Monday, April 30, 2007

Daily catch

All you fishermen out there, how would you like to hook THIS? or THIS?

Think you could land him with 10 lb. test, an ugly stick and a zebco?

Here's another incredible photo.

Case for a stock market bubble in China

This article makes the case that the Chinese stock market is currently in a bubble. Some of the descriptions might remind you of the bubble in the U.S. in 1999-2000. "10 times as many accounts were opened in first quarter 2006 as for all of 2005."

Saturday, April 28, 2007

Tennessee Titans Draft Day 1

I'm a Titan fan and have looked forward to the draft. I gotta say I'm disappointed overall right now. Going in the Titans have a ton of holes to fill, including safety, cornerback, defensive end, runningback, and wide reciever.

I really like the pick of a safety with the first pick, although I thought we would take Reggie Nelson from Florida when he was there on the board for the 19th pick. Instead they took Michael Griffin from Texas. But if Griffin can play it definitely upgrades us at probably our weakest defensive position. Current starter Lamont Thompson seems to get burned badly several plays a game, often costing us a touchdown.

The second and third round picks I'm less happy with. Chris Henry RB out of Arizona and Paul Williams WR of Fresno state both seem like workout warriers with good workout numbers, but whose collegiate performance levels seem poor to be considered as 2nd and 3rd round picks. Chris Henry had less than 1000 yards rushing in his entire career at RB. Paul Williams WR had just over 1000 recieving yards in his career at Fresno.

Thought 1 - Chris Henry was the 4th Running Back taken in the draft and he couldn't even win the starting job in college. I'm concerned we've drafted some great workout stats, but not much of a football player.

Thought 2 - Paul Williams has a great highlight film, but Fresno doesn't exactly play the best competition, and he didn't exactly perform even at that level. Like Henry he has some good physical stats, but is that going to translate into football production?

Here's the draft page for the Titans.

Moon orbits in a tilted plane

When I posted the photo of the earth and moon a couple days ago, it struck me that based on the position of the earth and moon and the implied position of the sun, it seems like the moon orbits in tilted plane to that of the earth and sun.

The thought kept bugging me, so I did a little web searching and found this link which has a really good picture of the model I'm thinking of.

If I'm understanding correctly from Wikipedia the moon's orbit wobbles, but the average tilt of the moons orbit vs. that of the earth-sun is around 5% - so it's close to "flat", but not quite. The picture above makes it look more extreme.

It's strange that I get to be 36 years old and for some reason I'd not considered the angle of the moon's orbit to be anything other than "flat" along the plane of the sun. Come to think of it - eclipses would be alot more common if the orbit was flat though, but as it is its rare that everything aligns.

Thursday, April 26, 2007

The other 3 tenors

This is just a little bit different. I haven't heard anything quite like it and thought you might like to listen.

Where are they?

The discovery of another planet in the "zone" capable of supporting life seemingly increases the chance of life out there, it does bring up the consideration of why despite looking for years, SETI hasn't detected radio emissions from other civilizations.

Here's a potential reason that gave me a laugh. Maybe they're trying to avoid us.

Wednesday, April 25, 2007

Potential earth-like planet discovered

Here's an image from the site of the earth and moon taken by the voyager probe as it sped away.

Apparently scientists may have found another similar planet around a nearby star. I find it incredible that scientists have the means to make discoveries like this, but apparently a red dwarf star (Gliese 581) about 20.5 light years away has a potentially earthlike planet around it.

Calculations based on planetary formation models anticipate that the planet should have an atmosphere and may likely have water (based on prevailing planetary formation models). Temperature may be potentially similar to earth, although a thick atmosphere could make it hotter.

It's diameter is probably 1.5 times that of earth, and gravity would be about 1.6 times that of earth. That means I'd need trim down if I wanted to vacation there.

Given the planet's proximity to it's star it's possible the planet doesn't have day and night but instead one face of the planet may always point toward the star (like one side of the moon always faces the earth).

Another article indicates that future developments may enable scientists to block the light of the star itself and take direct spectrographic images of the planet itself to determine if the planet has water or materials common to life.

Here's another good link with a bit more info.

Monday, April 23, 2007

Hanson Natural HANS analysis

I came across this bullish analysis of Hanson Natural on the SeekingAlpha website. Anyone interested in the outlook for HANS should take a look .

Disclaimer: I own shares in Hanson and it's one of my favorite stocks at the moment.

