The Egan Fund

2011: Let's All Try to Forget It

2012-01-08T15:40:00.005-05:00

I had a horrendous 2011. The Dow was up 5.5% for the year, but I was down a staggering 27.5%. Without AgFeed, I still would have been down 14.9%. I sold my AgFeed position at the end of August for $1.012 a share. It stopped trading in December at $0.39. There's now a class-action lawsuit against AgFeed, but unless they're insured against the losses, I doubt I'll see anything. Well, it sucks, but better men than me have been burned by sketchy Chinese equities. See: John Paulson.

I've plotted my returns since 09/30/2008 against the Dow 30, above. I was outperforming the market from March of 2009 to March of 2011, but I've since eaten it. There's a lot of risk in my portfolio, so I can wait on a rebound, but I may have a really weak porfolio. I'm not getting rid of my casinos and my only winner has been the Pimco-managed bond fund (NYSE:PHK). I bought additional shares of Bank of America at $6, which will probably bite me in the end. The graph below plots my excess returns (the difference between my performance and the Dow's). If the graph is positive, I'm beating the Dow and if it's less, I'm underperforming. Proof I suck. I'm learning a lot in my Master's program, so when I'm less busy at work, I hope to revisit my portfolio and fix its weaknesses. Until then, I'm just praying for a rebound.

WHOOSH!!!!!!!!!!!!!!!

2011-08-02T19:41:00.003-04:00

Stupid Investors: So, how was your Q2, guys?

AgFeed, Industries: Not good.

Has AgFeed Turned?

2011-07-24T19:32:00.005-04:00

Since June 10, 2009, AgFeed has been losing value. It's been more or less a straight shot to $1.00 from $7.96 a share. That's an 87.4% loss for anyone keeping score. So, imagine my surprise when this past Friday, it closed 82% above its May bottom.

My AgFeed position, when fully purchased, was 26.6% of my portfolio. The losses have been huge, and single-handedly responsible for my weaker 2010 and 2011 performances. Since January 1st, the Dow has risen 9.5%, yet my YTD returns are -4.3%. If AgFeed was only worth what it was on January 1st, I'd be up 3% YTD. So AgFeed's performance has lowered my whole portfolio's returns by 7.3%. However, I haven't sold it because I don't buy the valuation. At its bottom, its equity was worth $52 million. Bananas. So it looks like it could finally be turning, but I'm too scared to do what I want to do: sell everything I own and load up on AgFeed. This week, while I'm not actually working or in class, I'll be watching the market.

LVS purchase

2011-04-01T11:11:00.002-04:00

I bought shares of Las Vegas Sands at $41.79 with all of my remaining cash. That puts quite a large part of my portfolio in Vegas (and Macau).

I've chatted up my Corporate Finance and Investments professors and found that they're both holding cash. Almost entirely. They're very pessimistic about the future. And both wrong. Hopefully.

End of 2010

2010-12-30T19:01:00.002-05:00

Going into the end of the year, I'm holding:

21.68% of my portfolio in shares of PHK at a cost basis of $11.94 a share; 17.89% FEED at $3.99; 28.98% MGM at $10.16; 13.60% BAC at $14.80; and 17.85% in cash.

As of 12/30, I'm down 10.26% on BAC and down 32.55% on FEED. I'm up 5.11% on PHK, although I bought it for the 12% dividend, and I'm up 45.89% on MGM.

Happy New Year!

PHK

2010-12-16T21:15:00.001-05:00

Bought 167 shares of PHK at $11.94. It's up 5%+ in a few days, but I'm holding it for the dividends. At $11.94 a share, it's paying 12%+ a share in dividends, annually. And I love that it pays out monthly. PHK is an ETF, the first one I've purchased in my discretionary account, but unless this thing goes to $14 a share in the short-term, I'm a long-term holder.

VMW Sold

2010-11-04T20:04:00.001-04:00

I sold my shares of VMWare today at a 90% gain. It'll be a long-term capital gain on my taxes, just barely. I'm holding 40% cash as the market is at a 2 year high and I'm not sure where we're headed in the short-term. There's enough return and risk in my AgFeed, MGM Resorts, and Bank of America.

Verizon Sold

2010-10-11T19:06:00.003-04:00

I had originally bought my shares of Verizon for the 7% dividend. I checked the other day (October 5th, the day before ex-dividend date) and I was up more than 20%, so I sold my entire position. I figured it was like getting three years of dividend payments early, so I got out. I'll wait to see if it falls a bit post-dividend (maybe not now that the iPhone is officially coming to Verizon's network).

Financial Accounting & Grad School

2010-10-03T07:33:00.003-04:00

I'm applying to MSF programs right now and I'm getting pretty excited about the prospect of going back to school. I've chosen two part-time programs and one full-time program, although my preference is to keep working. I took a look at some of the prerequisite courses for the Carroll School of Management's MSF program and I need to have taken Financial Accounting before I can start. I requested a FA textbook (Weygandt, Kieso & Kimmel, 2nd ed.) from the Minuteman Library Network yesterday. I'll just read through it on my own and then test out of the requirement. I'm actually pretty jazzed about learning financial accounting since I've been trying to read through financial statements for 2 years now without any idea of what I'm doing. I've been piecing it together as I go, but it'll be nice to have some direction.

I'm up 8% YTD 2010. I hit a high for the year at the end of April, when I was up 30%+. Actually, in just the first few days of 2010, I was already up more than 8%. I didn't try to guess at the highs, but I've been putting more money in at the lows. I doubled the amount of money that I've contributed to my portfolio, so being up 8% now, versus 8% at the beginning of 2010, is a much larger number.

More invested -- Aug 27, 2010

2010-09-06T07:19:00.003-04:00

I used my remaining cash to buy additional shares of Bank of America at $12.56. It's now 16.17% of my holdings, up from 3.3%.

Shunning equity?

2010-07-31T11:20:00.005-04:00

From Friday's Wall Street Journal:

By KEVIN KINGSBURY And JOHN KELL

Money returned to long-term U.S. mutual funds last month after investors pulled holdings out in May in the wake of the stock market's "flash crash," the Investment Company Institute said in data released Thursday.

In stock funds, more money continued to be pulled than was added, continuing a trend in which investors haven't consistently added to stock funds even since the market bottomed in March 2009. Outflows, or selling, dropped to $5.41 billion in June from $24.76 billion a month earlier as money leaving domestic funds last month more than offset net inflows to those that primarily invest overseas.

Instead, the bulk of cash going to mutual funds since then has been bond funds. In June, they received a net $20.74 billion, said the industry group, up from $14.54 billion in May. They rose 58% for taxable funds to $18.79 billion but dropped 27% for municipal-bond funds.

Money continues to flow from money-market funds as interest rates for such instruments remain near zero. Outflows rose to $24.15 billion from $22.16 billion, putting the first half's total at $509.27 billion, said the ICI. That compares with outflows of $189.37 billion in the first half of 2009.

Meanwhile, for the latest week, assets in money-market funds jumped $3.57 billion as inflows into institutional funds more than offset a decrease in retail funds, according to the ICI.

For the week ended Wednesday, total fund assets grew to $2.802 trillion, according to the ICI. Earlier this year, the total funds tracked by the ICI dropped below $3 trillion for the first time since October 2007.

Retail funds decreased $2.37 billion, to $980.36 billion in the latest week. Taxable government funds saw $990 million of inflows, putting assets at $173.58 billion, while nongovernment funds had $1.86 billion of outflows, lowering the money in them to $597.07 billion. Tax-exempt funds declined $1.5 billion to $209.71 billion.

Assets in the institutional class were up $5.94 billion to $1.821 trillion. Taxable government funds had $10 million of outflows, putting asset levels at $662.88 billion. Nongovernment funds had inflows of $7.56 billion, moving their assets up to $1.025 trillion. Tax-exempt funds had outflows of $1.62 billion, falling to $133.27 billion.

The original article

Performance YTD 2010

2010-07-31T08:35:00.003-04:00

This is a chart of everything I've held in 2010. Everything I have in my portfolio I was holding on January 1st, except for Verizon. I didn't buy that until March. I've also put additional funds into some of these stocks (AgFeed and Verizon) during the year.

I only have one winner: VMWare. I still don't REALLY understand what they do. I don't need to, apparently. I'm completely emotionally invested in AgFeed. I'll hold it forever if I need to. That breaks two of Jim Cramer's rules. I shouldn't be emotionally invested in any of these stocks and I'm not supposed to throw good money after bad. Take a look at its performance: it's awful! It's lost almost half of its value since January 1st, and I ADDED money to it! What a moron! But I keep going back to the 10Ks and 10Qs and I get excited every time. This stock is going to go stratospheric. I can feel it. All signs point to no, however.

