Kraft-Heinz Merger

On March 25, Kraft and Heinz announced about their merger that would close by the 2H2015. The deal structured very creatively (as usual with BRK and 3G combination). The question for shareholders of Kraft before the annoncement is simple. They can either keep theri shares (which will be exchanged with 1 share of combined company plus special cash distribution) or they just sell the stock before or after the cash distribution.

The real question is for people who were not shareholders before the announce is does this newly annouced company have a potential to become a good candidate for successful investing. I have been researching the topic and came to a conclusion that though the deal seems a bit pricey, one has a good chance of making a nice 10%-15% return on an annual basis by investing in the newly formed Kraft-Heinz company.

Here is an excellent write up by The Brooklyn Investor on the merger of Kraft and Heinz:The Brooklyn Investor: Kraft-Heinz.

Q1'2015 - Fund Performance Results

During the 1st Quarter, the assets under my management grew by 16.9%, while the S&P 500 Index mostly stayed flat.

General Partner Return Q1'2015 (%) = 16.9% (gross)
General Partner Return YTD 2015 (%) = 16.9% (gross)

Importance of staying in the market vs. timing the market

Often times, after we purchase a security with a sole intention of cashing out with hefty gain at a later time. The stock price immediately starts its slide in the opposite direction of our position. Personally, I have had this experience many times. And what is interesting, is that the same pattern gets repeated often enough that I decided to analyze the situation and once for all decide what kind of steps I should take in order to have fewer losses.

Here are my thougts in regards to this crucial issue of timing the trades. Every investor has his own time horizon for holding the trade. Some people dedicate mere seconds, minutes while some dedicate days, weeks or months. There are rare group of people, who dedicate years until they make a decision to part ways witht the company. The latter approach is suitable for people with large asset base, but not much to retail investors (like me). This is very important distinction to make, as it has a direct impact on the emotional state of an investor to the underlying movements of the stock prices.

For a market participant, who trades intraday, and can only dedicate 3-4 hours for the transaction, every tick of the price has a direct impact to his bottom line, than to a person who holds his positions for weeks. The former participant, hopes to achieve small gains, by executing more transactions. While the latter participant is hoping to make bigger gains by waiting out bigger price moves in the underlyign security. To achieve this results, he is foregoing many more opportunities.

The two approches described above are different in some aspects, but has one goal in common, which is making money. The former approach has limits in the time dedicated to the fullfillment of the transaction. As the saying goes, market can stay irrational longer that an investor stay solvent. That's why it is important cut losses as much as possible.

In my experience, there were a number of mistakes, that repeated many times.

They are, in no particular order: (1) no cutting losses, or not having a strict stop loss philosophy for each trade, (2) having a huge positions (with margin), that has a negative effect if the position moves in the opposite direction, (3) buying and selling too much (overtrading)

These are some of the mistakes, and they directly come from not having a clear path for each trade and mixing speculation with investing.

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Nasdaq at 5000!

Well, the most discussed topic of lately has been the Nasdaq hitting the 5000 milestone after nearly 15 years, the last time it hit the mark.

The reason for the discussions has been whether stocks that are included in the QQQ ETF are in bubble. Some analysts, and experts see it as a bubble, some other don't. Personally, I don't see the reason why the QQQ might be in the bubble territory, because the companies that are included in the QQQ are different than the last time.

On the other note, it should be perfectly sensible that QQQ is reaching higher valuation marks, as the companies in the index are making more money. Their earnings, cash flows are growing, as well the balance sheets of these companies are in better shape than before, Capitalism is a system of adaptability, where each economic agent learns something new after each crisis and recession. Hence, tech companies have grown and matured since the times of dot com bubble in the late '90s.

Finally, the issue that this milestone is being talked actually shows that people are concerned and anxious. This in some ironical way, actually proves that markets in general and QQQ in particular is not in the bubble territory. Because, the bubble form when the state of euphoria sweeps so much that even people who shouldn't be trading stocks start doing it. Analysts start picturing even rosier pictures for companies. However, I am not seeing such action at a current time.

More Action Doesn't Neccesarily Lead to Better Results in the Field of Investing

In general, as we grow up, we are given a standard set of pieces of advice. One the most hackneyed piece is about working hard to achieve success, mostly in reference about monetary rewards,

Broadly speaking, I agree 100% that hard work is important in any field, if one is serious about achieving extraordinary success. And, the term of hard work ussually means spending mroe hours practicing a routine, and taking massive amount of action (in general).

However, the field of investing demands a different set of rules for success. More action  doesn't necessarily lead to better results. On the contrary, it might lead to disastrous results.

