Category: Portfolio Management

On Target Prices & Yields

On Target Prices & Yields

Posted on by David Merkel

I know that much of the money management business sets target prices for buying and selling, particularly value managers, and sell-side analysts.? I don’t set target prices.? Why?

Think of what a target price means.? It says that at a certain price you are willing to exchange securities for cash (sell), or vice-versa (buy).? The trade-off between an individual security and cash is difficult to calculate.? Even if you have a really good dividend discount model, the target prices are very sensitive to model inputs.? I think the question of whether I would rather have cash or an individual stock or bond is a difficult question.

So why don’t we focus on easier questions?? It is simpler to rank stocks versus other stocks at least in broad, and bonds versus bonds.? I am not saying that you have to optimize.? You can’t be exact in ranking the desirability of stocks or bonds, but if we can’t identify a group of stocks outside the portfolio that are better than a group of stocks inside the portfolio, there is not much sense in trading.? Same for bonds.

With bonds, the tradeoff is more obvious, because you can consult yield relationships, and make all of the adjustments necessary to decide whether a trade is a good one or not.? Even then, there had better be a good yield advantage after all adjustments, or the trad will not make sense.? As an example, back in the first half of 2002, I engaged in a wide number of trades that gave up some absolute yield, but improved the portfolio’s credit quality dramatically at a time when credit spreads were narrow.? Though overall yield went down, the portfolio was in better shape.? This was the opposite of what we did after 9/11 — buy distressed bonds while spreads were very wide, accepting more credit risks when it paid to do so.

Thus, most of my portfolio management is not so much “Aim for the best.”? I’m not sure I can do that.? “Aim for something better than what I currently have” is achievable.? In cases where I can find no clear improvements, sitting on my hands it the best strategy.? After all, time is on the side of a portfolio representing great relative value.

This is not to denigrate those that are better than me, like Seth Klarman.? He has a strong sense of when he would rather hold cash versus taking any risk, and so he manages value in an absolute sense, even giving back money to clients when? he doesn’t have anything to do with it.

I’m still finding some attractive assets to buy, though not many.? Later this month, I will do my formal quarterly reshaping of the portfolio, where I will trade away a few stocks I like less for those I like more.? And if I can’t find any that I like more, I don’t have to do anything, because if I’ve got a really good group of stocks, doing nothing may be the best idea of all.

PS — If you want more, some of the details are in Portfolio Rule Eight.

Fire and Ice

Fire and Ice

Posted on by David Merkel

This is a hard time to be managing fixed income.? Yes, if you are at a big shop with access to deal flow, not so bad — but when you are small like me and have limited tools for a small client base (less than 10% of my assets are fixed income… smart people, because I am better at equity investing) it is really difficult.

Everyone knows interest rates have to rise.? That is why I own long Treasuries.? If the certainty level were truly that high, we would have sold off a lot more by now.? As it is, oldsters, their intermediaries, and pension plans are investing in longer fixed income to provide long-term income.? The need for income, at least for now, holds rates down.? If price inflation kicks up, my view will change, and so might the view of millions of others.

I call that position “ice.”? What will do well if the global economy goes cold?? That’s 20% of the portfolio.

Then there is “fire,”? credit risk in mild and stronger forms.? 40% of assets in short investment grade bonds.? 20% in bank loans.? 20% in short-dated junk.? What will do well if the economy expands?? “Fire” will do well.

What I did wrong last year

My big mistake last year was owning emerging market bonds, both dollar-denominated, and local currency.? That market fell apart after Bernanke uttered the word “taper.”? I held, thinking there might be some recovery, only to sell in November, ahead of the first real taper.

I forgot what I knew, that immature/emerging financial markets are disproportionately sensitive to changes in monetary policy from developed markets.? Michael Pettis’ book, The Volatility Machine, makes that point ably.

On the bright side, maybe I missed the second half of the losses.? As for now, Fire and Ice is working, and providing returns to the small number of clients that use me for fixed income.

On Position Sizing in Equity Long-Short Hedge Funds

On Position Sizing in Equity Long-Short Hedge Funds

Posted on by David Merkel

This article is prompted by the following article by John Hempton of Bronte Capital.? This is not meant as a criticism of him; I have nothing but respect for him.? The article triggered memories of my own experiences with position sizing at a hedge fund.

The hedge fund I once worked for had great expertise with financial companies, and I worked for them in the boom years of the 2000s.? Our leader was bearish on depositary financials, a view that would eventually be right.? Of course “eventually right” is another way to say “wrong in the short run.”

Let me describe the problem from another angle.? When I was a corporate bond manager, I would mentally set three levels with the bonds that I held.

  • Spread necessary for an ordinary-sized position.
  • Spread necessary for a big position.
  • Spread necessary for a maximum position.

These spreads I would adjust for premium vs discount, optionality, and a bunch of other things.? The point is that I would always have a schedule for where I would be willing to buy more, or lighten up (sell some).? I often dealt in some of the least liquid corporate bonds, and I was patient, and even willing to break rules by holding more than 20% of a given issue.? My analysts almost always did good work, and I trusted them.

When markets are illiquid, they “trade by appointment.”? If you have a balance sheet behind you that is not worried about liquidity, you can do interesting things by buying assets that most ordinary managers won’t touch, because the issue is too small.

I came to the hedge fund after I managed corporate bonds.? In one sense, I had managed a far more complex long-only portfolio.? But being able to short creates complexities of its own.

I can’t tell you how many times at meetings at the hedge fund we had tough discussion on position sizing, more frequently on short positions. We were perpetually long quality, short market capitalization, long insurers, short banks, and long value.? Great idea, if too early. This would be an extreme example:

Boss: “This short position is killing us, it is up 50% from where we shorted it, and now we have a 6% short position, what do we do?”

Others answered in front of me, essentially suggesting no change.? He asked me personally and I said:

David: “If you had no position, and you were approaching this company today, what would you do?”

Boss: “I would short the maximum — 4%.”

David: “Then buy in 2%.”

Boss: “But that locks in the loss.”

David: “Do you want to risk locking in a bigger loss?”

The boss once said to me that I was the only one on his team that was natively a portfolio manager rather than an analyst.? (That said, I remained an analyst, while an analyst was made an assistant portfolio manager.? I think it would have been too difficult to have the insurance guy to manage the portfolio of what was a banking shop.? That said, as a corporate bond manager, I managed the financials, which were mostly banks.)

Setting position sizes on shorts is always harder than longs.? When your thesis goes wrong on a short, your risk increases, as the position size gets larger.? When it goes wrong on a long position your risk decreases, as the position size gets smaller.

As I have often said, being short is not the opposite of being long, it is the opposite of being leveraged long.? When you are short, or leveraged long, you do not fully control your trade.? The margin desk can take you out of your trade if the equity in the account gets small enough.? They are ruthless in doing so, because the margin desks at brokerages do not want to take losses.

That makes it all the more important to set a schedule of sizes on short positions.? The first question should be: at what price would I put my maximum position on?? That would help in sizing introductory and normal positions.? They would be far smaller than what most hedge funds do.

Again, the same exercise is easier in a long-only format, but the protocol is the same.? Establish introductory, normal and maximum position sizes, and hold to them.? Also put into effect the idea that analysts must give greater scrutiny to large positions.

All That Said

This is a reason I am not a fan of most hedge funds.? I believe in the funds of my former employer and those of Mr. Hempton.? But the difficulties of dealing with bad decisions with a weak balance sheet kills a lot of hedge funds.? Long only — it might survive.? But when you go long and short with leverage, the risk arises of total loss.

So don’t think you are a “cool kid” because you invest in hedge funds.? Long only does better over the long haul, because it is less risky, and compounds value.

 

There are Limits to Valuations

There are Limits to Valuations

Posted on by David Merkel

Every now and then, some will argue that there are no limits on valuations.? This tends to happen in bull markets.? We are getting that now.

