Short Interest

Nicole Wachs from TradeKing

For a crash course, short selling is when a trader borrows shares from his/her broker and sells them on the market without ever owning the stock. The investor or trader’s aim is to replace the shares for less cost than the price at which they were borrowed and make a profit. If the price increases, however, you’ll be exposed to potentially unlimited losses, so please approach short selling with caution. 

Found an interesting link today. It shows the largest short interest on the NYSE.
The first thing that caught my eye was that the first 4 entry were Preferred Shares. I didn't know you could short preferred stocks. I'll have to check that out.

Rank	Company Name	Symbol	% Short Interest	Short Interest
1	First Industrial Realty Trust Inc. Dep Pfd. (Rep. 1/10,000 of a share of 7.25% Cum. Redeem. Pfd. Series J)	FR.PJ	2947.33%	17,684
2	First Industrial Realty Trust Inc. Dep Shs (Rep 1/10,000 of a share of 7.25% Cum Redeem Pfd Series K)	FR.PK	2689.5%	5,379
3	Apache Corp. Dep Shs (Rep 1/20th Interest in a share of 6.00% Mand. Conv. Pfd. Ser D)	APA.PD	92.46%	1,169,611
4	Hartford Financial Services Group Inc. Dep Shs (Rep 7.25% Mandatory Conv Pfd Ser F)	HIG.PA	72.92%	419,264

TheStreet.com has put it this way:

The short interest in a stock, a widely available statistic, represents the total number of shares that have been sold short and not yet repurchased. This raw number won't tell you much on its own. Instead, you need to look at short interest as a percentage of the stock's float, or the number of shares that are actively tradable in the market. This statistic will let you compare one stock's short interest with that of others.

I was trying to investigate what would be considered an excessive short interest percentage. Wow! I think the rule of thumb is if its more than 10% short interest then it is considered  to have a large contingency of short sellers.

It got me thinking, though. If you had two stocks with a 10% short interest. [ 5M / 50M = 10% short interest ]  Isn't "days to cover" a more accurate measure of  bearish sentiment?

If  you had two identical equities with 10% short interest. The first stock with 50M float and an average volume of  1M / day,  5M in short interest, therefore 5 days to cover. The second stock with 50M float and an average volume of 250K / day,  5M in short interest, therefore 20 days to cover. A higher number would indicate it would be harder to unwind your position.

"Investopedia indicates a bullish guideline for the short interest ratio is eight days. Wikipedia’s bullish rule of thumb is lower, about five days; A number around three is noted as bearish"

---------------------
[Edit:]
 Could it be possible to have a stock that is under the 10% short interest and yet have a larger "days to cover" number than one high on the short interest list?

Using the FINVIZ screener and sorting by short ratio, with stock that have 300K AverageVolume, the stocks with "days to cover" larger than 10 compromise 10% of the listings.

One refinement to the screen would be to use $Volume [price * volume] to assure that no manipulation is occurring. This will give you a rough average number of trades generating the volume listed. If its 10 trades a day, you know that someone could possibly  be pumping the stock. My rule of thumb on $Volume is >6M, but your risk level could allow for a lower combination. That would allow for the following:

• $1 stock with 6M average volume
• $10.00 stock with 600K average volume
• $100.00 stock with 60K average volume

Or just adjust the price to your comfort level, i.e. stocks > $5.00.

Found a website which combines the two metrics -

"Finally, I like to combine both days-to-cover and percentage-short in one metric, where the product of the two gives us a number that "combines" both metrics equally. That is, the higher the number the highest the combination of both metrics together where both are equally important."

%Short * Days to Cover > ?
What would be the rule of thumb inflection point?

---------------------
A  short squeeze occurs when a stock that has been shorted by many investors rises. More and more short-sellers start buying shares to cover their positions, driving up the stock price.

House Prices Stabilizing?

Today S&P/Case-Shiller housing data came out with bad news. However, the housing conference this month says house prices are stabilizing. Many homebuilders companies are reporting the same.

You've heard the saying "Perception is Reality"?
It's not your perception but other people's perception that counts.

Overwhelmed by Scope Creep

I'm not going to impress anyone with my financial ratio analysis.  Or my valuations skills, either. I think my strong point is studying existing assumptions and exploring, through a trader's vantage point, what can be applied or exploited. So when I started to analyze the turnover ratio on SKX, I felt that I had just enough skill to verify the validity of the company's statements, but not enough to know if these factors were out of line with theoretical or practical experience. I borrowed heavily from the Nasdaq Guru site.

Things I know, Things I don't know and Things I don't know I don't know
Also, I think the next steps are:

• would be to do the same to Reebok, a "toner shoe" competitor
• analyze the larger customers of SKX,  such as Brown Shoe (Famous Footwear), etc.
• get retail sales data, if possible, or extrapolate
• analyze trends vs fads, life cycles, etc.
• analyze customer satisfaction
• quantitative analysis
• study other lines of shoes in SKX, including the expanding International sector
• find things I don't know I don't know
  

Overwhelmed
But then, as it is said in the computer industry, there would be "scope creep". I only need to find one trading edge to exploit a widely held misconception. So let's just start with the turnover.

The company management traditionally can only see clearly for the next 2 quarters. The high peak seasonality of Spring and early Summer is coming to an end. Let's see if the inventory improves for the next reporting period in July. After that we have the Back-To-School & Xmas season.


Management comments are from Mar 1, 2011 10K and May 9th, 2011 10Q data
First Step 
  From Management :

Our earnings and margins in the first quarter of 2011 were negatively impacted by several factors, including the sell-through of excess toning inventory that resulted from the domestic market being saturated with competitors’ lower priced toning product. Sales of lower margin product through our domestic wholesale channel and lower retail margins due to increased promotional activity caused by excess toning inventory levels contributed to lower earnings and margins in the first quarter.

