Month: August 2014

On Management Fees

On Management Fees

Yet another letter from a reader:

Hi David –

Thank you for your commitment to sharing your wisdom, ideas, and experience.? I aspire to one day enjoy the success and happiness that you have in your life and career as an investor.

My question may be a bit more tactical than others that you have profiled: In our current world of 2% & 20% fee structures and where in past eras Buffett promoted a 25% performance fee above a 6% threshold (with the objective of aligning partners’ wealth creation incentives), why do investment managers choose to promote % of AUM only fee structures?? I believe you also promote a similar fee only structure??

I’m curious about your insights on the rationale for fee only versus performance only structures.? Does your philosophy have anything to with your faith or past experience working at a hedge fund??

Many thanks and much continued success to you!!

Personally, I like the flat 1% of assets?fee (0.3% for bonds), because it does not make me swing for the fences. ?I don’t take extra risks or chances with client assets because of a performance fee. ?The main goal of investing is to avoid losing money. ?That is what I aim to do over a full market cycle, and I have been successful at it over the last 20+ years.

I respect those who do performance only, like Buffett’s formula, but?my value proposition is that those who invest alongside me get what I get, less the small fee. ?If I underperform in the future, I will be dejected, and it will hurt me far more, than any money I receive in fees. ?I aim to do as well as Buffett, but charge less. ?I am not driven by profits, but by service to clients.

Another way to say it is to hire guys who will do this business even if they weren’t paid. ?That is the way I feel about investing.

I am out to do well, and?not to give my clients a bad deal.

Can the “Permanent Portfolio” Work Today?

Can the “Permanent Portfolio” Work Today?

Another letter from a reader:

Dear Mr. Merkel:

I just discovered your blog through Valuewalk, which I read most days. I haven’t read much yet on your blog, but from what I’ve seen, I really like your insights and comments.

I’ve been thinking for a long time about the idea of a permanent portfolio concept, based on writing from years ago of an investment analyst, Harry Browne, now deceased. I’ve been thinking about this for my own investment requirements and also because I intend to write a book on the subject.

The big problem with a permanent portfolio today, versus 30 years ago, in my judgement, is identifying a long term fixed income vehicle would survive a major financial collapse. Browne always used 30 year US Treasury bonds, in an era when it seemed clear those bonds could survive a monetary deflation.

Of course, the Fed isn’t about to institute a policy of sustained monetary deflation any time soon, on a voluntary basis. Any such deflation would occur, either because the Fed were unable or unwilling to monetize assets fast enough to head off cascading cross defaults and massive bonk failures; or because the Fed decided to let the house of cards collapse, in some future recession-panic, because it became obvious to a plurality of Fed governors that to prop up the house of cards would guarantee hyper inflation in short order. Of course, a hyper inflation would not only destroy the financial system, including the central bank; it would overturn the established political order, and cause a famine as the division of labor fell apart.?

I think a monetary deflation will happen sooner or later, because of a financial “accident” (that reasonable people can foresee). Even if the central banks were to cause a hyper inflation, when that inflation ends after two or three years, the currency must be renounced. Then we would get deflation for a while via some new currency.

Since I think the deflation risk is realistic, I’m trying to figure out what-if any-bond instruments could survive deflationary destruction. Obviously, in a monetary deflation, all investment prices plummet, except default-free bonds. Default free bonds would rise in price, as interest rates plummeted. However, I’m not clear as to what bonds might work as vehicles in a permanent portfolio, because T bonds are no longer a reliable safe haven from eventual political default.

There might well be sovereign bonds in other countries that are more friendly to free enterprise and private property than contemporary US, and hence less prone to sovereign bond default,? but this introduces the risk of currency fluctuations. So it’s not a perfect solution. Perhaps some foreign sovereign debt combined with US Treasury debt would partly work. It has also occurred to me that some US utility or pipeline firm etc. might offer debt or preferred stock or other forms of fixed income debt/equity ownership that would survive default. In a terrible depression, I’d assume some utility companies would continue to function although, of course, not flourish. Obviously, any such debt or equity would be a very special situation, since most firms are now loaded to the gills with debt, making them poor risks to survive a crushing deflation.

My impression is all this is right up your ally. (Except for my musing-theorizing about the risk of monetary deflation, which no doubt makes me seem like a religious fanatic or political crazy.) Anyway, I’d be interested if you think this problem can be solved. In other words, do you think some private debt issues that are long term or even medium term exist to be discovered that could avoid default in a huge deflationary depression? How would you go about conducting a search for such safe U.S. corporate bonds or other fixed income instruments?

What I really need to do is immerse myself in reading about fixed income analysis. Which I hope to get to in a few months.

None of my fixation with bonds has to do with forecasting a decline in interest rates; until the next crisis, rates on the long end could easily climb. I’m looking for a secure volatile instrument that would gain in price as other investments were falling during a financial panic and subsequent depression.

Thanks for reading through all this. I look forward to spending a lot of hours in the future on your blog.

Yours truly,

Dear Friend,

I have written about the Permanent Portfolio concept here. ?I think it is valid. ?At some point in the near term, I will update my analysis of the Permanent Portfolio, and publish it for all to see, which I have not done before.