This sentiment is sometimes due to ignorance, because bull markets encourage cheerleaders.? There are few who will oppose a bull market, though many who will talk about it after the bear market emerges, as if they had predicted it.

But there are limits on valuations.? Think of the bankruptcy pecking order.

  • Government and lawyers get paid
  • General creditors get paid
  • Banks and secured bondholders get paid
  • Unsecured bondholders get paid
  • Preferred stockholders get paid
  • Common stockholders get paid

That is the way you should think about risk.? What are the odds that you do not get paid?? The higher the odds that you don’t get paid, the higher the yield you must receive.? Don’t own a stock unless you are likely to be earning significantly more then the preferred stock, much less debt instruments on the same company.

That is why I look at the value of various claims on a company.? It gives me data on where the stock should be valued.

I encourage all readers to think like businessmen about investments, because it leads to the best results.? Analyze where valuations are cheap, and where free cash flow is being productively deployed.

That is the way to think about investing.? Think like an intelligent businessman, and only buy companies that you would like to run.

On Value Investing

On Value Investing

Posted on by David Merkel

In general, over the years, I have had respect for John Buckingham, who writes The Prudent Speculator.? I caught this because we own the? same stock Ensco plc.? As he said:

For instance, Ensco PLC (ESV) is the world?s second largest offshore driller, operating in six continents with one of the newest jackup and deepwater fleets in the industry. The company has shown a relatively impressive ability to keep operating expenses in check and generate solid free cash flow, while the P/E is less than 10, the dividend payout is more than 5% and profits per share are expected to increase from $6.14 last year to $6.67 this year and $7.79 in 2015. In short, we find Ensco to be a high-yielding, value-priced, financially-strong growth stock, operating in an industry with high barriers to entry and favorable long-term demand characteristics!

Great minds think alike, and fools seldom differ.? You shouldn’t buy Ensco after reading this unless you have studied it out.? Just because I agree with a comrade does not mean you should take action.? We could both be wrong.

At the end of his piece he listed many summary statistics of his portfolio.? I want to compare his with mine:

Dividend yield: His: 2.3%, mine 2.2%

P/E: His 15.9x, mine 12.0x

P/B: His 1.65x, mine 1.48x

P/S His 0.86x, mine 0.68x

I don’t look for dividend yields, and many European stocks that I own pay dividends, just not regular dividends — the philosophy is different there.

One thing that is different for me versus Buckingham is that I have more foreign stocks in my portfolio.? I am willing to consider companies in countries that follow the rule of law.

I have done better, and you are free to ask me how.? My main idea is to search for the best ideas regardless of where they are domiciled, or what size they are.? I analyze stocks regardless of how they are categorized by most.

Full disclosure: long Ensco plc [ESV]

 

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Rest of the World

 

  • Crunch Escalates as Money Funds Rival Shadow Banks http://t.co/JVU1w5ipZc Money funds in China suck liquidity away from wealth mgmt prods $$ Jan 20, 2014
  • Spain?s Worst Year for Work Leaves Rajoy Counting Cost http://t.co/KlaAGab4kY Private debts r not economically neutral. Large -> unstable $$ Jan 20, 2014
  • Richest Scandinavian Nation Extends Its Junk Boom http://t.co/ZVwwxEAdIa Norwegian financial institutions have hunger for yield in kronor $$ Jan 20, 2014
  • Bird Flu Kills Health Worker, Stokes Transmission Concern http://t.co/FVcxVhaH4L Would not b concerned, seems difficult to transmit virus $$ Jan 20, 2014
  • Rise of ‘Common Man’ in India Threatens Stability of Government Coalition http://t.co/vke6lnqM3s Things get squishy if no majority win $$ Jan 20, 2014
  • German Economic Growth Fails to Gain Impetus http://t.co/g9EQLN5HNg Depends on on the strength of those that import German goods $$ $SPY Jan 20, 2014
  • French First Lady Leaves Hospital http://t.co/hnnrYJwE2q At least *one* person cared about the behavior of Francois Hollande $$ #sad Jan 20, 2014
  • Solar Beats Gas Unlocking Middle East?s Heavy Oil, Report Says http://t.co/dmyDla2t7R Fascinating, using cheap solar energy 2 produce oil $$ Jan 20, 2014
  • Hot Demand for Emerging-Market Bonds http://t.co/LLZPDt4iyT This is puzzling , I don’t get how emerging markets r well financed $$ Jan 19, 2014
  • China encroaching on U.S. military dominance in Pacific, says top admiral http://t.co/h152VrhcEg So we can’t be global cop, good thing $$ Jan 19, 2014
  • Mobius Placing Biggest Wagers on Nigeria for Frontier Rally http://t.co/dsxt8Fft6e It is difficult to make $$ when there is a quiet war Jan 19, 2014
  • BENGHAZI WAS PREVENTABLE: Hillary Clinton cited for major security lapses http://t.co/5oCpBVlbdK Hillary will have a lot to answer for $$ Jan 19, 2014
  • Saudi King Sees Egypt Too Big to Fail Under Friendly General http://t.co/oIHo5fae5s Saudi Arabia gets pragmatic, supports Egyptian Army $$ Jan 19, 2014
  • The West Is Losing Ukraine http://t.co/GWCNb322Ss Ukraine is losing the West, as its leader strips freedoms, & fights protesters $$ $SPY Jan 19, 2014
  • Hollande?s Tryst and the End of Marriage http://t.co/EUGztMAKnq Secretly, even the French care about the stability of their leaders $$ $FXE Jan 19, 2014
  • Baltic Homes That Singed Scandinavia Banks Heating Up: Mortgages http://t.co/3KHcPllcKZ Beware large increases in indebtedness $$ $TLT $SPY Jan 19, 2014
  • China’s Indie Rockers Get Boost From Online Music Platforms http://t.co/MSbdnGFzRI Note the prominence of our friend Michael Pettis $$ $FXI Jan 19, 2014
  • Venezuela Post-Ch?vez: Hustlers’ Paradise http://t.co/ROstARpBkc Thugs run govt. Some people get cheap goods, while others get shortages $$ Jan 19, 2014

 

US Politics & Policy

 

