The Poor Investor

Investigatory Value Investing

Turn Your Portfolio Inside-Out

Often people tell you exactly what stocks they’re buying—what stocks you should buy—but, you don’t often hear others tell you what stocks not to buy.  Charlie Munger often quotes Carl Gustav Jacob Jacobi by saying, “Invert, always invert.”  This quote merely states that the solution to a problem might be in its opposite.  So how can this apply to stocks?

There are many ways in which this is applicable.  One of the most important things to consider is the fact that nowadays you have nearly unlimited opportunities in the market.  Anything you want to invest in nowadays, you probably can—from Swiss gold to soybeans.  Furthermore, you can buy and sell whenever you please, especially with today’s low transaction fees.

Well, what about the opposite?  What if you didn’t have nearly unlimited opportunities?

Warren Buffett often talks about the idea of having a “punch card” with only 20 punches on it.  He posits that if investors had only 20 investment decisions they could make in their lifetime and each time they made an investment they had to “punch” their card, would they make the same decisions?  If you were forced to invest in this way, would you buy the stocks you are buying now?

Well, let’s think about the opposite.  With only 20 punches, what types of investments would you not want to invest in?  Well, to first think about what not to invest in, you need to first think about what you would want to invest in.

To keep it simple, I would want to invest in companies that have all of the following qualities:

  • Strong, durable competitive advantage(s)
  • Large profit margin to sustain difficult times
  • Long operating history showing interest for shareholders
  • Business model not subject to changes in technology
  • Reasonably valued

So, what companies do not have the above qualities?

Car companies are a good case-in-point for the first two aspects.  For one, no car company, besides Tesla, really has any unique quality.  Car companies may have recognizable brands but no one company really offers anything truly different from any of the others.  I’m actually surprised GM is a Buffett investment.  As far as the auto industry goes, Tesla is the only company that stands out as being “different” from the crowd and has any real durable competitive advantage outside of brand recognition.  Thus, I’d stay away from all automobile investments excluding Tesla.  I certainly wouldn’t use one of my card punches here.

The second point, having a large profit margin, is another problem for car companies.  Some of the large auto companies’ net margins for 2014 are as follows: Ford- 2.21%, Honda- 4.85%, Toyota- 7.10%, GM- 1.8%, Fiat- 1.04%.  Apart from Toyota, none of these companies had a large net margin.  And over the last 4 years Toyota also struggled.  Toyota’s net margin was 1.11% in 2010, 2.15% in 2011, 1.53% in 2012, and 4.36% in 2013.  Clearly, there’s not much room there to make mistakes as a car company.  The profit margins are just too slim.  I’m not going to punch my card for slim margins, are you?

Car companies do have long operating histories though.  Here, they get a pass.  But what investments exist today that do not have long histories?  Generally, these are found in the technology sphere.  There’s Box, Inc. founded in 2006, LinkedIn launched in 2003, Facebook in 2004, Twitter in 2006, Groupon in 2008, Zynga in 2007, King Digital Entertainment (markers of Candy Crush) in 2003 and Yelp in 2004.  While these companies may seem like they’ve “been around a while,” generally we want to look for companies that have been around for decades with a stable operating history.  Companies with stable operating histories give you an idea of how they treat shareholders.  For example, you want to ask questions like: Have they raised dividends consistently?  Were they efficiently allocating capital?  Were they honest with shareholders?  Did they buy back shares?  This is not to say the above companies won’t do those things, but there’s just not a long enough timeline to answer these questions adequately.  Ask yourself again, are you willing to bet your punches on it?

To put this in perspective, let’s look at some lesser-known companies: Hawkins was founded in 1938, Cincinnati Financial in 1968, Stepan Company in 1932, United Guardian in 1942, C.R. Bard Inc. in 1907, Nucor in 1940 (with origins dating back to 1900).  These are the types of timeframes I’m referring to when I think of a long operating history.  The history shows not only what management has accomplished, but also that the company has a solid business model that will sustain it over the years.  Also, many of these companies have both been giving and raising dividends regularly for over 25 years.  It’s usually the names you never heard at first that turn out to be your truly great investments.