In a significant inflation scenario, gold would soar, long T-bonds would tank, T-bills would actually earn nominal but not real money, and stocks would likely trail inflation, aside from investors that invest in low P/E stocks. ?The permanent portfolio would likely do okay.

Same ?for a deflation scenario. ?Stocks will muddle. T-bonds will do well. ?T-bills will do nothing. ?Gold will do badly. ?That said, the permanent portfolio concept is meant to be an all-weather vehicle, and has done well over the last 44 years, with only 3 losing years, and returns that match the S&P 500, but with half the volatility.

I’m usually not a friend of ideas like this, but the Permanent Portfolio chose four assets where the price responses to changes in real rates and inflation fought each other. ?The rebalancing method is important here, as it is a strategy that benefits from volatility.

With respect to where to invest in fixed income?to benefit from a depression is a touchy thing — it’s kind of like default swaps on the US government, which are typically denominated in Euros. ?How do you know that the counterparty will be solvent? ?How do you know that the Euro will be worth anything?

Personally, I would just stick with long US Treasuries. ?The US has the least problems of all the great powers in the world. ?You could try to intensify you returns by overweighting long Treasuries, but that is making a bet. ?The Permanent Portfolio makes no bets. ?It just takes advantage of economic volatility, and rides the waves of?of the economy. ?As a group, stocks, T-bonds, T-bills, and gold, react very differently to volatility, and as such do well, when many other strategies do not.

Warren Buffett is “scary smart,” so says Charlie Munger, who is “scary smart” himself. ?I think Harry Browne was “scary smart” with respect to the Permanent Portfolio idea. ?But am I, the recommend-er “scary smart?” ?I do okay, but probably not “scary smart,” so take my words with a grain of salt.

Sincerely,

David

PS — As an aside, I would note that if everyone adopted the “Permanent Portfolio” idea — gold would go through the roof, because that is the scarcest of the four investments.

How to Start an Investment Advisory Business from a Nontraditional Background

How to Start an Investment Advisory Business from a Nontraditional Background

Another letter from a reader:

Hi,

I recently discovered your blog. I read that you have had quite a long history in the financial industry and you mentioned to be running your own asset management shop as well. I currently work as a software developer but I have had for a long time a strong passion for investing and lately I have combined both of the latter. During the last 2 years I have developed my own software for simulating all sorts of quantitative investment strategies mainly for myself but at times for clients too. However, currently I am in a situation where I would like to take my hobby and passion to the next step and start working in the financial industry as a programmer doing similar tasks as I have done now as a hobby. Would you happen to have any good advice how to move forward and where to start looking for this kind of a position?

Thanks in advance,

You have to make your expertise known. ?That can be through a blog, a newsletter (whether e-mail or paper), and must give people a taste of your expertise. ?Be aware that to gain reader interest, clever examples will suffice. ?To gain clients you will need a track record that shows the results of all decisions made ?over the non-discretionary accounts you advised.

Simulated results aren’t enough. ?You have to be able to show that you made actual money in real time. ?Once you can do that, make your expertise known, and then follow up with those who contact you.

Many clever investors have come from nontraditional backgrounds. ?I know more than a few. ?I will add only this: don’t quit your “day job” before you have a sense that your investment management firm will have traction.

Sincerely,

David

On Setting Up New Accounts

On Setting Up New Accounts

Another great letter from a reader:

Hi David,

I enjoy your writing. I find myself of a similar mindset. I am an investment advisor running my clients individual accounts in a value fashion. I am currently have my clients invested in about 20 positions. My question is in regards to a new account….I have held off on buying the same positions in that new account unless any of the 20 positions still fall within my estimated “buy” range. Therefore, a new account opened today may sit in cash for some time until new ideas are found, or the 20 positions from the other accounts fall back to a buy range. How do you handle this? Do you use a model portfolio and all accounts consistently look alike?

Thank you and keep up the good work,

Dear Friend,

My value proposition is that clients get a clone of my accounts. ?I am my own biggest client; what I get, they get, less fees. ?I set them up to mirror my account within a week of receiving the assets.

The main reason I do it this way is that there is little rhyme and reason to target prices. ?I don’t have any target prices. ?Rather, I compare stocks against each other using a scoring system quarterly, and I sell companies that are relatively ?expensive and buy companies that are relatively cheap. ?Read my article Portfolio Rule Eight to understand this better. ?I realize few managers manage money this way, but I think it is a way that reflects how the markets really work. ?We should not compare individual stocks against cash, but compare stocks against each other. ?We should compare the stock market as a whole against cash, to analyze whether it is absolutely rich or cheap.

Sincerely,

David

The Investments Matter More than their Form

The Investments Matter More than their Form

  • Open-end Mutual Funds, including index funds
  • Closed-end Mutual Funds
  • Exchange Traded Funds, including index funds
  • Separately Managed Accounts
  • Unit Investment Trusts
  • Hedge Funds
  • Private Equity
  • Other Limited Partnerships [LPs], including MLPs
  • Variable Annuities (and Life Insurance)
  • Equity-Indexed Annuities (and Life Insurance)

What do all of the above have in common? ?The first one is the easiest — they are all investments. ?The second one is harder — they are all ways of investing in the ownership interests of corporations.

