Nobody seems to like hedge fund managers much, and the public seems to enjoy stories about their mishaps. Are they really as brash as the stereotype suggests?
Nobody seems to like hedge fund managers much. Is it simply because they make a lot of money? Is it envy? Jealousy? Or are they really as brash as the stereotype suggests? The past month has seen a rash of unflattering incidents involving hedgies. There was the London manager Bertrand de Pallieres, who was so busy shorting stocks that he didn't notice for three months that his £80,000 Maserati had been towed away. A New York hedgie, John Devaney, was treated with mockery, rather than sympathy, when a trading downturn forced him to put his helicopter and yacht up for sale . Then this week, the New York Post reported that a Manhattan hedge fund manager, Stuart Sugarman, had been assaulted in a case of "gym rage" for war-whooping too annoyingly during a spin class . Allegedly, Sugarman ignored pleas to stop shouting "you go, girl" and "great song!". He needed back surgery after a classmate hurled him at a wall, bike and all. A certain intensity seems to be necessary in people who make their living by going long or short. Ari Kiev, a psychiatrist whose book Hedge Fund Masters studies the industry's players, says they tend to have specific personality traits. "Clearly, you want someone that's goal directed, someone who's able to set targets. Someone who's disciplined, able to be patient and able to synthesize the work of others in order to get a variant view," he says. Brains simply aren't enough, according to Kiev: "There are a lot of very smart analysts who understand stocks but who don't really have the same appetite for risk, appetite for pain." A ruthless streak is possibly an advantage. A natural disaster, for example, is a buying opportunity - within days of the 2004 tsunami, for example, some global funds were exploring buying opportunities in Sri Lankan construction. Even in their own backyard, hedge funds aren't overwhelmingly popular. The leafy town of Greenwich, Connecticut is America's hedge fund capital with at least 380 funds managing $100bn. Greenwich's endless row of boutiques - Tiffany, Saks, Ralph Lauren and LaCoste to name a few - speaks volumes about the money being generated by the industry. But local people have certain reservations. Mary Ann Morrison, president of Greenwich's chamber of commerce, says funds don't show much interest in community affairs. "For over a century, Greenwich has been one of the most upscale places in the north-east. It's always attracted old money," she says. "Hedge funds are changing the make-up of the business community." Although individual fund managers are sometimes generous, the funds aren't into community activism: "They're occupying class 'A' business space but that doesn't mean they're getting involved in the way their predecessors did." There are, of course, exceptions. The social event of the year in Greenwich is the Bruce Museum's annual Renaissance Ball - which this year was themed on the "jewels of India". With 500 guests, the black-tie event raised as much as $800,000. In Britain, there is the annual Hedgestock music festival which donates all its proceeds (reportedly nearly £1m annually) to the Teenage Cancer Trust. Unlike most rock concerts, it has a Moet & Chandon champagne tent and is promoted, only half jokingly, as "a festival of networking". When asked about their poor public image, hedge fund managers tend to answer with a shrug. David Friedland, president of the US Hedge Fund Association, says: "If a hedge fund manager's been successful, good luck to them if they want to spend their money on a private jet." Criticism, he says, is water off a ducks back: "Although hedge funds are bad-mouthed and bashed by everybody, sophisticated investors, pension funds and high net worth individuals all use hedge funds very heavily." In an attempt to shed the industry's earnest demeanor, Andrew Baker, deputy chief chief executive of Britain's Alternative Investment Management Association, reaches for a musical comparison. Why, he asks, do the least responsible participants get the most attention? "If you were a country and western singer and I was always comparing you with a picture of Pete Doherty, eventually you'd get quite annoyed," says Baker. "Hedge funds are not all like Pete Doherty. Some are highly leveraged, some are not." It would be idiotic, of course, for anybody to be gleeful at a downturn in hedge funds' performance. The losers aren't always obvious - but they are plentiful. When Australia's Basis Capital declared one of its funds bankrupt this week, it was revealed that one of the investors with burnt fingers was a pension fund for teachers in the state of Victoria. Yet the scale of the rewards for success do inspire eye-rolling. According to Trader Monthly magazine, 93 of the world's 100 most successful financiers were hedge fund managers last year. Members of this elite earned an average of £120m and five of them took home more than £500m. Unions in America are becoming more inventive in tapping into popular discontent at such rewards - particularly when tax breaks accentuate financiers' riches. A demonstration was staged in the Hamptons this week by an apparently new organisation called SHAME - the Southampton Alliance for Monied Estates. Calling for sympathizers to rally around the KKR private equity boss Henry Kravis to console him for the market's downturn, SHAME claimed to represent "working families behind the buyouts" who were campaigning for more tax relief for billionaires. It was, of course, a spoof set up by the SEIU, a 1.9 million-strong union and ardent critic of the excessive spoils of financial tycoons.
