The rest of my cash

I spent my remaining cash on shares of MGM Mirage two weeks ago. I bought in at $10.99.

My fiscal year runs October 1st to September 30th, because I bought my first shares on October 1st of 2008. My first year's returns were 27.7%. It'll be tricky to calculate my returns for Q4 2009 because I added funds to my portfolio in October. I have to figure out how I want to handle the accounting for that...

Reading material

I picked up Warren Buffett and the Interpretation of Financial Statements by Mary Buffett & David Clark, as well as Security Analysis by Ben Graham and David Dodd. I got through Warren Buffett's ex-daughter-in-law's book pretty fast and now I'm poring over financial statements. Definitely out: Starbucks, Nexxus Lighting, Citrix Systems, Echelon Corp, Itron Inc, and Ambient Corp. Still looking at VMware, Microsoft, AgFeed, Google, Apple, EMC, Cisco, Qualcomm, and 3Com. I think I'm happy with my positions in AgFeed and VMware, but I don't really know. I can't read the financials well enough yet.

Obviously, my portfolio took a big dive after the past few days. The Dow was down 250 points on Friday if you missed it. I'm really excited about the opportunity to spend the rest of my cash.

VMWare

Bought 16 shares of VMWare. Thought I needed a tech. What started with Indian BPOs ended with this company, which makes virtualization software. I'm sitting on $1450 in cash now, but I really want to plow it into AgFeed.

$2,100 in cash

I moved some more money into my brokerage account and now I'm researching new buys. I think I need a tech and something less speculative. However, I've been looking at Indian ADRs all weekend. ICICI bank seems like a safe play, but where's the money at? Patni, Satyam?

Versus my benchmark

My returns in 2008 were -9.5%, versus a drop in the Dow of -19.12% over the same period (Oct. 1 to Dec. 31). My YTD 2009 return is 45.91%, versus 12% for the Dow Jones.

I'm an anti-genius

I thought that a 45.91% return for 2009 was pretty good until I calculated what my original portfolio (of Ford, Tata Motors, US Steel, MGM Mirage, Bank of America, and Freddie Mac) would have been worth today. If I hadn't sold or bought anything after November 11th of last year, my portfolio would be up 86.63%. Even more than that actually, because I've spent somewhere between $150 and $200 in broker fees.

Ugh.

Tire Tariff

Obama has approved a 35% tariff on some imported Chinese tires for the next year. It'll fall to 30% in 2011 and to 25% in 2012. I think the tariff isn't a sop to unions either. It's the right move because China's neomercantilist policies are destroying manufacturing in the US. Until China allows for a level playing field, it's the administration's job to punish. However, I acknowledge that all nations do what China is doing. If the US believed in a level playing field, it wouldn't have bailed out GM, Chrysler, AIG, and whoever else. Or subsidize farming to the extent it does. If China pours cheap loans and favorable tax benefits on certain industries, it's the same thing and both are unfair. I won't be surprised when China adopts counter-measures. And they'll be justified in doing so.

Ugh. I don't want to see the stock market on Monday.

Bought MGM

$500 at $8.37. If there's a big pullback, I'll go for another $500. I'm so pleased with my Nepstar sale. It shot up 12% today. Brilliant. Bought and sold Entravision and Leading Brands right before their doublings, and I'm into AgFeed for half of my portfolio and it's losing value so slowly that I can't force myself to dump it.

Sold NPD

Sold all of my Nepstar position this morning at $6.18. Not sure if I should wait for a pullback before buying something else.

140 shares of NPD

Bought China Nepstar (NYSE:NPD) this afternoon at $5.25 a share. I should have bought back when I originally recommended it at $4.45, but oh well.

What changed my mind was the healthcare reforms that China is in the process of passing. For comparison, about 70% of the profits generated by American retail pharmacies (Rite-Aid, CVS, Walgreen's, etc;) come from drug prescriptions. In China, the hospitals run their own pharmacies. These generate a lot of cash for the hospitals, but people are upset at the apparent conflict of interest. So, China is passing some reforms that will move a lot of these prescription drugs to retailers like China Nepstar. There will still be "essential medicines" that the hospital will carry, but the business is changing. I bought these shares as a long term investment. Nepstar is still a growth stock, and I believe they can open thousands of new branches like they want to.

Thinking about Vegas

Las Vegas will rebound from this recession. It will. I can promise that. But when?