Think of the underlying investments within these investment forms when analyzing the forms as investments. ?Now the forms aren’t entirely neutral:

  • Index funds don’t take a lot of fees.
  • Hedge Funds, Private Equity, and Insurance Products do take a lot of fees.
  • Insurance Products are tax favored. ?LPs,?MLPs and Private Equity have some tax advantages. ?Separately managed accounts can have tax advantages, if managed right. ?If you make the right investment, buying and holding has tax advantages, especially if you take it to the grave.

Thus, you should look at the manager, to try to analyze if he has skill. ?You should look at the fees to see what you are giving up. ?You should look at the tax advantages.

You should also think about the sensitivity of the investments to the overall risk cycle. ?I don’t like the concept of beta, because it is not a stable concept, but in broad hedge funds have low beta, and private equity has high beta, relative to an S&P 500 index fund. ?But neither in aggregate have much outperformance, after adjusting for the beta.

There are many clever investors scouring the world of investments looking for underpriced assets. ?At a time like now, there aren’t a lot of underpriced assets. ?I might find 2-4 per quarter, but they are only relatively underpriced, not absolutely underpriced (I.e. at this price, you should buy it regardless the the economic environment).

Every now and then, the market falls apart. ?At such a time, two things happen.

1) Because some sector of the economy had too much debt, prices for the stocks and corporate bonds (or trade claims) fall, and the market as a whole falls along with them, though to a lesser extent.

2) During the crisis, many assets get oversold, and those with better knowledge can profit from the overselling. ?The best example I can think of all of the hedge funds that bought non-agency mortgage-backed securities, when they were thrown out the window indiscriminately in 2008, and many of those securities have returned to par.

The ability to achieve alpha (outperformance) increases after a crisis. ?Some who prepare for that, like Seth Klarman and Warren Buffett, create their own outperformance by taking more risk when other investors are running away in panic.

As my boss asked me in 2007, “Why have you not done so well for us the last few years, when you did so well 2003-5? ?I answered, “When I came to you, the market was like an apple cart ?that had fallen over and I picked up the undamaged apples. ?Today, the market is rational, and there are not a lot of easy pickings to be had. ?That is the difference between the bust and the boom. ?It is much easier for a fundamental investor to act during the bust.

Thus I would encourage the following:

  • Pay attention to fees
  • Pay attention to tax advantages.
  • The time at which you invest matters ?a great deal: try to invest when opportunities are the greatest (and others are scared stiff)
  • Ignore the form of investing, but invest with skilled managers (if you can find them, otherwise index funds).

Think of Seth Klarman who hands back money to his clients when markets are not promising. ?Few professionals have the intelligence?to do that. ? Fewer have the ethics and courage to do so.

For my equity clients, I have reduced exposure, and I am close to my maximum cash level of 20%. ?I am watching the market, and am willing to add to my positions, 10%, 20%, and 30% lower. ?I own good companies. ?As has been true in the past, I get close to zero cash as the market bottoms. ?The market is somewhat high now — I think of it as the 80th percentile. ?But it is not at nosebleed levels.

Analyze your investments, and sense the skill of managers, and lack thereof, and the degree of sensitivity to the market as a whole, which is likely higher than you expect.

Then adjust as you see fit. ?Every situation is different, except for the parts that are the same.

All for now.

Regarding Underemployment

Regarding Underemployment

This is just meant to be a few thoughts. ?I haven’t worked everything out, but I want to talk about how the labor markets are weak.

Yes, the headline statistics are strong. ?The U-3 unemployment figure is low at 6.2%. ?But look at a few other statistics:

My, but wages as a share of GDP has been falling.

And real wages have flatlined. ?No surprise that many feel pinched in the present environment. ?Even the Federal Reserve Chairwoman Janet Yellen expresses her doubts about the labor markets, which was expressed through the most recent FOMC Statement.

The problem is this: the relationship between labor employment and monetary policy is weak. ?It is weaker than pushing on a string. ?There are two major factors retarding the US labor market, and they are globalization and increased productivity from technology.

The value of knowledge is rising relative to less-skilled labor. ?As such, we are seeing increased income inequality in the US, but lower income inequality globally. ?Bright people in foreign lands who can transmit their skills over the internet can do better for themselves, even as more expensive counterparts in the US lose business.

Call this the revenge of the nerds. ?The internet enables bright people to profit from their differential knowledge, as it can be applied to wider opportunities.

Think of India for a moment. ?Many bright people with advanced degrees, but education amounts to little unless you can use it for your own benefit.

Here’s my main point. ?The FOMC con’t do much about the labor markets; their power is weak. ?The bigger factors of globalization and technology can’t be fought. ?They are too big.

Thus, you are on your own. ?The US Government does not have the power to re-create the unique middle class prosperity of the ’50s and ’60s. ?If you work for others, you are not your own master. ?Aim to make yourself the master of your situation, by making yourself invaluable to your clients.

