HOW CURRENT MARKET LEADERSHIP TELLS US THIS BULL MARKET HAS A LONG WAYS TO GO
I made a reference on Twitter Friday to how late stage bull runs are always led by frothy, growth names as opposed to consumer cyclical and basic material type names. In late stage bull runs, near 200 point Dow up days will have momentum names like YELP and TSLA leading the charge. There is a psychology to this frame of thinking that has more conservative names left behind while more aggressive names shine. When bull markets mature, participants become extremely comfortable in the bed that has been made for them. This means that they feel cozy enough to make moves that can create the greatest gains in the shortest amount of time. High-beta investing to the fullest. Invariably, more conservative sectors will get left behind. During strong up days is when the tendency of investors becomes the most evident because that is when greed will surface. So on Friday we had a strong up day, but the "new school" momentum names didn't shine. In fact, they lagged considerably. Instead, classic market sectors like basic materials, healthcare and consumer staples led on Friday. What does this tell us as astute observers of the market? 1. The market is being led by institutional investors as these sectors are their stomping grounds. When was the last time a guy at a cocktail party was boasting about the prospects of UnitedHealth Group? Institutional investors piling into conservative names is not what creates market tops, instead it creates market sustenance. It's a behavioral continuation pattern, if you will. Leading to the next point. 2. Speculative fervor is nowhere near reaching a culminating, mouth splitting, volcanic inspired blow off point. From volume, to price action, to sector leadership, none of the indications are there. 3. Retail investors are absent in a big way. Retail is always the final piece of the puzzle to an important speculative market top. In 1999/2000 it was retail that was leveraging up and driving stocks like Pets.com, Garden.com and CMGI through the roof. In 2006/2007 it was retail home buyers, with little to no experience in the marketplace, flipping homes without having the credit worthiness or knowledge to determine prudent risk. Retail is the hard cheese to any cushy situation in creation of monetary units. And retail buys buzz worthy names in bunches during strong up days. Retail is still licking the wounds from the double stock and real estate debacle of the past decade. Watching the market closely during strong up days can reveal a lot about the feelings of investors. The feeling currently continues to be cautiously-optimistic as judged by how participants are treating individual sectors on powerful...
SOME QUICK THOUGHTS
- Anytime a near 30 year member of the board of any company makes a purchase in the common stock it is worth noting. In this case, it was Bruno Di Giulian, a member of the board for BBX, which is one and the same with portfolio holding BFCF due to their impending merger. A purchase for nearly $50,000 took place last week. A relatively paltry amount, but nevertheless notable given where the company has been and the history of Mr. Di Giulian with BBX/BFCF. - I don't want to sound like a broken record, but I suppose I am a reflection of market conditions in 2013 which have been very repetitive in nature. There is nothing to dislike about the current market structure from a technical point of view. It is brilliant in nature and portends higher prices going forward. The Nasdaq Composite being an important leader of the bull movement is especially well put together here. - The Dow Transports are another leading index that is doing nothing but putting out a fantastic set of rhythms for investors to dance to. If you choose to be a wallflower when such music is playing that is a you problem. - The Facebook, Yelp and Tesla complex continues to be uninspiring in nature. I don't see much up in the immediate near term for these names. The downside will likely be tempered as well given the strength of the general market that should persist in December and throughout January. Q1 of 2014 should see a change in behavior for the better here. - The Nasdaq 100 is an index I have been referencing for its leadership qualities over the past couple of months. It continues to have tremendous technical prowess, as it is one of the stronger averages here. I'll go over all these technical points in the chart review coming later. ...
MY INTERNAL PROCESS, NAKED.
