***Official*** 2011 Stock Market Thread

[IHateMyJob2004]

I know. I've just been debating it, or at least go into gold (which I'm so far up 368% on)

What is the value of gold and why?

Remember the tech bubble?

 

[manlymatt83]

What is the value of gold and why?

Remember the tech bubble?

The value of gold is constant. It never goes up or down...

 

[FelixDeCat]

It never goes up or down...

:hmm:

Of course it goes up and down. Everyday. Lately its been up but down mostly.

 

[manlymatt83]

:hmm:

Of course it goes up and down. Everyday. Lately its been up but down mostly.

Relative to the dollar, sure. But that's the dollar going up/down, not gold.

 

[JS80]

Relative to the dollar, sure. But that's the dollar going up/down, not gold.

There's also demand for gold, it's not purely dollar flux.

 

[TheNinja]

There's also demand for gold, it's not purely dollar flux.

What if everyone decides gold is no longer "valuable". Will we see the Tulip Craze/Crash all over again??

 

[JS80]

What if everyone decides gold is no longer "valuable". Will we see the Tulip Craze/Crash all over again??

I'd say $300-600 of gold price is for jewelry/industrial use. The rest is investor froth.

 

[FelixDeCat]

I bought 2 JUNE QQQ 54 put contracts for .45 and they have gone straight up so far.....fingers crossed for a selloff. =)

 

[JS80]

I bought 2 JUNE QQQ 54 put contracts for .45 and they have gone straight up so far.....fingers crossed for a selloff. =)

i'm long 100 QQQ 55 puts @85c that expire tomorrow. I'm tempted to keep til tomorrow and hope for a flash crash.

 

[FelixDeCat]

i'm long 100 QQQ 55 puts @85c that expire tomorrow. I'm tempted to keep til tomorrow and hope for a flash crash.

I got the idea from you BTW, thanks! Good luck with your trade. Im going to cash out today I think, but Ill get a daytrader strike if I do. I only have 1k in the account, which is now worth $1400 in two trading days! I think we go down 40 on the NAS today, but thats just a guess.

Cheap puts are attracting the money right now.

edit: OUT @ .53, missed .65

edit #2: It was 20 not 2 contracts. Within 15 mins it had gained $300 all on its own. Buy the time I decided to sell and pushed the button, I walked away with $105 five mins later. That was your flash crash.

 

[IHateMyJob2004]

The value of gold is constant. It never goes up or down...

Never heard that before.

My take on gold. Buffett said it best:

You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?

 

[IHateMyJob2004]

I'd say $300-600 of gold price is for jewelry/industrial use. The rest is investor froth.

The cost to extract gold out of hte ground is $400-$800 per ounce depending on the mine. Atleast from the two different CEOs I heard from and no I don't remember who. And that cost goes up at 10% a year historically. That cost growth rate is scary (wa above inflation). But it makes sense. The most cost effective lcoations are mined first.

And yes, the primary use is jewlery. So the price of gold is greatly based on greater fool theory. The price of gold is what the last fool paid. Eventually you get to the greatest fool. That's teh guy that looses his ass.

I actually had to fact check this tidbit. If you get all the gold out of one cubic mile of ocean water, you'd over double the world supply. It's not a myth. It is fact. That's alot of water though and current tech is cost prohibitive. But if gold prices keep going up 10% annually, this will eventualy be cost effective. Now if someone can find a cheap weay to extract it, everyone is in for a shock. Ya, longshot and unlikely. just something to keep in mind.

 

[IHateMyJob2004]

Hey, we should go public with the idea (patent) of using microbes to extract gold.

 

[IHateMyJob2004]

I just too ka look at WMT and TGT this morning. TGT hit a 52 week low. Both have a history of stock buybacks that sizably reduce share counts. And both appear to be undervalued. WMT just a little bit and TGT a bit more. I'm eyeing up TGT right now.

