Wednesday, November 26, 2008

Bail Out conditions

I have been thinking about my previous post. And I have to wonder why limit the conditions to Auto companies.

If companies are going to get tax-payer money to keep them from bankruptcy then why not apply the $100K salary cap for 3 years with other compensation paid in stock options that they can not sale for 10 years? Apply it to all of the C-suite executives at the time of the bail out. To me if they feel this is a bad deal for them then they do not believe they can turn the company around and the government money is just "pouring good money in after bad".

The 10 year black out on options sells is intended to keep them focused on the long term good of the company, not next quarters numbers. What are the down sides?
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Sunday, November 23, 2008

Auto Bail Out Ideas

The last week or two there has been much speculation (but not in the stocks) on what form if any the bail out of the US auto industry will take. Buffet has his own ideas, and I don't disagree with them. If it were my decision here are my simple requirements.
  • Each of the CEO's must invest an amount equal to 20% of their last years compensation. (Thanks Warren)
  • The 10 top executives of each firm are paid with a base $100,000 salary and the rest in stock options that they can not sale for 10 years. (This means they need to make decisions now that will best ensure the companies survive for 10 more years.)

I wish them luck, they will need it no matter what happens.
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Friday, November 21, 2008

Down Market

I have been investing in the stock market since 1993 give or take a year. I was recently (yesterday) looking through my various portfolios and realized that I am loosing money on almost every stock I own. The main exception is Apple stock. Apple is still up 1000% from what I paid for it in 2002.

Mean while stocks I bought in the early to mid 1990's are "underwater" now. I don't want to see the 52 week range of stocks now, I think a useful metric is the last 520 week range. For Ford and GM you might want something like the 5200 week range.

After today's good day I have 4 stocks where I'm not losing money: AAPL, BRK-B, NVS, and YUM. Apple is still the only one where the plus side is significant. I wonder what next week will bring.
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Thursday, November 06, 2008

Warren Book Review

Just read a good review of the authorized biography of Warren Buffet, The Snowball: Warren Buffett and the business of life. Read the review, and then you like me will probably want to read the book.

To my mind, the official biography adds significantly to our understanding of this singular investor, and in doing so it adds to our ability to copy his best ideas. In the end, I believe there are five key factors emerging in the burgeoning discipline that's becoming known as Buffettology.

In times like these, it is good to have something to remind you to take the long term approach and see value in a market that decreases almost 5% a day.
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Sunday, November 02, 2008

Weapon of Mass Devaluation

Even though I do not agree with much of Steve Forbes article, I still would recommend people read it. It is called "How Capitalism Will Save Us" and appears in the Nov. 10th issues of Forbes. The part I disagree with is the implication that all of the current economic problems are the result of mismanagement by the government, which further implies that people involved in dishonest predatory lending, or rating investments as AAA that clearly weren't as being innocent of any wrong doing.

What I really like about the Forbes article is its take on the mark-to-market rule. This is one of those times when you have to accept we don't live in a perfect world. Yes with out mark-to-market people can abuse the system. With it, other people can abuse the system in a different way. You have to pick the lessor of two evils.

Read at least the last half of the Forbes to understand all of it. But the following paragraph is what I find key. I commend Steve Forbes for pointing out the issue with mark-to-market which is what really made this a Perfect Storm. As the train wreck has gone on, I've been surprised that there hasn't been more coverage of this in the popular press.

Result: Investment banks that still had positive cash flows found themselves in a death spiral. Of the $600-plus billion that financial institutions have written off, almost all of it has been book writedowns, not actual cash losses. This accounting madness sank Fannie and Freddie this summer when the government effectively took them over and provided them with a $200 billion loan facility. The two entities are still cash positive and haven't drawn down a dime of this new line of credit.
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