There is a certain sense of worth that can be derived from discussing openly errors that have been made in one's own analysis. I have purposely made the past few years of blogging and Tweeting about the markets as transparent as possible. I date everything I do in terms of chart work. I provide monthly updates as to my opinions of each investment I have discussed. I provide detailed research of each new investment that is made. With this type of transparency readers get to view what have been mostly good results, with a sprinkle of flea flickers that have been bungled along the way. I have the need to discuss the bungled plays of this past year due to the fact that I am facing a slight bit of mental anguish regarding a decision that was made in Q1 of this year. By pouring out my heart and soul it should act as a type of exorcism that will abolish this anguish for good while creating understanding of why such an error in judgement took place. This year there hasn't been much that has gone wrong. Nearly every name that I have profiled in published research is positive with the exception of JMBA. Leave it to the most simple business concept of all - making juice from stuff that comes out of ground - to ruin what would have been a perfect record in 2013. Of course, the S&P is up near 30% this year. It is difficult to go wrong with that type of backdrop for decision making. There has been individual analysis that has been faulty. AAPL certainly didn't go the way I expected. If it was left to my analysis the unimaginative investors who choose to have AAPL as part of their portfolio would have been looking at a $350 stock price. I can't have ill will towards a company that is so widely held during the holiday season, however. Anything that allows for an increase in quality and quantity of gift giving because of the magic of the wealth effect can only be praised. It is a virtuous cycle of monetary delight...until it isn't. What has been the most costly (back to my ill fated decision in Q1) was the dumping of MITL at near breakeven in the $3 range. I profiled MITL in a research report published January 14th. In the final paragraph of the report I said: A $6 stock price can very simply be attained by remaining consistent in their current efforts. Between $10-$12 will take place over the next 12-24 months on any perceived acceleration of their initiatives, which I believe will...
NOVEMBER PERFORMANCE SUMMARY AND LOOKING AHEAD TO DECEMBER
*This is my monthly letter to investors summarizing the month of November. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com - Largest winning position in November: CIDM +28.49% – Largest losing position in November: EVOL -4.22% – New additions to portfolio: KCG – New liquidations in portfolio: SBCF Portfolio Highlights For November – CIDM was the largest gainer in the portfolios for the second month row, exceeding October's gain of 19.33% to finish November with a gain of 28.49%. The primary driver behind the surge in November was CIDM's earning release on November 13th. The earnings report and the conference call that was to follow didn't contain any information that was different than what was said after October's conference call in which CIDM management discussed the acquisition of Gaiam. It simply seems that the market is much more receptive to CIDM as a company now that they have reiterated the projection of near $100 million in EBITDA for fiscal year 2014. The market is realizing the transformation that has occurred here, showing that recognition the best way its knows how: Through an increase in share price. The CEO of the company mentions Lions Gate Films (LGF) on almost every conference call as a model for what CIDM can become. In the November conference he had this to say regarding their recent acquisition of Gaiam compared to LGF: In a lot of ways, we always like to use Lionsgate, as a parallel. I think I said that on the last couple of calls. The real transforming event for them wasn't when they ultimately did the Hunger Games, and bought Summit. It was back in the mid 2000s when they acquired Artisan and became the 800-pound gorilla among independents and physical distribution, and that's -- we'd like to compare our acquisition of Gaiam to that. Bear in mind that LGF was once a two dollar stock without much recognition in the marketplace. The path to value creation for CIDM can indeed take the same path as LGF over the long-term given the business model that has been created here, capitalizing on (1) an experienced management team (2) partnerships with virtually every major retailer and content provider that exists (3) licensing deals with companies like NFL, WWE and National Geographic that give the company immediate clout (4) a library of 32,000 film and TV episodes. It can't...
3 CHARTS DEMONSTRATING DEFIANCE, LEADERSHIP AND DISCIPLINE FOR THE WEEK AHEAD
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THERE IS GOOD REASON TO BE LOOKING AHEAD TO THE FIRST HALF OF 2014 RIGHT NOW
*This is from the "Looking Ahead" section of the monthly summary I am currently working on and will be posting tomorrow. As far as comfortable market environments go, the stock market of 2013 has been a series of mattresses that investors keep rolling over onto as each month passes. The daggers that often times fall from the ceiling when investors are most unsuspecting seem to have been put away as the market has humbled itself before the feet of investors in an expression of sorrow after the torturous decade that was 2000-2010. To over-think a market of this nature is to misunderstand the market at its essence. There are those who will always be involved in the minutia of understanding every component that creates an uptrend, which invariably leads an investor astray. The problem as it will always stand is that Wall Street is filled with the over-thinking type who has been born and bred into an environment of detailed analysis. That detailed analysis doesn't hold up in dynamic environments. This is the exact reason so few have embraced this uptrend and furthermore, so few have been calling for it over the past few years. There was no piece of traditional analysis available that would have pointed to such an outcome. It was an outlier that investors both amateur and professional are unable to recognize. If they are unable to recognize the beginning of such a bullish event, how then can market participants depend on these same individuals to provide guidance going forward? It is like an evolutionist being the keynote speaker at a religious conference on the topic of the location of the Garden of Eden. And that is exactly what market participants face going forward in the various voices that are attempting to guide asset allocation here: A group who didn't recognize anything leading up to this point now embracing the bullish movement. This type of misguided guidance, if you will, creates the various stages of an uptrend. You will notice that during the initial phase of the uptrend meaning the past 12-24 months, there has been very little in the way of downside volatility. There has been very little in the way of a full embrace that could lead to downside volatility. Severe downside volatility occurs only when one of two things occurs: 1. A macroeconomic or geopolitical shock takes place 2. The embrace of an uptrend takes place led by those who were skeptical at the beginning and often times throughout the middle stages of the uptrend. When those types who were utilizing erroneous analysis to judge a market finally decide to toss their ideas to...