We expect that the excess toning inventory will impact our net sales, margins, results of operations, and earnings per share during the remainder of 2011. However, we believe that new styles and lines of footwear that we will be launching later this year will have an offsetting positive impact on our results of operations in the second half of 2011.

Using http://www.vitalentusa.com/learn/turnover.php danger warnings in green paragraphs below:

1.

Advanced sales – An increase in sales in a given reporting period usually results in increased inventory turnover, but that increase in sales (and turnover) may be due to a temporary factor. If it were, then you would be wrong to conclude that the increase in inventory turnover means you are operating more leanly. For example, a sales jump in one period may reflect advanced purchase of items that are usually bought in the next reporting period.

Failsafe: Check several reporting periods to be sure that the increase in turnover resulting from increased sales is not due to advance sales or some other temporary factor. If the increased sales and improved turnover rate hold over several reporting periods, then it is probably not due to advance sales.

Nasdaq Guru site based on book by Motley Fool

INVENTORY TO SALES: [PASS]  

This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for SKX was 15.60% last year, while for this year it is 19.86%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. 

2.

Phantom sales – Sales made to a customer with the understanding that they will be returned for credit before payment is due.

Failsafe: To avoid this danger, you need to take two steps. First, check several reporting periods to be sure that the increase in turnover is not due to phantom sales. Also look for improvements in turnover in one period that are offset by a decrease in turnover in a subsequent reporting period as goods sold in the prior period are returned and re-entered into inventory. In addition to abnormal inventory turnover fluctuations, these phantom sales will typically result in an increase in accounts receivable as a percentage of sales. Thus, the improved inventory turnover will be offset by a decrease in accounts receivable turnover or the ratio of accounts receivable to sales.

Nasdaq Guru site based on book by Motley Fool

ACCOUNT RECEIVABLE TO SALES: [PASS] 

This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for SKX was 16.16% last year, while for this year it is 13.74%. Since the AR to sales is decreasing by -2.42% the stock passes this criterion. 

The management did mention that there were some customers returns that were affecting the financial statements.

3.	Discount-driven sales - Offering large discounts may also generate a boost in sales. Such discounts erode the company’s profit margins, but will boost revenue and rate of inventory turnover. The company might look like it is becoming more Lean, when in fact it may simply be pushing products into the marketplace using artificially low pricing.
	Failsafe: Watch the gross margins reported by the business. Gross margin is the difference between the dollar value of sales and cost of goods sold (also termed cost of sales). If inventory turnover is increasing, but gross margins as a percentage of sales are decreasing, then this may indicate a problem.

From management:

We anticipate our domestic revenues and margins will be lower in 2011 compared to the same period in the prior year as a result of reduced demand in the toning market. We will continue to aggressively work through our older toning inventory until customers’ demand is in-line with supply, which we anticipate will be during the second half of 2011.

Our factory outlet stores provide opportunities for us to sell discontinued and excess merchandise, thereby reducing the need to sell such merchandise to discounters at excessively low prices and potentially compromise the Skechers brand image.

One thing I did notice was that their website pricing on their women's toner shoes are not being discounted. However, other online sites channels are.

4.

Supplier-financed inventory – It is possible to reduce materials and supplies inventory and show improved inventory turnover by forcing your supplier to carry the inventory for you. The supplier assumes the cost of maintaining inventory and passes that cost on. Or, you may reduce inventory by use of express shipment or other costly means of delivery to ensure the availability of materials and supplies when you need them. Improved materials and supplies inventory turnover, in these cases, would not mean that you were operating more leanly.

Failsafe: To detect this shift of cost to suppliers, monitor changes in the unit cost of products that result from the increased cost of materials and supplies. Solutions to maintaining inventory that simply shift cost to suppliers return the cost in added mark-ups to the materials and supplies you purchase. This results in a rise in your product's unit cost.

From management:

Our cost of sales includes the cost of footwear purchased from our manufacturers, royalties, duties, quota costs, inbound freight (including ocean, air and freight from the dock to our distribution centers), broker fees and storage costs. Because we include expenses related to our distribution network in general and administrative expenses while some of our competitors may include expenses of this type in cost of sales, our gross margins may not be comparable, and we may report higher gross margins than some of our competitors in part for this reason. 

 

5.

Customer financed inventory solutions – Depending on your marketplace, it is possible to maintain low finished product inventory at the expense of your customer. In many marketplaces, competition is still not keen. You can survive— even grow, based on not being worse than your competitors. You can, for example, maintain low finished product inventory by having your customer wait for products forcing your customer to maintain higher inventory so he or she can sustain operations while waiting for your deliveries. In essence, you produce to order, not to need. When you are done, the product ships.

Failsafe: Use information on customer satisfaction with the availability of products and timeliness of delivery to balance your judgment about whether improving inventory turnover reflect true lean operations. If it is leanness that has produced the improvement, then customer satisfaction with availability and timeliness will remain high.

From management:

BACKLOG      

As of December 31, 2010, our backlog was $588.9 million, compared to $454.7 million as of December 31, 2009. Backlog orders are subject to cancellation by customers, as evidenced by order cancellations that we have experienced over the past few years due to the weakened U.S. economy and the toning market becoming saturated with lower priced products. 

