1) Buyer: Limited -> High

2)Supplier:Low

3)Rivalry: Concentrated and Limited

4) Barrier: High

5) Substitution: Limited

6) Complements: High

Genotyping and related technology will be a disruptive technology in the medical arena. However, it may not be a profitable industry,  i.e. airline industry, without better understanding the profit models.

Ideally we’d like to invest in Great company at fair price. Unfortunately, NVEC is currently priced high and offers little margin of safety.

Looking at the balance sheet: The market CAP is at $258M. Out of the book value of $75M, on the surface it’s look like a fair value of book price multiple of less than 4x. However, $55m of the book value is in short-term bonds. Stripping that out of the MC and BV, you are really paying $200M for a book of $20M, which seem pretty steep.

On the revenue side, you paying about 8x on the $30M top line.

To sum up I consider a NVEC a great growth company but at a premium cost.

Q2FY11 Conference Call

http://investor.shareholder.com/media/eventdetail.cfm?eventid=103814&CompanyID=NVE&e=1&mediaKey=2484AB0DE456074A91CA46B5DA2E2244

http://solazyme.com/

WFC – not by choice, mostly profits from early 2009, purchased around $10. Have reduced significantly but still number two in position.

CEO – Like WFC large position from 2009. CEO still have strong competitive advantage as a Quasi-State owned oil E&P company with exclusive drill rights in China seas and other offshore areas. Hard to beat that moat. Do you think China will stop consuming Oil any time soon?

BAC – Same boat as CEO. However, I believe its much more undervalued. WFC shouldn’t worth twice as much as BAC.

BRK.B – safest bet at around cost basis of $70. Buffett already outright guaranteed the bottomline of stock at 110% of book value.

UPS – Logistic improve with recovery. I don’t when the recovery will occur, but it will come, soon or later.

Other holding: NASDAQ:ILMN  NYSE:WU  NYSE:UNP  NYSE:NSC  NYSE:MT  NYSE:EDU  NASDAQ:BIDU  NYSE:GS  NYSE:CAT  NASDAQ:GOOG  NASDAQ:AMZN  NASDAQ:PRGO  NYSE:V  NYSE:ED  NASDAQ:NVEC

Malcolm Gladwell has becoming one of my favorite writers. His writing reaches a wide range of topics with emphasize in a mix of sociology and psychology. What shines his works apart are his uses of real-life examples and commonly known events to illustrate the underline subject principles, like the numerous examples in Blink or this book.

In comparison, Blink dwelled the entire content on one single subject, Thin-Slicing, the ability to make instinctive decisions within a small fraction of time to achieve astounding results as if were studied over ample amount of time and resources. What the Dog Saw covered over a number of topics. In no particular order, here are some brain notes:

Creeping Determinism: How after an event occurs can alter (increase) the emotions or confidence level of what you thought about and prior to the events.

Information Noise: The ability to differentiate noise from useful information. The problem with more information does not warrant right choices.

Implicit Vs explicit Learning: unconscious and conscious learning.

Stress from Pressure, Panic Vs Choke: If learned through conscious, innate ability may takes over under panic; if learned drawn from unconscious, inability to explain or to act if try to concentrate from conscious under choke.

Risk Tolerance: willingness to tolerate risks and ability to shred our comfort zones

Growth achieve through continue process of acquire new comfort and relinquish it

Normal Accident: Series of good things where evaluating individually maybe a good thing, but taking collectively causes catastrophe. This is the reason to have a long-term goal, so we can assess alignment of individual decisions.

Smart people are overrated: The failure for Enron which was driven by the talent people orthodox culture maybe caused by lack of common sense and social goals.

Success of an individual may lay with his or her own smartness, but the success of an organization relies on its ability to grow its people to smartness.

Structure Interviews that ask for specific questions or questions based on specific scenarios is the only type of interview that can predict an employee future outcome.

What to do when faced with two equally important deadlines, if answer is to tackle the one with what you know the best, it fails to put the company’s need first.

If everyone is to think outside of the box, maybe then it’s the box that needs to change.

Marketing: Make a good product, show people how to use it, like Ron Popeil’s rotisserie oven and infomercial, vs. how cassette video player failed to replace sitcoms.

Ketchup and Mustards: Best Ketchup may not dominate market, not what the customer want, or customer may not know what they want, or even change the culture of usage.

Package is part of the product.

Success for a reason: Buffett, common sense, Soros, back pain (unconscious?).

Quants vs. Common Sense on Stocks: Bell curve, bell curve with end lobes, Black Swan.

In a way, option sellers believe bell curve, belief shown in premium. Buyers are believers of ear lobes version of bell curves.

Risk averse on gains, gamble on losses. People participate in market’s wiliness to loss everything to gain daily small winnings and for the pleasing effect of feedbacks.

Church and Contraceptive pills: Fact, belief vs. pursuit for agreement may be different things. Contraceptive pills: Pope deemed it un-nature to control god’s will, where could argue for protect life or health, which Pope later deemed acceptable. The art of selling

Brest cancer due to amount of estrogen and progesterone a women live through. Birth of child prevents breasts from mutation. More menstrual cycles yield more estrogen. More estrogen and progesterone contribute to higher risk of breast cancer.

Culture or Rule based Conformity

Experimental pursuer for Perfection

Marketing and LOreal Hair Color, I am worth it. Single slogan responsible for market soaring.

Criminal Profile: white victims may point to white perpetrator as old victim may point to perpetrator with pre-mature sex drives

Biting Dog Profile – Pit Bull are not necessary more dangerous than others as in common belief.

Of course, What the Dogs Saw also covered Thin Slicing.