Portfolio Change

2010-07-26T19:38:00.003-04:00

Added some money to my brokerage account. Spent half of it on additional shares of Verizon and I'm keeping the rest in cash.

Verizon ---------------- 24.31%
MGM Resorts -------- 24.07%
AgFeed Industries --- 22.19%
VMWare -------------- 14.48%
Cash -------------------- 11.66%
Bank of America ------- 3.29%

Excess Returns Again

2010-06-27T17:49:00.003-04:00

Excess Returns are under or over-performance against a selected benchmark. For example, if after a year, the Dow Jones (I always use the Dow, but the S&P 500 is probably the better benchmark) is up 10% and I'm up 5%, my Excess Returns are -5%. Below, I've included a graph of my historical excess returns. The blue area is the daily rate, and the red bar represents my average for the whole period (Oct 1, 2008 to June 25, 2010)

My current excess rate is 19.84%, and I'm trying to figure out how much is too much. In the long run, I should only have returns at or near the Dow Jones. If I'm making more than the Dow, than it's only temporary and a correction might be coming. You can see in this chart that I peaked in at least two moments, at around 40% in June of 2009 and at 35% in April of 2010. I held the gains in both cases for less than two weeks. So the question I'm trying to answer this weekend is, how high is too high? If I get to 40% again, should I halve my positions or buy put options? Can I get higher than 40%? Is 30% a better limit? I don't want to bail out of stocks early (see Ford, Tata Motors, US Steel, Dr. Pepper, Leading Brands, Entravision Communications, etc;), but learning how to limit my losses seems like the long-term winning move.

If anyone know anything about this, please post a response and let me know. Thanks!

Thinking about AgFeed

2010-06-26T13:30:00.005-04:00

Found an interesting paper on the Chinese cycle of pork prices. According to this paper, the cycle lasts 42.33 months (on average). Pork prices peaked in the summer of 2008, which puts us at the bottom of that cycle right now. I hope to realize substantial gains between now and 2012. AgFeed, even with pork prices as low as they are, has almost no debt and is still making a profit. Why is FEED so cheap? Am I way ahead of the curve or missing something?

The link to the paper won't work. See: www.prairieswine.com/database/pdf/39650.pdf.

Jim Cramer is Alright with Me

2010-06-25T21:10:00.007-04:00

Jon Stewart may think Jim Cramer is an asshole, but he's alright with me. When I decided to open a brokerage account two years ago, it was his show that I watched everyday and it was he who got me excited about investing. I've read Real Money and Stay Mad for Life and I liked both of them.

I took a look at my excess returns for 2010 and there's some advice that he dispensed in Real Money: Sane Investing in an Insane World to which I should have paid closer attention.

Now, I'm paraphrasing, but Jim said amateurs worry about not making enough money, and professionals worry about making too much money. At first, that statement pissed me off. It seemed like the sort of formulaic advice that's hip right now: take something that everyone thinks is true and just say the opposite. Are you drowning in the sea? Don't try to swim, try to sink! Then, when you get into the details of the advice, you realize they're actually recommending swimming, not sinking. A lot of articles on the internet are set up like this, just to catch your attention. It's bullshit. However, in the context of excess returns, that's actually awesome advice. In May of this year, I had returns 25% greater those of the Dow Jones. That was an aberration. I'm not good enough at investing to sustain returns that high. Had I really understood the advice, I would have either sold out of a few of my positions and held cash, or gone long puts to protect myself against the inevitable correction. Too late on a smart play, AGAIN. Oh well, I have to learn these lessons to get better, right?

Excess Returns and crazy AgFeed volume

2010-06-25T20:55:00.002-04:00

Relative to the Dow Jones, I'm still doing pretty well for the year. Had you invested $100 with me on January 1st, it would be worth $10.00 more than if you had put it in the Dow Jones.

I've also updated the look of the blog. Blogger now has some fancy pants new designs, so expect changes. I ditched the clunky Fidelity widget for Yahoo! Finance's and I'm going to change the program powering my comments.

Yesterday, 313,426 shares of AgFeed were traded. Google Finance lists the average daily volume at 642,000. Today, 4.82 million were traded. I have no idea what caused that. Other US-traded Chinese agri-stocks had similar jumps in volume, but not other Chinese ADRs. An appreciating yuan only helps these agricultural firms, but I don't get the jump. It seems excessive.