Monday, August 18, 2008
Sunday, August 17, 2008
If bear sterns doesnt know, who knows?
As the hedge fund world becomes bigger and bigger as more and more hot money seeks the elusive alpha of maximum performance, it is becoming apparent that more and more newspaper space will be devoted to hedge funds, and private equity. Recent news has taken us into the inner sanctum of Bear Stearns, truly a dominant investment firm in the world today. It might be argued that Bear Stearns is the best managed Wall Street firm in existence. Some might say Goldman Sach’s. In any event Bear Stearns would have to be on the short list. Investment firms for almost a decade sat by and watched hedge funds form, and amass vast investment capital pools while successfully charging 2% management fees, and 20% of the profits. Some of these hedge funds in a few years, have grown to possess capital bases equal to that of investment banking firms that have been around for generations. Taking some of the risks that were involved to achieve this performance is now coming home to roost. Bear Stearns is the latest firm to stub its toe in the hedge fund industry. The firm is FAMOUS for quantifying and judging RISK before making its bets. This time however it seems that Bear Stearns threw its usual caution to the wind in embracing the formation of two hedge funds over the last year or so. The second hedge fund was considered a more highly-leveraged version of Bear’s High –Grade structured Credit Strategies fund which was formed last year. Both funds were managed by Ralph Cioffi, who up until recent events took hold, had the reputation of being a MASTER at this game, and the game is the subprime mortgage bond business. Most people are not aware of it but Bear Stearns is the finest fixed income trading firm on the planet bar none, and this has been true for several generations. This makes recent events even more perplexing to understand. Jimmy Cayne who is Bear’s CEO is embarrassed at the very least, and certainly upset enough that there will be major changes in the leadership of the units responsible for the pain being inflected on the firm’s reputation. This should not have happened at Bear Stearns, that’s the point. Actions Taken and Implications Mr. Cayne has made the decision to inject $3.2 billion of Bear Stearns capital into a bail-out of the older fund. Bear is also negotiating with the banks that put up the credit facility for the other fund, the highly leveraged High-Grade Enhanced Leveraged fund. What Bear is trying to prevent is the forced sale of the debt obligations underlying the fund’s investments. These issues trade by appointment as they say, which means they rarely trade at all. Bear knows the Street smells blood, and will take advantage of any weakness that Bear shows. So what are the implications of this latest hedge fund debacle? It clearly shows that the most sophisticated investors on the planet who put their money into hedge funds may in fact have NO IDEA what they are investing in. Instead, they are betting on the institutional reputation of the firms standing in back of the hedge funds. In this case nobody knew more about this market segment than Bear Stearns, yet they caught in a terrible position. This is not Cayne’s fault, but as CEO, it is always his responsibility. I believe him to be the finest Wall Street executive of his generation. Nevertheless, his underlings certainly let him down, and they are among the highest paid people in the world today. Some of these industry veterans are drawing $10 million dollar annual incomes. Let the investor beware is the rule of the day, especially when it comes to hedge funds. But Wait – There’s More The average hedge fund uses about six to one leverage in order to obtain the performance success we have become accustomed to seeing in the hedge fund world. Investors in Bear Stearns’ fund called Enhanced Leverage put up about $638 million of their own money. The fund was then able to borrow about 10 times that amount. They used repo-financing and a credit facility at the Barclay’s Bank. Enhanced Leverage then went out and invested about $11.5 billion in both bonds and various and assorted bank debts on the long side. On the short side, they had about $4.5 billion through credit default swaps. These transactions were originated on the ABX Index, all of which were tied into subprime mortgage bonds. I know you are asking how it all came undone. What happened is that the underlying bonds of the whole market segment are what you could call the subprime market came undone. Back in February, this hurt Bear’s two funds. The funds and the hedges laid on by Bear went under water in March simultaneously. The hedges should have performed when the market worsened, and they didn’t. That was the killer. The hedges did not do what they were supposed to do. In late May, Bear knew they had to do something. What Bear chose to do was close down the redemption process. In other words, not allow any investors to withdraw their remaining funds, which would create a run on the hedge fund. This is similar to Franklin Roosevelt closing down the banks in 1933, to prevent a run on the banks from taking place. The banks who lent the money to the Bear Stearns sponsored funds quickly began selling down the securities in the funds in an attempt to back into some kind of positive equity balance. This was all the result of margin calls brought about the funds’ poorly performing, and now distressed investments. Bear finally