The Stock Market Sucks! (I'm ruined!)

Flying Green Monkey Update

As many of you may recall, I am a savvy stock market investor. (A fool and his money are soon parted.) While I have been quick to decry the get rich quick schemes of others, I have largely kept mum about my own self-directed performance. (I am also about to run an analysis of a tout/Doomsayer in another post, so a little self disclosure is in order.) To be short, I have done about as well as the market itself. This is not really saying anything, since I came in at what seemed to be a near all time high, have sat through a few corrections, and am now about a grand in the hole to five hundred dollars up, depending on what day of the week I peek in on my stuff. (*) I have also collected and reinvested some dividends. Compared to my previous managed portfolio of 20 some funds (I kid you not) I have performed semi-fabulously, which is to say that I did not lose one third of the dividends.  Losing one third of my employer’s kick in was what using experts had cost me previously.

My secret? Put more money into things which are going up in value and don’t put any more money into turds.  But Turds are our topic for this evening. I could go on and on about the things which have done well for me, but (1) they haven’t done that well, (2) these stocks are no secret and (3) good news is far less entertaining.  Through illustrating my less than savvy moves I hope toeducate you away from the thought process used in making them. As you will see, I use the term “thought process” rather loosely. Besides that, I’ve already lost the money so I might as well share in the laugh that has been had at my considerable expense. (*)

Before going on, I should explain that part of my less than windfall results were caused by a sudden spate of ethics which swept over me midway last year. I try to make it a point not to invest in EVIL.  Not that EVIL or SATAN or CANCER are actual stocks, per se, but there are quite a few companies out there whose stock and trade is essentially human misery. So no reverse mortgage firms,  liquor makers or gambling firms for me. But I did drift into Gold Mining and Oil before I became enlightened. Freeport McMoRan is probably not an EVIL stock. Somebody has to mine. They seem to do it as well as anyone. And the rewards as a stock holder were pretty good at one point. It didn’t just pay a dividend, it paid special dividends. It went up, too. My pangs of guilt came from the knowledge that mining accidents are inevitable. Although I am (sort of) sure that the miners themselves are (sort of) fine with the risks of their trade, I became a bit queasy about owning shafts in the ground that occasionally eat men alive. So I booted my holdings in that. My investment in Exxon is a little harder to explain, except that I felt sorry for it. I was also on a Capitalist Pig binge when I bought it. Oil is a worldly thing. I am a worldly person. Why shouldn’t I have truck with those things which make the world move—and profit from those movements? Because you shouldn’t sign up to blow Lex Luthor, that’s why. Oil is about as close to trading in human blood as this world allows for and everything touched by it becomes corrupted.  Lex Exxon sort of lagged the index, so it seemed somewhat less evil. Its only saving grace is that it paid a steady dividend. But oil is evil and even retard oil is evil, so it had to go. Sadly this belated revelation happened too late to save me from…

LINN Energy: This firm is the guy who holds the drool cup under the chin of the guy who blows Lex Luthor. It is an oil stock of some sort, specifically of the sort that buys proven fields from producers and sells the oil at pre set prices to end consumers, such as airlines. Its two essential moving parts are a flow of oil out of the fields and a set of contracts to sell that oil, one assumes at a profit.

*Why I Bought It: The clown with the sound effects on CNBC was touting it left and right, even to the point of having his own “charitable trust” buy in on it and having the CEO on the show to flog it up. The eyewash claim was that market volatility would not effect this firm’s bottom line. They claimed to be “hedged” out into infinity and were pumping out oil that their contracts said they would sell for a profit. And at the time it looked as if we were heading for the illusionary Peak Oil.

