Bought Goldman Sachs

I am not an expert on financial stocks, but I know that Goldman Sachs is the best investment bank in the business. From everything I read, GS leads and every other bank follows. They have the best talent and know what they are doing.

Patience is finally paying off

After months of painfully holding onto my stocks, I am starting to feel good about my portfolio again.

I made a good call on DKS sporting goods, but I didn't make any money off of it because I only own 10 shares. I wish the stock would stay down so that I can have an opportunity to buy a significant amount in the future. I still think it is a good value, and should be trading at least in the 30s when you factor in the growth opportunities for the future.

It really doesn't matter though because because I made more with my money in LDK. It looks like solar is getting hot, and LDK is becoming one of the leaders in the sector. I still think LDK is significantly undervalued and am not planning on selling until 2009 when it starts producing its polysilicon. This stock should be trading at least in the 100s. At its current pace of growth, it is should earn $5-10 a share in 2009.

I just think that Wall Street is very risk adverse right now, and won't touch anything doing with China. The American solar companies are trading with PE multiples of 100 while their Chinese bretheren are around 20. It just doesnt' quite add up, but I am taking advantage of this discrepency.

Oh, and NVDA is still significantly lower when I bought it, but it is starting to gain momentum. I think it has found a bottom.

GM and FNM could be good buys if done right

Everyone is afraid of GM and FNM and no one wants to touch them because both companies have the risk of going under. They can still provide opportunities if you know how to manage the risk.

With these stocks, there is a possibility of that these stocks will go to zero, but if they succeed, you will be greatly rewarded. The risk can be managed with proper diversification.

I am not a big fan of diversification, but when you have securities that can go to zero, it is essential to protect yourself. Don't risk capital that you aren't afraid of losing.

I think that these stocks are good buys because there expected value is probably higher than its current price. A simplified way of calculating of the expected value is :

(% chance of losing all)*(0) + (% chance of succeeding)*(price if it succeeds)

If the expected value is significantly lower than its current price, given you a large margin of safety, then these could be good buys. Just make sure you manage the risk properly by making them just a small holding in your portfolio. These should be treated more like options than actual stocks.

I am confident in NVIDIA

NVIDIA's stock has been hammered recently by competition and a write down, but after listening to the conference call today, I was reminded why I loved the stock so much in the first place.

Jen-Hsun basically addressed every single problem head on that they were experienced, which is exactly what I want to hear from a CEO. I hate hearing BS, and just want a CEO who shares the same concerns as I do.

NVDA's strategic position in the market is being challenged from competition from AMD, but that will probably change in a year. These two companies have been trading the lead back and forth for years, and they continue to grow.

I can go into details, but my final decision is really based on intuition. I know NVDA is a great company that is not going anywhere. At this current price, there is really no downside risks and the potential for a multi-bagger in the coming years.

Now is the time to back up the truck. I am even considering buying some margin.

LDK blew earnings away

They killed it posting $1.29 vs a .42 estimate. Sure only .82 cents were operational profits, but it still up about 100%.

LDK is still priced really cheap for what it has to offer. Assuming LDK's profits remain constant, they are trading at 12.2 times earnings at its after hours price of $40 (40/(.82*4)). With the amount of growth in the company, it should be trading around 100.

If it hasn't already, this stock should be taking off soon.

The long term is a painful route in these markets

LDK, which is my biggest holding has definitely been volatile and I have had some huge swings in my portfolio. My performance record looks ugly, but I am confident in this stock in the end.

Unlike some other undervalued stocks, LDK's plans for growth is clear and straightforward. If LDK builds its polysilicon plant on time, it should double its margins while it rapidly expands its wafer business. There is growth in revenue and from margins which should be very potent combination.

There are some risks in execution of this plan, but LDK's execution has been flawless so far and there is such a large margin of safety in its price, that it shouldn't be an issue except in the most extreme circumstances. Even if LDK's polyplan is delayed a year, there is still lots of upside in the stock.

The main reason I bought this stock is because the polyplant is not priced into the stock by the market. When you see something in the stock that the market doesn't, it might take a while for it to catch on, but when it does, LDK should take off. Not to mention, half the float is shorted in the market, so there will be a huge squeeze in the process.

Now the hard part is waiting until these events to priced into the stock. I might have to wait for the earnings in 2009 to prove my point which is a long way away. The good news is that I can enjoy a lower tax rate when I finally do realize my gains.

LDK can easily go to 100+, and I really don't see any better opportunities for my money out there. In the meantime, I get to experience pain and suffering from the market.

Would you own the company?

One thing I noticed about Warren Buffet is that he prefers to buy whole businesses than just a portion of his stock. This seems to go against the common notion of owning stocks, which is to basically flip it onto someone else at a higher price.

I am bringing this up because owning a stock is the exact same thing as owning the business, yet no one really thinks that way.

Instead of framing your decision making into whether the price of the stock go up, ask yourself "would I own the company?" If there was no such thing as a market, would you still want to own the stock? Are the long term prospects of the business strong, and is the future cash flows from the business make up for the initial investment?

This is what Warren Buffet does, and he seems like he knows what he is doing.

Volatility isn't risk

The most absurd idea that I find in the investment community is this notion that volatility is a measure of risk. The only reason I can think of why volatility is used as a measurement to risks is because it is easy to calculate and it seems reasonable.

Volatility just measures how a stock trade, not the measure of risk. The only time volatility can be used as a measure of risk is if you need cash in a short period of time. Other than that, it is completely irrelevant how a stock trades.

The problem with thinking volatility is risks is that use base your decisions on how a stock trades rather than the underlying fundamentals. If a stock goes down in price, they assume that the market is providing them information, when it really is just have one of its mood swings.

Volatility can also provide a false sense of security. If the markets are fairly stable for a while, people can tend to think of them as less risky. Look what happened in the mortgage and housing market where investors were complacent for years. It wasnt' until economic conditions changed that the real risks were exposed by the markets.

Real risks has to do with factors that can go wrong with the underlying fundamentals of your investment. There isn't a magic number that represents it, but a collection of variables including many unquantifiable factors ranging from politics to consumer taste. It is messy and doesn't fit into any simple models, but that is the way the real world works.

NVDA is a falling knife

One of the few times I use technical analysis is to avoid falling knifes, and NVDA looks like one right now. In a bull market, I would expect NVDA to pop up rather soon but not right now.

However, since NVDA is priced really really low, it could still be a good time to start buying now. Although NVDA looks like a falling knife, it could really be near the bottom right now for all we know. It is near impossible to predict the absolute bottom.

I figure a good way to play these types of stocks is to start a small position now, and keep on adding to it later. This way you can hedge your costs basis no matter what the stock will do. This way you can keep emotionally sane while accumulating shares, which will make you a lot more rational in the process. Striving for perfection is the sure way to be overly emotional, which will adversely affect your performance.