Not Apt, Not Teed Up, Not Going

Not Apt, Not Teed Up, Not Going

Okay, let’s run the promoted stocks scoreboard:

Ticker Date of Article Price @ Article Price @ 6/27/14 Decline Annualized Splits
GTXO 5/27/2008 2.45 0.022 -99.1% -53.3%  
BONZ 10/22/2009 0.35 0.001 -99.8% -72.8%  
BONU 10/22/2009 0.89 0.000 -100.0% -85.1%  
UTOG 3/30/2011 1.55 0.000 -100.0% -92.3%  
OBJE 4/29/2011 116.00 0.069 -99.9% -89.7% 1:40
LSTG 10/5/2011 1.12 0.010 -99.1% -81.2%  
AERN 10/5/2011 0.0770 0.0001 -99.9% -90.5%  
IRYS 3/15/2012 0.261 0.000 -100.0% -100.0% Dead
RCGP 3/22/2012 1.47 0.045 -96.9% -77.2%  
STVF 3/28/2012 3.24 0.340 -89.5% -61.8%  
CRCL 5/1/2012 2.22 0.008 -99.6% -91.7%  
ORYN 5/30/2012 0.93 0.026 -97.2% -80.7%  
BRFH 5/30/2012 1.16 0.779 -32.8% -16.8%  
LUXR 6/12/2012 1.59 0.006 -99.7% -93.0%  
IMSC 7/9/2012 1.5 1.220 -18.7% -9.5%  
DIDG 7/18/2012 0.65 0.042 -93.6% -74.0%  
GRPH 11/30/2012 0.8715 0.073 -91.6% -77.4%  
IMNG 12/4/2012 0.76 0.015 -98.0% -90.6%  
ECAU 1/24/2013 1.42 0.004 -99.7% -97.8%  
DPHS 6/3/2013 0.59 0.007 -98.9% -97.9%  
POLR 6/10/2013 5.75 0.050 -99.1% -98.4%  
NORX 6/11/2013 0.91 0.090 -90.1% -86.9%  
ARTH 7/11/2013 1.24 0.200 -83.9% -82.2%  
NAMG 7/25/2013 0.85 0.085 -90.0% -89.6%  
MDDD 12/9/2013 0.79 0.060 -92.4% -98.2%  
TGRO 12/30/2013 1.2 0.150 -87.5% -97.1%  
VEND 2/4/2014 4.34 1.500 -65.4% -88.7%  
HTPG 3/18/2014 0.72 0.100 -86.1% -99.5%  
WSTI 6/27/2014 1.35 0.735 -45.6% -99.8%  
  8/1/2014   Median -97.2% -89.6%

 

Now for tonight’s loser-in-waiting: Apptigo [APPG]. ?This is a company that ?until four months ago was a development stage company for selling Irish horses in the US. ?This is a company that has never earned any money, and only has positive net worth at present because of raising capital when the prior company acquired Apptigo in a reverse marger, and renamed itself Apptigo.

This is a company that says it will make money off of selling apps. ?Well, they have one app at present, and it is called?SCORE – Match Maker. ?It has a grand total of seven likes at the iTunes Store. ?Now let me hazard a guess here, and say that it is difficult to create a broad network for matchmaking. ?The value of a network goes up proportional to the square of its nodes. ?How will they attract enough attention in the iTunes ecosystem to make ?a significant network? ?Even if this is a legitimate company, I don’t see how it will be easy to make it work, as the promoter said it would be easy.

The promoter also said this in tiny type:

Important Notice and Disclaimer: Flying Under the Radar Stocks is an independent paid circulation newsletter. This report is a solicitation for subscriptions and a paid promotional advertisement of Apptigo, Inc. (APPG). Flying Under the Radar Stocks received an editorial fee of twenty five thousand dollars from Micro Cap Media Ltd. APPG was chosen to be profiled after Flying Under the Radar Stocks completed due diligence on APPG. Flying Under the Radar Stocks expects to generate new subscriber revenue the amount of which is unknown at this time resulting from the distribution of this report. Micro Cap Media Ltd. paid nine hundred forty-eight thousand, three hundred sixty-three dollars to advertising agencies for the cost of creating and distributing this report, including printing and postage, in an effort to build investor awareness. This report does not provide an analysis of a company’s financial position, operations or prospects and this is not to be construed as a recommendation by Micro Cap Media Ltd. or an offer to buy or sell any security or investment advice. An offer to buy or sell can only be made with accompanying disclosure documents and only in states and provinces for which they are approved. Do not base any investment decision based solely on information in this report. Although the information contained in this advertisement is believed to be reliable, Micro Cap Media Ltd. makes no warranties as to the accuracy of any of the contents herein and accepts no liability for how readers may choose to utilize the content. Readers should perform their own due diligence, including consulting with a licensed, qualified investment professional. Further, readers are strongly urged to independently verify all statements made in this report APPG?s financial position and all other information regarding APPG should be verified directly with APPG Audited financial statements and other relevant information about APPG can be found at the Security and Exchange Commission’s website at www.sec.gov. It is recommended that any investment in any security should be made only after consulting with your investment advisor and only after reviewing all publicly available information, including the financial statements of the company. The information contained herein contains forward-looking information within the meaning of section 27a of the Securities Act of 1933 as amended and section 21e of the Securities Act of 1934 as amended including statements regarding growth of APPG. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act, statements contained herein that look forward in time, which include everything other than historical information, involve risks and uncertainties. ?All forward-looking statements are based upon current assumptions that are believed to be reasonable. In the event any such assumptions turn out to be incorrect, forward-looking statements based upon those assumptions will not be accurate. Flying Under the Radar Stocks presents information in this report believed to be reliable, but its accuracy cannot be guaranteed. More information can be found at APPG’s website www.apptigo.com. (underline emphasis mine)

I actually like this disclaimer, except for the fact that it is in tiny type, while the proclamation of the investment’s fake virtues are in big type. ?So, I have a simple proposal for the SEC regarding newsletters like this: the type size of any disclaimer must be as large as the the largest type in the document.