 

6.	Waste inflated COGS – The cost of goods sold can increase due to total sales or because of increased rework or scrap. In other words, the same number of sales occurs but the cost associated with producing the products sold increases due to waste (defects, scrap, spoilage). When finished products are discarded because defects are discovered, the cost associated with that waste is captured in COGS. Consequently, the numerator of the Inventory Turnover ratio increases. Since the defective products are not in inventory, this waste also decreases the average cost of inventory, the denominator of the Turnover ratio. As the numerator increases and the denominator decreases, the ratio goes higher. It looks like you are operating more Lean— yet, you are actually operating LESS Lean.
	Failsafe: A remedy for this distortion is to extract from the COGS any expense due to manufacturing wastage. The formula would be as follow: (Cost of Goods Sold – Cost of scrapped and damaged items due to manufacturing) / average dollar value of inventory.

Mental Exercise is Crucial

[guest post by TS]

I have found that a fiendishly varied life really helps my trading mindset, keeping me flexible and open to fresh ideas continually.  I trade infrequently but intensely, work by day for a web development company, spend evenings with family, my yardwork, or my taiji teacher, and investment research, and weekends with family, working estate auctions, attending church, & further reading/research.  I'm currently listening to (1) Nassim Taleb's Fooled by Randomness, an incredibly varied study of randomness in the markets, science, mathematics, & daily life, and (2) a segment of lectures in the Open Yale courses lecture series on financial theory by John Geanakoplos on dynamic hedging (lectures 20 & 21).

I had something of an epiphany last week after my weekly high-intensity Taiji workout with my long-time teacher, Leonard Tolbert: mental gymnastics (as an exercise or training) are absolutely crucial for long-term survival. This idea was solidified as I sought to defend myself with a wooden sword against the thrusts of a wooden spear. A non-confrontational kinda guy just does not interact with spear points on a daily basis, which is why this becomes an incredible mental gymnastics exercise.

On this Memorial Day weekend, we are all thrust back into thoughts of family, summer vacation, heat (depending on your hemisphere), chores, and market research.  What extracurricular paths do you find yourself treading down in the continual search to renew yourself and your trading?

..TS.

P.S. I just ordered an Amazon copy of Nassim Taleb's early book "Dynamic Hedging". Any experience with or opinions on the book?

Found this week - May 27, 2011

-Waiting for the perfect time to buy? This is it

-"When you reach the bootstrapping inflection point....." Can this be applied to a trading career?

-The next couple of weeks I'm going to try an experiment with javascript in my blog, but I'm not sure if it works in blogger. Anyone have any interesting scripts to share with us? Maybe we can start a post just for that.

[Edit:]
The Internet is amazing....I found something.

Clickable Title

Text to hide here...


- Or how about some snippets from www.stockfetcher.com code? USE AT YOUR OWN RISK. The first one is my own and the second one is from the www.stockfetcher.com site.
 

1 /* Dropped More than 6% */
Show stocks where close is more than 6% below close 1 day ago
and close is above 5.00
and average volume(30) is above 300000


2 /* Bollinger(10) */
Show stocks where close is near upper bollinger band(10)
and Average Volume(90) is above 50000
and close is between 5 and 250

- Engineering Wonder -

Citi Trends: A Great Idea Does Not Necessarily Lead to Orbital Growth

[guest post by TS]

I was traveling home yesterday from downtown Pittsburgh, taking a circuitous route through neighborhoods that allowed me bypass taking the eastbound highway, and saw a storefront I had not seen before, in a place that used to be part of a Builders Square storefront: Citi Trends.  I had no idea what Citi Trends was, just that something so seemingly incongruous (a new storefront in a has-been strip mall) had to be researched.  :-)

Upon reaching the castle, I fired up FireFox, tripped over to Yahoo! Finance, and found Citi Trends' symbol: CTRN.  Then, recent news, then their May 18th 1st Qtr '11 earnings report.  Then their profile.  This clothing & accessories retail company has been servicing America's African-American audience since 1946. Whoa!

After seeing that the companies retail target is African-American, that location of the store made total sense: the location of the shopping mall (Braddock Hills Shopping Center) is fairly close to Pittsburgh's Braddock & Braddock Hills neighborhoods: Braddock is a depressed area, site of USX' Edgar A. Thompson steel mill, and one of the recently renovated Carnegie Libraries.  Interested in this location, I went to Citi Trends' homepage to see where other stores are located.  Of the 460+ retail locations, Pittsburgh's two are in this location and in the City of Duquesne's Duquesne Plaza. Duquesne is even further depressed, having transitioned further from steel mills, to somewhat renovated "brown fields".

Back to that 1st Qtr earnings report:  the results appear to be somewhat underwhelming, especially given the host of other more rosy retail reports from around the nation (slowdown of the recovery notwithstanding).  Citi Trends reported a 4.3% increase in sales to $189M, but a decrease in earnings, YOY.  Perhaps one could suggest that while America's inner cities are spending more than a year ago, their spending is not quite  matching the increase further out in the 'burbs.

Because of this slow, steady increase in sales, CTRN sports a market cap that's roughly 1/2 of it's annual sales, and the company has $76M cash, with no long-term debt.  This healthy balance sheet leads Brian Pacampara of Fool.com to observe that "Citi Trends currently sports a cheapish price-to-book ratio of 1.1. That represents a clear discount to giant competitors Target (2.2), TJX (6.6), and Wal-Mart (2.9)".  While profits may be trending downward, this clear value play's revenues are ramping quite healthily year over year. Will you play along?

One interesting note: Citi Trends customers are enjoying the stores - check out this YouTube walkthrough. And a second customer's video (in three parts).

..TS.

SKX and slow inventory turnover

Skechers USA, Inc. (NYSE:SKX)
The two well-known issues with this stock are:
Issue no#  1

1) A new lawsuit alleges that Skecher's Shape-up shoes can cause serious injuries. Another concern is that these shoes are being specifically targeted towards young girls who have self-esteem and body image issues. There is also some concern that these "toner shoes" are ineffective. 

