Category: Value Investing

You might think this is a no-brainer, but in today’s market, people are consistently incapable of distinguishing between the two. At a certain point, let’s say in the early 2000s some companies operating on the internet came up with the single greatest market innovation in decades. No, it wasn’t new technology, it was a new idea.

If you could invest in and build a service, give it away for “free”, then you could create a dedicated viewer base, which would be your actual product. This was the point where factory farming met internet services. Cows get fed, watered, in some places they even get massages. The whole point of doing that, feeding, watering, massaging – is to fatten them up to be consumed.

It was a masterful idea, it was brilliant, and genius. Today you have companies like Google $GOOGL, Facebook $FB, Twitter $TWTR, and even companies like Apple $AAPL, which masquerade as tech companies, but are really just advertising agencies. Instead of targeting advertisement of their product to a wider consumer audience, these companies turn consumers into the consumed, and have a B2B model of selling their consumer livestock to the highest bidder.

Think about it. What has $GOOGL ever really done or invented? The simple answer is: nothing. Nothing that google did was particularly innovative. Networking a bunch of computers together for distributed computing was already a thing people had done. I was there when $GOOGL won the search engine wars. The idea google sold to users was not that their search was particularly the best, but that they didn’t allow companies to pay for placement in search rankings. We all see how today, they’ve reversed that position (though they kindly delineate between paid placement etc.)

I don’t consider this a problem in and of itself. I’m not anti-advertising. I simply find it ironic that 15 years ago, what all of us thought was the shining gold star deserving point for Google has essentially been turned on its head: once it won the search wars, it essentially did what every Eyeore said it would do.

What has Google ever done? The raison d’etre of Google is search, and it’s algorithm is one of the biggest frauds in history. Google is still, and was always, a mechanical turk. Google’s page rank is a bunch of jargony sophistication on the idea of outsourcing search results to users. Throughout Google’s search history, those who’ve understood this have made a lot of money in SEO. There was a time when you could artificially spike Google’s search results by simply creating lots of dummy websites with back links to your site. Eventually Google caught on, without the slightest bit of embarassment for having been exposed as frauds, and began tweaking their “algorithm”. You remember, the age of the Posting Board? Almost every search on Google ended up having hundreds of different threads from online forums. Because Google decided to “fix” their mechanical turk and over rely on “live discussions” between real humans (the mechanical turk). Remember the time when a link on slashdot could litterally tank your website?

Eventually they fixed that, but most of what Google and its “algorithm” actually does is account for the various methods of cheating and fooling its mechanical turk.

When Youtube wanted to censor objectionable (to them) material, what did they do? They invented some high powered AI that pretty much didn’t work. So they outsourced it to the ADL and SPLC (Youtube’s Mechanical Turk).

I have no problem with Ad Agencies, I think they are awesome, I think Google is a great company, for an advertising agency. But I could care less what Google or anyone at Google thinks about tech. When Erich Schmidt gives a keynote or some kind of tech convention address, all I do is wonder, when is someone going to point out that the Emperor is Naked?

This doesn’t mean that Google doesn’t offer tech things, like Tensor Flow, Kubernetes or Google Maps. Some of those things even have a bit of a cool geek factor. But Google does not create or innovate at the level of its capitalization. Google innovates because it throws truckloads of money at MIT grads for 2-3 years to see if they come up with anything that will grow their product: the audience. You. Me.

Remember Google Pay/Wallet? Yeah, neither do I.

Google couldn’t compete against Paypal because Google can’t innovate. If they could have found some new and innovative way to merge online payments with advertising, maybe it would have succeeded. The reason google payments failed was because it offered nothing above or better than anyone else in the space. Except: Because Google.

Google trades on reputation and image alone, and it cultivates that image in the same way a Pick Up Artist cultivates his image to seduce women. Its all a shew. A multi-billion dollar shew.

Facebook $FB is pretty much the same story. Mark Zuckerberg is no genius, all he did was build a better MySpace, and by better I mean one not built on ASP.Net that allowed incompetent users to inject CSS and Javascript into their profile. Facebook was able to capitalize on the new-hotness, and to provide a service, in this case in line with Apple’s philosophy of sell-to-vanity, and to grow a marketable product. That product is not a social network. It is not picture alblums, or timelines, or chat. That product is the user. They are selling your eyes. That’s it.

