Articles by mgedwards

Investment scorecard

This is a blog entry I’ve wanted to write for awhile, one of those back pocket subjects you may or may not be interested in reading.  I love investing.  I love buying and selling equities and mutual funds.  I’ve had mixed success over the years.  Before the dot.com craze, I knew very little about investing, and I didn’t have any money.  Then when the dot.com happened, the market piqued my interest, and I was lured by the siren’s sound of skyrocketing returns.  At the height of my early investing career, I sold my shares of IBM and Hewlett-Packard and plowed them into several technology stocks that I sorely regret buying.  Here’s a list of what I bought, in case you want a laugh–Webvan, which no longer exists and when down in a blaze of glory as one of the worst dot.com investments of all time, Infospace (INSP), which burned me twice, Palm (yes, that lovely PDA company that peaked and burned), and a couple of other forgettable technology stocks that also tanked.  I lost money during the dot.com bust just like everyone else, but since then I’ve wisened up.  My MBA taught me the basic principles of finance and investing such as the value of PE ratios and Betas, stuff that can be pretty boring but are critical to sound investing.  It also gave me the killer instinct when it comes to investing, and since 2002 my three-year return has been around 11%.  With the disclaimer that I’m far from a perfect investor and still make mistakes, I want to share some of the investments I’ve made in the last year.  If you’re interested in investing, I’ll also give you some suggestions on investments I haven’t made but have had my eye on.
  1. Google (GOOG):  Bought at $85/share, sold at $200.  Current price, $296.23/share.  I bought into Google at IPO last August and did very, very well in just a few months.  I sold early because I assumed Google would not go much higher than $235 per share.  I was wrong, but I was pleasantly surprised to see my faith in Google vindicated.  I do not recommend buying Google at nearly $300 a share.  If you bought if for much lower than that, keep it.  It is a good long-term investment.  Recommendation:  Hold.
  2. DreamWorks Animation (DWA):  Bought at $36/share, sold at $39/share.  Current price, 26.81/share.  This is the one that went sour.  DWA overpromised to investors, and there are now at least six class action lawsuits against DWA claiming CEO Jeffrey Katzenberg made false promises on the sales of "Shrek 2" DVDs.  Its main rival, Pixar, also tanked when sales of "The Incredibles" DVD underperformed.  I sold DWA before its 2nd quarter earnings were released, and I’m glad I did.  The overall valuation of CGI animation studios appears to be too high, and CGI animation appears to be peaking in popularity.  I don’t like the movies in the pipeline for DWA in the near future ("Walter & Gromit," "Over the Hedge").  DWA’s stock price probably won’t bounce back until next year, when "Shrek 3" hits theaters.  Recommendation:  Don’t buy it.
  3. Blue Nile (NILE):  Bought at $25/share, sold at $29/share, currently at $33.20/share.  I love this stock.  I met the CEO and love the concept of an online jewelry e-tailer.  Valuation is now high, but take a closer look at this one.  I sold at a profit and wish I had kept it for the long term.  Recommendation:  Weak buy.
  4. Infospace (INSP):  Bought at $48/share, currently at $33.98/share.  Twice bitten, should have been shy.  I listened to Fool.com and still believe in the long-term value of this company as a provider of online content.  INSP is especially strong in mobile services but heavily reliant on a couple of wireless providers.  I think it is a decent buy and have been disappointed that it isn’t doing well.  Take a closer look at INSP.  Recommendation:  Buy.
  5. Overstock.com (OSTK):  Bought at $69/share, currently at $39.36/share.  This is the worst investment I’ve made since the dot.com bust.  Again, I mistakenly listened to Fool.com (advice is cheap–go with your gut instinct).   Fortunately, like INSP, this time I only bought a few shares.  OSTK is a direct competitor to eBay, a David versus Goliath.  OSTK has a lot going for it, and eBay, other than Pay Pal, has had its share of difficulties lately.  OSTK’s primary problem is that it is sticking to a tried and untrue dot.com formula–focus on growth over profits.  It’s trying to get big fast, and Wall Street is punishing it for following this strategy.  The stock spiked at the end of 2004 when projections showed OSTK would turn a profit in early 2005.  It didn’t.  I think it will by early 2006.  I think it’s a long-term buy, but not till it’s profitable.  Recommendation:  Hold.
  6. Morningstar (MORN):  Bought at $18.50/share, now $28.79/share.  I turned my second most successful IPO after Google with this gem.  The king of investment research, Morningstar is a promising microcap with a marquee name in the financial world.  The CEO owns over 70% of outstanding shares.  If it can get past the SEC subpeona and potential conflict of interest, it is golden.  Valuation is rich now because Morningstar’s profitability has been spotty.  Recommendation:  Outperform.
  7. Cogent Technologies (COGT):  Bought at $22.50/share, now at $29.76.  Rated #1 microcap for 2005 by BusinessWeek magazine, this firm builds biometric systems used as security devices.  It IPO’d in 2004 at $15.50/share, peaked at $38/share, dropped to $19/share over share dilution concerns and concerns over sustainability outside government contracts.  The price spiked with the bombing in London.  This is a great long-term buy.  Recommendation:  Strong buy.