In their 10K Risk Factors there is a description:

It Is Difficult To Predict The Effect Of Regulatory Inquiries About Advertising And Promotional Claims Related To Our Products In The Fitness Footwear Market.

It continues in the Legal Section:

We are currently responding to requests for information regarding our claims and advertising from regulatory and quasi-regulatory agencies in several countries throughout the world and are cooperating with such requests. While we believe that our claims and advertising are supported by tests, medical opinions and other relevant data and we have been successful in defending our claims and advertising in several different countries, in light of these regulatory requests, we frequently review and update our claims and advertising. It is too early to predict the outcome of the ongoing inquiries and whether such an outcome will have a material effect on our advertising, promotional claims, business, results of operations or financial position.

Controversy for the Greenberg Family was not shied away from in their earlier pursuits. I seem to remember L. A. Gear was flamboyant also.

Mr. Robert Greenberg has been the Chairman of the Board and Chief Executive Officer of Skechers USA Inc. since October 1993. From 1979 to 1992, Mr. Greenberg served as the Chairman of the Board, Chief Operating Officer and President of L.A. Gear Inc., which he founded in 1979.

Michael Greenberg has been the President and a Director of Skechers Usa Inc. since its inception in 1992, and from June 1992 to October 1993, he was Chairman of the Board.

Robert Greenberg started Skechers in 1992 after he left LA Gear, which he also founded.  Skechers makes an effort to maintain a trendy and stylish brand image by using celebrity-driven advertising. Many Skechers shoe designs are copies of other shoe designs with very good marketing.

---
How do you determine if inventory is slowing down?
Issue no# 2

2) A slow inventory turnover has been increasingly blamed on competition and customer order cancellations. Margins are down and inventory is up.

SKX has four reportable segments — domestic wholesale sales, international wholesale sales, retail sales, which includes domestic and international retail sales, and e-commerce sales. They evaluate segment performance based primarily on net sales and gross margins. The largest portion of their revenue is derived from the domestic wholesale segment.
    
Approximately 44% of their domestic wholesale revenues as a percentage of net sales are affected by the slow down. Approximately 19% of their retail segment is affected.

Although the "toning shoes" trend has only been around since 2009, the seasonality seems to be

"mainly a ‘white shoe’, toning has a seasonal peak through Spring and early summer and a huge peak around Xmas."

Alright, so I have three forecast on the of the relief to inventory.
The first one is dated from the second quarter of last year.
1) They confirmed what the market already priced, that...planning was a disaster by both retailers and SKX and Shape-up orders have been cancelled or pushed back and inventory will not be balanced until end of 1^st quarter. Company has seriously p off the analysts, so some will lose interest in this stock and stop marketing [it] to clients. Lack of transparency. [This] will result in a lower multiple than industry.

A more recent analysis says:
2) The company claims it'll have made significant progress by the third or fourth quarter....
and continues:
3) However, based on management's past track record, I think we'll really know after the holiday season, which puts us into the first or second quarter of 2012. At that point, the future of "Shape-Ups" and their bloated inventory – one way or another – will have played out.

BPI & average true range

I was reading this morning the WSJ and Bloomberg articles. They may have moved the market on BPI yesterday. Maybe it was the Ira Sohn Investment Conference in New York. I'd love to get  a transcript of the presentations there.

OK, let's try to get BPI volatility into perspective here. If you look at the 14 day ATR its volatility is up, but the 200 day ATR shows that it was higher last year. Not all the short interest is going to unwind at once. And there is a still good case study for the "bear" camp. It will be interesting to see the end of the month short interest stock data. Will the short % increase or decrease?

Morningstar has BPI defined as a Small Core Aggressive Growth stock. In my mind it has just morphed into a different investing asset. From GARP to speculative?

I don't know which way the sentiment is going to go, but things are in flux until July and are not going to settle down for awhile.

[Edit:]
www.marketfolly.com did a write-up of the Ira Sohn Investment Conference:

Sunjay Gorawara / Investment Idea Contest Winner: This year's Ira Sohn featured an investment idea contest where the winner was able to present their idea to all attendees. Michael Price introduced the contest winner but while he was talking, he mentioned that Goldman Sachs (GS) could be a buy as it should be worth $100 more than where it currently trades. And in general, he was bullish on financials. 

Judges Bill Ackman, David Einhorn, Michael Price, and Joel Greenblatt selected the winning entry of Bridgepoint Education (BPI) from an undergraduate student at Indiana University who will be interning at JP Morgan this summer. 

Read more: http://www.marketfolly.com/2011/05/ira-sohn-conference-notes-hedge-fund.html#ixzz1NShEEcim

BPI Event Arbitrage

[guest post by TS]

You read Monday about blogging colleague MM having jumped out of BPI, worried about the "political posturing" that is part & parcel with the whole for-profit college phenomena.  MM clearly used BPI as a learning tool, given all the posts, and we all have to get these lessons from the companies we research and buy/sell.

The problem (or beauty) with the market is that everything is event driven: one day, the gov't begins an investigation; the next, an analyst says the underlying is oversold. While my timeline is wildly skewed for demonstrative purposes, so is the share price of BPI.  How can you possibly move safely in these waters?

The answer:  you can't.  Just deal.  That said, you can follow the ups and downs as they occur with some degree of regularity and plan accordingly.  My thought experiment would be this: an investigation is still underway (shares down), but some analyst has said the magic word "oversold" (or perhaps "artificially depressed") (shares up).  If the investigation continues, then bad news could whipsaw BPI back down.  A perfect way to take advantage of a downswing would be put options.  I'm specifically looking at near term Aug 11 puts, at a strike price (below and out of the money) of $17.50.  Generally, one should stick with round numbers, but this looks well used (856 contracts in open interest) and the per contract price of $0.65 ($65 per) is just the amount I would want to spend.  [At the moment, bid is $.40 and ask is $.65, so while I may pay $.65, my position would be immediately revalued at $.40.]