PORTFOLIO UPDATE: DASH
During the trading day Monday, I tweeted the following: My love for the regional bank names is well documented. I have been harping about their upside paired with relatively minimal risk for the entirety of 2013. While I believe that both SBCF and HMPR continue to possess minimal downside, I have found greater upside opportunities that demand capital. Sitting and waiting for the sludge through the dilution that SBCF faces is not an option in a 4th quarter where fireworks are occurring all around me. I have companies like KCG that are up 20% in two weeks since making the initial purchase. SBCF was essentially breakeven as a holding over the months it was held. While I appreciate patience and diligence in an investment, I also appreciate the fact that the S&P has turned into Usain Bolt with my job being to run faster than the fastest man of Earth. SBCF isn't allowing that to happen, despite how I feel about the long-term performance of regional bank shares. We are nearing the end of the month, meaning that the performance summary detailing each holding will be posted shortly. In the meantime, the portfolios are now basically 100% invested in the following: WMIH, CIDM, EVOL, KCG and BFCF. A concentrated portfolio of best...
NEWEST RESEARCH REPORT: 22 PAGES ON KCG
As noted here, KCG was highlighted last week as an investment idea briefly via Twitter. I went over it further this weekend in this post. Now the details in a 22 page research report on the company. The research is available below: Download (PDF, Unknown)...
4 CHARTS THAT WILL HAVE YOU TOSSING ROSE PETALS AT HONEY WALLS DURING THE WEEK AHEAD
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PORTFOLIO UPDATE: THE JUMP OFF
During the trading day Wednesday, I tweeted the following: I'll have the research report for KCG up before the end of the month. As I mentioned on Twitter, this is a bit out of my normal market cap range. In fact, KCG represents only the fourth name I have profiled that has a market cap over $500 million. The 16 other reports I have written have all been sub-$500 million market cap companies. The average gain of the three $500 million+ market cap companies (PRGS, YELP, BWC) I have profiled over the past 2 years is 77% to date. With KCG I expect the pace of gains to continue. If I could sum up the investment thesis in one sentence it would be that the global financial markets are facing a liquidity driven surge that will naturally benefit one of the leading liquidity providers in the world. It really is as simple as that. Of course, I could have gone the route of a company like ICE (now owns NYX) or CME. Too mature, however. These are both companies with market caps in excess of $10 billion. KCG has a market cap only slightly above $1 billion due to the fact it came to an inch of its corporate life due to a software upgrade error that started spitting out erroneous orders last year. It has since been restructured, recapitalized, merged and all the better for it. I'll bottom line it one more time with this: Any global liquidity provider with a dominant position in the marketplace that is selling at less than 1/10th the value of its competition is a low-risk, high reward proposition. An asymmetric bet that will be carried by the markets as trading volumes increase and the surge in equities we are seeing continues. I expect tremendous upside here over the next several years. To give an idea of what I am expecting with KCG just remember that I don't consider positions that have upside of less than 300% over the long-term. With that said, the portfolios are pretty much fully invested at 100% of capital. I'll have an update on each position as I usually do at the beginning of the month in my monthly report. If you would like to be added to the mailing list for the report, email me at mail@t11capital.com and I will be happy to add you. ...