Friday, November 30, 2007

Book Review- "Alwaleed" by Riz Khan

As an avid reader of investment books and biographies, I've decided to add another element to the blog and review various books that I've finished that might be interesting to readers.

I've just finished "Alwaleed", a biography of the billionaire Prince Alwaleed bin Talal. Alwaleed is best known for high famous investment into Citigroup in the early 1990's. This is a move that saved the bank when it was in financial trouble (much like now, ironically), and it put him on the map as an investor. Alwaleed is considered by many as the "Warren Buffett of the East." Although he's shared the level of success as Buffett, he is much different overall. The prince has surprised many people in both Saudi Arabia and the U.S. by bridging the gap between two countries that don't have the best relationship, especially post- 9/11.

His background is rather interesting. He is a member of the Saudi Royal Family, but his mother's family is also politically connected in Lebanon. His parents divorced when he was young, so he was raised in both countries, which helped broaden his horizons. He got his college education at Menlo College in California. This was very important as it taught him how business is done in the U.S. After college he moved back to Riyadh, and went into business for himself. He basically started with a small loan from his father and went from there. He got his start by brokering deals between foreigners looking to invest and build in Saudi Arabia. His political connections helped him here, but he did the business himself. He then led a couple of the first hostile takeovers of under performing banks, a practice that hadn't been seen in that area. He quickly made the businesses profitable by cutting expenses and cleaning up the banks loan portfolios.
He then started investing in international equities. He did the Citigroup deal, which was very successful. He is also a major shareholder in US companies such as Apple, Time Warner, News Corp, Pepsi, Hewlett Packard, Kodak, Proctor and Gamble, and Disney. He believes in strong, well know brands, and the value that they add to a company.

The prince also has major investments in high-end luxury hotels. He is major owner in The Four Seasons Hotels. He also has various hotel investments, including Fairmont, Movenpick, and IFA. He has been in the ownership group for New York's Plaza Hotel.

To me, the main takeaway from this book is the Prince's attitude and determination. He works extremely hard when approaching an investment. He believes in perfection and demands it with his staff. He often travels thousands of miles per day on his jet, and his travel schedule is perfectly planned. He often only sleeps a couple of hours per day, and is up well into the night as he needs to communicate with business partners in the West during their daytime hours. The Prince is a very serious man, and is very serious about his business, but does spend a lot of time with his children. He also gives a tremendous amount to charity. The book does touch a little on relations between the US and Middle East. The Prince offered to donate $10 million to the 9/11 fund, but it was denied by Mayor Giuliani after the Prince suggested the US adjust its policies regarding Israel and Palestine. This created some media backlash, and the book covers it from an interesting point of view that our media probably didn't.

Much like many stories of successful investors, this is a story of hard work, determination, and prudent investments. His preaches patience, and that you should never overpay for an investment. These are the same principles of Buffett and others, but the Prince has his own style, and his story is interesting and motivating.

I'd recommend the book to anyone interested in investing. It does cover things strictly from the Prince's point of view, as the author was allowed to join his entourage for a few months, so it could be seen as a little one-sided. But overall, it is very informative and interesting. The book does also include a DVD that has some interesting footage of the Princes yacht, planes, and where and how he does business.

You can buy the book here:

Friday Update

Bernanke fired up the bulls again with hints of another rate cut. But to me this only bodes well for trading up to the announcement. To me the key to the stock market climbing is restoring a calm tone with regard to the big banks. A rate cut may or may not help this. Stocks are clearly attractive right now, especially considering the unattractive rate of return of bonds and cash. But if there is continued shake up causing fear, most investors will get out of stocks based on fear.

Crude oil has dropped to $89, which has also helped. It appears that it will take a major occurrence to break $100 (geopolitical event, or issue with suppliers or refiners).

With those being said, I still wouldn't be surprised to see stocks sell off a little heading into the weekend. It has be a nice week of recovery for stocks, and with the continued uncertainty and rate cut euphoria wearing off, investors may take some profits.

I made some layout changes to the blog. Nice to look at something new.

Thursday, November 29, 2007

Another Bail Out

Among today's headlines is another bailout. This time its Etrade (ETFC). Citadel provided $2.55 billion, and got 20% of the company. Great deal for Citadel. They get CEO Mitch Caplan out and a seat on the board. This will give them a lot of leverage on the direction Etrade will take. The bottom line is that Etrade needs to focus on their brokerage business, an area where they have had a lot of success. Its been tough for shareholders, but things will come around. This is better for them then getting taken out by a competitor at too cheap of a price.