As you can tell, the common thread in the stocks listed above is that they’re heavily technology-based.  As Warren Buffett says, buy what you know, and I know techology better than any other sector.  However, here are some other investing candidates I chose not to invest in for the time being but still have my eye on.  They cover a range of sectors. 

  1. Archipelago Holding (AX):  The holding company of the electronic exchange is merging with the New York Stock Exchange, effectively making the NYSE a publically traded firm.  Valuation is high.  Recommendation:  Hold.
  2. Dell Computer (DELL):  Mature stock, but Dell is a must for any technology portfolio.  I almost bought DELL in late 2004, but the price spiked following excellent Q3 returns.  Dell will continue to dominate computing hardware.  Recommendation:  Buy.
  3. eBay (EBAY):  Everyone knows eBay.  eBay took a big hit earlier this year because its market is maturing.  It’s Pay Pal division is growing gangbusters and could become an alternative to credit cards.  If you own OSTK, don’t buy EBAY, and vice versa.  Of the two, eBay is a better buy now.  Recommendation:  Buy.
  4. Krispy Kreme Donuts (KKD):  This one-time darling stock with the world’s best-tasting donuts has fallen on hard times.  Wait and see what will happen, or make a bet while the price is low.  Recommendation:  Hold.
  5. Petrochina (PTR):  The U.S. ADR for one of China’s largest oil companies.  Warren Buffett owns a small stake, and it operates like a U.S. company.  Petroleum demand will remain strong, especially in China market, but Petrochina’s price has increased 85% since last August.  Wait and see what happens with CNOOC’s offer to buy Unocal.  If it fails, buy Petrochina.  Recommendation:  Hold.
  6. Salesforce.com (CRM):  Customer management Web services firm that competes with Siebel Systems.  High PE ratio, very rich valuation, but good long term potential.  Recommendation:  Don’t buy it. 
  7. Sears Holdings (SHLD):  Buyout artist Eddie Lampert merged Sears and Kmart into a single company.  Lampert hopes to turn SHLD into the next Berkshire Hathaway, Warren Buffett’s investment vehicle.  Combining two aging retailers, Sears and Kmart, into a single company is a crazy idea, but Lampert is crazy like a fox.  The cash they generate will allow him to make other Buffett-style purchases.  What about General Motors?  I should have boughten this at $96/share when I had the chance.  Recommendation:  Buy.

One last recommendation–check out Exchange Traded Funds (ETFs).  They are a great way to diversify and a good alternative to mutual funds, particularly index funds.

Thinking of London

London is on my mind today.  Just one day after being awarded the 2012 Summer Olympic Games, London was rocked by multiple blasts killing dozens and injuring many more.  My thoughts and prayers go out to those who were affected, especially to the families of those who perished.  I heard that my colleagues in London are safe.  Many of them are in Scotland at the G8 Summit.  Both President Bush and British Prime Minister Tony Blair were in Gleneagles, Scotland for the Summit at the time of the blasts.
 
I was in London in March 2003 when the Iraq War began, staying downtown an earshot from the Parliament Building.  I went there on an MBA study tour sponsored by the University of Washington.  Our tour was almost cancelled due to the impending war and the threat of terrorism.  I remember seeing scattered war protests in Westminster Square, Trafalgar Square, and Piccadilly Circus.  The British media at the time spoke of thousands of protests converging on London on the eve of the war, although I only saw a few hundred in the streets.  I was particularly attuned to what was happening because I understood the gravity of being in the heart of Great Britain, one of the major powers involved with the invasion of Iraq, when the war started.  Tensions were very high in the city and among the members of our tour, because we held a variety of opinions about the war.  I remember watching broadcasts of BBC television in my hotel room showing footage unfold as the invasion of Iraq began, from the bombing of Saddam Hussein’s suspected hideout to the ubiquitous shots of the night sky over Baghdad filled with sorties and artillery shots, illuminated by greenish infrared.  One television program that stands out in my mind now is a BBC documentary I watched at the time discussing the potential terrorist threat to London.  Today that threat was realized.  The documentary discussed potential terrorist targets and what British authorities were doing to counteract terrorism.  While the authorities had done much to prepare London for a terrorist attack, the program concluded that because London is such a large metropolis with a concentrated population, it could never be completely immune from terrorism.  London’s transportation system, particularly Heathrow Airport and the Tube (subway), is especially vulnerable to attack.  London has had a long history of bombings largely sponsored by the Irish Republican Army.  The IRA has been quiet in London for several years.  Today’s tragedy was one of the first large-scale attacks on British soil claimed by a group affiliated with Al Qaeda.  What happened today is not a repeat of 9/11, when 1,962 people perished in the destruction of New York’s World Trade Center.  Still, what happened today in London reminds us to be vigilent against terrorism.  It can happen anywhere, at any time.  For me personally, today’s bombing reminds me of that time not so long ago when the war began.  It seems that the war is far from over.

