Deconstructing A Blow Up

I had a stock blow up in client portfolios this week. Last December on Forbes on Fox I picked Zebra Technology (ZBRA). They are in the RFID business which helps with supply chain management. There are also interesting applications with drug prescriptions and security. The story is simple, the demand for this is clear yet the company has struggled and this week the company gave its second bad earnings report in a row and also guided lower for the foreseeable future. Most clients have a cost basis in the mid $40 and I think the highest entry point was around $52. When the news came out Wednesday about the earnings, the stock dropped to about $40 from about $47 in the pre-market. I decided to sell it at the open. I got an average price of $40.35. Often it makes sense to not sell into the kneejerk reaction but I did anyway. For now that was the right call. The stock looks like it closed at $38.21 on Thursday. A month from now it may be back to $45, I don’t know. I do know I got something wrong. As time goes on I will have more mistakes, that is how it goes. How I manage those mistakes is what matters. My decision to sell was based on two bad reports in a row and similar struggles at Symbol Tech (SBL). I think I learned that I should have taken a cue from the action in SBL before the ZBRA news to get out. ZBRA had about a 2% weight in client portfolios so the damage is minimal. This...

Lots O’ Vanguard

I found a couple of interesting nuggets in the news about Vanguard ETFs that I thought would be worth exploring. The first was an article (might require a subscription) on the Morningstar site that evaluated the Vanguard Emerging Market Viper (VWO). The way I read these articles it seems like they are aimed at trying to help you decide whether or not a particular ETF is a good trade or not. This is the wrong way to look at for most people. A diversified portfolio means always including some amount of emerging markets. The amount depends on tolerance for volatility and normal asset class analysis. Most of my clients have about 5% allocated to emerging markets. Sometimes, based on current events and what I think might happen over the next six months or a year I may increase or reduce that exposure. Maybe I read these articles incorrectly but I would like to read why now is a time for more or less exposure not that a particular segment of the market may be to pricey. If some area of the market is too pricey is Morningstar suggesting no exposure? That is not clear to me. Another thing in the article that I thought was strange was the author’s implication the VWO is a better choice, if you have to have emerging market exposure, than EEM because the expense ratio is a lot less. For the record VWO’s expense ratio is 0.30% (according to the article) and EEM’s expense ratio is 0.76% (according to Yahoo Finance). I think of this as forest for the trees analysis. At this point...

I Don’t Think So

One of the themes of this blog is trying to help do-it-yourselfers become a little more knowledgeable about how markets work and to share my process for portfolio construction. This can be as simple or complicated as anyone wants to make it. I try to make the starting points for sector and country weights very simple on this site and more importantly in my practice. The final step, for me, of picking stocks is probably the most complex part of my process but its not cryptic nor is it rocket science. This brings me to comments from Gary Kaminski, today’s guest host on Squawk Box. He went on and on about how to add value you have to be on the road all the time and meet with managements. It was a lengthy “pitch” for whatever it is he does; separate account management mutual fund management or both I imagine. This is just flat out not the case. Whether you are top down or bottoms up, any implication like Gary’s, that a do-it-yourselfer can’t pick stocks ticks me off plenty. Anyone out there have an oil stock that is up a lot that they did not visit? I have a few of them. Anyone own Target (TGT)? I have owned it for clients for a long time, its up about 30% in the last year. TGT is hardly complex. How about Intel (not a name I own for clients)? It is up about 30% since its low last fall. That a do-it-yourselfer might own a couple of oil stocks, TGT and INTC is not really a stretch is it?...

Constructive Action

Last night in my interview I made it clear I think we have a good shot at some upward movement in equity prices. I think this is more of a trade higher though, as opposed to something based on fundamentals. At this point I still have some cash in client accounts although less than I had a couple of weeks ago. I can see adding some more foreign toward the end of the year and I am hoping that tech continues to do well and add some performance. I am still cautious because I do not see why the market can have a sustained run based on fundamentals. This is just opinion. I will be disciplined to my exit strategies to reduce exposure. This is important. It would be easy to get caught up trying to out think the...

Foreign Investing Roundup

Toward the end of European Closing Bell Simon had Richard Fox, director of Sovereign Ratings from Fitch on to talk about Fitch’s new rating system. Only five countries get the top rating, US, UK, Netherlands, Luxembourg and Australia. The second group gets the rest of the developed countries plus five emerging markets which are South Africa, Chile, Estonia, Saudi Arabia and Kuwait. Austria and Iceland are only adequate because of the recent strength in the housing market and banking sector in the former and in currency strength in the latter. Part of this new system is to be on the look out for new bubbles. Hungary is a watch out situation due to some banking issues having to do with too much growth too soon. This is interesting to me because of what they said about Australia, Chile, Iceland and Hungary. That the changes in the rating system are predicated on trying to save investors from future bubbles seems strange and my guess would be it is abandoned soon. Changing subjects, US Closing Bell had a good interview with Audrey Kaplan who is one of the managers of the Rochdale Atlas Fund (RIMAX). Ms. Kaplan’s three favorite countries are Norway, Brazil and Germany but these were not the heaviest weightings in the fund. Rochdale’s web site does a nice job reporting the holdings. The country breakdown is Austria 7.9%, Belgium 7.6%, Brazil 9.7%, China 7.9%, France 9.7%, Germany 9.5%, Korea 8.9%, Mexico 7.2%, Netherlands 6.9%, Norway 8.3%, Taiwan 5.9% and Thailand 5.2%. I think it is useful to see what other managers are doing. Austria interests me. I personally...