Author: stlplace

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CFA Stocks

Stock option helps cash flow for Crocs?

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I was reading the cash flow statement of CROX Q3 2007 10-Q. One thing caught my attention is the “Excess tax benefit on share-based compensation”, about $38.6 m for first 9 months of 2007, plus the “Exercise of stock options” $ 14 m., the total “Cash provided by financing activities” is $ 52 m, compared to the cash from operating activities for about $ 22 m.

This is a bit strange because normally we want the cash comes from operating activities, i.e., a company’s main business. For instance, in the case of Crocs, its main business is manufacturing and sale of Crocs sandles. It’s not a financial service company: a bank, or a lender of student loans something.

I did a little research on this topic. I found a paper written by Marc Siegel which describes what companies do these days to artificially boost cash flow statement (legally), and a newspaper article from Rocky Mountain News explains this a bit in plain English.

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Stocks

Self reflection on my stock investments

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All right, before I was going to do an accurate calculation of the annual return of my portfolio, all my year 2007 gain (realized and unrealized) are gone by yesterday market close.

Blame the market? Blame the CEO of Crocs and Longtop? Blame Jim Cramer? Blame the Fed (as Jim Cramer did in his show)? Or I should simply blame myself? I should have expected some of these coming: Crocs has been under pressure since last Q; and Longtop has not done well ever since its IPO pop. Keep in mind LFT is not as high profile as the NetSuite, the software as service IPO in the silicon valley. After all, it was my own decision to get into those mess 🙂

My pain did not come just from loss, I can think of couple reasons that aggreviate my pain:

1) The “potential gain” from Crocs all vaporized. As Charlie Munger once said (point 11: removal of something almost possessed, but never possessed): if one tries to pull a meat already in a dog’s mouth, the dog will not be unhappier (vs. not getting the meat at first place).

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Stocks

Quick check on Crocs’ inventory

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More blindman’s check on elephant…

Crocs stock (CROX) had a big drop in last two sessions, amid the loss of patent lawsuit in EU, and some rumors on the business slowdown in general. When Crocs reported its Q3 2007 earning back on Oct 31 2007, it mentioned there is some excessive inventory because of the disruption of a new distribution center in Europe (and to less extent distribtution problem in Japan and China).

Here I am calculating its historic turn over ratio here (source: Crocs Q3 2006 10k, Q3 2007 10k). The ratio is defined as sales divide by inventory. The higher the ratio, the better for the company’s revenue growth.

First 9 months 2005: 75,022/28,494 = 2.63
First 9 months 2006: 241,824/49,128 = 4.92
Full year 2006: 354,728/86,210 = 4.11
First 9 months 2007: 622,554/195,256 = 3.19

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Stocks

Blindman, elephant, shoes and houses

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It has been a while: I realized my understanding of some of the stocks is very much like a blindman perceives an elephant. I mean, I usually get a partial picture of the real thing, sometimes the partial picture is distorted.

blindman elephant pic
(source: throwtheword.com)

For examples, the investing in Crocs (the shoe). It was a good ride until Oct 31, 2007, when the shoes started to fall off. Initially I was thinking I am doing the research by reading the 10Q, 10K, checking out the things in store, doing some calculation using Google spreadsheet (I regret to check it right before Oct 31 earning). But even with that, did I get a full picture of the whole thing? Same thing can be said for checking out the housing markets in Shanghai (trying to determine how Vanke will do in China).

In other words, it could be pure luck (not my research) that helped me to had a good ride. But then the tough time comes, when the luck is gone, you know what happened.

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Saint Louis Stocks

Sillicon valley stocks and St. Louis stocks

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Tech for Silicon valley and agriculture for St. Louis.

Silicon Valley Stocks
We went to Sillicon valley for the holidays and obviously, stock is one common topic in family reunion and friends gathering. Note stock options makes up a significant portion of employee’s compensations for some of the technology companies there.

I happened to read the San Jose Mercury News Jan 1, in which it has a nice summary of how Silicon valley stocks did in last year. In summary, the big tech (GOOG, AAPL) and IPOs (VMW, NetSuite) lead the Silicon valley stocks to a fairly good performance. Here are two articles I read: tech titan’s year; Valley’s big year for Wall St. debuts.

St. Louis stocks
I tried to look up St. Louis stocks 2007 performance at stltoday, the web site of St. Louis Post Dispatch, but could not find any. So I just list St. Louis companies I know.

