Wednesday, May 27, 2009

Rand Paul, again.

I just found out that if Rand Paul raises a significant amount of money (say, a million bucks?), he will challenge Jim Bunning for his Senate seat. This in contrast to him saying previously that he would only run if Jim Bunning didn't. As I said before, he is a very viable candidate... heck, if he just gets the votes his dad got (at a point when it was more than obvious he wouldn't win) in my state's Presidential Primary, he will be well on his way out of the primary and onto the general election!

Read the fund raising article here.

Read up on the guy, watch his YouTube videos, like him, and then donate...

Seriously, folks, it would be crazy for you to not donate to Rand's campaign! I am sure that a small investment in the guy will pay huge dividends :-)

EDIT 06.01.09:

I am pretty sure that I am on some sort of list now... ;-)

Sunday, May 24, 2009

Rand Paul

I am sure that it comes to you as no surprise (if you have read this blog for very long) that I am a fan of Rand Paul (Ron Paul's son)... I figured that I would take a break from posting value investing stuff to throw out his name to you all and to take the time to say that I am gonna be donating as part of June 1st 'money bomb'.

In a nutshell, Rand is going to run for Jim Bunning's US Senate seat, should Bunning not run for re-election (which, it doesn't look as if he will). Paul, like his father is pretty anti-government and really pro-freedom. If elected, he would certainly be a great voice for liberty and even better to have in office. It seems to me that the 'Campaign for Liberty' will help him fund raise, but still... we need to get him some real press-and NOW!

If you like the following videos (which I got to see in person) and want to donate money to a principled candidate that actually has a chance of winning, give him some money-even if it is just $20 bucks. I am sure that it will pay better dividends than your favorite stock. It may come as a shock to you that if there is a 3 way race in the primary, Paul could feasibly win with only 30,000 votes. In the general election, he will probably be running against our Lt. Governor (who is a total jack ass.)

Thursday, May 14, 2009

The New Illiterates... Part 1

In advance, this isn't really about investing, but more so a lead-in to a coming post or 2 on the historical roles of eroding economic moats and people willingly becoming illiterate.

Living in the day and age we do, we don't appreciate what we have or the rate at which we have advanced (even in my short life). For example; just a few years ago, I remember getting my first cell phone: a candy bar style Nokia that had one of the gray screens (complete with an antenna that you could pull out!). I vividly remember calling my grandmother after a few hours of having said phone, to test it out- she was quite impressed that I had a cell phone. After all, it was a time when they were pretty expensive (maybe it was just eastern KY being 10 years behind the times, but nonetheless...).

Presently, no one that I know of within a decade of my age has a land line. My current phone is the G1; more of a computer than a phone.

I even remember my family getting our first PC, before which, we had a Commador64. At the time, I recall thinking that a gigabyte was such a vast amount of memory, which could never be used... Now, it is pretty common to have Micro SD cards in our phones that are 16 gigs!

My point is that we live in a rapidly advancing world, with our standard of living constantly going up. Two seemingly unrelated items are commonly related through the field of internet search. Recently, a few members of my family were talking about St. Louis and the National Boy Scout Museum being close by in Murray, KY. I typed in the phrase "national scout museum location" on my phone, and found out that the museum had been moved to Texas within 30 seconds.

If I want to find my favorite mewithoutYou song by typing in some of the lyrics, I can type in a few, find the name of the song, and even one of the band's pirated youtube videos. I can do all of this from my cell phone (including watching the youtube video) JUST 5 YEARS AGO, THIS WAS NOT POSSIBLE. 3 years ago, it wasn't accessible to mere mortals, such as you and I. Today, one of my tenants, who is a single mom with 3 kids, who works the dead shift at Wal-Mart, has the same phone that I do; complete with a full data plan (all of which, is a testament to the goodness of capitalism)!

When thinking about these huge advances in both the scope and affordability of technology, I can see 3 things pretty clearly (but I am sure there are many more that I am completely missing):

1) It is no surprise that 'old' people don't get new things (as they are not used to the new, drastic nature of the exponential curve in regard to the change in technology)... even my older brother, who is just under 10 years older than I (even with me having a limited knowledge), has a much harder time figuring out computer issues than I do. This is despite being a hell of an electrical engineer that does controls programing; he's also much smarter than I- by a factor of about 10,000.

2) I can understand why people got stuck up in the tech bubble-after all, communications systems have done more to increase our standard of living than anything else in my short time on this earth. This is a concept that is strikingly similar to the speech that Warren Buffet gave in Sun Valley about car and tech companies roughly a decade ago; importance to society doesn't equate to economic viability... historically, take a look at airlines, airfreight, rails, tulips, etc.etc.etc.