This is fair, and consistent with other laws that regulate “the fine print.”

I emailed the CEO of Apptigo to ask him whether he knew about the stock promotions (there are three going on), and whether the company, its major shareholders, or its management was benefiting from the promotion. ?There was no answer, though I wrote to him on Thursday.

Regardless, avoid promoted stocks, dear friends. ?No company of any good reputation pays anyone to promote their stock. ?Avoid promoted stocks.

A Different Look at Neglect

A Different Look at Neglect

It’s good to look at stocks that not everyone else is looking at. ?A little neglect can be a good thing.

  • Companies that are a little illiquid.
  • Companies with a dedicated shareholder base; they don’t sell at the drop of a hat.
  • Companies with control investors that don’t give outside passive minority investors the short end of the stick.
  • Companies that have odd business models that have most investors ignore them
  • Companies in boring businesses.

Let’s look at this top down, looking at neglect by market sector. ?Days to turn over indicates how rapidly stocks are traded. ?A high number means they trade more slowly.

Sector Market Cap ($M) Dollar Volume ($K) Days to turn over
05 – Consumer Non-Cyclical 1,536,807 7,274,592 211
07 – Financial 3,511,041 16,767,713 209
12 – Utilities 1,051,811 5,348,267 197
06 – Energy 2,425,787 14,781,550 164
02 – Capital Goods 1,253,361 7,882,012 159
08 – Health Care 2,428,969 16,080,916 151
Grand Total 23,817,027 161,861,109 147
01 – Basic Materials 947,830 6,770,631 140
11 – Transportation 594,989 4,279,380 139
03 – Conglomerates 15,805 116,462 136
09 – Services 4,936,835 37,308,869 132
10 – Technology 4,368,575 38,382,921 114
04 – Consumer Cyclical 745,217 6,867,798 109

In general, colder sectors attract more long-term holders. ?Sectors where competitive conditions change more rapidly turn over faster.

An aside before we go on — I excluded from this analysis:

  • Foreign stocks trading on US exchanges
  • Over the counter stocks
  • Stocks with less than $10 million in market cap
  • Exchange traded products

That left me with around 3900 stocks. ?As an aside, stock turnover seems have to increased, and I wonder if high frequency?trading and ETP creation/liquidation might be driving that. ?147 days for an average holding period means stocks trade their entire market capitalization ?around 2.5x per year. ?Cue up the commentary from Buffett and Munger about how most trading in the stock market is wasted effort.

But now let’s look at industries:

Industry Market Cap ($M) Dollar Volume ($K) Days to turn over
0715 – Insurance (Property & Casualty) 632,449 1,730,968 365
0112 – Fabricated Plastic & Rubber 3,298 10,484 315
1206 – Natural Gas Utilities 435,106 1,407,846 309
0506 – Beverages (Non-Alcoholic) 354,710 1,217,841 291
1103 – Air Courier 139,858 505,601 277
0521 – Personal & Household Products 434,008 1,574,389 276
1209 – Water Utilities 17,103 64,198 266
0724 – Money Center Banks 223,336 877,033 255
0524 – Tobacco 272,385 1,170,334 233
0606 – Oil & Gas – Integrated 438,181 1,900,557 231
0957 – Retail (Grocery) 398,981 1,740,963 229
0712 – Insurance (Miscellaneous) 51,749 227,575 227
0218 – Misc. Capital Goods 417,891 1,859,649 225
0975 – Waste Management Services 59,927 283,562 211
0730 – S&Ls/Savings Banks 1,887 9,013 209
1112 – Railroads 186,397 902,219 207
0809 – Major Drugs 227,419 1,135,147 200
0915 – Communications Services 692,373 3,519,894 197
0503 – Beverages (Alcoholic) 52,692 273,645 193
0727 – Regional Banks 1,227,813 6,422,106 191
1030 – Scientific & Technical Instruments 265,595 1,393,898 191
0706 – Insurance (Accident & Health) 247,622 1,310,785 189
0718 – Investment Services 554,225 2,934,362 189
0418 – Footwear 80,706 428,470 188
0512 – Fish/Livestock 1,917 10,383 185
0703 – Consumer Financial Services 405,697 2,203,610 184
0203 – Aerospace and Defense 402,223 2,254,100 178
0960 – Retail (Home Improvement) 169,283 956,876 177
0127 – Misc. Fabricated Products 77,222 439,594 176
0221 – Mobile Homes & RVs 5,297 31,414 169
0612 – Oil Well Services & Equipment 574,292 3,407,144 169
0106 – Chemicals – Plastics and Rubbers 173,053 1,038,370 167
0954 – Retail (Drugs) 230,495 1,417,370 163
1109 – Misc. Transportation 73,963 456,181 162
0103 – Chemical Manufacturing 353,360 2,227,847 159
0709 – Insurance (Life) 166,263 1,052,261 158
0803 – Biotechnology & Drugs 1,613,675 10,424,895 155
1203 – Electric Utilities 599,603 3,876,223 155
0415 – Auto & Truck Parts 203,596 1,324,773 154
0509 – Crops 4,889 31,874 153
0918 – Hotels & Motels 94,044 616,953 152
0609 – Oil & Gas Operations 1,386,175 9,141,482 152
0209 – Construction – Supplies and Fixtures 140,270 934,529 150
1006 – Computer Hardware 72,374 487,123 149
1036 – Software & Programming 1,152,944 7,816,781 147
Grand Total 23,817,027 161,861,109 147
0921 – Motion Pictures 159,568 1,105,864 144
1024 – Electronic Instruments & Controls 182,569 1,279,912 143
0515 – Food Processing 403,598 2,854,143 141
0909 – Business Services 446,084 3,157,933 141
0812 – Medical Equipment & Supplies 436,733 3,130,033 140
0930 – Printing Services 7,170 51,557 139
0109 – Containters & Packaging 81,869 590,633 139
0933 – Real Estate Operations 594,286 4,295,888 138
0206 – Construction & Agricultural Machinery 137,131 991,809 138
0303 – Conglomerates 15,805 116,462 136
0969 – Schools 21,108 160,274 132
1115 – Trucking 44,104 336,398 131
0939 – Rental & Leasing 238,564 1,828,936 130
0130 – Non-Metallic Mining 4,789 37,031 129
0942 – Restaurants 219,661 1,709,208 129
1118 – Water Transportation 32,241 255,920 126
0406 – Appliances & Tools 55,182 456,389 121
0927 – Printing & Publishing 91,943 760,613 121
0133 – Paper & Paper Products 30,855 256,597 120
0936 – Recreational Activities 75,698 643,463 118
0124 – Metal Mining 98,839 864,894 114
0430 – Recreational Products 54,015 474,019 114
0421 – Furniture & Fixtures 31,741 279,508 114
0948 – Retail (Catalog & Mail Order) 266,904 2,421,091 110
0806 – Healthcare Facilities 151,142 1,390,841 109
0121 – Iron & Steel 76,186 704,432 108
0924 – Personal Services 41,546 386,447 108
0403 – Apparel/Accessories 89,378 848,477 105
1018 – Computer Services 1,023,238 9,989,880 102
1003 – Communications Equipment 837,801 8,227,385 102
0972 – Security Systems & Services 8,892 88,979 100
1021 – Computer Storage Devices 124,136 1,290,696 96
0963 – Retail (Specialty Non-Apparel) 216,223 2,271,386 95
0945 – Retail (Apparel) 160,390 1,696,879 95
0906 – Broadcasting & Cable TV 471,387 5,029,758 94
0433 – Textiles – Non-Apparel 11,455 123,789 93
1033 – Semiconductors 670,980 7,309,563 92
0951 – Retail (Department & Discount) 102,849 1,133,640 91
1012 – Computer Networks 14,378 159,288 90
0903 – Advertising 39,473 442,180 89
0409 – Audio & Video Equipment 11,660 130,676 89
0518 – Office Supplies 12,608 141,981 89
0215 – Construction Services 119,782 1,361,922 88
0912 – Casinos & Gaming 109,703 1,259,520 87
0424 – Jewelry & Silverware 6,527 78,568 83
0603 – Coal 27,139 332,366 82
0118 – Gold & Silver 20,871 256,842 81
0115 – Forestry & Wood Products 27,489 343,907 80
1027 – Office Equipment 4,010 51,064 79
0412 – Auto & Truck Manufacturers 189,092 2,548,454 74
0436 – Tires 8,943 126,838 71
0212 – Construction – Raw Materials 30,768 448,589 69
1106 – Airline 118,426 1,823,061 65
0966 – Retail (Technology) 20,283 329,637 62
0427 – Photography 2,923 47,837 61
1015 – Computer Peripherals 20,549 377,330 54

Again, the pattern is more volatile and controversial industries trade more frequently than the more stable industries. ?One one sense, this is obvious, because the stock market can be used for two purposes — investing and gambling. ?Gambling is much more attractive when prices are volatile, and the prospects for making a big win are significant. (Even if the possibility of big losses is high as well. ?Oh well, profits tend to flow to those ?who eliminate the downside.)

Finally, let’s look at individual stocks, segmented by market capitalization.

Behemoth Stocks

Company Ticker Sector Industry Days
Berkshire Hathaway Inc. BRK.A 07 – Financial 0715 – Insurance (Property & Casualty) 6,579
Wal-Mart Stores, Inc. WMT 09 – Services 0957 – Retail (Grocery) 542
Exxon Mobil Corporation XOM 06 – Energy 0609 – Oil & Gas Operations 453
Johnson & Johnson JNJ 08 – Health Care 0803 – Biotechnology & Drugs 427
PepsiCo, Inc. PEP 05 – Consumer Non-Cyclical 0506 – Beverages (Non-Alcoholic) 365
Procter & Gamble Company, The PG 05 – Consumer Non-Cyclical 0521 – Personal & Household Products 362
General Electric Company GE 02 – Capital Goods 0218 – Misc. Capital Goods 353
Wells Fargo & Co WFC 07 – Financial 0727 – Regional Banks 345
Coca-Cola Company, The KO 05 – Consumer Non-Cyclical 0506 – Beverages (Non-Alcoholic) 341
Chevron Corporation CVX 06 – Energy 0606 – Oil & Gas – Integrated 339
         
