Friday, July 27, 2012

Why Apple's a Buy After Earnings

I recently published at Seeking Alpha Why To Buy Apple's Post-Earnings Drop, which should continue to be relevant for a while as people take time to figure out that Apple's recession-resistant business is still cranking out products it can sell like hotcakes.

In other news, the abysmal showing of Motley Fool Million Dollar Portfolio constituents Zipcar and now Bridgepoint Education appear primarily responsible for the decline of my post-crash returns. As calculated by the Motley Fool scorecard ...

... my post-crash purchases are now only doubling the performance of the S&P 500. The service's eponymous million-dollar portfolio has just returned to a $1m value, which since its inception means it's about broken even: the +0.2% return claimed by the service beats the dividends-excluded S&P 500 return of -0.9%, but why would one exclude dividends? One of my best ideas last year – buying American Capital Mortgage Investment under $17 – has turned into a dividend play. (When I entered the position, it was a value play: it was trading well under its NAV, which then was about 20. Now trading a bit above NAV, the story is about NAV growth and after-tax returns.)

Since the Motley Fool's Million-Dollar Portfolio hasn't met its stated aim of crushing the S&P 500, the remaining question is whether it's succeeded in steering me toward gains with which I can crush the S&P 500. After all, I gave up mirroring the portfolio when it decided to allocate more of the portfolio to Microsoft than to Apple – a curious decision during this decade – and incidents like Bridgepoint underscored that I really needed to stick with businesses whose risks and rewards I rally appreciated. Peter Lynch and Warren Buffett both had that one right.

So, I'll be cancelling my subscription for a refund in the not-too-distant future – like I've cancelled every other Fool subscription I ever tried. You might considering doing the same.

Monday, July 23, 2012

NYT Has It Wrong On Drone Ethics

I just saw an article suggesting that drone strikes were per se immoral because they allowed attack without risk. The crux of the paper's argument is a comparison of drone strikes to a tale told by Plato about a murder committed by a man who wanted to murder his king in order to marry the king's wife, whom he'd seduced, and then install himself as monarch. The comparison struck me as intensely strained: the motive of greed and the act of murder certainly engender the disgust described by the article, yes. But is self-defense killing part of either? I think the article completely misses the boat. We're not bombing suspected enemies to better seduce their wives or daughters, but to reduce the murders being carried out on our own doorstep by a variety of shoe bombers, underwear bombers, or unstable psychiatrists – all inspired by firebrand speeches exhorting listeners to murder strangers based on their citizenship rather than their imminent danger (or even their beliefs; they'll take any scalp they can get, if it's got the right passport).

There may be problems with some of the killings approved by the current administration, but the problems with those cases won't go away if drones are replaced with human assailants.

To the extent our methods are illegal and wrong, on the other hand, at least it's not unclear whose responsible. One gem from that last link is a quote from former CIA director Hayden:
“I have lived the life of someone taking action on the basis of secret O.L.C. memos, and it ain’t a good life. Democracies do not make war on the basis of legal memos locked in a D.O.J. safe.”
We definitely need to know with whom we're at war and why. The "record" (if there is such a thing today) of the incumbent will be subject to a referendum in November, and playing games with the moral basis of our decisions to kill will not aid the electorate in deciding who has the right of it. Democracies may need to keep secret things like troop locations and tactical matters, but the basis of our political leaders' warmaking arguments is plainly a matter of public interest rather than of operational security.

Sunday, July 22, 2012

ACAS Refinances!

Remember when I wrote that American Capital was going to want to refinance its bankruptcy-avoidance debt package to regain flexibility? Well, that deal appears imminent.

Read more at Seeking Alpha.

Seeking Alpha pays me more than Blogger (which pays clicks instead of impressions, and hasn't cut me a check literally in years), making the publication of financial analysis much more attractive.

Already, the Seeking Alpha article has attracted a critic who says share count is not shrinking, but due to insider selling is growing. Without going into the detailed history of issuance and buyback at ACAS, I'll simply post a chart for the relative period:

ACAS Shares Outstanding Chart

ACAS Shares Outstanding data by YCharts

To show how this works in more relevant terms, let's see it as a percentage:
ACAS Shares Outstanding Chart

ACAS Shares Outstanding data by YCharts

In less than a year, management has shrunk share count by over 5%. That means that every dime of earnings per share before the buybacks is worth 10.56¢ after the buybacks. And each buyback steepens the concentration. The last buyback of over 9m shares retired a higher percentage of ACAS' outstanding shares than the first >9m share repurchase.