The decline is oil prices was halted due to a pipeline explosion in Minnesota. I think that the swift decline in crude really helped fuel the stock rally that we saw. The reasoning for the rally was the things I've been talking about the last week or two. Settling of the news headlines for financial stocks, crude oil dropping, and stocks being oversold. The potential for a rate cut made headlines, but a quarter point didn't do much for us last time. I think there is some major debate over rates at the December meeting, and I wouldn't count on the cut just yet.

I continue to believe there is room to the upside as the volatility subsides. If things get worse, the combination of a poor housing market along with a weaker consumer and higher inflation would spell a combination that would lead us substantially lower. We'll continue to look for clues on which direction we are headed.

Wednesday, November 28, 2007

Rally, Day 2

Investors have finally decided that stocks are oversold, and we've seen a strong rally the past two days. I'm still not convinced things have improved in the financial sector, specifically at Citigroup (C), but the stock price is pretty cheap. I believe they took the finance deal to prevent cutting their dividend, which would have been disastrous from a psychological standpoint. I think in the long run, they would have been better without taking this deal, but investors are following headlines, and this works for them.

Outside of that, the lowering of crude oil has to have helped some.

We've also got some Fed commentary, which always moves markets. Although yesterday, it was said that they don't want to cut rates because of inflationary pressures, today we heard that they need to be flexible. Its funny what the market chooses to listen to and what to ignore. I think it means that at least they are having a healthy debate and might not be as influenced by outside political forces as I thought they may be.

Just about everything is working today. We've stayed away from financials, and they are leading the way today. I'm not calling a bottom in banks though. I think there will be further shakeup over the next couple of quarters. But the correction did give the opportunity to buy at reasonable prices.

Have a great day!

Tuesday, November 27, 2007

Weakness Prevailing

We're continuing the trend of morning strength as investors hope for a rally, but it continues to wear out as the day goes on. I'm limiting exposure to the emerging market stuff right now as investors seem to be avoiding that right now. Aside from that, I'm still looking for bargains on stocks that I've followed for awhile.

The financials are really hurting right now. Citigroup (C) secured some financing in a move that seems to have some desperation to it. If you remember they were in the same situation in the early 1990's when another foreign investor, Prince Alwaleed, bailed them out. They are doing the right thing, and although it will take some time, they should get things straightened out. Book value for common shares is 25.48, and that could be a number to target if you're looking to get in for the long term.

Oil prices have scaled back the past couple of days, which is positive, although I'm not sure investors are paying much attention to them right now.

The market is grabbing a lot of headlines with negative news right now, and people are nervous. Thats why I can't give up on being bullish in the near term.

Monday, November 26, 2007

Little News Again

Strong retail sales on the big shopping holiday is a good sign. The bears are trying to downplay it saying that it was only due to the slashing of prices and it won't do much for profits. I think anything to restore some consumer confidence at this point is a positive. The consumer has been very rattled, as the media has come at them from all directions. Fuel prices, housing issues, weak dollar, etc. I think the resilience of the American consumer will surprise us again.

As I've said before, if we get little to no new bad news, especially from the financial names, I think stocks will rally.

We will need a rally in financials to move the major indexes, as they are so heavily weighted in Dow, S&P, etc. Aside from some one-day short covering, we haven't seen any sign that they will rally yet.

But overall, these slower news days are just what the market needs. An opportunity for the volatility to decease, which will bring back confidence for consumers and investors alike.

Friday, November 23, 2007

No News is Good News

I think that this will be the story for the rest of the year. If things calm down on the headline front, stocks will trade higher. There are still some attractive companies and prices are very attractive on many names. But, I've also mentioned the risks. The media is determined to use the fear of a bear market to promote their headlines. Its important that as investors we understand what the actual risks are, and there are some, and what is just hot air (a lot of that).

I believe in a "reversion to the mean" somewhat, and I think that it will happen to oil prices in the short term (3-6 months). This means we will see some drop in oil prices, and at least some stabilization. This will help stocks, at least from a psychological standpoint. And that is where the danger lies. We've traded so much lower because of fear. A lot of economic data is relatively solid. Inflation is what concerns me the most. I know that those numbers are manipulated somewhat. Any inflation index that doesn't included food and energy is worthless if you asked me. Just look around and see what things that you buy are costing you? Food specifically. The governments insistence upon promoting ethanol has hurt us here. The cost of all the raw food has gone way up hurting restaurants, grocers, and consumers. They don't like to use food and energy for these numbers, but they'll gladly use cars and other items that stay relatively cheap because of immense price competition? Doesn't add up if you asked me.

