maximize revenue, operating margins, net income and cash flow.

In either ( A) or ( A & B ) Lots of data to mine…..No problem…..But first……

C ) The  Discovery Phase … This is where I visualize myself showing up at the headquarters of Bank Robbers, Inc and asking the CEO and his team …how much cash did we get ? what’s my share ?,  and what is  this years target ?

The Discovery Phase …is where my entire evaluation  could begin  and  could  end….  very quickly.

Since my staff of analysts is me, it is imperative  I  make quick  decisions about  whether an equity deserves an in depth evaluation effort by me.  For instance, just yesterday,  I read that Meg Whitman, CEO of Hewlitt Packard has a severance package of $51,000,000.  On that basis, I wouldn’t  want her as my employee and I would have minimal confidence in any Board that would grant an employee that benefit. So,.. I cross HPQ off my evaluation list.  My eyes and  ears are on duty 24 / 7 to uncover  evaluation candidates.

I don’t return to Parts A and B until I successfully complete  a Discovery phase analysis..

I want to know ( 1 ) how much cash is being generated in relation to the market price of the equity…. and ( 2 ),  how the  CEO and his team are  allocating all the cash being  generated.

a) Are they making  capital expenditures to improve or sustain the competitiveness of the product ?… Why ?

b) Are they using this cash to make an  acquisition or enter a new business.?… Why ?

c) Are they indulging  in an orgy of dead end expenses which do nothing to increase intrinsic value ?

d) Will they pay down debt ?

e) Will they pay dividends ?

f) Will they buy back shares?

But even before I ask these questions  I want  to determine how much cash is being generated in relation to the market price of the stock. The ratio of Price to Cash Flow  ( P / CF ) tells me how many years of cash generation  it will take the company to  pay back my entire investment. I have come to the conclusion that this is the magic piece of information that allows Warren Buffet in the blink of an eye to  decide whether he should pursue or cut bait on the possibilities of a potential  investment.

Using trailing twelve month data, I can give you  a quick comparison between Apple and say….  Amazon.

According to “Morningstar”  data, Apple  generated $11.76 cash per share during the past 12 months . Divide that into Apple’s current price, $125.32 and you come up with a multiple of price to cash flow of 10.65 times.  It will take Apple……10.65 years for cash being  generated to cover my entire investment of $125.32 per  share.

On the other hand, Amazon  generated $14.81 cash per share,…. but the price of Amazon is $372.25 per share, resulting in a multiple of 25.14 years of cash required to payback my investment.  Then,  when you consider that Amazon’s capital expenses ( to further Jeff Bezos’ visions ?  ) are $4.22 per share, it creates a price to “free cash flow”  multiple of  88.21 years of cash generation to repay my Amazon investment…This is versus a price to “free cash flow ” multiple of  12.63 years  for Apple.  ( Operating Cash Flow minus Capital Expenses  = ” Free Cash Flow”  )

Since I am searching for great stocks at great prices, I will invest my evaluation time in Apple.

Now lets talk about ” Shareholder Yield “ which  has three components;

1) Dividend Yield percentage , plus…..

2) Net Buyback Yield percentage, ( one years difference of the number of shares outstanding divided by the market cap of the company. )  Buybacks give you a bigger slice of the pie providing they take place when stock is undervalued and provided the buyback is not paid for by increasing corporate debt. Add this yield  to the dividend yield  percentage,  or subtract it if the Company has created net additional new shares.

3) Net Debt Paydown Yield  percentage …Net changes in short and long term borrowing divided by the market cap of the company.  Add this incremental percentage to the sum of ( 1 ) and ( 2 ) to arrive at ” Shareholder Yield % “…..or subtract it from Shareholder Yield if the company has added net debt.

To make a long story short, I am looking to “invest” in companies which generate sufficient cash and possess sufficient shareholder sensitivity to establish an attractive Shareholder Yield . Morningstar uses terms such as  “exemplary” and “standard” to rate a CEO and his team in terms of skill in managing resources for the benefit of shareholders..

It has always been my belief that a CEO, and his team  that short changes  its employees will short change it’s customers and short change its shareholders and anyone else it sees as an obstacle to its perceived dreams and / or entitlements.  Its a ” me first ” attitude that usually considers employees lucky to have a job  and share holders as ” them “..

You can say  what you want about ” activist ” investors such as  Carl Icahn, but I believe  we need big time investors such as Icahn  to hold self serving CEO’s and their compliant Boards accountable.

Thank goodness there are plenty of companies who think in terms of ” we “.  You just need to find  them.

Richard Maurice Gore

 

 

 

 

 

Good News…..But

Wednesday, April 1st, 2015

April 1, 2015

Not to rub it in, but the December 31, 2011 SPY trade ended the quarter still on a buy signal ( 815 days / ahead 75.65% )

I’m not gloating,  because I’m not in this trade.  I use it and the fact that interest rates are low as the basis  of my continued belief that the FED is trying to create the “wealth effect”  ( consumer spending is 70% of GDP ) via the stock market.  To me, it means its OK to purchase any stock which makes sense in terms of its bottom up internals and the theme of the general market …..which is to avoid stocks whose price needs to fight the dollar ( energy, commodities, exporters ). By default that means to purchase  stocks which do business and make their profits in the US of A.

Since November 3, 2014  SPY has advanced  only 1.95% reflecting all the pushing and pulling going on within the S&P 500 Index.

Here are some other USA Index ETFs and results since November 3.  It seems the result hinges on whether the index contains big cap names which export or manufacture foreign currency profits which will shrink income statements  when translated against the dollar.

MDY ( Mid Caps ) …+6.80%,  OEF ( top 100 S&P)…..+0.25 %, VTI ( entire stock market- lots of small caps ) …2.85%,  IJR ( S&P bottom 600 small caps )….5.81%. and , as mentioned above , SPY 1.95% ( the top 500 USA stocks )

In contrast , here are a couple of individual stocks which have a USA focus, no overseas manufacturing, minimal exports, and don’t need a return from commodity like products…….CVS ( 18.74% ),   UNH ( 23.81%, DLTR ( 33.52% ), HD ( 17.73% ).

I’ll be back at you when I complete researching and writing my blog on managements which are sensitive to shareholder needs.

Bye….Richard Maurice Gore