Thursday, October 14, 2010


AMD is a short

After all, Advanced Micro Devices is on my list of worst-run companies.

Offshore Drilling Resurrection

The lift in the offshore drilling moratorium has been a great help to the drillers.

The government's news could not have come at a more opportune time. Crude oil has had a nice run of late. Taken together, these are positive developments for the sector.

Next week, HAL and SLB both report results. I should expect continued cautious guidance with a more positive outlook than might have been offered before the drilling restrictions were lifted.

Yahoo! Chatter

Yahoo! is a likely candidate for my list of worst-run companies in the U.S.

The media is buzzing with talk of an AOL/private equity takeover of YHOO.

Bill Gross Suggests Selling U.S. Debt/Buying Foreign Debt

Could this be the straw that breaks the back of the nearly 30-year bond bull market?


F was upgraded by Deutsche Bank to Buy with a target of $19.50. The analyst cites strong demand and market share gains.

Play the Game That Is in Front of You

We are ensconced in the Major League Baseball playoffs on the road to the World Series. Baseball is a wonderful metaphor for life and can also be applied to investing.

The best baseball player is one that has the following five tools:

1. hit for average;

2. hit for power;

3. speed;

4. field; and

5. throw.

In investing, I believe that there are five tools that every successful investor must have.

1. Accounting acumen: One needs to understand how to read and analyze financial statements, beyond the simplistic concept of top-line revenue and bottom-line earnings per share.

2. Economics: It is a complex science that tends to be simplified by the media and those who lack proper training. Successful investors, especially ones that can formulate macro strategies have strong economic backgrounds.

3. Derivatives: A clear, working understanding of options, futures, swaps and asset-backed security markets and theory is mandatory. Unless you understand the Greeks, don't trade options. If you think that delta is a fraternity house, then you don't know much about derivatives.

4. Risk management: Too many market participants do not practice risk management. Reward, the metamorphosis of greed into profits blinds risk. The five-tool investor will incorporate risk management into both the decision and transactional aspects of investing.

5. Statistical knowledge: This tool is a foundation for pretty much everything I discussed above as well as an important factor in understanding technical analysis. Too many people blindly accept charts and data without understanding how they were formulated.

When a batter gets to the plate, he has one of two choices -- swing or hold. Ideally, you wait for your pitch or try to anticipate the next pitch. In investing, one needs to know his/her limits. Don't get up there and hack away at every pitch. In other words, you don't have to trade constantly or be fully invested at all times.

You have to play the game that is in front of you. You can't play the fifth inning if it is still the second inning. Yet, too many market participants are worrying now about what happens three years from now.

Getting back to risk, sometimes you have to go for the long ball. I am a firm believer in portfolio risk management, but sometimes you need to get aggressive.

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