 

[LegendKiller]

The cost to extract gold out of hte ground is $400-$800 per ounce depending on the mine. Atleast from the two different CEOs I heard from and no I don't remember who. And that cost goes up at 10% a year historically. That cost growth rate is scary (wa above inflation). But it makes sense. The most cost effective lcoations are mined first.

And yes, the primary use is jewlery. So the price of gold is greatly based on greater fool theory. The price of gold is what the last fool paid. Eventually you get to the greatest fool. That's teh guy that looses his ass.

I actually had to fact check this tidbit. If you get all the gold out of one cubic mile of ocean water, you'd over double the world supply. It's not a myth. It is fact. That's alot of water though and current tech is cost prohibitive. But if gold prices keep going up 10% annually, this will eventualy be cost effective. Now if someone can find a cheap weay to extract it, everyone is in for a shock. Ya, longshot and unlikely. just something to keep in mind.

So, effectively, gold isn't even really "worth" being mined. Considering ~80% of annual gold demand is investment/jewelry, a simple linear extrapolation would place gold's value at $300. Logically, if the demand were constrained only to the 20% demand and supply were placed at the current extracted gold, a linear extrapolation is worthless and gold's value would be far less than $300.

Gold is absolutely based upon the Greater Fool theory. It produces nothing of value, has been debautched by paper demand, generates no cash, and is only worth what somebody else will pay for it. It's effectively a fiat currency in that it has no intrinsic value. Valuing that on replacement cost is silly in that if something is worthless you wouldn't want to replace it.

Saying that gold has gone up because of the dollar's decline isn't wholly correct. There is a weak correlation, the decline in the dollar has been far less than the run-up in gold. The stronger correlation is to times of distress and to the modernization of futures contracts that allow 8+:1 leveraged betting on gold. This is akin to a NINJA loan to bet on gold.

 

[manlymatt83]

I'm up 25% on my QQQ puts I purchased the other day as my first trade this year (I had been sitting on the sidelines for quite a while, but agreed with JS80's comment to buy). Not as much of a drop as I would have liked but I'm still up 25%, but these options expire in July so there's a big time value issue here.... I probably won't hold the weekend.

 

[IHateMyJob2004]

As a follow up to my recent buys. And for those looking for value investment ideas.

Today, I added TGT to my portfolio. I figure it is 25-35% undervalued. Would have liked to pay less but that is good enough. For TGT, I want a 30% discount to IV. This is good enough. Near a 52 week low. If doing a DCF, remember to normalize cap ex!! FCF is better than it looks.

In the past week or so, I also bought TXI. Had a nice 5% run up today. Doesn't look cheap until you read about future work including a big project in Texas. I think that is what most people don't see. Gurus tracked by gurufocus own a total of 30% of the company and insiders have been buyers recently granted some of those buys were by gurus who are 10%+ holders.

CRWS I already mentioned. I bought that more recently.

 

[JS80]

As a follow up to my recent buys. And for those looking for value investment ideas.

Today, I added TGT to my portfolio. I figure it is 25-35% undervalued. Would have liked to pay less but that is good enough. For TGT, I want a 30% discount to IV. This is good enough. Near a 52 week low. If doing a DCF, remember to normalize cap ex!! FCF is better than it looks.

In the past week or so, I also bought TXI. Had a nice 5% run up today. Doesn't look cheap until you read about future work including a big project in Texas. I think that is what most people don't see. Gurus tracked by gurufocus own a total of 30% of the company and insiders have been buyers recently granted some of those buys were by gurus who are 10%+ holders.

CRWS I already mentioned. I bought that more recently.

I guess if you think economy will grow those are good stocks. But you happen to choose two crappy sectors right now - retail and construction, both of which are forecasted for contraction.

 

[Imp]

As a follow up to my recent buys. And for those looking for value investment ideas.