agreed to a bail-out of one of the funds injecting $3 plus billion dollars into the fund. The firm as of now will not rescue the other fund, known as Enhanced Leverage. In our opinion, Bear will not be the last firm to experience problems with hedge funds, and investors are in for a further rude awakening as the hedge fund industry continues along its under-regulated path of seeking maximum investment performance. Many hedge funds are overextending, and frankly have no idea as to their actual open positions in the financial world. Bear and nobody is better than Bear says it will be another week or two before it knows the extent of the losses of its investors in these two funds. If that is true of the best managed risk taking firm in the world today, how much confidence can you have in the hundreds of other hedge funds out there that are poorly managed compared to the legendary Bear Stearns.? The answer is you’d better sleep with your pants on, if you think your money is safe in the hedge fund world. You think you’re sleeping on a nice warm bed. What you don’t realize is that the bed is sitting on a railroad track with a 100 mile per hour train bearing down on you. The problem with hedge funds is the leverage. Six to one is normal, and then you get the ones that go crazy and start approaching 10 to 1 leverage in the race for performance. It’s great when the market is on your side, but when the market goes against you; these entities literally go out of business. Warren Buffett has always talked about being able to sleep at night with your investments. He also talks about what would happen if you wound up in a coma, and woke up 10 years later? Would the investments you made ten years ago still be good, or not? Would you like to wake up from a coma, owning hedge fund investments for the previous ten years, maybe yes, maybe no, but as an investor, you better be able to answer that question? For a fuller version of this article please visit our website.
Saturday, August 16, 2008
A beginners guide to stock investment
Investing in stocks can prove to be a very profitable thing for you. However you may require learning the ins and outs of stock market before you invest your valuable cash. The stock market functions much like a public sale. it's an auction-based marketplace, with an agent acting as an intermediary who checks buyers and sellers of stocks. The price of a stock is evaluated by how much he buyer wants to pay and how little the seller is willing to put up for sale. The stock prices you watch on the Internet or in your local newspaper are from the last stock trades of the previous day. This type of information also informs you what the best rates are that buyers will pay for a share, in addition to the best price a seller will have. The stock rates are continually varying - going up and down by as little as cents or as much as a few bucks.
The good thing is that common stocks have exceeded nearly all other assets. Statistics have revealed that common stocks have an average annual return of approx. 14% after the end of World War II, even though there have been years when the market has decreased 20% or more. These decreases are difficult to manage, but you have to comprehend that the market has gone back each time and has gone on to bring in even greater returns in time.
Majority of financial advisors will advise you that you should not invest a lot in the stock market if you need cash back in a shorter period of time. However, investing a little in reliable companies can be gainful. The benefit of long-term investing is saving on taxes. If you hold on to your stocks, or sell at a higher price than you paid, you must pay capital gains on the earnings. It you possess a stock for less than a year; your short-term capital gain tax rate is nearly equivalent to your federal tax bracket.
Let's consider investing in a nationally renowned startup airline company such as Baltia Air Lines, which has prearranged a three-year lease of its Boeing seven hundred forty-seven aircraft. In addition to this, the company has leased space at JFK International Airport in New York, Terminal 4, for its base of operations. Baltia Air Lines plans to set up its initial route network by adding additional airplanes and non-stop routes from JFK to Riga, Moscow, Kiev and Minsk. The sustained affluence of Southwest Airlines® and the recent success of JetBlue® demonstrate the rewarding and expanding market for new U.S. niche carriers such as Baltia Air Lines, an ultimate choice for making your investments.
The good thing is that common stocks have exceeded nearly all other assets. Statistics have revealed that common stocks have an average annual return of approx. 14% after the end of World War II, even though there have been years when the market has decreased 20% or more. These decreases are difficult to manage, but you have to comprehend that the market has gone back each time and has gone on to bring in even greater returns in time.
Majority of financial advisors will advise you that you should not invest a lot in the stock market if you need cash back in a shorter period of time. However, investing a little in reliable companies can be gainful. The benefit of long-term investing is saving on taxes. If you hold on to your stocks, or sell at a higher price than you paid, you must pay capital gains on the earnings. It you possess a stock for less than a year; your short-term capital gain tax rate is nearly equivalent to your federal tax bracket.