*What Went Wrong: Let’s start with the basics. The clown on CNBC actually knows nothing and now has a track record to prove it. His track record wasn’t all that great when I bought in, ether. As an adult with some exposure to the world of finance, I know that the words “hedge” and “Peak Oil” have no meanings except in the imagination. A “hedge” is an insurance policy issued by a party which has an unknown ability to pay off on the loss. As opposed to being an insurance company, the issuer is something like a casino. He’s willing to take bets and he has all sorts of pretty flashing lights on, but heaven only knows what he actually has in the till. “Peak Oil” assumes that demand will rise linearly into the future but that production will never increase again. Beyond that crap sandwich was the official mention of the words “accounting irregularity”, which is Enron for making up numbers. There were some early clues, such as the company never having posted a profit and borrowing money to pay its dividend, but it was paying a monthly dividend and chirping happy talk until right about a month ago when it ran out of money. On top of overvalued oil and mythical promises to pay too much to buy it, the firm was also sitting on a bag of natural gas (earth farts), which for some reason no one will pay them anything for.

*Important Lesson Learned: Oil is evil. Karma sucks hard. This was a disguised play on making money on the suffering of one’s fellow man. Yes, you could become moderately filthy rich if oil stayed at its current price level and more so if gas went to 10.00 a gallon, but only at  a cost to everyone else. Second, whenever anyone says that they have a fortress balance sheet or a portfolio mix designed to weather any storm or are hedged out to cover all contingencies, it means they have taken out some form of poverty insurance—itself a bad investment. And bad mojo, too.  

(Also, if you look at it, there is no real synergy to this business to begin with. Owning oil fields and sales contracts to sell oil creates no efficiencies. Oil still needs to be refined, shipped and discovered. Linn’s reasoning for owning just these assets is that they both amount to slips of paper. The entire business is a file cabinet. They’re in the oil business to the extent that a person who packs tuna in cans is a fisherman.)

Advanced Micro Devices (AMD) I really wanted to buy ADM, Archer Daniels Midland (Supermarket to the World), but I got a fat finger. Besides I had enough of those stupid blue chips and, for portfolio balance reasons, I needed some Tech. Also, I like AMD’s basic product. My limited experience is that AMD chips function as well as Intel’s and at a fraction of the cost. The real story here, however, is Intel’s. Without AMD, Intel would be broken up as a monopoly. Therefore AMD must continue to exist.

*Why I Bought It: It was like investing in the Generals, that team which plays the Harlem Globetrotters all the time. As long as the Harlem Globetrotters are playing, they have to play someone, and that someone is the Generals.   And in the universe of computer chips that may be true. Sadly, the much broader world of micro chips for cell phones, video games, medical equipment, munitions and tablets caught up with Intel and AMD some time ago. In the NBA of silicon slingers for electric things, Intel is just another team, albeit a good one. And AMD, which plays just like Intel, is just a bad team which plays the way another good team does, but not as well.  I also bought in just as the tea leaves were being read on the future of both firms—causing both Intel and AMD to lose ground. Then there was this guy who did a drive by touting of AMD on CNBC, saying that “In two years it will be an $8.00 stock.” It was 4 something at the time. Not that I’ve looked, but flash forward two years and it’s about a buck and some change. I would have been better off buying Burger King---not the stock, the food. At least I would have a mound of loose stool to show for it.

*What Went Wrong?: Besides the above, AMD’s stock had already been manipulated to death by the time I showed up. There may have been a time when AMD mused about issuing more stock to fund some form of expansion. But then the Stock Market people showed up and pumped and dumped it, essentially robbing the firm of any potential for capital infusion. So AMD did what the old time car makers used to do and said “Thanks for the factory” and promptly ignored the fact that they even had shareholders. If you want your money back, find someone to buy us out. In the mean time, piss off. Today AMD survives by executing short runs of products Intel can’t be bothered with. To the computer chip world, Intel is Hershey and Mars and Wrigley, making all the things your computer might want to eat. And AMD does Christmas and Valentine’s Day and Halloween and Easter versions of the same thing, short specialized seasonal runs. It’s enough to keep AMD’s lights on, but forget about a dividend. (There’s never any dividend in real tech. Snobby sniff.) The only people who make money off of AMD are its bankers, who lend and get paid off on a job by job basis. AMD is in the marvelous position of making items which are already paid for, but that’s not really what innovation is about. And tech is supposed to be about innovation, not contract commodity provisioning.