Sunday, April 22, 2007

PE by market capitalization

I've seen several recent discussions concerning large cap stocks seeming to be relative bargains at current market prices based on price/earning (PE) ratios. Always missing in these types of "talking head" discussions seems to be the data that might inform a reasonable decision.

So first I wanted to see the current relative PE of stocks with different market capitalizations - from the smallest of companies to the largest. Median PEs are shown (median is not the average)

I'm not sure how folks in the industry look at the stats so I've included median PE for all companies (both + and - earnings) and the median PE for only companies with positive earnings. Based on what I'm seeing the smaller company PEs don't really seem out of line with what I might expect.

Next to place the information in historical context I've plotted relative PE ratios over time, going back around 7 years. (Click the image to enlarge).

The green line is representative of the largest companies (over 30 Billion mktcap.). The red line represents the group of the next largest companies (10-30 Billion mktcap), and so forth...

From the graph it's clear that the largest companies (30B+) have seen a significant devaluation of earnings since 7 years ago, falling from a PE of nearly 25 to below 15 currently (40% decline in the value of earnings).

For other market caps it seems the valuation of earnings on a PE basis is fairly constant since about 2003. Even the large 10-30B stocks (red line) have had a fairly steady PE since 2003.

Conclusion: It does seem that the earnings of the largest cap stocks are at a lower valuation than those of stocks of other market caps. What's unclear to me is whether that's the way it should be. The benefit of the bigger companies is the predictability of earnings - in the past year 99% of stocks with $30B+ mkt cap had positive earnings. On the other hand the largest companies don't tend to grow as fast and probably don't deserve as high of a multiple as the historicals suggest.

I guess while I could see a slightly higher PE multiple assigned to the largest stocks, based upon historicals the relative valuations seem only modestly out of line in aggregate. Maybe if some more largely undervalued individual stocks in the largest market cap range could be identified I'd feel better about the statement, but as a group the case isn't compelling to me.

Overall I'm pretty bearish on the markets right now and am more inclined to limiting exposure (I'm over 50% cash in my accounts outside of my 401K), but short of that this might cause me to consider shifting a bit of my 401k more toward the S&P500 vs. the smaller Russell 2000 index where I have most of my 401K funds currently, but I'm not going to do anything drastic.

Friday, April 20, 2007

Market returns since Dec 31 1999

Wow. I saw this on "The Big Picture" Blog. It provides interesting perspective on the stock bubble we were in back in 1999-2000.

Since Dec 31 1999 the S&P500 index is up a whopping 0.15%. More stunningly, the Nasdaq 100 is still down over 50%. On the other hand small and mid-Caps have performed well though.

I've recently been reading commentary suggesting moving money back into the large cap stocks and am investigating relative valuations now. Based on the above the last 7 years have been terrible for the S&P500 stocks in aggregate. I have most of my 401k in a Russell 2000 index and and International index, so perhaps redistribution is in order.

Thursday, April 19, 2007

Building Permits

I enjoyed this cease and desist letter, and the reply from the landowner.

Good times...

Wednesday, April 18, 2007

Somebody flush, the toilet's on fire!

One more thing to worry about: In case you haven't heard, there is a massive toilet recall underway in Japan. Apparently some high end toilets have been catching on fire.

The manufacturer of the toilet is named Toto, bringing disgrace to Dorothy's dog. Ironically in naming the company the founder was inspired by the 1980s grammy award winning band Toto. OK, so I made some of that up, but seriously, the band's music is smoking hot - just like a flaming toilet.

I'm going to go into the back and dig out my Toto cassette tape from around 1983. Songs like "Africa", "Roseanna", and "Love isn't always on time" were some of my favorites when I was about 13 years old. I got their cassette after joining the Columbia music club (remember the little stickers in TV Guide?). Some of the tunes play from the bands's website - good stuff.

In closing, be sure to follow all safety preceedures in the John. Until the danger has passed wear your safety goggles and keep the extinguisher at the ready. And please turn on the vent fan or open a window as we don't want an unfortunate explosion to result from methane accumulation.

Monday, April 16, 2007

Airline seating design

I'm a big guy and every time I've been on a plane I've wondered why seating isn't staggered somewhat to allow more shoulder room. Basically the seating design in airplanes seems poorly optimized to take advantage of the space in the cabin.

Click on the image below to enlarge the image of what I'm talking about.

The image on the left shows current standard seating with everybody's shoulder bumping into each other, and the variation on the right shows a proposed staggering of the seating to free up space. (Yes it's supposed to represent an airplane ;-) )

This doesn't even consider potential staggering in the "up and down" dimension but there is opportunity there also.