Let's consider investing in a nationally renowned startup airline company such as Baltia Air Lines, which has prearranged a three-year lease of its Boeing seven hundred forty-seven aircraft. In addition to this, the company has leased space at JFK International Airport in New York, Terminal 4, for its base of operations. Baltia Air Lines plans to set up its initial route network by adding additional airplanes and non-stop routes from JFK to Riga, Moscow, Kiev and Minsk. The sustained affluence of Southwest Airlines® and the recent success of JetBlue® demonstrate the rewarding and expanding market for new U.S. niche carriers such as Baltia Air Lines, an ultimate choice for making your investments.
Thursday, July 24, 2008
best 25 stocks 2008
On last month's 12th FORBES cruise for investors--aboard the majestic Crystal Serenity, which sailed from the Pacific to the Caribbean through the Panama Canal--guests got these 2008 stock picks from our expert panel.
Ken Fisher is the founder and CEO of Fisher Investments, which manages $46 billion across 20,000-plus private accounts. Fisher said: "Most see a global recession or slowdown in 2008. I don't, not with strong earnings yields relative to low Treasury yields around the world today. Before others figure out the good news, you'll want to be in on these economic turnaround stocks:--Flextronics International (nasdaq: FLEX - news - people ) (FLEX, $11.53) --Manpower (nyse: MAN - news - people ) (MAN, $57.18) --Allianz (nyse: AZ - news - people ) (AZ, $20.16) --Cascade (nyse: CAE - news - people ) (CAE, $46.80) --Union Pacific (nyse: UNP - news - people ) (UNP, $128.96).
Brian Wesbury is the chief economist for First Trust Advisors, which manages $36 billion for private and institutional accounts. Wesbury said: "Our model shows U.S. stocks to be 25% undervalued even when we use a higher 6% yield for the ten-year Treasury bond." (As this column went to press, the yield was 4.1%.) Wesbury thinks the U.S. and the global economy are in a long boom, fueled by tech-led productivity, easy money and tax competition. He likes chip manufacturers and aerospace parts suppliers:--Sigma Designs (nasdaq: SIGM - news - people ) (SIGM, $62.71) --Nvidia (NVDA, $33.28) --Precision Castparts (nyse: PCP - news - people ) (PCP, $138.39) --Parker Hannifin (nyse: PH - news - people ) (PH, $75.06) --Hasbro (nyse: HAS - news - people ) (HAS, $25.84).
Stephen Biggar is the global director of equity research for Standard & Poor's. He recommended any of the 149 five-star stocks within the 1,550 companies covered by Standard & Poor's. Pressed to name just five stocks, Biggar offered us this broad midcap mix:--Carlisle Companies (nyse: CSL - news - people ) (CSL (other-otc: CMXHF.PK - news - people ), $37.62) --CVS Caremark (CVS, $39.13) --Hologic (nasdaq: HOLX - news - people ) (HOLX, $65.08) --Manitowoc Company (nyse: MTW - news - people ) (MTW, $45.90) --Triumph Group (nyse: TGI - news - people ) (TGI, $75.55).
Charles Payne is CEO of Wall Street Strategies, a firm that develops stock selection services for professional traders and institutional investors. Payne is a frequent guest market analyst on Fox News and Fox Business News. He shared these picks:--Diana Shipping (DSX, $29.29) --MEMC Electronic Materials (nyse: WFR - news - people ) (WFR, $83.42) --Evergreen Solar (nasdaq: ESLR - news - people ) (ESLR, $15.02) --VimpelCom (VIP, $35.74) --Guess (GES, $40.10).
Vahan Janjigian is Vice President and Executive Director of the Forbes Investors Advisory Institute. He is the editor of the Forbes Growth Investor and the Special Situation Survey, investment newsletters that have produced five-year annualized returns of 15.3% and 26.6%, respectively, according to the independent Hulbert Financial Digest. Janjigian is also the host of MoneyMasters with Vahan Janjigian, an Internet video program available on Forbes.com and iTunes, and is the coauthor and editor of the Forbes Stock Market Course, as well. Although Janjigian is an economic and market bear, he likes these stocks:--Johnson & Johnson (nyse: JNJ - news - people ) (JNJ, $67.55) --DRS Technologies (nyse: DRS - news - people ) (DRS, $55.31) --Rock-Tenn Company, Class A shares (RKT, $24.50) --Trinity Industries (nyse: TRN - news - people ) (TRN, $26.07) --Avnet (nyse: AVT - news - people ) (AVT, $34.75).
And for You Bears
Disagree with the bullish forecasts given above? Think bad mortgages will torpedo the economy and stocks? Here are some down-market defensive strategies shared during our investor cruise by longtime FORBES columnist Gary Shilling:
--Short home builders. Whoa! Haven’t the home-builder stocks already fallen hard? Not far enough, says Shilling. Home builders trade at book value today but sold for half of book in 1991.