In contrast are the technology companies mentioned above (the names you know), there’s a good chance these companies won’t be around very long.  There is good reason for this and it brings us to the next point: business model not subject to changes in technology.  Almost all technology companies will have trouble withstanding the test of time due to the fact that technology is always changing.  Warren Buffett often says his favorite holding period is forever.  Do you think you could hold the technology companies mentioned above forever?  Think about the 20 punches on your card.  Do you want to use a few of these punches on technology companies?  That’s for you to decide but “no thanks” over here.

Even whole industries can be vulnerable.  A problem likely to occur with car companies is that they won’t withstand the test of time.  New competitors are moving in (like Tesla) to revolutionize the car market.  Even Apple is thinking about entering the market.  The last 50 years won’t be like the next 50 years in the automobile industry.  Always be on the lookout for underlying paradigm shifts like these.

Next brings us to the point of reasonable valuations.  It is easy to readily point out some of the technology companies mentioned above.  LinkedIn trades at 15 times sales, 10 times book value, 132 times EBITDA, and its earnings are negative.  Can it grow its earnings fast enough to sustain these levels?  Perhaps, but I’m not going to waste one of my 20 punches on it.  Nor will I waste my punches on Twitter selling at 21 times sales with no earnings, Facebook at 18 times sales and 73 times earnings, Box at 12 times sales and 16 times book, and Yelp at 100 times earnings, 9 times sales and 130 times EBITDA.  I’m not saying these companies won’t do well—they may do fabulously— I’m just not going to bet my punches on it.

Think about your current investments.  Did you waste one of your 20 punches?  Would you bet one of your punches on a whole industry?  Do you own a company in one of those industries that you wouldn’t use a punch on?  It’s always good to turn things upside-down and look at them in completely the opposite way.  For instance, do you have a case for shorting any of the stocks in your portfolio?  If so, what’s the potential downside?  And what if you could never sell any of the stocks you purchased, would you have bought any of them?  Reevaluate your decisions.  Think critically.  And invert, always invert.

Disclosure: Long UG

Coffee Industry Outlook

Recently I wrote an article regarding finding investments during market peaks.  In that article I discussed some coffee stocks and made an argument for being bullish on coffee over the long-term.  However, I was unable to go into the coffee market in as much detail as I would have liked.  In this article I will attempt to fill in some of the gaps that existed regarding coffee in the last article.

Coffee prices have had a massive drop over the last year (Figure 1).  This was fueled by a few major variables.  For one, according to the Public Ledger, global coffee production is up 50% since 1993.  The simple fact of the matter is that global supply was greater than global demand.  This resulted in a surplus of 10m bags in 2013 and 5m bags in 2014.  Also, commodity prices and the dollar are inversely related to one another.  According to the Wall Street Journal, “The dollar’s rise to a near 10-year high against the Brazilian currency added to selling pressure for arabica coffee and sugar.”  Being that coffee is measured in US dollars, as the dollar rose coffee prices fell.

Drop in Coffee Prices

Figure 1

However, this does not mean that demand is falling.  In fact, in nearly every country measured, total consumption has been increasing steadily since 2003.  Asian countries are especially on the rise with plenty of room to grow in China, as its per-capita consumption of coffee remains extremely low (Figure 2).   According to the China Coffee Association Beijing, on average a person in China drinks about 5 cups of coffee a year, which is well staggeringly below the world average of 240 cups per year.  The number of coffee drinkers there is growing at a rate of about 15% a year as younger generations of Chinese are preferring coffee over tea more and more.

Per Capita Coffee Consumption Low in China

Figure 2

Developing countries are experiencing a burgeoning of the middle-class and hence spending is growing overall (Figure 3).  There is no shortage of articles linking middle-class growth to increased coffee consumption (here are a few examples: 1, 2, 3, 4, 5).  As a luxury good, as incomes rise so too does coffee consumption.  Also, people want to experience things that are new to them and the appeal of America’s “Starbucks culture” is alluring to those in other countries.  Starbucks estimates it will double its stores in EMEA, Japan, China and other non-US countries by FY19.  The US and surrounding region will grow 25%.  This will grow its current 21,000 store count to 30,000 stores.  Starbucks is banking on the trend of increased coffee consumption.  Forecasts by the Public Ledger also show global demand will outstrip global supply over the long-term by 10m bags in 2023, with supply struggling to keep up with demand as early as 2016.  Also, as the knowledge of the health benefits of coffee drinking becomes more and more widespread, so too will coffee consumption.  This is a long-term bet, not only on coffee, but on the rise of standard of living worldwide.