*Important Lesson Learned: Never buy something that is broken. AMD has never paid a dividend and does not ever intend to. It has also never shown a profit. A stock is a portion of a Public Trust company, the purpose of which is to distribute money to the masses. If it can’t do that, it’s not worth owning. I kept this idea in mind when I made my heady investment in…

BeBe: This is a clothing retailer catering to women who aspire to dress like European prostitutes. As opposed to purchasing from designers of high end call girl regalia, they triangulate their own designs based off of (1) what sold last year and (2) trends in what the other designers are offering this year. Through not paying for name designers—and being considered a design name itself—the firm is able to keep its prices firmly at the Stunned But Not Killed Outright level. The firm also sells its clothing through other retailers and operates a discount unit to dispose of overages and mistakes. They have been at this racket for three decades.

*Why I Bought It: I know a lot about this firm. This is a store for second bounce Trophy Wives. These are women who are in their late 30s to early 40s, but who dress like they are in their oversexed 20s to impress (the pals of) their husbands, who are in their late 60s to early 70s. The social dynamics of our times makes this a fairly steady demographic. There is a continual demand for not quite half his age companions for the twice or so divorced nearly semi retired sort of rich guy. Filling this role are a stream of women whose lives have not turned out exactly as they have planned, but who still feel that they can salvage dismal fate. One of the kids (and perhaps an ex husband) is in jail. Several turns at playing office siren has not panned out. The next thing they know they are staring forty and poverty straight in the botoxed face. The options are indeed limited,  Hey, looks fade. And sleeping with something that smells of Ben Gay beats cashing food stamps. Usually marriage is no longer an option and some semblance of swank cohabitation is the norm. Lucky for our prospective BeBe girl, paying out for clothing is something the male semi rich geezer is already conditioned to do—especially if the arm candy’s looks help him look younger.

*What Went Wrong: My understanding of this retailer’s actual shopper is far more on target than the people running the place. They seem to still think they are in the business of dressing real 20 year olds. Like a new owner of an old bar, they’ve done everything they can to alienate their actual regulars. BeBe is now on its second round of new head designers, charged with the mandate of finding what will bring in real 20 year olds (who like to dress like European Prostitutes.) Their problem is two fold: (1) the number of  independently wealthy 20 year old women is microscopic; (2) 20 year old women in general don’t go in for high fashion. What they unintentionally have created is a store geared to selling very slutty prom dresses. Given that this is a one to four times in a lifetime demand (and is geared at the teenagers of the well to do), the overall market is slimmer than your average thong wearer. At some point the firm officially determined that their target person was a woman between the ages of 20-34 who is unmarried and fashion forward, but they never bothered to gauge what this hypothetical person’s wallet probably looks like. It’s the Dress Barn/Old Navy buyer—and she can’t afford anything at Bebe.

Important Lesson Learned: Stocks don’t necessarily reflect the underlying business. BeBe may actually not be dead yet. It has a number of points of survival going for it. Longevity in the near upscale part of the market is a good thing, because it’s rare. The real world demographic for Bebe is the same as for all of the high end shops. They all claim to be dressing thin 20 year olds, when their bread and butter are trophy wives of deeper vintage. The rich will always be with us. Kept women will make a comeback. Right now the near high end dysfunctional dress market is in a shambles. Once the smoke clears, the near rich will go back to throwing parties. It’s the last phase of a recovering  economy. As long as BeBe keeps up its name, treads water, it should be ready to serve those people who blow $300.00 a pop on two wearings outfits. BeBe’s current stock price problems are a result of people having been assigned to follow it. First it went up, because people were finally paying attention to it. Now it’s gone down because the entire segment is down. (BeBe also suspended its previously miserly dividend.) In the worst light, you can say that the store is dead because its founder is no longer active in management.  This is a golden gut business and shrewd operators are hard to replace.  The venue alone, however, has value. As long as they don’t run out of money, they will have time to put nice things in the shop by the time the nice shoppers come back. Also, I think BeBe is an amalgamation target, a perfect fit for chains comprised of more down-market marquees. So while I am unwilling to send another dollar to the pile of dollars I’ve already sent up the BeBe chimney—and am peeved at the loss of dividend—I’m not quite at white flag time. But a turd in a tiara is still a turd. For me, BeBe was speculation into niches.  It still has some promise, unlike...

