2008 in Review

At the end of each year, I like to re-visit my hits and misses. Let's start with the misses.

My biggest mistake was thinking we didn't need any capitulation (July 25, 2008). The market hit the skids shortly thereafter. At the time I made the call, the S&P 500 was 1,257--now it's 869. That's a loss of around 30%. (Not as bad as Hilary Kramer, but too close for comfort.)

Of course, the market did capitulate later on, and on September 18, 2008, I said it was a good time to slowly re-enter the market. Unfortunately, the S&P 500 was 1206 on September 18, 2008--now it's 869. That's a loss of around 28%.

I also had a near-miss. On July 30, 2008, I praised Garmin when it was selling around $36/share. Fortunately, less than a week later, on August 5, 2008, I sold my shares, writing, "I sold Garmin (GRMN), taking a [small] loss. I violated the rule of never catching a falling knife." Garmin is now around $19/share.

My top hits in 2008?

1. Not only did I predict Longs Drugs would be bought out, I also identified the eventual buyer:

Longs is going to be a good company and attractive takeover target...CVS is going to be knocking one of these days.

I made the call on May 29, 2008. On August 12, 2008, CVS announced it was buying Longs Drugs.

2. On September 19, 2008, I correctly said that Transmeta (TMTA) was trying to conserve cash to become more attractive as a buy-out candidate.

TMTA looks like a company trying to conserve cash to survive. If you're looking for a growth story, this isn't it; however, as long as its patent portfolio remains viable, TMTA may be a potential takeover target or value play at the right price.

On November 17, 2008, Novafora bought Transmeta.

3. I correctly called a short-term bottom in banking stocks and Colonial Bancgroup (CNB) shares. My joyful reaction at making the correct call is here.

4. I called MGM overpriced and told the CEO at MGM's shareholder meeting he was propagating unrealistic expectations:

[Despite your rosy outlook] you're basically telegraphing that you're going to lose money because you're expanding and spending money while entering a recession...

In the same post, I wrote,

Overall, I believe MGM will not be able to replicate its record in 2007 and will make less money in the short term.

At the time, MGM was selling for around $52/share. Now it's at $12.74/share.

If you read the full post, you will see that I disliked the CEO at the time, Terrence Lanni. Mr. Lanni recently resigned after the WSJ reported that he had falsified his resume.

(By the way, the only other CEO who rubbed me the wrong way was Trimble Navigation's (TRMB) Steven W. Berglund. Let's see what happens with him and his company in 2009 and beyond.)

5. Recently, I called the drop in the Canadian dollar overdone. So far, it appears I accurately called the bottom.

6. I called GE a good buy when it was around $14.66 a share. It closed today at $15.66. GE's current dividend yield of 7+% shows it is willing to pay investors to wait until better times.

My favorite "hit," however, had nothing to do with a prediction. At the Yahoo shareholder meeting, I told Chairman Bostock to stop talking about Microsoft, comparing his repeated and unnecessary public proclamations to words from a jilted ex-girlfriend. I also politely suggested Mr. Yang go on a sabbatical. We haven't heard a peep out of Bostock for months now, and Mr. Yang has gracefully exited. Meanwhile, Yahoo stock has quietly made a comeback from around $9/share to around $12/share.

Aside from hits and misses, what was my biggest lament? That this article wasn't more popular among my regular readers. I don't think we're going to see the end of "OCM," so perhaps the article will gain more popularity with time.

As for my thoughts on 2009, I am looking forward to it. I think the S&P 500 will hit 1012 in 2009, but whether it stays there is anyone's guess. Here's the annual Barron's challenge if you're into forecasting.

My riskiest 2009 stock is Maxim (MXIM). I am hoping it will go to $14.90/share by early 2010. I started buying Maxim shares at around $12/share and have been averaging down. Maxim closed today at $10.98/share. If I'm right, my Maxim shares will appreciate 30+% in around one year.

The market's gyrations notwithstanding, it's important to remember that most Americans enjoy one of the highest standards of living in the world. If you disagree, may the new year bring you knowledge and a much-needed passport.

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

Capitulation, Japanese-Style

Apparently, Japan's market has now gone down to 1982 levels. Oh, it gets even worse--DJIA futures are down 352+ points last time I looked. [It got worse--see chart above.]

http://www.bloomberg.com/apps/news?pid=20601101&sid=aRTtcZqFRnII

Sigh. I wish I could go to sleep and wake up in May 2009, when I think the Dow will be back up to 10,000. In any case, I call capitulation. I called it too early before, but I call it now. October 24, 2008. Capitulation.