Now this catching falling knife strategy only works if the fundamentals are strong for the long term. If a company has lots of debt or is losing its competitive edge, don't mess with it. Just because a stocks price looks cheap doesn't mean it is. Research the companies first, and perform the proper due dilegence.

The herd wants things to worst before they get better

This might be my first bear market that I've experienced, but it seems like everyone on CNBC agrees that that stocks will go up after the point of capitulation.

My main problem is that everyone agrees on this. If there is a clear signal to make money by timing the bottom, it will be arbitrage out of the market. If the VIX has to get at a certain level (I don't know what it is because I don't care) then people will start buying before that magical number is reached which completely ruins the signal. Thus the consensous agrees that the bear market will continue.

Another problem I have with this is that it is 100% techinical. It has no basis for the actual businesses in the economy itself and doesn't have to be the sign for the bottom.

The bottom could occur when we least expect it, and could lack the drama that everyone expects. The herd could be waiting for this signal, and completely miss the first leg of the next bull market.

I am not going to try to time the bottom, because I believe it is a futile exercise. Just buy the companies that are undervalued, and you should be doing fine in the long run whether you call the bottom or not.

Thoughts on using margin

The use of margin has been really tempting, but I am very wary of actually using it.

Having a cash account, I can have comfort in the fact that I am owning share of a company. Even if the market prices my stock down 90%, I can have comfort knowing that I own the same amount of that company. As long as the fundamentals are strong, I will still be well off in the long term.

With margin, you are owning pieces of paper, instead of ownership of a business. If the market goes insane and lowers the price of your paper, they can take it away from you and you are left with nothing.

This adds another risk to your portfolio. Instead of just dealing with business risks, you face market risks too. With the recent drops of NVDA, I am reminded how serious these risks can be. The stock seemed safe to use margin on when it was trading under 20, but the market gave me a big surprise.

The only reason I would use margin is that I am young, and can really afford the risks of losing it all in the worst case scenario. It would certainly suck, but I could make my money back with a job if I really had to. As my portfolio increases in value in time, I could no longer afford these risks and capital preservation becomes much more important.

I am still wary using margin, and if I do decide to do it, I will use it very conservatively. I am aware of the risks, and they scare the hell out of me.

I don't have to do anything

While thinking about how to play NVDA's recent drop, I had an epiphany. I don't have to do anything about it.

Just because Mr Market got grumpy and decided to offer NVDA at such a cheap price, it doesn't mean that I have to change my decision on this. I should make my judgments and decisions
independently, instead of being pressured by others in the market.

I think this obsession of feeling compelled to do something about it is just to satisfy my ego in picking the bottom. I might pick it, I might not.

The truth is that the market has presented me an opportunity, but it is my choice whether to play it or not. The worst case scenario of doing nothing would be that NVDA would go up to 18 the next couple of days, which really is like nothing has changed before. Ha! I already have money in NVDA so it wouldn't be a problem. (I guess I feel safer when the prices are really low)

If I had infinite resources, I would be backing up the truck, but currently I have to deal with opportunity costs when dealing with NVDA. I like LDK just as much, and am more impressed with its fundamentals recently. Since LDK has more short term catalysts, so I am keeping my current asset allocations the same for now.

Hopefully NVDA will stay low so I can transfer my gains into there later, but worst case, it would be like nothing has changed. I am taking some risks predicting the short term trends, but that's my choice, not Mr Markets.

Blood in the streets

When I saw that NVDA fell $5 premarket, I first thought there was a glitch until I started digging into the news.

NVDA had to lower their forecast due to competition from AMD and unexpected costs due to warranties and repairs from some of their chips. In this market, it created the perfect storm for a disaster with the stock.

With this short term problem, I see this as one of the best buy opportunities in the market. There is virtually no risks when it is trading this low and huge opportunities for gains. The long term growth story remains virtually the same which is what I have been focusing my valuation on.

I am going to rebalance my portfolio, increasing my weighting into NVDA because it is too good to be true at the price. The short term is definately going to suck and be extremely volatile, but the long term is still strong. I still think the stock should be trading in the 40s with its growth prospects and competitive advantage. With a margin of safety of about 70%, this is a no brainer if you can handle the pain.

This decision would be easier if LDK was up a little more, but unfortunately it is trading like a penny stock having a 30% drop on good news. If the stock was in the 40s like a week ago, I would jump into NVDA in a heartbeat. NVDA has definately less risks at these levels, but LDK has greater rewards when it is trading at 30, which is clouding my judgement on the situation.

LDK has more catalysts in the short term, making this decision even harder. I might have to sleep on it before deciding how to act. Ideally, I would like to trade 1 LDK share for 3 NVDA as arbitrary as it seems.

Imagine your stock dropping 50%

Are you confident that the long term fundamentals can bring your stock back up?

If you say yes, then you probably found a good value.

I've just came up with this test watching my mental stock pick the stock Spreadtrum Communications(SPRD) fall down. I thought the company was great, but it has many risks in a fast sector with lots of competitors. There is no telling if another company could produce baseband chips at a cheaper price or if cell phone manufacturers will stop buying their products. I am not 100% confident in the company, which could be a troubling sign.

Compared to NVIDIA(NVDA), I am completely confident in the long term prospects of the company even if the share price drops to $5. It has significant market power and a single weaker competitor, so I know NVDA will be strong for the long term. The barriers to entry are so great and the costs to switching to another archetecture is too expensive, so I am sure NVIDIA will be strong for the long term. I even recommended this stock to my mom I liked it so lunch, which I wouldn't dare do it with SPRD.

When buying stocks, we often focus on chasing the big gains, and forget about protecting against losses. If you aren't comfortable with the stock going down 50%, you are buying it for the price and not for the value. It might work for a momentum play, but you aren't value investing.

The Dow is the worst index ever

All those freaking out about the Dow going under 11000 are fools.

The Dow is a price weighted index making its weightings arbitrary. Stocks with the highest prices have the most influence on the stock regardless of capital size. A stock trading at $100 has 10x the influence than a stock trading at $10, even if the $100 stock has 1/10 the market cap. If BRK.A was included in the index, it would destroy the system. It just doesn't make sense to use it.

The stocks are arbitrarily chosen too, with just 30 selected by a committee. While they are generally a fair representation of the economy, you are just looking at a small sliver of the actual companies trading in the markets. You are looking at a small number of companies whose weightings defy the laws of logic.

The S&P 500 is the best widely known index on the US markets, but most people focus on the Dow and then the Nasdaq (which is good except for it accounts for half the markets). In a rational world, CNBC and all the financial pundits would focus their time on the S&P 500.

The only reason the Dow is popular is because everyone else is using it. It is like every other conventional wisdom on the Street, which people just follow because others are doing it. If you think following the herd (all those fools who actually care about the Dow) then buy yourself an index fund. You aren't gonna make excess returns in the market.

