Friday, February 21, 2014

Carl Icahn: The Count Dooku of Wall Street

At my age, many ask me who my favorite investor is or who I aspire to be. It is easy to say Warren Buffet or Milton Freedman. Although Carl Icahn may or may not be someone to aspire to be but there is no doubt that Icahn has made a huge name for himself. Icahn is just that, an icon. No mean for the pun but he is easily up there with the best investors in the game. What makes Icahn so interesting is his style of investing and even more so; his story. The book King Icahn: The Biography of a Renegade Capitalist goes into the life of Carl Icahn and how he amassed his fortune.

Carl Icahn's story is intriguing, he wasn't raised in a family with financial prestige, his dad was a frustrated opera singer that ended up switching between the cantor for his local synagogue and a substitute teacher. His mother was also a school teacher. Carl Icahn focused on his studies and majored in philosophy at Princeton. He then decided that wasn't his thing, so he wen't to med school in New York. He then dropped out after 2 years to join the army. Still hasn't picked up investing. Finally, he started investing and started his own company that is now the empire Icahn Enterprises. He then amassed a huge amount of money to try and control numerous amounts of companies in his favor to turn enormous profits. He over the years has developed a ruthless reputation. He can be considered a corporate raider, by buying certain percentages of companies to control their agenda in the stock holders favor, then ditched the company to pursuit another. He is the Count Dooku of Wall Street. It seems with age, that he actually is resembling the Star Wars antagonist Count Dooku. Count Dooku in Star Wars is the well respected master Jedi. Just like Count Dooku, Carl Icahn is regarded as a legendary investor. Icahn's reputation as a corporate raider is because of his almost hostile take overs of companies just to turn a profit. Some just say Icahn's methods are aggressive and benefit each company he comes in contact with.

His style of trading and more in depth look at his story can be found in the book King Icahn by Mark Stevens. Mr. Icahn has also spent some change on some million dollar horses. He is a diversified investor that can certainly stir up feuds with other investors, like last years feud with billionaire investor Bill Ackman. Carl Icahn can certainly be admired for his story and respected for his success in investing. But is he someone to look up to? After you  read into his business holdings, and his raids on Phillips Petroleum and TWA, you can decide whether or not to admire the Count Dooku of Wall Street.

Thursday, February 13, 2014

Comcast and Time Warner - The Merger Explained

Recently, media reports showed that Comcast proposed a $45.2 billion takeover of Time Warner Cable Inc. This takeover would be quite a hefty deal for the market and the government to grasp. Two of the largest cable providers merging just sounds like a deal that the government will sniff out. The FTC, or Federal Trade Commission along with, surprising, the IRS, and sometimes the SEC, will have some report and analyzation of the merger in due time.

My Rant on Comcast
Non business related, Comcast is the provider for my TV and I do enjoy the on demand options, (although the movies I want to watch always have a fee to them) as well as the freedom to watch without weather interference (sorry directTV) Comcast simply is frustrating. Comcast is a monopoly in the cable industry regardless of its merger with Time Warner, Comcast knows that its customers will reluctantly stay with them regardless of the premium they put on for extra channels. They know customers don't want to go through the hassle of switching cable providers and that most customers certainly won't go to satellite providers. So, Comcast has its customers right where they want them; in a struggle of paying big money for more shows or movies. I just can't get over their ridiculous fee that they charge for some of its on demand products.(other than Netflix movies are coming hard to find)All of their "Xfinity" commercials always show the classic "pay for 6 months" fee thats always lower than what you actually end up paying for it in the long run. I'll have to admit, there customer service has gotten better over the years and the monopoly that they have is only going to get grow.

The Growing Diversity of Comcast
Comcast over the years grew from the cable company, to the phone company, to the internet company, and now to the home security company. Its pretty amazing how many aspects of our lives Comcast could cover. Reading some articles that might say how the cable industry is the next to fall is an intriguing topic, but is hard to pinpoint and should be thrown away at the moment. For now, cable companies are still bringing in profit, and are diversifying themselves to reap more profits. Regardless of the fact, many Netflix or Hulu users tend to stray away from normal cable and rely more and more on Netflix. Comcast realized this and so they recently have added a home security component to its already diverse product line. The home security not only adds a different industry to go into, but also adds a mobile perspective that Comcast has been trying to unlock. And so, the growing diversity of Comcast, can only go up.

