Monday, July 28, 2008

Watch Out Below!

Here is a headline that you don't want to see on a stock you own:
Trident FY Q1, '09 Guidance Misses By A Mile

Proof again that things are never so bad that they can't get worse. The headline is from Barron's and unlike some headlines, this one is right on point. I promise never ever to own another MFI tech stock that everyone knows is in a product replacement cycle and has no chance of making as much money as last year. I have a long list of failures (OVTI, IVAC and TRID) and very few wins (SIMG). It doesn't seem to matter if they have a boatload of cash... they'll burn it looking for the next holy grail.

Now for something a little more fun. Anyone who looks at the MagicDiligence site knows that it posts for the world to see what percentage of the stocks are beating the S&P and the amount in total they are beating. As I have mentioned before, Steve has done quite well, and arguably via a less risky route. Let me see if I can cut and paste the latest standing:

No, I can't do it. So I'll type it:
"Top Buy Picks
Magic Diligence: -1.07%
S&P 500 ETF: -7.10%
Outperform: +6.03%

59% of our picks outperform the market"

Just for fun, and to tweak Steve a bit, I am starting my own approach and we'll see how we're doing a year from now. I also started an approach (which I have mentioned several times in the past 7 months) where I "buy" a stock when it hits the top 25 list greater than $1m for the first time in at least 6 months. I do this by pulling in the top 25 list every weekend. I then assume I buy at the close that Friday. So far my approach is outperforming the S&P by 8.3%, with a stable of 33 stocks. Since I have a 2.3 point lead on MagicDiligence, I'll assume I bought each stock 2.3% higher to make it even-steven today. Also, please see my caveat at the bottom of this list that I am not giving stock advice and in no way am I advocating using this approach (I certainly don't).

Symbol Date Original Current Dividend S&P O S&P C S&P D Stock Chg S&P Chg Diff
TIRTZ.OB 1/5/08 23.87 25.75 1.32 141.31 123.64 1.31 13.4% -11.6% 25.0%
UNTD 1/5/08 11.08 10.65 0.40 141.31 123.64 1.31 -0.3% -11.6% 11.3%
PCR 1/9/08 34.98 26.21 - 140.37 123.64 1.31 -25.1% -11.0% -14.1%
CSPI 1/12/08 7.18 5.64 - 140.15 123.64 1.31 -21.5% -10.8% -10.6%
DTPI 2/2/08 4.86 5.25 - 139.58 123.64 1.31 8.0% -10.5% 18.5%
AIRV 2/13/08 5.20 6.09 - 136.37 123.64 1.31 17.2% -8.4% 25.6%
CITP 2/16/08 10.21 9.77 - 135.14 123.64 1.31 -4.3% -7.5% 3.2%
PRXI 2/16/08 4.39 3.88 - 135.14 123.64 1.31 -11.6% -7.5% -4.1%
CAST 2/23/08 5.18 4.21 - 135.62 123.64 1.31 -18.7% -7.9% -10.8%
GSB 3/12/08 2.13 1.64 - 131.36 123.64 1.31 -22.9% -4.9% -18.0%
IGC 3/12/08 3.79 4.57 - 131.36 123.64 1.31 20.7% -4.9% 25.6%
LGTY 3/12/08 6.85 6.59 - 131.36 123.64 1.31 -3.9% -4.9% 1.0%
MRX 3/12/08 19.90 18.58 0.08 131.36 123.64 0.67 -6.2% -5.4% -0.8%
DEPO 3/22/08 2.80 3.86 - 132.08 123.64 0.67 37.7% -5.9% 43.6%
nvtl 3/22/08 9.19 9.27 - 132.08 123.64 0.67 0.9% -5.9% 6.8%
VRGY 3/22/08 17.82 22.22 - 132.08 123.64 0.67 24.7% -5.9% 30.6%
DLX 4/6/08 20.03 18.21 0.25 136.89 123.64 0.67 -7.8% -9.2% 1.4%
NTRI 4/6/08 15.28 16.56 0.18 136.89 123.64 0.67 9.5% -9.2% 18.7%
IUSA 4/6/08 5.40 5.13 - 136.89 123.64 0.67 -5.0% -9.2% 4.2%
LRCX 4/11/08 42.02 30.74 - 133.38 123.64 0.67 -26.9% -6.8% -20.0%
SLXP 4/11/08 6.62 7.38 - 133.38 123.64 0.67 11.5% -6.8% 18.3%
CHRD 4/19/08 5.15 5.23 - 138.48 123.64 0.67 1.6% -10.2% 11.9%
QXM 4/26/08 6.40 5.57 - 139.60 123.64 0.67 -13.0% -11.0% -2.1%
MDP 5/9/08 34.57 26.58 0.22 138.90 123.64 0.67 -22.5% -10.5% -12.0%
OMPI 5/9/08 7.27 8.50 - 138.90 123.64 0.67 16.9% -10.5% 27.4%
PPD 5/9/08 44.45 40.74 - 138.90 123.64 0.67 -8.3% -10.5% 2.2%
ELNK 5/25/08 9.42 8.70 - 137.64 123.64 0.67 -7.7% -9.7% 2.0%
FTAR.ob 5/25/08 4.47 3.92 - 137.64 123.64 0.67 -12.3% -9.7% -2.6%
CHKE 5/31/08 27.88 21.06 - 140.35 123.64 0.67 -24.5% -11.4% -13.0%
APKT 7/5/08 4.73 4.58 - 126.31 123.64 0.67 -3.1% -1.6% -1.5%
CSY 7/5/08 11.31 12.80 - 126.31 123.64 0.67 13.1% -1.6% 14.7%
VALU 7/5/08 32.74 36.37 0.40 126.31 123.64 0.67 12.3% -1.6% 13.9%
QCOR 7/26/08 4.95 5.00 - 125.48 123.64 0.67 1.0% -0.9% 1.9%