  • Stop Obamacare?s Outrageous Bailouts http://t.co/uHYJvyRcM7 Once losses exceed 8% of premiums, taxpayers pay for 75% of excess losses $$ Jan 20, 2014
  • Questionable: Robert Gates?s Dishonorable Act http://t.co/bIEGf7o57k There r too many bad secrets in DC that we ought to know about $$ $SPY Jan 20, 2014
  • Which Fed Guidance Should We Believe? http://t.co/yqjOZX5AX6 As FOMC uses more & more words 2explain what they r doing we understand less $$ Jan 20, 2014
  • When Low Unemployment Is Bad News http://t.co/QLiWV8ocV5 Labor force participation rate continues 2 fall as punk economy creates few jobs $$ Jan 20, 2014
  • NSA Data Have No Impact on Terrorism: Report http://t.co/ug8GtnLjqz NSA is not worth the privacy risk, nor what we pay to employ them $$ Jan 20, 2014
  • Ari Fleischer: How to Fight Income Inequality: Get Married http://t.co/zz6lbDWiku Poverty rate falls 4 those who can make a marriage work $$ Jan 20, 2014
  • Obama’s Constitutional Education http://t.co/bH4jfr1rro & http://t.co/hdzNe1Blo4 Should consider unilateral actions modifying PPACA also $$ Jan 20, 2014
  • How the crash of safe assets fueled the financial crisis http://t.co/4Vlfxp7PUj When “safe” assets r found to have credit risk -> bust $$ Jan 20, 2014
  • Congress split over NSA’s domestic spying program, could just let laws expire http://t.co/mCD2pIbSl1 Divisive: left & right vs center $$ Jan 20, 2014
  • Young enrollees of Obamacare fall well short of goal http://t.co/VokUg0XFP6 When premiums rise as a result, people will b unhappy $$ $SPY Jan 20, 2014
  • Spy court judge slams proposed privacy advocate http://t.co/vkz4SyY5li We need someone arguing against spying on average people $$ $SPY $TLT Jan 19, 2014
  • What?s Net Neutrality? What Happened to Net Neutrality Yesterday? What Happens Next? A Q&A for the Rest of Us. http://t.co/xQACJvW8UC Read Jan 19, 2014
  • Volcker Rule Fix Will Aid Large and Small Banks http://t.co/nGv1TXtLT5 This is a lousy rule that allows banks to bury Trup CDO losses $$ Jan 19, 2014
  • Hillary Clinton’s political hit list of top betrayers includes Kerry, Kennedy http://t.co/33RFv63nKz This reminds me of the Nixon enemies $$ Jan 19, 2014
  • Judge Disallows Plan by Detroit to Pay Off Banks http://t.co/XQ6f1E2EZM Detroit should aim for the bast long-run outcome $$ $MUB $SPY $TLT Jan 19, 2014
  • Is Your Abortion My Free Speech?? http://t.co/kUA2XLRPB9 This is where constitutions fall apart, b/c they are limited documents $$ Jan 19, 2014
  • Reid Gives Landrieu VIP Treatment to Tip Election Odds http://t.co/UhQFIcPVt9 Democrats desperate to retain power, aid marginal members $$ Jan 19, 2014
  • Where Are the U.S.?s Millionaires? http://t.co/c8fXDEPD5S Alas, but Maryland sucks the blood of America, & creates millionaires $$ $SPY $TLT Jan 19, 2014
  • I Spent Two Hours Talking With the NSA’s Bigwigs. Here’s What Has Them Mad http://t.co/UrXexYR07k They hate Snowden’s guts $$ $thatsimple Jan 19, 2014
  • How the NSA Almost Killed the Internet | Threat Level http://t.co/1SLDuNq93O Sowing distrust in major internet utilities on privacy $$ $GOOG Jan 19, 2014
  • To enforce net neutrality, the FCC has to decide that Verizon is a common carrier http://t.co/WRb6VestAF Simple idea, simple solution $$ $VZ Jan 19, 2014
  • Student Loans, the Next Big Threat to the US Economy? http://t.co/5hXsK5SIFn Rule of Thumb: avoid lending in area w/greatest debt growth $$ Jan 19, 2014
  • ISS Open to Activists Paying Bonuses to Directors http://t.co/R1nNEkokg4 Carl Icahn wins a small victory; broader implications unclear $$ Jan 19, 2014
  • ?Wolf of Wall Street? Offspring Never Quite Die http://t.co/oXkGDZQ1Ml It’s a revolving door & FINRA doesn’t provide real access 2 data $$ Jan 19, 2014

 

Market Impact

 

  • Investor Animal Spirits Spread to Companies Worldwide http://t.co/e8pKcudzhR No such thing as animal spirits, only pursuing opportunity $$ Jan 20, 2014
  • JPMorgan Says BVG Owes $200 Million Over ?Unfortunate? CDS http://t.co/coJQm6dpD5 What’s worse is trifling yield prompting BVG’s greed $$ Jan 20, 2014
  • Hedge Funds Raise Gold Wagers as Goldman Sees Drop http://t.co/7dc9dGCUCA Hedge funds 2short-term could b forced sellers on weakness $$ $GLD Jan 20, 2014
  • Even money market funds in a crisis would have a hard time delivering a >2% loss, which would b borne by investors, & not systemic $$ Jan 20, 2014
  • How You Can Survive a New Era in the Bond Market http://t.co/BvSkibWANR Too many people banging the drum 4 higher interest rates $$ $IEF Jan 20, 2014
  • From the prior tweet, Central Bankers have drawn wrong conclusion: You can fix a bust by issuing lots of credit. $$ Jan 20, 2014
  • The correct answer is that you can avoid a bust by not running loose monetary policy as in the ’20s & ’00s. We still have pain to come $$ Jan 20, 2014
  • Where Have All the Star Fund Managers Gone? http://t.co/qwbpDyDlkU Focus on low fees, long track record, low assets & not index-like $$ $SPY Jan 20, 2014
  • Reinsurers face ratings cuts, S&P warns http://t.co/70dK590OCG Too much surplus chasing reinsurance biz; I’ve been lightening the boat $$ Jan 20, 2014
  • Interest rates don’t matter? Federal Reserve paper says so http://t.co/guAPSQ05II Sad but true, monetary policy is weaker than most think $$ Jan 19, 2014
  • Professor Puts Ideas in Practice as Reverse-Mortgage CEO http://t.co/T3Kt0cNQtc As w/most complex financial agreements, this will fail $$ Jan 19, 2014
  • Metals, Currency Rigging Is Worse Than Libor, Bafin Says http://t.co/KjDNrRVR7m Impossible 2 create benchmarks free of human gaming $$ $SPY Jan 19, 2014
  • Nobody Likes Bonds!: by @ritholtz http://t.co/FuYachZ58I But *I* like bonds, particularly short corporates, loans, & $TLT FD: + $TLT $$ Jan 18, 2014

 

Other

 

  • Comet-Chasing Spacecraft Sends First Signal in 31 Months http://t.co/mZB62QnIYm Satellite to hitch ride on Churyumov-Gerasimenko comet $$ Jan 20, 2014
  • The ‘Sharing Economy’ and Its Enemies http://t.co/Qnc4YyZrOh How Airbnb steps on the toes of hoteliers, regulators & the tax man $$ $SPY Jan 20, 2014
  • Device Thefts Fueling Rise In Larcenies http://t.co/ohZZt8q2Qh NYC larcenies fall if you exclude theft of Apple-branded devices $$ $AAPL Jan 20, 2014
  • The Right Way to Go After Big Clients http://t.co/J6hoSbcHVX Can waste a lot of time & find margins squeezed in the end $$ Jan 20, 2014
  • What Secrets Your Phone Is Sharing About You http://t.co/u7wv29tyMG Many hack your phone datato get insights into how you shop $$ $SPY $TLT Jan 19, 2014
  • Moms in ?Survival Mode? as US Trails World on Benefits http://t.co/uSPuVZztqV We can argue over any benefit, but what when US is broke $$ Jan 19, 2014
  • Tennis Quant?s System Doubles Money Without Knowing Players http://t.co/sAS5Xug7DN Small markets r often inefficient, allow 4 small wins $$ Jan 19, 2014
  • Miners Chopping $10B Search Bodes Next Price Boom http://t.co/6X7H0KAivX Miners cut exploration budgets, should lead to higher prices $$ Jan 19, 2014
  • How the Target Hackers Did It http://t.co/Z8Jc5WuBQQ Scraped RAM in POS machines grabbing all manner of data on card users $$ $TGT $SPY $TLT Jan 19, 2014
  • Another Bad Year for Religious Freedom http://t.co/3C3C5lrjCo Religion by its nature tends to invite constraint as it is a threat 2 govts $$ Jan 19, 2014
  • If Google Is a Guy, DuckDuckGo Is a Ghost http://t.co/rk9o0I3Uwx Want privacy for your searches? Consider DuckDuckGo $$ Jan 19, 2014
  • http://t.co/uPsFzsm1Tn How an intelligent lady managed to wrongfoot & destroy a website engaged in “revenge porn.” $$ Jan 19, 2014

 

Wrong

?

  • Likely Wrong: A New Asset-Allocation Strategy for Investing in Retirement http://t.co/eDqaDxhFuH Stocks r risky over intermediate periods $$ Jan 20, 2014
  • Wrong: Bonds Captivate $16T of Pensions http://t.co/NEpJSjCD7p Bonds have 2 go somewhere & defined benefit pensions have long liabilities $$ Jan 20, 2014
  • Wrong: Bailout Risk, Far Beyond the Banks http://t.co/iv5eT6lhea! Asset mgmt companies can go bust, & they pose no systemic risk $$ Jan 20, 2014
  • Wrong: Stanley Fischer saved Israel from the Great Recession. Now Janet Yellen wants him to help save the US http://t.co/CPMUggr3CA $$ $TLT Jan 20, 2014
  • Wrong: Ten quotes on the question of financial bubbles http://t.co/MNwr543Vsf No one focuses on the effect of borrowing money in bubbles $$ Jan 19, 2014
  • Wrong: Wealthy CEO Is Deeply Concerned About Budget Deficits http://t.co/gTGUwSF3hS Biased article doesn’t factor in entitlements $$ $TLT Jan 19, 2014

?

