Archive for December, 2006

  • Economics Discovers Its Feelings
    , December 31st, 2006 at 8:10 pm

    Here’s a fascinating article from the Economist:

    If people are bad at recalling their feelings, they are worse at predicting them. They fail to anticipate how a person feels after moving to a new city, losing a limb or winning a jackpot. Prisoners imagine that solitary confinement will be worse than it really is; mothers-to-be think the pain of childbirth will be more bearable than it typically proves to be. And it is not just unusual events that trip people up. According to Mr Kahneman, people struggle to predict how their appetite for ice-cream, low-fat yogurt or music might change in the course of a week of enjoying them. If man is an iron-balance that weigh pains and pleasures, the scales are sadly askew.

  • Footnote of the Year
    , December 31st, 2006 at 6:12 pm

    Michelle Leder has awarded the Footnote of the Year:

    But in the end, it came down to this post from April 10 on Aaron’s Rent (RNT). As I footnoted at the time, getting the company that you work for to spend nearly $1 million teaching your sons to be race-car drivers as Aaron’s executive Bill Butler did is an interesting use of shareholder money. But calling it an marketing expense really reached a new nadir.

    Oh dear lord. Here’s the proxy.

  • S&P Expects Q4 Earnings Growth to Slow
    , December 31st, 2006 at 5:39 pm

    S&P released this on Friday:

    The fourth-quarter operating earnings for the S&P 500 is on track to post its lowest year-over-year gain in over four and a half years, announced Standard & Poor’s today. Estimated fourth-quarter 2006 earnings of $22.08, or $199 billion in aggregate, would represent a 9.4% gain over the $20.19 reported for the fourth quarter of 2005 – marking the first single-digit earnings gain for the index since the first quarter of 2002. However, Standard & Poor’s expects full-year 2006 to be the best year ever for operating earnings, with a projected 14.9% gain over 2005.

  • Deanna Brooks Wins Playboy Stock-Picking Contest
    , December 31st, 2006 at 2:50 pm

    Congratulations to Deanna. Her portfolio was up 43.43% for the year.
    Deanna’s five stocks were Hauppauge Digital (HAUP), Pfizer (PFE), Yamana Gold (AUY), Petroleo Brasileiro (Petrobras) (PBR) and IBM (IBM).

  • The National Mall
    , December 30th, 2006 at 10:10 pm

    I saw President Ford’s funeral procession earlier today. Even the monuments seemed to be in a somber mood.

  • 2007 Buy List
    , December 30th, 2006 at 6:55 am

    Here’s my 2007 Buy List. For tracking purposes, I assume it’s a $1,000,000 portfolio and each position is worth $50,000. Here’s each stock, ticker, starting price and number of shares. This is what I’m refering to when I write on how the Buy List is doing.

    Company Ticker Price Shares
    AFLAC AFL $46.00 1086.9565
    Amphenol APH $62.08 805.4124
    Bed Bath & Beyond BBBY $38.10 1312.3360
    Biomet BMET $41.27 1211.5338
    Donaldson DCI $34.71 1440.5071
    Danaher DHR $72.44 690.2264
    FactSet Research Systems FDS $56.48 885.2691
    Fair Isaac FIC $40.65 1230.0123
    Fiserv FISV $52.42 953.8344
    Graco GGG $39.62 1261.9889
    Harley-Davidson HOG $70.47 709.5218
    Jos. A Bank Clothiers JOSB $29.35 1703.5775
    Medtronic MDT $53.51 934.4048
    Nicholas Financial NICK $11.80 4237.2881
    Respironics RESP $37.75 1324.5033
    SEI Investments SEIC $59.56 839.4896
    Sysco SYY $36.76 1360.1741
    UnitedHealth UNH $53.73 930.5788
    Varian Medical Systems VAR $47.57 1051.0826
    WR Berkley BER $34.51 1448.8554

    Fifteen stocks return from 2006. The five new stocks are Amphenol, Graco, Jos. A Bank Clothiers, Nicholas Financial and WR Berkley. The sells are Brown & Brown, Dell, Expeditors, Home Depot and Wachovia.
    The total market cap of all the companies is $288 billion, which is much smaller than last year. UnitedHealth is the largest at $72 billion. Nicholas Financial is by far the smallest at $117 million. The average dividend yield is 0.55%.
    That’s it. The list is now “lock and sealed,” and I can’t touch it until next year.

  • The 2006 Buy List
    , December 29th, 2006 at 7:33 pm

    The 2006 trading year has come to a close. All in all, it was a very good year for our Buy List.

    The 20 stocks on the Buy List were up an average of 10.68%, while the S&P 500 was up 13.62%. Including dividends, the Buy List was up 11.43%, and the S&P 500 was up 15.80%. The daily volatility of the Buy List was 19.22% greater than the S&P 500. The Buy List had a “beta” of 1.0404, and its daily changes were 76% correlated with the S&P 500.

