There are a lot of corollaries between sports and investing. We all know that winning begets winning. When things are going well, the baseball looks like a basketball. You trade better and react better. On the other hand it works the other way, where losing begets losing. Where it sometimes seems the emotional death spiral will never end.
The trick of course in having long-term success is to stay on the winning track. Some of the keys are getting back to the basics, keeping it simple, trusting in your skill-set and what you do best.
“There’s a great piece of pitching advice which is also pretty good writing advice: pitch, don’t aim. If you try too carefully to throw the ball to the exact spot you want – lower inside corner, say – you’ll lose all your natural motion and throw the ball in a straight line, incredibly easy to predict and thus to hit. A better approach is to trust your stuff. You know what you’re doing, you’ve been practicing forever. Let it fly. That’s how to throw that curve ball high over the strike zone that suddenly surprises everyone by breaking at the last second and dropping into the zone for strike three.” Source
I believe this old pitching axiom of “trust your stuff” is applicable to investing. Often I’ve tried to get too cute with an entry point or get too scared about market conditions that I wind up not executing a trade.
If you have a strong fundamental case, have done your home-work, and see a good risk/reward setup, GO FOR IT. Don’t get scared out of the position due to market volatility. Like in my Annie Duke poker trading tips post, to be a winner you have to have A LOT OF HEART.
The worst feeling in the world is missing out on a big potential gain where you had the fundamentals nailed because you were too chicken to step up to the plate and swing (missing a big trade often leads to the negative emotional death spiral). You have to “trust your stuff”
Press Release
-revenue $5.45 billion +28% y/y +29% ex-FX (5.03B est), EPS 45c (33c est)
-FCF $1.92 billion trailing 12 months +98% y/y
-operating income $251 million +62% y/y
-Kindle #1 bestselling item in terms of units and dollars. Latest generation shipped this week for $259 in 100 countries
-North America media +20% y/y, electronics +50% y/y
-International media +32% y/y, electronics +64% y/y
-Consolidated media +26% y/y, electronics +55% y/y
-$3.12 net cash/share, $4.45 FCF/share trailing 12 months
Guidance
-Q4 $8.125-9.125 billion (8.11B est), operating income $300-425 million including $100 million stock-based compensation
Slides
-ROIC 50% in Q3 with long-term expectation of triple digits
-revenue mix: media 54%, electronics 43%, other 3%
Conference call
-very broad based acceleration within media category Q2 to Q3
-did not comment specifically on videogames when asked (I noticed that had a buy 2 and get 3 games promotion in Q3)
-very good leverage in operating costs
Net-net
-A big beat and guide-up report. Management admitted y/y comps were easier as the last few weeks of Q3-2008 fell off due to the financial crisis
-Expanding upon this theme if economy remain stable, Amazon has easy comps from last year’s Q4 and should also be helped by the weakening U.S. dollar
-One exasperated sell-sider whined on how management guidance was way conservative last quarter (he was sand-bagged)
-With $5.56 FCF/share power a year from now, at $107 after-hours the FCF multiple is 19Xs. Not overly expensive for the dominant online retailer leader that can probably grow 20%+ for a few years
If history does repeat or at least rhyme itself, I present you the two nasty 15 year market scenarios of the past. If either of these comes to be, it’s going to be one hell of a ride.
When CNBC or politicians tell you that all is well in the world because the stock market is up from its lows, tell them to take a look at these two 15-year charts.
1965-1980: stagflation, oil shocks, gold through the roof, Nixon government price fixing, sky-high interest rates
1930-1945: Great Depression, massive government spending, money supply shrinkage
2000-2015?: dot.com bubble burst, Fed easy money driven housing bubble, massive fiscal and monetary stimulus, what’s going to happen in the next 5 years?