Burgeoning Middle Class Spending

Figure 3

While I don’t advocate trading on near-term information, things are also looking up for coffee prices near-term.  Coffee prices trade inversely to stocks of coffee (Figure 4).  World stocks of coffee will be used during 2015 to meet the demand that has not been produced.  As this supply runs low, coffee prices will rise.  It’s not a matter of “if” just a matter of “when,” as the International Coffee Council states, “this cannot be maintained indefinitely, and will put pressure on prices.”

Coffee Price Versus Stocks

Figure 4

Long-term investors in coffee, be it through an index, such as iPath Pure Beta Coffee ETN (CAFE), or individual stocks, such as Coffee Holding Co. (JVA), are likely to find success.

Disclosure: Long JVA 

Bottom Digging During Market Tops

The S&P 500 has nearly tripled from a 2009 low of 735 to 2113 currently.  Just as a rising tide lifts all ships, so too does a rising stock market lift all stocks.  At greedy times like these, investors should be fearful and reexamine their portfolios.

…if [investors] insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.  -Warren Buffett

Now, I’m not saying the market has reached its peak (though some do make compelling arguments).  I am not a market timer and I’ve written about the folly of forecasting in the past; I’m merely saying a prudent investor should not let greed get the better of him.  The following strategy is one that is more likely to be applicable during market highs as investors are more likely to have a preponderance of stocks trading at prices much higher than their actual values (aka, the rising tide theory mentioned above).

So what to do?  Well, I believe the prudent investor should lock in gains on stocks pushing well beyond their valuations (close to 52-week or all-time highs) and replace them with stocks trading at reasonable valuations.  Mr. Market is offering attractive prices for your stocks, let him have them.

But then we’re left with the problem of finding alternative investments.  As markets keep pushing higher and higher, investors are often left scratching their heads wondering where to find value.  Admittedly, this can be challenging, however, opportunities do still exist.

One place to look as stocks reach all-time highs are stocks reaching new 52-week lows.  Some noteworthy examples include PriceSmart, SodaStream, Turtle Beach Corp., and Fossil.  PriceSmart is the Sam’s Club of Central America and the Caribbean.  It’s trading at a small discount to its sales, has high insider ownership, and has consistently grown sales, 15% on average, over the past ten years.  At its current price of $17.07 after-market, SodaStream trades at a large discount to sales (72% of sales) and is nearly trading at its book value of $16.59.  Turtle Beach has near-total domination in the gaming headphone market with 50% of both the UK and US markets.  It trades at 60% of sales (which it looks to nearly double sales this year) and is led by smart management with a solid near-term plan, and patents, to enter industries such as health, automotive, TV and mobile.   I’ve already written my take on Fossil, you can read it here.

The next place to look is at overlooked stocks (often smaller capitalization, less than $100m) in industries where there is a low supply of investment opportunities.  One such industry is the coffee industry.

Now, before going into individual companies, let me preface this discussion by first noting some interesting dynamics at place in this market.  For one, coffee consumption is not nearly what it used to be.  In fact, in 1946 consumers drank 46.4 gallons of coffee per person (Figure 1).  Today, even with a coffee shop on every corner, consumers drink less than half as much at only 20-25 gallons of coffee per year as coffee was replaced predominantly by soda.  As consumers become more health-conscious, pop consumption should decrease and coffee, as a viable, healthy alternative, should have an increased level of consumption.  Secondly, there is a shift taking place where high-quality shade-grown coffee (high cost to grow) is being overtaken by the rise of poorer quality shade-free coffee (cheaper to grow).  This makes coffee plants much more susceptible to climate change and topsoil erosion.  As climate change concerns begin to grow, the downfall we’ve seen in coffee prices from $300 in 2011 to a current 52-week low of $140 is not likely to last.

