Chris Lau - Seeking Alpha

Sunday, October 17, 2010

An Introduction to video game-style investing:

I signed up an account at this past summer. Kapitall is a web-based game that introduces new investors to the complexities of the stocks, mutual funds, and exchange traded funds (ETFs).

This is accomplished by allowing users to create virtual portfolios and to manage play money.

Most recently, the site allowed users to open a TD Ameritrade account via Kapitall. Trades on Kapitall can be replicated on TD Ameritrade.

Since staff at Kapitall include game designers and former staff of Morgan Stanley, the site user interface is very unique.

This friendly environment will be very appealing to individuals who have never invested real money in the market. The industry and company filtering will also help individuals find relevant information very quickly.

The company information tab also points the user to SEC filings. This is useful feature for experienced investors looking to complete more extensive research on companies.

Below are some screen shots to illustrate some of Kapitall's functionality. Images are from my account.

1. Top Bar shows total return (27.6%), company search, skill level (bronze) and number:

2. A $100,000 portfolio ($100,000 portfolios are available when skill level increases)

3. A number of portfolios were created. 'Chinese Stocks' was a template portfolio. 'Speculative' is
a portfolio that was created to copy the moves of various hedge fund managers.

4. Holding Details for the 100K portfolio. Yep, cash is still king in this speculative trading environment:

5. Kapitall displays companies related to Microsoft, lists that include Microsoft, and funds that hold Microsoft. Why include Microsoft as an example? The market is under-estimating the impact of Windows Phone 7 (WP7), the value of Bing (0 to over 10% search traffic in a year is impressive), and long-term cash flow growth from sales of Windows 7.

According to CruncBase, Kapitall has 60,000 active monthly visitors. For readers who sign up, look me up and connect as a contact.

Monday, October 11, 2010

Klarman and Security Analysis (Financial Analysts Journal)

Seth A. Klarman is president of The Baupost Group, LLC, Boston. Jason Zweig is a columnist for the Wall
Street Journal, New York City. In the October publication of Financial Analysts Journal , Klarman offers his views on securities analysis work of Graham and Dodd. By that extension, this would include securities analysis by Warren Buffett:

The world is different now than it was in the era
of Graham and Dodd. In their time, business was
probably less competitive. Consultants and
“experts” weren’t driving all businesses to focus on
their business models and to maximize performance.
The business climate is more volatile now.
The chance that you buy very cheap and that it will
Also, the financial books of a company may not
be as reliable as they once were. Don’t trust the
numbers. Always look behind them. Graham and
Dodd provide a template for investing, but not
exactly a detailed road map.
Klarman is most definitively one of the few modern investors following Buffett who is "one-of-a-kind." Let us be realistic: although the teachings of Buffett are covered here, few readers are likely to be as successful as Buffett. This reality should not prevent investors from analyzing securities and the market diligently and thoroughly:
Our approach has always been to find compelling
bargains. We are never fully invested if there
is nothing great to do. We test all our assumptions
with sensitivity analysis. Through stress testing,
we gain a high degree of conviction that we are
right. We are prepared for things to go slightly
wrong because we adhere to a margin-of-safety
principle that gives us the necessary courage to go
against the tide.

Yet, we don’t actually think of it as courage, but
more as arrogance. In investing, whenever you act,
you are effectively saying, “I know more than the
market. I am going to buy when everybody else is
selling. I am going to sell when everybody else is
buying.” That is arrogant, and we always need to
temper it with the humility of knowing we could be
wrong—that things can change—and acknowledging
that we have a lot of smart competitors. Thus, in
worrying about all the things that can go wrong, you
can prepare, you can hedge—and you must remember
to sell fully priced securities so that you are
underexposed when things go badly. All these elements
give us the courage to follow our convictions.
The last point I would make is that your psychology
as an investor is always important. If you
lose your confidence, if you’ve made too many
mistakes, if you are down too much, it becomes
very easy to say, “I can’t stand being down more
than this.” Unless you have a bet-the-business
mentality, you would worry about your business,
about client redemptions, and about your own net
worth in the business.
So, by being conservative all the time—by
being both a highly disciplined buyer to ensure that
you hold bargains and a highly disciplined seller to
ensure that you don’t continue to own things at full
price—you will be in the right frame of mind.
Avoiding round trips and short-term devastation
enables you to be around for the long term.
So, what is Klarman buying?

Right now, we are buying, or trying to buy,
private commercial real estate because the stresses
in that market are creating bargains. The private
market in commercial real estate, especially the
private market for anything less than center city
Class A office or malls, has terrible fundamentals,
and the likelihood that they will get better soon is
not good. Yet the government has propped the
market up with TARP money and Public-Private
Investment Program money and also, essentially,
by winking at the banks. I think the Federal Deposit
Insurance Corporation has told banks, “Don’t be in
a hurry to sell your commercial real estate. We will
bear with you.” Servicers of commercial real estate
securities and mortgage securities have also been
slow to sell and eager to restructure.
About the stock market rally:
In contrast to the private markets, the public
market in real estate has rallied enormously. Many
REITs are yielding 5 or 6 percent, which reflects
vastly higher prices and less attractive yields than
the private market offers.

Nevertheless, we are not making any money in
real estate right now. We are putting money to
work in private commercial real estate when we
can, very selectively, because those investments
will yield a good return over time, unlike the public
part of real estate that is quite unattractive.
We are making money on the distressed debt
we bought two years ago, which has gone from 40
or 50 or 60 to 90 or par, and on other similar securities
that have been grinding along, throwing off
cash, mostly rising in price or going through a
process that will ultimately deliver a profit to us.

Further reading as advised by Seth Klarman
  • Graham’s The Intelligent Investor
  • Graham and Dodd’s Security Analysis (6th ed with updated comments)
  • Joel Greenblatt’s You Can Be a Stock Market Genius
 This book is tactical and includes some very specific and interesting strategies

  • The Aggressive Conservative Investor,7 by Marty Whitman and Martin Shubik
  • Anything from Jim Grant writes is wonderful
In regards to Grant, Klarman notes that even if he’s not always right on his predictions, he is among the best thinkers and financial historians.
  • Michael Lewis has never written a bad book
Moneyball is about value investing. Looking back 20 years from now, The Big Short9 may be the definitive
book about this era. It is about a microcosm, but the microcosm explains everything.

  • Andrew Ross Sorkin’s Too Big to Fail is fabulous
  • All of Roger Lowenstein’s books are excellent (we should read everything Roger has written)
Klarman's Final Thoughts:
Never stop reading. History doesn’t repeat, but it does rhyme.

Jim Grant has a wonderful expression: In science, progress is cumulative, and in finance, progress is cyclical. Fads will come and go, and people will think we are on to a new thing in finance or investing; but the reality is that it is probably not really new, and if we have seen the movie or read the book, maybe we know how it turns out.