Update 06/15

2010-06-15T17:29:00.002-04:00

I hope we can keep this rally going. I was down 7% for the year at one point, from a high of positive 18%. I added money to my portfolio earlier this month and doubled my position in AgFeed. I'm up 9% on that investment so far.

What does it mean to have such a strong rally on low volume?

Some honesty

2010-05-24T20:35:00.002-04:00

I'm not having a good year. My fiscal "Year 1" (October 1, 2008 through September 30, 2009) was pretty good. I had a return of over 21%, easily beating the Dow Jones and S&P. Below is a graph of my YTD returns, "Year 2" (October 1, 2009 through May 24, 2010).
I've been posting my cumulative returns on this blog, so while I'm still beating the Dow Jones since October 2008, I would have been better off since October 2009 if I had put all of my money in an index. In fact, after the 11%+ plummet in the market this month, I'm down for the year.

Obviously, this market correction was an opportunity. After being extremely patient, last Thursday I moved some more money into my brokerage account and doubled my AgFeed position. I bought shares at $3.03, bringing my average cost down a full dollar per share (from $4.98 to $3.98). AgFeed started rallying today on good news out of China, ending the day up 6%+. I think I nailed that one.

Greece did that?!?

2010-05-08T06:30:00.003-04:00

Investor A: "Good G-d! What is that unbearable whooshing sound?"
Investor B: "That's the stock market plummeting past us."
Investor A: "Was it pushed out of a window? It's falling so fast!"
Investor B: "It may have been, ask those guys over there."

CEOs of the Nasdaq and NYSE point accusingly at each other

I guess the past six days made for a useful experiment. I had previously estimated that my portfolio had a beta of 2. If the Dow Jones were to rise 1%, my stocks should rise by twice that. So now that the Dow Jones has dropped more than 7% in the past six days, my portfolio has fallen, as expected, about 14.5%. Math high five!

MGM asploded!

2010-04-09T18:24:00.005-04:00

Thanks to my sizable position in MGM Mirage and its spectacular week (up nearly 23%), I'm up 10.43% in 5 days. Over the same 5 days the Dow Jones has risen 1.3%.

Only five mutual funds tracked by Morningstar have outperformed me this year: Birmiwal Oasis, Profunds Banks UltraSector Inv., Fidelity Select Banking, Rydex S&P SmallCap 600 Pure Value C, and Fidelity Select Transportation.

Now, all I need is for pork prices in China to stabilize.

Revised Alpha

2010-03-27T13:40:00.003-04:00

My last calculation relied on an insufficient dataset. I took weekly returns instead of monthly ones, and found my alpha to be 0.61% (which includes the risk free rate of 0.16% or whatever), and my portfolio's beta to be 1.91.

Calculating Alpha

2010-03-21T18:32:00.007-04:00

Using 0.16% as my risk-free rate of return for March, I was able to calculate 18 months' worth of my excess returns. I found these by calculating my monthly rates of return (geometric returns for months in which I added money to my brokerage account) and then subtracting from those totals the rolling 3 month T-bill rate. I plotted the Dow Jones' excess returns against my own, and then took a linear regression to find the Security Characteristic Line. The y-intercept of that line is my portfolio's alpha. It's around 2.5%. So, 2.5% is the value of my active management. In an efficient market, the y-intercept should be at the origin, implying an alpha of zero. This is because in an efficient market, there is no value in active management. Everyone is perfectly rewarded for the amount of risk taken. Having a positive (or negative) alpha means that my portfolio is earning 2.5% in excess of what it should be, given my level of risk. I'm not sure what an industry average alpha looks like, but it should trend toward zero, if markets are efficient...

Update 03/14

2010-03-14T12:53:00.009-04:00

I'm quite disappointed with my performance. I mean, I've done pretty well, but I don't think I'm a stock-picking guru. I'll have to look for proof of my genius elsewhere.

I've been invested for a year and a half now, and my geometric return is 20%. 6 months ago, however, I was up more than 40%. So, I think my market timing was good, not my ability to pick stocks. For comparison, the DJIA is flat since October 1, 2008. If I hadn't sold anything after my initial purchases in 2008, I'd be up 178%. I was holding a stellar portfolio of Ford Motor Company (up 662% since mid-Nov 2008), Tata Motors (up 444%), and US Steel (up 84%). I also had three duds: MGM Mirage (down 22%), Bank of America (down 29%) and Freddie Mac (down 31%). I also would have avoided paying short-term capital gains in 2009 if I had sat tight. Not my best ideas.