I believe Monsanto (MON), one of the largest agriculture company in the world, is the No. 1 performer last year. MON is enjoying the global farm booming, and in a way the oil boom too. By the way, I live right across the street from the company. ADM and Bunge, another two agri play, also did well.

St. Charles based solar play MEMS (WFR) also faired well very amid the all the solar boom. Note WFR is a leader in this area.

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Fun Master Series

Why not Berkshire for stock investments

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I know no broker offer this as an option in IRA. But how about buying Berkshire (BRK.A, BRK.B) over mutual funds in a taxable brokerage account? Not only does Berkshire has a track record which beats almost all mutual fund (21.4% annual compound return in last 42 years) and the 10.4% annual return of S&P 500. See this Buffett’s 2006 letter for details. But also an investor get the service of the best investor with virtually no fees: Buffett is paid a salary of 100,000. So why don’t we all give the money to Buffett, rather than mess up with our own investments, which in most cases can not beat Buffett’s performance in long term.

I can think of the following reasons:

1) We think it’s harder and harder for Buffett to repeat the performance he had in last 42 years. It’s practical because as much as Buffett is getting better (he is a life long learner), his portfolio is growing so big that expecting an annual return of 20% is impossible.

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CFA

Go for CFA level I test

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I decided to go for the June 2008 CFA level one test, due to several reasons:

1) Learning: I am interested in learning more about finance, since it is not practical for me to enroll a formal academic program, nor do I have the discipline stick to my own study plan. Enrolling in CFA exam and learn from the program itself is better suited for me.

2) Basics: I do have some previous training on economics and accounting, no formal courses on finance (financial management) though. I did took other fundamentals such as statistics in college.

3) Recognition (and potential benifits): I believe CFA will bring some credential for a guy like me if he/she wants to be a fund manager, or managing an investments partnership.

In today’s world, people simply won’t hand money to a person without formal finance education and/or investing experience. Although personally I still believe successful track record in investing matters more (vs. education), when I look at fund managers for my 401k 🙂

schweser CFA study guide

(picture above: Schweser CFA study guide, from schweser.com)

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Fun Stocks

Top 25 stocks in past 25 years

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I came across this list of top 25 stocks in last 25 years from AOL money and finance. The original article was appeared on USAToday Sept 15, 2007.

Note statistically, a sample of 25 is too small to draw any scientific conclusion. But I found a few things to be interesting nonetheless.

1) Two money managment firms in top 5: they are Franklin Resource (up 65 times, ticker BEN), which manages the well known Franklin Templeton funds; Eaton Vance (up 38 folds, ticker EV), which manages the less known Eaton Vance funds.

Let me quote the article “As the old saying goes, the way to make money during a gold rush is to be the one selling shovels“.

2) Hardware and software: Cisco (up33 folds), Microsoft (up 29 times), Oracle (up 28 folds), and Adobe (up 20 folds). May I add Google here? It’s up around 800% from offering price of $85 to around $700 during from Aug 2004 to Sept 2007 (roughly 3 years).

3) Which stock surprise you most?

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Fun

Looking back at year 2007

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rear view mirror

The following was my the new year resolution for year 2007. I am putting my comments in italic.

Personal
Spend more quality time with family and friends; cut Internet and TV time.
Did the first part, I did spend more time with my parents, brother’s family, and my wife (girl-friend). Whether quality or not is up to them to judge 🙂

Second part, I really need to cut more aggressively on TV and Internet. I need to do more reading this year.

Drive safely. Walk safely. Drive and walk safely.
I did ok. I drove more local vs. highway, because I felt it’s more relaxing to drive local. I need to exercise more.

Financial
Pay off the Home Equity Line of Credit (currently 8.5% interest rate).
Not done. As the rate dropping, I found it’s a good idea to borrow and invest if I can get better return than the borrowing rate. I think my debt is at very much controlled level.

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Master Series

Walter Schloss also beats S&P

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and he had done it for 47 years (maybe not every year, but compound annual return), that’s pretty good.

The following is quoted from Buffett 2006 shareholder letter, you can get the full letter at Berkshire web site:
……
Let me end this section by telling you about one of the good guys of Wall Street, my long-time friend Walter Schloss, who last year turned 90. From 1956 to 2002, Walter managed a remarkably successful investment partnership, from which he took not a dime unless his investors made money. My admiration for Walter, it should be noted, is not based on hindsight. A full fifty years ago, Walter was my sole recommendation to a St. Louis family who wanted an honest and able investment manager.

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