Lessons Learned from The Internet Stock Craze (Year 2000 Y2K Edition)

I was reminded this morning of a hot IPO in Canada during the peak of the Internet craze in Feb/March 2000. One firm took a company public at $11.00/share, intending to raise $10-15mm. Even before the deal was closed, the stock was over $20/share and the book had been upsized to $50mm! There was over $80mm in demand and accounts were screaming, "If you don't let me in this deal I will never ever do another deal with you again!" The deal was done and the money raised. Problem was, there was a four month hold on the stock. By the time the hold period came off the stock, the quote was around $8.00. The Internet meltdown was in full swing. The stock ultimately traded down to $1.80 even though there was about $3.00/share in cash. The firm was later purchased for just over $3.00/share. Insiders made money, as did the brokerage. Those were crazy times, and some money managers lost their jobs as a result of this IPO (and other crummy deals). What is ironic about it all is that the craze of the day was young, energetic whiz-kid CEOs that the market adored. After this particular company went public, the 30-something CEO appeared on television. He talked a big game, used lots of buzzwords, but after the segment ended no one spoke. Everyone collectively and simultaneously realized they had been sucked into the hype. Not long after, the real stock price slide began. Around the same time, a colleague of mine borrowed money to play the markets. He turned a $5,000 loan into over $750K, only give back nearly 2/3 of it. It was so crazy that you would put in an order to buy a stock and have no idea what price you would be filled at. Market orders were the only way to buy stock as the market was moving so fast. Even if you overpaid by a few dollars a share it didn't matter because the next day and the day after stocks just kept going up. Even after the dispersion top and the blowoff, stocks rallied back in an attempt to reclaim the old highs. But they didn't make it, and then it was over. The window closed and then there were two kinds of companies: those who raised money and those who didn't. Sadly ironic was that mining companies were selling off mining properties as fast as they could to re-invent themselves as tech companies, only to buy back the properties at 10x the price a few years later. Everyone was so keen on the Internet revolution they forgot to ask how the revolution would run without raw materials. Thus enter the commodities rally of 2003! Keywords: Internet bubble, stock mania, overvaluation, stock market excess Markets. Business. Life. by LoneRngr (screen name) is licensed under a Creative Commons Attribution 2.5 Canada License. Based on a work at marketsbusinesslife.blogspot.com.Permissions beyond the scope of this license may be available at http://marketsbusinesslife.blogspot.com/.

All-Time Best Investing Article

This article below I think is one of the best all-time articles on investing. So seemingly simple it's easy to ignore but do so at your own (investing) peril. Enjoy! https://www.marketwatch.com/story/stocks-are-up-495-in-the-past-decade-heres-why-you-probably-arent-2020-01-08?mod=home-page

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US Debt, Debt and More Debt

from the Economist: America’s predicted deficits over the next decade come to as much as $12 trillion, to be piled on top of an existing net national debt of around $10 trillion. Markets. Business. Life. by LoneRngr (screen name) is licensed under a Creative Commons Attribution 2.5 Canada License. Based on a work at marketsbusinesslife.blogspot.com.Permissions beyond the scope of this license may be available at http://marketsbusinesslife.blogspot.com/.

Job Loss - Funny

I came across this gem in my readings and thought I'd pass it along. From Nigel Marsh's book, "Fat, Forty and Fired".

"My first month was spent telling people I was letting them go. I hate that phrase—it’s almost as bad as the “I’m going to have to involuntarily separate you from the payroll system” euphemism apparently used in certain American firms. My brother tells me the army has a slightly more robust approach to such matters, “All those with a job take one pace forward … not so fast, Dickens,” being an example he claims to have witnessed personally."

Marsh, Nigel (2009-01-01). Fat, Forty, and Fired: One Man's Frank, Funny, and Inspiring Account of Losing His Job and Finding His Life (Kindle Locations 3268-3271). Andrews McMeel Publishing LLC. Kindle Edition.

