Saturday, July 21, 2007
"So... do you think I should sell my RadioShack?" Oh no. On my recommendation, about a year ago, one of my in-laws bought shares in RadioShack. I'd broken a cardinal rule of investment research: Never give your family or friends a stock tip. No good deed goes unpunished. "You know... the thing has dropped $5 this week. I've lost a lot of money."
"I don't know," I said. "I haven't looked at it recently. But I know it has been one of the best-performing stocks in the S&P 500. You bought around $18, right? So... you've made a lot more money than you lost, right?"
"Well, yeah... it's up. But if I'd sold at $35..."
"Why would you ever sell a good business like that, when you got your shares at such an absurdly low price? I mean, when you bought the stock, the market cap was about $2.5 billion, right? And, even in not-so-great years, like the last several, RadioShack makes about $300 million in cash earnings. So... your shares... in a bad year... are producing an earnings yield around 12%. Where is your money going to be treated better than that?"
"Oh... I never thought of that."
Signs of a market top... After announcing estimate-crushing earnings, shares of Intel, Merrill Lynch, and JPMorgan all went... down.
Signs of a market top... The Teacher Retirement System of Texas is planning to move one-third of its $112 billion in assets into alternative investments, including hedge funds and real estate. Pension funds are historically the most conservative of investors.
Signs of a market... bottom? It seems that mainstream investors are going contrarian. As the bull market rages, investor confidence has dropped to its lowest point, 76.1 according to the RBC Cash Index, since last August.
Extreme Value pick ExxonMobil (XOM), the largest publicly traded company in the world, passed the $500 billion mark last Friday... and is up to $518 billion a week later.
When Dan Ferris recommended the stock (it was trading for less than 10 times earnings) a year ago, we received a wave of complaints. Our audience demanded to know: How can we make money on a stock this big? So far, Dan's up 46%... in a year. Big, consolidated oil companies have been among the best-performing stocks in the world over the last year.
Shares of another Extreme Value pick, Bladex (BLX), jumped nearly 14% on Thursday, after the bank reported second-quarter earnings growth of more than 200%. Subscribers are up almost 75% on the stock since Dan recommended it in November 2003.
Dan pointed out that subscribers have earned more in dividends, $6.14, than in capital gains. "The market takes back capital gains all the time," Dan says, "but no one can take back a dividend."
The SEC is charging David Li, a Dow Jones director and a well-connected Hong Kong businessman, with insider trading in connection with Rupert Murdoch's bid for Dow Jones.
The probe is fascinating to us... because on April 11, only three weeks before the offer for Dow Jones was announced, we noticed the Bancroft family was suddenly buying millions of shares through Hemenway & Barnes, the Boston law firm that represents its family trusts.
We called Dow Jones at the time and were told: "We do not speak on behalf of the family." Next, we called the law firm... and were told nothing unusual was going on. It's now known that at the exact time the family suddenly started buying shares (for the first time in a year), Murdoch had begun to approach top executives and family members about buying the paper. But... who wants to bet that the Bancroft family never gets a call from the SEC?
Debt-rating company Moody's is taking a hit for its tough stance on lax lending. Moody's was passed over (or not hired) for 75% of the assignments to rate commercial mortgage-backed securities over the past few months. Again, we touch on why Wall Street is so crooked... The mortgage industry is blackballing Moody's because it is trying to protect you... the investor.
Date Range:7/12/2007 to 7/19/2007
Date Range:7/12/2007 to 7/19/2007