TAXI: Medallion Financial. This firm is in the business of financing taxi cabs. Read that again. Doesn’t smell all that growth oriented, does it? Specifically this firm’s core business is in financing the purchase of taxi cab licenses, called medallions. They are a first world micro-lender, if you think about it. They exist to give émigrés a chance at starting a business in a trade made for émigrés, funding the first wrung of the ladder of some young Achmed’s climb into the American Dream. It’s so patriotic, so righteous (from a capitalist’s perspective) that it brings a tear to the eye. And owning a piece of this makes me a good guy, too. The firm has been profitable since its inception, offers an outsized dividend  and has been in business for decades. God Bless America. What’s not to like?

*Why I Bought It: I have actually been in the taxi cab funding business. By accident. And I wasn’t particularly successful at it. So I am somewhat envious of people who can operate such a hot touch enterprise over the long haul. And I’m kind of hard to impress, as far as anything in finance is concerned. That said, outside of track record, I didn’t know all that much about TAXI. I found it while doing research into financials—and having found it, felt I had an informed affinity. (I bullshit myself well.) At the time my strategy was to have a stock in all of the named broad sectors and then another set of stocks in niches within those sectors. In the end, I wound up dumping the other bank stock (which I knew even more about) essentially because I wised up. (More later.)

*What Went Wrong: Uber. Well. Uber is part of it. Actually the underpinnings of the livery market have been under assault for some time and from numerous angles. Any market with an organized taxi cab system is rigged to have less cab licenses than it needs. This is to keep the big players happy. Unfortunately this leads to other parties moving in with different types of hack licenses, all basically skirting the rules. Couple this with a blatant lack of enforcement and the actual taxi license becomes worthless. All the taxi industry has left is fares to and from airports, which makes the entire industry bound to airline travel specifically and T&L (travel and leisure) broadly. T&L is always the canary in the coal mine come downturn time, and amongst the last to rebound in recovery. And as long as air travel involves Body Cavity Search Bingo plus huge amounts of time waiting around, I wouldn’t count on any sort of spring back. So the niche this financial is in is what we technically term as sucky. Making matters worse, TAXI seems to be bored with it. (Beware of bored bankers.) The family behind this little neo thrift have decided to become the bulwarks of the exciting new sport of Professional Lacrosse. (I kid you not.) They have also, as a company, branched into financing adult toys. (Minds out of the gutter. I mean dirt bikes and ATVs and those Ski Doo things.) What expertise they have in the direct to consumer world of overpriced impulse buys is unknown. They are also, if the fine print on the website means anything that I am capable of reading between the lines of, seemingly backing a few payday loan operations. So far they are still paying dividends. But split focus is non focus and Wall Street has savaged them accordingly.

*Important Lesson Learned. There are two. I’ll start with the “more later” part first. You do not need a financial. Stocks are parts of companies which produce goods and provide services. Investing in a stock is putting your money where your mouth is as far as rooting those outputs on. Without being overly futzy, that’s not what banks or “financials” really do. They just shlepp money. Whether they do well or poorly largely depends on (the commercial real estate market) whatever trade line they are in and how well the economy is doing in the area where the bank does business (how well the commercial real estate market is doing in a given area.) (Did I mention that commercial real estate is the only business that most banks are really in?) So unless you have an inkling that the economy of a set region of the country is about to improve dramatically and broadly, there is no good case for placing the money God has given you in harm’s way by investing it in a bank. (And the commercial real estate market in any region will never come back enough for you to do so.)  There is only one bank worth investing in, Goldman Sachs, and I will never invest in it.  (I do not invest in Evil.) The same also goes for financials, such as TAXI. (Most businesses such as TAXI are bank subsidiaries. In the case of TAXI, it is a bank with no banking operations other than to fund its subsidiary. Most real bank subsidiaries are there to even out the income of banks largely in other lines of business—again, largely in commercial real estate speculation.) If I actually thought there was going to be some renaissance in the livery industry (there isn’t enough crack in the world), then I should have invested in an actual livery operator, not some dedicated juiceman.  My second point deals with the nature of the market for securities in general. As with many things, there are channels of quality distinguishing stocks. The stocks listed on the NYSE are legitimate giants, policed powerhouses, scrutinized actors. You can count on them to be as real as anything capitalism has to offer. The Nasdaq is another story. Although there are many premium quality firms on this exchange, a lot of them essentially bribed someone to get listed. The listing’s long suit is in pipe dreams. TAXI is something of a typical middleweight Nasdaq thingy. It’s a big small business, a one branch bank—a fine thing in and of itself, but not something that the public should actually invest in. It’s also in a business which is now over. Not wanting to invest in concerns which have played themselves out should have protected me from gambling on my final turd…

