No Random Walking!

It is announced today that Schneider is buying American Power Conversion (APC) for $6.1 billion in cash. APC's price spiked 25% to $29.76.
Ironically this is the third company that I "discovered" within last six months but didn't buy! APC's price was about $17 at the time.
The other two stocks that I discovered were Internet Security Systems (ISSX), which was bought by IBM for $1.3 billion in August, and ICOS Corp (ICOS), bought by Eli Lilly for $2.1 billion a couple of weeks ago.
The average gain from the discovery date to buy-out date would have been about 57%.
I missed the gain and I am sure that screening stocks cannot be this easy, but I am still happy that my system actually worked. Of the more or less ten companies that I "discovered", three have been acquired now and other two are potential take-over targets (as acknowledged by management). Only two have lower prices since then.

I cannot verify it, but this blog at Zen of Investing says that the top 25% private equity funds returned an averaged return of 44.5 in 1990s!

If you want to boost the performance of your portfolio, then consider private equity. From 1992-2002, the top 25% of U.S. private equity managers returned 44.5% annually while the second 25% of private equity managers only returned 14.3% (Source: Venture Economics, Morningstar Principia). The returns of top private equity firms have been so solid that even private institutional endowments like that of Yale University expects almost a third of their portfolio return to come from the 17.5 % it had invested in private equity (Source: Yale Endowment 2003 report).

Another blog worth reading is on the security of online trading accounts, which has become an issue after recent disclosures by E*Trade and AmeriTrade of their loss due to online trading theft.

From site Danwei:

The host Sophia is both sexy and funny. She now has made a series of short videos titled "Sexy Beijing". Including "Sexy Beijing - Country Living" (below), "Sexy Beijing - Lost In Translation", etc.

Today, Shanda Interactive, of which I have shares, is downgraded by Piper Jaffray.
I think it's again one example of questionable, if not manipulative, calls by an analyst (Remember Bear Sterns' call on UTSI?). We should be able to find out whether the market agrees with the call or not within a week if not sooner.
One more information: SNDA's chart clearly shows that someone was dumping the stock yesterday, in anticipation of today's downgrade. Another such example is Amazon.com, which is up over 10% following its earning report today. In this case the people in the know were buying or it or covering their short positions yesterday. Marketwatch's Bambi Francisco notes that:

Amazon (AMZN) shares shot up 11% in after-hours action, partly on relief the retailer didn't blow its quarter, and to a great extent because those who sold Amazon short prior to the results had to run for cover. Amazon's short interest stands at the highest level in at least a year. According to the Nasdaq, 43.6 million shares are held in a short position.

AMZN's action may also explain some other tech stocks' performance today: shorts are scared and are starting to cover their positions NOW. For example, heavily-shorted UTstarcom surged over 4% today for no news.
For other China-based tech stocks, SINA and Sohu are also going up for no obvious reasons (short covering very possible). BIDU is an exception: it is still bearish, even though the Google 's gap-up a couple of days ago provided a temporary lift for the company.

As they say, the market is never dull. The past week has been very eventful stock-wise. Many companies reported earnings or made moves. Among the notable are:

• Caterpillar had its largest one-day drop in stock price in 19 years.
• GM almost broke even (That's a huge surprise for me). Ford and Chrysler are in crisis mode.
• Solid earnings from IBM and Yum Brands.
• Starbucks is buying out its partner (Mei Da) in Beijing.
• Walmat is buying a local competitor (Trust Mart).
• Warren Buffett's Berkshire Hathaway broke $100,000 a share for the first time.
• Amazon.com surprised the shorts.
• And of course, Google crushed all of the unbelievers!

It's really exciting time to be in the market now. There are a lot of skeptics and there will be bumps down the road, but I think we may be at a very special time in the history of the world - with a driving force even more powerful than the 1990 tech-driven upsurge: the full-fledged globalization and the abundance of labor and money supply.

"It's not just a drink in China. It's a destination. It's a place to be seen and a place to show how modern one is," says Technomic Asia's Kedl, speaking of Starbucks' prospect in China. - BusinessWeek.com

InvestmentNews.com: Sharpe rethinks the capital asset pricing model (CAPM).

