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Practitioners, Prognosticators and Portfolio Pain

in Process

Asphyxiation is a condition in which the body doesn’t receive enough oxygen. That’s how I started my last column, in which I explained how the recent U.S. equity market highs have been creating “altitude sickness,” or value asphyxiation, for investors. If you look down from 30,000 feet, the market is trading at a significant premium to its average long-term valuation, especially if you normalize earnings for sky-high profit margins. The view from the...

Qualcomm’s Competitive Advantages Are Too Numerous to Ignore

in Analysis

Asphyxiation is a condition in which the body doesn’t receive enough oxygen. A common side effect of asphyxiation is death. Before then, of course, there are hallucinations; we start seeing things that don’t exist. When the market is making new highs, valuations are high, and you get altitude sickness. It is typical to suffer from value asphyxiation: imagining value when it is not there. Mistakes in this environment predominantly come...

The Blessing of a Declining Stock Price

in Analysis

After I told my father what I am about to tell you, he called me a charlatan. He said, “You basically tell people that it is okay to lose money on their stocks.” It’s a bit more nuanced than that, but, yes, here is my message to you: When you buy the right company — one that generates enormous cash flow and is run by good capital allocators — a...

Why Investors Hate Apple — and Are Dead Wrong

in Analysis

In this article I don’t discuss Apple’s valuation, balance sheet, or financials.  I covered these topics in great detail in these articles a few months ago (Part 1: Psychology and Part 2: Value of Ecosystem).  Nothing has really changed since, except that Apple announced an enormous share buyback.  This article focuses on Apple’s products, innovation, emerging markets … and Syrian rebels. It is easy to understand why Apple’s stock is hated so much...

Ben Bernanke: Buy One Suit, Get Three Free

in Macro

Linear thinking is dangerous. It is the easiest form of reasoning, lying on the path of least resistance. The simpler the path, the more readily people will march along it. Linear arguments are easy to make, as they require the least amount of evidence — past data points with a straight line drawn through them. However, the larger the crowd that follows the wrong line of reasoning, the more people...

Are We There Yet?

in Macro

I’ve written this article for Institutional Investor Magazine.  I feel very passionate about the topic and thus could not compress all my thoughts into 800 words.  I expanded it and it was published in John Mauldin’s Outside the Box newsletter.  “Expand” is an understatement as it is  four times the original article.  I suggest you skip John’s very kind intro (he is too kind) and go right into “Are We There...

How HP Can Navigate the Information Superhighway

in Analysis

When Hewlett-Packard Co. is discussed in the media, it is portrayed as a PC company. On the surface, that makes sense: HP is the largest PC maker in the world, and personal computers are 30 percent of its revenue. But — and this is a very important but — PCs today represent only 10 percent of HP’s operating profits. Also, despite current conventional wisdom, PCs, unlike IBM Corp.’s mainframes in 1993, are not going...

No Kodak Moment for Hewlett-Packard

in Analysis

Investment mistakes usually fall into one of three categories: analysis, behavior or bad luck. In October 2011, after the shares of Hewlett-Packard Co. had been halved from about $48 earlier that year, I made a case for the stock. That was a mistake. There was no bad luck. I made several errors in my analysis. In this column I want to drill down into my mistakes and provide a new analysis of what is still...

Understanding Apple Requires an Analysis of Fundamentals and Psychology

in Analysis

So many articles have been written recently about Apple — defending it or explaining why this glorious fruit will turn into a shriveling pumpkin by midnight (with Samsung’s help) — that I really haven’t felt the need to contribute to the unending debate. But then Apple’s stock crashed to $450 last month, and we bought a little for our clients. After receiving an outraged e-mail from one of them calling the purchase...

How Much Would You Pay for the Apple Ecosystem?

in Analysis

Earlier this week I wrote about the psychological challenges that Apple shareholders face. I also discussed the evolution of Apple’s “i” gadgets — the iPod, iPhone and iPad — and how they have created an ecosystem unlike those of other technology companies. Apple’s ecosystem is an important and durable competitive advantage; it creates a tangible switching cost (or, an inconvenience) after Apple has locked you into the i-ecosystem. It takes time to build...

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