Figure 1

Figure 1

Now, opportunities in this market surely exist in the form of large companies.  There is, of course, Green Mountain Coffee Roasters and Starbucks, but investors in those companies will soon bail when they see these companies for what they are—overvalued.  Starbucks trades at an all-time high ($94.30) and the highest price-to-sales ratio it has ever seen in the last ten years of 4.12.  Starbucks also trades inversely to coffee prices.  Green Mountain Coffee Roasters ($124.10) shares trade even higher at a price-to-sales of 4.31 and, like Starbucks, it is also inversely correlated to coffee prices.  As coffee prices rise investors will bail on these two companies (and valuations will come back down to earth).

So when investors bail, where will they look?  On the conservative end is Coffee Holding Co., trading at 28% of its total sales.  This company is well-managed by its owners, experienced coffee industry veterans, who have a 10% stake in the company’s shares.  They also support and believe in sustainable practices.  These beliefs lead to production of higher quality coffee (shade grown) that is not as susceptible to soil erosion and climate change.  Furthermore, as experienced coffee experts, they are well-hedged against fluctuating prices.  On the risky end is Jammin Java, better known by its Marley Coffee, which is trying to force itself to turn things around before it does a complete nose-dive.  If company-estimated year-end sales are to be believed, the company trades at a 10% discount to expected year-end sales.  However, this company is only for high-risk-oriented individuals who don’t mind getting cleaned out if things turn south.

Then, there’s the oil industry.  I don’t think I need to go into this a whole lot as many have already witnessed the price collapse at the pumps, so suffice it to say that there are many opportunities to be had in this sector, both large cap and small, and everything in between.  (Check out Cale Smith’s recent notes about the oil price phenomenon).  I’m pretty sure you could throw 10 darts at oil stocks right now and make at least 8 solid investments.

Another interesting idea is James O’Shaughnessy’s strategy of looking for stocks that he calls Reasonable Runaways.  These are stocks that have a high relative strength, greater than $150m in market cap and trade at a price-to-sales ratio less than 1.  I’ve modified this strategy a little bit by including companies that have large amounts of cash in excess of debt.  Some notable examples include FreightCar America Inc., BeBe Stores, Men’s Wearhouse, LSI Industries and FujiFilm Holdings.  While I have not had time to look into each of these companies it doesn’t matter— the theory of the Reasonable Runaways strategy is one of investor agnosticism.  The theory says that you are buying $1 worth of sales for less than a dollar (low P/S) just as investors are realizing the company is undervalued (high relative strength).  You simply run the screen, buy agnostically, and diversify your portfolio by giving equal weight to the top 20 or so companies with the highest price appreciations.  Sell after a year then repeat the process.  Since 1951 this strategy had a compound annual growth rate of over 18%.

While the S&P 500 may have reached its top, your portfolio doesn’t have to top-out.  You can simply shift your current best performers to companies that offer greater opportunity and more attractive valuations.  Employing several different search techniques, such as those mentioned above, can get you on the right track to optimizing your portfolio towards value and thus reducing your overall risk by increasing your margin of safety.  But don’t forget to hold on to a fair amount of just in case cash for when the market does plummet.  You’ll want to have that cash in your back pocket to snatch up undervalued companies when the falling tide lowers all the ships again and more opportunities abound.

Disclosure: Long Coffee Holding Company (JVA) and Fossil (FOSL)

Fossil: A Diamond in the Rough

Fossil recently reported earnings that “The Street” did not expect. Forward guidance was not as optimistic as expected either. Investors reacted by a massive sell-off, resulting in the stock dropping over 19%, from $99 to $80. I believe this was an extreme overreaction.

While there are worries that a company like Fossil will go the way of Kodak (fear that traditional watch companies will be replaced by Apple), these worries are inconsequential to the company as it stands today. Even if the company takes a hit to sales (which is expected), the stock is still attractive at today’s price as a short-term holding (although it should be noted that I generally recommend long-term holdings).

While I don’t see Fossil to be in the same category as what Warren Buffet might deem the “forever category,” I’m sure someone could make the argument for Fossil as a long-term holding.  Obviously though, there is much to be said about the impact new technologies have on long-standing companies.  For instance, a forward-thinking company like Tesla could easily replace the entrenched automakers such as Ford, GM, Toyota and Honda, just as Netflix replaced Blockbuster. Not to mention, since the 50’s, the average lifespan of a Fortune 500 company has dropped from 61 years to 15 years.  But, the long-term argument is an argument for a different post.  My argument, however, is merely a valuation argument.

