Posted by: Aaron Pressman on December 21, 2007
As the year draws to a close, it’s a time of reflection. Investors can look back to see their smart and not-so-smart moves as they look ahead to 2008. So in honor of this week’s gargantuan “Investment Outlook” issue of Businessweek, here are the 2007 highlights and lowlights of my Investing Insights blogging contributions:
Way back in January, as Apple’s iPhone hype exploded, the debate was over which other smart phone makers, if any, would be hurt. I wrote that it was Palm. “Ever since Bill Gates set his sights on crushing that first wonderful Palm Pilot, I’ve been expecting to write about Palm’s demise. But who would have thought it would be Steve Jobs’ Apple that landed the knock-out blow?” Sure enough, Palm shares lost 56%.
In February, the trend of hedge fund managers going public took off when Fortress Investment Group went public. Some thought it was a great way for investors to get in on hedge funds, but it wasn’t. “Before you get too carried away with the hedge fund euphoria, repeat after me: Fortress Investment Group is not a hedge fund. It’s a money manager…they’ve posted a darn good track record so far — private equity funds have gained 40% a year since 1999, while the firm’s two categories of hedge funds have risen 14% a year since 2002. But shareholders in FIG don’t get those returns and if hedge funds swing out of favor or the markets turn down hard, it probably won’t matter.” It sure didn’t. Fortress shares are down 47% since the IPO.
There were plenty of other over-hyped IPOs worth deflating in 2007. In February, Craig McCaw’s wireless company, Clearwire, hit the market. “McCaw is a visionary and the promise of WiMAX looks appealing. Neither makes the IPO a great play, unfortunately,” I noted at the time. The shares are off 38% since the IPO.
February was also the month that Starbuck chairman Howard Schultz fired off an infamous memo to his troops about the company’s missteps. The company tried to paper over the fuss but the real story was Starbucks failure to address increasing competition. “The pressure on Starbucks has hardly peaked,” I wrote continuing a theme from 2006. Already sunken Starbucks shares have fallen another 36% since then. I gave Starbucks more flack throughout the rest of the year, with follow up entries in May, July, and November.
I've been bearish on the homebuilding industry for a few years and in March, when some saw signs of a bottom, the better signs were pointing to more losses including one of my favorities, the CEO expletive index. "Maybe the formerly crushed homebuilders finally are a great value find? Don’t count on it, at least not if you believe in one of the more psychological stock market indicators: the CEO expletive index. Yesterday, Donald Tomnitz, CEO of D.R. Horton (DHI), flipped his lid speaking at a Citigroup investor conference," I explained. Since then, Tomnitz's company is down another 48% as is the SPDRs S&P Homebuilding ETF fund (Symbol: XHB).
Another bum steer in IPO land was Blackstone's June debut, inspiring one of my favorite blog posts of the year: Missed the Blackstone IPO? Too late now. The shares priced at $31 back then sit around $23 today.
Not every IPO was a loser. In July, I said the debut of yoga clothing maker lululemon athletica looks like an easy pose. It priced at $18 a share, closed the first day at $28 and stands near $46 today.
But quickly it was back to dish pans and toilet bowls. In October, it was Constant Contact's deal that had me complaining Email marketer's IPO hypes skyward. It's down about 26% since then.
Another warning bell sounded later in October: China. The iShares FTSE/Xinhua China 25 ETF is down 15% since.
And at the very end of the month, just before Halloween, I was getting a sense of queasy deja vu from Lumber Liquidators IPO. It's already down 22% from the IPO which priced in November.
For the past couple of months, it's probably too soon to call any winners. Despite all the controversy over my post arguing that investors should Buy Amazon - Kindle is the iPod of books, I can't help noting that shares of Amazon have risen 14%. It's all hype until they report some results, though.
THE FLIP SIDE
So what about the mistakes, embarrassments and out and out screw-ups? There were some of those too, starting in March when I went looking for closed-end funds to survive the coming credit market chaos. Well, I was right about the chaos, but the three dividend-seeking closed-end funds I discussed lost about 20% each for the rest of the year
In April, I got into one of my periodic blind spots and I still can't get out of it. I was skeptical about VMWare starting in April when it filed to go public. The deal hit the market in August at $29 and was near $55 the first day of trading. I stayed skeptical in September but VMWare kept rising. It's around $92 today and I'm still not buying into the story.
I offered another closed-end fund misplay in July while looking for funds that might have been excessively punished in the credit market turmoil. The only ones punished were those that agreed with me. The ING Prime Rate Trust is off about 8% since then and the LMP Corporate Loan Fund slightly more. The Global Currency Strategy Income Fund lost 10% and the Nuveen Multi-Currency Short-term Government Income Fund 12%. Zero out of four -- ouch! Nobody said cheap can't get cheaper.
I've long held a negative view of the homebuilding industry but a similar consistency didn't measure up for my negative view of Microsoft, most recently expressed here in early September, when I wrote Microsoft shares tread water even if they stay afloat. Wall Street loved Microsoft's next earnings report and the shares have rallied 25% since my post.
My penultimate loser was a post from the same week looking for contrarian positive plays in the banking world. Starting with Morningstar's list of 5-star stocks, I honed in on three candidates: Huntington Bancshares Inc., Allied Irish Banks and BankAtlantic Bancorp. The best you can say is maybe I was too early. The three are down 17%, 11% and a whopping 50% respectively since then.
Finally, the IPO record had another blemish besides VMWare. I fell for the hype in the case of Virgin Mobile USA, writing Don't hang up on Virgin Mobile USA. Hanging up was the correct answer. Virgin went public at $15 in October and sits around $9 today. Never mind.
I'll be back next year with hopefully more hits and fewer misses.