Anyway, this may be a little bit of a rant, but that is where I see things for now. I'm remaining cautiously optimistic.

Hope everyone has a nice weekend!

Wednesday, November 21, 2007

Holiday Trading

Typically, holiday weeks see light volume and benign trading action. Well that isn't the case this week. Yesterday was one of the most volatile days I've ever seen. The high oil prices are weighing things down right now. Emerging markets have continued their slide as well. Things will keep cycling on themselves (meaning our market goes down, which makes others go down and so on) until something shifts.

We've seen some hints of buying in the financial names. Etrade (ETFC) is up about 9% this morning, but it is hard to trust that it will hold. The bigger names, including Citigroup (C) have bounced up but then back down. It appears there are some buyers for these names, but most investors are still nervous about them. As I've said before, we've already seen most of the bad news from banks in the short term. This is why I've been thinking we're due for a year end rally. But there are plenty of things that could derail that plan, so it is important to stay flexible.

Happy Thanksgiving!

Tuesday, November 20, 2007

What I'm Looking At

There are some deals out there, and here's what I'm looking at:

Lowe's (LOW) has really taken a beating. I think this stock isn't far from its bottom, but there is no hurry to get into it. When the recovery begins for homebuilders, which appears to be at least a couple quarters away, this will be one of the first stocks to take off. It is a great company overall, but right now business is tough. If the market really sells off and it gets taken down too far then I may buy it, but for now just keeping an eye on it.

Echostar (DISH). Dish Network. They've been in the news a lot lately amid rumors of a buyout by AT&T (T). I own both these stocks for the blog portfolio. Dish reported some poor numbers a week ago, and the stock dropped hard. It rallied again yesterday when the buyout rumor resurfaced, and is trading lower today. I may pick up some shares personally just on speculation of the buyout. I typically don't get into this type of activity, but I do like the fundamentals of the company, and the valuation is decent. If I pick some up, it would be a very small amount, not near a core holding position size.

SAP Software (SAP). This is a company I've researched a lot, and have spoken about here before. I like their core businesses and the fact that they aren't focused on just one region, but are very global. There is a lot of demand for their product. I've been trying to enter the stock at or under 50/share, but no luck yet.

Financials are still brutal, and will be until they can reassure investors. Lots of deals to be had here, but I'm not touching anything yet. Citi (C) is getting really cheap, but how low will it go? They need to find a CEO, pronto. Etrade (ETFC) is getting hammered again. They've really exposed themselves to a lot of punishment from the street, and they don't have much to fight back with. They have a good brokerage business, but were too small to get into the level of mortgage exposure that they did. I bet that they get bought out in some form. Can't touch the stock.

Best performer for me has been my Ultrashort Dow Fund (DXD). No surprise there. Its one I'm happy to have held onto, and if things deteriorate more, I'd look to pick up some more shares. I'm still trying to be in the contrarian camp right now, as too many people are too bearish considering what the facts are. But as investors we have to stay flexible. One of my favorite quotes is by economist John Maynard Keynes. "The market can stay rational longer than you can stay solvent."

Don't Fall in Line

There is no news to trade on today. Just the battle of bearish, recession-coming sentiment vs. stocks are oversold sentiment. Some helpful retail numbers and tech earnings boosted the market early, and it has since faltered. Investors are going to focus on the past negative news until something changes. Although Wall Street trades on future events, everything is too uncertain right now, and people would rather just get out for now it seems.

The media is pushing negative commentary because it grabs headlines. They don't care what effect it may have on the market. It has little effect overall, but can scare out the individual investor. Listening to these people change their stance every day is not only a waste of time, it actually detracts from being a successful investor.

Monday, November 19, 2007

More Selling

The financial media has basically proclaimed that we are headed for a recession. Although it is easy to side with this argument with the way current trading action is heading, I'm still not sold on it. The market is continuing to price in risk of future events, just like it should. Based on the evidence we've been given, stocks will respond accordingly. But looking at today, not much has changed. Citigroup (C) was downgraded, and that is probably the biggest news of the day. But all the headlines are re-treads. Yes, the housing market has been poor. This has spilled over into the mortgage and credit markets. From a valuation standpoint stocks are still mostly attractive. To me, sentiment has to be over the top positive for me to think we're headed for a decline. We're in the opposite situation right now. As hard as it is to think this way, it is the only way to be a successful investor. I can guarantee you that Buffett and other successful investors are excited at the opportunity of finding buying opportunities which just aren't available when stocks are at levels like they were a few weeks ago.