Today, I added TGT to my portfolio. I figure it is 25-35% undervalued. Would have liked to pay less but that is good enough. For TGT, I want a 30% discount to IV. This is good enough. Near a 52 week low. If doing a DCF, remember to normalize cap ex!! FCF is better than it looks.

I held TGT early in the year when it was still ~$54. At $46-ish, it's a pretty good longer term bet. They are in the process of expanding into Canada, but we're only 1/8 (?) the size of the US of A.

Slowly rebuilding into MSFT at $24. Looks bottomed out at this point hitting a low of $23.75 earlier this week, and earnings come out within a month. Hope it does the usual run-up to earnings, then crashy crashy again.

 

[IHateMyJob2004]

I guess if you think economy will grow those are good stocks. But you happen to choose two crappy sectors right now - retail and construction, both of which are forecasted for contraction.

I bought WFC when that was a crappy sector also. Doubled my money there.

If retail slips, people that used to shop at discount retailers still will and those that were to proud to shop at discount retailers will start. Proof of theory is events from 2-3 years ago. I'd avoid stores that sell wants but stores that sell needs are OK.

As for construction, you have to read about TXI and especially what is going on in Texas (pretty sure it is Dallas). Generalizing is a good first step. Finding out where the generalization thesis is wrong is a better second step.

The economy will grow. Bumps always happen. 5 years from now, GDP will be higher than today.
http://en.wikipedia.org/wiki/File:US_GDP_per_capita.PNG

As for TGT, even if revenues are flat, they do share buybacks. it will grow.
year shares change
2002 903
2003 909 -0.66%
2004 911 -0.22%
2005 895 1.76%
2006 879 1.79%
2007 859 2.28%
2008 831 3.26%
2009 753 9.39%
2010 752 0.13%
2011 708 5.85%
recent quarter 693 2.12%

AVG 2.57%

 

[lothar]

The value of gold is constant. It never goes up or down...

Why do gold bugs always use the "it's a store of value" theory?
http://www.cnbc.com/id/41867379

 

[IHateMyJob2004]

Why do gold bugs always use the "it's a store of value" theory?
http://www.cnbc.com/id/41867379

From Wikipedia:
http://en.wikipedia.org/wiki/Greater_fool_theory

The greater fool theory (also called survivor investing) is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to "a greater fool"; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to someone else at an even higher price.

It is similar in concept to the Keynesian beauty contest principle of stock investing.

Some consider it a valid method of making money in the stock market, particularly momentum investors; however, fundamental investors believe that market participants eventually realize that the price level is too outrageous (too high or too low) and the speculative bubble pops. The greater fool theory relies on market optimism and market momentum concerning a particular stock, an industry, or the market as a whole.

The opposite of the greater fool theory is value investing, or contrarian investing, which tries to discount, or even actively go against, the prevailing market psychology. Value investors such as Warren Buffett believe that it is corporate profits which are the normal returns from stock investments and any higher return is possible only due to the greater fool theory.

 

[manlymatt83]

Yuck, should have dumped my QQQ options on Friday, but it never hit my limit price and I guess I was greedy.

 

[lothar]

As a follow up to my recent buys. And for those looking for value investment ideas.

Today, I added TGT to my portfolio. I figure it is 25-35% undervalued. Would have liked to pay less but that is good enough. For TGT, I want a 30% discount to IV. This is good enough. Near a 52 week low. If doing a DCF, remember to normalize cap ex!! FCF is better than it looks.

In the past week or so, I also bought TXI. Had a nice 5% run up today. Doesn't look cheap until you read about future work including a big project in Texas. I think that is what most people don't see. Gurus tracked by gurufocus own a total of 30% of the company and insiders have been buyers recently granted some of those buys were by gurus who are 10%+ holders.

CRWS I already mentioned. I bought that more recently.

I did buy CRWS on Monday last week BTW.
I didn't see anything particularly damaging in their annual and quarterly reports to change my investment thesis.