--Don’t just short home builders; short (or sell) mortgage lenders and mortgage insurers, too.
--Sell any residential real estate or land you don’t intend to keep for the long haul. Take small losses, sure to grow larger soon.
--Short or sell companies that make big-ticket consumer items— like cars.
--Short sub-AA-rated CDOs backed by subprime mortgages.
--Get rid of junk bonds.
--Sell or avoid most commercial real estate.
--Sell or short commodities, including oil. Why? The U.S. recession will damage the global economy and suppress demand for commodities. Shilling’s favorite short: copper.
--Short (or sell) emerging-market stocks.
--Short (or sell) emerging-market bonds.
--Sell U.S. stocks in general.
--Buy the U.S. dollar.
Ken Fisher is the founder and CEO of Fisher Investments, which manages $46 billion across 20,000-plus private accounts. Fisher said: "Most see a global recession or slowdown in 2008. I don't, not with strong earnings yields relative to low Treasury yields around the world today. Before others figure out the good news, you'll want to be in on these economic turnaround stocks:--Flextronics International (nasdaq: FLEX - news - people ) (FLEX, $11.53) --Manpower (nyse: MAN - news - people ) (MAN, $57.18) --Allianz (nyse: AZ - news - people ) (AZ, $20.16) --Cascade (nyse: CAE - news - people ) (CAE, $46.80) --Union Pacific (nyse: UNP - news - people ) (UNP, $128.96).
Brian Wesbury is the chief economist for First Trust Advisors, which manages $36 billion for private and institutional accounts. Wesbury said: "Our model shows U.S. stocks to be 25% undervalued even when we use a higher 6% yield for the ten-year Treasury bond." (As this column went to press, the yield was 4.1%.) Wesbury thinks the U.S. and the global economy are in a long boom, fueled by tech-led productivity, easy money and tax competition. He likes chip manufacturers and aerospace parts suppliers:--Sigma Designs (nasdaq: SIGM - news - people ) (SIGM, $62.71) --Nvidia (NVDA, $33.28) --Precision Castparts (nyse: PCP - news - people ) (PCP, $138.39) --Parker Hannifin (nyse: PH - news - people ) (PH, $75.06) --Hasbro (nyse: HAS - news - people ) (HAS, $25.84).
Stephen Biggar is the global director of equity research for Standard & Poor's. He recommended any of the 149 five-star stocks within the 1,550 companies covered by Standard & Poor's. Pressed to name just five stocks, Biggar offered us this broad midcap mix:--Carlisle Companies (nyse: CSL - news - people ) (CSL (other-otc: CMXHF.PK - news - people ), $37.62) --CVS Caremark (CVS, $39.13) --Hologic (nasdaq: HOLX - news - people ) (HOLX, $65.08) --Manitowoc Company (nyse: MTW - news - people ) (MTW, $45.90) --Triumph Group (nyse: TGI - news - people ) (TGI, $75.55).
Charles Payne is CEO of Wall Street Strategies, a firm that develops stock selection services for professional traders and institutional investors. Payne is a frequent guest market analyst on Fox News and Fox Business News. He shared these picks:--Diana Shipping (DSX, $29.29) --MEMC Electronic Materials (nyse: WFR - news - people ) (WFR, $83.42) --Evergreen Solar (nasdaq: ESLR - news - people ) (ESLR, $15.02) --VimpelCom (VIP, $35.74) --Guess (GES, $40.10).
Vahan Janjigian is Vice President and Executive Director of the Forbes Investors Advisory Institute. He is the editor of the Forbes Growth Investor and the Special Situation Survey, investment newsletters that have produced five-year annualized returns of 15.3% and 26.6%, respectively, according to the independent Hulbert Financial Digest. Janjigian is also the host of MoneyMasters with Vahan Janjigian, an Internet video program available on Forbes.com and iTunes, and is the coauthor and editor of the Forbes Stock Market Course, as well. Although Janjigian is an economic and market bear, he likes these stocks:--Johnson & Johnson (nyse: JNJ - news - people ) (JNJ, $67.55) --DRS Technologies (nyse: DRS - news - people ) (DRS, $55.31) --Rock-Tenn Company, Class A shares (RKT, $24.50) --Trinity Industries (nyse: TRN - news - people ) (TRN, $26.07) --Avnet (nyse: AVT - news - people ) (AVT, $34.75).