Let's see how this trade goes.  If BPI spikes a couple more days, the per contract price could come down. When BPI tumbles (which its wont to do), this trade will be ready to appreciate.

..TS.

Zynga IPO? I Can Play That Game!

[guest post by TS]

Hey, I heard Zynga is about to do their IPO! Let's jump on that!

Hold on there, cowboy.  Until you see the whites of their eyes, or rather an S-1 filing on the SEC's website, you're not going anywhere with that company (unless you're using SecondMarket or one of it's competitors).

I know Kara Swisher jumped the gun with telling everyone and their sisters that Zynga is about to file, but do your own research before you believe the hype.  You want to read an S-1 first to find out the true stuff about a company, and a company ain't filing nothing without an S-1 ("General form for registration of securities under the Securities Act of 1933").  Check out Zynga's current filings here.

Why, you say, doesn't Yandex have an S-1?  Yandex is a foreign company, and as such files the similar form F-1 (Registration statement for certain foreign private issuers).  S-1/A or F-1/A's  are amendments to the original S-1, and may or may not included the entire original filing plus changes, depending the number of additions.

Concurrent with an IPO comes the Prospectus, form 424(b)(4) (or, forms 424(a) through 424(b)(9), depending on the rule for the prospectus in question), which gives the IPO price as well as final financial and disclaimer statements & info.  SEC forms description PDF.  SEC company filing search page.

Always do your own research when about to act on news or tidbits you've heard.  You must feel more comfortable with a direction you're about to take with your investments so that you know your move is the right move for you, for your own risk tolerance.

..TS.

Do Contrarians use all disciplines?

 me:  gm

 Sent at 9:58 AM on Tuesday

 aa:  gm.  despite all that European gloom, things are looking inexplicably rosier this morning....

 Sent at 10:02 AM on Tuesday

 me:  good

 Sent at 10:03 AM on Tuesday

 me:  question: what is contrarian investing?

 Sent at 10:06 AM on Tuesday

 aa:  going against the (perceived) grain

 Sent at 10:07 AM on Tuesday

 aa:  buying yandex this morning?  the last google-like company to go public, Baidu, did quite well....

 Sent at 10:11 AM on Tuesday

 me:  hang on, I'm trying to go somewhere with this...once you buy something in contrarian investing and your right, then your actually following the trend....

aa: ?

 me:  just like the value investor becomes a growth/momo investor if his idea works...

 aa:  or, rather, what about double contrarian? 
 me:  is there really such a thing as a double contrarian?

 Sent at 10:14 AM on Tuesday

 me:  what's the difference?

not double, but what's the difference between the styles of investing?

 aa:  which?  contrarian and following a trend?  I thought contrarian was more trailblazing, trying to be ahead of a new trend...

catch the wave at the trough, before the wave builds...

...when it's uninteresting...

 Sent at 10:18 AM on Tuesday

 me:  yeah, but once you do....are you not just riding the trend up? same with value stocks

 Sent at 10:21 AM on Tuesday

 me:  what tells u to get off the wave?

 Sent at 10:23 AM on Tuesday

 aa:  you get off when your strategy has paid off, and you find another contrarian opportunity.

 Sent at 10:27 AM on Tuesday

 me:  your not getting out of this that easy. At what point does your strategy play pay off?

 Sent at 10:30 AM on Tuesday

 aa:  it depends on your target, but hopefully you get out before a top, or at least a long-range top.  a strategy for me pays off with a high % return

 Sent at 10:31 AM on Tuesday

 aa:  but if your target is more modest, then one has to stick with that.

just because my targets are lofty, doesn't mean I attain them....

 me:  point is, if  your a value or contrarian investor your actually practicing two styles...your initial strategy, then once you start riding a wave, your a momentum/growth chaser...

 aa:  actually, to be truly contrarian you have to be all types of investor: contrarian, value, momentum, dividend, technical, fundamental, greenhorn and old salt

and willing to switch hats as need dictates

 me:  hmm

 aa:  flexibility, adaptability, skepticism

and persistence

 Sent at 10:34 AM on Tuesday

check out this blog article -    http://www.wealthvault.net/investing/are-you-a-coif/

Lessons learned from my Last Trade

I'm out BPI this morning after a two week period. I gained more from a knowledge perspective rather than actual cash; However, that counts, too.

I will add to this post tonight or tomorrow.

{Edit 5/25 - trade dynamics}

The for-profit schools are governed by the "triad of state licensing, institutional accreditation, and federal financial aid eligibility".

The Bear Case:

• Several states are suing distant learning schools for their retention rates.
• The Higher Learning Accreditation was summoned to the HELP Senate subcommittee in March and is throwing BPI "under the bus".
• The senate has subpoenaed BPI to its next subcommittee hearing.
• On July 1, new federal rules go into effect that will require that distance learning schools register their courses in the states where their students are located -- a massive amount of new red tape that was originally designed to protect consumers from unscrupulous for-profit online schools.

The Bull Case:

• As of May 9th, The OMB has 90 days to respond to the new regulations, has included non-profit and private schools in its results, and has a favorable view of the 2010 draft.
• A lot of Political Posturing is taking place.
• For-profit schools have had up to a year to adjust to these new regulations, and have fixed many of these issues and problems.
• There is a high concentration of shorts in BPI. There are many associations that are suing the shorts.

