2/11/2006 newsletter
*** Market
SP500 entered correction mode after a very bullish run in Jan. Small-cap corrects more than large-cap since it rose more in Jan. Google entered its first large amplitude correction. Growth stocks seem to catch up with value stocks (trend reversal?). It just daunts on me that Intel's PE ratio is only 15. Cisco and Microsoft is at 22. While SP500 is recovering to its all time high (SP500 is at 1260-90 now, dividend adjusted high was at 1400 in 2000), these powerful companies have come down a lot. They once commanded 60-80 PE ratio... Valuation change (future projection of value) often causes much larger price swing than the value it actually brings over the years. Is Mr Market moody or not? Something to learn from!
*** Comment
I bought Samuel two stocks that I want to comment on (very small position, $700 each). And I plan to buy more if the price comes down a little. GOL, Hung-Chin, you got to read this. GOL is a discount airline operated in Brazil and Argentine. Are you crazy to buy airline in this age of high fuel cost? Normally I won't, but this one S&P calls the most profitable airline in the world. What makes it profitable? Its business model. My God, what's new here? It just simplifies discount airline to the extreme. A single class of airplane and a single class of seat. No more 717, 727, 737, 767, and no more economic, luxury, first class. Does it make sense to you? Make a lot sense to me. It is much cheap to operate. Customer expectation is levelled (If you have money to ride first class, do not take discount airline. Go to full service, right?).Business model decides how you operate, and your cost structure! Way before how hard and efficient you have to work.
The second stock is LTM (Life Time Fitness). It is a fitness club like the close-to-bankrupt Bally. What is the big deal? I thought so too. Fitness club just have too much capital expenditure, and too much competition in a commodity like service. You can even build a gym at home if you like. But speaking of competition, how did WalMart, HomeDepot get ahead of other retailers -- Large box, one-stop shopping, high traffic. Again it is the model that differentiate itself from other run-of-the-mill. This is hard to do, but LTM did it. How big is its "box"? 11 acre of land (The most recent one is at Columbia, MD where I once lived). One-stop shop, it is a 4-in-1 site, fitness, pool/water park, spa, resort (and day care of kids). It allows a whole family to spend time in it, just like you goto the mall. High traffic, it opens 24 by 7 (Bally closes at 10pm, and pool is not always open).
I was amazed by their new ideas. So I mention to you. Hope you will come up with some great ideas too. Think big (Did someone say "Do great things for the Kingdom of God"). Good idea is also worth a lot (check out LTM CEO's holding). Lastly, however, safe harbor statement. No garantee these businesses will not fail as many of their peers. PE ratio is a bit high as they are in their expansion phase and the value of these successful ideas are more or less factored into the price. Didn't I just tell you to watch out high PE ratio... Cheers...
--Steve
SP500 entered correction mode after a very bullish run in Jan. Small-cap corrects more than large-cap since it rose more in Jan. Google entered its first large amplitude correction. Growth stocks seem to catch up with value stocks (trend reversal?). It just daunts on me that Intel's PE ratio is only 15. Cisco and Microsoft is at 22. While SP500 is recovering to its all time high (SP500 is at 1260-90 now, dividend adjusted high was at 1400 in 2000), these powerful companies have come down a lot. They once commanded 60-80 PE ratio... Valuation change (future projection of value) often causes much larger price swing than the value it actually brings over the years. Is Mr Market moody or not? Something to learn from!
*** Comment
I bought Samuel two stocks that I want to comment on (very small position, $700 each). And I plan to buy more if the price comes down a little. GOL, Hung-Chin, you got to read this. GOL is a discount airline operated in Brazil and Argentine. Are you crazy to buy airline in this age of high fuel cost? Normally I won't, but this one S&P calls the most profitable airline in the world. What makes it profitable? Its business model. My God, what's new here? It just simplifies discount airline to the extreme. A single class of airplane and a single class of seat. No more 717, 727, 737, 767, and no more economic, luxury, first class. Does it make sense to you? Make a lot sense to me. It is much cheap to operate. Customer expectation is levelled (If you have money to ride first class, do not take discount airline. Go to full service, right?).Business model decides how you operate, and your cost structure! Way before how hard and efficient you have to work.
The second stock is LTM (Life Time Fitness). It is a fitness club like the close-to-bankrupt Bally. What is the big deal? I thought so too. Fitness club just have too much capital expenditure, and too much competition in a commodity like service. You can even build a gym at home if you like. But speaking of competition, how did WalMart, HomeDepot get ahead of other retailers -- Large box, one-stop shopping, high traffic. Again it is the model that differentiate itself from other run-of-the-mill. This is hard to do, but LTM did it. How big is its "box"? 11 acre of land (The most recent one is at Columbia, MD where I once lived). One-stop shop, it is a 4-in-1 site, fitness, pool/water park, spa, resort (and day care of kids). It allows a whole family to spend time in it, just like you goto the mall. High traffic, it opens 24 by 7 (Bally closes at 10pm, and pool is not always open).
I was amazed by their new ideas. So I mention to you. Hope you will come up with some great ideas too. Think big (Did someone say "Do great things for the Kingdom of God"). Good idea is also worth a lot (check out LTM CEO's holding). Lastly, however, safe harbor statement. No garantee these businesses will not fail as many of their peers. PE ratio is a bit high as they are in their expansion phase and the value of these successful ideas are more or less factored into the price. Didn't I just tell you to watch out high PE ratio... Cheers...
--Steve
posted by Steve at 11:42 AM
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