 

Replies, Retweets, and Comments

 

  • @DavidBCollum Look here: http://t.co/VaqQESCdCu Value Line has a chart that goes back to the 20s though… Jan 17, 2014
  • RT @cate_long: Please add http://t.co/QHQiCxYopc RT @researchpuzzler: a guide to finding data on the cheap from @AlephBlog http://t.co/mb? Jan 15, 2014
  • RT @Pawelmorski: Great spot @toby_n : DB’s Slok quantifies how difficult the Fed finds explaining itself. http://t.co/1quahXrnJD Jan 14, 2014
Good Over-the-Counter “Pink” Stocks

Good Over-the-Counter “Pink” Stocks

Posted on by David Merkel

I really appreciate my readers.? Here’s an e-mail from one:

David,

Just read your recent blog post ?E-mails on Insurance.?

You made the comment that ?aside from non-sponsored ADRs no good companies trade on the pink sheets.?

Of course that is true in a general sense. I also am sure you have been inundated with lots of email taking exception to that comment.

One company I have loosely followed over time (that I came across just by chance many years ago) is Computer Services (CSVI) [www.csiweb.com]. There is no volume in the stock so institutional managers have no ability to take a position, but the firm has done a great job of growing the business while maintaining profitability (been an opportunistic acquirer of small bank processor companies) and is probably a candidate for consolidation by a Fiserv or someone like that. Anyhow, I think if you take a look at the firm, you will see that there is at least one solid company traded on the pinks (and I am sure there are others, I just don?t go fishing there).

My comment ?aside from non-sponsored ADRs no good companies trade on the pink sheets.? is an overstatement.? To prove that, I give you a list of 148 companies that:

  • Have been profitable for the last four fiscal years.
  • Are US companies
  • Are not ADRs

2370 companies that trade over-the-counter reduce to 148 companies — 6.24% of the whole, explaining why my overstatement is largely, but not totally correct.? I would not tell someone to look amid these companies to find good ones, but there are some good ones there.? I have listed them in declining order of market capitalization.

