More puts

I mentioned on this on the Short Screen message boards earlier today, but I picked up a few DIA puts today when my limit orders for puts on a couple of distressed companies didn't get filled. If I knew Scott Brown would win as decisively as he did in special election for U.S. Senator in MA tonight, I might have waited a day.

Subway-riding dogs

Last weekend's Financial Times featured an article by Susanne Sternthal, "A wolf in dog's clothing" (the photo above accompanied the article). I found this to be the most interesting part:

[Animal behavior specialist Andrei] Neuronov says there are some 500 strays that live in the metro stations, but only about 20 have learned how to ride the trains. This happened gradually, first as a way to broaden their territory. Later, it became a way of life. "Why should they go by foot if they can move around by public transport?" he asks.

"They orient themselves in a number of ways," Neuronov adds. They figure out where they are by smell, by recognising the name of the station from the recorded announcer's voice, and by time intervals. If, for example, you come every Monday and feed a dog, that dog will know when it's Monday and the hour to expect you, based on their sense of time intervals from their biological clocks."

I wonder if Kirstin Bakis read Sternthal's article and was inspired.

On the rise of China

Again via Disqus, another comment I made on Fred's blog last week, this one in response to a comment by serial entrepreneur, civil engineer, retired U.S. Army officer, and current CEO of a bulletin board company¹, JLM:

Interesting you mention James Kynge. I've blogged about his "China Continental" thesis a few times (Most recently, in the footnote to this post, where I also linked to an FT editorial that had a more bearish take on China's economy). I hope Kynge is right that China is transitioning to an economy fueled by internal demand; that would be good for average Chinese and the rest of the world too.

I have a tough time envisioning China becoming a global military hegemon, for a couple of reasons. The first reason that comes to mind is that the post-war status quo of U.S. Naval hegemony in the Pacific has been pretty good for China and its more advanced neighbors, economically speaking. Why mess with a good thing?

The second reason is that it's a lot easier to project power globally when you are surrounded by oceans on two sides and friendly neighbors to the North and South. China is cursed by geography by comparison. Consider some of its neighbors: Japan, which mopped the floor with China in WWII; Vietnam, which fought China to a standstill, if memory serves, a few decades ago; Russia; Mongolia -- sparsely populated, but a country whose ancestors conquered China and most of the rest of the world; India, the world's most populous democracy (and a country China has fought a war or two with in the past, when India was weaker); Pakistan; Afghanistan. Add to that mix separatist Tibetans in China's southwest and separatist Muslims in China's northeast. I suspect the submarine-building (China still spends a pittance on military procurement, compared to us) is more about keeping the steel mills humming.

A more likely scenario -- and a more ominous one -- if current trends (i.e., certain self-destructive American policies) hold isn't China replacing the U.S. as a global superpower, but the world having no such superpower.

¹One that had an Altman Z"-score in the distress zone, last time I checked. I mentioned this to JLM via e-mail, and he said he penned (keyed?) an in-depth response, but it was eaten up by the aether and I never received it.

On charitable donations for Haiti

It occurs to me that some of my better comments appear on other blogs. Via Disqus (which will be added to my new, much-delayed blogs), here is a comment I made on Fred Wilson's blog on the big outpouring of charitable donations in response to the earthquake in Haiti:

I am curious where all of this money will go. It seems like absolutely enormous amounts of money are being raised for Haiti right now (Whole Foods has its cashiers soliciting donations, for example).

Ideally, Doctors without Borders and other respected charities will get to keep some of these donations for future disasters. There is, in a sense, an inefficient market for charity, and organizations ought to be able to keep some of the surge money they raise for future contingencies (and be honest about that). I remember the controversy after 9/11 when the Red Cross planned to use some of the huge amount of money it raised to build blood banks (if memory serves), but public outcry forced them to spend it all on 9/11, even though government aid was already flooding in. I remember hearing about the challenges the Red Cross had in trying to donate all that money.

Haiti, as a perennial failed state, presents challenges of its own. Once the survivors have been pulled from the rubble, treated and fed; once the dead have been buried -- then what?

The editorial cartoon above, by Peter Brookes, is from the Times Online.

Destiny Media update

I mentioned last month that I had sold out of Destiny Media Technologies (OTC BB: DSNY.OB). At the time, I noted,

I still like the company's story, and I expect it will post relatively impressive numbers in its upcoming fiscal Q1 (seasonally, its strongest quarter), but I got the sense from the reaction of some Destiny longs to the guidance the company issued back in October that some of them had overly optimistic ideas about the company's growth potential next year. Some seemed to assume that the sequential growth the company had predicted from Q4 to Q1 would continue at the same clip going forward. They also seemed to ignore that Destiny's fiscal Q2 is its weakest seasonally.

I'd like to see what that Q2 looks like. Depending on those results, I may buy back into this if the price looks attractive relative to my sense of the company's forward earnings prospects.

All still true today, though I should add (and probably should have added then) that, in the course of several conversations with him, Destiny Media's CFO Fred Vandenberg struck me a straight shooter and a good guy. Destiny issued this release after midnight on Thursday, Destiny Media Q1 Record Revenues Jump 89%: Third Consecutive Profitable Quarter Shows Over 39% Increase in Operating Income.

The stock had a small bump on Thursday, then dropped 15% yesterday, to 44 cents per share, a penny below the price at which I sold it last month. Perhaps other shareholders are having the same valuation concerns I had last month. With six-tenths of a penny in earnings per share in its seasonally-strongest quarter, I remain skeptical of Aaron Edelheit's estimate of 5 cents in fiscal 2010 earnings. Still interested in seeing what its Q2 looks like.

A couple of updates

There are still some good people in the investment industry, and I was fortunate to speak with a few real gentlemen this week: Bill Singer of RRBD Law, Marc Mayor of Inside ALPHA, and Mark Sullivan of First Trust. All offered some excellent suggestions, some of which I will be implementing soon. Herewith, a couple of updates:

- The new blogs. Sometimes it's harder to find people to do the simpler jobs than the more complex ones. Things didn't work out with the previous vendor and I have requested a quote from another one. Hopefully, these blogs will be up and running soon. I'd like to start the comment contest soon, because the first prize gift certificate is for dinner at a restaurant chain that has an Altman Z"-score in the distress zone. If I had more time and patience, I'd set these blogs up myself. I may end up doing that.

- Portfolio Armor. We are putting the finishing touches on it. I am excited. I think this will be a useful tool for a lot of investors, myself included.

The limits of un-hedged, long-only investing in a secular bear market

In the comment thread of a previous post ("Welcome to another lost decade"), commenter Brad Castro wrote,

dividend growth investing (in high quality companies), I argue, is immensely superior to simple growth investing, and especially so during secular bear markets.

I offered this response in the comment thread,

I had the same thought five years ago, when I bought shares of PFE, GE, AB, etc. and set them up for dividend reinvestment in an IRA. Take a moment to pull up the five year charts on those stocks.

Any form of un-hedged, long-only investing insufficient in a secular bear market, unless you time your purchases so you make them at or near the secular market low in valuations.

But a chart is worth a thousand words: