Wednesday, February 02, 2011

Read This Closely

"Dealings with Brokerage Houses"

"One of the most disquieting developments of the period in which we write this revision has been the financial embarrassment - in plain words, bankruptcy or near-bankruptcy-of quite a few New York Stock Exchange firms, including at least two of considerable size. This is the first time in half a century or so that such a thing has happened, and it is startling for more than one reason. For many decades the New York Stock Exchange has been moving in the direction of closer and stricter controls over the operations and finanical condition of its members -- including minimum capital requirements, surprise audits and the like. Besides this, we have had 37 years of control over the exchanges and their members by the Securities and Exchange Commission. Finally, the stock-brokerage industry itself has operated under favorable conditions, namely a huge increase in volume..."

Guess What?

In many ways, this looks like it could have been written yesterday about the 2008 crash and bankruptcies. Of course the "37" years of the SEC is a clue that this was not written in 2008. Of course it was written in 1970 by Benjamin Graham. Pretty striking how much things actually stay the same! It is that very point that is making me take his book very seriously.

CCME Update

Nothing boring about owning CCME. Last week it spiked to $23. Today it has fallen to $16.60. The drop was based on this article (Why I Sold Out of China Media Express) and this article (here). While I can not "know" they are wrong, I have seen this enough to know the pattern the short sellers use. It is really despicable the way they cause fear to pad their pockets. In fact, these short raids have generally been a very good buying opportunity for those stout of heart. I already have a pretty good chunk of CCME, but if it drops to $16.00, I may buy another 1,000 shares.

I think the important thing to keep in mind is that the Citron article is suggesting that CCME is not a real, nor fast growing company based upon conjecture and web-searches for key words. But they are audited by Deloitte, I hardly think DT is going to allow CCME to materially misstate their revenues. In addition, Hank Greenberg has invested over $100m and he has strong Chinese ties and I doubt he'd be buying a company that didn't exist (though I will say that he is not the world's smartest investor, having plowed $ into Lehman as it crashed and burned Hank Greenberg to proceed with Lehman investment).

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