Stock Picks at Ross, Sisu and Stewing Over Cramer -- Kai's Opinion
Me. Climbing the highest waterfall in Michigan. Bridal Veil Falls at Pictured Rocks National Lakeshore.
(Photo by Lars Jensen)
On The Academic Frontline
This past weekend, the Michigan Interactive Investments club, at the Ross School of Business, held their first BBA Intercollegiate Stock Pitch competition and 17 schools competed for the $3000 prize. Carnegie Mellon, Chicago, Georgetown, Haas, Illinois, Indiana, Miami of Ohio, Michigan, Michigan State, North Carolina, NYU, Penn State, Syracuse, Villanova, Wharton, William & Mary and Yale pitched stocks in the competition. The event also had guest speakers, including: Michael Gelband, Marina Whitman, Dwight Cass, Mark Senn, Robert Van Order, Rich Bunch, Jack McHugh and James Walsh; as well as a stock trading competition sponsored by BP. It was certainly a well organized, professional and cool event. I took a few notes, and found a couple tidbits that were rather interesting (this is a quick summary of thoughts that I heard).
"It was basically an arms race. You feed the machine, if you didn't others did. There was a rise in prices that distorted the perception of risk. Huge firms with little experience were competing against hedge funds, and hedge funds robbed the banks of intellectual capital. Early on there were debates about risk, but as time went on more risk was taken. To get comfortable with risk, computer models were created to help explain it. All models were about the same. There was a false sense of security, as spreads narrowed and models said less risk and firms had to meet quarterly earnings targets. Firms had little derivative experience, they grew in size, but without feel or intuition. It was like a drunkard who uses a lamppost for support instead of illumination."
On grading the stimulus package:
"I'd give you an incomplete"
"Tough luck you're a bad bank. Smart banks succeed. Dumb banks suffer."
"I don't want to depress everyone here."
"It might not be popular to mention at a cocktail party that you're in banking."
"People are still in denial. We hope to return back to normal, but in reality, what we had is over and we have to change."
About the future:
"Standardization of products. No ones failure will jeopardize system. New boutiques, clearing houses and better risk management."
There was a student stock pitch competition and groups were judged on a variety of factors. Out of the 17 schools, the finalists were: Michigan State (DHT), Ross School of Business (WLT), Penn State (RTN) and Villanova (RAH). Michigan State won... Congrats!
So, what stocks were pitched as longs?
BAM BHI CHL DHT DSX FCN GOOG HAE KFT MOS RAH RIMM(pitched twice) RTN WLT WPI XRAY
I should mention that I'm not ecstatic about all the stocks, but I do respect the time/effort put into them, and all the groups created very professional pitches. So although I might disagree with some stocks, the groups were outstanding. That's how it is in the market. There will always be at least someone who disagrees with your favorite stock.
Of the stocks listed above:
I bought CHL for my Information Technology portfolio at $17 in Apr. '05, and then sold it at $29 in May '06. I'm happy.
I bought FTI for my Energy portfolio at $22 in June '03, and then sold it at $21 in Nov. '03. I'm not happy.
FTI was not forgotten, as I had shorted it at $33 in Apr. '05, and then covered it at $40 in Aug. '05. I'm not happy.
I bought KFT for my Material/Staples portfolio at $35 in Mar. '04 and then sold it at $33 in June '06. I'm not happy.
I bought RTN for my Industrials portfolio at $28 in Mar. '03 and then sold it at $44 in June '06. I'm happy.
After the stock pitch competition, I bought RTN at $35. Wharton did a great job with this stock pitch!
I bought WLT for my Industrial portfolio in Jun '04 at $13 and sold it at $13 in July '04.
I bought WPI for my Health portfolio in Mar. '04 at $46 and still hold it. That begs the question, is it a value trap? I'm not happy so far.
I bought XRAY for my Health portfolio in Mar. '04 at $44 and then sold it at $47 in Apr. '04. I'm happy.
Was I Right or Wrong?