The chart above is of the Las Vegas Convention Authority's visitor statistics for the past 5 years. There was some growth between 2005 and 2006, but hardly any from 2006 to 2007. This chart also shows us when the current recession really began in Las Vegas. June 2008 looks par for the course, but traffic began plummeting in July. According to some, the recession technically began at the end of 2007, so Vegas is somewhat recession resistant. It took an additional 7 months before traffic started to decline.

So, is now a good time to buy Vegas equities? I like MGM Mirage (Jim Cramer favors Wynn) and I bought it back in October at $15.23 a share. I lost more than 50% on it when I got rid of it last month. But now it's trading below where I sold it, and when the market changes direction again, I'm quite sure it will benefit.

Usually Vegas sees a slower February than January, so it's a good sign that February this year was the stronger. That must mean that we're coming up off the lows, right? The dip in traffic that normally happens in April was also more mild. If we're going to see some benefits from the stimulus package in the second half of 2009, and growth in 2010, isn't this the time to buy in? There was a real threat of bankruptcy until recently, but MGM's accountants have removed their qualifications from financial statements, and now it looks like MGM will survive. MGM has fully financed CityCenter and it will open in December. How will all that new capacity affect rates? How soon can the casinos raise their rates back to 2007 levels? Ugh. It's all speculation. But that's where the real returns are located.

Portfolio Update 07.11.2009

I'm still losing money. The portfolio was down 6.88% this week. AgFeed was losing money until Thursday --- 10% jump on Thursday; 4.5% on Friday. It's currently trading at $5.02, down from a recent high of $7.71. It fell to $4.13 a share on Wednesday and it made me question my decision to ever buy any. Mistake. That was the moment that I should have spent all the available cash I have on more of it. I need to make some sort of decision this weekend and be invested when Q2 earnings start rolling in.

I've been looking at Entravision, MGM Mirage, Satyam Computer Services, and Mahanagar Telephone Nigam. I've ruled out Mahanagar but I'm unsure of what to do.

Portfolio Update 07.03.2009

I've lost money for a fourth straight week. There was a 2.6% drop in the Dow on Thursday, which I largely avoided. Since panic selling most of my holdings on the 17th, Leading Brands (NASDAQ:LBIX) has taken off. I bought 1,150 shares at $0.1899 and now they're trading at $0.59. I missed a 210% return on that one. The catalyst for the movement was Leading Brand's Q1 report, which had the company profitable for the first time in years. MGM has lost money, US Steel has lost money, Dr. Pepper is up, Boardwalk Partners is up slightly, and Entravision is down a lot. It looks increasingly likely that Entravision will have to file for bankruptcy. 40% of my portfolio is still in cash, so I'm just going to wait.

This chart uses January 1st (not October 1st) as its base, so my return appears to be 30%, but since I began investing it's actually 18%.

WTF Does TheStreet.com know anyway?

I just checked out TheStreet.com's analyst report on AgFeed. Absolute crap. They rate it a sell. Well, what do they know? Let's look at their record with this stock. They recommended holding it at its peak of $17.02 until it bottomed, and then changed their recommendation to a sell right before it shot up 700%. Nice work TheStreet.com. I'll give your recommendation the consideration it deserves.

Chinese Pork Prices

I'm going to assume that only I read this article about rising pork prices in China. According to AgFeed's most recent quarterly report, its hog farms were responsible for 70% of its revenue. Pork prices are *very* important to where this stock is headed.

Portfolio Update 06.26.2009

Didn't alter my holdings at all this week. Dow Jones was down 1.187% from its June 19th close. I'm down 2.281% over the same period. It was a good call to move so much of my portfolio into cash. I should have done it a week earlier, but whatever.

I'm confident in Chinese growth, so even if we've moved into a bear market I'm holding AgFeed. I'll do some research this weekend, but I don't plan on buying or selling anything next week.

Prognosis: correct. Reasons: wrong

Nepstar has taken off since this past weekend. You could have bought a share of Nepstar on Monday morning for $4.45 and it closed today at $5.37. Up 21% in three days. Not bad.

Of course, I didn't recommend buying it. I took it all back at the last minute. The reason was that the first quarter's earnings and net income were below where I thought the lowest possible point existed. The reason is obvious, but I dismissed it at the time. The majority of Nepstar's drugstores are in Guangdong province. That's one of the wealthiest regions of China because the lion's share of China's exports are made there. So it has been hit especially hard during this recession.