Will the Merger Happen?
With all of the diversity in Comcast, I haven't even began talking about the merger with Time Warners Cable. This would involve the two largest cable companies and give Comcast a huge boost in its already dominant industry. That just sounds like a no go from Washington. Well the government as I said before, will have some sort of report on the merger and review its eligibility soon. I wouldn't make any promises of this going through just yet. In time, we'll see. The main argument why this just might squeeze by the government regulators is how comcast and time warner do not have any overlapping markets and so customers won't see any changes to their services since they serve different area codes. Many are arguing its in the publics best interest. Still, Washington will needs to overlook the case and make an announcement soon.

All Hype?
There is an interesting book out about mergers by Thomas  Straub explaining the failures of mergers. Mergers are complicated, government interference is usual, and they are extensive and sometimes confusing. The main point to look at is how much media covers acquisitions and mergers like dogs chasing a ball, they go after mergers for the sake of a news story. Granted, this merger should be covered and is obviously major news, but there are plenty of mergers out their that have failed by either the government or just simply didn't work out. The successful merger that many point out would be the 1998 merger between Exxon and Mobile to create the giant oil company that is today Exon Mobile. Now I'm not saying that this deal will end up being the next Exxon Mobile and I'm not saying this merger will end up being another failed merger, (unless the government intervenes) I'm just saying from a long term perspective, the deal isn't going to be a gold mine of profit for investors, but watch the deal carefully. Invest with care.

Thursday, February 6, 2014

The Pullback We Need?

2013 Markets around the world enjoyed great gains throughout the entire year. 2014 a month in, and American markets have pulled back. Dow Industrial down a cool 7% while the S&P is down 5% and tech heavy NASDAQ down 4%. Many investors believe that a pull back between 10%-15% is what is considered "healthy" for the market to stay true to its pricing. Analysts have been worrying and uneasy about the Fed's transition and tapering of its purchases of bonds. Others believe the sell off is because of how overpriced most stocks are compared to their earnings.
 
The worrying over the pullback is why many have been very speculative of the market and after such a great year being speculative is a natural reaction. Now the question being asked is how much of a pullback is considered healthy? And when does the real worrying kick in?

Look at your portfolio 

Financials did not kick 2014 off with a bang. Usually January is a good month for investors, but this January was the opposite. Financials fell off of their highs like most of the market and could continue to fall with the Fed's tapering.

The most important move I made over the winter was setting aside some cash. A good 10% was how much I put down, and it wouldn't hurt to put a little more down either. Do not expect 2014 to be such as great of a year for equities as 2013 was. Its going to be choppier. I prepared by not only setting the 10% in cash, but also put  a small percentage into hedge positions. TZA or Direxion Daily Small Cap Bear Shares, for example is one of many hedges investors can have on the market.  The fund carries 3X the bear, or down side of the stocks it owns. And so in general, when the market goes down, these funds go up. They aren't bad ideas to own during pullbacks, but a few reminders. Trading hedge positions of any kind are typically a risky trade and experience should be required before setting aside any money into these funds. Only set aside a very small percentage into market hedges, and if you are hesitant or even questioning yourself, then the best hedge is to stay in cash. A lot of research must go into hedge positions before risking your investment.

Small Caps vs. Large Caps

Looking into small cap stocks tends to be riskier. They can be more volatile and depending on the stock, they can be unpredictable. Large caps you can expect more out of the stock. Compared to small caps, large cap stocks are like bread and butter. The big 30 on the Dow don't tend to flex up or down as volatile as low cap stocks do. A great dividend paying stock thats a big name tends to stay with the market obviously depending on the any big company news. In volatile market, small caps are riskier and should be treated with more care than trading a large cap stock.

In Conclusion
Choppy trading sessions should be something to expect more of this year and the market may not have the upswing like 2013 had, and so you won't get too lucky just picking a random stock these days, you have to realize whats going to fit your own goals. Using stock screening programs to fit certain criteria is a great start to picking out a few companies to invest in. I'd stray away from growth stocks this year unless they look absolutely promising. 3D Systems which has been on my watch board, got blitzed yesterday, the lesson to learn is not too panic and make decisions based on a great reasoning. Don't just sell just to sell, or don't buy just to buy. If you are in dire need for a growth stock the main stream profit maker Tesla is an intriguing one to look up. Don't be so scared when you see the market pull back like this. It's not the first time the market has pulled back a little bit, and it won't be the last.