Saturday, December 18, 2010

December 18th 2010

Here is a status update as we head towards the Holiday break. As a note, I expect this site to be dark starting December 23rd and I will not re-start until post New Years.
Contrarian Indicator?

Yahoo! Groups has an MFI Board (Magic Formula Investing - Groups) that has been running since the start of 2006, pretty much coinciding with my blog. There is a counter of number of posts on the board and it has been noted that when postings are very low, that is actually a good time to invest.

2006 Low: August (13.0% vs 13.3%)
2007 Low: December (-36.3% vs -40.0%)
2008 Low: December (48.9% vs 32.3%)
2009 Low: April (69.7% vs 45.8%)
2010 Low: February (16.4% vs 15.6%)

So for 2007-2010 the low water posting mark has been a time to beat the broader market overall by a pretty sound margin. I mention this because December 2010 is looking like the all-time low water mark, with just 4 postings all month (the previous low is 20 in April 2009).

I did sell my CEU on Friday with the "spike" upwards. It was an expensive mistake to add shares to my holdings when the short bashers came in this time. I think I will do it again with another company, but no strategy works 100% of the time.

I think the turning point for me was their conference call. Here are some of the answers that worried me and made me wonder whether this was a real company:
  • CEO Salary: The CEO’s annual salary is only about $20,000
  • Lack of Facilities: The Company has many training centers, and they are used for different purpose. The one that has been questioned more recently is one of our older training centers, which requires some maintenance and remodelling work. The facility was in the process of being remodeled when a video was taken.
  • Investment Returns on Cash: We earn 0.36% on our deposits with the banks in China, and 0.2% on our deposits with US banks . Based on these rates our interest income is accurate with market yields. However, we are considering investors’ suggestion on how to get better rates of return on our cash balances.
So I have sold the stock and taken my lumps. I did add a bit to my holdings of CCME which one enthusiastic blogger called "the perfect stock" (China MediaExpress: The Best Stock in the World). But I head into 2011 9% in cash. I am not sure whether I will add to current holdings in stocks such as MSFT, or look for something new. I also have RAI coming up on a year (a very successful one, up 28% vs 11% for Russell 3000). I am still kicking around AZN (which took a hit yesterday) and returning to RTN.
Inception to Date Graph

Here is my inception to date chart. You'll note it has floundered since early November and is ironically almost exactly equal with the MFI Index (over time perhaps these things do converge).

Year-to-Date Graph

Wild ride of 2010 is much more obvious here:

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