The worst is when I see technical analysis done on the Dow, which is like using a pseudoscience to analyze a pseudoscience IMHO. Instead look at market capital weighted indexes like the S&P, Nasdaq, and NYSE, whose movements focus reflects changes of the capital in the markets, instead of random prices. Maybe you can find some more meaningful patterns in there.

Now is the time to start buying for the long term

I don't know if it was the markets or the Jager shots lost night giving me the sick feeling in the stomach, but today was definitely ugly for stocks. The mood on the street has been just depressing, with GM reaching its 55 year low and oil with a record high.

The good news is that there are lots a values on the street, and the intelligent investor can have some great opportunities out there for value plays. When everyone is panicking, stock prices of even solid companies go down to ridiculously low levels.

The way I am staying sane is to focus on value, and not what is going on in the indexes. You might get punished some in the short term, but if you find undervalued stocks with a good margin of safety, you will be rewarded in the long term. Don't worry about the short term price swings, just the long term fundamentals because the markets will eventually reward you.

Keeping a long term perspective is crucial. If a stock is trading 50% below its intrinsic value, it might take years before the market accurately prices it. Even if it takes four years, you will have 19% annualized returns, which most folks dream about it. Chances are the prices will reach its true value sooner giving you much greater returns, so there isn't much to lose. If you always keep that in mind, you will can keep yourself sane during these troubling times.

This is how the greats like Warren Buffet and Peter Lynch do it, so I would follow their advice instead of all the fools who want to get out to avoid the pain. The time to buy is when everyone is panicking.

Of course you have to have an excellent sense of the fundamentals and business risks involved or else this strategy is meaningless. But if you can recognize true value, these are the times you will make your big gains. Bear markets are a blessing.

Dick's is a strong buy

After doing some research, I think this Dick's Sporting Goods (DKS) is a stock fit for Warren Buffet.

It is fairly priced, simple to understand, well managed, with competitive advantage and growth opportunities. A recession would hurt the company's short term profitability, but its long term growth strategy more than makes up for this temporary risks.

I was excited reading the 10-K from Dick's, but when I read the one from its biggest public competitor Big 5 Sporting Goods (BGFV), it made the case for Dick's more compelling. Big 5 doesn't have a strategy for leveraging a competitive advantage for growth. Big 5 is like K-Mart while Dick's is like Wal-Mart. Dick's is definitely going to be the #1 big box sports retailer in the country.

The best part is the potential growth for this company. As it builds its brand, it can just build more stores in more markets, since there are a lot of places where it hasn't penetrated yet.

The CEO Edward Stack is impressive too, building this company up from a family business he took over form his father in 1984. Owning 10% of the shares, he is passionate about growing this company and has an impressive track record.

Too bad I don't have the cash to get into it now, but I am starting to build a position this summer. These fears in the economy will hopefully suppress the stock long enough for me to get into it at a cheap price.

Look for value this summer

While everyone is looking how to play defense in the bear market, I am going to concentrate on setting myself up for the next bull market.

Consumer discretionary goods are getting to get their ass kicked this summer fueled by high gas and food prices. This means any normal fund manager would want to avoid these stocks like the plague, but it will provide some nice opportunities if you know where to look.

I want to look for companies with long term staying power, good economics, and solid management. These companies should be able to survive the perfect economic storm, and will eventually be the big winners for the future.

One I am looking at right now is Dick's Sporting Goods (DKS). I am probably not going to buy it anytime soon, but it has potential for a long term play. I am going to start digging into its 10-Ks and see if it is a good opportunity for the future.

Why it is important to learn psychology

When I tell people that it is important to learn psychology to invest in the stock market, they assume it is to be able to analyze the market's psychology. They get it all wrong.

You need to learn psychology to protect yourself from yourself.

Recognizing your own actions can be just as irrational and emotional as everyone else is the essential thing you need to know. Only then can you use psychology to correct your own cognitive deficiencies, so you can hopefully make slightly better decisions than the rest of the crowd. This is what makes you a stronger investor.

Only after learning how to correct your own irrational behavior, you can start to entertain the idea of playing market psychology. Don't get too cocky though, because more than likely the market will be playing with your psychology.

New risk for LDK Solar

LDK's founder and CEO Xiaofeng Peng is creating an independent thin film solar company Best Solar, which will spend $2.5 billion in capital. My main concern is that Peng will divert his attention from running LDK to Best Solar.

The one thing that I can count on is that Peng holds over 70% of the shares for LDK solar, which is worth over $3 billion dollars. With so much wealth invested in the company, his interest are inline with my interest.

However, If Peng starts selling his shares, I will start selling mine. If LDK is really as undervalued as I believe, it would be troubling for him to sell his shares at this price. He should know more than anyone whether his company is undervaled or not.

Luckily, Peng has not done this so I am still fully commited to LDK.

Chinese solar and the Olympics

China is facing a lot of criticism for pollution and its environmental policy and you can bet that this former communists government will do what it does best to fix it: propaganda.

The easiest way for a country to appear green is to use alternative energies. If we really want to stop global warming, we would have to make sacrifice, but good luck forcing your people not to drive their cars anymore. Instead you can mandate that you use 10% alternative energy (that's being generous) and get away with using the other 90% of it on fossil fuels.

Solar gives you the perfect appearance of actually doing something for the environment, without actually doing anything meaningful. It is perfect for a country who needs to develop rapidly which requires fossil fuels, while still satisfying the international community.

China will promote its alternative energies all throughout the Olympic games this summer. It will probably display solar panels at its opening ceremony and give every opportunity to show off its status of being the #1 solar producer.

For stocks, this could mean that Chinese solar will be hyped up this summer as all these new buyers start coming in after seeing it on TV.

I wouldn't touch financial stocks

The industry had a nice run up until the summer of 2007, but their profits came from taking on excess risks without even realizing it.

Their profits came from the housing bubble, excessive leverage, and complex derivatives which I don't even understand. The industry is too messy to analyze, especially when you don't even know where their profits are coming from exactly or the value of their assets. If I was a banker, I might be able to analyze them better, but I really don't know what the hell goes behind the scenes at some of these financial institutions.

Many of the institutions look like they have value compared to last summer, but I don't think they can match their profits from the past. They will be forced to take less risks either by pressures from the free market or government regulation. I don't see them getting back to their glory days anytime soon.

If I had to invest in a financial company, I would look for a savings and loan that still has integrity behind its name. One that didn't take excess risks but was sold off due to this financial crisis anyways. Since I feel like this industry is run by greedy pigs, I place value on honesty, integrity, and transparency.

LDK is the lamest name in solar

LDK Solar is just a plain terrible name for a solar company. You can't pronounce LDK if you try, and L D and K are just boring letters. You can at least put an X, Q, or V in there to make it interesting.