But, that apparently doesn't matter. Up 21% in 3 days. I missed that boat. Too bad.

China Nepstar

***********READ THIS WARNING!**************
This is a post I wrote this morning, before listening to the first quarter's conference call and reading the quarter's financial report. I now take back what I am about to say. I think it's important to post this for everyone to see, because I was wrong. I was blinded by what I thought was a sure thing, but I want everyone to search for where I went wrong. Feel free to post a comment if you figure it out.
**************************************************

China Nepstar Chain Drugstore, Ltd. (NYSE:NPD) is trading at $4.45 a share and, in my most humble of opinions, that's cheap.

China Nepstar is the CVS of China. They operate 2,907 of China's 315,000 drugstores (as of December 31, 2008) and that makes them the largest direct operator in China. So just like hog producers, pharmacies operate in an extremely fragmented market. The largest chain of drugstores is just 0.8% of the market. Not 8%, but 0.8%.

I'm not actually recommending China Nepstar, because I would feel terrible if I told anyone to buy a stock and it lost money. All I'm saying is that when Monday comes, I'm probably going to buy a bunch of it.

I have a legal pad in front of me and I just made a long list of reasons why I like this stock and a list of questions I have about the future. I'll get to that in a minute, but here's what is most important:

This is a chart of Nepstar's sales in the past 3 years. Sales growth in 2007 was 12.8%, and in 2008 it was 22.6%. Now, China won't grow in 2009 like it did in 2008 or 2007, but it's NOT shrinking. The economies of the US and the rest of the industrialized world are shrinking, China's is not. I don't know what revenues will look like in 2009, but my instinct is that they'll be higher than 2008's. So consider this:

This is a graph of Nepstar's net income for the same years. Net Income as a percentage of revenue was 0.8% in 2006, 7.6% in 2007, and 8.1% in 2008. Net income as a percentage of revenue is increasing. Even if you assume Nepstar will be no more profitable in 2009 than it was in 2008, income will still rise if revenue does. Nepstar's shares are currently trading at $4.45, implying a market cap of $463.45 million. According to Google Finance, the P/E ratio is 19.72. If you divide the market cap by the P/E ratio, you get expected earnings for 2009. The implied earnings are then $23.5 million (159 million CNY) . I included this number in the graph above as 2009's net income. Now, (as Barack Obama likes to say) let me be clear: the stock market currently thinks income in 2009 is going to be that much lower than 2008's. China is projected to grow at 7.2% this year. Nepstar has no debt, $175 million in cash and equivalents, plenty of growth opportunities, and it's revenues and net income are rising. The stock market is projecting a reduction in net income by 17%. If you think Nepstar WON'T shrink by that much, then the stock is currently cheap and you just have to wait for everyone else to figure that out.

I think this will jump 30% in the immediate future (it was trading at $5.81 a month ago), but then go much higher as we get some sense of what revenue and income look like. Obviously we're talking about a Chinese company though, so the risks are redonkeylips. I can't even imagine what could go wrong with this company in the next year.

Again, anyone who buys a stock on someone else's recommendation without even reading the 10-K (or 20-F in this case) is a buffoon.

Developing Asia

I'm only looking at stocks that do a majority of their business in Asia. The IMF just upgraded its growth target for the US this week. It expects the US to contract at a mere 2.5% this year, and show scorching 0.75% growth in 2010. Meanwhile, the World Bank expects China to grow at 7.2% in 2009 and even faster in 2010. It doesn't take a genius to see where the opportunity lies. I'm thigh-deep in AgFeed after another 150 shares this week, and now I'm looking at Chinese ADRs with good balance sheets. My take on China Nepstar (NYSE: NPD) to follow.

Portfolio Update 06.19.2009

I took a hit along with the rest of the market this week. The Dow Jones fell 2.13% on Monday, 1.25% on Tuesday, 0.09% on Wednesday and 0.19% on Friday. It was up slightly on Thursday, but the week ended 260 points lower than it opened. That might not seem like a lot, but it is. I hemorrhaged money until Thursday. I rebounded a bit, even making money on Friday while the market was down.