So back to brass tacks…

The company stated in its latest earnings report that it expects the following for fiscal 2015:

• Net sales to be in the range of a 3% decrease to a 1% increase
• Operating margin in a range of 12% to 13%

Current net sales sit at $3.51 billion. Being conservative, let’s assume a 5% drop in net sales. Conservatively, let’s say only 8% of that translates to net margin, so $266.40m. At the level of current shares outstanding, 51.3m (diluted), this translates into an EPS of $5.19 per share. At this extremely conservative level, assuming the company buys back no shares, this puts the PPS at $62 at the current P/E of 12.

But this is not the full story. The company has $1.1 billion in its coffers earmarked for share repurchases. Assuming the company will “strike while the iron is hot,” and use the full amount to buy shares aggressively after the recent drop, this allows for 12.0m shares to be repurchased, even if the company buys them for $92 per share on average ($7 per share more than the current market price). This would put the share count at 39.3m. Thus, using the previous assumptions, the EPS translates into $6.78 and a PPS of $81.36.

However, this is an extremely conservative scenario. I would go as far to say that this is the “extreme worst case.”

A much more plausible scenario would be a slight decrease in net sales, say 1%, and net margins near 9%. Also, P/E would revert more in-line to what the company traditionally trades for, for conservative investors’ sake let’s say around 15 (actual five-year average P/E is 18.8). Using these assumptions, and assuming no share repurchases, this translates into a PPS of $73.15. Now, no repurchases is extremely unlikely. Assuming repurchases at the $92 level (same as above) the PPS would translate to $119.37.

Moderately optimistic and optimistic scenarios need-not be included in this evaluation. The main thing is figuring out what the downside risk is. For those that missed the point, it is virtually nil. Assuming the reality lies somewhere in the middle of the “moderately optimistic” and “pessimistic” view, this would bring us back to the “plausible” scenario. Hence, I’m arguing the stock will easily trade within the range of $100-120 in the near-term future (less than 1 year).

If the company does not aggressively repurchase shares, and say, only repurchases half of the above assumed amount, a $100 PPS is still easily obtained at 15 times earnings. The most realistic pessimistic assumption translates to $80 in PPS. This translates into a $5 per share loss at the current market price of $85, or a decrease of approximately 6% (though, if this lower PPS level is reached then the company is more likely to repurchase shares, thus putting upward pressure on the stock price). The potential upside, conservatively speaking, is around 17-41%.  Thus, the risk-reward seems incredibly favorable at the current PPS.

Disclosure: Long FOSL

Forecasting for Dummies

I recently attended the New Orleans Investment Conference and although I do not invest in mining companies and I’m not a “gold bug,” or a gold investor at all for that matter, I did take away a lot of useful information.

Though, perhaps the most useful piece of information was this:

Never forecast.

Now, admittedly, this was something I always knew, but the conference did help to solidify this thought some more in my mind. Watching people make big assertions about the price of gold going up, predicting stock valuations and movements in commodities only to see them be dead wrong two years later just made people look foolish. The people who made these forecasts and the people who followed them. All foolish. Imagine the hard-earned capital that was probably lost as well.

I worked at an investing research company for a short while and watched a seasoned analyst, who had been working there since the company’s inception, miss one of the most important calls in his industry.  One of the dozen or so companies he was following was bought out and he missed it completely.  It totally side-swiped him.  He even went as far as to say the company would never be bought out when another analyst brought up the prospect of the company being sold.  Talk about egg on the face.

Still not convinced? Well, think about this, do you even know what’s going to happen to you tomorrow? You know your life, your schedule, how many hours are in a day, etc. and I’ll bet you can’t accurately predict most of what happens to you tomorrow. You don’t know what your boss is going to say to you. You don’t know if you’ll get in a car wreck on the way to work. You don’t know if you’ll even wake up tomorrow. Test yourself. Try to predict a dozen or so things and see how many work out as planned.