    I track the Buy List as if it were a $1 million portfolio. Here’s how each stock did during 2006:

    Stock Ticker 12/30/05 Shares Value 12/29/06 Value Gain
    SEI Investments SEIC $37.00 1351.3514 $50,000 $59.56 $80,486.49 60.97%
    FactSet Research FDS $41.16 1214.7716 $50,000 $56.48 $68,610.30 37.22%
    Harley-Davidson HOG $51.49 971.0623 $50,000 $70.47 $68,430.77 36.86%
    Danaher DHR $55.78 896.3786 $50,000 $72.44 $64,933.67 29.87%
    Fiserv FISV $43.27 1155.5350 $50,000 $52.42 $60,573.14 21.15%
    Expeditors Intl* EXPD $33.755 1481.2620 $50,000 $40.50 $59,991.11 19.96%
    Wachovia** WB $47.64554 1049.4163 $50,000 $56.95 $59,764.26 19.52%
    Sysco SYY $31.05 1610.3060 $50,000 $36.76 $59,194.85 18.39%
    Biomet BMET $36.57 1367.2409 $50,000 $41.27 $56,426.03 12.85%
    Donaldson DCI $31.80 1572.3270 $50,000 $34.71 $54,575.47 9.15%
    Bed Bath & Beyond BBBY $36.15 1383.1259 $50,000 $38.10 $52,697.09 5.39%
    Respironics RESP $37.07 1348.7996 $50,000 $37.75 $50,917.18 1.83%
    Home Depot HD $40.48 1235.1799 $50,000 $40.16 $49,604.74 -0.79%
    AFLAC AFL $46.42 1077.1219 $50,000 $46.00 $49,547.61 -0.90%
    Varian Medical VAR $50.34 993.2459 $50,000 $47.57 $47,248.71 -5.50%
    Medtronic MDT $57.57 868.5079 $50,000 $53.51 $46,473.86 -7.05%
    Brown & Brown BRO $30.54 1637.1971 $50,000 $28.21 $46,185.33 -7.63%
    Fair Isaac FIC $44.17 1131.9900 $50,000 $40.65 $46,015.39 -7.97%
    UnitedHealth UNH $62.14 804.6347 $50,000 $53.73 $43,233.02 -13.53%
    Dell DELL $29.95 1669.4491 $50,000 $25.09 $41,886.48 -16.23%
    Total $1,000,000 $1,106,795.50 10.68%

    * Expeditors split 2-for-1 on June 26.
    ** The original position was Golden West Financial (GDW), which was bought out by Wachovia at the end of the third quarter. The merger called for Golden West shareholders to get 1.051 shares of Wachovia stock, plus $18.65 cash for each share of Golden West. At the beginning of 2006, we tracked 757.5758 shares of Golden West priced at $66 each. With the merger, we then had 796.2122 shares of WB (757.5758*1.051), plus $14,128.79 in cash (757.5758*$18.65). For track record purposes, I assumed the entire cash position was immediately converted into shares of Wachovia. Going by the September 29 closing price of $55.80 for WB, the cash was exchanged for another 253.2041 shares ($14,128.79/$55.80). So we then had a total position of 1049.4163 shares of WB with a cost basis of $47.64554 ($50,000/1049.4163).

    Here’s how the Buy List did against the S&P:


  • Stock Exchange to Close on Tuesday
    , December 29th, 2006 at 11:18 am

    It’s official. The markets will be closed on Tuesday in honor of President Ford’s funeral. Trading will resume on Wednesday.

  • Stocks Against Bonds
    , December 29th, 2006 at 8:36 am

    December has brought a major change to the financial markets, although it’s largely gone unnoticed. For the first time since June, the stock and bond markets have become decoupled. In other words, stocks are going up while long-term bonds are going down.
    Yesterday, the yield on the thirty-year Treasury bond (^TYX) broke 4.8% for the first time in seven weeks. Despite this, the S&P 500 (^GSPC) has continued to rally, and it now stands just shy of a six-year high.
    This is important because the bond market often acts as an early warning sign for the stock market. Decoupling usually precedes bad news for stocks. For example, stocks and bonds became negatively correlated beginning on April 25, shortly before the May 5 top. The negative correlation lasted until June 15, which was two days after the S&P 500’s low for the year. It’s as if the two asset groups were competing against each for investors’ money, and the bond market was winning.
    But all that changed on June 16. From there until late-November, stocks and bonds (BTTRX is my bond proxy) had an amazing 79% correlation. Basically, the two asset classes stopped fighting with each other and marched higher arm-in-arm. It was a nice, smooth rally.
    The truce finally came to an end. Since November 30, stocks and bonds have had a 60% negative correlation. This is a brief period, so it may not mean much, but something is definitely up. I don’t think the stock market is about to collapse, but we’ve had a 16% rally since June. It may be time for a breather.

  • 10 Best Business Movies
    , December 28th, 2006 at 9:53 pm

    From The American:
    Jerry Maguire
    Lost in Translation
    Once Upon a Time in the West
    The Shop Around the Corner
    Trading Places
    One, Two, Three
    Mildred Pierce
    Working Girl
    Glengarry Glen Ross
    Under the American’s rules, the films aren’t allowed to be “openly hostile to capitalism.” That’s a far bigger handicap than I realized.