Don't get me wrong, I'm not issuing an "all-clear" or "buy now" proclamation, but rather a "don't panic." Don't get shaken out yet. There's still a lot to be seen before we can announce a bear market. If oil prices subside, the Fed will cut rates again before the end of the year. If things stabilize with the banks, it will also allow the stocks with positive outlooks to climb again.

Thats it for now, and I'll keep updating with anything of note.

Friday, November 16, 2007

International Markets-The Case for China and Brazil

Yesterday I discussed the situation in Japan, and how their situation has helped other markets. Now lets take a look at a couple of others. China's markets have seen a healthy, gradual pullback in the past week or two. Everyone expected to see it collapse on itself, and so far, it is acting rationally. The Chinese government is doing its best to cool growth, and it seems to be doing well so far. This bodes well for the bullish case to stay in place as it will keep investors confident that the market won't collapse. From a valuation standpoint, I found something very interesting. The BRIC markets (Brazil, Russia, India, China) are valued at 25% of their GDP, while industrialized nations are trading at 81% of their GDP. This article displays the stats.

I also am bullish on Brazil. They are a quickly growing, resource rich nation. Their market has experienced growth through its banks and commodities. The have taken a little bit of a back seat to China's amazing growth story, and this is a good reason to take a look at it. They don't have the resource of population like China, but they are still a good place to invest. China still is so heavily government controlled and a strange move could pull the rug out from their markets. I don't see the potential for that type of situation in Brazil.

My favorite ways to invest here are in the ETF's. BRIC ETF (EEB). Brazil ETF (EWZ).

I found the article through The Kirk Report's website which is a great resource.

Disclosure: Author owns EEB.

Thursday, November 15, 2007

The Case for Japan

As I've mentioned before, I read a lot of investment guru Ken Fisher's writings. His portfolio strategy column in Forbes is a monthly must read. This month he discusses how Japan's currency and interest rates are helping the global equity bull market. He also discusses why it may be prudent to take a stake in Japanese stocks in case this trend changes. I'll follow his advice and add some exposure to the portfolio. Like I've done before, I'm doing it in a country-tracking ETF. Japan's is symbol (EWJ). As a side note, I've been bullish and continue to be on Brazil as well (EWZ).

Please take the time to read Ken Fisher's column here.

Wednesday, November 14, 2007

Not in the Clear Yet

Yesterday's rally showed me that financials were oversold. That pretty much sums it up. That, and maybe retail will have a better Christmas season than expected. I'm continuing in my belief of a year end rally, although we're not through with the volatility. As I've said before, oil prices will come down some, and they have. The long term trend is up, and I think we'll settle somewhere above $80/barrel and under $95/barrel for the time being.

Prior to yesterday's rally, the bears were out in full force. I've heard not just recession talk, but "the coming recession," and what to do. People love the gloom and doom headlines, because it makes them feel that Wall Street is finally getting a dose of what we're seeing on Main Street. But there always has and will be a disconnect.

How good has Goldman Sachs (GS) looked compared to its peers? It seems almost too good. They are experiencing no major write-downs, while they profited by shorting mortgage holdings in the past quarter. I guess thats why they are the best.

We'll keep on our toes here. I'm looking for weakness as a buying opportunity in a couple of sectors: technology and international stocks.

Monday, November 12, 2007

More News to Digest

The big banks appear to be snapping back into the green again. Citigroup (C) and Bank of America (BAC) should lead the charge if this happens. I still like our chances for a year end rally as wall street wants to finish the year off on a high note. It has been a volatile year for stocks, but profitable for the most part. Etrade (ETFC) is continuing its spiral as more analyst downgrades have come out, and some have the talk of bankruptcy. I think thats a little extreme, but the stock is responding, down 40% this morning. If I was someone a little more plugged into the situation, I'd say it would be worth buying just for the brokerage business, but there are too many unknowns.

Friday, November 9, 2007

Let's Be Aware

Sentiment is getting off the deep end on the negative side. Considering the level of volatility taking place, its hard to blame anyone thinking that way. But we have to think differently to get an edge. While there are more credit risks, almost all major banks have reported their level of exposure so far. There could be further damage to come, but there also may not. One thing to consider is the possibility of short covering on the financial names. If this happens, the market will pop up fast, because the financials make up such large weightings in each major index.

Tech has also been selling off pretty hard. I think this is mostly people protecting their profits. Some tech names that have performed well are consumer driven, and with jitters in the economy and consumer sentiment, I can see where the worries are coming from. I still believe the consumer is resilient, and the Christmas season will still be pretty strong. There is a breaking point on gas prices, and how they could negatively affect the consumer, but we haven't reached that point.

