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UltraLong who? (One man's garbage is another man's treasure)

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25

July 08, 2011 – Comments (17) | RELATED TICKERS: UL , TRA.DL , GOOD

Maybe some of you have already heard about this one guy UltraLong who seems to know a little bit about this investing stuff.

Just kidding, of course.

I’m pretty sure all of you know who UltraLong is: a Top 10 CAPS player with 15000+ points and 86% accuracy.

Basically, one of the best players here on CAPS (for some THE Best), who now also has earned the privilege of having those three fancy capital letters (TMF) in front of his UL name.

And if you know anything about UltraLong, then I’m pretty sure you know very well that  he doesn’t like fundamentally crappy companies/stocks (or “garbage stocks” as he likes to call them), which he can smell from miles away, long before regular folks here on CAPS ever heard of them. He just plain hates them, and he’s not afraid to say so (ever read any of his pitches?).

I, on the other hand, ever since I joined CAPS in June of 2009, have very clearly (and loudly) proclaimed my love for those same garbage companies (anyone remembers MEDIA IS HOT posts?).

(At one point, ChrisGraley, another 99+ CAPS-rating player, even called me Bizarro Buffett because of my nonconventional CAPS picks.)  

Knowing this, it should then come as no surprise to anyone that Ultralong and I weren’t always “the best of friends” when debating these garbage stocks, and that 100% of the time our calls on the exact same stocks were going in completely opposite directions.

At one point Ultralong even featured my name in his Garbage Stocks Overload post just to show his “disgust” with some of my favorite picks. Here is what he said at that time:

“…I'm going to use this blog to highlight some of the most prevalent garbage companies out there, and no DragonLZ I'm not using this blog to pick on you in any way, you clearly have a good grasp of technical analysis, but the majority of your favorite picks are absolute "garbage" on a fundamental scale..”.

Then, a few months later, in a comment to one of my posts, this is how he described my stock-picking method:

#13) On October 09, 2009 at 4:15 AM, TMFUltraLong (99.99) wrote:

Pretty much I'd peg your "stock screener" on nothing more than 1) find sub $5 stock with larger volume than normal

2) hope for a gap or breakout of trading range

3) rsi over 70....jump aboard

4) pray no one notices this has X (where X represents a relatively large number) times more debt than cash on hand so I can exit in 7 days after suckers have thrown their money into this company

5) laugh when company goes belly up with debt

Isn't that about it? =)

UltraLong 

 

 

Well, today I decided to take a look at some of these sub $5 garbage stocks I and Ultralong disagreed about in our discussions in the past, just to see if some of them have gone belly up as Ultralong was predicting almost two years ago.

The following four stocks are the only ones that I remember discussing (exchanging comments) with him, but if there are any other ones he or anyone else can remember, please let me know:

Case# 1:  GTN (Gray Television Inc.)

It all started with GTN, one of my favorite garbage stocks back in 2009. That was the very first time UL commented on one of my blogs:

 #16) On September 25, 2009 at 5:21 AM, TMFUltraLong (99.99) wrote:

Hope you have a deep checkbook if you're backing stocks like GTN 

UltraLong 

#17) On September 25, 2009 at 9:31 AM, dragonLZ (99.36) wrote:

UL, unfortunately, I don't have a deep checkbook..., but I did go to a Chinese restaurant 2 days ago, and you know what my fortune cookie said? Don't be hasty, prosperity will knock on your door soon. :)  

#27) On October 02, 2009 at 1:29 AM, TMFUltraLong (99.99) wrote:

DragonLZ,I'm glad you're making money but I can't let you keep trumpeting Gray (GTN) as such a wonderful company when its a heartbeat from insolvency. Its debt rating is basically junk, it has a mountain of debt to contend with, and its nowhere near cranking out a profit.These high volume days are highly misleading based on the way you present them. Who's to say that higher volume days don't lead to significant churning? I'd bet the majority of GTN's run was based on short covering and day-trader churning, not long-term buying. This has been gyrating so much that there is little long-term conviction buying here and there arent any indications to say otherwise. Who's to say that people are holding on at all? Perhaps daytraders have made their play here and moved on completely. I mean seriously, this is a 500% move from a company that somehow escaped bankruptcy. I just don't think you can use volume here and say "look, I was right and will continue to be right"... there is so much more to this company than such a short amount of daytrading data to go off of. Now am I planning to put any real money either way on GTN, heck no, but definitely put me in the heavy bear camp with this company.

UltraLong

OK, let’s now see what happened with GTN.

On October 02, 2009, GTN was at $2.05 – it’s at $2.56 today. Return: +25%

____________________________________________________________________________

  Case# 2:   NCT (Newcastle Investment Inc.)   

#9) On October 09, 2009 at 12:54 AM, dragonLZ (99.38) wrote:

UL, I have 3 letters for you: NCT.  When GTN gets to $3 in a matter of days, I promise I'll explain to you what that means... :) 

#10) On October 09, 2009 at 1:16 AM, TMFUltraLong (99.99) wrote:

Newcastle? You really do like near-bankrupt companies, don't you?