Other Chinese solar companies have cool exciting names like China Sunergy, Solarfun, Sun-Tech Power, and Canadian Solar, which isn't even based in Canada (how cool is that). These names provoke X-citing images of cutting edge companies in a hot growing sector that well revolutionize the world. LDK just sounds boring and unimaginative. Who cares?

Luckily I picked up my all time favorite book the other day, One Up On Wall Street by the great Peter Lynch. He stressed that he loves companies with boring names, because the street tends to ignore them for a long time, giving you a better opportunity to get in. If you are able to get in before everyone else, you will enjoy the biggest gains as the stock's earnings growth eventually gets recognized by the market.

He wished Xerox was called David's Dry Copies, so the street would be more skeptical of it when it first went public.

So I found another reason to like LDK Solar: It is the lamest name in solar

Mr Market reminds my ego that volatility has a downside, again

I felt euphoric with my returns in May, but June brought back the pain and suffering as the market gave back half my gains.

One thing that I learned is that you have to accept volatility as a fact of life. Learn to expect it, so it doesn't become a shock when it does occur.

I have trained myself to deal with this most of the time, but when I have a huge gain, my ego starts taking over. I start seeking the adrenaline rush of making the big gains, and forget about the patience it took you to get there. Mr Market usually puts me back in my place pretty quickly, and you are reminded that your stocks can go back down.

I remind myself that volatility is only a factor if you are buying and selling in the short term. If you aren't planning on selling in a year, you shouldn't let the mistakes of other affect your decisions, yet the temptation to do so is huge.

The worst thing you can do when you are value investing is to thinking you can play with the volatility in the markets. The woulda, coulda, shoulda's start kicking in your brain, and its hard to resists the urge to trade. The market is teasing you with all these plays that seemed so obvious in hindsight that you could have done.

From my experience, this doesn't work out in practice. One thing a trader has to do is learn to forgo a trade if the price action isn't right. When you have a stock that is undervalued by 50%, you don't have the ability to say, "I won't buy this because it moved too high technically." Instead you are thinking "I have to get in now, or else I will miss the 'Big One'." Lacking the discipline of a good trader, you will buy and sell at the exact worst times, losing more money.

Besides the emotion side of it, there are also the extra taxes you have to pay when trading which can eat out any of the small trading gains you could theoretically make. A trade had to make you an excess of 15% extra for it to be even worth doing if you have a long term outlook on a stock.

The easiest way to deal with volatility is to not look at the markets all the time. This doesn't always seem like an option for me just because I am thinking about investing all the time. Still, if I do something outside or hang out with friends, my mind is a lot more clear when it comes to my performance. It helps you keep things in perspective by taking a longer term approach to the markets.

I also find that exeperience does help you develop a tough stomach for volatility. If you experienced it in the past, but made it out big in the end, it is easier to whether these rough storms. It is easier, but I wouldn't call it easy at all. Being patient is one of the hardest things in investing, especially if you follow the markets consistently.

Expectations are really high for the 3G iPhone

3G and more business support is nice, but that is already expected. Apple needs to give its customers something new that will make them say "wow" again, like when it unveiled the iPhone last year.

The first iPhone was revolutionary when it came out, doing stuff no other cell phone was capable of doing. When I went to parties, people would be showing it off because it was so cool. The next iPhone needs to have the features that will impress people like this again. It has to be so good, that someone who bought an iPhone yesterday, they would want to buy the new one.

To be honest, I don't think there is going to be a giant leap with the 3G iPhone. Many of the Ipod upgrades were really just adding a few feature and making it slightly lighter. They usually aren't big enough to make someone who already owns an iPod to upgrade to another.

The next iPhone needs to blow people out of the water, or else the stock price will fall. Steve Jobs needs to pull a miracle here. If anyone could do it, it would be him, but I wouldn't put my money on it. How much cooler can you really make the iPhone be.

Seriously, WTF oil

Now that oil is up $11 today, it just gets crazier and crazier.

I guess there is the assumption that Asia won't be affected at all by these oil prices. Their economies don't run by magic, and will suffer from these oil prices too.

But who knows? I don't think there point for rationalizing this market, because they seem to defy the laws of reason and sanity.

WTF oil

I really don't believe this mess that the oil price followed supply and demand when it goes up $12 in two days.

The fact that consumers and businesses are starting to cut back their consumption shows that this argument has little weight. I really don't know what the rest of the world is dealing with these prices, but I doubt they can keep up with these high prices. Something has to give.

The problem is that people believe that oil will climb, hearing high price quotes like $150 or even $200 a barrel coming this summer. If People believe oil will go higher, oil will go higher. The fact that oil has become an investment vehicle for people who don't usually trade commodities is troubling.

I don't think these high prices are sustainable, and eventually demand will shock the system. The problem is that there might be a lag here before it gets to all the traders.

I guess one of the reasons why people think oil will go higher, is the belief in markets. In economics, we are taught that markets are efficient allocators of goods are resources. I think markets can be far from efficient, hence why I invest. There will eventually be a correction when the markets fall way out of balance, but right now we all have to pay for irrational exuberance at the gas pump.

My paper trade was going well, but got stopped out of this morning, but what can you do? The only thing that took a hit was my ego.

Perfect time to get into GM?

GM is trading at its 26 year low while being hit is being hit by the perfect storm of a possible recession and high gas prices, making it the perfect time to get in.

GM brought in $205 billion in revenue last year, but the whole company is worth less than $10 billion. Given that GM is making an effort to turn itself around, it will offer huge rewards if it succeeds. An only 1% profit margin would equate to a PE of 5 to put it in perspective. 5% profit margins would make a PE of 1.

The CEO, Rick Wagoner, is setting the company up for a turnaround, attacking its core problems of labor costs, but more importantly, producing quality cars that people want to buy. It might take years before GM solves these problems, but the rewards should be worth the wait.

While there is no guarantee of this, the current price is so low that the only risks you have to worry about is bankruptcy. It is a possibility, but I don't think the chances are great for a company that size. You can manage the risks by position sizing while adding more when the company's prospects start looking better.

Hell, if GM does face bankruptcy, they can probably just fire it unionized labor and they are on their road to profits. It will suck for all those workers, but there isn't much GM can do if they aren't bringing in the money. Hopefully both the UAW and GM can come up with some fair compromises, so that workers can get good compensation while still being competitive with the rest of the world.

I am not getting into GM before 2009 because I like my current holdings better, but I think now is the time to think about building a position.

Why I don't diversify

The reason is simple: I can't find any better opportunities to put my money in.

Sure there are many good stocks I could invest in that will beat the market, but I only care about the best. Why put my money in lower returning assets? It ain't rational

One thing I really don't care about is how my portfolio looks like. I know my portfolio looks like it was created by some kid who just graduated college who doesn't know what the hell he is doing. I tell people that I have my money into two stocks with one of them being a Chinese solar (double the risky words), and they think I am crazy. Luckily investing isn't a beauty contests, it is about making money.