Friday, July 13, 2012


According to CNN, we're having a drought.

According to yesterday's photo of a local front lawn, we're flooded:

It's been wet as heck on the Third Coast. Moreover, the triple-digit days of earlier in the year have been beaten back by the steady rain. Last night, the pool was chilly for underwater hockey. What are these guys at CNN missing?

Thursday, July 12, 2012

Scottish Girl's Cafereria Blog Feeds Kids – But Not In Scotland

Martha was banned from taking pictures of her school's cafeteria food after their appearance on her blog – Never Seconds – embarrassed local officials, who claimed the pictures caused catering employees "to fear their jobs." If I served dreck like that to kids, I'd fear to work, too. Or did he mean they feared for their jobs?

Martha's blog has raised funds for a charity that feeds school kids abroad, but who'll look after the local kids? Not the politicians who tried to bar her from talking about her lunch.

At any rate, now that officials' censorship of a human (killing dogs in kangaroo court is okay) has been exposed and the rights of children to speak the truth has proven a bigger topic than lunch quality, Martha's blog ban has been lifted (link has photo of a lunch).

Lennox: A Triumph of Power Over Reason

Lennox the dog, "a historically unaggressive bolldog-Labarador mix", was killed by the Belfast City Council despite that the dog had never bitten anyone, the dog had been well-behaved since being impounded two years ago, and the Council had received offers from solvent foreigners to remove the dog from the Council's jurisdiction to a country where the dog could live lawfully. Lennox, whose only apparent crime was its breeding, was according to CNN "described by the Belfast City Council as a 'dangerous, illegal pit-bull terrier type' [and] put to death."

After trial, the dog claimed to be innocent on the first paragraph of his blog. While the dog's death sentence was on appeal, an international support following formed, complete with support videos. From the United States, genuine foreign-jurisdiction adoption offers were made available as an alternative to local execution.

Apparently the glee of some authorities when defying international protests of aggrieved onlookers is just too great to allow something as trivial as reason to govern whether to gas someone's family pet.

Government like that probably helps domestic sales of Irish whiskey.

Wednesday, July 11, 2012

Java Malware for Platform Equality

Now Linux and MacOS get the same benefit as the latest offerings from Microsoft: full support for the latest malware. All you need is an up-to-date Java virtual machine.

Welcome to the future.

Well, at least until code signing becomes standard.

May Trojan Bears Microsoft's Digital Signature

The importance of key management – and the consequent foolishness of relying on digital signatures as a substitute for comprehensive security – is emphasized by Microsoft's Root Authority certificate being used to sign code in the Flame worm.

Taco Bell: Now Serving Good Humor, Too

The Alaskan town of Bethel (pop: 6,000) was terribly disappointed when flyers promoting a soon-to-open Taco Bell turned out to be a hoax. Bethel – accessible only by air or river – was over 300 miles from the nearest Taco Bell and short on fast food.


Executives at Taco Bell, however, took pity. Story and video here.

Tuesday, July 10, 2012

BPI: Implosion or Buy Op?

At Seeking Alpha I wrote an article on Bridgepoint Education Inc. (BPI), inspired by the news that it suffered an unfavorable accreditation decision from the regulator of a new region into which it has expanded operations. Before getting into the specifics of Bridgepoint's accreditation issue, some perspective is warranted on the company as a whole:

BPI Revenue Chart

BPI Revenue data by YCharts

The irritating double-Y-axis is a necessary evil, as showing the results with a single Y-axis by depicting the company's metrics' percent change causes the earnings yield growth to flatten toward insignificance the sales metric:

BPI Revenue Chart

BPI Revenue data by YCharts

For some reason, YCharts gives a different duration when the earnings yield is excluded from the graph. As you can see, the sales have grown consistently and are now over 500% ahead of what they were in 2008:
BPI Revenue Chart

BPI Revenue data by YCharts

So the real question is: do you believe the folks at BPI are dufuses who don't know their business, or are they experiencing what happens to a lot of other enterprises in heavily-regulated environments, and getting a "we're the boss, and we want you trying harder" letter from regulators who want to be taken seriously by everyone who's watching the exchange?

From the panic selling, you'd think the market was giving up on BPI as possessing the competence to remain accredited in the only business it knows:
BPI Chart

BPI data by YCharts

Time will tell.