And for You Bears
Disagree with the bullish forecasts given above? Think bad mortgages will torpedo the economy and stocks? Here are some down-market defensive strategies shared during our investor cruise by longtime FORBES columnist Gary Shilling:
--Short home builders. Whoa! Haven’t the home-builder stocks already fallen hard? Not far enough, says Shilling. Home builders trade at book value today but sold for half of book in 1991.
--Don’t just short home builders; short (or sell) mortgage lenders and mortgage insurers, too.
--Sell any residential real estate or land you don’t intend to keep for the long haul. Take small losses, sure to grow larger soon.
--Short or sell companies that make big-ticket consumer items— like cars.
--Short sub-AA-rated CDOs backed by subprime mortgages.
--Get rid of junk bonds.
--Sell or avoid most commercial real estate.
--Sell or short commodities, including oil. Why? The U.S. recession will damage the global economy and suppress demand for commodities. Shilling’s favorite short: copper.
--Short (or sell) emerging-market stocks.
--Short (or sell) emerging-market bonds.
--Sell U.S. stocks in general.
--Buy the U.S. dollar.
Best stock 2008
I'll make this simple. Apple (Nasdaq: AAPL) is 2008's best stock because it wallops rival electronics retailers in generating sales per square foot:
Company
Retail Revenue (mil)
Square Feet, Retail (mil)
Sales Per Square Foot
Apple
$4,115
1.5
$2,743.33
Best Buy
$32,222
33.3
$967.63
Circuit City
$11,860
17.6
$675.01 Sources: SEC filings, The Motley Fool estimates.
Impressive, yes? I'll say.
I should point out that these numbers are anything but perfect. Apple's retail revenue includes its small but growing international operation. Not so for Best Buy (NYSE: BBY) and Circuit City (NYSE: CC). Apple also operates on a different fiscal calendar than its electronics-retailing peers.
Still, look at that footprint. With just 1.5 million square feet, spread out across roughly 200 stores around the globe, Apple -- the 30-year-old Mac daddy -- is but a baby when it comes to retailing.
Not for long, though. That 4-T black turtleneck you bought little Stevie for Christmas is already ripping at the seams. Apple plans 40 new stores in 2008, many of which will be planted overseas. Mexico, too, if the rumors are true.
Apple: Netflix killer?Apple can still make billions from retailing. But there's also big money waiting in other areas of its business -- video rentals, for example.
Last week, major media outlets reported that Apple had inked a deal with News Corp. to make video rentals available via iTunes. If true, it would put instant pressure on Netflix (Nasdaq: NFLX) to do more with its fledging "Watch Now" free service.
But the news may be bigger than any single deal. Thanks to Hulu, Watch Now, the SlingBox, and TiVo, we've become accustomed to getting programming any time, anywhere, in whatever form we want. You can be sure that Apple CEO Steve Jobs is keenly aware of this, and that iTunes video rentals are on the way. If News Corp. doesn't provide the content, someone else will.
Apple: Palm killer?Then there's the iPhone. The numbers are staggering. Roughly 1.4 million have already sold, which, by my math, will bring in at least $700 million in new revenue for Apple.
But that's a conservative estimate. I'm assuming just $399 per phone, plus $100 for Apple's referral deal with AT&T. We know that many iPhones sold for $600. We also have press reports stating that Apple reaps $18 a month from Ma Bell for each iPhone activated, or $432 over a two-year period.
Do the math with me: 1.4 million multiplied by $831 per iPhone is ... (key-punching sounds) ... $1.16 billion. Apple may have created a billion-dollar business ... in six freakin' months.
It makes me wonder: How can Palm (Nasdaq: PALM) be so slow when the market is moving so fast?
Apple: Windows killer?Finally, let's talk Leopard. No, not the cat; the operating system. The new Mac OS is already a winner, having sold more than 2 million copies in its first weekend of release.
Reviews in my copy of Macworld don't offer breathless praise for the OS, but there's plenty to like, including a very useful new feature called "Time Machine." You select the hard drive you'd like to back up, and the destination for your archived data, and Leopard takes care of the rest.
Elegant system software engineering like this is commonplace for Apple. Before there were retail stores, the iEmpire and its devotees -- yours truly included -- thought superior design would ultimately draw customers away from Microsoft (Nasdaq: MSFT) and Windows. Never happened.
But here's the thing: It still could. Retail stores are as much a showroom for the Mac OS, the iPod, and the iPhone as they are a sales depot. Researcher IDC says that Apple's share of the domestic PC market is climbing as a result.
