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July 07, 2012 – Comments (9) | RELATED TICKERS: PM , INTC , CSCO

Mission accomplished.


That's a link to my CAPS blog from about 2 years ago - 8/10/10.  On that date I sort of shifted my CAPS strategy.  I realized I wasn't going to get anywhere pursuing more accuracy points - with a 77% accuracy, I was almost 'topped out' in terms of the percentile rankings - and in order to start coloring up my hat, I was going to need score points.

I started spending a lot less time on looking for junk to short.  Not that there isn't plenty, always - look back through my last year of picks to see some obvious tech names.  But, instead, I started putting some effort into finding some value plays - good businesses, no debt, growth prospects, priced 15% under - what?  Well, I'll be honest.  Not 15% under "what I thought the company was worth."  15% under what the market was valuing similar stocks with similar prospects.   The process is something I call 'turning over rocks' - eventually you find something interesting under there.

Mission accomplished: my score is +3000, my rating is 99.55, up from 97.46 two years ago.  Gained about 2500 score points; lost 3 accuracy percent.  It's hard to find good stocks; sometimes when the market undervalues companies, the market is actually right.

The latest triad of stocks I am thinking about are INTC, CSCO, and PM.

PM is the ultimate widget seller.  They have a product that behaves like a widget - demand for it is hugely inelastic, supply is extremely consistent and predictable - and they are quite efficient, due to decades of practice and good management practices - at distributing it across the world.  Despite their huge cash flows they keep their operation streamlined and efficient - they take a certain pride in it. 

INTC is the opposite.  They are best of breed in their field, not by saturating the market with advertising to create a false sense of their product's superiority as PM does; but, instead, the reason they are best of breed is that their capital expenditures for R+D exceed a medium sized country's GDP.  They manage and execute impeccably - but in a different way from PM.  They're not building widgets.  They're crafting masterpieces, and they roll out a new set of masterpieces, predictably, every two years.  No one can keep up; no one has ever kept up since 1976.  If you are a consumer and you need processor, sooner or later, you will consume Intel.  I don't think the top brass at INTC ever worries much about a percent or two of margin; I think they worry most about keeping the masterpieces flowing.  And it shows.

CSCO is an interesting company.  I am going to sum them up very concisely: they are, in reality, a widget company that is built on the INTC model and still thinks they're crafting masterpieces.  The recent kerfuffle where they hacked their routers to try to enforce their customers to sign on to their information-snooping cloud service is the best case in point.  The consuming public won't let CSCO, a commodity maker of hardware, pull this stunt.  They want, instead, to install CSCO commodity hardware in their homes, businesses, green boxes, and data centers, and then let people connect AAPL, GOOG and MSFT products to those routers and let THOSE companies snoop their data.  But CSCO is not permitted in that club.  I would short them to death from here.

9 Comments – Post Your Own

#1) On July 07, 2012 at 6:11 PM, portefeuille (98.37) wrote:

well done. who cares about "accuracy"?


vanamonde says:

I have self-regulated away from all the ETFs and unshortable .ob/pk stocks. Let’s see how long before the unfortunate onslaught of these in CAPS will take me from top 100.


(from here -> "profile")

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#2) On July 07, 2012 at 6:15 PM, portefeuille (98.37) wrote:

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#3) On July 07, 2012 at 8:09 PM, ikkyu2 (98.48) wrote:

Heh.  I am catching up to portfeuille7.  I wonder if you don't have a portfolio suitable for making any point?  :)

I have a few ETFs greenthumbed - just funds of stocks - but not many, and the few .PKs I've picked have mostly been large companies like BMW or Nintendo that don't for some reason trade on one of the more usual exchanges.  I am trying to have gains that could actually be had.

No way I could ever pull a high-wire act like you do, portfeuille.  I don't know where you're getting your intelligence, but you're a lot better with these small-cap biotech stocks and others than I could ever hope to be. 

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#4) On July 07, 2012 at 8:44 PM, portefeuille (98.37) wrote:

#3 Yes, I was not using the vanamonde quote against you, I just thought it shows nicely that some have sworn off silly practices, just like you have.

these small-cap biotech stocks

They have really had a nice performance the last few weeks. That was quite helpful ...

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#5) On July 08, 2012 at 1:44 AM, awallejr (56.54) wrote:

I dunno this game gives more weight to accuracy than points or dividends.  I stuck with my account knowing it would be tough to improve scorewise since I screwed up my accuracy not really understanding how it worked, but I do think "yield" plays do get the short shaft here.

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#6) On July 08, 2012 at 1:00 PM, portefeuille (98.37) wrote:

#5 see comment #3 here.

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#7) On July 08, 2012 at 5:36 PM, awallejr (56.54) wrote:

Well let's assume S&P doesn't move in say 2 year time.  You buy Stock A with no dividend and it goes to 20 you get 100 points.  If Stock B at 10 paid $10 in dividends over that same time period and it is still at 10 in the open market you don't get 100 points.

In the real world each person made $10 (excluding any tax treatment).  Now I understand you can't just dollar deduct the dividends off your basis since eventually you could hit zero which breaks the game.

Am I missing something with this analysis?

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#8) On July 08, 2012 at 5:51 PM, portefeuille (98.37) wrote:

#7 You start "outperform" call on stock B, when its share price is at $10, then share price goes to $20, then it pays $10 and opens at $10 the next trading day.

-> (see comment #3 here) reduction factor =  1 / (1 + Dividend / Post-div Price) = 1 / (1 + $10 / $10) = 1/2 -> "starting price" is reduced to

$10 *  reduction factor = $10 * 1/2 = $5.

So in both cases "stock gain" = 100% just as it should be.

In that example you could buy 1 new share at the open of the ex-dividend day for every share you had before the dividend payment was made. The number of shares held goes from n to 2n, thus the "average buy price" goes from A / n to A / (2n).

It is really quite simple and the treatment of dividends is not one of the "caps" game problems.

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#9) On July 10, 2012 at 11:57 AM, ikkyu2 (98.48) wrote:

Yep, dividends have been figured in to CAPS returns - they cause your 'start price' to be reduced - since 2006.

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