As for construction/housing, I'm not fully convinced of an immediate recovery just yet(I know you've mentioned USG, MAS, and a few others in the past).
The only stock I had in my portfolio related to that industry was TEX and I sold it around $32. It was a nice profit, but I wish I sold higher.

 

[lothar]

I'm long ARO and short GMCR right now.

I'm a Ben Graham follower - if anyone else reads his stuff, drop me a line.

I've got some Aeropostale (ARO) shares, here's my reasoning:

2 things:
1. Credit for bringing this idea to my attention goes to Roark, Rearden, and Hamot Capital Management, I simply dug into it for myself, but the research is really their own
2. SSS = Same Store Sales. If you sell $10 January 2009, but $12 January 2010, that's a 20% SSS increase

Long side:
- Positive SSS leading up to recession, through it, and then following it
- Look at YOY B/S data, they've grown revenue 40% over past 2 years, however inventory has stayed flat, they're managing that really well
- Cash Flow from ops lines up with very well with income statement - earnings are likely of good quality
- Cheap on metrics, 8x 2010 FCF, 10x P/E, etc., versus ANF@ 16x 2010 FCF, P/E on 2010 data is misleading because earnings got killed (Potentially long ARO, short ANF or a basket of the peer group)
- Very clean balance sheet, no long term debt or anything like that, plenty of cash on hand. Metrics improve to 7x FCF and 8-9x Earnings for ARO if you back out their significant cash position

Short case, why it's so cheap:
- Analysts believe people traded down to ARO from ANF and other brands, they will be going back to their brands as soon as consumer incomes rise
- Analysts frequently cite ARO's significant discounting as something that will erode margins
- Not an exciting situation, company is nearing maturity. 900 stores in existence, management believes the optimal amount will be 1000-1100

My counters:
1. If you buy it at a cheap price, it will be priced for both short cases and so if reality falls short of those issues even a little bit, we'll see an upside. If any of the consumers now likes ARO and enjoys wearing it, it's possible that they will stay with the brand or split their shopping between the two stores. I don't think they'll remove the store entirely.
2. They've had significant entire-store discounts for a while, it's what drives people there. It's a part of their strategy to have everything marked down. The numbers we see already have this effect for a long time, it's nothing new, but yes, compared to competitors, they are the ones still "discounting." I believe it's mostly marketing - raise the MSRP, say store is 50% off, etc.
2a (counter to 2) - Their profit margins have been steadily improving for quite a while, that's going to end at some point, so those gains will not continue on a YOY basis. I would assume they face same sourcing pressures that others deal with though, so their cost of manufacturing and sourcing the clothing should move with the market. (Again, go long ARO and short a basket to hedge out these risks)
3. Management actually understands capital allocation and that growing revenue for revenue's sake is not beneficial? This is great, I'd love if every company was this good at it.

Since you seem to be an ARO bull, I'll ask a few questions.

I am seriously looking into ARO, but it's been a pain having to go back, learn a few things, and change a few things in my analysis.

Do you consider operating lease in your valuations?
With some retail companies(ARO is one of them), they lease their locations using off-balance sheet methods for their operating leases and you therefore have to recapitalize them by changing everything so your statistics don't look substantially inflated.

If one doesn't do that, the reported valuations such as EBIT, EV, and Others(because those might be off, any important ratios that depends on those as well such as FCF/EV, P/EV, P/EBIT would be off as well and look really inflated).
Is it worth it to recapitalize them as such or am I the one over thinking it?

I should add that I don't have much experience in valuing and analyzing retail companies. The only retail company I've ever bought was WAG June last year which was a no-brainer for me when CVS Caremark foolishly dumped them.

I feel ARO is worth about $25-27/share.
The 300+% rise in cotton prices have knocked down their stock, along with -7% SSS. I'm not too hooked up particularly on SSS numbers because they're just that...Sales, not profits.

The Buckle(BKE) also looks like a good stock to own forever...If the price comes down a bit to the 20's. The numbers from management look fantastic.