What's more, with chips from Intel (Nasdaq: INTC), Macs now handle PC programs pretty well. For example, a software application called Crossover allows you to run PC software in the Mac OS without a copy of Windows present. Talk about a rebellion in the making.
Fly the pirate flagNotice the pattern here, Fool. Apple is disrupting every business it enters, and in most cases, doing so successfully. Think about how extraordinary that is. All Microsoft had to do was disrupt the PC business once to unleash billions in market value.
How much more will Apple unleash when it disrupts two? Three? Four? You get the picture. Apple, like so many rebel stocks before it, is a misunderstood multibagger in the making. $200 a share is just the beginning.
But that's my take. If you agree, head over to CAPS to rate Apple "outperform." If not, rate it "underperform." Our editors will tally your votes and, next week, reveal your choice for the best stock of the New Year.
Company
Retail Revenue (mil)
Square Feet, Retail (mil)
Sales Per Square Foot
Apple
$4,115
1.5
$2,743.33
Best Buy
$32,222
33.3
$967.63
Circuit City
$11,860
17.6
$675.01 Sources: SEC filings, The Motley Fool estimates.
Impressive, yes? I'll say.
I should point out that these numbers are anything but perfect. Apple's retail revenue includes its small but growing international operation. Not so for Best Buy (NYSE: BBY) and Circuit City (NYSE: CC). Apple also operates on a different fiscal calendar than its electronics-retailing peers.
Still, look at that footprint. With just 1.5 million square feet, spread out across roughly 200 stores around the globe, Apple -- the 30-year-old Mac daddy -- is but a baby when it comes to retailing.
Not for long, though. That 4-T black turtleneck you bought little Stevie for Christmas is already ripping at the seams. Apple plans 40 new stores in 2008, many of which will be planted overseas. Mexico, too, if the rumors are true.
Apple: Netflix killer?Apple can still make billions from retailing. But there's also big money waiting in other areas of its business -- video rentals, for example.
Last week, major media outlets reported that Apple had inked a deal with News Corp. to make video rentals available via iTunes. If true, it would put instant pressure on Netflix (Nasdaq: NFLX) to do more with its fledging "Watch Now" free service.
But the news may be bigger than any single deal. Thanks to Hulu, Watch Now, the SlingBox, and TiVo, we've become accustomed to getting programming any time, anywhere, in whatever form we want. You can be sure that Apple CEO Steve Jobs is keenly aware of this, and that iTunes video rentals are on the way. If News Corp. doesn't provide the content, someone else will.
Apple: Palm killer?Then there's the iPhone. The numbers are staggering. Roughly 1.4 million have already sold, which, by my math, will bring in at least $700 million in new revenue for Apple.
But that's a conservative estimate. I'm assuming just $399 per phone, plus $100 for Apple's referral deal with AT&T. We know that many iPhones sold for $600. We also have press reports stating that Apple reaps $18 a month from Ma Bell for each iPhone activated, or $432 over a two-year period.
Do the math with me: 1.4 million multiplied by $831 per iPhone is ... (key-punching sounds) ... $1.16 billion. Apple may have created a billion-dollar business ... in six freakin' months.
It makes me wonder: How can Palm (Nasdaq: PALM) be so slow when the market is moving so fast?
Apple: Windows killer?Finally, let's talk Leopard. No, not the cat; the operating system. The new Mac OS is already a winner, having sold more than 2 million copies in its first weekend of release.
Reviews in my copy of Macworld don't offer breathless praise for the OS, but there's plenty to like, including a very useful new feature called "Time Machine." You select the hard drive you'd like to back up, and the destination for your archived data, and Leopard takes care of the rest.
Elegant system software engineering like this is commonplace for Apple. Before there were retail stores, the iEmpire and its devotees -- yours truly included -- thought superior design would ultimately draw customers away from Microsoft (Nasdaq: MSFT) and Windows. Never happened.
But here's the thing: It still could. Retail stores are as much a showroom for the Mac OS, the iPod, and the iPhone as they are a sales depot. Researcher IDC says that Apple's share of the domestic PC market is climbing as a result.
What's more, with chips from Intel (Nasdaq: INTC), Macs now handle PC programs pretty well. For example, a software application called Crossover allows you to run PC software in the Mac OS without a copy of Windows present. Talk about a rebellion in the making.
Fly the pirate flagNotice the pattern here, Fool. Apple is disrupting every business it enters, and in most cases, doing so successfully. Think about how extraordinary that is. All Microsoft had to do was disrupt the PC business once to unleash billions in market value.