So, if you can’t predict what’s going to happen to you, the person, or thing, you probably know the most about, how can you accurately predict what millions of investors are going to do? The bottom line is that you can’t. The best we can do as investors is look at the trees and forget about the forest. Will the market crash this week? I don’t know. Will it be down next year? No clue. However, I do have confidence that solid, well-managed companies trading for less than they are worth will most likely be trading at values higher than they are now. That’s the best we can do as investors. We take bets on stocks where the odds are in our favor and don’t when they’re not. And then we spread these bets out so we don’t bet the farm on one company because if there’s anything about this “not being able to forecast” thing it’s the whole “not being able to forecast” part.  You don’t know if “company X” will go to zero tomorrow. If “X” does go to zero, you want to have companies A, B, C, D, etc. to fall back on. Maybe it’s 20 companies, maybe it’s 100. That’s for you to decide. The point is to build your portfolio structure so that it won’t fall over if one brick crumbles. Keep the odds in your favor.

Examples of the “odds being in our favor” are things like companies trading at a discount to book value, or even cash value. Maybe it’s a company like BDCA Venture, Inc. trading below its NAV of $6.89 per share at $5.00 per share. Or maybe it’s a company like Electronic Systems Technology, Inc. trading at or near cash. Maybe it’s a management team that lowers the risk; management that’s honest about the direction of their company and can back up what they say with an excellent track record. People like Apple’s Tim Cook or Tibco Software’s Vivek Ranadivé. Perhaps it’s a catalyst on the horizon like a patent approval or a drug approval. Whatever it is, you put the odds in your favor in some way. If there’s nothing putting the odds in your favor, you’re no longer investing. You’re speculating; you’re gambling; you’re forecasting.

Never forecast.

Who You Know or What You Know?

I’ve recently finished my MBA and am now searching for employment opportunities. In this search I’m reminded, quite starkly, of the oft-quoted phrase, “It’s not what you know, it’s who you know.” The great thing about the stock market is that it works in exactly the opposite way. In the stock market, it’s not who you know that matters but what you know. The market, as Ken Fisher puts it, is “The Great Humiliator” and does not care who you are or who you know, “it wants to humiliate everyone.” In fact, who you know often works against you and may even entice investors towards illegal activities, as exemplified recently by a few well-known individuals.

The “what you know” I’m referring to here is your own analysis of individual companies and the markets in general. In fact, if you would have listened to common wisdom (the “who”) you might have sold in May, went away and missed out on a 2.1% gain in the S&P 500. You might have missed the boat on Apple at around $427 a share when everyone was claiming the sky was falling only to watch it rise to $633 a share, a lost opportunity of $206 per share. Once, when I was new to investing, I told a friend not to invest in Sirius XM when it was trading around $0.30 per share and he missed out on a potential 10-bagger. Or, you might have listened to friends who told you to buy Facebook when it first went public at $38 per share only to watch it drop to $18 in the first three months.

Nothing works better in investing than coming up with your own conclusions. For one, you won’t have the conviction in the company you are buying if you go based off of someone else’s recommendation. Even if someone is spot on about a company’s valuation and tells you that company X will go from $5 a share to $15 a share—even if this person is absolutely right and has a compelling enough reason— are you going to be able to hold the company’s stock when it goes from $5 a share to $1 a share before it goes up to $15 a share? Will you really have that level of discipline and, more importantly, trust in someone else’s judgment? Only by doing your own analysis, coming up with your own valuation and buying a company that you have strong conviction in because you put in the hard work will you be able to hold through the downs (or buy more) and not sell too early during the ups. This person’s recommendation may be 100% accurate but you might be enticed to sell at $7 for a $2 gain because you just won’t have the commitment you would have had if you came up with the idea in the first place.

Secondly, if your investment is in a company someone else recommends, you probably won’t have any idea of what to look for when things are going south. Are insiders selling? Did a member of management leave? Is this good or bad? How do you know if you didn’t investigate the company thoroughly? Now, say, the company has to raise funds by issuing stock— is this good? Was this part of the company’s plan all along? If you weren’t following the company, if you didn’t do your homework, you wouldn’t have any idea on these questions or any others. There won’t be any tip-offs to tell you when things are going well or if the management is running the company into the ground when you don’t put in the long hours of work it takes to investigate a company thoroughly enough to have conviction in it.