Company Ticker Sector Industry Mkt Cap Dollar Volume P/E P/B P/S
Belk Inc BLKIA 09 – Services 0951 – Retail (Department & Discount) ?? 2,057.80 ??????????? – ?? 12.40 ???? 1.66 ???? 0.51
First National Bank Alaska FBAK 07 – Financial 0727 – Regional Banks ????? 604.00 ??????????? – ?? 14.90 ???? 1.23 ???? 5.45
First Citizens Bancorporation, FCBN 07 – Financial 0727 – Regional Banks ????? 572.70 ???? 33.20 ???? 9.60 ???? 0.64 ???? 1.87
Computer Services, Inc. CSVI 10 – Technology 1036 – Software & Programming ????? 476.10 ?? 146.81 ?? 18.20 ???? 3.80 ???? 2.31
Hills Bancorporation HBIA 07 – Financial 0727 – Regional Banks ????? 345.00 ?????? 3.65 ?? 13.30 ???? 1.29 ???? 4.03
Farmers & Merchants Bancorp FMCB 07 – Financial 0727 – Regional Banks ????? 324.40 ???? 20.85 ?? 13.60 ???? 1.54 ???? 4.27
FRMO Corp. FRMO 07 – Financial 0721 – Misc. Financial Services ????? 302.80 ???? 23.45 ?? 26.90 ???? 3.66 ?? 16.64
HomeFed Corporation HOFD 02 – Capital Goods 0215 – Construction Services ????? 299.80 ???? 22.83 ?? 62.40 ???? 1.79 ???? 7.93
First Opportunity Fund, Inc. FOFI 07 – Financial 0721 – Misc. Financial Services ????? 262.10 ?? 269.95 ???? 7.20 ???? 0.86 ?? 58.25
International Wire Group Holdi ITWG 01 – Basic Materials 0127 – Misc. Fabricated Products ????? 255.40 ?????? 2.61 ?? 19.60 ???? 6.69 ???? 0.21
Canandaigua National Corporati CNND 07 – Financial 0724 – Money Center Banks ????? 249.90 ?????? 6.65 ?? 12.20 ???? 1.66 ???? 3.41
Viskase Companies, Inc. VKSC 01 – Basic Materials 0109 – Containters & Packaging ????? 237.90 ?? 214.50 ?? 24.10 ???? 0.67
Conrad Industries, Inc. CNRD 11 – Transportation 1118 – Water Transportation ????? 226.80 ?? 249.58 ???? 9.10 ???? 1.95 ???? 0.86
United Capital Corp. UCAP 10 – Technology 1024 – Electronic Instruments & Controls ????? 187.40 ?????? 4.80 ?? 13.40 ???? 1.34 ???? 1.58
Isabella Bank Corp ISBA 07 – Financial 0727 – Regional Banks ????? 184.70 ???? 52.67 ?? 15.50 ???? 1.14 ???? 3.39
Profire Energy, Inc. PFIE 02 – Capital Goods 0209 – Construction – Supplies and Fixtures ????? 160.20 ???? 98.83 ?? 41.90 ?? 10.81 ???? 5.97
Cambridge Bancorp CATC 07 – Financial 0727 – Regional Banks ????? 150.50 ???? 59.33 ?? 11.50 ???? 1.47 ???? 3.20
Citizens Financial Services In CZFS 07 – Financial 0718 – Investment Services ????? 148.30 ???? 24.55 ?? 10.90 ???? 1.64 ???? 4.06
Mestek, Inc. MCCK 02 – Capital Goods 0218 – Misc. Capital Goods ????? 144.40 ?????? 0.86 ???? 8.80 ???? 1.03 ???? 0.41
Webco Industries, Inc. WEBC 01 – Basic Materials 0127 – Misc. Fabricated Products ????? 143.50 ???? 16.95 ?? 15.50 ???? 0.57 ???? 0.22
First Keystone Corp. FKYS 07 – Financial 0727 – Regional Banks ????? 137.80 ???? 18.75 ?? 12.80 ???? 1.42 ???? 4.32
MVB Financial Corp MVBF 07 – Financial 0724 – Money Center Banks ????? 135.30 ???? 14.40 ?? 22.10 ???? 1.67 ???? 5.34
First Mid-Illinois Bancshares, FMBH 07 – Financial 0727 – Regional Banks ????? 130.30 ?????? 4.40 ?? 12.90 ???? 1.32 ???? 2.43
First Real Estate Investment T FREVS 09 – Services 0933 – Real Estate Operations ????? 126.70 ???? 13.69 ?? 42.40 ???? 7.73 ???? 3.08
First Manitowoc Bancorp, Inc. BFNC 07 – Financial 0730 – S&Ls/Savings Banks ????? 120.80 ???? 33.30 ?? 11.30 ???? 1.19 ???? 3.07
Peoples Financial Services Cor PFIS 07 – Financial 0727 – Regional Banks ????? 120.40 ???? 62.40 ?? 14.60 ???? 1.90 ???? 4.37
First Farmers & Merchants Corp FFMH 07 – Financial 0727 – Regional Banks ? ????111.20 ?????? 3.30 ?? 13.30 ???? 1.05 ???? 3.05
Yasheng Group HERB 05 – Consumer Non-Cyclical 0509 – Crops ????? 105.50 ?????? 3.88 ???? 0.80 ???? 0.05 ???? 0.11
Farmers & Merchants Bancorp In FMAO 07 – Financial 0727 – Regional Banks ???? ?105.10 ???? 62.01 ?? 11.40 ???? 0.98 ???? 3.37
Nova Lifestyle Inc STVS 04 – Consumer Cyclical 0421 – Furniture & Fixtures ???????? 89.20 ???? 93.77 ?? 16.80 ???? 2.50 ???? 1.17
Golden Growers Coop GGROU 05 – Consumer Non-Cyclical 0509 – Crops ???????? 89.10 ?????? 1.44 ?? 18.50 ???? 2.30 ???? 0.93
First Guaranty Bancshares, Inc FGBI 07 – Financial 0727 – Regional Banks ???????? 88.20 ?????? 7.01 ?? 10.50 ???? 1.03 ???? 1.72
QNB Corp QNBC 07 – Financial 0730 – S&Ls/Savings Banks ??? ?????83.40 ???? 49.82 ???? 9.70 ???? 1.12 ???? 2.62
CCFNB Bancorp Inc CCFN 07 – Financial 0727 – Regional Banks ???????? 78.40 ???? 26.99 ?? 12.00 ???? 1.05 ???? 3.75
Calvin B. Taylor Bankshares, I TYCB 07 – Financial 0727 – Regional Banks ??? ?????75.70 ?????? 3.84 ?? 17.80 ???? 0.95 ???? 5.11
Juniata Valley Financial Corp JUVF 07 – Financial 0730 – S&Ls/Savings Banks ???????? 73.20 ?????? 7.85 ?? 18.80 ???? 1.50 ???? 4.35
Northwest Indiana Bancorp NWIN 07 – Financial 0730 – S&Ls/Savings Banks ???????? 72.70 ?????? 7.68 ???? 9.80 ???? 1.08 ???? 2.76
Franklin Financial Services Co FRAF 07 – Financial 0727 – Regional Banks ???????? 71.80 ???? 36.33 ?? 13.10 ???? 0.77 ???? 1.97
Rand Worldwide Inc RWWI 10 – Technology 1036 – Software & Programming ???????? 67.60 ???? 24.38 ?? 41.70 ???? 2.05 ???? 0.85
Centrix Bank & Trust CXBT 07 – Financial 0727 – Regional Banks ???????? 67.40 ?????? 7.17 ?? 12.00 ???? 1.29 ???? 2.26
Peoples Bancorp PBNI 07 – Financial 0730 – S&Ls/Savings Banks ???????? 66.80 ?????? 7.20 ?? 21.60 ???? 0.88 ???? 3.59
Reserve Petroleum Co RSRV 06 – Energy 0609 – Oil & Gas Operations ???????? 66.20 ???? 20.75 ?? 10.90 ???? 2.05 ???? 3.49
Harleysville Savings Financial HARL 07 – Financial 0730 – S&Ls/Savings Banks ???????? 65.60 ???? 19.95 ?? 13.90 ???? 1.10 ???? 2.09
William Penn Bancorp Inc WMPN 07 – Financial 0730 – S&Ls/Savings Banks ???????? 65.50 ???? 28.80 ?? 23.40 ???? 1.15 ???? 4.86
Kentucky Bancshares, Inc. KTYB 07 – Financial 0727 – Regional Banks ???????? 65.30 ?????? 6.00 ???? 9.10 ???? 0.92 ???? 2.36
Community Bancorp Vermont CMTV 07 – Financial 0727 – Regional Banks ???????? 64.50 ?????? 5.31 ?? 13.70 ???? 1.50 ???? 2.82
Hennessy Advisors Inc HNNA 07 – Financial 0718 – Investment Services ???????? 64.30 ?????? 9.81 ?? 13.10 ???? 2.23 ???? 2.74
Monarch Cement Co MCEM 02 – Capital Goods 0212 – Construction – Raw Materials ???????? 63.40 ???? 13.42 ?? 21.00 ???? 0.96 ???? 0.69
Armanino Foods Of Distinction AMNF 05 – Consumer Non-Cyclical 0515 – Food Processing ???????? 63.10 ???? 47.48 ?? 21.90 ???? 9.85 ???? 2.25
