Finance Books

I recently wrote a StockBoxFinancial.com article about a book called the Future for Investors. I have to say I thoroughly enjoyed the book and I think I will look to employ the strategies laid out by Professor Siegel in the future. I usually really enjoy finance books, and I often fall victim to purchasing several books every year. I have to say this is one of the biggest detriments to my overall returns, but I rationalize it b/c they are books and maybe they will help me generate even higher returns in the future. Right now there are several books i have my eyes on:

• The Path to Wealth through Common Stocks by Philip A. Fisher
• Poor Charlie's Almanac by Charlie Munger
• The Alchemy of Finance by George Soros

Just to name a few. Currently I learning all about ETFs through The ETF Book by Richard Ferri. This is an excellent book and I recommend it to anyone who is looking to learn more about exchange traded funds. Hopefully as StockBox generates more and more revenue I will be able to by more and more books...that's all for now...I'll be back with more later

Microsoft Buy Yahoo...Maybe there are Better Options

Much has been made about Microsoft's potential bid for Yahoo. I understand why Microsoft made the bid, but the bid was too high and I feel that Yahoo's board made a ridiculous move not to accept the deal. After all, their stock price is in decline and so is their business and Microsoft gave Yahoo shareholders a way out. A recent article in the NY Times presented a much different option for Microsoft: Instead of diworseifying by acquiring Yahoo, which has little to no competitive advantage over Google and other firms, Microsoft should go after SAP. SAP, which is a provider of semi-custom business software, would give Microsoft a great advantage over Cisco especially as more and more corporations in developing nations demand their services. Also, as SAP is quickly losing ground to rival Oracle, the German firm's shareholders may gladly welcome the deal.

I guess we'll have to see how the whole situation plays itself out. As a shareholder I am going to view this spectacle from the the sidelines as the market is too unpredictable for my tastes.

The Credit Crisis

The current credit crisis, which is as widely known as the Giants Super Bowl win, continues to plague our economy. However, many people and even some investors do not really know what the current state is regarding debt and the insurance of. Jim Jubak wrote a great article highlighting the current state of the credit crisis and what the banks, the Fed, and the state of New York are doing about it. Jubak predicts that these facilitators will be able to solve our problems in the near term (not without significant write downs, of course) and return our economy back to it's normal growth rates. If Jubak is right there will be massive write downs in the next year or so and then the economy will get back on track.

As an investor I have been looking at various financial companies and many of them are quite cheap with regard to traditional metrics, but I am just not sure how many more write downs will occur. Frankly, I don't think anyone knows. The one company that I have examined as a potential investment in the financial industry is Goldman Sachs. This company is the best at what they due and successfully avoided the whole sub-prime mess, but now there is even talk that this financial bank another 2.7 billion dollars in loans and credit derivatives. Also, analysts are slashing their forward looking earnings estimates by large margins and the company is slashing its work force at a rapid rate.

I do think that Goldman is a great company with excellent long term potential, but I don't believe now is the time to build up a position in the financial giant.

For now I am shying away from the financials. In the future, as the credit crisis plays itself out I definitely will give Goldman a closer look.

Can the Fed Save the Economy?...Probably Not

The Fed has cut interest rates in the two weeks by more than significant amounts...but can these interest rate cuts really save the economy? More and more it's looking like the Fed is becoming more powerless in the markets. There are a few reasons why I believe that the current Fed has less power than ever before:

The falling dollar. First of all, let me just say that lowering of interest rates causes a drop in the value of the dollar. This happens as investors are able to find better interest rates in Europe and abroad.  Some people believe that this will boost exports and and American GDP as more foreigners vacation here.  However, these positive effects are negated by rising input costs and the increasing number of basic products so imported from foreign countries.  As the dollar continues to fall, oil becomes increasingly expensive.  This, of course, means people have to spend more on transportation costs than before and less on, say, trips to Disney Land.  

The Chinese Government to trying to slow down their overheated economy.  With China trying rein in their racing economy they are starting to slowly let the Yuan appreciate against the dollar.  As you know, almost everything is made in China.  So everything will become more expensive to import.  There is only one way this can affect profits:  send them down.  

There are some companies that will definitely benefit from the falling interest rates.  Those companies are that are using debt to expand will obviously benefit from lowering interest rates, like Aegean.  Also, the companies that sell a large amount of products overseas, like Exactech.  

Hopefully, for all investors, the market can prove me wrong but we'll see....