Sunday, July 8, 2012

Libyan Islamist Mullah: Sin To Vote Secular!

On the second page of an article on secular successes in early Libyan vote counts, the top paragraph leads with this gem:
Shortly before the voting, Libya's Grand Mufti issued a religious edict prohibiting Libyans from voting for secularists.
The involvement of religion with the state – to the very extent of instructing people whom to hire to operate the state – seems to so intermarry religious politics and secular politics that there's little hope for a religious organization but to become part of a political machine. What do you do when you want a church that's concerned with the religion rather than with the whole slew of things people might possibly want their government to do?

Is it crazy to want a religious organization to be religious, without worrying that it's so married to a government body that it can't be trusted to put the religion first? Or is it silly to imagine that a religious organization with any survival instincts will ever put the religion ahead of the organization? And silly to imagine that a religious organization can over the long term withstand the lure of political involvement and political activism?

Is the separation of church and state a pipe dream?

Islamofascism vs. The Rule of Law

Military despotism carried on under the banner of divine right has been a subject of featured news on this site before. Today, the subject isn't respect for borders, free speech, foreign aggression, health services, or educational policy, but an emotionally-charged favorite of millions: family law. In today's episode, two Taliban commanders having some not-as-yet-fully-detailed relationship with a woman decided to solve their family law dispute by throwing together a mock court, sentencing to death the woman who had apparently embarrassed the both of them, and within an hour shooting her nine times (to death) with a .30 caliber rifle to the cheers of onlooking men. By the time the amateur video of the event had attracted investigation, a third Taliban commander had since organized the summary execution of both ringleaders.

Not that some U.S. prosecutors don't exercise the power to drive children and their families through crazy and expensive procedures in the name of lunatic "moral" causes, but at least in the U.S. the subjects of such abuse survive to tell their story to an understanding and supportive public. The United States may not be entirely free of government atrocities, but it's got a rather higher percentage of survivors. And since we largely have free speech, we have the power at the very least to make public idiots of those carrying out lunatic policies with the authority of their public office.

Saturday, July 7, 2012

Apple Topping the Top End

I wrote another Seeking Alpha article on Apple, this one addressing the concern that Apple's market share would suffer as a result of competition and that its days as the belle of the ball were numbered. I discuss the deceptively simple formula that:

(profit per unit) x (units sold) = overall profit.

I point out that "market share" isn't an element of this formula, though it definitely gets a lot of press. What may be worth looking at in particular is the article's YCharts graph depicting profit margins over time. Competition hasn't been hurting Apple :-)

Ribbing Odyssey Marine

The pun in the title is that a Rigid Inflatable Boat (RIB) is used in a variety of supporting roles in many salvage jobs, particularly those with shallow-water diving and surveying components. Yes, I should keep my day job.

At Seeking Alpha, I wrote another article on OMEX (earlier one here). I noted that the Odyssey run-up on further losses was a good reason to look at companies that use similar technology but couple it with a plan that creates regular income. Naturally, all the OMEX longs who subscribe to alerts showed up and explained that I was an idiot and would regret not owning OMEX when it hit the moon following the Big Score.

There's gold in them thar waters, but so far the only gold management has managed to keep at OMEX has been the gold produced by investors at each successive equity issuance. Well, "keep" is too strong a word: they have lost most of it, but have paid themselves millions to do so.

Near-Dated Puts As Apple Buy Orders

When Apple was at $530, I bought more. When it rose to the $570s, it wasn't quite the same steal but it was something I was willing to buy more of. But even better would be buying even cheaper. At Seeking Alpha, I wrote a new piece about selling near dated Apple puts (weeklys) week after week to lower the effective price when finally I get exercised.

And if I don't get exercised, well ... there's all those shares I got at $530 and below.

(Note: the article title wasn't my suggested title; the thing is certainly not an article on "options investing" but on something investors, rather than traders, might do to capitalize on the options premium decay and volatility collapse associated with earnings.)

Wednesday, July 4, 2012

Olympics 2012

Later this year, the revitalized tradition of the Olympic games will be upon us (and with them, the scourge of judge-scored "sports" and crooked refereeing). When they arrive, click back to this Brit's blog and remember to giggle every time you see the logo.

Happy Independence Day!

