Monday, July 25, 2011

Tuning portfolio risk lower

I decided to lower risk a little bit in the portfolio in the face of potential market disruption due to U.S debt ceiling.
Sold half of my BYD position (at loss).
Sold gold (at profit) to keep it inside 10% allocation range.
Sold half of Nautilus Minerals position (at profit).

Out of my all positions these I think BYD and Nautilus are most risky. Gold, on the other hand, is there to keep balance and to speculate. Now it was time to offload it a bit. I believe the gold bubble has still room to grow. So many debt problems and US may keep "printing" dollars ("QE3")..

Earlier this year I have been adding to many positions so before this we were about 0% cash. Now at approx. 5% cash. Planning to wait atleast until early August before putting the cash back to work.

Saturday, July 16, 2011

Thoughts on stress tests for European banks

Eight of the 90 banks failed the stress tests. 16 came close to failing.Not bad?

Well, the main question is that were the tests tough enough. I have an engineering background and I have long worked with mission critical systems (i.e. systems in which a system-wide failure is not an option). The very basic questions with these type of systems are: What happens if X fails? What happens if X and Y fail simultaneously? And so on..

Therefore, a real stress test for European banking system should include atleast a single failure (i.e. default by one eurozone country). An even better test would take into account multiple failures and the resulting financial panic.

The now conducted stress tests simulated what would happen to bank finances during a recession where growth falls more than 4 percentage points below EU forecasts.

That sounds of a bit soft scenario given the number of countries facing serious debt problems. You got the usual suspects from Europe, but also USA with its debt ceiling talks and then there is Japan..

Thursday, July 14, 2011

10 Good Reasons to Consider Microsoft for Your Portfolio

1. Microsoft (NASDAQ: MSFT) is the most widely held stock among the value oriented ’super investors’ tracked by 24 out of 49 had it in their portfolio last time they disclosed their positions. It was also the most added stock during the first quarter of 2011 among the tracked investors.

2. The market values Microsoft to be worth 224,6 billion USD. This translates to forward P/E of just 9.6 and Price per free cash flow 11.6. For every share worth $26,63, Microsoft has $5.95 of cash. It gives great return on equity at 44.0% and is highly profitable (Profit Margin 31.8%). It is no wonder that value oriented investors are flocking to Microsoft.

3. Microsoft requires little capital investment. In an inflationary environment, it won’t have the problem of replacing assets at much higher prices. On the other hand, as it is low on debt (Debt/Equity 0.22), it won’t suffer from increasing real interest rates in a deflationary environment either.

4. It’s out of favor – even hated by many. Hot stocks in hot industries are carrying a hefty price premium that may vanish. Stocks that are out of favor are more attractive to value investors – especially when the company is making lots of money and has growing product segments to offset declining ones.

The 6 other reasons you can find from my article published exclusively by Seeking Alpha:

Disclosure: I am long MSFT, NOK.

Tuesday, July 5, 2011

The future of electric cars is in China

The economist published recently an article in which it presented an estimate that China would be the biggest electric car market in 2020 with annual sales of 1.9-2.5 million vehicles.

"The Chinese government wants to have 500,000 electric cars, lorries and buses on Chinese roads by 2015 and 5m by 2020. It is providing customers with subsidies worth up to 60,000 yuan ($9,250) and other incentives, too. If it carries on doing so, electric cars and plug-in hybrids could account for 7% of new-car sales in China by 2020, says a forthcoming report by the Boston Consulting Group. That would make China the biggest market for electric vehicles, by volume, in the world."

The article also discusses BYD (HK:1211, Pink Sheets: BYDDF, Frankfurt Xetra: BY6) - the company that claims that their e6 electric car has a range of 300km (186 miles), which is about twice that of Nissan’s Leaf.

"BYD is struggling, however, to get its new e6 electric car to market. It was supposed to go on sale in America last year, but was not ready. It is now being tested by taxi fleets in Shenzhen, where BYD is based."

BYD stock price has been declining for a long time now due to not meeting the high expectations after it became public in September 2008 that Billionaire Warren Buffett's Berkshire Hathaway has bought 10% stake in it through MidAmerican. The stock rallied after the announcement, but has been on the decline now for about two years.

Chart courtesy of

The author was long BYD at the time of writing.