We had an interesting and insightful meeting today at Saffron House! We had a total of 6 attendees: (from left to right) Tommy Schultze, VJ Arjan, Jeff Harrington, Elena Swindull, Kevin Day, and one more attendee, who chooses to remain anonymous.
Goodbye 2011, Hello 2012
Kevin started off the meeting by exclaiming how nobody would shed any tears for 2011. It was, no doubt, a rough year, wherein the major market indices basically broke even.
Historically speaking, as we are going into a U.S election year, it is fairly certain that the central banks will resort to some more money-printing to add additional stimulus to economic growth while incumbents try to retake office.
There are, in fact, 38 major elections occurring across the world in the coming year, France and Russia among them. Below is a world map from the Economist with a few key ones.
In the U.S., the market indices have averaged 11.80% in election years and have averaged 14.25% in election years excluding the market drop in 2008.
| Year | Return | Year | Return |
| 1928 | 43.60% | 1972 | 19.00% |
| 1932 | 8.20% | 1976 | 23.80% |
| 1936 | 33.90% | 1980 | 32.40% |
| 1940 | -9.80% | 1984 | 6.30% |
| 1944 | 19.70% | 1988 | 16.80% |
| 1948 | 5.50% | 1992 | 7.70% |
| 1952 | 18.30% | 1996 | 23.10% |
| 1956 | 6.50% | 2000 | -9.10% |
| 1960 | 0.50% | 2004 | 10.90% |
| 1964 | 16.50% | 2008 | -37% |
| 1968 | 11.10% |
It is also apparent that many great quality blue-chip stocks have fallen on hard times due to poor investor sentiment and this may be a good time to invest in them.
Like Benjamin Graham stated in The Intelligent Investor the time for investing in common stocks is when fundamentally good quality equities fall on unfavorable times and becomes publicly unpopular.
We all discussed the especially unpopular ones like, JP Morgan Chase, Dupont, and General Electric as good investment candidates.
Santa Fe
Suffice it to say that it seems that there will be good things to come for Santa Fe in 2012. Most notably, President Olson bought 300,000 shares on December 23rd at an average cost of $0.91 a share. As insider purchases do not happen very often for this stock, it may be an indication of better things to come.
Also, some more good news, Santa Fe has confirmed financing for the Columbus Silver acquisition deal as well as financing for operations for the year to come. As this issue has been a stone in the investor’s shoe for some time now, it is comforting to know that it will be taken care of. Following the news, the stock price has jumped approximately 15%.
In addition, by default, due to the acquisition of Columbus Silver, Santa Fe gets a listing on the Toronto stock exchange. Hopefully, we the day will soon arrive when it can also get list on the American Stock Exchange (AMEX) as it is currently listed on the pink sheets.
There is, however, the matter of the lawsuit concerning the Ortiz mine, but there is some indication that this may very well come to a swift and harmless conclusion shortly.
That being said, we did note how this company has remarkably poor PR for a bevy of such great news in terms of future potential profitability. There are gold mines out in the Street with half of the proven reserves and their stock prices reflect even higher market cap values.
Kevin noted how the company is run by miners and engineers and certainly not by businessmen. In a way, this could be a blessing in disguise, as a lack of PR powerhouse keeps the stock depressed for some time, while we can accumulate more shares.
But Kevin also noted that there is the danger due to the average age of the directors on the company that they may wilt to impatience and sell out the company at let’s say $5 a share when $10 or more could be had. Of course, time will tell.
Kodak: Behind the Curve
“When a great team loses through complacency, it will constantly search for new and more intricate explanations to explain away defeat.”
– Pat Riley (NBA former head coach and 6 time NBA Champion)
Alas the great titan of industry founded by George Eastman in the 1880s has begun its descent to dust.
The problem was long coming. The principle factor involved not identifying the digital camera industry change and sticking obstinately to film.
The complacency of reigning over the photography market for over 100 years went to their heads. It has gotten to the point where FujiFilm, the only remaining player in the camera film market, is outselling Kodak.
During the 1990s, as digital cameras were slowly taking revolutionizing the entire industry, Kodak remained largely absent and dismissive of the competing technology. Losses amounted during the past decade where they managed to remain marginally profitable by forced layoffs and corporate restructuring. But without a fundamental change to their business strategy, they were doomed to failure.
By the time they did realize that digital was here to stay and removed the stodgy, inflexible executives who dismissed and denied the problem, it was too late. At that point, other players were well ahead of Kodak. Many Japanese companies were well-established like Canon, Nikkon, Fuji, and Sony and owned the majority market share.
As a desperate last-ditched move, in the early 2000s, Kodak hired executives from Lexmark to see if they could re-salvage the dying brand.
In 2011, Kodak lost $650 million from $7.3 billion in revenue. Its stock price which had traded as high as $90 is now at a paltry $0.52 cents.
As is said in Proverbs, “Pride cometh before the fall.”
It is a lesson to all of us to avoid the poisonous head of complacency.
Staged Funeral
Human nature is certainly amazing. When threatened with potential pain, one is capable of conjuring up emotions and feelings that may not exist at all to prevent it. Something similar may have happened in North Korea a few weeks ago upon the death of Kim Jong-Il.
Elena Swindull and Jeff Harrington were explaining how allegedly there are reports to suggest that the North Koreans were forced to attend the funeral and to show genuine emotions of grief and despair at the threat of a six-month prison sentence.
Above is a raw video from the funeral procession in Pyongyang. Watch the video for yourself and see this in action.
The Debt Problem
Jeff Harrington shared this video and it is a parody delineating the seriousness of the debt problem.
See for yourself.
Apple: Undervalued?
(Click on the picture above for a magnified view)
If one looks at the numbers Apple has put out, it seems to be trading at a discount. The stock is currently trading at a Price/Earnings multiple of 16, hardly outlandish for a growth stock like Apple.
For comparison, Microsoft is currently trading at a P/E multiple of 11, Cisco is at 16, and Google is at 21.
After Steve Jobs passing last year, the question now is whether or not the darling of Wall Street can repeat or sustain this earnings performance under helm of Tim Cook. It has been rumored that Jobs left Apple with at least 2-3 years worth of products.
Google: The Company of the Future
Jeff Harrington was discussing the incredible innovation occurring at Google.
He believes that Google is the technological titan of the future. They are slowly but surely innovating their way into basically every part of our lives, from our phones to the internet to email, and now with Google+ into our social lives as well.
Their strength, according to Jeff, is in their strategy to pursue this global platform technology.
Not only that, but the engine of growth and innovation must be backed up by some very capable and talented employees, which Google treats like gold. There are whiteboards in every room so that anyone can jot down an idea when and as they receive them.
Watch the video above of the Google corporate office facility and work environment and you’ll get the idea.
NBA Lockout
We discussed the recent NBA lockout that had threatened to end the season altogether and how much it would have cost. Jeff Harrington stated that the loss amounted to somewhere in the vicinity of $1 billion. Here are some figures for consideration:
$719,502: Amount lost in ticket sales per canceled game
$70,000: Amount loss in parking revenue per canceled game
$208,359: Amount lost in vendor sales per canceled game
Source: http://theweek.com/article/index/220362/the-cost-of-the-nba-lockout-by-the-numbers
These numbers do not include the loss per game of advertising revenues which are another chief source of revenue to the NBA. Whichever way you cut it, it has been a very expensive lockout.
The next meeting will be on Sunday, February 5th, 2011. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com.
Also I find that there are many domestic and international readers who are following our blog posts not only in the United States but all over the world including Europe, Latin America, and Asia. If you wish to be added to our email list, please email atscarletkings@gmail.com.
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