Value Investing 01 (May 08 - Dec 08)

[blid2def]

Haha I'll help K answer this one. I don't know enough FA, so I can't comment on whether it applies or not, but definitely, TA can still use lah. TA can be used on multiple timeframes - even a trading day itself has its intraday patterns. Of course, it could be just pure coincidence that some stuff works. In which case, it's LA. Lucky Analysis.

[fclim]

During this period, emotions rule. Don't say FA or TA, all are NA - Not Applicable.

hi kanglc,

let me add 1 more SA = sentimental analysis...

have fun,
fc

[Cheng]

LOL you guys are damn funny.

Win liao win liao!

[winston]

How to Spot the Worst-Managed Companies
Scott Rothbort

Management is critical to a company's success. And it's often a good place to start your evaluation of whether one company would make a better investment than another -- especially within the same sector or industry.

Here's a primer on how I identify the poorly run players in a specific business, plus my three picks for the worst-managed U.S. companies of the year.

My Criteria

While not all the companies on my list suffer from every one of the following problems, they meet at least one or more of these negative characteristics which make them lousy investments, and potentially excellent short sales.

My main checklist:

1. Poor financial condition. Heavy debt loads, large amounts of goodwill and poor cash flow are common among poorly run companies. As a result, their balance sheets are in poor shape. The inability to shore up balance sheets could spell further danger in the future. Take a look at Charter Communications (CHTR Quote - Cramer on CHTR - Stock Picks). This company has nearly $20 billion in long term debt with virtually no cash on hand.

2. "Second Banana Syndrome." Some of the companies on my list are not what would you refer to as "best of breed." Most of them are in an industry or sector that has at least one more dominant competitor. For example, Circuit City (CC Quote - Cramer on CC - Stock Picks) is a distant second place electronic retailer to Best Buy (BBBY Quote - Cramer on BBBY - Stock Picks). In the smart phone technology category, Palm (PALM Quote - Cramer on PALM - Stock Picks) has fallen to second or third place behind Research In Motion (RIMM Quote - Cramer on RIMM - Stock Picks) and Apple (AAPL Quote - Cramer on AAPL - Stock Picks).

3. Ineffective management. Successful companies will have management teams which not only innovate, but can also manage during times of stress. In fact, innovation does not simply mean the introduction of a single "cool" product, such as (the now struggling) Sharper Image (SHRP Quote - Cramer on SHRP - Stock Picks) did with the Ionic Breeze Air Purifier. Effective innovation and management is about being able to transform a company into a provider of a well-balanced and diversified line of products.

Look at the success of retailer d**k's Sporting Goods (DKS Quote - Cramer on DKS - Stock Picks). While it may be the top retailer of golfing products and apparel, the company also sells a wide range of sporting goods and apparel. As a result, I believe d**k's Sporting Goods will be able to survive an economic downturn. Other retailers will not be so lucky. In retail (and in many other businesses), when it comes to navigating a difficult economic environment like the one we're in now, inventory management will be a critical key to success.

4. Strategic mistakes. This can take many forms. One of the most damaging are large acquisitions which turn out to be costly mistakes. Take Washington Mutual for example. The company acquired Providian, a subprime-type credit card issuer for $6.5 billion in 2006. ( 2008: "JPMorgan Chase Takes Over WaMu")

Six Flags (SIX Quote - Cramer on SIX - Stock Picks) has invested heavily in capital expenditures ("capex") in both its theme parks to build up related holdings such as restaurants and hotels. These strategies have not resulted in increased park attendance and cash flow which management had anticipated from the increased capex.

Macy's. This retailer is burdened with over $9 billion in long term debt and there is no indication that the company will be able to make a dent in paying down that debt as we head deeper into negative economic territory. Yet Macy's has continued to expand through the opening of new stores. In 2005, Macy's acquired May Department Stores. The company is still integrating this acquisition and made a strategic blunder to change May's popular Marshall Field's brand into Macy's to the ire of this Midwestern retail institution's faithful customer base. If Macy's can manage its inventories during what is bound to be a poor holiday shopping season, then the company might survive. If not, then M may have a more difficult future to manage.