The one investment strategy that I have is to make as much money as I possibly can. I follow a long term fundamental approach, but that is only because I believe it will bring me the best returns. As my knowledge expands and markets change, I might try other strategies but I am pretty content with what I am doing now. However, if I find diversification will bring me greater returns, then I will do that.

Now I don't recommend this non-diversification to anyone because it is just damn risky if you don't know what you are doing. Unless your name is Warren Buffet, I don't trust anyone playing such a concentrated strategy, so don't do it. To be honest, I wouldn't even trust myself if I was someone else.

It may look like to any sane person that I am taking too much risks, but I don't see it that way. To me adding assets that will bring lower return for the risks is riskier in my portfolio so I don't do it.

But I can rationalize this concentration strategy all I want. I'll leave it to the market to prove me right or wrong. In the end, its about making money.

"Price is what you pay. Value is what you get."

In this quote, Warren Buffet eloquently states exactly what it means to be a value investor.

When you buy a stock, you are buying ownership of a business with real assets, both tangible and intangible. These don't change just because the market is moody, or the Fed deciding not cut rates by an additional 25 basis points. As long as the fundamentals of your business are strong, the daily price changes in the markets do not alter the value of what you own.

Which makes this so hard to do is that the pace of business remains much slower than the pace of the stock market. You get new information about a stock price every minute, but accurate information of a business's performance comes every quarter. This huge discrepancy causes most investors to overvalue the wrong things in the market. The good news is that it will provide you opportunities to profit if you know where to look.

If you want to sell your house, and someone low balls an offer, you will reject it because it isn't worth the value of your assets. You would wait until the right fair offer comes along so you get the fair price. If the neighborhood starts to deteriorate, your house would be lower in value even if someone offers a higher price, so you should sell. Stock picking should be no different.

The truth is that most stock movements don't reflect the changes in the discounted future cash flows a business bring in, but for a number of irrelevant reasons like sentiment. Occasionally price drops could signal deteriorating fundamentals which have to be watched out for, but more often than not, it is just noise.

Thinking about your stocks as ownership of business is essential for getting through volatile changes. Remember that price movements mostly are the results of irrational behavior, and you should be valuating a business by the quality of its fundamentals. It might be painful to see the price decline in the short run, but if your analysis is correct, the market will reward you given enough time.

The first rule of investing

“The first rule of investing is don't lose money; the second rule is don't forget Rule No. 1.” - Warren Buffet

When I first read this quote, I thought that Warren Buffet was crazy. Conventional wisdom tells says that the only way to get big returns like is to take big risks. I am determined to make the biggest gains possible, and Buffet is encouraging me to take the boring conservative route. Nope, I am in it to make it big

However this recent bear market woke me up and I now understand the full value of Buffet's words.

The first thing an investor must master is the art of not losing money. Most investors have this concept backwards, and only focus on the possible gains you can make Learning not to lose money sounds boring, and we want to make the big bucks when investing, but this is THE fundamental skill that you must have.

Now here is the secret: Once you are able to accurately look for opportunities that won't lose you money, you can find that stocks where the risk/reward ratio that are mispriced by the market. There are opportunities out there where you can get reap big rewards, while taking little risks if you follow Buffet's #1 rule. This is how he and many other great investors made their billions.

Conventional wisdom is just dangerous in this case. Its belief that stocks are accurately priced justifies the need to take excess risks to make excess returns. In reality taking large risks, will more than likely lose you money in the end. Just remember that if you make a 50% loss, you have to make a 100% gain to make it up, and you will see why.

While the main focus of my blog is on value investing, I believe this rule is important to all forms of trading. I bet if you stop worrying about chasing gains, and focus more on not losing money, you will be a more successful investor/trader.

So who has the cajones to short oil?

Watching CNBC and Bloomberg TV, most traders and money managers think that oil prices are fueled by speculation and not fundamentals, but they are all afraid to short it.

I am watching the CNBC oil crisis special right now, and it is just ridiculous. When the feeling that oil will remain high forever, and that we have to learn to adjust to it sets off red flags, when everyone says that it isn't reflected into fundamentals.

Bubbles are Ponzi schemes and are unsustainable in the long run, so its inevitable that it will come down. The crazy thing is that no one is expecting it to come down because they expect it to rise up more in the short run. They are afraid to fight the trend, and they are probably justified in that to some extent.

The problem is that everyone is expecting it to go up. When everyone expects something will go up and inevitable, its probably means the end is near, but who knows? I am not an expert on this, and this could create a self fulfilling prophecy.

Whatever, talk is cheap so. The problem is that TD Ameritrade won't let me open a margin account (That's what you get for being unemployed with an ugly looking portfolio), so I can't short and I don't know how to get into commodities without ETFs (which are the reason we are in this mess). So I have to resort to shorting with my valuable reputation.

I am calling the oil top right about NOW: meaningless non-ballsy paper shorting oil at 130.69 with a completely useless stop at 134.

It's OFFICIAL: Oil is in a bubble

When airlines are forced to cut routes and oil rises $4 to a record high, the fundamentals aren't following reality.

These oil prices are just becoming insane and the only thing you hear about is oil going higher, I am calling bubble.

UPDATE @ 5:15pm: Oil is at 134 now, so WTF

The market panicked over nothing

So I went to walk my dog today, came back and found that the Nasdaq fell 37 points. I wanted to find out immediately why, so I checked Bloomberg.

Are you serious? People are selling because the Fed says it won't lower rates anymore. Isn't 2% low enough?

What I don't understand is what people are think that a lower rate is going to accomplish for the stocks they are investing in. Your company couldn't get a loan out at 2%, but it could when rates are 1.75% are 1.5%? I understand that Fed target rates have an effect on the economy, but when they are getting this low, I don't see how they are going to make a difference.

Not to mention the biggest problem with our economy right now, inflation. Consumer's are cutting back spending because $4 a gallon gas and high food prices. A weak dollar isn't going to help that at all.

I'm am sticking to my theory that Wall Street is full of a bunch of idiots, who believe that Fed cuts are the magical panacea to the market's problems. They only sold because conventional wisdom tells them that no Fed cuts are bad for the market, that's it.

Efficient use of the Efficient Market Hypothesis

If I believed in the Efficient Market Hypothesis, I wouldn't be trying to beat the market, yet I still use the EMH all the time in the markets.

Using the EMH is a great way to filter out information. When I don't understand how something works in the market, I just assume its efficient. Efficient markets are average returns so you might as well just buy the S&P 500 index instead. What I want to focus all my energy on is the inefficiencies, where I can make excess returns.