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Wise Words

Some great words of wisdom shared from a friend today:
"Energy and persistence conquer all things." -Benjamin Franklin

"If I were to try to read, much less to answer, all the attacks made on me, this shop might as well be closed for any other business. I do the very best I know how - the very best I can; and I mean to keep on doing so until the end. If the end brings me out right, then what is said against me won't matter. If the end brings me out wrong, then ten angels swearing I was right would make no difference." -President Lincoln
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Doom and Gloom - All About Jobs

More doom and gloom from Barron's:

A tally by the International Labor Organization shows the world will have to add 80 million jobs over 2012 and 2013 just to get back to where employment was in 2007. The reckoning is that the developed nations need to generate 27.2 million jobs in the next two years to return to normal. But the likelihood is that only 2.5 million will materialize, or a woefully shocking 25 million fewer than necessary.

As for the developing nations, even though they've been growing somewhat more aggressively than their more developed counterparts, their employment prospects aren't exactly coruscating, either. They'll have something in the neighborhood of 53 million slots to fill in the next couple of years, but the projection is for the addition of 38 million jobs, or 15 million shy of that mark.

Joseph Quinlan, chief market strategist of U.S. Trust offers this commentary:

"millions of dissatisfied and idle workers are a combustible political-economic variable that will keep politicians and investors on edge for the foreseeable future. Nothing saps the confidence or the animal spirits of consumers, businesses and investors more than the ugly images of rioters in the streets."


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Quote: Hot Peppers

Heard today:

"As my grandpa used to say, that's the thing about a good hot pepper. You get to enjoy it three times."


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Austerity Measures

From Barron's:

Albert Edwards, head of Societe Generale's strategy team, passes along this observation from the bank's interest-rate group:
"As an example of how long it could take to work through a massive austerity program, it was only in 2010 that Germany made the last payment required by the Treaty of Versailles from 1919, which called for reparations of what would be the equivalent of €325bn in today's currency. Back then, the treaty was not particularly popular with the German population [not unlike the current reaction of Greek citizens to Greece's austerity program]. Following the treaty, the German parliamentary republic [the so-called Weimar Republic] fell into a massive crisis and disintegrated quickly. The rest is history. One of the lessons learned is that a nation can only be pushed so far and positive incentives need to be set to guarantee cooperation. After World War II, a different strategy was applied with the Marshall Plan."


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The Case of Sino-Forest

It has been a few days now since the Sino-Forest "take-down" and we can conclude a few interesting things. Certainly the report hit at the heart of investors' fears over China companies, and despite the sensational language contained enough validity to motivate people to act (by selling shares). I personally think that the timing was everything, as the report was released into a market that was already weak, thus allowing the obscure firm, Muddy Waters, to move markets. Where do we go from here? I think that this will prompt more attacks by short sellers, given how profitable this operation was to date. Ultimately this is good for the markets, as tough as it is for the company under scrutiny. Dissenting opinions encourage discussion, and in this case, forced the company to disclose GPS co-ordinates and proof of ownership for facilities visited. This is one of those rare, market defining moments that will forever change the way people do business. Whether it proves to be a fraud or not (I think it is highly unlikely that the entire business is a fraud, even though there may later prove to be some exaggeration along the way), investors will learn to be dissenting and always question what is put in front of them. Research firms will be scrutinized (perhaps registered?) to determine legitimacy going forward. Muddy Waters may have picked the wrong firm to target, as with a billion dollars in cash one can hire a lot of lawyers. Incidentally, if the shares outstanding are to be trusted (likely, since it's a Canadian transfer agent), and the cash is to be trusted (likely, since this is under intense scrutiny and held in international banks), then $1bn divided by ~250mm shares outstanding is ~$4/share in cash, plus value for the business. It's a shame that the markets take a shoot first, ask questions later approach. (whatever happened to innocent until proven guilty?) It makes for interesting viewing to say the least - I only wish I was making money one way or another! (short or long!)

Disclosure: no positions



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Stop Counting Turkeys (Excellent Investing Advice!)