I saw another variation of this theme that prompted me to make this post, but this variation sits some people forward and some people backwards.

Quote of the day

First graders were asked to complete some common sayings.

Here's my favorite:
"The pen is mightier than the....pigs."

Runner up:
"A miss is as good as a .....Mr."

Read the rest here. Thanks to the Steve-Olson blog for the link.

Saturday, April 14, 2007

Dog on a plane

This YouTube video reminds all to wear our seatbelts.

Friday, April 13, 2007

A great article telling the story of indexing

Here's a long but highly interesting article from the San Francisco magazine saying pay attention to the fees in your investments.

I like the premise of the article that rich fees create incentives placing the advisor in conflict with the client. Believe it - some products are preferred to others solely because they generate commission - the salesman's gotta make a living. I firmly believe different products would be sold if nothing but the commissions were different.

Some quotes from the story:

"Turns out that I ... was paying annual fees, commissions, and transaction costs well in excess of 2 percent a year on most of my mutual funds"

"Then he did something I doubt any other financial manager would have done. He fired himself."

"We work in the most overcompensated industry in the country”

“My job was to compile all the academic research on mutual funds, and that’s when it really became clear that active management doesn’t add any value”

"So why is indexing catching on so slowly? A big reason ... is that putting investors into index funds is simply not in the interest of the industry that sells securities. 'They just won’t accept indexing’s minuscule fees.'"

“Eighty percent of active managers underperform the market."

John Naisbitt's "Mind Set"

I just read John Naisbitt's book "Mind Set"

Some takaways:
- He sees China as the real deal - a balanced long-term growth economy with lots going for it.
- India is no China - not even close. India does not have the economic breadth of China. (Right now India is all IT and not much else).
- He see's Europe as economically on the long slide down by refusing reforms to ease the socialist strains on it's economy.
- Despite many concerns, he sees the United States as a dominant world player throughout most of the current century.
- Aside: An interesting observation: consider the transition to the visual world and business implications. He sees books and newpapers in decline to be subsummed by video and visual presentation.

Wednesday, April 11, 2007

Gravity Train

I found this Wikipedia discussion of a hypothetical "gravity train" very interesting.

It speaks of a letter containing a thought experiment from Robert Hooke to Isaac Newton about drilling a tunnel through the earth and using gravity to move items long distances around the earth without the expenditure of much energy.

At minimum a fun read.

Tuesday, April 10, 2007

The dancing kid

Time for a video? Check out this 25 month old dance.

Monday, April 9, 2007

If a musician plays and no one hears...

Wow. This is a fine fascinating social commentary on our rushed lives.

How many of us would stop to listen if a world class musician were playing unannounced and incognito? Violinist Joshua Bell participates in the test for the Washington Post. Article by Gene Weingarten.

This is one of the most insightful articles I've read in a long time. I guarantee it's worth the read.

Stocks I like - April

I recently went through an investment review and below is a summary of stocks I currently like as buys. I already own some of these and don't own others, but if I make additions in the following month it'll probably come from the following list.

Favorite Buys Right now that I currently hold a position:
HANS - Hanson Natural - health energy drinks. Probably my favorite overall buy at current prices.
CRDN - Ceradyne - ceramic body armor. My largest position.
NTES - Netease - Chinese internet gaming company. Recently added.
CTSH - Cognizant Technology. IT consulting.
INFY, WIT, or SAY - Infosys, Wipro, or Satayam. Indian IT consulting. I own INFY, but WIT and SAY are very similar. All should trend somewhat together. CTSH is a similar business also, although CTSH is an American company.
GRMN - Garmin - GPS systems.

Favorite Buys right now that I currently do not hold a position.
LIFC - Lifecell - Tissue Regeneration.
GOOG - Google. It's rare that a company as large as Google is of interest to me, but it seems considerably undervalued to me despite the hype.
NTRI - Nutrisystem - dieting
PMTI - Palomar Medical Tech - Cosmetic Lasers
PRAA - Portfolio Recovery Associates - collections.

Sunday, April 8, 2007

Executive Compensation

The New York Times (i.d. required) ran an interesting article on executive compensation today. It cites a study by Equilar Inc. regarding executive compensation at the largest 150 public companies based on revenue.

Of the 7 companies with CEO compensation of $40 million or more, 6 are from big Wall Street firms. While I'm a fan of free markets, I'm also cynical and this to me is another reason to be skeptical of what the big Wall Street money houses are doing with your investment dollars - and is another reason to learn to do it yourself whenever possible.