{Edit 5/25 - training dynamic}

- ACTION FIRST - buying on first blush, seems to appeal to me
- doing dd afterwards  keeps me involved and inspired
- finding new questions keeps me interested and participating
- contrary investing pursues all types of trading disciplines, including short selling
- quantitative factors are as important as financials
- insider transactions and bios are as important as financials
- and yet you have to be consistent
- don't discount politics and posturing
- dig until you find the seed of a controversy, then explore it even more
- allow for a loss,[within risk/reward and position sizing] as you are waiting for the plan to pan out
- since I work alone, it is even more important to realize biases -- no one will correct me except the market...
- avoid the "not invented here" syndrome

Google must control everything now

Google must be taking over the world. As soon as it gets slow or crashes, all other websites slow down.
Ubiquitous AdSense and Google analytics run everything!

So I try to blog about it. No, Google owns that space with Blogger.com.
I try to go into my email account. No, I use Gmail...
I try to go into Google Finance. Wait, how about Yahoo Finance. Well, that is sort of working. But if I click on a Headline Link it slows down because of the ads served by Google.
No images are served up on search engines....

All the search engines seem backuped and slow....what's wrong with Yahoo search?
DoubleClick is affecting other websites....
Even Stumble isn't working...

I wonder if this is affecting Android Apps?
Wait, why is Twitter slow?
Ahhhh! "don't be evil" has got to stop this. "do no harm" is killing me.

How do you quantify the qualitative data?

Part 2 is here


The top 2 in a  10 lowest-paid CEOs for 2010 Associated Press analysis of companies in the Standard & Poor's 500 are the following:

Steve Jobs,  Apple Inc., $1
Vikram Pandit, Citigroup Inc., $1

Two distinctly different companies

Looking at the list, you can see that judging qualitative information is very subjective. Everyone knows how to quantify Technical data or Fundamental data. Qualitative is very hard to define in numeric terms.
"Let's face it: we live in a quantitative world. Everything we do revolves around top 10 lists of one kind or another. We want a shortcut and lists meet this need."

Investopedia explains Qualitative Analysis as securities analysis that uses subjective judgment based on unquantifiable information. This type of analysis technique is different than quantitative analysis, which focuses on numbers. While most investors and analysts rely largely on quantitative measures, qualitative analysis increases the insight into the company. Using qualitative factors will often give analysts an edge since key factors don't show up in quantitative analysis.

What are Qualitative Factors?

• Management Team & Philosophy
• Business Model
• Competitive Model (Wide Moat)
• Corporate Culture
• Branding
• Employee Satisfaction
• Supplier Satisfaction
• Customer Satisfaction
• Identify Inflection points
• Market Expectations
• Scenario Analysis
• Legal Issues
• Legislative & Political Posturing

Did I miss anything? Add your own items to the list.

Business 101 path - SWOT
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threat. Get a free SWOT pdf worksheet here.

This website has a free SWOT analysis of Apple.

More variations on SWOT

Quantifying Qualitative Data

I'd like to try a different experiment. I'd like to try to quantify these qualifying factors.

Quantitative data can be collected by survey and improvising a scale or using software to categorize data. Each bring in their own problems; Hence we must eliminate and adjust for researcher induced bias. Well, the investigation started with simple examples.

On Wiki -

It is sometimes possible to obtain approximate quantitative data from qualitative data - for instance, asking people to rate their perception of a sensation on a Likert scale.

From the www.uniteforsight.org site:

 Qualitative research is important because it generates data that can provide in depth insight into a question or topic. However, in order to draw conclusions from qualitative data, it is essential to quantify the data.... Quantitative analysis of qualitative data “involves turning the data from words or images into numbers. This can be done by coding ethnographic or other data and looking for emerging patterns.”  If qualitative data is in the form of responses to standardized questionnaire surveys, this data may also be quantified. Simple frequencies and relationships between variables can be calculated either manually, or by using qualitative software.... There are three main steps to conducting a quantitative analysis of qualitative data: organizing the data, reading and coding it, and presenting and interpreting it.

And Finally the devcompage.com article

A wide range of participatory tools are now in use in development research. The toolkit consists of matrix ranking, resource mapping, trend and change analysis, seasonal charts, problem trees, causal diagrams, focus group discussions, and diaries, among many others. Data obtained from participatory approaches are largely qualitative in nature but to be able to draw conclusions that apply to a wider population, qualitative data have to be quantified.

QDA Software (CAQDAS) & Mixed method Research software

Holy Cr*p! This is really sophisticated software. I will let you evaluate & analysis it, yourself.

-- An independent and  complete list and evaluation
-- Another review from Harvard
-- Wiki on QDA software

What would I do on a small budget?
If I were to try an analysis by way of a survey tool, I think I would try to rank my qualitative factors by using a granular Likert scale. The complexity arises on how granular you want to be, but consistency would be the key. Over time, you could compare other companies with your current assessment of potential candidates.

Several of the software packages on the list are close to no cost or freeware (open source software). Watch the Dedoose tutorial videos for a good background description of how to implement your ideas and the great possibilities available. But in my case, this powerful software is more than I need, although intriguing. In the next few days, I might be downloading several evaluation trials to try them out.

Conclusion
Assessing a company from a qualitative standpoint and determining whether you should invest in it is as important as looking at financial data. If you have any information from another source on how to do this, please leave a comment.


Related Links:
-A detailed practical guide of qualitative analysis
-Another example showing the elimination of bias
-Good review and things to watch

Found this week - May 20, 2011

Business 101 quantitative analysis

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threat.

Get a free SWOT pdf worksheet here.

This is a free SWOT analysis of Apple.