UltraLong 

#11) On October 09, 2009 at 1:34 AM, dragonLZ (99.38) wrote:

Yes on NCT (I'll explain what I meant by it when the time comes).

No, on the second question. I don't like any companies (not profitable ones and not near-bankrupt ones) , but I do like promising stocks...(there is a difference between a company and its stock). 

 

OK, let’s now see what happened with NCT.

On October 09, 2009, NCT was at $3.03 – today at $6.45. Return: +113%

__________________________________________________________________________________

 Case# 3:    SRZ (Sunrise Senior Living Inc.)

Here are comments from my post ‘Did you catch SRZ’s 44% move?’:

#1) On October 11, 2009 at 2:16 AM, TMFUltraLong (99.99) wrote:

Yeah its on my short list along with like 3 dozen other tickers right now

UltraLong

#3) On October 11, 2009 at 5:50 PM, dragonLZ (99.38) wrote:

UltraLong, I took my daughter to McDonalds today, and you know what creature was featured on her Happy Meal box: DRAGONOID.

It said: DRAGONOID is the powerful leader of the Baukugan. Highly intelligent, he can radiate intense heat in battle.Just mentioning this as a friendly warning.

Shorting dragon's picks might not be the best idea. You might get severely burned (by intense heat)... :) 

 

OK, let’s now see what happened with SRZ.

On October 11, 2009, SRZ was at $4.77 – today at $9.78. Return: +105%

__________________________________________________________________________________

 Case# 4   ZLC (Zale Corp.)

#2) On March 28, 2010 at 1:43 AM, TMFUltraLong (99.99) wrote:

Ok, let's analyze the true disaster that is Zales Corp.

…Here's my problem with the above statements. One, Zales does not sell a luxury item. They sell a deep discount fashion items in most cases and they have done a very poor job of that for 3 years. Their inventory problems are the worst in the industry. They have consistently tried to restructure their debts unsuccessfully and most vendors will only deal with Zales on a Cash On Demand basis, an insult in the jewelry world. Zales has gone through FIVE CEO's in the past 8 years and their most recently departed CEO completely detached them from their roots by bringing in more non-industry upper management than trained diamanteers. Their margins have dropped through the floor, the debt is in serious question with a very high probability of default and 15% of stores looks like a starting target in terms of closings. They are losing customers like mad and their losses show this. Zales is one of the strongest bankruptcy candidates in the stock market if you ask me. I think you've got to be sadistic to buy into a company in the midst of a death spiral.

UltraLong  

#11) On March 30, 2010 at 3:01 PM, TMFUltraLong (99.99) wrote:

Zales....Battleship sunk!

UltraLong  

#12) On March 30, 2010 at 3:45 PM, dragonLZ (99.38) wrote:

No UL, that's not the case here. ZLC's battleship is actually a super-secret stealthy submarine. Now it's just going to hide under water for a while...to trick the enemy.When it resurfaces again, the revenge is gonna be sweeeeet.... 

 

OK, let’s now see what happened with ZLC.

On March 30, 2010, ZLC was at $2.63 – toady at $5.70. Return: +117% 

___________________________________________________________________________ 

There you have it Fools. When it comes to this garbage game, the score does not lie:

UltraLong 0,   DragonLZ’s Garbage Stocks 4

Or in other words, if one invested the same amount of money in all four of these stocks at the time of UL’s and my discussions, that person would now sit on a roughly 100% gain for the whole portfolio (+25%, +113%, +105%, and +117%).

Not too bad for a stinky garbage portfolio, right? :)

 

So that would be it for this time, folks.

Good Luck to you all, and as always, don’t forget to have fun when investing.

DragonLZ (you can call me Garbage Buffett) :)

 

 

 Disclaimer: Past garbage performance is not indication of future garbage performance. Talk to your financial advisor before you go garbage picking / dumpster diving.

17 Comments – Post Your Own

#1) On July 08, 2011 at 2:04 PM, dragonLZ (99.31) wrote:

Please keep in mind these are not short term gains (many people said DLZ's garbage picks can only perform well over a short period of time).

As you can see, some of these comments are at least a year old, some almost two (and many people said these 4 stocks are not going to live long enough to see year 2011). 

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#2) On July 08, 2011 at 2:11 PM, TMFUltraLong (99.95) wrote:

Zale actually needed a bridge loan in 2010 I believe otherwise it wouldn't have been able to finance new purchases and would have indeed been forced to file for bankruptcy protection.

Newcastle, Sunrise and Gray Television are all still very highly leveraged with debt/equity ratios in the neighborhood of 5100%, 100% and 500%. It wouldn't take but the slightest hiccup in economic activity to crush these companies. Sunrise has the best fundamentals of the bunch, but will probably be facing countless lawsuits in the coming years.