Twitter is another such story. It was a fast to market app that capitalized on the Web 2.0 and Rails hype. It had nothing to do with tech innovation (it was basically SMS for a webpage), it was just able to get enough acceleration to build a marketable customer base. Forward thinking investors chose these “tech companies” based on their future earnings when they began to sell to their audience. Social Networks are cash crops for B2B sales of Advertising. What these Masters of the Universe, these men of science, learning, and technology, have done is turn the entire internet into a billboard laden dopamine super highway. It’s not merely that they haven’t contributed in any meaningful way to tech, it’s that they’ve actually and actively polluted the internet. They are the digital equivalent of Big Tobacco and Big Oil and Big Pharma rolled into one. It makes me laugh my ass off, considering the prevalence of self-congratulating leftist socialist backslapping that goes on within and without these so-called “tech-companies.”

Fight the power man. LMFAO.

It’s the greatest con in recent memory, perpetrated on the liberal elite of this country. Masters of the Universe my ass.

Just to repeat, I am not against these companies. Personally, the idea of whoring leftist yuppies in skinny jeans gives me a massive chub. In fact, the more I think about it, the more I love these companies. It makes me want to get a screen printer and sell Che Guevara t-shirts at $25 a pop and Fidel Castro Tea Cozies for $15. Gotta get in on that Democratic Socialism Dollar.

So, what does make a tech company?

The same thing that makes a Sci-Fi novel. Star Trek is Sci-Fi because it is predicated on technology. Specifically Warp Capability. Several shows even are built upon the idea of the distinction between Warp Capable and Not Warp Capable societies. Star Wars gets a pass because of Hyper Drive, as well as the Planetary Shield over Endor, or the Death Star (giant planet sized “laser”).

Google is not a tech company because its business model, i.e. the way it makes money as a business, has nothing to do with technology and everything to do with advertising and services. For this same reason, Apple Inc. $AAPL skates under the wire, so technically it is a tech company, but only in the broadest definition of the word.

Netflix is a tech company, actually a really good one. Their core business is their application to deliver streaming content. I think they’ve also innovated in this space, both technologically, but also cinematographically.

Strangely enough, Amazon $AMZN has become a tech company. It is way more of a tech company than Google ever was. AWS is ubiquitous and, quite frankly, game changing. DropBox Inc $DBX is a tech company. Twitter is not. Facebook is not.

A tech company is a company who delivers investor value because of technological innovation, in deployment, scaling and features. If it fails to innovate or it fails to deliver on promised technology, it fails as a company. That’s why people prefer to invest in companies like Google and Twitter, because their success of failure is a direct product of their ability to massage cows. Massaging the Cows is a quantifiable and well understood investor concept. Happy, smiling cows that post selfie are a metric you can talk about. If you have 400 Million cows and 75% of them are posting selfies at the trough, you know you’re doing well.

A generation ago, in the US, there where thousands of independent toy stores. Those toy stores found their industry disrupted by a new kid on the block, Toys R Us. 70 years later, the internet, helped by Toys R Us’ crippling debt load, have finally killed the iconic toy giant.

While this is a cautionary tale about debt, and the fact that any company, no matter how big or how old can succumb to the death by a thousand cuts, what is more it is a tale of how disruption and the failure to adapt kills businesses and disappears jobs.

Requiescat In Pacem. I was too poor to shop at Toys R Us when I was a kid, I used to wander through its aisles and wish I could have all those toys. It’s a shame really, a bucket list item just got erased – undoable.

But for all those companies that were put out of business by Toys R Us’ disruptive business model, they echo: “Ask not for whom the bell tolls, it tolls for thee.”

God Seeking Alpha is an irritating website. Well, not the site, actually that’s pretty cool, but the people who write for it. Every week it’s another doom and gloom piece (reminding us for the umpteenth time that $BPT will close in 2 years at current oil prices) about one or the other. If it’s about $CHK, it’s all about the debt, every week it’s like “remember the debt, why are you people buying!”

People are so obsessed with fundamental analysis that they can’t see the forest for the trees. And that doesn’t mean I am poopooing fundamentals, they are far more helpful than “technical analysis.”

What people fail to consider is Mr. Market. Yeah, him, the bat shit crazy ghost in the shell. The market behind the market. $BPT is valuable BECAUSE it will be gone in 2 years. All of those juicy dividends might be gone, forever. Welcome to Behavioral Economics.

The same is true for $CHK, but actually, $CHK has more to do with irony. Because it’s had such a rough time, people feel as if it’s more or less hit bottom. Anything short of actual bankruptcy, isn’t going to scare people away from it. CHK has become a kind of underdog, it’s a Rocky story waiting to happen.

That doesn’t mean there won’t be a few bumps in the road, but $CHK’s time will come. You gotta be patient. Stocks go up, stocks go down. A stock can range as much as 50% in a year. When it’s down and you own it, ignore it. Focus on other things. When it’s up, consider selling it, unless you have reason to think it will continue to go up.