SPRINT: Sprint is Centel and Ameritech and this silly radiophone operator called Sprint which never really caught on. Oh, radiophones caught on—and in a big way. Sprint attracted a lot of investment kitty to itself back when the whole radiophone idea was still considered cutting edge. And it blew all of that investment money buying up land line operators like Centel (Central Telephone) and Ameritech. And then it just sort of sat there, converting Ameritech’s phone stores into cell phone stores—as opposed to investing in towers or technology or advertising or any of those other things which eventually made every other name in the cell phone service provider business a much bigger deal than Sprint. Eventually Sprint became a version of Radio Shack, only with a much smaller selection of merchandise. And I spent money on this.

*Why I Bought It: (You will note a number of themes from our previous entries.) I know a lot about this company. I remember when Sprint was a franchise, a cell vendor housed in the garage of Centel’s building in Des Plaines, where I grew up. I saw its name climb up from just above the garage door to the top of the building. I saw it replace Centel on the sides of trucks, saw it scrape away the Ameritech trademark. It’s something of a hometown hero. But even in Chicago (well, Des Plaines) Sprint was never a big deal. Even the White Sox named their stadium after another player. The only real street presence the firm has been able to maintain are its many, now very dowdy, storefronts. It’s the next best thing that never happened. It was on the rumor that something would soon be happening that I originally plunked down quite a bit of my investment geld. The good news is that what was rumored to happen did happen. The bad news is … that what happened didn’t really matter.

What Went Wrong: This should not have gone wrong. All of the ideas behind my trade are as sound now as they were when I made it. And I made my buy with deft timing. Sprint is a perfect target for a foreign buyer. And the right type of foreign buyer showed up and bought it out. Sprint had what Studebaker started off with—lot’s of showrooms and a known name. For those of you unfamiliar with car history, Studebaker used to be a brand of automobile. They got their start as a nationwide horse and buggy dealer. (Sort of the CarMax of horse and buggy dealers.) When autos became the going thing, they started selling other people’s cars. Long story short, they eventually got into the car manufacturing business. And even longer story made shorter, when the car business started to suck, they sold out their dealerships to a foreign auto maker. Sprint is sort of the same thing. And the firm who showed up to save them, Softbank, is a financial which pulls the strings on the entire Japanese telecom industry. Really, this is a bet on Softbank, on Japanese good actors who know the industry backwards and forwards. This fits in with my overall feeling that the Japanese are ready for a rebound. Again, all of my ideas are fine. My other bet on a Japanese rebound has done swimmingly. But in this case I seem to have bet the wrong horse.

*Important Lesson Learned: Some industries just suck. Airlines suck. No telecom has ever done anything but suck down cash. And the idea that every industry is headed to having three big actors may be a thing of the past. Telecom is a lot like its subsidiary payment processing business. In the end, there was only room for two real actors, VISA and Master Card. And those businesses, parallel systems, are deliberately essentially identical. That’s where all of telecom is heading. And Sprint is heading to where Amex and Discover Card are right now. So my money is gone.

(*) While I was writing this the entire stock market tanked to an extent that even my modest earnings are somewhat questionable. I would lament this further, perhaps in the furtherance of further full disclosure but it would be at the cost of my remaining dignity. To be short, I will confess to knowing nothing and leave it at that.