I dramatically changed my portfolio on Wednesday. I think it was emotional buying (I lost $235.19, $45.32, and $217.92 in the first three days of the week), but I got rid of everything but my AgFeed and Bank of America. I was down quite a bit on my MGM Mirage, but everything else was either slightly higher or lower than when I bought it. I think I made money overall, but I consider it a wash (even after trading fees). AgFeed fell more than I ever imagined it could, so after freeing up $2400 in cash, I moved another $900 into AgFeed at the depressed price. My average cost is now $4.98 a share and it closed at $6.24 on Friday.

This bull market might be retreating, so I'm keeping $1,500 in cash right now. I'm going to wait and see what the market does.

[[[Holdings: 20 BAC; 315 FEED]]]

Portfolio Update 06.12.2009

The major American indeces were flat for the week (06.08-06.12) and so was I. The Dow Jones just turned positive for the year which the personalities on CNBC were excited about. Big deal. Mumbai and Shanghai are up more than 50% over the same period, and Hong Kong is up 31% since January 1st.

Over the same period that the Dow Jones managed to break even, I'm up 45.6%. Eat it.

[[[Holdings: 15 X; 25 BWP; 20 BAC; 35 MGM; 28 DPS; 400 EVC; 1150 LBIX; 165 FEED]]]

Portfolio Update 06.05.2009

I'm up almost 33% since October 1, 2008.


AgFeed was a great idea. I'm up 66% since I bought it May 12th. Pork prices have bottomed in China, so even if these shares hit a rough patch, I think they have farther to go.

I'm going to sell my shares of Dr. Pepper when they approach $24. That was Goldman Sachs' price target when I bought them.

I told Daniela that I was going to move a bunch of money into Entravision (EVC) when we see Chrysler and GM ads on TV again. Advertising from auto companies makes up 20% of EVC's ad dollars. So when both of those firms begin spending on advertising again, I'm going to reshuffle my portfolio.

Portfolio Update 05.31.2009

I took a little spill along with the rest of the market on the 13th. I've since rebounded. I bought 165 shares of AgFeed on the 12th for about $4.50 a share. On the previous day, I bought 25 shares of Boardwalk Pipeline Partners and on the day before that, I sold all of my Freddie Mac holdings at a significant loss. I'm up 18.67% since October 1st.

AgFeed Industries, Inc.

My largest holding right now is of Agfeed Industries (NASDAQ: FEED). It's an American firm and the largest independent producer of hogs in China. I'm tempted to liquidate everything I hold and just load up on it. The last time I had this crazy urge, MGM Mirage was my target, and it was trading under $3 a share. It hit a peak of $13 a month and a half later. Needless to say, I never put all of my money in MGM. I probably won't put more money in Agfeed either. I don't have the stones for that much risk. But I acknowledge that if I ever want to get rich investing on my own, moves like this will be necessary.

So, Agfeed has two market segments. They produce premix feed for pigs (farmers combine premix and different sources of protein to feed their pigs with) and sell it in independently-owned chain stores (pictured below) and directly to larger commercial farmers. As of December 31, 2008 they had 1,000 chain stores (which sell to small, backyard operations) and 660 commercial farm customers.


The feed business has been good (prices are currently high), but they've recently expanded into hog farming. AgFeed wants to raise 2,000,000 pigs in 2010, and they are now the largest producer (with less than 0.3% market share!) in a country that consumes 600,000,000 pigs a year. So, the market in China is very, very fragmented. I think China is going to move toward larger, consolidated producers like those that exist in the West. One reason is that larger farms are more efficient and in order to feed a rising China, increasing output will be essential. Another reason is that with the passage of China's new Food Safety Law (it comes into effect June 1, 2009) unsafe backyard operations could be shut down (assuming Chinese authorities don't use the law to drive foreign firms like AgFeed out of business). China's recent food scares (melamine in baby formula, etc;) have caused consumers to trust backyard production less. Just like in the West now, Chinese consumers will need brand names they can trust. As AgFeed is already a large producer with brand names, it seems like they're poised to do quite well.

AgFeed's financial statements look good too, but don't take my word for it. Here is their 2008 annual report.

China will demand more meat as it becomes wealthier (pork makes up 65% of the meat consumed), so even in a market 6x larger than in the US, it can only go up from here. Hog prices have appeared to bottom recently, which is also great for AgFeed. Growth is what makes me want to get on board though. And the fact that AgFeed is trading at $6, from a high of $19, and its revenue growth is monstrous.