The key to making money in the stock market, and this isn’t from me, this is from seriously rich people:

The Secret to Getting Rich with Stocks

Sell into the bulls and buy into the bears.

  • Chesapeake Energy Corp $CHK is a play that’s coupled with WTI Oil Price.
  • Paying debts is good for business. Selling assets you can’t work is good for business.
  • Oil Prices are on an up trend, it may be a bumpy ride, but it’s a ride. $CHK is helped by a macro-view.
  • Don’t panic.

It wasn’t long after reading Joel Greenblat’s “The little book that beats the market” that I decided to knuckle down and just try it out. Now I popped over to his investment screener, and I did add a few of his pics to my watchlist, I even bought one, but CHK was my first ever 100% researched, found on my own, value investing buy.

That was about 12 days ago, and I’ve yet to see anything serious enough to change my opinion, so I’ve decided to put a little money on CHK to see if it pans out. Not too long, maybe a day or so, after I’d bought CHK, Callum Turcan from seekingalpha.com wrote the article “Boy, Was I Wrong On Chesapeake” and naturally my heart sank. Had he seen something I hadn’t? He’s more experienced than me, after all, I’ve only just finished reading a few books and watching a few lectures.

That lasted for about 2 minutes as I read his article. It was histrionic, there was nothing particularly new there, except a few admissions from Doug Lawler that didn’t seem as dire to me as they did to Callum.

Don’t get me wrong, $CHK is not in the greatest shape, but that’s kind of the point. $CHK looks like a decent enough value play if you consider the books. All stocks have risk, but $CHK is one area where you could benefit from taking a bit of the macro-picture into account. Harvey had just hit the gulf coast and people still aren’t sure what all the damage will lead too.

$CHK offloading assets (this was before the sale to Chevron of Permian Basin acreage) seemed to me the right idea. $CHK had debt to pay off, and the best kind of company is the one paying its debts. No one wants to see a company fail when it can pay back its creditors, least of all its creditors. Chesapeake had become too big, too spread out for what it could deliver on, plain and simple. Trimming up and focusing on where it could do best was always going to be the sensible play.

Ultimately what came of Callum’s worries? Not much, we all got to see a bit of red (and we may see a bit more), but $CHK has been on the rise since the announcement of its selling of most of its Permian Basin acreage to Chevron, which lead to an uptick in my $PBT position which I worried was too connected with my $CHK anyway.

To my mind, $CHK is not a good company without a higher price in oil and nat gas, so being long Chesapeake Energy Corp is the same as being long oil and gas in general. That comes into a question of macro trends, not a hope for a specific spike in oil, but a recognition that oil is likely to go up, and so we are likely to see increased earnings in companies like $CHK. That’s because the world is currently in a general fog produced by enviromentalist nuts about global warming and renewable energy. The moment a country like China comes out with a firm commitment to electric cars I know it’s all over but the crying. Governments always lie and misdirect. Whatever they say they are doing, in reality they’re doing the opposite. So while China is suddenly all gung-ho on electric cars, they’re making political inroads to the middle-east, specifically Iran. Who the hell do you think makes their missile systems, and builds their roads? China. Maybe the Chinese suddenly have a hankering for dates and ankle porn, but I doubt it.

Once ISIS Declared the new Caliphate, Oil Prices would crater.

The main purpose of the drop in oil was to combat ISIS, that’s not the official line of course, but it’s the reality. ISIS was a bid at building a revolutionary state, and one thing that revolutionary states need in spades is capitalisation. It became obvious very quickly that the new Caliphate was making an aggressive bid for the oil wells and planning to sell oil on the cheap through the black market. The thing is, the discount on $106 a barrel, or really $115+ a barrel, which is what it should have been with so much turmoil in the middle-east and south America, is a lot better than the discount on $48 a barrel.

V. Putin holds a meeting with key diplomats and business leaders 2 days after the Islamic Caliphate is declared.

With ISIS seriously on the run, OPEC countries and other oil and gas interests can breathe a sigh of relief and get back to business as usual. That’s my read on this situation, the drop in oil prices was a self-inflicted wound to undercut the chaos bid in the middle east. Didn’t you ever stop to wonder how so much chaos in the world, from Venezuela to Syria, led to a drop in oil prices? Some economists really tried to trot out that old nag, Supply and Demand, to explain it. Bullshit. Too many people are just credulous fools, they actually believe IEA reports and official statistics. It’s like we learned nothing from the 2007 crisis.

Never trust the officials.

With those issues contained, and America being forced to misdirect to North Korea so that people forget about their middle-east spanking, countries like Russia and the other OPEC producers are going to want their oil revenues back up where they belong. Rising prices is good for $CHK, and for most Oil stocks, but the climb back should be easy does it. One needs to maintain kayfabe after all.

