04.23.10 Timber!

When I saw this article in the WSJ about the high cost of raw materials, I thought immediately of Yale. Apparently lumber as gone up 59% in the last 4 months.

I've been reading in the alumni/ae magazine about how the endowment invests in assets like private equity, emerging markets, and timber yards. I must admit, I was a little perplexed about the latter. What on earth would Yale be doing with a lumber yard. Ah-ha!

I'm not sure how smaller funds, like Mo Money LP can get in on the action. I was very excited about rice futures a couple years back, and John Rogers had a fund but the minimum purchase was 100K.

04.22.10 What do these pros do anyway?

Looks like the pros blew it on the apple call.

04.22.10 Greek Bond Selloff

Apparently no one in the market wants to touch a Greek bond. Bailout details unclear.

They're the subprime of the sovereign world.

The question is how to profit from this situation. I would not touch something with low liquidity such as the bond itself. On the long side, the risk of default are obvious. On the short side, if the bailout happens, you risk selling at a low price (todays market) and possibly needing to cover your short at a higher price.

The euro is under pressure because of this debt crisis, I would trade in the euro.

04.23.10 Just say no to depreciating assets

Providing for future = money made (active + passive) - money lost/spent (active + passive)

So lets talk about the money lost/spent side, and one of those sirens of excessive consumption: depreciating assets. Depreciating assets are consumption posing as assets.

Depreciating assets are fun. Clothes, furniture, cars, fancy electronics, name brand purse. But they often don't pay off in the long run. A car will depreciate 25% the minute it leaves the lot. Praise and envy from your peers will but a moment. That glow cost you couple K.

Whenever I forgo a depreciating asset, I think about how I'd much rather put the money in an appreciating asset. I imagine myself reducing my 12hr days into 4 hr days, maybe in a hammock with some iced tea, maybe painting or writing a book. This is the meaning of an appreciating asset to me, not the movement of decimal places of paper profits, but the true luxury of spending time in a way I really want to spend it. Then I begin to hate depreciating assets for all their seductive appeal.

For example, my thought process in not buying a car ($20K plus insurance cost + parking). Sure I could buy a $20K car, and have a $15K asset a year later. Or, I could put this money towards downpayment on a house - $20K of car = $133K of downpayment on a house. Over time, a house is more likely to appreciate.*

*Of course, buying a car in 2007 would have been a better choice than a house in many instances.

04.21.10 Come make Passive Income

People react to incentives, so when Active Income (ie me working for 12 hrs/day, getting on a plane on a Sunday night, dealing with yellers) is taxed at a higher rate than Passive Income, (ie, we watching my portfolio between episodes of Jersey Shore), it only makes sense I start putting more effort in Passive Income.

The most awesome form of tax-advantaged investment is real estate, as I recently discovered. Like the leverage combined with 500K capital gains tax protection (for marrieds, 250k for singles). Leverage + tax advantage => I get it.

For all of administration's attack on the rich, they haven't attacked this tax sanctuary for rich people. Not that I want it to change, I mean, no fair changing the rules once you start playing.

04.21.10 Comment on Apple quarterly earnings

Apple: Happy with earnings upside.

Forward P/E of 18 is not a horrible valuation when you consider that something with an earnings profile of a bank should be in the low teens. Apple generates a ton of cash based on ZERO leverage. Let's see, how to calculate a current ratio for Apple (traditionally measure of companies ability to meet short-term debt requirements) - oh its easy because the denominator's zero. That's the kind of financial analysis I like to do, lazy person FSA, when performance is so rockin' that you don't have management and analysts trying to fudge decimal places on both sides.

Recent quarter earnings surprise based on robust iPhone sales, not new products like iPad, so its innovation pipeline has not really been tapped. Also I expect increased mac sales as enterprises adopt mac to avoid viruses and hackers, more users mean better enterprise software.


People complain that the company is so large - how can it grow any more? True, law of large numbers on a percentage basis should not grow much larger. Its still smaller than MSFT. But Apple is like 4 companies in one, a cell phone manufacturer, consumer electronics manufacturer, pc maker, and software - and its relatively small in all these industries.

There may come a day when Apple is targeted as being too big, or monopolistic and the government would ask for the company to be broken up. The parts would be greater than the sum.

Goldman: waiting to buy call options on Goldman. This lawsuit is simply not plausible.

Greek bonds: waiting to bet on default on Greek bonds in 3 years (sorry my Greek friends).