One sector of stocks I use the EMH is the financials. CNBC talks about this sector daily and there is probably some value in there somewhere with the crazy volatility. I just don't know where to find it or what actually goes behind the scenes at the organizations. They are too complex for me to understand especially with all the complex derivatives involved, so I just assume they are efficient.

While everyone was playing the game whether their financial stock was a value or a value trap, I just used the EMH and looked for easier plays. CNBC's constant coverage makes it seem like you have to play this sector, but it was really just a fools game as far as I know.

I would like to modify the EMH, to change it from there is no way to beat the market, to there is no EASY way to beat the market. If you want excess returns, you have to devote time and energy. If you aren't willing to put the effort, then you should follow the EMH, and buy a diversified portfolio of stocks and bonds.

Although I believe that the markets are inefficient more times than not, the EMH has practical uses for investors. You have to be gifted just to find a few inefficiencies, but it is impossible for a mortal to find them all.

Why I don't use stops

Stop losses are essential for managing risk if you are a momentum or technical trader, but they do the complete opposite for value investing.

Fist, the concept of stops goes directly against what value investing. Keeping the fundamentals constant, a lower price means less risks in the market. Your stock is even further below the intrinsic value, so if anything you should be buying more.

Using stops will more than likely guarantee losses than limit them. The problem is that stocks are just volatile, and more than likely, your stop will be triggered at one point, usually at exactly the wrong time. You can try to get around this by setting a stop even lower level, but you just risks selling your stock at a lower price when there is even less risks.

Now, if the stock drops because of a change in long term fundamentals, then you should get out. If you realized that you are now holding a broken company, you are no longer investing based on value, but on hope.

The hardest part about value investing is discerning whether a drop of price is justified by the fundamentals or irrational market fear. The problem is that we are human, and these price declines affect our emotions and our judgment of the situation. When the market is giving you the sick feeling in your stomach, the only immediate remedy to stop the pain is to sell, which usually at the worst time possible.

One method that I like the best to fight this urge is to write down your justifications for your stock in advance. Stepping away from the stock price, and rereading why you bought the stock in the first place will help you find your bearings again. If your story for buying the stock remains the same, you can justify holding onto it. Putting down the risks and fundamental events that will justify you to sell your holdings will keep you more objective, so that you will know if it is alright to sell.

This is still easier said than done. As much as people try to fight it, we will always be affected by the herd psychology. However, preparing in advance for these situations in advance will still make it much easier to handle these tough times.

One last thing I wan to stress is that value investing is completely different than other types of trading. In value investing, you don't play the psychology of the market, so there is no need to protect yourself from it with stops. You have to have a different set of tools if you want to successfully make excess returns in the market.

Short squeeze?

I am basing my LDK trade off long term fundamentals, but I realize that 99% of the price action is technical with little barring on the company so here are my thoughts on the situation.

I don't trade on technical information, so I don't have any proof of my ability to read the tape. As far as I know, I could be talking out my ass. Anyways, here is my analysis of the based of my intuition or feel for the markets.

One thing that has been a major theme of LDK is that it has high short interest. For the most point, you would have made money in the stock going short in LDK. One pattern I noticed a lot was that LDK would show some sign of strength in the morning, while doing a slow decline on low value throughout the day. After each sign of strength on news, LDK eventually gave it all away in the following days.

Being long through this period was just painful. There were days that I knew that my holding in LDK were going down, either from heavy shorting or panic selling. I saw it happen over and over, using it to my advantage to average down, buying more shares at the lower price because I stubbornly knew LDK was way undervalued. Still this pattern went on for months and months, and it looked like it would have never turned around. I assumed that either I was insane, or the market was.

About two weeks ago, I noticed that the technical situation has been doing the opposite. Instead of a slow sell off throughout the day on low volume as expected, there were huge spikes up in price and volatility. I assuming that these were short squeezes, because they always occurred at a breakout, and LDK just has ridiculously high short interest.

Even after the recent sell off after earnings (which were great IMHO), the price quickly found support and started to rise again. Before these sell offs would have just created a massive panic, and the price would plummet 10% or more for the day with an additional 20% the following week. Something is different about the this stock, like there is actually real strength supporting it.

For the first time, I am not only confident in the fundamentals, but also the technical strength of the stock. Shorting this stock is not profitable anymore, and I think traders will eventually get the idea or risks getting stuck in a massive short squeeze. It is only a matter time before this baby takes off.

The quest for a wind play

I got excited when Jim Cramer found a pure wind play Broadwind Energy (BWEN.OB), but then I started to look at the fundamentals.

With the recent Cramer bump, this company has a market cap of $1.3 billion with revenues of only $30 million in 2007. While this is a fast growing industry and revenue can increase, there isn't any room for a margin a safety and this stock is a huge gamble.

To find more about the company, I started reading its 10k forms and see what the company is about. One thing that I noticed is that the management hasn't been using US GAAP for its financial records, and has hard time organizing its financial statements with all of its recent acquisitions.

I will give the management the benefit of the doubt here because this is a young growing company, and they didn't really have the need to use GAAP in its records. The management is aware of this problem and will probably eventually get it straight. Regardless, it shows that the management doesn't have a firm grasps on all aspects if the company, and there is a lack of transparency.

Fellow Covestor member yaktipper mentioned the wind company A-Power Energy Generation Systems, Ltd. (APWR), which happened to be the only company that doesn't have a website. I tried looking at the SEC filings to find more about it, but I still don't know exactly what this company does. It is also based in China, and I am looking for a US wind play on the basis that the US has lots of capacity for wind energy. I don't know how economical it is to transport wind towers overseas vs building them here.

So I am still looking for a solid pure wind play. BWEN and APWR have potential, but there is too much risks for the price for my taste. There aren't any companies that have strong fundamentals at a reasonable price other than big conglomerates.

Even though I think wind is the best source of alternative energy, I won't invest in it if I don't see the right opportunity. It's unfortunate, but hopefully I will find a good play if I am patient.

Analysts are idiots

The problem with analysts is that they are just too anal. They focus too much on the numbers and ratios, and forget about the big picture.

Listening to the NVIDIA conference call is ridiculous. The thing that concerned them the most was missing it's gross margins by 110 basis points, bringing it down to 44.9%. So what?

What I care about is how NVIDIA will continue its competitive edge in the industry. I can sacrifice a few pennies per share here and there on things called R&D if it will increase its market power and future earnings.

I loved NVIDIA's CEO, Jen Hsun, comment saying that he would hire 100% more people tomorrow if he could find the talent. He understands what driving his company's success, while the analysts are worried about counting the beans.

NVIDIA is the great company it is today, because it can produce better GPUs than all its competition. It is the undisputed leader, and needs to focus every effort it has in maintaining its position. It has done this by having the most experienced engineers in graphical computing, not by cutting costs.