How much more will Apple unleash when it disrupts two? Three? Four? You get the picture. Apple, like so many rebel stocks before it, is a misunderstood multibagger in the making. $200 a share is just the beginning.
But that's my take. If you agree, head over to CAPS to rate Apple "outperform." If not, rate it "underperform." Our editors will tally your votes and, next week, reveal your choice for the best stock of the New Year.
What do Value Investors Look for in Stocks?
What factors should you consider when evaluating a value stock? Before we answer that question, maybe we should briefly define value investing.
Value investing is finding a stock that is selling at a discount to its intrinsic value or companies that the market has undervalued for some reason unrelated to its economic fundamentals.
Benjamin Graham pioneered the value-investing concept and recognized the biggest flaw in the strategy: deciding what a company’s intrinsic value is.
Margin of Safety For this reason he always counseled for a margin of safety that provided room should your calculation of the intrinsic value be off.
This is important because the key to successful value investing is buying at the correct price. Graham’s strategy called for a strict discipline on price, which included his margin of safety.
If he could not buy the stock at that price, he would pass.
Many modern stock pickers scoff at the rigidity of his system, yet Graham and his pupils, such as Warren Buffett, have made fortunes sticking to the strategy.
Financial Statistics Here are some of the financial statistics value investors study, historical and forward:
price to book ratios
price to sales ratios
price to earnings ratios
price to cash flow ratios For an explanation of these ratios, see Tools of Financial Analysis.
The value investor will look for these ratios to be below the S&P 500 benchmarks for a company’s industry group.
However, let’s be clear. Value investors are not looking for companies on the way to bankruptcy. They are looking for companies that have been beaten up by the market for no real fault of their own.
One of the ways you can make sure the company is on solid footing is to look at its financials.
Debt Ratios Look in particular at its debt ratios (debt levels should be low) and look for good cash flow. A company with manageable debt and good cash flow is worth getting to know better, regardless of how the market is treating the stock.
How does a good company become a value stock? Several things can happen.
The company may not have a glamorous product. Some products just don’t get much attention, but still must be produced, for example, those orange barrels you see on highway construction sites.
The growth prospects for the stock may not be high relative to other opportunities in the market. During the dot.com stock frenzy of the late 1990s, almost any stock that wasn’t high tech became a value stock in comparison.
If a stock is selling at below $15 - $20, some investors think there must be something wrong with the company. This is an irrational response, but it happens.
Conclusion Successful value investing depends on identifying a stock that is trading under the intrinsic value of the company and buying with a margin of safety in case you have misjudged the intrinsic value.
Value investing is finding a stock that is selling at a discount to its intrinsic value or companies that the market has undervalued for some reason unrelated to its economic fundamentals.
Benjamin Graham pioneered the value-investing concept and recognized the biggest flaw in the strategy: deciding what a company’s intrinsic value is.
Margin of Safety For this reason he always counseled for a margin of safety that provided room should your calculation of the intrinsic value be off.
This is important because the key to successful value investing is buying at the correct price. Graham’s strategy called for a strict discipline on price, which included his margin of safety.
If he could not buy the stock at that price, he would pass.
Many modern stock pickers scoff at the rigidity of his system, yet Graham and his pupils, such as Warren Buffett, have made fortunes sticking to the strategy.
Financial Statistics Here are some of the financial statistics value investors study, historical and forward:
price to book ratios
price to sales ratios
price to earnings ratios
price to cash flow ratios For an explanation of these ratios, see Tools of Financial Analysis.
The value investor will look for these ratios to be below the S&P 500 benchmarks for a company’s industry group.
However, let’s be clear. Value investors are not looking for companies on the way to bankruptcy. They are looking for companies that have been beaten up by the market for no real fault of their own.
One of the ways you can make sure the company is on solid footing is to look at its financials.
Debt Ratios Look in particular at its debt ratios (debt levels should be low) and look for good cash flow. A company with manageable debt and good cash flow is worth getting to know better, regardless of how the market is treating the stock.
How does a good company become a value stock? Several things can happen.
The company may not have a glamorous product. Some products just don’t get much attention, but still must be produced, for example, those orange barrels you see on highway construction sites.
The growth prospects for the stock may not be high relative to other opportunities in the market. During the dot.com stock frenzy of the late 1990s, almost any stock that wasn’t high tech became a value stock in comparison.
If a stock is selling at below $15 - $20, some investors think there must be something wrong with the company. This is an irrational response, but it happens.
Conclusion Successful value investing depends on identifying a stock that is trading under the intrinsic value of the company and buying with a margin of safety in case you have misjudged the intrinsic value.
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