Great quote from the book Market Wizards by Jack Schwager in the interview with William O'Neill about holding losing stocks. Quit counting your turkeys! Quote is reprinted below:

   In my book, I repeat a story told by Fred C. Kelly, the author of Why You Win or Lose, that provides the best example I know of how the typical investor procrastinates when it comes to making a selling decision. A man has rigged up a turkey trap with a trail of corn leading into a big box with a hinged door. The man holds a long piece of twine, connected to the door, that he can use to pull the door shut once enough turkeys have wandered into the box. However, once he shuts the door, he can't open it again without going back to the box, which would scare away any turkeys lurking on the outside.

     One day, he had a dozen turkeys in his box. Then one walked out, leaving eleven. "I should have pulled the string when there were twelve inside," he thought, "but maybe if I wait, he will walk back in." While he was waiting for his twelfth turkey to return, two more turkeys walked out. "I should have been satisfied with the eleven," he thought. "If just one of them walks back, I will pull the string." While he was waiting, three more turkeys walked out. Eventually, he was left empty-handed. His problem was that he couldn’t give up the idea that some of the original turkeys would return. This is the attitude of the typical investor who can't bring themselves to sell at a loss. They keep expecting the stock to recover. The moral is: To reduce your stock market risk, stop counting turkeys!

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Iphone 4 Review: First Impressions Good, but some Drawbacks

I just picked up my Bell Canada Iphone 4 yesterday and although I haven’t had it for a full 24 hours, I put it through some rigorous testing last night and thought I’d jot down some of my first impressions. My first thoughts are this is one seriously cool phone but it has some drawbacks. I’ve summarized the pros and cons below.

The Good
Easy to use and set up, and lives up to the hype with all the features like camera, video, Ipod, music store, Apps, WiFi, etc etc.

The Bad
Doesn’t sync with MS Exchange Notes and Tasks, small screen & fonts hurt the eyes, lack of customization, lack of horizontal view and spellcheck in many apps, online music store is limited, no auto-on feature(?), ringtones are limited (and expensive to buy), no default calendar reminders (a minor point), surfing the web is tricky sometimes, no Adobe Flash, and of course typing on it will make you crazy!

(By the way, I should say that I ditched an old Blackberry for the Iphone, so I'm sure some of my experience is related to the switch of platforms. I would also consider myself an average “business” user. While this review may focus on the negatives, I haven't focused on the positives because these are well covered in the media and the phone delivers as advertised.)

Out of the box it is a really cool phone: very small and light, bright screen, and sleek lines. In fact I was surprised by how small the box itself was. The woman asked me in the store if I was excited, and I must confess yes, I was like a little kid at Christmas. It’s silly that one phone can generate this much hype but of course because the phone is so hard to get it makes it even cooler! (I have been trying since launch date in Canada and was on the waiting list for the last 2 weeks). Mostly it lives up to the hype and I was impressed how easy it is to use and setup. I was expecting that it would take me a few days to get it set up but it only took a few minutes and then I could actually get down to the business of using it.

My first disappointment came when I discovered that it won’t sync with MS Exchange Notes and Tasks, which is something I use frequently. I will need to develop a work around for this. Email, calendar and contact were a breeze to sync with MS Exchange server and our IT guys set this up quickly. Another small complaint I have is the default calendar reminders – when you set up an appointment on the iphone there is no option to allow a default reminder and you have to set one up as another step in making an appointment. Also, the minimum reminder is 5 minutes, where on Blackberry I often used the 0 minutes reminder for some appointments. There is also no "snooze" function on calendar reminders. Minor points but will take some getting used to.

Of course typing on the phone is a pain, but I don’t need to elaborate and people say it gets easier. It is especially difficult though through the setup because many WiFi keys and passwords can be quite long with upper and lower case letters and numbers and they must be typed in exactly or they won’t work. Once I got through that everything else was pretty easy. I went onto the Itunes store and made some purchases – it was easy and then later synced to my computer easily. Surfing the web is such a different experience on the Iphone over Blackberry. It was generally very good, although because the text is so small it makes reading tricky. When I blow up the web page by pinching the screen, it then requires scrolling back and forth, and in many cases I end up selecting the banner ads by mistake when I do this (which then opens up a new window.) I think that will get easier to use over time.