3 alternatives to SWOT (h/t)

PEST -  
SCORE - 
Decision Tree - 

And More  (h/t):

What do you want to use the diagnostic tool for?
SWOT is a hybrid of an external and internal diagnostic, tools like PEST/ PESTLE and PRIMO-F are used as tools to populate the SWOT.


The actual origins to SWOT was SOFT, as the SWOT was said to miss the point by its originators.

Source(s):

SWOT
SWOT
PESTLE
PEST/ PESTLE Model
PRIMO-F model

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Fun with Google Translate

See More Google Translation Videos.....

An Anonymous FB Conversation Re: LNKD

[guest post by TS]

AA: Linkedin opened at $83...WOW...After pricing at $45...and they themselves valuing themselves at $2.32 2 years ago...

BB: Oooo... somebody gonna make some money!

TS: hit high so far of 92...

AA: Insane...

CC: It's like 1999 all over again. I'm off to get myself some AOL, Enron, and Pet.com shares.

TS: ...or Linkedin, Groupon and Facebook? :-)

CC: Pretty much; we live in a far too litigious society that investing in companies that are basically data harvesters makes little sense in the long run.

TS: ah, but finding the nexus of packaging, branding, salesmanship and market conditions can make the difference between a betamax and a netflix... by that definition, google is just a data harvester, but jumping in on the day of their ipo was a shrewd crap-shoot...

CC: Re: Google...my mom worked for a Fortune 500 co. back in the late 90s-early 00s doing advertising and marketing. One day she got a call from a guy at Google try to sell them advertising, etc (way before Google was a known entity). She told them him that they weren't interested and good luck and that they should change the name of the company because it sounded silly. To this day, she still cringes.

AA: The Russian Google...I can't remember the name, is supposed to go on the market early next week...While the Chinese Facebook, RenRen (RENN), started at 19.50, went to 24 on May 4, when it IPO'd, and is now in the $13 dollar range...

TS: Yandex? http://www.reuters.com/article/2011/05/19/us-yandex-ipo-idUSTRE74I3P720110519

I Just Want To Know Whether I'm the Sucker

I didn't want to type in that whole post again.....(Thanks Blogger.com for crashing & losing my data) So here are the links that are important.

In a poker game, if after 30 minutes you don’t know who the sucker is, then it’s probably you. What started this line of thinking is Bridgepoint Education, Inc. (BPI) and their high short sale interest.

Naked selling is the illegal practice of short selling shares that you do not own. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen.

While no exact system of measurement exists, most point to the level of trades that fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period as evidence of naked shorting. Naked shorts may represent a major portion of these failed trades.

From www.deepcapture.com:

But while the SEC is of no help, most any Wall Street broker can describe several “proprietary” strategies that are popular with unscrupulous hedge funds. One such strategy is known as a “married put.” Normally, a hedge fund buys from a market maker a certain number of put options—the right to sell a stock at a specified price at a specified date. If on that date the stock has lost value to the point it is below that specified price, the buyer of the put option (the hedge fund) makes money, and the seller (the market maker) loses money. To hedge the risk that he might lose money, the market maker, at the same moment that he sells the put option,  also short sells the stock. This is perfectly legal. But some market markers conspire with hedge funds to drive the stock price down. Instead of merely shorting the shares into the market, the market maker naked short sells the shares, and, importantly, sells those phantom shares to the same hedge fund that bought the puts. As a result, the hedge fund manager winds up with the puts and a matching number of shares (actually phantom shares that are never delivered to him, but about which he never complains, or forces delivery, as that would create upward pressure on the stock, the precise opposite of what he wants).  Because the puts and the phantom shares are equal in number and arrive together at the hedge fund, they are known as “married puts”. Once in possession of the phantom shares, the hedge fund manager proceeds to fire them into the marketplace. But he is able to say that he never naked shorted because all he has done is sold the shares that he bought (wink wink) from the market maker. Either way, the effect is to flood the marketplace with phantom stock. The hedge fund makes money. And the market maker is rewarded with more business selling married puts. In the slang of Wall Street, these married puts are known as “bullets.” Through their maneuverings, the option market maker and hedge fund manager synthesize a naked short position that puts “bullets” into the hands of the hedge fund. The hedge fund fires those “bullets” at the stock to make it collapse, timing the last “bullet” to fire as the hedge fund’s put option expires profitably. If the option position nears expiration and looks like it will expire at a loss (“out of the money”), the hedge fund manager goes back to the option market maker, and together they reload by creating more "bullets"

How does the SEC find naked shorts?
The www.deepcapture.com article continues:

Incidentally, the fee charged for such puts do not follow any normal option model pricing (in fact, the exchanges search for married puts by looking for options that are mispriced in relation to Black-Scholes, the standard formula that prices options). That is because their pricing is not really a function of any math or statistics, but is a function of the willingness of the hedge fund to pay the option market maker to help him break the rules against naked short selling. And that willingness is a function of how difficult it is for the hedge fund to use other loopholes to break those rules.

How do I find naked shorts?
There are several good short sale sites.

• www.buyins.net
• http://www.shortsqueeze.com/
• http://www.highshortinterest.com/

Where Can I Find Threshold Lists data?
A “threshold security” is any equity security where, for five consecutive settlement days:

• There are aggregate fails to deliver at a registered clearing agency of 10,000 shares or more per security;
• The level of fails is equal to at least one-half of one percent of the issuer’s total shares outstanding; and
• The security is included on a list published by a self-regulatory organization (SRO).

There is a 13 day grace period before a transaction is put on the threshold list.

