Archive for September, 2013

Business Headlines are Boring

Have you noticed anything missing in leading business headlines these days?  For the last three years, prior to 2013, various media outlets have bombarded us with dire news regarding European debt crisis (remember PIIGS?) and Greece in particular, Chinese slowdown, Japanese collapse and overall global recession.  Since the media now is remarkably silent on these issues, it would be good to check in on the current status.  So here it is:

  • Europe is now officially no longer in recession, with Germany’s economy rising the fastest.  The debt situation in Greece has stabilized.  Italy and Spain are also doing much better.
  • Chinese slowdown, for all practical purposes, was a no show.  In 2013, Chinese economy grew at 7.6% rate, which would be considered outstanding for most countries.
  • After a prolonged recession, Japan is growing again, and its stock market is one of the best performing markets this year.
  • Overall, global economy growth never turned negative during these past crises, and is projected to accelerate from 2013 into 2014.

But you wouldn’t know it, from looking at the major news stories.  And no wonder — negative headlines always attract more attention and are never as boring as good news.  Keep this in mind when the next disaster du jour arrives.

September 18, 2013 at 1:56 am 1 comment

Apple and Baidu Revisited

In my previous post back in April, I wrote about underwhelming performance of Apple and Baidu, especially in light of rising markets.  Now is a good time to revisit where these companies stand now.

Let’s start with Baidu, also known as Google of China.  For nearly a year, investors were highly skeptical of its ability to monetize mobile search and were concerned with slight market share loss in search to competitor Qihoo.  Its reasonable valuation, high growth rate and dominant market position were all discounted.  However, market perception can change quickly.  Baidu reported good progress in its mobile business, and suddenly the market realized that this discounting was unwarranted.  As a result, stock rose about 70% from its bottom.

Apple stock started its downtrend about a year ago, due to increased competition, margin pressure, and perceived lack of innovation.  It did bounce up 25% from its bottom, but even today its valuation metrics are still lower compared to such “innovative” companies as Microsoft or Intel.  Today’s introduction of iPhone 5C and iPhone 5S did not reveal anything revolutionary, but that is becoming more difficult as product categories mature.  Apple still remains a cash generation machine, and has an enviable problem of what to do with all that cash on the books.  Activist and hedge fund manager Carl Icahn sees a value here and argues for return of that cash to shareholders via even larger dividends and stock buybacks.

Patience is definitely a virtue in investing.  Recognizing a quality stock out of favor, such as Apple and Baidu in the spring, often leads to supersized returns.  Even after its bounce back from the lows, Apple remains quite attractive today.   As to other quality companies out of favor today, consider Panera Bread and Intuitive Surgical.

September 11, 2013 at 3:33 am Leave a comment

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Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.


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