Cost and Quality

Partners at the IP firm hired by Apple to fight Samsung billed at a median rate of $582 per hour, whereas partners at the firm hired by Samsung billed an average of $821 per hour. So, who got the better deal? Based on the verdict, I'd say Apple did.

Getting more for less is always the better play. So, how does Samsung get talked into paying more for less? Marketing.

Federal Prisons Poach Manufacturing Jobs

Factory owners tired of laying off good workers are getting angry at the continued favoritism of Unicor – the federal prison system's manufacturing contractor – in competition for federal contracts. To get a government contract, Unicor generally need not bear private industry bids – just be similar in price and quality.

This favoritism might be good for keeping prisoners employed, but it's lousy for employers who want to keep their employees employed. Paying $9 per hour plus benefits is a lot more expensive than the 23¢ (or up to $1.15) paid hourly by Unicor to inmates who aren't free to look for other work. Unicor's $900,000,000 in 2011 revenue was earned, in many cases, from contracts won against small-businesses who try to employ free people who are not (yet) felons.
Unicor – communicating through a paid spokesperson, funded for by you and me – defends its preferential contracting against private competition.

Of course, if we keep laying off the people who want to work, we can get them retrained by Unicor once they're convicted, and they can learn to do manufacturing work the private sector is having trouble getting work doing.

Army Promotion Yields First Gay General Officer

Army reserve officer Tammy Smith, promoted to Brigadier General on August 10, said of her sexuality that "I don't think I need to be focused on that. What is relevant is upholding Army values and the responsibility this carries." Her wife, Tracy Hepner, co-founded the Military Partners and Families Coalition and is an advocate for benefits for same-sex partners of military personnel, and their families.

Interviewed anonymously just prior to the repeal of the Don't Ask Don't Tell policy, she expressed relief she and her partner would be free to go for drinks without fear for her career.

More Growth at American Capital Ltd.

I've got a new article on ACAS up at Seeking Alpha. It looks at the last-announced quarter. I was honestly shocked that with my recent travels and ill health, someone hadn't beaten me to a SA story on ACAS' quarterly results. The fact that nobody bothered may suggest the stock remains underfollowed, which is itself an interesting observation.

I also have gotten a consistent patter of comments at SA, urging that management pay dividends instead of only repurchasing shares below NAV. I think this sort of reasoning has got to take center stage in its own article. But, later.

UPDATE: "More Growth at American Capital Ltd." was designated as a Seeking Alpha Editors' Pick – and so was "One Year of American Capital Mortgage Corp." This makes ten of fifty articles as Editor's Picks.

MTGE: One Year On

A year after its introduction, American Capital Mortgage Investment Corp. (MTGE articles here) proves ACAS can manage a mortgage fund. Investors in American Capital Agency Corp. (AGNC articles here) won't find this surprising.

The real story is at the manager, ACAS. More on ACAS soon.

Zipcar Collapse Sinks Fool Portfolio

The Motley Fool's "Million Dollar Portfolio", which at present sits below its namesake threshold, is now not even beating the S&P 500 since the inception of the service. With the recent meltdown at Zipcar following the company's lackluster results and unexciting forecast, the service not only has a negative return but a return lower than the S&P 500 (excluding the dividends paid on the S&P 500, but not excluding dividends paid to the portfolio):

The two numbers for returns since inception are, respectively, the portfolio's total return (including both transaction fees and dividends paid) and the total return of the S&P 500 (excluding all dividends). As depicted in the image, this puts the dividend-excluded S&P 500 return 2.5% ahead of the Motley Fool-analyst-driven real-money portfolio over the life of the portfolio. While the portfolio's survival of the 2008 crash certainly impacts its overall return, this should not work against the portfolio's ability to generate a return that is better than that of the S&P 500. After all, the entire thesis of the Million Dollar Portfolio is that by carefully picking winners and systematically excluding losers, returns should crush those of the S&P 500.

And, yet ...
... not.

The MDP currently has a couple dozen holdings, which is rather easier to follow than the 100+ recommendations maintained by the Motley Fool's flagship newsletter Stock Advisor. Note that at the time that last link was published, MDP was actually ahead of the S&P despite being down. No longer.

The idea that investors get market-beating portfolio allocation instructions when they subscribe to MDP is just false. The possibility that MDP has concentrated its investment in diamonds in the rough that will be discovered later seems unlikely, as its dozens of companies should afford it plenty of opportunity to diversify. But, that's not what's going on. A few comments by the fund managers in the comments seem to suggest the managers aren't trying to implement Buffett's first two rules of investing (reminiscent of Hippocrates' admonition, first and above all to do no harm) but to make bets with other people's money (the $1m portfolio is a marketing tool, not the managers' own money) based on their impression of the risk-reward ratio. In other words, they're willing to put your money in peril on the chance of riding to the moon (which would attract more subscribers, ka-ching!). This is exactly what is hated in quarterly-results-focused fund managers, no?

Rather than assuming away regulatory risks (like at Bridgepoint (BPI)) and ignoring the direct competition available from everyone interested in entering a market with no intellectual property or trade secret barriers to entry (like at Zipcar (ZIP)), people entrusted to give the price-specific and allocation-specific investment instructions routinely handed out by the Motley Fool to members of the Million Dollar Portfolio subscription should be spending the time needed to understand businesses well enough to know them well enough to appreciate when they are screaming buys. Berkshire Hathaway's purchases of American Express, Coke, and preferred shares of Goldman Sachs (with warrants) and General Electric (with warrants) were made at times the market had turned on otherwise good businesses. Those companies aren't a buy at any price (something that Stock Advisor seems to ignore when it makes a recommendation, and especially afterward), but they were a buy at the right price. They were a buy because established income from known businesses had proven it.

They weren't newly-public news items like Zipcar, or privatization cheerleader heartthrobs like Bridgepoint. (Remember Prison Realty Trust, formerly trading under the ticker PZN before it was acquired by Corrections Corp. of America (CXW), when "everybody knew" private prisons were a "no-brainer"? Is for-profit mass-education a story much different than for-profit inmate warehousing?) Far from being solid investments, Zipcar hasn't made an annual profit yet and Bridgepoint is a commodity competitor in a market in which the governors of nineteen states have decided to drive down prices.

By focusing on imagined risks and hoped-for rewards, the Million Dollar Portfolio seems to view itself as pursuing "risk-adjusted" returns rather than focusing on businesses that produce solid returns. This may be how the portfolio has been seduced away from Warren Buffett's First Rule of Investing, and his Second.