General Motors. GM has a "unique" business model: Build cars that the public yearned for when gas prices were below $1 and scrap plans for electric and energy-efficient automobiles. Then try to reverse that strategy (once time may have run out). Then finance cars at very low interest rates to entice customers to buy them at signifcantly discounted prices. And throughout this whole process, grow debt.

Other management missteps: Have the highest cost of manufacturing in the industry, continue to pay for expensive labor mistakes made in the past, and allow foreign competitors to take away a once dominant market share.

So what's GM's plan to correct their course? The company is in discussions to merge with another also-ran car company, Chrysler.

Put it all together and GM is clearly one of the worst managed companies in the U.S. today. And its stock is trading at multi-decade lows.

Time Warner. I have been kind to Time Warner in the past. I thought that CEO Richard Parsons was an admirable fellow. However, he could not salvage what was left after one of the worst ever corporate mergers ever -- AOL Time Warner in 2000.

I don't believe that Time Warner, under Jeffrey Bewkes, Parson's successor, will be able to return to the pre-AOL dominance that it once enjoyed. The glory days under the leadership of the late Steve Ross are no more than a distant memory for the company. Saddled with $37 billion of debt and not enough assets to sell to pay down the debt, Time Warner remains in financial hell. And in my opinion, cost cutting will not help the company manage its way out of debt as well. I see the delay of the next installment in the Harry Potter movie series as indicative of the operational problems at Time Warner.

With better management and improved economic conditions, there is a chance that my 2008 vintage of poorly managed companies could turn themselves around. However, those are not bets I would be willing to make. GM is a special case and is likely to be supported by the U.S. government, much in the way the government rescued Chrysler in the 1970s.

[winston]

Wah... Quite a bit of discussions between FA & TA so I'm to put my 2 cents worth here on a very cold Saturday morning.

1) I use simple FA, simple TA and CANSLIM. I'm a "Jack of all Trades, Master of None".
2) I use simple FA and CANSLIM to identify a Potential Candidate
3) I use simple TA to determine my entry and exit points. My fav tools are just the simple Price and Volume data
4) I use Logic ie. good reasons before entering or exiting a position
5) I dont like to use a Mechanical Stop-Loss but I try to control my Risk thru Position Sizing. If things dont go as expected, I normally do pare down my positions. In a way, you can call it a Controlled Stop Loss.
6) I prefer to have a small position before I load up on it. It is to follow their story and for 'Sensory Acuity" purposes
7) I also use my Emotions to determine my entry and exit points. When I'm very greedy, I force myself to put on a Trailing Stop Loss. When I'm very fearful, I force myself to buy a small position.
8) In volatile times, I prefer to day-trade Put and Call Warrants on the HSI

After many years of mistakes and baggages, I have arrived at the above. It is not perfect but it is something that I'm comfortable with. You will need to find your way, whether it is thru FA, TA, CANSLIM, a combination or something else like Astrology, Feng Shui etc.

[winston]

Yes, I meant to say "Net Cash"/Share = (Cash - Liabilities)/Share

[kanglc]

Thanks for sharing, Winston.

[blid2def]

LOL you guys are damn funny.

Win liao win liao!

As long as you make money and other people lose (or make more money than others), you can then run onto the hill and shout at the top of your lungs, "My *-A school wins".

However, chances are you'll find another three million people already on that same hill yelling the same thing. Then you realize that it's all hollow because depending on different timeframes, measures of success, etc. everyone else has a very legit shout.

Like TV kung fu serials also got teach mah:
一寸长，一寸强。
一寸短，一寸险。

[kennynah]

if it is "一寸长"...it's never fun

[blid2def]

Yeah but the "一寸长" means "one inch more", not "one inch long".