Meeting Minutes

We had a great time at our meeting! I must say that I, for one, feel truly privileged to know these individuals and learn from their experiences tremendously every time we meet. We had 3 attendees this time: (from left to right) VJ Arjan, Jeff Harrington, and Kevin Day.

Harold Geneen

Kevin Day gave a glimpse into the mind of the CEO of one of the largest conglomerates in U.S. History, Harold Geneen. One thing that mattered most to him was the number for earnings. He had a photographic memory and could remember the exact figures of profit targets of all 33 arms of IT&T’s business in a heartbeat. Kevin was explaining the board room atmosphere, where all 33 arms of the company would gather to present their MOR (monthly operating report). If there was ever a pet peev of Mr. Geneen, it was lying about earnings. If anyone were caught lying about their figures, they would be dismissed at once. Kevin recalled once when a senior vice-president among them was asked about the figure for the profit target for a business, and the executive, who was not sure of it, was humiliated in front of all the other executives by being asked to personally leave the room and find out what the exact figures were. In this way, Mr. Geneen set an example to his other vice-presidents, of which Kevin was one of them.

Market Plays

It seems that this market rally still has legs, despite the fact that most of the money is still waiting on the sidelines. Jeff Harrington is closely watching when people start buying on margin as it will signal the exhaustion of the upward bull move.

Kevin Day is still looking at Eastman Kodak (EK). He is convinced that there is some major move going on within the company although he cannot name what it may be. Eastman Kodak, we may add, crept up to $3.25 and is back down to $2.97.

Kevin also added that he may be looking at a several point move in Sante Fe Gold Corporation (SFEG) as rumour has it that the permit, which has been long awaited, may be coming through.

Oil has been acting bullish as well; it is certainly at the level where the crude oil producers can recoup the cost of production at $60-70 a barrel. Friday, crude oil moved up close to $3 in a single day’s trading to $67 a barrel.

We can expect natural gas futures to remain depressed for the remainder of the year. Jeff Harrington explained that he has a source of information suggesting that the supply for natural gas for the entire winter will have been attained in September. Obviously, over supply does not bode well for natural gas.

Jeff Harrington was also explaining that, according to CFA, basic materials do well when coming out of a recession. Proof of this, if theory did not suffice, is that Jeff is up 80% year-to-date on his portfolio, which includes a good deal of basic materials plays. On another note, VJ Arjan is also up about 60% year-to-date with nearly 80% of his portfolio in basic material equities.

The restructuring of the automobile totem-pole

The automobile industry will be shaping up to be very different than it has been. Ford will survive due to its ability to raise cash by mortgaging everything it owns (tangible or intangible). GM will come through leaner and meaner by shedding off its other losing businesses. Honda will ride on the cuff of Toyota’s position. The Korean car companies like Hyundai and Kia are quickly gaining ground. Toyota has been making its cars bigger and is becoming like the new GM. Tata motors is creating for India what would be the equivalent of Henry Ford’s Model T in America, the Tata Nano. It was released a couple of weeks ago and will be purchased in massive quantities throughout India. The great loser of this reshuffle will be Chrysler. Like Jeff Harrington said, the only thing he likes about Chrysler is the Dodge Viper, and that’s about it!

AMD’s failed strategy

“Hector Ruiz, basically, sucks!” – Jeff Harrington

You may be wondering who Hector Ruiz is; well he was until very recently the CEO of AMD. AMD has been hiding out in the forest and camping out in tents next to bonfires like outlaws, trying to hide from Intel and its deputies. Hector Ruiz decided to challenge Intel on its cost front, trying to limit costs of AMD chips, but Intel having the bigger infrastructure, basically kept cutting prices on its chips until AMD was forced to report losses for the last 7 quarters straight. Now AMD is in desperate straits and Intel is just waiting to gobble them up when they declare bankruptcy. However, recently with Ruiz’s firing they have changed strategies that promises for a potential rebirth of the company. They have changed their business strategy to core architecture, shooting to make the best chips and not the cheapest ones.

The Crowd

“In the case of everything that belongs to the reality of sentiment – religion, politics, morality, the affections and antipathies, etc. – the most eminent men seldom surpass the standard of the most ordinary individuals. From the intellectual point of view, an abyss may exist between a great mathematician and his bootmaker, but from the point of view of character the difference is most often slight or nonexistent.” – Gustave Le Bon

VJ Arjan recently read a book by French historian, Gustave Le Bon, entitled The Crowd: A Study of the Popular Mind. One of its main arguments is that a crowd is, in fact, less intelligent than its individuals separately as it is prone to elevate sentimental affectations to override reason. He furthermore went to say that the market mechanism and its players also are prone to act in this fashion. It is therefore imprudent to forecast with a crystal ball prices levels, as the crowd may relish on things that have no substance whatever and for undue time periods as well. One may well remember the Tulip craze in Europe where peasants and farmers would squander their entire life savings in the desire to acquire tulips. This is no different for the crowd of investors and it may pay well for most to do the exact opposite.

Recommendations on how to pick great stocks and make money in the market

• Rebalance your portfolio according to the business cycle – i.e. Buy banks after recession and sell them during the end of the boom
• Enter trades with at least a 10-15% profit target and become ready to take your profits around 30-40%; this can be adjusted, of course, based on price action
• Constantly search for new opportunities; it may help to keep a watchlist of stocks. Watch for new highs or lows being made, or unusual volume.

Kevin’ Million Dollar Car

Kevin was explaining to us his days back in San Francisco (in the 1960s) as a stockbroker with Sutro and Company when he was one of the first people in the city to own a Rolls Royce. He has often referred to it as his Million Dollar Car due to the effect it would have on his clients who could not wait to brag to others about their stockbroker and being driven in his Rolls Royce. He explained that although he wouldn’t buy a Rolls Royce right now even were it given to him now as his net worth has gone up 20 times what it was back in the 60s, these things were important to him at that certain point in life. The car made him lots of money while he was working as a stockbroker – hence his Million Dollar Car.

Jamaica, lost after being colonized

Jamaica, unfortunately, is following the same path as many countries in Africa after colonization – it is falling apart and paving the way for civil unrest or even civil war. Kevin recently took a cruise to the Caribbean stopping on his way in Jamaica. Speaking with a local he came to find out that the official unemployment rate in Jamaica is 60% (the real figures were closer to 80%), an excessively high crime rate, and a total infrastructure collapse after the British left in 1971. With the slew of high crimes in its capital city of Kingston, tourists who used to be a major economic driver of the country are drying up and are no longer frequenting the island.

The next meeting will be on Sunday, September 6th, 2009. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com