Why I Can’t Stand Stock Analysts

Note: this post was originally published here.

Before I run into trouble let me state a little disclaimer: I do not a problem with any one analyst but rather the system as a whole.

On January 28, Monday, Jefferies analyst went on CNBC and claimed that StockBox Pick Aegean Marine Petroleum (ANW) as their top pick for 2008. On the news, Aegean rose 6.63 percent on the news. This is third time that a Jefferies analyst has caused wild fluctuations in Aegean’s share price. The first time occurred when a Jefferies analyst placed a price target on Aegean at $42 a share (Jefferies then raised his target $55). This buy rating plus a lot of positive coverage shot Aegean’s share price up as high as $48!

After Aegean made its dramatic run, the company announced a second equity offering in which the founder and one other director sold some of their shares. This equity offering was not actually share dilution since the shares were already outstanding. The additional offering sent Aegean’s share price tumbling 18 percent in one day. And guess who was a part of the underwriting team? That’s right, Jefferies. From the all time high of $48, shares dropped although below $30 and that’s the level that they are hovering at right now.

There have been some fundamental changes at Aegean such as the purchase of Bunkers of Sea (which gave Aegean a station in the English Channel) and set up its station in West Africa. These were important changes at the company, but not nearly significant enough to create the large price fluctuations that resulted.

I know that Jefferies is a profit-maximizing firm and even though there actions with regard to Aegean were dubious, they did help the firm achieve their end goal. Every investor must come to the realization that analysts and firms are not giving buy and sell recommendations out of the goodness of their hearts and they may have various motives, some of which may not coincide with those of investors or shareholders. This notion rarely carries weight in markets as analysts’ buy and sell recommendations drive stock prices in all sorts of directions despite the fact that professionals fail to beat the market 75 percent of the time. There have been various times in the recent history where the analysts’ performance was downright poor.

In the late 1990s analysts failed to place sell recommendations on various technology stocks as their valuations soared to astronomical levels. Analysts failed again as the tech crash unfolded and corporate scandals became commonplace in American markets. The analysts were the closest people to these corrupt firms who were not direct employees of the company. Despite their responsibilities, certain analysts just digested whatever numbers were given them and billions were lost in the Enrons of the world. Most recently, the various bond rating agencies (mostly Standard & Poor’s and Moody’s, but there were others) failed to the markets when they gave top ratings to mortgage backed securities that were anything but stable. In fact these rating agencies even failed (up to this writing) to take responsibility for their missteps citing “information quality” concerns.

Given the recent events, it is clear that analysts are not necessarily more apt to judge the future performance of various investments, even though they are better positioned to do so. Whether this result is due to profit motives or just plain incompetence, I am not sure. I do believe that there are many great analysts out there doing good work for everyday investors, but the performance of the industry as a whole is definitely drowning their results.

Back to Aegean

Despite all the hoopla created by Aegean’s fickle stock price, the company remains fundamentally sound. The company’s competitive advantage remains in tacked with the performance of its service stations and the fact that the order book for new tankers is locked up for the next several years. Since Aegean uses debt to finance its ships, the falling interest rates will definitely have a positive effect in this regard. However, the same goes for Aegean’s smaller regional competitors. Since Aegean is so well capitalized in comparison to these firms, this might slightly reduce Aegean’s strength over these firms. This result will likely be negated by the falling dollar (which makes oil more expensive) and the ensuing environmental regulations that will wipe out much of the Greek company’s competition.

You can check my original argument for Aegean here.

In case you were wondering, I checked the CNBC transcript and the Jefferies analyst never mentioned that his company did work for Aegean. I, on the other hand, will honor the spirit of full disclosure:

Chandler Lutz owns shares of ANW but no other company mentioned.

Chandler Lutz's Finance Blog

Hello All,

My Name is Chandler Lutz and in this first post I just wanted to say what this blog is about.

This blog is a little side project for me. I spend most of my time as a PhD student in Economics at the University of California, Riverside. Also, I write more formally at StockBoxFinancial.com. In this blog I may repost some of my material from that site, but I will use this blog to float ideas, complain and rant about the markets and the fed (did you see the half point cut today??...that guy is at the mercy of Wall Street traders).

Some of the material I want to post here may not be formal (or coherent) enough for StockBox. That's why I'm writing. You can follow along if you wish and get a glimpse inside my mind and my life.

That's all for now, I got about three papers to read for tomorrow and I haven't even started...wish me luck.

ps You can find a little more about me here.