These are just a few of the reasons why you need to think for yourself when it comes to investing. This is why I don’t like recommending companies, it takes away from a core part of what will make someone a successful investor. I like to use companies as examples to illustrate ideas and how to think about companies, not as advice for what to buy. And with that, I will leave you with a quote from the Oracle of Omaha himself:

“You have to think for yourself. It always amazes me how high-IQ people mindlessly imitate. I never get good ideas talking to other people.”  -Warren Buffett

Track Record is Everything

In a book by Peter Krass called The Book of Investing Wisdom, there is an essay by Warren Buffett entitled Track Record is Everything.  The crux of this essay is that past performance history, aka track record, is one of the best single guides as far as judging businesses and investments go.  With that in mind, I thought it’d be useful to show readers of this website what my track record has been thus far for recommendations made on this site.  This should help new readers judge whether the information they obtain from this site is useful.  Though, I should note, as most of my regular readers know, I do not often mention stock “picks.”  However, I do recommend some stocks from time to time to help illuminate some idea or point out glaring inefficiencies in the market (see my post on Apple).  Although, these recommendations come with the caveat that every investor should do his or her own research before coming to a conclusion.

So, let’s get right down to it.  Here is how my “picks” have performed:

Stocks Recommended Recommended
Date Symbol PPS at Date Current PPS Sell PPS Sell Date % Change
9/13/12 dell $10.63 N/A $13.85 2/24/13 30.29%
9/13/12 nvda $13.68 $15.21 N/A N/A 11.18%
9/13/12 atri $218.87 $269.40 N/A N/A 23.09%
3/11/13 aapl $431.72 $515.00 N/A N/A 19.29%
4/22/13 ntcxf $0.81 $1.07 N/A N/A 32.10%
Average= 23.19%
S&P Return (since 9/13/12)= 22.01%
Difference= 1.18%

So far, my “picks” have out-performed the S&P 500 by 1.18% (used the first pick start date for simplification purposes).  Only one sell recommendation, Dell, was given so far.  Now, as Warren Buffett clearly notes in his essay, a 5 – 10 year track record is much more important in making judgments.  However, this site has not been around that long to establish such a track record.   At that time, I will revisit this topic.

Natcore’s Latest PR- Black Silicon to Slash Solar Cell Production Costs by 23.5%

Reprint of Latest Press Release:

“Making plans to take our technology to market” -Provini

 Red Bank, N.J. — (October 30, 2013) — An independent study has concluded that Natcore Technology’s (NXT.V; NTCXF.PK; 8NT) black silicon technology could reduce silicon solar cell production costs by up to 23.5%.

The savings derive from a streamlining of the production process whereby a silicon wafer is processed into a black silicon solar cell.

To make solar cells, manufacturers typically acquire silicon wafers from an outside source. Since these wafers are cut from a large ingot, they usually have saw damage, which must be removed. To make a conventional solar cell, manufacturers must first remove the saw damage, then texturize the wafer surface, and then apply an antireflective coating.

To make a black silicon cell using Natcore’s proprietary process, manufacturers would be able to replace the texture etch with a black silicon etch which in itself would create a highly effective antireflective coating.

Thus the most expensive part of the solar cell process – the equipment and material costs associated with high-temperature chemical vapor deposition of a silicon nitride antireflective coating – is completely eliminated.

Natcore asked analysts at the country’s leading black silicon research facility to quantify the cost saving to be realized from omitting these steps. Using a “bottom up” manufacturing cost estimating methodology, the analysts calculate the production cost of a conventional silicon solar cell to be 17¢ per watt. In comparison, the study projected that cells made using Natcore’s black silicon process would cost about 13¢ per watt.

The resulting savings of 3¢/watt – 4¢/watt represent a production cost reduction of up to 23.5%. “When solar companies are scrambling to save fractions of a cent, a saving of 3¢ – 4¢ per watt is momentous,” says Dr. Dennis Flood, Natcore’s co-founder and Chief Technology Officer.

In addition to the dramatic cost reduction, Natcore’s test, which was conducted using monocrystalline silicon, had an important environmental benefit: it eliminated the need for silane, a highly toxic gas that combusts upon exposure to air. Natcore may plan a similar test using polycrystalline silicon at a later date.

“We knew there would be a cost saving,” says Chuck Provini, Natcore’s president and CEO. “We were surprised that it was so large. In fact, production-cost savings of this magnitude will likely overshadow any power gains of black silicon and will make Natcore’s technology a must-have for the world’s solar cell manufacturers.