My biggest complaint is the small screen and fonts. After heavy use last night testing it, my eyes are really strained. I hope this gets better because I don’t want to keep the device if this continues. I should add that because I work for long hours in front of the computer my eyes are sensitive anyway, and anyone who has looked at home theatre equipment can appreciate when I say that DLP projectors also hurt my eyes.

No Adobe Flash is a pain also, as the sites where I watch TV all use Adobe Flash. This was no surprise, but it was still disappointing to get the pop up message from Adobe saying “Apple doesn’t support our technology”. Get it together people!

Lack of customization – maybe I’m just being picky, but on the Blackberry nearly everything is customizable, such as different ringers for different message types or volume levels, etc etc. The Iphone 4 is great because it is so simple and most of the pre-set settings are the ones you want, but sometimes I’d like to be able to customize things a little more. It will take some getting used to. (or maybe I’ll look into jailbreaking!)

The online music store is limited. This was especially apparent in the ringtones and TV sections. It was easy to find the Top Ten ringtones or TV shows, but then to scroll through categories was frustrating and in some cases brought up empty categories. It seems I will be surfing the music store on my PC and then syncing from there as the selection is much better.

This next point will make you think I’m stodgy. I wanted to pick a “normal” ringtone, but the only one available is the old style telephone ringer and I know many people in my office who use that already. Most of the ringtones are fun, but not really suitable for a business setting. Not to mention, $1.29 to buy a 10 second ringtone? I can buy a whole song for $0.99 - how do you spell profit?

Perhaps I’m nitpicking over some things, but the lack of horizontal typing and spellcheck in many apps is a pain. I’m not sure when I can use the horizontal screen and when I can’t, so I’m always rotating the device and waiting for the display to turn but sometimes it doesn’t. Because the typing is so tricky I wait for the auto-correct to kick in but many times it doesn't either. I'm sure that will improve over time.

Lastly, I should say that I set the alarm to go off this morning but the phone was off and so the alarm didn't go off. Maybe there is a way to turn it on with the phone off, but I couldn't find it. Blackberry allows you to set the auto on/off feature for the phone. I will keep playing around with this. At least you know with the Iphone there are enough online forums out there I'm sure I can't be the only one with these issues.

That's it in a nutshell as far as first impressions go, so hopefully this is helpful. Overall it's a great phone and I will probably keep it, although it does take some getting used to!

Keywords: iphone4 review, blackberry, iphone 4

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Nature Sells

from the Economist:
Discovery has been churning out shark programmes for 23 years. Yet ratings are sound. Nature sells. Indeed, it is one of the best businesses in media. Discovery Communications, which also owns Animal Planet, TLC and a few smaller channels, made a profit of $372m in the second quarter of this year. That is about as much as the film studios of Fox, Paramount and Warner Bros put together.

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Quote - Bad Bonds/Prices

"There are no bad bonds, only bad prices."
-anon

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Small Cap Death Trap

Here is a picture of how to lose a lot of money as a small cap investor. The following chart (stock name not important) shows a stock that has been drifting for some time and has consolidated in the $0.95 range. Then the stock starts to break out, trading up to $1.09. It looks like the rounded bottom pattern has played out and the stock is back on an upward move. To the contrary, within 4 trading days, the stock trades down to $0.70, a 35% downward correction. What is more painful is that on the way down, the stock appeared to find support at $0.81, only to fall by another 13% the following day! Once the stock trades down to $0.68 many investors will then decide that this has changed from a short term trade to a "long term hold". Investors in at higher levels (around $1.40) have seen a near 50% loss of capital. The unforgiving rule of percentages is that it takes a 100% gain to get back to even. Ask yourself if you would be a buyer of the stock at these levels. Sometimes it's better to cut losses and move on. As to why the stock fell, who knows: maybe a large aggressive seller or concerns about the business fundamentals? It's a painful experience and I have been there before (thankfully not this time). As to how to avoid it this is a tricky one. Maybe monitor for big moves and put the stock on high alert once this happens?

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Apple vs. Microsoft

Apple market cap: $213b
Microsoft market cap: $260b

when will we see Apple take over MSFT???

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