]]> http://www.oneonian.com/wordpress/2010/06/14/book-review-what-the-dog-saw/feed/ 0 http://www.oneonian.com/wordpress/2010/04/03/2010-q1-report-is-now-available/ http://www.oneonian.com/wordpress/2010/04/03/2010-q1-report-is-now-available/#comments Sat, 03 Apr 2010 22:22:28 +0000 Yuan He http://www.oneonian.com/wordpress/?p=131 http://www.oneonian.com/invest.php

Link: http://www.investopedia.com/articles/technical/04/020404.asp

Link: http://en.wikipedia.org/wiki/P/E_ratio

Link: http://en.wikipedia.org/wiki/File:SP500pe.svg

Amit Shah wrote a good article on big financials on seeking alpha.

http://seekingalpha.com/article/174773-wells-fargo-jpmorgan-and-bank-of-america-stock-prices-can-double#comments_header

And if you believe health care reform will pass during the Obama administration, then you can bet there will be fundamental changes to the market. And if you believe the public options is out of the door, which seems to be probable according to latest debate, then I have to say health cares and pharmaceuticals will be the ultimate winners. All for the simple fact of increasing demand and reduce cost. Even if there will be price control, hopefully not like the regulation on utilities, the total volume, per profit x demand, will go up.

Between health cares and pharmaceuticals, I prefer the former. In health care, you use client’s premium and funds to invest. It’s like getting a free loan. Ever wonder why Buffett are heavy into insurance? In pharmaceuticals, it is more speculating than health care. Big Pharms need to constantly build new products to keep its pipeline full. One drug can make or break a small company. Since no one can predict what drug a company can produce 10 or 20 years down the line, a company need to keep rebuild its moat, so I consider it as less of an investment over the long term than health cares.  

Okay if you are still with me, let’s now consider the best breed in the health care sector. Among: WLP, UNH, HUM,  AET, I think WLP and HUM have better financials. And WLP has more quantitative and qualitative advantages. I do have one concern with WLP and that is the heavy insider sales in the past months.

The verdict: if you believe the health care reform will pass without the public options, then buy WLP. And hopefully you have an opportunty to buy below the 200 days moving average.

Heck, even if you don’t believe anything, you can still buy WLP, because it’s a bull market. And the chance of you go wrong in the long term is much slim during this post-Lehman recovery era.

Once these under appreciated have been realized, what would be the next set of plays? I would like to suggest these three areas: Inflation/dollars plays, Media Phone and Devices, and Green energy plays.

To battle againist inflation and falling of dollars, I am looking at currency plays and growth stocks. I am considering Brazil Agriculture, China Med Caps, European ADRs.  A good link for Brazil and China Agriculture http://www.idb.int/intal/aplicaciones/uploads/publicaciones/i_INTALITD_OP_44_2006_Jank_Jales_Yao_Carter_.pdf and for top 500 Latin Comanies: http://www.thefreelibrary.com/The+Top+500+companies+in+Latin+America-a0134781814 for ADRs http://site-by-site.com/adr/latin/adr_bra.htm

For Media Device and infrastructure, I like GRMN, AAPL, RIMM, Goog, CHL, ATT, CHU. Some of these might be great companies, but the price is also up there. I see GRMN with some potentials and is only one offered at a decent price.

Lastly, Green Energy. A number of ways you can play this. One is of course the source play, go for solar or wind directly, I like STP, SPWRA and FSLR are a little pricey. Or you can go for the industry that would benefit from CO2 reductions, I like Rails in this sense. The more rails they build, the bigger their market, with limited players in this field, domestic rails are operating in a local duopoly environment.

 Generally speaking, values stocks outperform in period of slow expansion, and once the market starts to grow, we should start to shift from values stocks to growth stocks, large caps to smaller caps.

It’s been a while since I last updated this page. Between moving to DC, getting my 65, taking over 3 roles and responsibilities at work, re-model my bathrooms with tiles, giving out free financial presentations, traveling to China, writing my first book (it’s true), I finally will have some time to reflect on what has been happening and will share some of my learning and experiences with you. Check back soon, you will get a glimpse from the pages of my new book.

And yes Pass the 65 is probably the only book you’ll need to pass that exam, plus some common sense.

My top holdings now, since March 2009, are BAC and WFC. Both count over 50% of my portfolio right now. Others been V, CEO, BRK.B, GOOG, GRMN, ETFC, and still more 15% in cash. This run since March is been very bullish, I don’t know how long it can last with this kind of rate of growth.

Financials, especially BAC, were way undervalued, market cap at third of equity vaules. It doesn’t make sense to me. And given BAC is now profitable, it should be valued at least at equity.

The goal is to rotate out of these undervalued stocks as market play catch ups and get into growth. But this might be a long time before all price gap can be reached. one to two years? wait and see.  

Some might argue that the general stock markets in US already came down from the peak of last October, we probably already hit the bottom and on the way to recover. Even some of the commodities-related companies are already priced low enough for value plays, to that extend I would agree. But slow growth meaning these commodities companies will not able to recover as fast as some other sectors, like Financials. With current interest rate at all time low and the special windows extending to some of the big financials, they are positioned to benefit the most from the yield spread. Already we see the financial sector rebound from their lows. I think this will likely to continue until FED ease off the rate.

I wished I’ve came to this generalization earlier, the signs were long before my eyes, the oil coming off its highs and Global inflation concerns. While I will continue to work on the timing in the future, I think we are currently at very early stage of this cycle, so we can still make the transition and benefit from this trend.

This is a general disccussion of the current trend, by no means, I am suggesting to dump the commodities stocks or buy the financial at the instant. Please be patient and let the market come to you for favorable conditions.