Comcast Corporation CMCSA 09 – Services 0915 – Communications Services 196
QUALCOMM, Inc. QCOM 10 – Technology 1033 – Semiconductors 193
Citigroup Inc C 07 – Financial 0727 – Regional Banks 175
Cisco Systems, Inc. CSCO 10 – Technology 1003 – Communications Equipment 161
Intel Corporation INTC 10 – Technology 1033 – Semiconductors 146
Bank of America Corp BAC 07 – Financial 0727 – Regional Banks 138
Gilead Sciences, Inc. GILD 08 – Health Care 0803 – Biotechnology & Drugs 123
Amazon.com, Inc. AMZN 09 – Services 0948 – Retail (Catalog & Mail Order) 105
Apple Inc. AAPL 10 – Technology 1003 – Communications Equipment 93
Facebook Inc FB 10 – Technology 1018 – Computer Services 50

The table above lists the biggest stocks — the top ten that are less traded, and the top ten that are most traded. ?No surprises, those that are most traded are more controversial than those that are traded less. ?Also, some companies have investors with control positions, which further slows down trading as most control investors rarely trade.

Large Cap Stocks

Company Ticker Sector Industry Days
Cheniere Energy Partners LP Ho CQH 12 – Utilities 1206 – Natural Gas Utilities 1,709
CNA Financial Corp CNA 07 – Financial 0715 – Insurance (Property & Casualty) 1,647
Icahn Enterprises LP IEP 09 – Services 0963 – Retail (Specialty Non-Apparel) 1,355
Spectra Energy Partners, LP SEP 12 – Utilities 1206 – Natural Gas Utilities 1,190
Enable Midstream Partners LP ENBL 06 – Energy 0606 – Oil & Gas – Integrated 1,166
Cheniere Energy Partners LP CQP 12 – Utilities 1206 – Natural Gas Utilities 1,041
Thomson Reuters Corporation (U TRI 09 – Services 0927 – Printing & Publishing 1,012
Western Gas Equity Partners LP WGP 06 – Energy 0609 – Oil & Gas Operations 969
Enterprise Products Partners L EPD 12 – Utilities 1206 – Natural Gas Utilities 956
Plains GP Holdings LP PAGP 06 – Energy 0612 – Oil Well Services & Equipment 953
         
Citrix Systems, Inc. CTXS 10 – Technology 1036 – Software & Programming 54
United Continental Holdings In UAL 11 – Transportation 1106 – Airline 53
LinkedIn Corp LNKD 10 – Technology 1018 – Computer Services 47
Yahoo! Inc. YHOO 10 – Technology 1018 – Computer Services 47
Whole Foods Market, Inc. WFM 09 – Services 0957 – Retail (Grocery) 45
Micron Technology, Inc. MU 10 – Technology 1033 – Semiconductors 39
CBS Corporation CBS 09 – Services 0906 – Broadcasting & Cable TV 37
Tesla Motors Inc TSLA 04 – Consumer Cyclical 0412 – Auto & Truck Manufacturers 21
Netflix, Inc. NFLX 09 – Services 0906 – Broadcasting & Cable TV 19
Twitter Inc TWTR 10 – Technology 1018 – Computer Services 19

What fascinates me here about the low turnover stocks is the dominance of energy limited partnerships. ?Since they are income vehicles, they don’t trade as much stocks used for speculative gains.

Mid-cap Stocks

Company Ticker Sector Industry Days
CIM Commercial Trust Corp CMCT 09 – Services 0939 – Rental & Leasing 9,382
Crown Media Holdings, Inc CRWN 09 – Services 0906 – Broadcasting & Cable TV 4,333
Clear Channel Outdoor Holdings CCO 09 – Services 0903 – Advertising 2,258
American National Insurance Co ANAT 07 – Financial 0715 – Insurance (Property & Casualty) 1,756
Gamco Investors Inc GBL 07 – Financial 0718 – Investment Services 1,627
Valhi, Inc. VHI 01 – Basic Materials 0103 – Chemical Manufacturing 1,385
OCI Partners LP OCIP 01 – Basic Materials 0103 – Chemical Manufacturing 1,205
Summit Midstream Partners LP SMLP 12 – Utilities 1206 – Natural Gas Utilities 1,199
TFS Financial Corporation TFSL 07 – Financial 0727 – Regional Banks 1,193
Global Partners LP GLP 06 – Energy 0609 – Oil & Gas Operations 1,131
         
FireEye Inc FEYE 10 – Technology 1036 – Software & Programming 21
AK Steel Holding Corporation AKS 01 – Basic Materials 0121 – Iron & Steel 21
Ariad Pharmaceuticals, Inc. ARIA 08 – Health Care 0803 – Biotechnology & Drugs 21
Zillow Inc Z 09 – Services 0933 – Real Estate Operations 20
Trulia Inc TRLA 09 – Services 0909 – Business Services 20
Sunedison Inc SUNE 10 – Technology 1033 – Semiconductors 19
J C Penney Company Inc JCP 09 – Services 0951 – Retail (Department & Discount) 17
SolarCity Corp SCTY 10 – Technology 1033 – Semiconductors 17
GT Advanced Technologies Inc GTAT 10 – Technology 1033 – Semiconductors 15
Yelp Inc YELP 09 – Services 0927 – Printing & Publishing 12

Again. hot stocks with uncertain returns at the bottom, and stocks with more certain prospects at the top. ? Note the income vehicles in the less traded stocks.