Remember the words of Warren Buffett: "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."

So where are we at with today's market?

Have a great weekend!

Thursday, November 8, 2007

Sentiment and Emotion Trading

It was a pretty strong sell off in the afternoon yesterday. But lets take a look at what we've got. We know these big banks were having problems, and it shouldn't come as a surprise that they are writing down a lot of bad debt. Its better that they announce them together, so the market can understand how to re-price them, based on risk.

The problem with the policy of the Fed is that every time we get a sell of like this, everyone looks straight to Bernanke. I mean, what do you expect him to do? The Fed has created this feeling of a cushion for investors that if anything goes wrong, we'll bail you out, no matter what the long term costs are. Bernanke is giving a speech today, and I can guarantee there is a handful of headlines saying, the market will wait to see what he says. We've heard from him, and things haven't changed that much.

Emotion created most of what happened yesterday. Greed and Fear. I'm not saying the market can't drop further, but I'm looking for opportunities to buy good stocks and funds. The overall sentiment in the media is way too negative. If they keep predicting a recession, its going to be a lot harder for one to happen. So in this case, we have to learn to think like most of them aren't. Look at fundamentals. There has been some fairly positive economic data that has come out that has been completely ignored. If the news from the banks settle down a bit, I don't see any reason stock can't rally into the end of the year.

Wednesday, November 7, 2007

Assessing the Tape

Volatility continues to be a key theme. Media sentiment continues to be on the bearish side, which helps further a case to be bullish. A lot of the negative news is priced into stocks already. By now, almost everyone is expecting poor results from the big banks. So if we get no news, or just slightly better news, things will improve. Economic numbers continue to come in steady, so there isn't any reason to jump ship on the overall economy. But nonetheless, the volatility is shaking a lot of people out of the market.

I think oil prices are going to come down. The overall trend is for them to continue a climb, but when the frenzy wears out, I think we'll be heading a little lower there.

With new economies growing and becoming more competitive, I'm always trying to look ahead for the next frontier of investing. This is easiest by looking at commodities. One that has intrigued me lately is water. I know it has seemed to be a little bit of a "hype" play, but there is a pretty good case in the next few years. Although accessible water isn't a problem for many people in the U.S., it is in certain parts of the world. And it isn't just drinking water, it is infrastructure companies that put pipes in for farms and companies. A lot of water systems are becoming privatized as well. I wouldn't but a specific company to profit from this, but an ETF is a great way to get some exposure. I've studied the few that are out there, and my favorite is Claymore's Global Water Fund (CGW). The have exposure to various water and infrastructure companies in the U.S. and throughout the world. I like this as a long term play.

Beyond that, I'm still looking for more buying opportunities.

Monday, November 5, 2007

Use Pullbacks as Buying Opportunity

The worst of the news is getting priced into the market right now. There are issues over at Citigroup (C), and CEO Chuck Prince has stepped down. The street has been clamoring for his departure for some time, and this should please them. There are too many uncertainties in the credit markets to be buying the bank stocks yet, but there will be some deals to be had soon.

But the worries coming from the banks are giving us opportunities to buy companies that are doing well at cheaper prices. United Technologies (UTX), for example, is one that I'm looking at.

We'll see what the week brings.

Friday, November 2, 2007

There for the Taking

The market is continuing to give us buying opportunities today. The reason for this downturn is again the financial stocks. Although they are starting to look like bargains, I wouldn't step in and buy banks just yet. But elsewhere, there are some opportunities. International companies involved in growing industries is where I'm looking. SAP software (SAP), which I mentioned last week, is one I like. Manitowoc (MTW), which I purchased on weakness yesterday, is another. Also, I'm keeping an eye on the ETF's in Emerging markets or the BRIC (Brazil, Russia, India, China) region.

I'm updating the portfolio today so you can keep up with the moves I've made.

Thursday, November 1, 2007

Look For Opportunities

After the Fed commentary yesterday, the market is now afraid that they may not have the cushion of rate cuts to fall back on. I don't think we need them at this juncture. We know the big banks have had troubles, and we should let it play out. Look at how Goldman Sachs(GS), which has further shown why they are the best, performed while all its peers faltered.

So stick to the same game plan. In some portfolio news, Manitowoc (MTW) reported today, and the conference call is happening right now. They are continuing to emphasize the strength of the global expansion, and they are making lots of moves to profit from it. The stock has traded down 10%, as the street was looking for perfection. I used the drop to add some more shares.

I'll keep an eye out for more buying opportunities as they arise.

Disclosure: Author personally owns Manitowoc (MTW).