For the year-to-date, I'm not doing so badly. I just checked Morningstar and the best performing funds of 2010 are two Fidelity Select funds, with returns of around 18.70%. The average YTD return for the 16,384 funds that Morningstar tracks is 3.27%. I'm up 13.17%. So, I'm killing it. But, my 1 year return is 129%, and that doesn't look so impressive when compared to the top ranked fund on Morningstar.com, which has a 1 year return of 241%. Again, had I kept my original portfolio, I would have outperformed every single professionally managed mutual fund tracked by Morningstar. That would have been pretty spectacular.

Here's my assessment of my risk: MGM Mirage might go bankrupt. The company has $13 billion in debt, and while its management has reached an agreement to extend bond repayments by 2 years, Las Vegas is still down and out. Convention bookings are up, but room rates are very low. VMWare is profitable and growing, but Microsoft is going after its virtualization business. I don't understand the technology well enough to say whether Microsoft will be able to grab market share or not. I can't even read Bank of America's balance sheet. I'm just praying that it'll be able to turn its business around. Investors hate China. AgFeed just had a great year, but you wouldn't know it by looking at its stock price. It bounced 20% on Tuesday and steadily lost value over the rest of the week. I've very positive on the company, but there's going to be prolonged weakness in Chinese pork prices. Especially now that China is opening up its market to North American exports again. Profitability will be low. Verizon is my rock. I've got my 6.5% dividend, and Verizon has the cash flow to sustain it.

Verizon purchase

2010-03-05T20:42:00.003-05:00

I finally feel like an investor and not like a speculator. I bought common shares of Verizon today, making my portfolio 17.25% Verizon, 36.7% MGM Mirage, 25% AgFeed, 15% VMWare, and less than 6% Bank of America. The Verizon investment is practical. The company is paying a 6.5% dividend and that's better than anything I can find in the money market. AT&T is going to lose its exclusive right to sell the iPhone and Verizon has the better network. I see long-term capital appreciation, and a good dividend until then. Isn't that the way you're supposed to do this?

Plus, Verizon still owes me $260.00 and I'm going to get it one way or another.

Returns to 02.12.10

2010-02-15T07:44:00.008-05:00

I'm still holding shares of AgFeed Industries, MGM Mirage, Bank of America, and VMWare. I've moved some more cash into my brokerage account (on the chart above, every time there's a break in my returns it's because I added cash to my account) and I'm thinking about correlation. Diversified I am not.

Geometric return since 10/01/2008: 14.06%. A geometric return corrects for money withdrawn or deposited over the life of an investment. So, if you had given me $100 to invest for you back in October of 2008, it would be worth $114.06 now. If you had invested that $100 in a Dow Jones index, it would be worth $93.24. Although, as you can tell from the graph above, I haven't really made any progress since June.

VMW 4Q

2010-01-25T20:01:00.004-05:00

I can't wait to get to work tomorrow and listen to VMWare's 4Q 2009 conference call. Up 18% in after hours trading, VMWare killed it this quarter. In the worst recession since the 1930s, revenues are up 8% YoY!

The rest of my cash

2009-11-18T18:45:00.004-05:00

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

2009-10-31T16:44:00.002-04:00

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

2009-10-03T10:27:00.001-04:00

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

2009-09-27T17:55:00.003-04:00

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

2009-09-18T19:30:00.004-04:00

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

2009-09-18T19:25:00.002-04:00

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

2009-09-12T14:42:00.003-04:00

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

2009-08-07T18:06:00.002-04:00

$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

2009-08-05T18:49:00.002-04:00

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

2009-07-20T18:26:00.003-04:00

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

2009-07-12T10:41:00.003-04:00

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

2009-07-11T18:31:00.002-04:00

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

2009-07-03T07:27:00.003-04:00

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?

2009-06-27T11:09:00.003-04:00

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

2009-06-27T09:38:00.003-04:00

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

2009-06-26T18:40:00.003-04:00

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

2009-06-24T18:34:00.003-04:00

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

2009-06-21T10:17:00.014-04:00

***********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

2009-06-20T18:30:00.004-04:00

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

2009-06-19T13:44:00.000-04:00

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

2009-06-12T08:51:00.000-04:00

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

2009-06-05T08:52:00.002-04:00

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

2009-05-31T08:55:00.000-04:00

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.

2009-05-30T08:56:00.000-04:00

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.