Press Release
-revenue $2.2 billion (2.14B est), EPS 38c (37c est)
-operating margin 28.4% vs. 31.8% y/y due to Bill Me Later acquisition
-FCF $563.5 million
-Payments: revenue $688.1 million +15% y/y, TPV $17.7 billion +19% y/y
-Marketplaces: revenue $1.4 billion -1% y/y
-$2.66 net cash/share
Guidance
-revenue $2.2-2.3 billion (2.26 est), EPS 38-40c (40c est)
Conference call
-core gross merchandise volume accelerated for second quarter in a row
-Sold 65% of Skype at a $2.75 billion valuation. Deal is on track to close in coming weeks
-”cautiously optimistic” into holiday season
-2009 capex will be similar to 2008
-fixed price +37% y/y, auction -12% y/y, vehicle -15% y/y (better than previous quarters, but due to easier comps)
Q&A
-Continued (positive) trends throughout the quarter. Expect the momentum to continue into Q4
-Asia good, UK great, Germany good, U.S. showing “accelerating progress” (means not as good as others)
-economy is “stable.” They see progress in their turnaround metrics
-global GMV is +4%
-expect to have $5 billion in cash by end of year from FCF and Skype deal payment, most of it is off-shore. Will continue to look at acquisitions and may re-distribute cash to shareholders in future
Net-net
-Management continues to emphasize the growth of PayPal (about 31% of revenue) as the core auction business is deteriorating at -12% y/y
-Slight beat and slight guide-down. Nothing too exciting. Management is “cautiously optimistic”
-At $23.87 after-hours with earnings power of $1.64, it’s trading at 13Xs multiple
Investors are piling into bond funds over equity funds lately.
Press Release
-revenue $935M (787M est) 14% y/y 28% q/q, EPS 75c (26c est)
-FCF $200 million, total units 31% y/y 45% q/q, gigabytes 107% y/y 37% q/q
-Average price per gigabyte -43% y/y, -3% q/q
Guidance
-revenue $1.1-1.2B (857M est), gross margin 25-30%
Conference call
-Q4 OEM orders are “very strong”
-OEM +200% q/q, units +72% q/q in a mix of low and high capacity
-56% of mix is OEM, retail sales were flat q/q
-22.3% non-GAAP gross margin vs. 7.7% last quarter
-December quarter is 14-weeks (extra week)
-OEM backlog is the “highest ever”, expect an increase in retail demand
-expect to improve profitability and cash-flow in 2010
-gross margins are similar retail vs. OEM
-build a brand new fab takes 18 months
-SSD hard-drive ramp will come 2011-2012, if it happened in next 6 months there would be problems with supply
-7.5 weeks of channel inventory
Net-net
-huge beat and raise quarter
-sell-side analysts were baffled on the conference call as the majority have negative ratings on the stock while it keeps hitting new highs
-management guided higher next quarter which make earnings power around $2.50. After hours at $23.50 means it’s trading at 9.4Xs with 13-15% growth
Press Release
-revenue $9.87B (9.12B est), $1.82 EPS (1.37 est)
-gross margin 36.6% vs. 34.7% a year ago
-international sale 46% of revenue
-adjusted sales $12.25 billion and $2.85 billion adjusted net income
-3.05 million Macs (2.76M est) +17% y/y, 10.2 million iPods (10.4M est) -8% y/y, 7.4 million iPhones (7M est) +7% y/y
-$37.18 in net cash/share
Guidance
-December EPS $1.70-1.78 (1.88 est), revenue $11.3-11.6 billion (11.4B est), 34% gross margin
Conference Call
-laptops 74% of the mix +35% y/y
-will sell iPhones later this month October 30th in China at 1000 points-of-sale partnering with China Unicom
-will adopt new subscription account rule sometime in FY2010, not sure on exact quarter yet
-lower gross margins due to new products, higher iPod mix, more air freight costs, and higher component costs
-improved iPhone supply where by September/October supply/demand converged
-2.4 million iPhones in the channel, +585K q/q
-iPhone 3GS ASP a bit over $600
-3G in over 80 countries. 3Gs will go from 64 to over 80 by end of year
Net-net
-Stellar iPhone and Mac units beats vs. street, iPod a bit light
-iPhone continues to be the best growth product cycle in tech
-Steve Jobs sand-bagged the bears with his intra-quarter iPhone sold-to-date number
-$2.69 EPS quarter non-GAAP. Using earnings power of $12 + $37 in cash, Apple at $200 is trading at 13.6Xs earnings
Apple announced some new product updates today.