Totals






-1.72% -7.72% 6.00%
63.6% of stocks beat the S&P 500 Benchmark







Let the challenge begin! Note I added QCOR today. Please note that I am not advocating using this approach... it will undoubtedly be riskier than what you see in MagicDiligence as I do no research and will have microcap stocks in there.

5 comments:

Albert said...

Marsh, how did you "know" that TRID is in a product replacement cycle? I ask because I own that stock too of course -- I bought it March 31st. I admit I wasn't exactly reading through their Q's and K's prior to purchase, but...

steve said...

Hey Marsh,

Tweaking me?! Okay, it's on! :)

Interesting strategy - looks like it's set up to catch the small-cap "dippers". You said over 1m, I assume you meant over 100m?

Just to tweak this friendly competition a bit more, allow me some observations:

- Tough and potentially expensive to duplicate in practice. Lot of stocks, lot of turnover.

- A good percentage are "penny stocks". These are volatile as all get out. Many investors panic because these jump all over the place.

- You mention in the first post that you're beating the S&P by 8.3%, but the second post shows the gap at 6%, which pretty much puts us even at close today 7/28.

I'm pretty impressed at the outperform rate, though. I will say that MD has 3 picks that are less than 1% underperform, putting me within striking distance of the 70% outperform rate!

In all seriousness, though, you are right in that MD is focused more on risk management than nailing the home run. Of course, when you take big swings, a lot of the time you miss embarrassingly!

All the best. I'm interested to see how the strategy pans out.

Steve
MagicDiligence

PS - this blog is free? Please cancel the check I sent!

Adam P. said...

Ok then... Let the challenge commence :)))

Just wanna say that I've been watching your blog from afar, and I've really enjoyed it. Especially the anxious/funny pre-earnings posts :)

In this crazy market environment, it takes a lot of courage and good humour to stick with MF investing without succumbing to the 'tweaking' temptation too much.

I think your willingness to endure the pain teaches you a lot about discipline and positions you to outperform bigtime once the market conditions improve.

Keep it up and good luck!
A.P.

Marsh_Gerda said...

wow, lot of interest in this post. In response to Steve... my approach is beating the S&P by 8.3%. I then assumed I paid 2.3% extra for each stock so you and I are on exactly even footing to start the challenge.

Without the 2.3% handicap, I'd be at 69.7% outperform.

In answer to Albert about TRID, you can generally get that info reading press releases of reading the cc notes. Here is what they said a quarter ago (note words like "evolve and recapture", that signals they are changing over products, not to mention their sales being down):

"Our third quarter results reflect the challenges we face in an increasingly competitive market environment as we continue to evolve our product portfolio to include SoC solutions," said Sylvia D. Summers, Trident's Chief Executive Officer and President.

"We are committed to transforming Trident products to recapture our customer base and to position the company for strategic growth in calendar 2009. By focusing on improved execution across the organization, we will leverage our substantial engineering talent and expertise to extend our product roadmap and to develop and deliver industry-leading SoC solutions. In parallel, we will continue our efforts to align our sales and marketing team to be customer facing," added Summers.

Marsh_Gerda said...

Adam, thanks for the nice note. Sometimes it doesn't seem so funny as it is real money for me. I do believe MFI will work over the long term, though not to the extremes shown in the book. I think the table that convinced me the most was on page 64 where JG shows that each decile had diminishing returns.