Each SRO is responsible for providing the threshold securities list for those securities for which the SRO is the primary market. You can obtain SRO threshold lists at the following websites:

Nasdaq: http://www.nasdaqtrader.com/aspx/regsho.aspx (includes Nasdaq issues, OTCBB, and other OTC issues) 

NYSE: http://www.nyse.com/Frameset.html?displayPage=/threshold/ 

AMEX: http://www.amex.com/amextrader/tradingData/RegSHO/TrDa_RegSHO.jsp (Amex listed securities only) 

CSE: http://www.chx.com/publications/reg_sho.htm 

The Boston Stock Exchange, Philadelphia Stock Exchange and National Stock Exchange are not the primary listing exchange for any securities at this time and, therefore, are currently not publishing threshold securities lists.

Bottom line to BPI? 
Since writing this post initially, the short interest on BPI has gone from 56.14% to 81.40% according to Yahoo.finance.com; However, there seems to be no listing of it on the threshold lists.

It appears, even though this is a controversial sector, that there is no naked short manipulation going on. This equity could play out either way, but the market and regulators will decide its fate, not the manipulators.


Related articles:
-This behavior is consistent with the illegal “reset” transaction described in the enforcement case brought by the SEC against naked short seller Steven M. Hazan

-A way around the "uptick rule"

accredidation of BPI

ED.gov was created in 1980 by combining offices from several federal agencies. ED's mission is to promote student achievement and preparation for global competitiveness by fostering educational excellence and ensuring equal access.
The U.S. Department of Education does not have the authority to accredit private or public elementary or secondary schools, and the Department does not recognize accrediting bodies for the accreditation of private or public elementary and secondary schools. However, the U.S. Department of Education does recognize accrediting bodies for the accreditation of institutions of higher (postsecondary) education.

Two Regional and National Institutional Accrediting Agencies recognized by the Dept. of Education are:

• North Central Association of Colleges and Schools, The Higher Learning Commission (HLC)
•  Western Association of Schools and Colleges, Accrediting Commission for Senior Colleges and Universities

The Higher Learning Commission (HLC) is an independent corporation and one of two commission members of the North Central Association of Colleges and Schools (NCA), which is one of six regional institutional accreditors in the United States. The Higher Learning Commission accredits degree-granting post-secondary educational institutions in the North Central region.

According to Bridgepoint Education, Inc. (BPI) 10K, Mar 2, 2011

An institution must be accredited by an accrediting agency recognized by the Department in order to participate in Title IV programs. Each of our schools is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools, which is recognized by the Department as a reliable authority regarding the quality of education and training provided by the institutions it accredits. Ashford University was reaccredited by the Higher Learning Commission in 2006 for a term of ten years, and the University of the Rockies was reaccredited by the Higher Learning Commission in 2008 for a term of seven years.

 Under the Risk Factors section of 10K is the following paragraph:

"If Ashford University and the University of the Rockies are considered to be outside of the Higher Learning Commission's jurisdiction under a new policy, the institutions could lose accreditation and become ineligible for Title IV programs.          

The Higher Learning Commission has recently adopted revised bylaws and related policies which outline the basis on which an institution may claim that it is within the commission's jurisdiction. The revised bylaws provide, subject to specified grace periods and grandfathering provisions, that an institution must be incorporated within a state in the 19-state north central region and also have a "substantial presence" in the north central region, as defined by commission policy, to be considered within the commission's jurisdiction. For more information, see "Regulation—Accreditation—Changes to Higher Learning Commission jurisdiction" in Part I, Item 1 of this report. The Higher Learning Commission will evaluate an institution that was accredited by the commission as of July 1, 2010 (such as Ashford University and the University of the Rockies), against the "substantial presence" definition at the time of the commission's next comprehensive evaluation of such institution, except where the commission has information to indicate that an institution does not meet this requirement and initiates, subsequent to July 1, 2012, an inquiry to review jurisdiction. Ashford University and the University of the Rockies are each scheduled for their next comprehensive evaluations in 2014-2015. 

Out of the 10K, Mar 2, 2011 -

"Ashford University expects that the FSA will consider the findings and recommendations in the final audit report and engage in a dialog with the university prior to determining what, if any, action to take. If the FSA were to determine to assess a monetary liability or commence an action to limit, suspend or terminate the university's participation in Title IV programs, Ashford University would have an opportunity to contest the assessment or proposed action through a series of administrative proceedings, with the right to seek review of any final administrative action in the federal courts. Although we believe Ashford University operates in substantial compliance with Department regulations that are applicable to the areas under review, we cannot predict the ultimate extent of the potential liability or remedial actions, if any, that might result from the recommendations by the OIG in the final audit report."

In addition, BPI has applied for additional accredidation. According to the 8K, May 13, 2011

In September 2010, Ashford University applied for eligibility from the Accrediting Commission for Senior Colleges and Universities of the Western Association of Schools and Colleges ("WASC"). 

On May 12, 2011, Ashford University received a letter from WASC stating that the WASC Eligibility Review Committee has reviewed the application and determined that the university meets all of the WASC eligibility criteria and may proceed with an application for initial accreditation. Additionally, the letter confirmed that Ashford University is authorized to pursue WASC accreditation under Pathway B, the process for institutions that currently hold accreditation with an institutional accreditor recognized by the US Department of Education. A determination of eligibility is not a formal status with WASC, nor does it ensure eventual accreditation; it is a preliminary finding that Ashford University is potentially accreditable and can proceed within four years of its eligibility determination to be reviewed for initial accreditation status with WASC. 

Additional Articles:
http://www.fool.com/investing/small-cap/2011/05/17/the-best-play-in-for-profit-education.aspx
http://www.fool.com/investing/value/2011/05/16/the-final-search-for-a-diamond-in-the-rough.aspx?source=iaasitlnk0000003
http://www.fool.com/investing/general/2011/05/11/here-are-2-diamonds-in-the-rough.aspx?source=iaasitlnk0000003