About 6 months ago, I started posting a series of blogs that analyzed my perspective about various sectors in the market. It's time to go back, and for the next few blogs I hope to revisit those thoughts. In Sep. '08, I had 50 stocks that I liked. Although I never purchased all 50 stocks for my diversified virtual portfolio, this is how that portfolio was segmented:
Discretionary 20%, Financials 18%, Information Technology 18%, Energy 12%, Health 10%, Industrials 10%, Materials 6%, Utilities 4%, Consumer Staples 2%, Telecommunications 0%.
That breakdown implies that I was bullish on Consumer Discretionary, Financials, Information Technology, Materials and Utilities. It also implies that I was bearish on Energy, Health, Industrials, Staples and Telecommunications. Combining that data with a bit of valuation, I was bullish on Information Technology and Utilities, and bearish on Energy and Industrials.
Now, 6 months later, the segmentation for the 50 stocks looks like this:
Information Technology 32%, Industrials 20%, Discretionary 14%, Financials 12%, Health 8%, Energy 6%, Materials 4%, Consumer Staples 4%, Telecommunications 0%, Utilities 0%
If I combine a bit of valuation into the mix, I'm bullish on Industrials and Financials and bearish on energy.
Markets have changed quickly, and keeping with my discipline of quant/value style of investing, the holdings in Information Technology have increased from 18% to 32%, Industrials from 10% to 20%, and Consumer Staples from 2% to 4%. On the flip side, Energy holdings have decreased from 12% to 6%, Financials from 18% to 12% and Consumer Discretionary from 20% to 14%.
Let's be critical.
I was bullish on Consumer Discretionary, Financials and Materials, and bearish on Health, Consumer Staples and Telecommunications and I WAS WRONG .
I was bullish on Information Technology and Utilities and bearish on Energy and Industrials and I WAS RIGHT.
In the past 6 months, my diversified virtual fund has underperformed the S&P500 by -2%. That's not good and I'm not happy. But, in the past three months, it has outperformed the S&P 500 by 4%. So hopefully, things have improved.
Just the Bear News
Alright, so this isn't about a bear, but it deals with analysts who are afraid of being a bear.
By now everyone has probably heard about the Cramer/Stewart fiasco and I have a few thoughts to add. Analysts are wrong, analysts are right, and although it is oky to call out an analyst when they are wrong, I think it wasn't completely fair that Stewart nailed Cramer. I love watching both of their shows. I had the privilege to see Stewart live in Detroit, and I've had the privilege to meet up with Cramer in person. Both are entertainers and both try to educate their viewers. Even if you hate Cramer's or Stewart's opinions, you can probably agree that they have passion for the markets and fascinating personalities. It should be noted that analysts make mistakes, but it should also be noted that some analysts just don't have the guts to give sell recommendations. Think about it.
Now, on the other hand if I say something cool, then it might increase the stock price, but I doubt the company will get upset with me. People in general aren't upset if things go up and markets go up, even if there are shenanigans at play. It's only when the markets collapse, grandma loses some of her money and people suffer, that suddenly people complain. People blame hedge funds, but some of those hedge funds have fancy models that perhaps have some predictive power as to which companies might be commiting some sort of shenanigan. The hedgefunds won't accuse the company, but they'll short it, and sometimes they are right. Sometimes they're wrong. The general public is usually not aware of such things, but then again it's not aware because its hard to say, "i'm shorting this because they might be cooking the books". Perhaps it's not the 'sell recommendation' that people should look for, but the number of analysts that suddenly stop covering a company. I hope the culture can change a bit, where people can be more outspoken and give true opinions of stocks, even if those opinions are unpopular -- if they had, then perhaps the market wouldn't have been so overvalued. If CEOs were a bit more honest, and the investor relations were a bit more honest, and the analysts were a bit more honest... then hopefully things could have been a bit better. But this mess is a combination of everything and everyone and they're not the only ones to blame. So Cramer will make some good calls and he will make some bad calls, don't expect him to be perfect, but do expect analysts to practice better stewardship, think outside the box, create true critical commentary of stocks, and develop some... errr.... sisu... as the Finnish would call it.
Cheers and sisu,
I make a list of 100 stocks that might suck and 40 that might look good.
http://www.earningstorpedo.com
I also have a webpage that links to the trips and photography that I’m involved with
"World Between My Ears"
Signal Hill National Historic Site
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