Friday, June 15, 2007

Stocks that I hate


Although my current investments all date from the past 9 months or so, this is not the first time I've been an investor. In college I invested quite regularly. Nearly every day in fact. It was 1999 and making money in the stock market was so easy it was scary. Any company that mentioned biotech in a news report would double in the next few months. Any internet related company would double. I even found a Russian oil company whose stock price fluctuated so regularly that I made money on the ups and the downs. (The company, AO Tatneft, was later discovered to be part of a Russian mob money laundering operation or something crazy. I had already stopped investing by then because it was so freaky. It's disappeared from the stock exchange as far as I know, but I think the company still exists.)

Anyway, a lot of things happened that resulted in my leaving the stock market. I felt like investing had become so psychological that it was too scary to continue. I also felt like investing was somewhat of a waste of time because I only had a tiny bit of money to invest. Doubling a few individual stocks is great and all, but when you only have $500 positions or so, you have to do it *really consistently* to get anywhere. I knew I wouldn't be able to do it for much longer. So I made a little bit of money and quit. I didn't take my money out of the market though. I figured I'd pick a few stocks and let it sit. 2000 was probably the worst possible time to do that! So, that brings me to the first stock I hate:


I like AMD the company because they're A) the underdog and B) they hired basically the entire R&D team behind the awesome Alpha processor, long ago (when I began investing). I think AMD is actually a really innovative company, in terms of technology. I love their HyperTransport interconnect, I love their AMD64 technology, and I thought it was a real coup to get exclusive use of NVIDIA's nForce chipset. And AMD chips were cheap at a time when I needed cheap chips.

As a stock, though, AMD is a DOG. Investors care more about practice than theory. AMD has a long history of failing miserably at putting their technology to work. It centers mainly around production constraints. They can't get big partners (like Dell, etc) because they just can't produce enough chips (on time). They also occasionally get really bad production rates (ie. a lot of the chips fail quality control). They don't have enough money to build a dozen chip fabs to compete on quantity; indeed, they don't have enough money to upgrade their existing fabs to support newer processes (when AMD moves to 100nm, Intel moved to 60nm. When AMD, a few YEARS later, moved to 60nm, Intel moved to 45nm).

AMD's stock success a few years ago was a result of Intel stumbling so badly in terms of technology (the Itanium, and to some extent even the Pentium IV) that AMD started wiping the floor with them. Even though their quantity still wasn't huge, investors couldn't ignore their (slowly) growing market share, especially in scientific fields which the Itanium targeted.

Then Intel said, "Hey guys, we're getting creamed. Let's develop another processor, based on our 10 year old design, the Pentium Pro. We'll also keep developing the Pentium IV, because yes, we can afford having two huge processor development teams." A few years later, their fruits paid off in a major way with the Core series of processors. They have regained the performance advantage and are, of course, outproducing AMD by some huge factor.

Then, in the past year, AMD bought a graphic company called ATI. This was probably a wise move. Intel has been making money off their cheap integrated graphics chipset for YEARS. (It won't play 3d games well, but it's the best selling graphics solution in the world because most PCs only need to display Word and Excel.) Investors didn't like it because now AMD is even deeper in debt.

I really can't say whether it's a good or bad time to invest in AMD. It *could* go up a lot because they will leapfrog Intel in terms of technology. Their upcoming quad-core processors look good. If they can integrate ATI successfully (like having the graphics processor integrated with the CPU) they could do really well.

But in my opinion, investors are just tired of AMD and Intel both. Ever since AMD started competing in high end processors (they used to just be a cheap clone of Intel -- 70% of the performance for 40% of the cost), neither company has as much profitability. Great for consumers, bad for investors. If I had to choose between AMD and Intel for the future, I'd say Intel because it is so big there's almost no chance of it going under. AMD could conceivably declare bankruptcy in a few years if they make even one mistake with their next major processor architecture. (Compare that to Intel, which made several.) Either that or go back to being a cheap clone, losing all credibility.

Since I'm trying to be a smart, patient investor, I don't want to invest in a company that I seriously think could be dead in a few years. Now, if they're not dead in a few years, I am going to seriously consider them again. Processor materials and process advances will probably slow, which will give AMD time to actually catch up to Intel and get some stability in their plants. Stability will hopefully lead to increased yields. They will also be able to justify opening new plants with the latest stable technology. When that happens, Intel is in trouble, because AMD is a much "leaner" company. If they need to compete on tiny margins, AMD has a real shot.


I don't hate ZTR as much as AMD (as a stock), if only because I never expected as much of it and thus I didn't get too disappointed. I have a fairly large (for me) position in it right now because I THOUGHT the large one-day price drop was stock manipulation. ZTR announced a rights offering, which let existing stock holders buy new shares at a reduced price. The price would be the average of the 4 trading days before the offering. I thought, ho ho maybe some big investor has driven the stock down so that he can buy a ton of shares, then it'll go back up. A few days later, it dropped again, and I bought more to get a lower cost average. It dropped again and I thought well screw it. I haven't sold, because ZTR does have about a 10% dividend, even at my entry price. In a year I'll have made back my money and then some. If it goes back up a bit (it does seem to have regular fluctuations) then I'll make out nicely. Right now I'm feeling very wary of it though. It would probably be better to cut my losses and pour more money into AAV... but I really am trying to be a patient investor!


Pfizer is one of those legendary companies with growing dividends that people say, "Put this in your IRA and retire a millionaire." Well when I bought it back in my college days I wasn't interested in a tiny dividend, I wanted some price movement. It moved down. That's when I started hating it.

This time around I thought, hey I don't really have any ideas of what to invest in, let me park my money in PFE for a few months. It lost a couple percent again. Over the past few years (before I was even investing again), I would look at it and say, gee this looks like a good time to invest based on the chart. It generally went down a couple percent within a few weeks, each time. I guess I just don't understand PFE enough to be successful with it.

On top of that, the research I've done lately indicates that PFE could have a rough time for the next few years as its best drugs are losing patent protection and some of its promising future drugs are failing or being recalled. I'm sure that happens all the time for these huge pharmaceuticals, but again I don't know enough about it yet to make a good decision. Now if one day I log on and see that it's dropped on some news story, I might just buy it anyway... but it would have to drop quite a bit!


This is just the tip of a giant iceberg of stocks that I hate, but they're the ones I love to hate. Even though I hate them, I try to keep up with research and trends so that one day in the future we can become friends.

Now let's see what I can do to improve my blog's interface a bit.

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