Update on October 24, 2008: no 1,000 point drop today, but it's still a bad day--DJIA still down 200+ points.

I Was Wrong

My September 18, 2008 call of capitulation was wrong. See call after the jump:

http://willworkforjustice.blogspot.com/2008/09/capitulation-is-hereagain-good-times-to.html

But today, on October 9, 2008, I feel like I called the bottom only a few weeks too early--which isn't a capital crime. Here is my take on the current situation, which I posted on Barry Ritholz's website:

It all depends on GE and Google. That's it--the double G's will determine whether we make or lose money. No other real catalyst on the horizon--interest rates have been cut, and money pumped in, so both the money supply and interest rates have been manipulated. After HP's positive earnings, I am feeling sanguine, despite the blood on the streets.

I bought a commodity fund for my 401k today, T Rowe Price's New Era fund. Being relatively young, I am a buyer at these levels. I just wish I had more gunpowder. My Roth IRA is already fully invested.

Capitulation?

Headline: "Dow Plunges 500 Points on Lehman Bankruptcy, Merrill Sale, AIG Woes"

If I had to venture a guess, I'd say today was the capitulation we've been waiting for. Perennial pessimist Nouriel Roubini said he expected another 20% drop, but to me, his prediction is a good contrarian indicator.

[Note: I also called capitulation on 9/17/08. The next two days, the market went up around 10%.]

Joshua Rosner Wants Capitulation

Joshua Rosner agrees with Barry Ritholtz about capitulation. Mr. Rosner says a market recovery will come only after "capitulation" by the rating agencies and corporate executives, whom he believes are still playing "accounting games" and not fully disclosing the severity of their losses. See full article:

http://finance.yahoo.com/tech-ticker/article/45271/Economic-Slowdown-Just-Getting-Started-Says-Credit-Crisis-%27Prophet%27?tickers=WMT,TGT,MER,MCO,MHP,XLY,XLF

This "capitulation" talk smacks of Wall Street wanting to get cheap prices before committing itself to the market. I understand financial stocks should capitulate even more--but it sounds like all the experts demand a marketwide capitulation before deeming a market bottom. Because Wall Street firms control major assets and have probably gotten out the market or are currently selling it short, the average "buy and hold" investor will be screwed. All because of one sector that has little to do with the hefty balance sheets of technology companies. I don't like this one bit.

We Don't Need No Stinking Capitulation

The economy looks bad, but when experts demand a 5% or more down day before buying stocks, we may have to wait a long time for a real recovery. Market experts, including Barry Ritholtz (http://bigpicture.typepad.com/), want capitulation, or one day of panic; however, the markets have placed rules to prevent large down days. The new rules against naked short selling are another brick in the wall against a Depression-era one-day dip. In addition, Grasso instituted trading curbs ("circuit breakers") to prevent exactly what the experts want. Meanwhile, Congress continues to consider regulations against ICE and other trading exchanges to prevent instability. If the experts and mutual fund managers want something the exchanges and government are actively preventing, even good economic data may get cast aside as we create a self-fulfilling sideways market.

The facts are that oil has come down from its high, and the American dollar is slowly recuperating. The dollar has already decreased so much the Mexican and Canadian currencies are the ones that look overvalued. The European Central Bank (ECB) has to maintain or increase interest rates to keep its superior edge on the dollar, and at some point, EU citizens will be screaming bloody murder when growth slows or stops. We forget that Europe has many powerful and influential companies that want to sell their own products abroad and are becoming angry at the U.S. dollar's weakness.

As for oil, barring an Israeli attack on Iran or vice-versa, oil will decrease in price. Commodities experts have been denying a supply issue for months. In the absence of a supply issue, oil prices will decrease as Americans use less oil--unless the law of supply and demand suddenly vanishes.

I am no Pollyanna, but with money markets offering 2%, and CDs not much better, if investors don't take some action, inflation (running around 5%) will destroy their purchasing power. Having said that, why is the market discounting technology companies, many of which have plenty of cash and were not involved directly in subprime, finance, or housing? If I'm Intel (INTC), Google (GOOG), ST Microelectronics (STM), Microsft (MSFT), Brocade Communications (BRCD), Taiwan Semiconductor (TSM), or MEMC (WFR), I'm beginning to wonder if the American stock market is an inefficient way of valuing my company. After Sarbanes-Oxley, why would a rational company want to have an IPO in this irrational market?

Disclosure: I own shares or plan on buying shares in the above companies.