5,000 hits

Today my blog reached its 5,000th hit.  A little more than seven months ago I started this blog as a way to tell my family’s story of life overseas.  I’m excited to see so many readers stopping by to catch up on news here and post comments.  Keep them coming!  I enjoy reading new comments every night and getting to know others from around the world, like Cuban-Junky in Kerry, Ireland.  (I haven’t been to Kerry, but I’ve been to Dublin twice and down to the south part of Ireland.  What a change between my first trip in 1994 and my second in 2003!  Ireland really has become a Tiger economy)  As always, I will try to keep World Adventurers entertaining, leaving you wonder what interesting tidbit or ponderous thought will be posted each evening.  Occasionally I take a break to enjoy an evening event or to crash after a long day at work.  I always take time out to write when I can.  Someday I’ll sit down to write that epic novel hidden in the recesses of my mind.  In the meantime, World Adventurers will have to sustain my creativity.

I had a very eventful day at work today.  I didn’t get home tonight until 8 p.m. because I was so busy helping Americans around Seoul.   I spent the entire afternoon helping an American in trouble.  Around 5 p.m. I was by their side in an ambulance headed to a local hospital.  They’re fine now, fortunately.  I stayed with them until I was sure that they had recovered.  It was my first time riding inside an ambulance.  Fortunately, I myself have never needed an ambulance.  If you’ve ever ridden in an ambulance, you know it can be a hair-raising experience weaving perilously through traffic, rushing headlong to the hospital.  Seoul residents drive somewhat chaotically, which added to the intensity of the ride.  I held on to the ambulance cab and prayed that I’d make it safely to the hospital while the U.S.-style siren blared above my head.  If you’re in a traffic accident, there’s no better place to be than in an ambulance.  Still, being involved in an accident in the back of an ambulance is not something I want to experience.  I made it home safely, but I will be following this American’s case for quite some time.

In other news, London was awarded the 2012 Summer Olympic Games today.  Paris was heavily favored to win the Games, so it was quite a surprise that London received the nod today during the IOC meeting in Singapore.  Paris has not hosted the Games since 1924, while London most recently hosted it in 1948.  France has also lost several bids for the Summer Olympics (as has Great Britain) and it appeared to be the sentimental favorite in the run-up to the IOC vote.  Of course I was rooting for New York to win, but I understand why New York was not a finalist.  The U.S. most recently hosted the Games in 1996 in Atlanta.  I also think it would be logistically more difficult to host the Games in New York than it would be in London or Paris.  New York still needs to recover from the aftermath of 9/11.  New York would be a great candidate for the 2016 or 2020 Olympics.  Although the 2012 Summer Olympics would be a fitting tribute to the official reopening of the World Trade Center complex and the opening of the Freedom Tower in 2010, 2016 would be more memorable because it would mark the 15th anniversary of the 9/11 terrorist attacks.  Having most recently visited Paris in 1998, London in 2002, and New York in 2003, I think London is a bit more prepared to host the Games than Paris or New York.  I remember a time eight years ago when Seattle considered bidding on the 2012 Summer Olympics.  At the time, nearby Vancouver, B.C. was gearing up to bid on the Winter Olympics, which it will host in 2010.  The Seattle City Council tabled the Games initiative in October 1998, citing the huge cost Atlanta paid to host the Games in 1996.  In hindsight, considering the choices this year (London, Paris, New York, Madrid, and Moscow), the Council’s decision seems wise.  Still, Seattle paid over $850 million for a baseball and football complex partly on the premise that it would be used to attract the Summer Olympics and a Major League Soccer team.  Neither came to fruition.  Talk about a bait and switch.  Maybe the venues could be used for a couple of Olympic events—Vancouver has graciously agreed to work with Seattle to promote the Games as a showcase of the Pacific Northwest.