Q.E.P. Co., Inc. QEPC 02 – Capital Goods 0209 – Construction – Supplies and Fixtures ???????? 62.10 ???? 17.14 ???? 5.80 ???? 1.08 ???? 0.21
Commercial National Financial CNAF 07 – Financial 0727 – Regional Banks ???????? 60.10 ???? 17.85 ?? 12.10 ???? 1.33 ???? 4.17
Croghan Bancshares, Inc. CHBH 07 – Financial 0727 – Regional Banks ???????? 57.90 ?????? 8.63 ?? 12.80 ???? 0.86 ???? 2.72
Burnham Holdings Inc BURCA 02 – Capital Goods 0209 – Construction – Supplies and Fixtures ???????? 57.20 ?????? 6.66 ?? 12.80 ???? 1.29 ???? 0.42
Standard Financial Corp. STND 07 – Financial 0727 – Regional Banks ???????? 56.10 ???? 51.56 ?? 19.30 ???? 0.71 ???? 3.39
Choiceone Financial Services I COFS 07 – Financial 0727 – Regional Banks ???????? 54.90 ???? 13.34 ?? 11.30 ???? 0.90 ???? 2.85
LICT Corporation LICT 09 – Services 0915 – Communications Services ?????? ??54.00 ??????????? – ???? 6.70
Capital Properties Inc CPTP 09 – Services 0939 – Rental & Leasing ???????? 52.80 ?????? 4.80 ?? 34.80 ?? 34.78 ???? 6.86
Middlefield Banc Corp MBCN 07 – Financial 0727 – Regional Banks ???????? 52.70 ?? 101.40 ???? 8.10 ???? 1.00 ???? 1.87
CSB Bancorp Inc (Ohio) CSBB 07 – Financial 0730 – S&Ls/Savings Banks ???????? 52.00 ???? 20.90 ?? 10.10 ???? 1.00 ???? 2.49
Jeffersonville Bancorp JFBC 07 – Financial 0727 – Regional Banks ???????? 51.70 ???? 17.69 ?? 11.80 ???? 1.03 ???? 2.71
Georgia-Carolina Bancshares In GECR 07 – Financial 0727 – Regional Banks ???????? 51.70 ???? 59.45 ???? 7.80 ???? 0.90 ???? 2.78
PSB Holdings Inc (Wisconsin) PSBQ 07 – Financial 0727 – Regional Banks ???????? 50.60 ???? 10.72 ???? 8.30 ???? 0.90 ???? 1.86
Consumers Bancorp, Inc. CBKM 07 – Financial 0730 – S&Ls/Savings Banks ???????? 49.30 ?????? 2.72 ?? 14.00 ???? 1.33 ???? 2.86
Quality Products, Inc. QPDC 02 – Capital Goods 0218 – Misc. Capital Goods ? ???????47.70 ?????? 3.78 ???? 8.30 ???? 4.84 ???? 1.63
Northway Financial, Inc. NWYF 07 – Financial 0727 – Regional Banks ???????? 47.10 ???? 10.26 ???? 6.70 ???? 1.03 ???? 1.41
Granite Falls Energy LLC GFGY 01 – Basic Materials 0103 – Chemical Manufacturing ???????? 45.90 ??????????? – ?? 15.30
George Risk Industries Inc RSKIA 09 – Services 0972 – Security Systems & Services ???????? 45.20 ?????? 9.89 ?? 11.40 ???? 1.40 ???? 4.27
F&M Bank Corp FMBM 07 – Financial 0727 – Regional Banks ???????? 43.30 ???? 11.21 ???? 9.00 ???? 0.84 ???? 1.63
Southern Michigan Bancorp SOMC 07 – Financial 0727 – Regional Banks ???????? 42.50 ?????? 5.33 ???? 9.40 ???? 0.77 ???? 2.15
Noble Roman’s, Inc. NROM 09 – Services 0942 – Restaurants ???????? 42.30 ???? 69.62 ?? 30.90 ???? 3.28 ???? 5.63
Minden Bancorp Inc MDNB 07 – Financial 0730 – S&Ls/Savings Banks ???????? 41.60 ?????? 3.50 ?? 12.80 ???? 0.98 ???? 4.07
Surrey Bancorp SRYB 07 – Financial 0727 – Regional Banks ???????? 41.50 ?????? 4.68 ?? 16.50 ???? 1.36 ???? 3.91
Corning Natural Gas Holding Co CNIG 12 – Utilities 1206 – Natural Gas Utilities ???????? 40.20 ?????? 7.99 ?? 20.40 ???? 1.78 ???? 1.74
Pioneer Railcorp PRRR 11 – Transportation 1112 – Railroads ??? ?????37.00 ?????? 6.72 ?? 21.30 ???? 2.80 ???? 1.77
Ziegler Companies, Inc., The ZGCO 07 – Financial 0718 – Investment Services ???????? 35.70 ???? 27.00 ?? 17.60 ???? 1.10 ???? 0.45
XCel Brands Inc XELB 07 – Financial 0721 – Misc. Financial Services ???????? 35.60 ?????? 0.35 ???? 5.70 ???? 1.04 ???? 2.33
Security Federal Corporation ( SFDL 07 – Financial 0730 – S&Ls/Savings Banks ???????? 35.40 ?????? 8.42 ?? 13.20 ???? 0.63 ???? 1.14
Regency Affiliates Inc RAFI 12 – Utilities 1203 – Electric Utilities ???????? 33.90 ?????? 1.44 ???? 9.00 ???? 1.05
New Ulm Telecom Inc NULM 09 – Services 0915 – Communications Services ???????? 33.50 ?????? 5.90 ???? 8.90 ???? 0.59 ???? 0.90
Heritage Bankshares, Inc. HBKS 07 – Financial 0727 – Regional Banks ???????? 29.60 ?????? 8.45 ?? 14.10 ???? 1.00 ???? 2.79
Home Loan Financial Corporatio HLFN 07 – Financial 0730 – S&Ls/Savings Banks ???????? 29.50 ?????? 2.60 ???? 8.60 ???? 1.17 ???? 2.82
High Country Bancorp, Inc. HCBC 07 – Financial 0730 – S&Ls/Savings Banks ???????? 29.50 ?????? 9.90 ?? 15.20 ???? 1.24 ???? 3.15
Commercial Bancshares, Inc. \O CMOH 07 – Financial 0727 – Regional Banks ???????? 29.10 ???? 14.76 ?? 10.30 ???? 0.95 ???? 2.06
South Street Financial Corp. SSFC 07 – Financial 0730 – S&Ls/Savings Banks ???????? 28.70 ?? 121.25 ?? 28.50 ???? 1.05 ???? 2.29
CreditRiskMonitor.Com Inc CRMZ 10 – Technology 1018 – Computer Services ???????? 27.90 ?????? 1.75 ?? 87.50 ???? 6.48 ???? 2.38
Smtp Inc SMTPD 10 – Technology 1018 – Computer Services ???????? 25.80 ???? 27.23 ?? 20.60 ?? 15.57 ???? 4.46
West End Indiana Bancshares In WEIN 07 – Financial 0730 – S&Ls/Savings Banks ???????? 25.70 ?????? 7.40 ?? 18.30 ???? 0.80 ???? 2.10
Northeast Indiana Bancorp NIDB 07 – Financial 0730 – S&Ls/Savings Banks ???????? 25.50 ?????? 6.21 ???? 9.30 ???? 0.92 ???? 2.55
Summit Financial Services Grou SFNS 07 – Financial 0718 – Investment Services ???????? 25.20 ???? 23.80 ?? 15.40 ???? 2.51 ?? ??0.31
First Bancorp of Indiana, Inc. FBPI 07 – Financial 0730 – S&Ls/Savings Banks ???????? 24.90 ?????? 2.85 ?? 16.00 ???? 0.86 ???? 1.88
Spindletop Oil & Gas Co SPND 06 – Energy 0609 – Oil & Gas Operations ???????? 24.40 ?????? 3.17 ???? 7.30 ???? 1.28 ???? 1.89
Frederick County Bancorp (MD) FCBI 07 – Financial 0727 – Regional Banks ???????? 24.10 ?????? 7.20 ?? 15.80 ???? 0.91 ???? 1.90
Meritage Hospitality Group Inc MHGU 09 – Services 0942 – Restaurants ???????? 24.00 ?????? 3.26 ???? 6.60 ???? 2.35 ???? 0.21
Pinnacle Bankshares Corp PPBN 07 – Financial 0727 – Regional Banks ???????? 24.00 ?????? 7.95 ?? 17.90 ???? 0.85 ???? 1.54
CNB Financial Services Inc CBFC 07 – Financial 0727 – Regional Banks ???????? 23.60 ??????? ????- ?? 15.10 ???? 0.83 ???? 1.97
Investors Heritage Capital Cor IHRC 07 – Financial 0709 – Insurance (Life) ???????? 23.50 ?????? 8.28 ?? 11.70 ???? 0.44 ???? 0.29
Trans World Corporation TWOC 09 – Services 0912 – Casinos & Gaming ???????? 22.50 ?????? 3.32 ?? 12.80 ???? 0.53 ???? 0.63
Pinnacle Bancshares, Inc. PCLB 07 – Financial 0727 – Regional Banks ???????? 21.70 ?????? 4.46 ???? 9.10 ???? 0.82 ???? 2.33
FFW Corporation FFWC 07 – Financial 0730 – S&Ls/Savings Banks ???????? 21.40 ?????? 6.74 ???? 9.10 ???? 0.93 ???? 1.66