iMac
-21.5 (1920×1080 IPS) or 27 (2560×1440 IPS) inch screen in an all aluminum enclosure
-starts at $1199
-processor options from 3.06ghz Core 2 Duo to Core i5 or i7 quad-cores
-every iMac ships with a wireless keyboard and new wireless Magic Mouse
-Nvidia GeForce 9400M or ATI Radeon HD 4670 graphics in 21.5 inch model
-ATI Radeon HD 4670 or 4850 in 27 inch model
-4GB of 1066mhzh DDR3 RAM
-builtin iSight camera
-802.11n Wi-Fi, Bluetooth 2.1+EDR, 4 USB 2.0 ports, 1 FireWire 800, SD card slot
Mac Mini
-starts at $599
-2.26ghz Core 2 Duo, 2GB DDR3 memory, 160GB HD
-5 USB 2.0 ports, FireWire 800
-Nvidia 9400M graphics, SuperDrive
$799 SKU
-2.53ghz Core 2 Duo, 4GB DDR3 memory, 320GB HD
$999 SKU
-OS X Server
-2 500GB HDs
Source
MacBook
-starts at $999
-13.3-inch widescreen LED-backlit 1280 x 800 glossy display
-Nvidia 9400M graphics
-2.26 GHz Intel Core 2 Duo
-2GB 1066mHz DDR3 RAM
-250GB HD
-builtin iSight camera
-802.11n Wi-Fi, Bluetooth 2.1+EDR, 2 USB 2.0 ports
-4.7 lbs
US VIDEO GAMES INDUSTRY – SEPTEMBER 2009
Hardware: $472.28 million (-6%)
Software: $649.32 million (+5%)
Accessories: $157.33 million (+2%)
Total Games: $1.28 billion (+1%)
TOP-SELLING HARDWARE – SEPTEMBER 2009
Nintendo DS: 524,200
PlayStation 3: 491,800
Wii: 462,800
Xbox 360: 352,600
PSP: 190,400
PlayStation 2: 146,000
TOP-SELLING SOFTWARE SKUs – SEPTEMBER 2009
Title / Publisher / Units**
1 Halo 3: ODST (360) / Microsoft / 1,520,000
2 Wii Sports Resort w/ Wii Motion Plus (Wii) / Nintendo / 442,900
3 Madden NFL 10 (360) / Electronic Arts / 289,600
4 Mario & Luigi: Bowser’s Inside Story / Nintendo / 258,100
5 The Beatles: Rock Band (360) / MTV Games / 254,000
6 Madden NFL 10 (PS3) / Electronic Arts / 246,500
7 Marvel: Ultimate Alliance 2 (360) / Activision / 236,000
8 Batman: Arkham Asylum (PS3) / Square Enix (Eidos) / 212,500
9 Guitar Hero 5 (360) / Activision / 210,800
10 The Beatles: Rock Band (Wii) / MTV Games / 208,600
I find that Annie Duke’s tips on poker are directly applicable to trading.
Skills needed to be a good poker player (trader)
-grasp of math, probability, and game theory
-have to have “a lot of heart.” The ability to understand not only what the right play is, but to follow through with it (when you have a good trading setup, GO FOR IT)
-what separates the good from the great, is that the good know the right answer, but they don’t follow through with it
-it’s not about winning right now, but making the right decision to win in the long-run (process over specific outcome)
-be a very good reader of people and bet pattern analyzer (read what the market is discounting)
What makes a successful poker player
-someone who manages their money really well (use rational position sizes and cut losses)
-bankroll requirement for certain game (asset size), how much you can risk in a certain game (position size)
-someone who has a lot of control over the emotional aspect of the game
-poker players lose a lot because there is variance to the game. Being able to emotional handle the losses and to not allow those to affect your play going forward is KEY (don’t get emotional over losses and then try to gamble/over-trade your way back to break-even)
-there are lots of players out there who have more talent in their pinky than my whole entire body, but they’re broke and I’m not
-you work with the skills that you have and recognize the games you should be playing in (what stocks and sectors do you know? what’s your circle of competence)
-don’t play in games where other players are better than you, which is ego-driven (trading sectors and stocks you don’t know)
-manage your money well and manage your emotions well will make you successful
-no-one wants to hear you moan. what productive thing is coming out of moaning? do something constructive. analyze your hand (trade), should I have been involved in first place? don’t focus on the one piece of bad variance (bad luck)
-don’t get emotionally invested on anything at the table (be rational in trading decisions)
-you take what the opponent has done in the past hands. are they conservative? are they wild? how have they bet good/bad hands? how did they behave? constantly update that based on what they do (look for patterns in the market after news)
-come up with best strategy to efficiently and precisely take someone’s chips. she is always willing to flirt with someone on the table (just win baby. making money is the only goal)
Annie Duke Big Think Videos