Investment scorecard


This is a blog entry I’ve wanted to write for awhile, one of those back pocket subjects you may or may not be interested in reading.  I love investing.  I love buying and selling equities and mutual funds.  I’ve had mixed success over the years.  Before the dot.com craze, I knew very little about investing, and I didn’t have any money.  Then when the dot.com happened, the market piqued my interest, and I was lured by the siren’s sound of skyrocketing returns.  At the height of my early investing career, I sold my shares of IBM and Hewlett-Packard and plowed them into several technology stocks that I sorely regret buying.  Here’s a list of what I bought, in case you want a laugh–Webvan, which no longer exists and when down in a blaze of glory as one of the worst dot.com investments of all time, Infospace (INSP), which burned me twice, Palm (yes, that lovely PDA company that peaked and burned), and a couple of other forgettable technology stocks that also tanked.  I lost money during the dot.com bust just like everyone else, but since then I’ve wisened up.  My MBA taught me the basic principles of finance and investing such as the value of PE ratios and Betas, stuff that can be pretty boring but are critical to sound investing.  It also gave me the killer instinct when it comes to investing, and since 2002 my three-year return has been around 11%.  With the disclaimer that I’m far from a perfect investor and still make mistakes, I want to share some of the investments I’ve made in the last year.  If you’re interested in investing, I’ll also give you some suggestions on investments I haven’t made but have had my eye on.
  1. Google (GOOG):  Bought at $85/share, sold at $200.  Current price, $296.23/share.  I bought into Google at IPO last August and did very, very well in just a few months.  I sold early because I assumed Google would not go much higher than $235 per share.  I was wrong, but I was pleasantly surprised to see my faith in Google vindicated.  I do not recommend buying Google at nearly $300 a share.  If you bought if for much lower than that, keep it.  It is a good long-term investment.  Recommendation:  Hold.
  2. DreamWorks Animation (DWA):  Bought at $36/share, sold at $39/share.  Current price, 26.81/share.  This is the one that went sour.  DWA overpromised to investors, and there are now at least six class action lawsuits against DWA claiming CEO Jeffrey Katzenberg made false promises on the sales of "Shrek 2" DVDs.  Its main rival, Pixar, also tanked when sales of "The Incredibles" DVD underperformed.  I sold DWA before its 2nd quarter earnings were released, and I’m glad I did.  The overall valuation of CGI animation studios appears to be too high, and CGI animation appears to be peaking in popularity.  I don’t like the movies in the pipeline for DWA in the near future ("Walter & Gromit," "Over the Hedge").  DWA’s stock price probably won’t bounce back until next year, when "Shrek 3" hits theaters.  Recommendation:  Don’t buy it.
  3. Blue Nile (NILE):  Bought at $25/share, sold at $29/share, currently at $33.20/share.  I love this stock.  I met the CEO and love the concept of an online jewelry e-tailer.  Valuation is now high, but take a closer look at this one.  I sold at a profit and wish I had kept it for the long term.  Recommendation:  Weak buy.
  4. Infospace (INSP):  Bought at $48/share, currently at $33.98/share.  Twice bitten, should have been shy.  I listened to Fool.com and still believe in the long-term value of this company as a provider of online content.  INSP is especially strong in mobile services but heavily reliant on a couple of wireless providers.  I think it is a decent buy and have been disappointed that it isn’t doing well.  Take a closer look at INSP.  Recommendation:  Buy.
  5. Overstock.com (OSTK):  Bought at $69/share, currently at $39.36/share.  This is the worst investment I’ve made since the dot.com bust.  Again, I mistakenly listened to Fool.com (advice is cheap–go with your gut instinct).   Fortunately, like INSP, this time I only bought a few shares.  OSTK is a direct competitor to eBay, a David versus Goliath.  OSTK has a lot going for it, and eBay, other than Pay Pal, has had its share of difficulties lately.  OSTK’s primary problem is that it is sticking to a tried and untrue dot.com formula–focus on growth over profits.  It’s trying to get big fast, and Wall Street is punishing it for following this strategy.  The stock spiked at the end of 2004 when projections showed OSTK would turn a profit in early 2005.  It didn’t.  I think it will by early 2006.  I think it’s a long-term buy, but not till it’s profitable.  Recommendation:  Hold.
  6. Morningstar (MORN):  Bought at $18.50/share, now $28.79/share.  I turned my second most successful IPO after Google with this gem.  The king of investment research, Morningstar is a promising microcap with a marquee name in the financial world.  The CEO owns over 70% of outstanding shares.  If it can get past the SEC subpeona and potential conflict of interest, it is golden.  Valuation is rich now because Morningstar’s profitability has been spotty.  Recommendation:  Outperform.
  7. Cogent Technologies (COGT):  Bought at $22.50/share, now at $29.76.  Rated #1 microcap for 2005 by BusinessWeek magazine, this firm builds biometric systems used as security devices.  It IPO’d in 2004 at $15.50/share, peaked at $38/share, dropped to $19/share over share dilution concerns and concerns over sustainability outside government contracts.  The price spiked with the bombing in London.  This is a great long-term buy.  Recommendation:  Strong buy.

As you can tell, the common thread in the stocks listed above is that they’re heavily technology-based.  As Warren Buffett says, buy what you know, and I know techology better than any other sector.  However, here are some other investing candidates I chose not to invest in for the time being but still have my eye on.  They cover a range of sectors. 

  1. Archipelago Holding (AX):  The holding company of the electronic exchange is merging with the New York Stock Exchange, effectively making the NYSE a publically traded firm.  Valuation is high.  Recommendation:  Hold.
  2. Dell Computer (DELL):  Mature stock, but Dell is a must for any technology portfolio.  I almost bought DELL in late 2004, but the price spiked following excellent Q3 returns.  Dell will continue to dominate computing hardware.  Recommendation:  Buy.
  3. eBay (EBAY):  Everyone knows eBay.  eBay took a big hit earlier this year because its market is maturing.  It’s Pay Pal division is growing gangbusters and could become an alternative to credit cards.  If you own OSTK, don’t buy EBAY, and vice versa.  Of the two, eBay is a better buy now.  Recommendation:  Buy.
  4. Krispy Kreme Donuts (KKD):  This one-time darling stock with the world’s best-tasting donuts has fallen on hard times.  Wait and see what will happen, or make a bet while the price is low.  Recommendation:  Hold.
  5. Petrochina (PTR):  The U.S. ADR for one of China’s largest oil companies.  Warren Buffett owns a small stake, and it operates like a U.S. company.  Petroleum demand will remain strong, especially in China market, but Petrochina’s price has increased 85% since last August.  Wait and see what happens with CNOOC’s offer to buy Unocal.  If it fails, buy Petrochina.  Recommendation:  Hold.
  6. Salesforce.com (CRM):  Customer management Web services firm that competes with Siebel Systems.  High PE ratio, very rich valuation, but good long term potential.  Recommendation:  Don’t buy it. 
  7. Sears Holdings (SHLD):  Buyout artist Eddie Lampert merged Sears and Kmart into a single company.  Lampert hopes to turn SHLD into the next Berkshire Hathaway, Warren Buffett’s investment vehicle.  Combining two aging retailers, Sears and Kmart, into a single company is a crazy idea, but Lampert is crazy like a fox.  The cash they generate will allow him to make other Buffett-style purchases.  What about General Motors?  I should have boughten this at $96/share when I had the chance.  Recommendation:  Buy.

One last recommendation–check out Exchange Traded Funds (ETFs).  They are a great way to diversify and a good alternative to mutual funds, particularly index funds.

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