One thing fundamentals don't account for is the irrationality and emotional connection of the individual investor. Clearly these companies have gone higher, but at one point many were lower. Zales was below $2, Gray fell to something like 70 cents... Long-story short you have been right so far, but it not like I was completely wrong either. =)

TMFUltraLong

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#3) On July 08, 2011 at 2:17 PM, DaveGruska (95.84) wrote:

So is UltraLong's description of your stock-picking method accurate? :-)

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#4) On July 08, 2011 at 2:18 PM, shamapant (82.92) wrote:

I can respect this but don't forget that ultralong is just as high(barely)higher rank than you. So i mean, clearly something is working for both of you. Ultralong might just be more conservative than you are. Not neccessarily a bad thing, but obviously as you pointed out when your conservative about stocks w/ debt, you can miss some golden opportunities. You're both great investors though and I think a lot can be learned by following your 'fights'

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#5) On July 08, 2011 at 2:26 PM, TheDumbMoney (53.33) wrote:

It seems to me dragon is more purely technical, and UL is more of a hybrid.  Am I correct? 

Dragon, great calls on you "garbage companies."  They have, because of their absurd leverage, benefited in outsized frashion from artificially low interest rates and from an expanding company.  I assume you had real money in them?  I wish I had the courage or confidence to put real money in stocks like that, based on either macro or technical calls, I simply do not.  Booo me.

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#6) On July 08, 2011 at 2:26 PM, portefeuille (99.61) wrote:

good old UltraLong ...

(from here)

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#7) On July 08, 2011 at 2:26 PM, TheDumbMoney (53.33) wrote:

"expanding economy"

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#8) On July 08, 2011 at 2:41 PM, Tagit (45.24) wrote:

# 6

Hmm, every stock owned is less than $10 and 75% less than $5

Trash or no trash, they both seem to be good people.

 

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#9) On July 08, 2011 at 2:55 PM, ikkyu2 (99.22) wrote:

On Oct 2, 2009 S+P 500 was 1025.  Today it's 1339.  That is a 31% gain, plus a year and 3 quarters of a roughly 3% dividend yield.

I think when you look at the risk profile of your stocks versus S+P, you're better off in the S+P.

The trouble with crappy stocks is you never know when the world is going to catch on to them.  Until then, you can do OK in price movements. 

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#10) On July 08, 2011 at 3:19 PM, dragonLZ (99.31) wrote:

Thank you all for the recs and comments.

TMFUltraLong, I agree this is not final score (maybe not even half-time score), but I still think in the end the garbage will prevail. I see you didn't misinterpret this fun post, which I'm very happy about. Good Luck. :)

streeter123, not the 'belly up' part... :) 

shamapant, Thank you, but just to be clear, UL is much, much higher ranked than I am. He's got like 5 times the number of points I do, and his accuracy is 10% higher than mine. That's huge.

dumberthanafool, don't feel bad. I know you are very smart so I don't really think I made more money than you did, and I'm sure you sleep much better at night (staying away from garbage stocks).

portefeuille, I really thought UL was older than that, like in his fourties or so. Or maybe that's one of his older pictures...

Tagit, Thank you. I really liked your Teacherman post.

ikkyu2, you are most likely right, but keep in mind all of these stocks have corrected quite a bit recently:

SRZ was at $12.50 - now "only" at $9.80. NCT was $8.47 - now $6.40. ZLC was a buck higher, and GTN was almost at $3 just a few weeks ago.

In other words, portfolio of these 4 stocks was at approx. +150% just a month or two ago (which I think they will get to again).    

 

 

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#11) On July 08, 2011 at 3:22 PM, TMFUltraLong (99.95) wrote:

Porte & bunch,

I'll be celebrating my 31st birthday this coming Thursday - or should I say the third anniversary of my 29th birthday since I stopped aging three years ago.

TMFUltraLong

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#12) On July 08, 2011 at 3:23 PM, dragonLZ (99.31) wrote:

Happy Birthday, UL!

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#13) On July 08, 2011 at 4:21 PM, CCharing (89.60) wrote:

@ Ultralong

I think most women stop counting after 29 as well hehe

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#14) On July 09, 2011 at 5:36 AM, portefeuille (99.61) wrote:

I really thought UL was older than that, like in his fourties or so.

I think dragonlz is like Robin Griffiths ...

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#15) On July 09, 2011 at 5:38 AM, portefeuille (99.61) wrote:

http://search.cnbc.com/main.do?keywords=Robin Griffiths

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#16) On July 15, 2011 at 3:46 AM, HarryCaraysGhost (99.63) wrote:

http://www.youtube.com/watch?v=L-28jAoTPFw&feature=related

Happy B-Day UL.

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#17) On September 06, 2011 at 7:29 PM, spundun (22.08) wrote:

GTN 2.05->1.65  = -19.51%

NCT 3.03->4.9 = 61.72%

SRZ 4.77->6.47= =35.64%

ZLC 2.63->3.82 = 45.25% 

UL 1 DLZ 3 

Average gain 30.77% 

S&P since Oct 02 2009

1144.38->1165.24 1.82% Gain. 

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