“To put it into perspective,” he notes, “a recent article by Shyam Mehta, senior solar analyst of GTM Research (‘Technology not materials to drive down Chinese solar costs,’ August 2013), predicts that Chinese manufacturers will be able to cut prices by only one cent in the next year or so. We could quadruple those savings in one fell swoop. We feel so optimistic about this development that we’ve begun making plans to take our technology to market.”

“The full cost of a solar cell is the sum of two parts: the cost of the silicon wafer and the cost of the processing steps required to turn the wafer into a working solar cell,” says Flood. “Cell manufacturers have no control over the cost of the silicon wafers they buy. As a result they are always looking for ways to control their production costs, but with a very important caveat:  cost cutting must not lower cell performance in any way.  Natcore’s black silicon processing technology results in solar cells that meet or exceed the industry’s requirement and at the same time provide a spectacular reduction in finished cell cost. Natcore’s technology can easily be retrofitted into existing solar cell production lines and can just as easily be incorporated into a new line. Black silicon seems poised to become the industry’s standard approach.”

Would You Invest in Yourself?

First off, no, I am not talking about saving for retirement. I am asking, would you literally invest in yourself?

This may appear to be a rather silly question, although, I think it is an important one, whether you’re an investor or not. However, in essence it boils down to the oft-heard Plato quote, attributed to Socrates, “the life which is unexamined is not worth living.” And to take it one step further, if you would invest in yourself, how much? Are there people you know you’d rather invest more in? Why? Lastly, if you wouldn’t invest in yourself, why not?

A few reasons you might want to invest in yourself are: you have a good job, you have a good income, you’re a person of integrity, you’re healthy and you’re wise beyond your years. If you wouldn’t want to invest in yourself, maybe it is because: you’re an alcoholic, you spend all your free time watching TV, you have a low income, you have too much debt, you’re in poor health or you’re not that smart.

The good news is, whether you would invest in yourself or not, you can still increase your personal brand equity. And why not? Why wouldn’t you want to be a good investment? You can increase your knowledge and educate yourself, strengthen your integrity and start becoming a better person, get off the couch and start exercising more. Whatever it is, you can improve it. Even if you already consider yourself a great investment, as a human, there is always room for improvement. You can always be a better person, more friendly, more knowledgeable, more wise. Think bigger.

Odds are, there is probably someone you’d invest in more than yourself. So why is this? You’re the one in control of your life, yet you’d rather put your hard-earned money in another person? This, logically, seems absurd. Your investment is out of your control. Yet, I bet there are many people who would rather invest in others than themselves. Are these people more generous? Are they more friendly? More virtuous? Have more integrity? Are they smarter? What is it that they have that you admire so much? Take that person, subtract yourself, and what are you left with? Become those things you find you’re missing.

Reverse engineer your life. What is it you want to be and how do you plan on getting there? No one knows how many days they have, but on average, there are about 30,000 days to make this life into something great. How many of those days have you already wasted? Do the math. How many of those days do you have left to turn yourself into the greatest investment on the planet? Calculate it out. Plan. Use each of those days you have left wisely.

Are you content with mediocrity?

You only get one trip around this Earth. You should be the kind of person you, as well as others, would want to invest in.

Become that person.

Notes: Growing your wealth is a great thing but means nothing if you don’t grow your internal wealth. Like your external investments, internal investments grow exponentially. As more and more external success comes to you, there is greater and greater need for internal enrichment. The internal and external must be balanced or the external will slip away. There’s a good chance that externally you aren’t where you expected to be because internally you weren’t ready. By investing in your internal self you can ensure that your external success doesn’t slip through your fingers or go wasted.

Great Speech by Former PNC CEO

Jim Rohr speaks at CMU

Few Highlights:

On success:
-Showing up, working hard is a key to success
-Luck is also a big part of success
-Innovation and forward-thinking is key to any business succeeding

On banking/finance:
-Dodd-Frank has WalMart clause
-Money, virtually none is physically at banks
-“Too big to fail” or not big enough to protect itself?
-Deficit is a huge problem, the US dollar could no longer be the global currency soon

On society:
-Uses the internet the most: less than 30 and greater than 70 year-olds
-Every $1 spent on early childhood education gives society back $17-$27
-Biggest predictor of ending up in jail, 3rd grade literacy level
-Next “Pearl Harbor” will be a cyber attack

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