Small Cap Stocks

Company Ticker Sector Industry Days
PHI Inc. PHII 06 – Energy 0612 – Oil Well Services & Equipment 13,434
First Mid-Illinois Bancshares, FMBH 07 – Financial 0727 – Regional Banks 10,674
QAD Inc. QADB 10 – Technology 1036 – Software & Programming 8,529
Intermountain Community Bancor IMCB 07 – Financial 0727 – Regional Banks 8,374
Greene County Bancorp GCBC 07 – Financial 0727 – Regional Banks 7,021
Oconee Federal Financial OFED 07 – Financial 0727 – Regional Banks 6,143
Bel Fuse, Inc. BELFA 10 – Technology 1024 – Electronic Instruments & Controls 5,131
PrimeEnergy Corporation PNRG 06 – Energy 0609 – Oil & Gas Operations 4,303
Community Financial Corp TCFC 07 – Financial 0727 – Regional Banks 3,608
Transcontinental Realty Invest TCI 09 – Services 0933 – Real Estate Operations 3,168
         
PowerSecure International, Inc POWR 12 – Utilities 1203 – Electric Utilities 20
Penn Virginia Corporation PVA 06 – Energy 0609 – Oil & Gas Operations 20
Pixelworks, Inc. PXLW 10 – Technology 1033 – Semiconductors 20
IsoRay, Inc. ISR 08 – Health Care 0812 – Medical Equipment & Supplies 18
Quantum Fuel Systems Tech Worl QTWW 04 – Consumer Cyclical 0415 – Auto & Truck Parts 17
Pacific Ethanol Inc PEIX 01 – Basic Materials 0103 – Chemical Manufacturing 17
Glu Mobile Inc. GLUU 10 – Technology 1036 – Software & Programming 15
Achillion Pharmaceuticals, Inc ACHN 08 – Health Care 0809 – Major Drugs 14
Walter Energy, Inc. WLT 06 – Energy 0603 – Coal 14
Plug Power Inc PLUG 10 – Technology 1024 – Electronic Instruments & Controls 8

Look at all of the regional banks amid those that turn over less. ?Look at all of the controversial stocks amid ?those that trade frequently.

Microcap Stocks

Company Ticker Sector Industry Days
Bridgford Foods Corporation BRID 05 – Consumer Non-Cyclical 0515 – Food Processing 20,286
Magyar Bancorp, Inc. MGYR 07 – Financial 0727 – Regional Banks 8,948
Bowl America Incorporated BWL.A 09 – Services 0936 – Recreational Activities 8,599
MSB Financial Corp. MSBF 07 – Financial 0727 – Regional Banks 5,562
Siebert Financial Corp. SIEB 07 – Financial 0718 – Investment Services 5,136
Pathfinder Bancorp, Inc. PBHC 07 – Financial 0727 – Regional Banks 4,764
Jacksonville Bancorp Inc JXSB 07 – Financial 0727 – Regional Banks 4,567
Oak Valley Bancorp(NDA) OVLY 07 – Financial 0727 – Regional Banks 4,363
Howard Bancorp Inc HBMD 07 – Financial 0727 – Regional Banks 4,308
Bay Bancorp Inc BYBK 07 – Financial 0727 – Regional Banks 4,240
         
Hyperdynamics Corporation HDY 06 – Energy 0609 – Oil & Gas Operations 16
InterCloud Systems Inc ICLD 09 – Services 0909 – Business Services 14
BioFuel Energy Corp. BIOF 01 – Basic Materials 0103 – Chemical Manufacturing 10
India Globalization Capital, I IGC 02 – Capital Goods 0215 – Construction Services 8
LiveDeal Inc LIVE 10 – Technology 1018 – Computer Services 8
Giga-tronics, Incorporated GIGA 10 – Technology 1024 – Electronic Instruments & Controls 7
Digital Ally, Inc. DGLY 04 – Consumer Cyclical 0409 – Audio & Video Equipment 5
DARA Biosciences Inc DARA 08 – Health Care 0803 – Biotechnology & Drugs 4
Spherix Inc SPEX 09 – Services 0909 – Business Services 4
USEC Inc. USU 12 – Utilities 1203 – Electric Utilities 3

Look at all of the bitty banks that don’t get traded. ?Perfect for some of my friends who buy and hold such banks, if they can get the trade on. ?And then, look at all of the controversial companies whose stocks trade trade like a spinning top.

I encourage all of my readers to analyze situations where there are fewer eyeballs looking. ?Analyze situations where control investors limit the trading relative to the size of the firm. ?Go where others don’t go, because it is dull. ?Look for advantage where few others do. ?And after that, be willing to hold for a while — years, not months. ?Pay attention as to whether the company has a defensible business model — strong balance sheet, moat versus competition, etc. ?Then look for a reasonable to low price. ?There is the making of a good investment.

Full disclosure: long CVX & BRK/B

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