3) Companies die all the time and things have the ability to change faster now than ever before. (Alta Vista v. Yahoo!, Yahoo! v. Google, and now, for better or worse, Apple v. Microsoft v. Google)

Obviously, the conclusion I draw from this is that we need to invest in companies that we understand, with a huge margin of safety. If we feel that we 'get' a tech company, then that is great! Value it and buy accordingly. I would love to buy google for 5x earnings. If not, then it is OK to wait for a grand slam. So much of investing is about not screwing up.

On the note of 'old' people not getting changing technology, I think that they generally do pretty well, after all, if you would have given my grandmother a microwave in 1930, she probably would have thought it to be a 'devil box' or something... if you ease them into it, I guess things work out pretty well.

On that note, I am pretty interested to see how I (and people my age) adapt to the rapid changes that are coming... especially when I am, say, 80 years old and have a walker-or maybe, new mechanical legs. :-)

Sunday, May 3, 2009

Jonesing For a Crazy Few Years...

Jones Soda (JSDA) is probably my favorite example of a John M. Keynes "Sometimes, the markets can stay irrational longer than you can stay solvent" stock... They have some pretty tasty products too. Check out it's chart since 2003:

A few years ago, I was tossing around the idea of shorting the stock-when it was trading at what seemed to be an astronomical 100x+ earnings. 'The price?' you ask? Around $12 bucks a share. Oddly, I remember thinking that if it was around $3 dollars, it might be compelling; or at the very least, at a price in which I would want to cover any potential short.

In various conversations that I had with people over shorting the stock, I got the following reactions (in no particular order):

1) I can't believe that the stock is that expensive.
2) You may think that it is worth $3 bucks a share, but it will never get there. You are a cheap bastard.
3) Shorting is a bad idea because, hypothetically, your losses have no limit.
4) Huh?
And my personal favorite:
5) Jeff, shorting is evil and sleazy... even for you.

For several reasons, I didn't short the stock. Mainly, I was busy deploying capital into other equities and properties-I simply didn't have any cash left laying around for a relatively speculative play. This turned out to be a really good thing; if I would have done any sort of a meaningful short, I wouldn't of had any downside (or upside, depending on how you look at it) protection in the event of a margin call stemming from an up tick in price.

In the months following my thesis the stock rose... it rose, rose, and rose some more-getting above $28 bucks a share. So, there I was, thinking "WHAT!?!?!?" and "Wow, I am glad I didn't go short." Further more, I was shocked that the little company could be bid up to such absurd levels of price-did the people buying the stock have brains? Were they too stupid to look at the financials and filings of the company? Did they even care? Needless to say, at this point, I was more confident in the idea of shorting than ever, but in a moment of weakness, I still couldn't bring myself to do it... After all, I had pretty passionately spoken against the stock and was looking really bad to the handful of people I had discussed the idea with ('Way to go against the crowd', I know).

Then came the precipitous fall, complete with a boat load of insider selling... the price of a single share recently went down to less than 1/2 what a bottle of their soda will fetch in Starbucks; the stock would probably be a better investment than the soda too! This, after the company mis-judged the demand for their product and sold it in cans, rather than the traditional bottles that a charm of their own. The thing that I think management missed, was that there is nothing wrong with a company NOT growing at exponential rates, so long as they generating a ton of cash and then returning it to shareholders... so long as the growth is less prudent, from a capital allocation standpoint, than stagnation.

As for the future of the company, I could guess that it will go private, but probably not. Ownership of the company is incredibly fragmented, with there never having been a 13D filed. It is quite unfortunate too, had shareholders been united and smart enough to go against management, then maybe the company wouldn't have been hemorrhaging cash for the past few years. Heck, had management had more skin in the game, maybe things would have been a bit different.

Interestingly enough, the company not only has the historic ability to generate significant cash flows, but are one of the few that actually has a cult following- there may actually be a future for the brand! Personally, I still remember the first Jones Soda that I ever tasted... a 'Berry Lemonade' that I got at a gas station in southern Illinois on a summer trip-I thought it was the best soda ever. It's that kind of memory that may save the company from a history of poor capital allocation.

With that said, the founder of the company recently stepped down from his position on the board, over concern of the direction of the company. This, after having stepped down from being Chairman and CEO in 2007. While it may seem that he played a significant role in wrecking his own company, you still have to wonder what he saw-did he realize that the bad direction was his own doing, couldn't be righted, and didn't want to be on a sinking ship? Or were his reasons legitimate?

Lessons Learned:
1) Only question yourself based on facts, not the opinions of other people (learning this was a good thing-for example take my huge losses, which turned to great gains on SNS).
2) Don't underestimate how expensive 'growth' can be.
3) The markets can and often stay irrational longer than you can stay solvent (thanks to JMK for that tid bit).
4) Things do get 'just that cheap'... all the time.

Disclosure: No position, just thinking out loud...