If you don't have the technology leadership in this business, financial ratios don't matter. Cutting costs are vital, but you shouldn't sacrifice your long term competitive edge for a short term gain.

I don't care too much about Q2 performance like all the short sighted analysts. What is more important is NVIDIA's numbers in 2009, 2010 and beyond. In a rational world, stocks are worth the value of discounted cash flows, not whether they miss a single quarter by a penny.

The only good thing about analysts is that they help make the markets inefficient giving you opportunities for profit. You can't make money if everyone agrees with you.

I was hoping that NVIDIA would rise on higher expectations, but I guess I have to wait for the company to deliver proof in the future.

Patience... Goddammit

I hope your stocks to go down

I hate it when the markets are up because the only thing I see is missed opportunities. The only stocks that I care about going up are the ones I own.

As a value investor, I want every stock to get as cheap as possible until I buy it. The lower a stock price is, the less risks and greater margin of safety there is in buying it. The higher stock prices go, the more risks there is in the market.

Now, I want the fundamentals to remain strong, because if they go down with the price, you aren't gaining any opportunities from it. The great thing about bear markets is that most investors can't distinguish between the actual business and the stock price. They assume bad prices means a bad company, which presents some nice deals.

The problem with bull markets is that investors can't distinguish between stock prices and the performance of the business itself. This means stocks end up going up for the wrong reasons trading at absurd valuations. Good for the momentum player, but bad for the value investor.

Now I rarely get my way because most stocks end up correlating with the markets, but when my stocks go up I want everything else to crash.

The Microsoft and Yahoo deal is still on

Microsoft offered $33, while Yahoo wouldn't accept anything less than $37. Microsoft backs down and analysts are acting like this deal is over and are now speculating what these companies will do next. However, I think these analysts are completely missing the point.

I bet Steve Ballmer is saying, "if you really think your company is worth $37 a share, prove it." Yahoo's shares will fall, shareholders will feel the pain, and will eventually give in to Microsoft's demands. They are placing the ball in Yahoo's court for now.

Microsoft's offer is already high at $47 billion, and I don't think they can justify anything more to their shareholders. Yahoo wants an additional $6 million, which is still a big deal even for Microsoft's standards. The good thing is that Yahoo is actually naming a price which is in the same ballpark what Microsoft is offering. This signals that they are open to negotiation.

Microsoft could probably do a hostile takeover, but it could make synergies between the two companies harder afterwards, negating many of the benefits from the deal. A smarter strategy would be to walk away for now, and see if it gives you leverage in the deal.

I have two theories why Yahoo's CEO Jerry Yang is not accepting Microsoft's bid. Either he doesn't want to sell the company he spent his life running over to the dark side, he is just trying to milk Microsoft out a few extra Billion, or a combination of the two. Either way, he will be forced to give in to the pressures of Microsoft and his shareholders.

If Yahoo starts trading in the low twenties because of this news, it could provide a good arbitrage opportunity to take advantage. There is a high probably chance that Yahoo and Microsoft will eventually come to a deal.

I don't know if I will take advantage of it personally, just because I have no free cash and my investments are in other great opportunities for large gains. Although I might not be putting my money where my mouth is, I would if I could, if that means anything.

Looking for some wind plays

I honestly think that wind energy is a better alternative energy source than solar, although my investments seeks otherwise.

Wind is more scalable and cheaper, with the main objections being NIMBY (not in my back yard). I really think people will get over the aesthetic looks because they really aren't ugly when it comes down to it. They are much more attractive than other man made creations like power lines which we all seemed to get used to. It is just a matter of time before opinion changes on this.

The problem is that I have a hard time finding good wind plays in the market. All the wind turbine producers either trade abroad are apart of large conglomerates like GE and Siemens. Nothing against GE, but I don't won't to worry about the risks of a writers strike when I am doing a wind play.

Most other wind stocks I fine aren't profitable and usually trading on the OTCBB or Pink Sheets. As a rule of thumb, I only invest in companies on the NASDAQ and NYSE, because I assume that there is a reason that these companies aren't listed there.

I only invest in companies that can bring in profits, or at least considerable revenue which they can reasonably turn into profits. There is so much crap in the alternative energy sector that you have to have proof they can deliver returns before jumping in.

Jim Cramer recently highlighted some companies that could have potential. Trinity (TRN) and Otter Tail Corporation (OTTR) look like they have potential. Both companies are small caps and are diversified in other areas, which offers some protection against downside risk, but can still have significant exposure in the industry. I always take Cramer's recommendations with a grain of salt, but I am going to start researching those companies and see if there are any opportunities.

I am holding to my LDK solar stock because it is way undervalued and solar is still a good play. If LDK solar price goes up however, I will take some gains and try to find other opportunities with that money.

My interpetation of the Fed rate cut on the market

The Fed did exactly what was expected and no one on the street knew what to make from it.

To gain some insight on the news, the market looked at the market reaction. When they saw the market starting to trend down, they assumed the news was bad so sold into it adding to the problem. When it came down to it, the traders were just behaving like sheep.

If they knew what the rate cut meant, the market would have instantly spiked down instead of the slow sell off we had today.

Fed rate cuts are a joke

Every time the Fed meets, Wall Street is giddy with anticipation on what the Fed will do next.

Traders make a game out of this process taking bets on what the rate is going to be. The markets spikes in a direction after the announcement and everyone take their gains or over their losses.

Don't over analyze this, it is just a game. Traders are solely basing their decisions off the expectations of other traders which are based off the expectations of other traders. This whole process has nothing to do with real valuations of the companies that they are buying into. This whole process just turns out to be a joke.

After the market absorb the news from the Fed, its effect on stock prices will become insignificant as Wall Street starts to play next weeks game, like guess the earnings of large cap ABC.

Serious long term investors shouldn't be suckered into this game. If the long term outlook of the company you invested in depends on the Fed funds rate, then you are taking on too much risk. Good companies are to be able to weather unforeseeable changes in the economy like changes in the Fed funds rate.

A company might have to pay a higher interest rate a loan hurting earnings by a penny, but everyone is in the same boat. Good companies will be able to stand up these minor fluctuations in the economy and continue to be successful in the long run. There is no reason to change your decision about your investment unless it was a bad company to begin with.

Ignore the volatility on the street and focus on long term fundamentals. Leave the games to the traders and fools.

Microsoft will buy Yahoo

There is only so much pain YHOO share holders can take as they see its price slowly bleed away from that magical $31 dollars

From the news headlines, it looks like Yahoo knows what it has been doing by placing incredible earnings, but looking at the income statement shows something different. Comparing operating income, Yahoo fell down from 169 million to 121 million yoy.

The reason Yahoo has incredible earnings was because of something called 'Equity In Affiliates' which accounted for 455 million last quarter. I am not an accountant so I don't know what Equity In Affiliates means for sure, maybe it's ownership in other companies.