This might seem a contradictory statement, but, let's deep a little deeper to test the validity of my statement. First, let's define the true menaing of the term "investing". Investing is laying capital now, so that to receive more capital later. The ley items here are, when and how much capital are getting back. These are important considerations. However, they are out of scope of this article. Let's return to the question of obtaining more capital that was invested.

To achieve a commensurate return on invested capital, one has to take some action. The action is to find an object of investing, in our case a suitable company with a growth potential (profitability) at an attractive price point (not expensive valuation). Once the object is identified and passed a quality control, one has only do second step, which is taking a share in this company and expect the market to value the chosen company higher. This happens, because the company we chose will grow its profitability. So, it seems pretty straightforward. So the only thing to do next is kick back and relax.

But, does this show the real life experience of real maket participants. Absolutely no!

Most of the market particiapants, see the market action to invigorate them with ideas which lead to overtrading, This is the premise, that makes people forget that stocks are not just tickers on the screen, they represent shares of companies. It is really difficult to find a suitable company to invest, let alone do it on a daily basis. For me, it is important not to lose focus on many companies, if I found one or a few companies, then it important to buy as much stakes as possible in these nuggets and let the markets work its majic. This way requires anti-action from the participants, and seems to too easy. However, it is really not easy to just sit and do nothing, while all around seem to be taking more action day by day. But, this is the most correct way to invest, at least in my opinion.

The steps described above might seem to be too simplistic, and they mostly are. These steps were of illustrations only. If anyone has any quesitions, please do send me your questions. I will be happy to elaborate more about each of the steps described above.

What is the Allure of the US Dollar?

In the last 5-6 months, USD index has risen a lot in comparison to other major curencies. This has puzzled me, as I analyzed that the QE1 and QE2, should have made the value of greenback to fall. However, on the contrary the vakue of dollar has risen.

I see several reasons for this phenomenon. 

First, it is macro stuff. The economies of major countries is in freefall, and governments all around the world are trying to weaken their currencies so that exports become more competitive.

Second, the political uncertainties, happening around the world, investors ususally try to park capital in US Treasuries. What does one need to purchase treasuries, he or she has got to buy US Dollars (!)

Third reason, and the most important reason that I see, is the dominance of US based companies. When you go outsied, please have a look around. What people are eating? KFC, Burger Kings. What people are wearing? GAP, Old Navy, New Yorker, Tommy Hilfiger, Victorias Secrets. What people are using to communicate? Iphones! What people are using to drive? Fords and Escalades. So, what happens when people spend their disposable income for the products of US based companies. The sales are converted into US Dollars, because, these companies operate in US Dollars.

These are simplistic reasons that at least explain the phenomenon. Thirs reason, has many implications, that I will open the topic later. But, for now, let me state this: Politicians should stop telling people lies, and talk about the whole BS conspiracy theories of US and others. This is plain and simple, US has a system in place that is working, US has a system that has a capacity to unleash human potential.

Just to give a better idea, please see this link to the 1Q,2015 Report of Apple Inc. This is a companye, that is growing like a mad. The reason is that company is investing into both human potential and technology. That shoukd be a lesson for all countries, that are whining about the US currency hegemony. But again, it is always easy to lat the blame on others than make necessary steps to correct real problems.

Markets are down considerably - what to make out of for DGI fans?

Markets are down considerably in the last couple of days, or maybe weeks. I have not checked the exact data, but anyone can go to cnbc.com and get the factual data about the market movement as of late.

My question for this article is, what should a DGI fan to do when markets are in taispin?

The short answer is "nothing". What do I mean by that?

Well, as a person who has chosen to become a real investor, instead of a pseudo-investor (ie traders of all sorts), we have a great advantage, which is time. Simply put, we have a tool on our side that has a capacity to make or break true results. Over time, every business that earns money and puts back some of it in the form of retained earnings, has got to grow its capitalization.

In any case, the on ly question an investor should ask if this is an opportunity to add to his positions or new positions to his portfolio. Ina true sense, the downward movements of stocks are good. They should frighten us, on the contrary we have to use these moments to make money.

Therfore, one thing a DGI fan should do is take his spare capital and put it to a use.

When To Take Profit In A Stock?

When one should decide to sell the stock? This is one of the mostly sough after questions. Different people use different methods, and try to make a living.

Also, we should make it clear: being in the black, i.e. having gains to think about is a nice problem to have. As Mae West says, "Too much of a good thing can be wonderful", having too much profits might can be wonderful, for anyone.

Here is my perspective on the question of taking action in selling a position.

