A Canadian on Wall Street

From my eye in the (Internet) sky, Bjorn: http://www.alleyinsider.com/2007/10/its-finally-off.html (good old Henry Blodget!)

I said as much here, although interestingly I felt it was okay for eBay to purchase Skype, provided they could run them as separate businesses. All that effort put into integrating the companies is probably what hamstrung Skype in the end. I think what this proves is that the average man on the street is more strategically savvy then many of the people on the inside, who are probably unable to gain perspective, bombarded by statistics and demographic studies and MBA-quackery market research by people who may have never even used eBay or Skype; I’m sure there were paydays for those who helped instigate and shepherd the deal through, as well. Mistakes happen at all levels.

Also, shorting RIM, as I predicted, would have been foolhardy. The stock has more than doubled since I wrote that, and of course the iPhone is out and has been doing well, if not spectacularly, hence the startling price drop within the first few months of its release.

Nothing has really piqued my interest in the equity markets these days, besides. This is a strange and unsettling market which is a mix of bad news and all-time highs, one that I — in my limited experience — have not dealt with and so I’ve taken to standing back and waiting. I’ve decided that it’s probably worth it in the long run to wait for deals, rather than just throwing my money after already highly bid equities, hoping to cash in on momentum. It’s a change in my purchasing style that I don’t like, but it’s difficult in current conditions to do anything but. I’m just happy to have made some money on various stocks, like Nintendo, Genco Shipping and NVidia while they were relatively low-priced.

A select article from Robert Shiller’s interesting commentaries on Project Syndicate. It’s about the much-mentioned “the stock market has historically gone up” cliche that many people seem to believe implies that stocks will assuredly be a good investment in the future. Frankly, there’s no guarantee of that — as Shiller summarizes:

Of course, investing in stocks is not a bad thing. Indeed, the stock market is an important component of any modern economy. But we should not make plans that rely on high returns, as many (including some governments) appear to be doing.

The purchase of the privately held Standard Broadcasting by Astral Media announced over the weekend caught my attention, mostly because I had recently been invested in Astral for a short time around the time I owned Alliance Atlantis, buying some of the news about potential further consolidation in the Canadian media landscape. (Although, honestly, it was probably more likely that Astral would be the buyer in any deal — some speculated they’d buy Corus, but I had my doubts. As is usual, the buyer’s stock isn’t doing so hot this Monday morning, so I’m glad to have got out with a modest profit.) What with the planned merger of XM and Sirius Satellite Radio in the US (and its consequent fallout for their Canadian arms), the competition arena for radio shifts again.

When I first traded penny stocks I didn't have a clue. The penny heater has changed that for me. Trade the best.

It’s hard to say whether or not this Astral-Standard deal is really that much to be impressed by. Radio is fragmenting, and even with their new 81-station grip on the Canadian radio market (Corus Entertainment holding on to second with around 50-odd stations, I believe), it’s a little like that saying about exchanging deckchairs on the Titanic. Not that I think radio is dying, but with the surprising (to me) popularity of podcasts, streaming online radio, iPods and their own custom playlists and the sheer number of ways NOT to listen to the radio, I suppose it is somewhat impressive that radio, in either terrestrial or satellite form, is still alive and mostly kicking. With Google now in the radio ads realm (along with other players like Software Media Exchange and Bid4Spots) there are obviously some people who think radio will continue as a strong, stolid revenue source. It certainly won’t be a major growth industry (the attempted consolidation of satellite radio so quickly in that young industry, with its plateauing subscription numbers is an indicator of this) and I don’t know how practical it is to make bets on potential buyout targets, given that most of the public players have already bulked up considerably. Lately, I’ve been moving back to a more traditional value stance, and less about trying to exploit special situations, since these always seem much harder to call.

I really hate headline writers who work in business news, because you end up with stuff like this: Quadruple profits served up at Tim Hortons. In the entire body of the story, no mention is made of the fact that there were one time costs that depressed earnings in the previous year’s quarter. Even in this story, the mention is three-quarters of the way down the page:

Earnings a year earlier were cut by C$33.5 million to reduce goodwill and the value of assets after a 2004 acquisition in New England, Tim Hortons said.

And here, halfway down:

However, the earlier results had been dragged down by $42.5 million in one-time items partly related to its initial public offering.

Not even sure why those two explanations don’t jibe. Admittedly, it’s good news for the person who’s willing to do more reading than the average person, but it would almost be worth it to have a site devoted solely to debunking these kinds of news items. But it seems rare that the financial media has time for such in depth coverage, to the detriment of itself and those who read it without a keen eye.

So I got out of my positions in Alliance Atlantis and Astral Media recently, mostly because I felt the opportunity cost of waiting for the Canwest buyout to close in the first case and for a buyout or major event in the second case was too high, considering the size of the position I was taking. I was definitely disappointed that no bidding war occurred with AAC.B to push the price up, and even though I don’t have any particularly good ideas for new investments, I felt like my gains in both stocks were marginal at best and I really don’t like holding a stock when I’m close to break even for long periods of time.

On a side note, I finally got back on Interactive Brokers after having left it a long time ago for some arbitrary reasons (no EFT at the time and market data fees that were cutting into what little I kept in the account), in no small part due to this convincing write-up on them (although it turns out the strategy to overcome the lack of interest on the balance less than $10,000 isn’t so perfect). Although the website is a bit of a hodgepodge of links and windows and so-so user interface choices (why is it all accessed from a drop-down box?), it’s great to have the better commission charges and foreign exchange rates (the FX trader interface seems pretty slick although I have no point of comparison, having never tangled in the dicey realm of forex trading) and access to much more global markets, even though I suspect the bulk of my investing will still go towards Canada and the US.

David Olive on Abitibi and his belief that they’re on a delusional road. And yes, I realize I’m posting articles from elsewhere and not so much my own original commentary, but frankly I’ve had little on my radar lately.

This letter from Bill Miller reminds me of something I was thinking about earlier today and wanted to write about. He writes:

Buying tech was not something value investors did back then. That was because tech was not thought to be predictable in the way something like Coke was, for example, since technology changes rapidly. But we had learned from Brian Arthur at the Santa Fe Institute about path dependence and lock in, which meant that while technology changes rapidly, technology market shares often don’t, so they were much more predictable than they looked. We bought them and got lucky when tech values turned into a tech mania in 1998 and 1999.

The result was we did well when first-rate value investors such as Mason Hawkins and Bill Nygren did poorly. They had almost no tech, and if you didn’t have it, you had almost no chance to outperform.

This reminded me of a thought I had this morning that I’ve had before, one which is about the concept of non-constant strategies. People tend to want to follow strict formulas when investing in equities, but the reality is that one must be adaptable. Sure, over the period of time that Warren Buffett has been investing, the concept of value investing has been one of the most sensible because over that span of time, it was. But over the span of time in the tech explosion, it looked like a bad strategy. Could it be possible that over an even longer span of time, Buffett’s strategy may also be “incorrect”? Or put another way, is there a way to augment the value investing strategy to incorporate the ability to shift away from it when need be, to take advantage of more abrupt changes in stock values? (Maybe this is already done a bit by investors like Joel Greenblatt, who mix their value investing with attention paid also to special situations like spinoffs, buyouts and derivative plays in those situations?) What is the exact benefit of maintaining an unchanging strategy — it seems like a recipe for an inflexibility of mind, one that treats the market like a routine cash machine and less like the unpredictable and shifting animal that it is.