This independence day I spent more time than was good for my mood thinking about what's been done since the Revolution to the Constitution so much blood was spilled to put ourselves in a position to ink. The important thing, I realized, isn't whether we've gotten lost in the last few centuries but whether we have a map back to civilization. And in a sense, we do: we still recall and at least pretend to endorse the motives behind that letter – signed in 1776, years before the Constitution was adopted – that staked the lives of everyone signing it on the principles it proclaimed.

My daughter asked today whether the Brits were still mad about the Revolutionary War. She listed to my (very brief) answer and asked: What's an ally? And that was a good one. An ally is your friend. An ally shows up with food when you are hungry, and when your ally is under threat of oblivion from a megalomaniacal dictator with the most advanced military technology on the planet, you stage the landing of Normandy. She nodded like she got it.

Tuesday, July 3, 2012

MDP matches its name again

This week, the Motley Fool's Million Dollar Portfolio ("MDP") finally clawed its way back to the value of $1m. The return of the portfolio hasn't exactly blown my socks off, so I don't recommend the subscription. On the other hand, they promise a refund if you are not satisfied so there's not a lot of risk to look.

One thing to keep in mind with the portfolio is that its management fees aren't reflected in the portfolio, as they are covered by the subscription charges paid by subscribers. In fact, the portfolio itself isn't really an investment as much as it is a marketing gimmick: people who feel $1,000,000 is big money are apt to trust that anyone with that much to invest (a) knows his stuff, and (b) really believes, as evidenced by risking the lot of it on the service's picks. Some of the picks and their allocations seem driven by emotional rather than intellectual governance, and the discussion on the boards suggests that aligned opinions are celebrated (so everyone feels better about their commitment). I haven't seen much evidence of serious debate about the merits of even controversial (read: losing) investments, so much as I have seen what looks like a mutual admiration society.

Using the Fool's "scorecard" feature to track my post-crash (e.g., from December of 2008 on) transactions, I was shown this note last month:
The conclusion I drew was not particularly flattering of the MDP service.

The service is good for people without the conviction to buy anything or the time to research it: it's probably better than nothing for those for whom the substantial subscription fee is not a material cost. Investors without six figures to invest will find their subscription fee and transaction fees prevent them from realizing even the (so far) lackluster performance of the services fund.

By concentrating investment in a few good issues whose stories are well understood, it's possible to do a heck of a lot more than barely eking akead of the S&P. Even accounting for the S&P-lagging share price performance of the internally-outstanding Berkshire Hathaway, and a few losers I picked up while playing along with MDP, I was recently treated to this:
This IRR has a few weaknesses – it doesn't account for things like the performance of uninvested cash, or the cost of margin – but it is an annualized return. It also allows investors to control how they will handle the impact of dividends (which can create strange issues when handled by ill-conceived defaults). Boosts like buying MTGE at $16.75 before it announced its first full-quarter dividend, and reinvesting AGNC tax-deferred in an IRA, help. But mostly the result comes from ACAS, AAPL, and GE purchases in the first quarter of 2009. Recent doubling of the AAPL position have helped: their annualized yield is quite nice (up >3% since April).

But hardly anything in the portfolio that drove those results came from MDP's recommendation list (I had AAPL before MDP was a tear in its marketing managers' eyes). Instead, its recommendations have dragged on the real winners, costing me precious capital in violation of Buffett's Rules #1 and #2.

The Motley Fool talks a good game on intelligent investing, but when it comes to selling subscriptions it seems to be peddling snake oil. And when it comes to analyzing things like the financial impact of share buybacks at American Capital, the fools seem to get it systematically wrong. (On that, see discussion here and here).

Single-Ticker Portfolio Diversification

Earlier this year, I wrote an article at Seeking Alpha on Berkshire Hathaway as a busy man's substitute for portfolio diversification. I had previously written about Berkshire Hathaway as a superior alternative to Apollo Investment, which has since tanked:

In the spirit of the one-stock portfolio diversification article on Berkshire, I just published a one-stock portfolio diversification article on American Capital Ltd.

And in departure from investment into speculation, I wrote an article on Odyssey Marine (previously discussed on the blog, and further previously at Seeking Alpha). Seeking Alpha made the new Odyssey Marine article an "Editor's Pick", making it my fifth Ed's Pick in 44 articles. In it I explain that further dilution is in the works, and that its current wreck prospect will not give the company more cash per share than its current trading price. As an alternative for those insistent on a company using similar technology to work at the bottom of the sea, I advocate Oceaneering International as a substitute.