William F. Sharpe says his pioneering work on the capital asset pricing model is ready for a makeover.
The 42-year-old model - which earned Mr. Sharpe a Nobel Memorial Prize in economics in 1990 - is being revamped because Mr. Sharpe says he found a better way for portfolio managers and business-school students to learn about how portfolios are constructed and how securities are priced.
CAPM, along with modern portfolio theory, developed by Mr. Sharpe's mentor and co-Nobel winner Harry Markowitz, is the foundation of every finance program in the country, if not the world.
His latest book, "Investors and Markets: Portfolio Choices, Asset Prices and Investment Advice," may send investors and academics scurrying. Published this month by Princeton University Press, the book eschews mean-variance analysis - the mathematically complex formula that relates rewards to risks of securities or portfolios - in favor of a "state preference" approach that relies on an easy-to-understand simulation. That approach is based on a model closer to that used in financial engineering than in the ivory tower.
"I think of it as 'beyond mean-variance,'" Mr. Sharpe said in an interview.
... ...
By contrast to mean-variance analysis, the state-preference approach doesn't rely on a normal distribution, and the mathematics is far simpler than in mean-variance analysis.
"The elegance of (the state-preference model) is that you can understand the elements of the various moving parts of the optimization," said Gifford Fong, editor of the Journal of Investment Management and president of Gifford Fong Associates, a Lafayette, Calif.-based consultant on fixed income and derivatives.
Taken from research done in the 1950s by Nobel Laureate Kenneth Arrow, an economics professor emeritus at Stanford (Calif.) University, and Gerard Debreu, the late economist, state-preference theory said that there are many possible future states of the world but that only one of them actually will occur.
Investors can assign probabilities of any given state occurring. In a complete market, an investor can buy or sell a security for every possible outcome.
These contingent claims are like insurance policies. In fact, this methodology is used in pricing options, Mr. Sharpe said.
Many economists don't like state-preference theory, because it isn't provable, instead relying on a simulator. Some experts also note that it involves a massive amount of calculations.

As I said in my earlier posts, a replacement to CAPM and the mean-variance notion as a way of defining risk and return is definitely long over-due. Although I am skeptical about its usefulness, I will try to find out what this "state preference" theory is all about. The draft version of the afor-mentioned book is available online at this site at Stanford.

Having watched Ivanhoe for a year, I missed this one while on the sideline: IVN's stock went up 33% today due to the following news:

Ivanhoe Mines said Wednesday that London-based mining company Rio Tinto PLC plans invest up to $1.5 billion to develop Ivanhoe's Mongolian copper and gold resources, in a deal that will see it take an eventual 33.4 percent stake in the Vancouver-based company.
Ivanhoe Chairman Robert Friedland said the two companies will jointly engineer, construct and operate Ivanhoe's Oyu Tolgoi copper and gold mining complex in Mongolia's South Gobi region.

Tried to use wireless Internet yesterday in a cafe on my own notebook. Not bad. Not bad at all!
All I needed was to purchase a wireless USB adapter, which was made by Netgear and cost $160 RMB (after bargaining), or about $20 USD. The same item is sold in US for prices ranging from $37 to $47 according to information at Yahoo! Shopping.
Other brands sold are D-Link and TP-Link. The latter is a slightly cheaper local brand.
I should also go and get a router to set up a wireless network at home. The price ranges from $55 and up to $150 for a D-Link router in US, but I could get one here for about $30.
[Update 10/26:] The wireless broadband in the cafe is configured with a TP-Link router, which provides transmission speeds at 11/2 mdps. Not bad!

It's no incidence that Yahoo's stock price has tanked over 30% during last 12 months. The company appears in total disarray. There have been no innovations to speak of coming from the company during the last 5 years. For the mostly cosmetic changes they did make to their web sites, the quality and friendliness has actually dropped. Many of their web pages cannot even display with correct layout (which is really unusual for a major portal like Yahoo!). The changes made to Yahoo finance message board is a disaster. The new e-mail interface is terrible. ... Its China operation has been a total failure.
I sense that the talented people have been leaving the company and the management is clueless in what needs to be done to revitalize the once-leading tech company.
For more insight and what might help Yahoo to right the sinking ship, read the Eric Jackson's blog on Yahoo's CEO Terry Semel. Eric is the president and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and process consulting firm.
Updates:
[10/18] YHOO closed down more than $1 on "good" news - its new advertizing system, code-named Panama, is ready to run. Very bearish. More here on Yahoo! current state of disarray.