ASB Financial Corp. (OH) ASBN 07 – Financial 0730 – S&Ls/Savings Banks ???????? 20.70 ?????? 5.85 ?? 13.40 ???? 0.98 ???? 1.96
SBT Bancorp Inc SBTB 07 – Financial 0727 – Regional Banks ???????? 20.50 ???? 21.95 ?? 13.50 ???? 1.06 ???? 1.72
Seychelle Environmental Techno SYEV 02 – Capital Goods 0218 – Misc. Capital Goods ???????? 20.40 ???? 20.22 ?? 19.80 ???? 4.65 ???? 3.46
Great American Bancorp GTPS 07 – Financial 0727 – Regional Banks ???????? 19.80 ?????? 2.70 ?? 13.40 ???? 0.80 ???? 2.26
Sierra Monitor Corporation SRMC 10 – Technology 1030 – Scientific & Technical Instruments ???????? 19.70 ???? 12.68 ?? 15.00 ???? 2.41 ???? 1.10
Logansport Financial Corp. LOGN 07 – Financial 0724 – Money Center Banks ???????? 19.60 ?????? 2.50 ???? 9.00 ???? 0.86 ???? 2.30
Seneca-Cayuga Bancorp Inc SCAY 07 – Financial 0724 – Money Center Banks ???????? 19.60 ?????? 1.24 ???? 9.50 ???? 1.00 ???? 1.64
Micropac Industries, Inc. MPAD 10 – Technology 1033 – Semiconductors ???????? 18.90 ?????? 3.67 ?? 20.90 ???? 0.96 ???? 0.97
Texas Vanguard Oil Co TVOC 06 – Energy 0609 – Oil & Gas Operations ???????? 18.60 ?????? 1.31 ?? 22.60 ???? 1.40 ???? 3.04
Issuer Direct Corp ISDR 09 – Services 0909 – Business Services ???????? 18.30 ???? 46.92 ?? 20.90 ???? 7.19 ???? 3.26
Environmental Tectonics Corpor ETCC 02 – Capital Goods 0203 – Aerospace and Defense ???????? 17.90 ?????? 3.22 ?? 21.70 ???? 2.47 ???? 0.55
Wells Financial Corp. WEFP 07 – Financial 0730 – S&Ls/Savings Banks ???????? 17.80 ???? 13.50 ?? 13.60 ???? 0.67 ???? 1.99
Sono-Tek Corporation SOTK 02 – Capital Goods 0218 – Misc. Capital Goods ???????? 17.40 ???? 37.68 ?? 60.00 ???? 2.79 ???? 1.89
DynTek, Inc DYNE 10 – Technology 1036 – Software & Programming ???????? 17.00 ?????? 0.80 ???? 5.00 ???? 2.23 ???? 0.13
Riverview Financial Corporatio RIVE 07 – Financial 0727 – Regional Banks ???????? 16.90 ???? 12.81 ?? 12.00 ???? 0.63 ???? 1.30
Paradise, Inc. PARF 05 – Consumer Non-Cyclical 0515 – Food Processing ???????? 16.60 ?????? 3.20 ?? 18.80 ???? 0.78 ???? 0.66
Bank McKenney (VA) BOMK 07 – Financial 0727 – Regional Banks ???????? 16.60 ?????? 4.30 ???? 9.10 ???? 0.73 ???? 1.55
Quaint Oak Bancorp Inc QNTO 07 – Financial 0730 – S&Ls/Savings Banks ???????? 15.60 ???? 30.88 ?? 23.60 ???? 0.85 ???? 2.38
Greenville Federal Financial C GVFF 07 – Financial 0730 – S&Ls/Savings Banks ???????? 15.40 ?????? 2.20 ?? 17.50 ???? 0.82 ???? 2.55
BV Financial Inc BVFL 07 – Financial 0730 – S&Ls/Savings Banks ???????? 14.40 ?????? 1.20 ?? 30.00 ???? 1.15 ???? 2.49
Jaclyn, Inc. JCLY 04 – Consumer Cyclical 0403 – Apparel/Accessories ???????? 13.70 ?????? 2.70 ?? 15.40 ???? 0.62 ???? 0.08
OPT-Sciences Corp OPST 10 – Technology 1030 – Scientific & Technical Instruments ???????? 13.50 ?????? 1.74 ?? 12.90 ???? 1.05 ???? 2.04
Citizens Bancshares Corporatio CZBS 07 – Financial 0727 – Regional Banks ???????? 13.30 ?????? 1.94 ?? 11.40 ???? 0.40 ???? 1.02
Chino Commercial Bancorp (CA) CCBC 07 – Financial 0727 – Regional Banks ???????? 13.20 ?????? 2.39 ?? 19.20 ???? 1.45 ???? 3.09
IEH Corporation IEHC 10 – Technology 1024 – Electronic Instruments & Controls ???????? 12.10 ???? 20.74 ???? 8.50 ???? 1.26 ???? 0.82
ITEX Corporation ITEX 07 – Financial 0718 – Investment Services ???????? 11.60 ???? 15.20 ?? 10.50 ???? 0.88 ???? 0.72
Zynex Inc. ZYXI 08 – Health Care 0812 – Medical Equipment & Supplies ???????? 11.20 ?????? 9.67 ???? 1.20 ???? 0.39
Great Lakes Aviation, Ltd. GLUX 11 – Transportation 1106 – Airline ???????? 10.50 ?????? 8.07 ???? 0.27 ???? 0.08
Fairmount Bancorp Inc FMTB 07 – Financial 0727 – Regional Banks ?????????? 9.80 ?????? 1.01 ?? 49.40 ???? 0.70 ???? 2.58
Solitron Devices, Inc. SODI 10 – Technology 1033 – Semiconductors ?????????? 9.50 ???? 32.63 ?? 11.20 ???? 0.85 ???? 1.10
Repro-Med Systems, Inc. REPR 08 – Health Care 0812 – Medical Equipment & Supplies ?????????? 7.70 ?????? 3.80 ?? 21.00 ???? 1.62 ???? 0.96
Union Electric Company UELMO 12 – Utilities 1203 – Electric Utilities ?????????? 7.60 ?????? 4.70 ?? 25.40 ???? 2.39 ???? 2.78
Surge Components, Inc. SPRS 10 – Technology 1024 – Electronic Instruments & Controls ?????????? 7.50 ???? 10.84 ???? 4.10 ???? 0.74 ???? 0.32
Home Financial Bancorp HWEN 07 – Financial 0730 – S&Ls/Savings Banks ?????????? 7.50 ?????? 1.68 ?? 13.30 ???? 0.92 ???? 2.21
Alliance Distributors Holding, ADTR 10 – Technology 1015 – Computer Peripherals ?????????? 7.50 ?????? 2.70 ???? 5.70 ???? 1.31 ???? 0.11
Community Investors Bancorp In CIBN 07 – Financial 0730 – S&Ls/Savings Banks ?????????? 7.10 ?????? 6.48 ?? 73.60 ???? 0.57 ???? 1.15
M&F Bancorp, Inc. MFBP 07 – Financial 0727 – Regional Banks ?????????? 7.10 ?????? 4.38 ???? 0.30 ???? 0.65
China Industrial Steel Inc CDNN 01 – Basic Materials 0121 – Iron & Steel ?????????? 6.60 ?????? 1.38 ???? 4.50 ???? 0.03
FPB Financial Corp. FPBF 07 – Financial 0730 – S&Ls/Savings Banks ?????????? 5.20 ??????????? – ???? 8.90 ???? 0.97 ???? 1.78
NexCore Healthcare Capital Cor NXCR 08 – Health Care 0806 – Healthcare Facilities ?????????? 5.10 ?????? 0.02 ???? 2.00 ???? 0.45 ???? 0.37
Precision Auto Care PACI 09 – Services 0909 – Business Services ?????????? 5.00 ?????? 0.17 ???? 7.30 ???? 0.26 ???? 0.19
Scientific Industries, Inc. SCND 10 – Technology 1030 – Scientific & Technical Instruments ?????????? 4.80 ?????? 2.34 ?? 12.40 ???? 0.89 ???? 0.68
Tidelands Royalty Trust B TIRTZ 07 – Financial 0721 – Misc. Financial Services ?????????? 4.70 ?????? 9.01 ???? 9.20 ???? 7.91 ???? 6.73
Foxby Corp FXBY 07 – Financial 0721 – Misc. Financial Services ?????????? 4.70 ?????? 1.09 ???? 6.50 ???? 0.77 ?? 23.62
TNR Technical, Inc. TNRK 10 – Technology 1024 – Electronic Instruments & Controls ?????????? 3.80 ?????? 4.31 ?? 12.30 ???? 0.99 ???? 0.41
Information Analysis Incorpora IAIC 10 – Technology 1036 – Software & Programming ?????????? 2.40 ?????? 1.97 ???? 1.19 ???? 0.44
Microwave Filter Co., Inc MFCO 10 – Technology 1024 – Electronic Instruments & Controls ?????????? 1.70 ?????? 1.50 ???? 1.03 ???? 0.53
Bayou City Exploration, Inc. BYCX 06 – Energy 0609 – Oil & Gas Operations ?????????? 1.50 ?????? 0.81 ???? 2.70 ???? 0.73 ???? 0.44
Tongli Pharmaceuticals (USA) I TGLP 08 – Health Care 0803 – Biotechnology & Drugs ?????????? 0.90 ?????? 0.01 ???? 0.40 ???? 0.04 ???? 0.07