One thing that I do know is that it is not operating income. Yahoo's core business is actually bringing in less income and they are boosting their earnings with some other accounting jargon.

A merger with Microsoft will be the best thing for Yahoo shareholders as well for Microsoft. Google is the growing tech giant right now and both companies need to get their game together if they expect to compete with a much stronger company.

Yahoo and Microsoft can provide real synergy with each other's services so they can combat the 2000 lb gorilla of the Internet. Google will still probably be number one in search, but Microsoft and Yahoo could create an effective alternative that people will want to actually use for once.

I don't see any other ways Yahoo could bring more value for its shareholders than with this merger. If Yahoo had real leadership, they could find ways to exploit their own strengths over Google so it can offer a strong alternative. Instead, they are following Google which is just stupid, because they won't be providing a service that is any better.

If Yahoo's CEO doesn't like the offer from Microsoft, their shareholder will as the stock whithers away. It's only a matter of time.

Microsoft vs Apple

Five years from now, we can confidently bet the Microsoft will stay a leader but you can't say the same about Apple.

The problem with Apple is that it lacks a robust competitive edge for the long run. Apple's competitive edge currently stems from creative innovative design and effective marketing. The main weakness of Apple is that its products have substitutes. There are plenty of alternatives to iPods, iPhones and iMacs out there from companies equally ambitious.

While Apple has effectively stayed one step ahead of the competition in consumer electronics, it as a risky strategy for the long term. A couple of slip ups from Apple's design department can allow the competition to provide superior products for a year or two, and Apple will lose their magic. While this isn't inevitable, it is plausible scenario that the company can face making the stock a risky investment at high valuations.

Microsoft on the other hand has little risks of going anywhere because they are a monopoly with a product that has no substitutes. If Microsoft dropped off the face of the earth one day, the world economy will collapse because business and home computers are dependent on Windows.

In the software industry, with all the compatibility issues, monopolies provide impermeable network effects. If you want to develop software, you have to make it for Windows to be successful, while making it run on a Mac or Linux is a secondary concern. This makes Windows a more attractive OS over the competition ensuring that it will be a leader. It will be near impossible to break this competitive advantage even if you have all the money in the world.

Microsoft is also much more effective on running a business. Their focus group tested strategies aren't sexy, but they bring in the money at the end of the day, which is the most important factor in choosing a stock.

Commodities Bubble?

There are many fundamental reason for the high commodity prices like biofuel subsidies, growing demand in Asia, supply restraints for oil, and a weak dollar.

The major problem I have with the fundamental story is that we are experiencing a global slowdown, yet these prices are just going through the roof. This just doesn't make sense because the slowdown should decrease demand for commodities. I would expect oil at $80 a barrel in these conditions, but at $116 in a slowing economy, financial speculation has to take part of the blame.

The only safe place to park your money today is commodities. Real estate is declining, treasuries are overvalued, stocks are heading down and inflation is eating away your cash. You listen to CNBC, and that's the only sector that's hot and is where all the smart money is heading. People who never invested in commodities are doing so, which is a sign that a bubble is brewing.

Commodities are different from other assets in the fact that they have immediate intrinsic value. Stocks are just pieces of paper and we can hold off buying a house if prices are too high. You have to but gas in your car and buy food. There is no way to avoid the effects.

This can create some crazy feedback effects. Higher commodity prices hurt business's profit margins lowering the incentives to put your money into stocks, making the commodity bet even better. Higher food and gas prices causes inflation which increases the value of the commodity. This feedback loop could make things worst before there can get better when this unsustainable feedback finally loses its momentum.

I hope this pops sooner than later so that are economy can be back in balances, so our investors can chase after the next bubble.

Thoughts on Intel's Larrabee GPU

Intel (INTC) recently announced its plans to get into the discrete graphics business with its announcement of the Larrabee architecture to compete with NVDA and AMD. I don't think that Intel could compete with NVDA and AMD and performance because they lack the experience. NVDA's CEO lampooned Intel recently on this point, which seemed to backfire on the share price.

If Intel wanted to get into the graphics business, they would have done it by now, so I think their are other motivations for their entry of the discrete graphics business.

Using my limited technical knowledge, it looks like that Larrabee is based on the x86 instruction set and is able to do GPU computations.

This sounds familiar with NVDA's CUDA, which allows programmers to easily use the GPU to perform specialized calculations. Using the GPU, these calculations are orders of magnitude faster than a regular CPU. Instead of having a big array of CPU's, you can do the calculations on a GPU.

While the applications are CUDA are limited, it is a threat to Intel's share of the supercomputing business. Intel needed to find a solution to compete, so they proposed the Larrabee chip which used the x86 architecture making it easier to program for compared to CUDA.

Graphic performance is probably a secondary consideration for Intel, since their solution doesn't seem to be the most efficient design. Intel's main goal is to provide a solution that will be competitive with CUDA.

Whether it will be successful or not is another question.

Just accept Microsoft's bid

Yahoo needs Microsoft more than Microsoft needs Yahoo.

Yahoo has value and even many advantages over Google. For example, Google has a better search engine, while Yahoo provides a better news service. The problem is that Yahoo hasn't been able to capitalize this strength and synergy with Microsoft is the best thing that this company can do for its shareholders.

Currently, Yahoo is trading 60x earnings, and I don't see them getting significantly better anytime soon. Microsoft is a solid company trading 16x earnings and can live without the expensive $44 billion investment. I bet Microsoft will call out Yahoo on their bluff.

The only one benefiting form Yahoo's delays right now is Google. Microsoft and Yahoo need to work together if they want to provide competition to the Internet giant.

What is The Irrational Investor

In college, the best investing class I ever took was behavior finance. The most important thing that I learned in this class was that I wasn't rational in making my decisions. This insight was one of the best things that could occur to me about my investing. In this moment of humility, I realized that my perceptions of the market are completely biased, and I need to constantly challenge myself to become an effective investor.

The funny thing is that even when I knew what the rational decision is, my brain compels to act completely different. Investing is a constant battle against yourself to make smart objective decisions. The human mind isn't wired for this type of environment and I need a constant reminder of this fact, so I bring you The Irrational Investor.

I am writing this blog because I am tired of the investment establishment. Everyone is telling you how to beat the markets whether it's CNBC, the latest financial magazine, or some guy selling their latest system to clueless traders. The truth is that most of these folks are no better at predicting the market than a group of monkeys, dressed in fancy suits and hiding behind intelligent sounding names like Long Term Capital Management.

I can't be disingenuous and will be honest in my interpretations of the market. If I don't know about something in the markets, I will say that I don't know than pulling out some crackpot theory. I will probably be full of bull half the time like the others in the market, but I won't be afraid to admit it.

I like having a name like The Irrational Investor because it forces me to prove my self instead of relying on a smart sounding name. It's the type of challenge that I like to take up.