For a few years now I’ve been interested in trading and investing. I’ve spent quite a bit of time researching the topic, and like most people my interest was first peaked by the idea of day trading. I don’t think anyone has been able to escape those, that now seem, ridiculous ADs promising unrealistic profits based on simple and easy to follow plans. All conveniently priced at $400-$4,000, depending on the “quality.”

Whether it’s Forex, or Penny Stocks, or some combination of the two, the very idea that something is easy has always been a major red-flag for me. As a computer programmer, I know the incredible level of incompetence and error that has been injected into the market with the infusion of Frameworks, and online “education” promising to teach you how to “code.”

I am sure that professionals in the stock markets or Forex markets feel a grating sense of irritation when someone announces proudly that they learned to day trade from an online video. That sensation has to be close to what I feel when someone informs me they’ve learned to ‘code’, usually in Python, from some random website, or even worse a University.

After much reading, and messing around with paper trading, I came to the realization that predicting the stock market, or Forex market, in the short term is: impossible. It doesn’t matter if someone else is doing it, they are simply lucky. What you see in both investing and trading is a massive survivorship bias. You’re only looking at the few winners (and even those continually go broke within a couple of years, or disappear into the night and fog), and you’re not seeing all the losers.

As I think it’s been said, that 90% of Retail Traders lose 90% of their money within 90 days. The people who make the real money are the brokers, because they are the only ones who get paid regardless of which way the market turns.

That doesn’t mean you can’t make money, or that investing is a bad idea, obviously I don’t think that. And because I don’t think that, I decided to open a trading account, just a small one, and to begin investing my money based on the one system I am convinced has merit: Value Investing.

But trading real money is not the same as a paper account, and books and articles and videos assuring you of the sound mathematics behind this method of investing can never quite prepare you for the overwhelming sensation that maybe you’re wrong. All of those biases and pecadilos that make up the meat and potatoes of Behavioral Finance, taken from a century of study into human psychology, are real and they are powerful. The day trading siren song calls to you, the irrational hope of quick profits, of easy money are so strong you begin to really understand how the market is the worlds perfect con-game.

People always complain that the stock market is fixed, or rigged. I never quite understood why that would be a problem. It would be far worse if the stock market were truly random, like winning the lottery. When something is rigged or fixed, it is by definition predictable. The only real trick is making sure you’re not the sucker at the table.

I hope very much the market is rigged. It should be rigged.

Learning to love red is the hardest thing you’ll attempt, I can’t say I’m there, but over the last 12 days, I’ve seen a lot of red, and some green. I find myself daily encountering videos about day trading, and each time I see them they become more and more convincing. The people in them seem so much more earnest, so much more trust worthy. That feeling comes from the anxiety over uncertainty. When real money is on the line, when danger abounds, we naturally seek social proof to center ourselves, we seek people with “experience” to give us extra clues on which direction to take. You can’t simply ride on pure cussedness.

The problem is, this tendency of ours, especially when we are new to trading, is the con-artist’s best friend. Exploiting human frailties is the name of the game, and all of these people selling you easy money are only going to rob you blind. Just remember the old adage, if after five minutes at the table you can’t figure out who the sucker is, it’s you. In a situation where you are looking up to someone else as an authority, that’s the time to realize the only person who can actually be the sucker is you.

The problem is, value investors, for all their net-worths, are often not as compelling a personality as one would like. Warren Buffet, for all of his success is little more than a nerdy cuck. Charlie Munger is a pompous ass, and Bruce Berkowitz is a congenital whiner. The man has the cadence and tenor of a teenager perpetually asking “are we there yet?” There is also the sneaking suspicion that some of them may just be very lucky, or have been very lucky. You are never be sure, you have to constantly keep re-evaluating the evidence. There is this constant fear that maybe there is something new under the sun, maybe the markets have changed, maybe they’re being fixed in a new and unusual way?

Of course, they’re not, and there isn’t anything new under the sun. The market is either a turtles walk to the peak, or a rabbit’s race to the bottom. You have to ask yourself would you rather make and lose $1 million dollars in a year, or make and NOT lose $1 million dollars in 10 years? Patience is the most difficult virtue.

The most difficult thing about value investing is sticking to your guns, sticking to what you know to be true. A conservative, risk-aware and patient system of investing is far more likely to succeed than anything else. The stocks go up, the stocks go down. The most important question you need to ask and answer is: Do I want to be chained to this company for 10 years. Through rich and poor, through sick and health. It’s like a marriage. And marriage is hard. Especially with one click divorce.