Lotsa little banks and tech companies.? Hey, I’m going to throw those with over $100 million of market cap into my next portfolio reshaping.? I’m still small enough as a manager to deal with small companies if they are well-managed.? This can bring me back to my microcap value days, where I invested 1992-1998.? Once I made an offer to buy more than 5% of a company, and I asked my bosses if they would have any problems if I had to make a 13F filing.? They gave me the go ahead; I made my offer and it was turned down.? Pity, because if it had worked, it would have been a great investment.

The table above is a beginning for due diligence.? I do not recommend any of the stocks there.? I do note that my reader’s stock is high on the list.

Some of these stocks could be good investments, but you would have to do the research to figure out which ones are good.? On the bright side, almost no one is analyzing these companies, so your analysis has more punch relative to company outsiders.? Insiders will still do better.

All that said, I suspect that these stocks will do well on average.

Avoid Selling Stocks When You Are Old, Maybe?

Avoid Selling Stocks When You Are Old, Maybe?

Posted on by David Merkel

The Wall Street Journal recent had an article, What You Know About Retirement Investing Is Wrong, where it recommended that elderly people invest more in stocks as they get older.? I think the advice is wrong, unless you understand it this way:

Stocks are longer assets than bonds.? Use your bonds to pay for your spending in the early years of your retirement, and don’t sell your stocks.? Once you run out of bonds, start selling your stocks, if the dividend income isn’t enough to live on.

But even this idea is weak.? If a person followed this in 1997 with a 10-year horizon, their stocks would be worth less in 2008-9, even if they rocket back out to 2014.

Asset allocation is more difficult than it is in the textbooks, or in the syllabuses for the CFA Institute or for CFPs.? It is a blend of two things — when does the investor need the money, and what asset classes offer decent risk adjusted returns looking forward?

If long-dated, volatile asset classes offer great returns looking forward, but the client has a short time horizon, he can’t invest much in risk assets.

If long-dated, volatile asset classes offer great returns looking forward, but the client has a long time horizon, he can invest a lot in risk assets.

If long-dated, volatile asset classes offer poor returns looking forward, but the client has a short time horizon, he should stay in safe assets.

If long-dated, volatile asset classes offer poor returns looking forward, but the client has a long time horizon, he should stay in safe assets.

Stocks do tend to do well over the long run, but few of us live in environments where that growth is uniform.? The stock market zigs, zags, booms, and busts.? What if it busts when your are old?

Personally, I think it is wiser to maintain a more balanced investment posture in retirement, because the future is not predictable.

Serve Client Needs, or Die

Serve Client Needs, or Die

Posted on by David Merkel

Another letter from a reader:

Hi David:

Happy new year!

I’ve been reading the blog for about six months now and can’t thank you enough.? I have found so many of the post to be extremely thought provoking and helpful.? I also appreciate your openness about your faith.? As a young Christian man in the finance world I find it very encouraging.

I’m contacting you to ask a few questions but before I do that, let me give you some context.? This past April I started in sales on the fixed income trading desk at XXXXXXX.? My desk in particular is more “middle market” focused and has a strong tax exempt muni bias.? Although there is an effort to grow our mortgage business, most of our taxable business would be considered more “retail”.? That said, I have spent my last 10 months or so traveling YYYYYYY visiting with all sorts of institutional investors trying develop relationships that will eventually result in a trading relationship.? I’ve met with anywhere from small community banks, to a larger insurance company, and even sat down with a few portfolio managers at a state pension fund.

What I’ve learned from this experience is that one, we don’t have much of a “call” into some of these folks.? One example is the pension fund.? They really aren’t gonna care on any of our exempt positions and we dont bring any large taxable deals for there to be a great fit.? Ive also learned that there are many internal hurdles I am going to have to endure in order to develop a sustainable network of individuals to call on. (Account assignment, crm software, trader skill

All this considered, I’m wondering if you have any words of wisdom for a young aspiring fixed income sales person?? Any dos and dont’s from the coverage you’ve had over they years?? What can I do to set myself apart from my competition?

I realize you probably get inundated with emails so no rush on my end.? Just thought I’d reach out.?

Dear Friend,

I get a lot of emails, but I am not inundated.? Let me give you the perspective of a former corporate bond manager.? I divided my coverage into three groups: those who produced value every day, those who could help me occasionally, and those who could help me rarely, if at all.? I was not like those at the company that acquired my firm.? I would do business with anyone, so long as they offered value.

Yes, that is more difficult to deal with than limiting coverage, but I was aiming to do the best for my client.

You are in a difficult spot.? Your company needs to align itself with the market; it needs to seek a niche where it can add value for clients in a way that fits their tax status, yield needs and liabilities.? Look for niche areas where intelligent investors could provide adequate yields with safety.? I had several brokers that specialized in niches, and I used them to a high degree.

This would require a research effort from your firm that would reveal values to clients and potential clients.? But with most business efforts, client needs come first.? Re-orient the business to serve client needs, or die.

As for you, individually study your clients and potential clients to see what they need.? See if your firm can deliver that.? If it can’t, you may have to find another firm.? Big clients won’t deal with anything but the main office of the big firms, unless the regional coverage is particularly clever.? Medium and small clients are often happy to work with a local or regional firm, or the regional office of one of the big firms.

As coverage, you can be:

  • Prompt
  • Attentive
  • Knowledgeable about how to help your clients (if you can within your firm)
  • Empathetic, Friendly
  • Honest (that goes a long way)
  • Reliable
  • The guy who knows how to find the other side of a trade.

That last one is important: I’ve known coverage that could pry illiquid, hard-to-find bonds out of the hands of parties who don’t know what they are worth.? That’s a valuable skill, but difficult to do, except with insurance companies and mutual funds, which have to report their holdings at the security level by CUSIP.

But if your firm can’t deliver what your clients need, you will likely just be a nice guy on the phone who eats up the time of clients.? I knew a number of those, and I never got much business done with them.? You would be better off with another firm, if you can make the jump.

Where to Find Data

Where to Find Data

Posted on by David Merkel

Here’s another letter from a reader:

Hi David,

I have been a long time reader of your blog but writing for the first time. To me a key part of the investment process for a generalist investor has to be a way to efficiently screen stocks to generate? investment ideas and also measure historical returns and fundametals for various industry groups under various economic conditions. I am curious as to what data sources you use in your own work for historical stock market and fundamental data? Do you pull this into your own database and do you use Excel or? a statistical package for any quantitative backtests for your screens?

In a previous job I used FactSet to pull historical monthly pricing and quarterly fundamental data for a universe of over 100 regulated utility stocks (both current and past public firms). I also taught myself a fair bit of statistics along the way including logistic regressions and discriminant analysis in order to backtest different models for identifying outperformers, dividend growth/cuts etc. Unfortunately I had to do this all in Excel, which made the whole process pretty painful right on from cleaning up outliers, sorting etc. I guess for simple queries of stock performance and tracking various fundamental metrics over time it would work touse Excel.

One motivation for asking is that I hope to one day become an investing blogger myself, and am wondering if there are low cost ways of accesing this kind of data. Additionally I am always interest in real world methods people follow to prune the thousands of possible stocks to invest in to a smaller more promising subset that people can invest more time analyzing on a fundamental basis. To me the hallmark of a successful investor is the willingness to unturn many investing stones until a promising idea is found.

I am a tightwad when it comes to paying up for data or software.? I use the following:

  • FRED
  • Yahoo Finance
  • Value Line via my local library
  • AAII Stock Investor (A screening package, but more than that)
  • The Wall Street Journal
  • Bloomberg.com
  • FINRA TRACE — bond data
  • Bureau of Labor Statistics
  • Federal Reserve (but not FRED)
  • Microsoft Excel
  • If I need to do something complex, I can use the open source statistics package R.

AAII Stock Investor and Value Line are my main screeners.? I pay $100/year for AAII, and nothing for Value Line.? Oh, my library gives me Morningstar for free as well.? Both subscriptions are very full, and very useful as well.

Now all that said, though it is important to be able to access the data, developing the ability to interpret it is far more important.? There can be too much rigor in trying to analyze quantitative data.? You need to identify the three most significant variables that affect the result being analyzed and focus on analyzing them.? Most investment questions can be analyzed through the three most important variables.

Though I do backtests occasionally, I am happier to stick with theory, and base my actions off that.? Backtests are fraught with all sorts of bias, and basically say that the future will be like the past, only more so.

It would be great to have Bloomberg, FactSet, and some off-the-shelf statistics/programming package that integrates with them.? But life is tough, and we don’t always have that luxury, so we have to seek out data on the cheap, and analyze it cheaply also.

That’s how I do it now, but if I get more clients, I will start paying up for data and software.

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