Taking action and not taking any action, are actually equal in the their functionality. A person who takes action to sell, is takinga real action by stating that the position has more downside risk (in case of long), than an upside move potential. On the other hand, a person who decided not to touch the position, states that the stock has more upside than a downside.

An investor, has to consider the time horizon he is considering to hold the stock and the respective gains he can receive. In any case, a person, who considers that a stock will move higher, has to consider a new target to be reached and think about selling then.

But, if a an investor sees another opportunity that might provide a better optionality in the direction of his trade, then he can also consider selling the position.

Another factor to consider the valuation of the stock. Once  the stock reached a certain valuation, then it might become not an attractive holding. As one of the investment gurus, said, a stock at a certain price is a buy, and at another price it is a sell. Therefore, if an investor consider the stock reached an unattractive valuation then he might consider selling some of the position, and holding to some of the position. This matter should be considered by the investor, abd he should take into his personal circumstances.

For me personally, when I hold a stock and have gains to be taken, I ask myself a question, whether I would buy the stock at a presrt price, if I didn't have a position in it. If my answer is definitely now, then I might seriously consider selling the position altogeter or sell some of the position.

Hope this information might help to my fellow investors.

Doing Nothing is Doing Something - Holding AAPL

Investing as well the best things in life, should be simple. However, simple doesn't mean easy. The most difficult thing is to hold the shares and watch how it is being sold down. It is not easy, trust me. 

But, AAPL is an interesting company, that it knows how to shock the wider audience. Being a long time shareholder, I was galdly shocked byt eh last nights results. Company seems to be doing everything right. Most people, have been blaming AAPL that it is a one trick pony company, however, many people don't realize that producing the best possible phones are not easy. One has to know how to sell them as efficiently as possible. AAPL has opened many more stores in China, and is planning to open many more stores in the future. How can a company, that sells phones for much higher ASP, succeeds to grow in China?! No matter what naysayers say, AAPL is a real BEAST!

One conclusion, that come to my mind, is that one has to just buy it and hold it. Over time, AAPL will make do good to its shareholders.

What Is an Acceptable Investment Return?

There are many type of investors. Some of them are not investors, but speculators. Stock market is an interesting place, which serves the needs of many types of people.

I have seen many market participants, who does not even look at the company business before, purchasing and selling the shares of a certain company. They consider it as an abstract, and consider the stock market being a place, where they can trade the shares of companies, And that is it.

On the other hand, I have seen market participants, who only purchase shares after having studied nuts and bolts of the companies, they are becoming shareholder in. These type of investors, in some cases, do not even pay attention to the intricacies of the market.

The truth is that people should choose the best way to participate in the markets, and try to become a professional in the field they have chose to be involved in. The history shows, that what counts is not the methods market participants apply, rather how well they define the areas of expertise and make good out of it.

Therefore, the rates of return for different type of investors will be different. For me personally, I believe that it is important not to lose, and only then think about making money.

Do We Have To Care About Oil Price Decline?

Oil prices have been coming down sharply since early December. The world media outlets, have focused on this issue. Countless experts let the world know about their view on Bloomberg, CNBC and other major news outlets. But do we have to care about it? I mean, for a regular person on the street, is the fall in price of oil (technically it is the price at which the future contracts are set, and not the physical oil price) be of importance to affect his decisions or not?

This is the question, that I would like to think through on this post.

First, let's start with the basics. What good does oil have for our lives? It is the most widely used energy source. As such, it is important that we have energy and it is good if it doesn't cost much for regular people. So, by looking from this angle we can clearly see that the falling of oil price if actually not so bad. 

Second, oil is the primary export product for many developing countries, Kazakhstan included. So, selling oil for less is bad in terms of revenues the country generates. However, we have to also note, here that, there is an opportunity for exporters to lower the cost of production of oil and other ancillary costs, then theoretically oil exporters have an ability to maintain their margins, or at least lessen the effect of lower revenues.

Third, many people are employed in the oil production, sales and marketing industries. Less revenues, might mean less income for these people. So, we have a social effect of falling of oil prices. 

Fourth, the oil is used as a primary raw material for petrochemical industry (think plastics), which might actually benefit from the fall of raw material costs.This is good, as the retail prices of many products that we use daily might fall too.

In conclusion, we might say that falling of oil prices is both good and bad. There are some areas that might benefit from this, and other areas that might get hurt by this. 

In general however, the falling prices of oil is not controlled by me, you or any one person, so we should treat it as a given condition and try to use it for our benefit as much as possible. It is like a weather. Today it might be sunny outside, tomorrow it might be raining. We never know. Therefore, it is always better to focus on items that we can control and important, rather than focus on items that we don't control and not important.