6/26 letter
Just came back from a two-day vacation in the Pocono. The forest is very wild. I was amazed just two hours away from NYC, America can get so rural.
SP500 entered into a small correction due to uncertainty of oil price. Long term interest continues to challenge all time low. More and more people are talking about the buble in the housing market. Yet Bill Gross, the powerful bond manager, is talking about an FED interest cut by year-end. Interesting! I guess we are in a historical stage that the global economy is so weak, 3% interest rate is considered too high...
There are some big changes in my portfolio. Human physchology always likes to mention winners and ingore the losers. One winner actually had a path once crossed my career. Let me brief on it and be amazed how things have evolved.
Legg Mason (LM) this week jumped close to 15%. LM striked a deal with Citi-Group(C). LM will swap its brokage house to C to exchange all of C's asset managementhouse (1% of C). In return, C gets 14% stock of LM (LM is only 1/20 size of C). The investor is optimistic about this relationship, and believe LM get a better deal, therefore, LM's stock jumped. On the other hand, with this relationship, LM's growth gets a propeling forcefromthe much larger C. It is alway easier to inject growth from a giant into a small-cap. The morale in this exchange is to keep doing what you are good at and get rid of what you are not good at. Let someone else who is good at it does a better job.
What has LM to do with me except I own its stock? Back in 1998, I was workingas anentry level DBA for US F&G Insurance Co in Baltimore after got out of gradual school. 10 months into the job, US F&G was sold to St Paul Insurance Co since US F&G was financially troubled (at that time, I did not know this stuff) and St Paul is a highly respected growth company. A lot of coworkers began to jump ship. A girl in my group one day told us she got a job in a small downtown brokage firm called LeggMason. Legg Mason has a high rise in downtown Baltimore, it was a very obvious landmark. She asked me if I was interested. I declined the invitation since first, I was not enthusiastic about commuting to downtown Baltimore; second, I had set my mind after the merger to go back to DC area. Therefore, I joined a small Internet company and later moved to NJ.
Two years ago, I began to pay attention to this small brokage firm because they got this legendary money manager, Bill Miller, whose fund has beatened SP500 for consecutive N years (N>10). Also LM was a very high growth small-cap in the 90s. However, looking back, Bill Miller was also heavily involved in tech stocks as many of us did in 2000. His fund was almost toppled by dot com collapse. But he was smart enough to plan a comeback by rescuing Amazon.com out of deep financial trouble in 2002. LM did not collapse like many other brokage firms after the dot com buble. Instead, it was able to sail through the bear market and continue its growth. Its stockwas at $30 range from 2001-2003 and now it is $100. It is 3 times bigger. I can imagine the girl invited me to LM is laughing joyfully with her stock option on hand. However, if you compare LM to say Janus Funds. Janus was not so lucky, same as its fund holders, one of them is Amy. Alas, what a world...
What happened to St Paul Insurance, who bought US F&G in 1998? It took St Paul 2 years to digest its prey. It was finally able to grow again in 2000, but soon was hit by the bear market. It held out quite well. And in 2003, it is merging with the Citi-Group's spinoff, Traveler Group and changed its name to St PaulTraveler. It is still digesting Traveler so far. Its stock is still at the level of 1998... I am not sure whether St Paul is the lead or Traveler is the lead in this new combined company. But I can imagine a lot of re-org is going on in it.
After reviewing all these developments, I got a new understanding of American capitalism, which I had absolutely zero knowledge when I got out of gradual school 8 years ago...
Steve
SP500 entered into a small correction due to uncertainty of oil price. Long term interest continues to challenge all time low. More and more people are talking about the buble in the housing market. Yet Bill Gross, the powerful bond manager, is talking about an FED interest cut by year-end. Interesting! I guess we are in a historical stage that the global economy is so weak, 3% interest rate is considered too high...
There are some big changes in my portfolio. Human physchology always likes to mention winners and ingore the losers. One winner actually had a path once crossed my career. Let me brief on it and be amazed how things have evolved.
Legg Mason (LM) this week jumped close to 15%. LM striked a deal with Citi-Group(C). LM will swap its brokage house to C to exchange all of C's asset managementhouse (1% of C). In return, C gets 14% stock of LM (LM is only 1/20 size of C). The investor is optimistic about this relationship, and believe LM get a better deal, therefore, LM's stock jumped. On the other hand, with this relationship, LM's growth gets a propeling forcefromthe much larger C. It is alway easier to inject growth from a giant into a small-cap. The morale in this exchange is to keep doing what you are good at and get rid of what you are not good at. Let someone else who is good at it does a better job.
What has LM to do with me except I own its stock? Back in 1998, I was workingas anentry level DBA for US F&G Insurance Co in Baltimore after got out of gradual school. 10 months into the job, US F&G was sold to St Paul Insurance Co since US F&G was financially troubled (at that time, I did not know this stuff) and St Paul is a highly respected growth company. A lot of coworkers began to jump ship. A girl in my group one day told us she got a job in a small downtown brokage firm called LeggMason. Legg Mason has a high rise in downtown Baltimore, it was a very obvious landmark. She asked me if I was interested. I declined the invitation since first, I was not enthusiastic about commuting to downtown Baltimore; second, I had set my mind after the merger to go back to DC area. Therefore, I joined a small Internet company and later moved to NJ.
Two years ago, I began to pay attention to this small brokage firm because they got this legendary money manager, Bill Miller, whose fund has beatened SP500 for consecutive N years (N>10). Also LM was a very high growth small-cap in the 90s. However, looking back, Bill Miller was also heavily involved in tech stocks as many of us did in 2000. His fund was almost toppled by dot com collapse. But he was smart enough to plan a comeback by rescuing Amazon.com out of deep financial trouble in 2002. LM did not collapse like many other brokage firms after the dot com buble. Instead, it was able to sail through the bear market and continue its growth. Its stockwas at $30 range from 2001-2003 and now it is $100. It is 3 times bigger. I can imagine the girl invited me to LM is laughing joyfully with her stock option on hand. However, if you compare LM to say Janus Funds. Janus was not so lucky, same as its fund holders, one of them is Amy. Alas, what a world...
What happened to St Paul Insurance, who bought US F&G in 1998? It took St Paul 2 years to digest its prey. It was finally able to grow again in 2000, but soon was hit by the bear market. It held out quite well. And in 2003, it is merging with the Citi-Group's spinoff, Traveler Group and changed its name to St PaulTraveler. It is still digesting Traveler so far. Its stock is still at the level of 1998... I am not sure whether St Paul is the lead or Traveler is the lead in this new combined company. But I can imagine a lot of re-org is going on in it.
After reviewing all these developments, I got a new understanding of American capitalism, which I had absolutely zero knowledge when I got out of gradual school 8 years ago...
Steve
posted by Steve at 4:17 PM
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