Company CEO compensation
Goldman Sachs $54.2 mil
Occidental Petro $52.1 mil
Merrill Lynch $46.4 mil
Morgan Stanley $41.4 mil
JP Morgan Chase $41.2 mil
Lehman Brothers $40.7 mil
Bear Sterns $40.0 mil

By the way, here are the CEOs on the list recieving less than $1 million.

Company CEO compensation
Apple $1 (Steve Jobs took $1 for comp.)
Berkshire Hathaway $214,250 (Warren Buffett)
Costco $454,629 (James Sinegal
Publix $912,785 (Chales Jenkins)
Microsoft $976,149 (Steve Ballmer)

I'm personally a big fan of Warren Buffett and admire his stance in creating compensation plans at Berkshire that align managment and shareholder incentives - even when it means his compensation is far less than comparable CEOs.

CEO as shareholder advocate: Buffett is in a position where he could take advantage of shareholders, but goes out of his way to bend over backwards to make sure he places shareholder interests before his own.

Friday, April 6, 2007

Thursday, April 5, 2007

Trend to very high Return on Equity

In many of the stocks on my watch list I've noticed an increasing trend toward historically high returns on equity (ROE). ROE = net income / average balance sheet equity.

To the degree that increasing ROEs are not sustainable it made me wonder to what degree is the overall market seeing the same trend? The data below seems to indicate overall market returns on equity are at a fairly high level.

While the increasing ROE leads to increased profit growth, if it's already at a high level it makes me wonder if there's any more upside earning growth due to more efficient deployment of equity. The more reasonable expectation is that ROEs should return to more historical averages.

Below ROEs are shown for stocks in various sectors. While the very high ROE in energy right now is driving much of the trend, we see that many other sectors are at historically high levels also.

It seems likely to me further expansion in ROE is increasingly unlikely, and should not be counted on to help drive overall market earnings growth.

Data source: AAII Stock Investor Pro database with a handful of tickers excluded due to incomplete or missing data.

Wednesday, April 4, 2007

Housing Value Roller Coaster

This is cool.

US Real housing values over time, converted into a roller coaster ride.

Here's a link to the graph of real home values showing the unprecedented recent rise we've experienced.


Warning: This post is a bit red-neck and in very poor taste, but I found my situation too funny to resist. Please don't hold it against me.

As I was leaving business trip to Jackson MS Monday morning I got sick and threw up in the parking lot as I was leaving. Now it turns out the throwing-up had nothing to do with Jackson MS, but was non-the-less foreboding.

By the time I made it to Jackson and checked into my hotel I knew something was seriously wrong with my gut. I hadn't eaten all day. I ordered room service but only ate a scoop of ice cream and a couple bites of salad as all of the food tasted bad. That was around 9:15. From that point on my schedule went something like this:

10:00 pm sitting on the pot
11:00 pm sitting on the pot
12:00 am sitting on the pot
1:00 am sitting on the pot
2:00 am ... you get the idea... every hour on the hour...clockwork

If you've ever seen a dairy cow taking a leak you know how I was feeling.

To stay hydrated I tried to drink water throughout the night, however I think drinking water was more like reloading the cannon.

Now to compound problems, my digestive troubles were coupled with an itchy throat / cough. Now everybody with diarrhea knows a cough is not your friend. Especially when you're trying to sleep...

Well, anyhow at some point in the night I must've been sleeping and coughed as little to hard .... yep, I'd soiled my pants while sleeping.

At that point I was so used to running back and forth to the bathroom that it didn't matter much anyhow.

I wasn't presenting my part the next day until the afternoon so I checked out late and did my presentation in the afternoon. I quit drinking anything and kept popping pepto and that sortof dried me out for a while. Everything went well at the meeting. I actually got to feeling better and ate a sandwich on the way home to Nashville late Tuesday.

Wednesday morning arrived and the big D was back though. I awakened once in the middle of the night with a bad spell, and then another when I woke up late for work.

That morning I was rushing brushing my teeth getting ready to jump in the shower. Have you ever been standing around naked brushing your teeth, coughed, and had poop shoot out your butt onto the carpet? I twisted as fast as I could to try to get my back-end onto the toilet but it was too late.

Luckily I have an understanding wife who didn't laugh at me mercilessly when I asked "Can you get the Rug Doctor?"

Thanks to my wife for putting up with my crap.