Monday, July 04, 2005

Sunday Stew: Weekend Reading

Great time to read if you live in New York City and didn't make it to the Hamptons this holiday weekend: Nobody's around!

The Economist has a small piece on hedge funds: they report that while returns to investors have dwindled since 2002, the compensation for their managers has escalated.

I'm sure some of this has to do with the plain fact that hedge funds are all the rage now (as venture capitalism was in the 90s and mergers/acquisitions in the 80s).

Hedge funds are beginning to serve more institutions as well, like pension funds and endowments looking to diversify their strategies and holdings.

Already a 1 trillion dollar industry (compared to the mutual fund industry which is about 8 trillion), there is no doubt in my mind that inflows into these coveted investment families will rise.

Meanwhile, New York Times did a feature Sunday on authors who utilize weblogs (blogs) to incorporate reader feedback into the editorial process, comparing it to open-source sofware.

The best part of the article is the news that a book about Google (which I've been pining for god knows how long) is finally on its way.

It'll be called The Search: The Inside Story of How Google and Its Rivals Changed Everything and it is being written by seasoned tech writer John Battelle, a founder of Wired and The Industry Standard.

Google is an amazing company.

Internet advertising revenue is rising by as much as 40 percent a year - a trend sure to hit Google's bottom line as traditional mega companies shift their advertising dollars to a digital medium.

The best thing about Google is that they know the power of utility.

It was never about a flashy interface.

Information retrieval was the name of the game.

Thus I think Google has come to epitomize the postmodern condition of incessant & instant information flow.

Another book I'll be getting is fellow Wired compadre Chris Anderson's The Long Tail.

The Long Tail examines the shift from mass markets to niche markets.
The Long Tail is about how our economy and culture is shifting from mass markets to million of niches. The term refers to...the effect of the technologies that have made it easier for consumers to find and buy niche products, thanks to the "infinite shelf-space effect"--the new distribution mechanisms, from digital downloading to peer-to-peer markets, that break through the bottlenecks of broadcast and traditional bricks and mortar retail.
Should be a great book.

Moving along, Barrons has an ominous but rewarding look at the massive homeland security & defense industry.

It is clear that after the horrifying 9/11 attacks, America is turning into a hyper-securitized nation.

I was trying to get into the Citigroup building just the other day; it was like visiting Fort Knox.

The country is prepared to spend close to $150 billion a year on anti-terrrorism measures.

I was glad to see an old favorite of mine, OSI Systems (OSIS) featured.

The company makes devices which track air and sea cargo for contraband from far distances.

OSI is right in the middle of a steaming segment poised to grow at 20% a year.

Their profits are said to quadruple in 2006; as it stands, only 2% of cargo entering the states is being inspected and OSI is at the forefront of the technology that needs to be implemented if we want to keep all the bad guys out.

Like most of the companies the article covers, OSIS's market value (market cap) is less than 500 million.

That makes this group of stocks volatile because profits may be contingent on a single contract, not to mention that the float of shares on the street is relatively small.

Company loses a big contract, stock gets hammered.

Being small can be a good thing, as author Jay Palmer argues -- giants like GE may very well be interested in buying out these firms for their sophisticaed and proprietary technology.

As Americans, our greatest asset is security.

As Washington strives to protect it, it wouldn't hurt to let your portfolio reap the gains.

Business Week had a small feature on NY's own Cornerstone Promotion, a chic lifestyle promoting and brand integration company, as well as the creator of FADER magazine.

With their penetrative street smarts, Cornerstone has been able to survey the liminal edges of society's underground culture and portend -- with disturbing accuracy -- what's next.

Catering to NYC's ultra-cool crowd and purist ethos is not easy, but Cornerstone knows what buttons to push.

FADER has been able to encapsulate and meld skateboarding's cultural perogatives & niche mentality with fashion and music into a highly branded product.

Here's how Cornerstone describes itself:

Cornerstone Promotion is a lifestyle marketing company that builds brands. Immersed in music, film, technology and fashion, its young staff (average age 25) not only identifies what's next in culture; they are the culture. Cornerstone uses an under-the-radar, non-traditional, viral marketing approach to influence the influencer. Cornerstone provides 360 degree marketing solutions from the initial strategic planning stages to execution.
Cornerstone doesn't just know that music defines cultural sensibilities; it deploys a non-traditional marketing approach to get its message across to its primarily 15-to-30 year old demographic, like product seeding:
Product seeding is a way to get marketing messages out as traditional ads lose traction, and nowhere are they losing more traction than among peripatetic twentysomethings who hardly stay put for any traditional media experience at all. So companies plant wares in the hands of influential individuals in hopes that their cool or cultural celebrity will lead others to the goods.
Plus, their photos kick ass.

I remember when I was back in college and FADER had just hit the shelves; I told my friend, who was doing some promoting for them at the time, that their photos alone would turn the startup into a highly profitable entity.

Keep an eye out for Cornerstone.

Finally, I just finished William O'Neill's primer on shorting stocks, How to Short Stocks.

Shorting a stock is simply betting its price will go down; in a bear market, this is how hedge funds make money.

The most important thing I got out of this book?

Stocks move in groups.

He gives some obvious examples, as the air travel boom in the 60s that precipitated the rise of hotel stocks and the recent Internet boom in which the fiber-optic-planting companies were reaping all the benefits of a world aimed at "wiring up."

Remember Lucent and Cisco, the telecom darlings ever American just had to have?

Well, we all know what happen to those stocks.

The book is mostly filled with charts and tell-tale chart formations that signal market or company specific tops, such as the head and shoulders, double top, and railroad track rally formations.

He drives home the argument that fundamentals don't mean shit, as a managing director at an investment bank I once worked at so eloquently put it.

This same guy had made boatloads of money in a down market simply by shorting two stocks -- Yahoo and AOL -- when the bubble was ready to pop.

After he told me that, I started studying charts on my own, night after night.

The power of charts is that they tell shrewd and patient investors what the institutions -- the bad boys who move stocks --think about a given stock.

Charts reflect what the so-called smart money is going (or isn't going) after.

If, for example, company XYZ is hitting new highs on light volume, demand has withered up and a correction is imminent.

The Joneses down the street are buying the stock (probably after seeing a report on CNBC), but the elephants like Fidelity or Vanguard are not.

Message at the end of the tunnel?

Follow what the institutions (who account for about 75% of a stock's movement) are buying, not your neighbor.

We'll see you tomorrow.

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