Sunday, 12 February 2012 12:22

The Value Of Not Following The Name Brand Following Crowd, Re: Apple, Goldman & RIM Featured

This post is dedicated to those who do not see the obvious due to name brand blindness. It came about from a conversation that I had with two other prominent financial bloggers/advisors/asset managers who not only have a lot of respect for my contrarian accuracy in the past (Ex. Goldman, Research in Motion, Google, Bear Stearns, Europe, etc.), but are in near complete agreement with my analysis (the real analysis, behind the paywall) of Apple. When asked why they

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Apple Margin Strategem WIP

don't review their opinions and findings more vocally in the media and their respective sites, they literally stated that they were reticent, if not outright intimidated by the cult-like deluge of Apple fanatiism that was sure to follow. Now, that is a damn shame. Those that run new media sites are actually being censored through intimidation. Well, as you may realze, the boy from Brooklyn loves to dance, so here we go...

In 2008 I warned my readers and subscription clients not to be blinded by brand names:

February 2008: Are you hooked on name brands? and As I was harping on relying on Name Brands..., as excerpted - 

It's been a busy day and I haven't had a chance to get to the blog. As all know, I've been quite bearish and I believe that the end of the beginning may be here soon. That means a true bear market where truly significant losses are common place for years on end, with intermittent bull runs. This is where value investors get burned because they can't tell the difference between value and price. Just because something is a lot cheaper doesn't mean it is a good value. Value is price as a function of future reward, not just a low price. There are some pretty big names that fell into this trap, primarily due to a lack of respect for macro shocks that stem from the residential/credit market crash. I have been very bearish on nearly everything that is connected to the macro crash, and I am basically a value investor.

... The reason I bring these points up is because I have been told several times by several individuals that because XYZ "brand name" investor has bought into ABC company that I am bearish on I had better cover, or I don't know what I'm doing, or blah, blah, blahhhhh!!!

... So, to make a short story long - no, I don't think a company is automatically a "no go" because a "name brand" took the opposite position. If I had that mentality, I would have lost out on the profit to be had taking the opposite side of all of those other "name brands" listed above. We all make mistakes, and I know my turn for a big mistake is coming up soon, but until them, or even after then we all need to keep in mind that all investors are human and they all make mistakes, name brand or not.

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Yes, simply jumping on board a popular brand make decision making easier and offers a feel good warmth when you partake since there is plenty of company in following the crowd, but the reality of the situation is that long term the decisions made by choosing the brand over the substance is often not the optimal one (for you that is, it's often quite a good one for the brand) and that warm fuzzy, follow the crowd feeling that you get often turns much colder as you find you have purchased much more marketing than actual performance or substance. 

Of course, as the rebellious, anti-establishment guy, I fly in the face of all of this, and actually relish in doing so. Let's run down a list of brand bashing analysis that I have done in  recent past. Keep in mind that when my contrarian opinion was initially released on all of these companies, the fundamentals were fully supportive of the groupthink consensus. The caveat is, groupthink is usually wrong.

Research [has lost its] In Motion

On Friday, 16 December 2011 I posted RIM Gets RAMMED! Again... Remember That Contrarian Call 1st Quarter of 2010? The reason? I warned on RIMM the first quarter of 2010, at a time when it was considered a valuation steal and Canadian nationalism caused many to defend this stock with zeal. Of course, at that time (Q1 2010) the zealots couldn't see the deterioration because RIM's fundamentals were still quite strong. 
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Of course, as we know now, you often have to look past yesterday's fundamentals!

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Nearly all of my calls on equity, sovereign nations and industries are highly contrarian. At first blush, I get a lot of flack, negative feedback and very little attention save that small coterie of paid subscribers whom I cater to. In the spring/summer of 2010 with RIM trading in the $60s or so, I warned that this company had definitely seen its heyday. I put out very specific research to subscribers, including downloadable models and extensive reports. I was dismissed as having nationalistic beefs with Canadian companies (WTF???). Well, about 80% in market value loss later that short is still popping profits.

BoomBustBlog banking and tech research has been near perfect for 2010/2011. Subscribers who took advantage of this deserve kudos. To wit, and as excerpted from Another RIMM Job? It's Amazing How Many Institutions Don't Read The BoomBust!

Let's try this again: As Forecast Last Year and Clearly Demonstrated This Year, Research in Motion's Problems Are Far From Over

Research in Motion has been one of the most successful tech shorts of this blog's history (thus far). We first recommended a short last year and reiterated it in the fist quarter of this year. Reference:

  1. BoomBustBlog Research Performs a RIM Job!
  2. BoomBustBlog's Fundamental/Forensic Analysis of Research in Motion Has Returned 2x-3x Original Investment This Year!!

This is a snapshot of RIMM as of the writing of this article...

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As you can see, the results have been spectacular, particular if well timed puts have been put to use. In January I posted:

I personally see a clear leader in mobile computing becoming visible in 2012. Using options, a minimum of 2012 expiration OTM and ATM contracts can be purchase at the most optimistic break points demarcated by the model above after being populated with assumptions you feel most valid. I will have a proprietary BoomBustBlog option model available for download to paying subscribers by the end of next week, at which time we will revisit the analysis above.

A 50% drop in price later... On that note, Bloomberg reports: RIM to Cut 2,000 Jobs as BlackBerry Loses Share to IPhone

Additional RIM writings...

Another Name Brand Bites The Dust?

On July 24, 2008 I penned Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis.

At that time, I was virtually ridiculed for even suggesting that the high and mighty Goldman could possibly take a loss. Why, they were best in class, cream of the crop, hired only the best there was (despite the fact that they hired the same guys that all of their competitors did from the same talent pool, same schools to do the same things). You see, unlike today, it was not cool to bash those doing God's work just a few years ago. As a matter of fact, no one would do it, despite the fact that their balance sheet screamed for a bashing... Well, I've put out a rash of research since those days, and guess who was right, Reg or those name brand junkies...

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A Few Quick Comments On Goldman's Q4 2011 Results

Here are some links that you are unlikely to find anywhere else...

Just As I Predicted Last Quarter, The World's First FDIC Insured Hedge Fund Takes A Fat Trading Loss

I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & IntroductionI'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & IntroductionI'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & IntroductionI'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction  

I'm Hunting Big Game Today: The Squid On A Spear Tip

Summary: This is the first in a series of articles to be released this weekend concerning Goldman Sachs, the Squid! In this introduction (for those who do not regularly follow me) I demonstrate how the market, the sell side, and most investors are missing one of the biggest bastions of risk in the US investment banking industry. I will also...

 Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?  

Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?

Welcome to part two of my series on Hunting the Squid, the overvaluation and under-appreciation of the risks that is Goldman Sachs. Since this highly analytical, but poignant diatribe covers a lot of material, it's imperative that those who have not done so review part 1 of this series, I'm Hunting Big Game Today:The Squid On The Spear Tip, Part...

Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!

Hunting the Squid Part 3: Reggie Middleton Serves Up Fried Calamari From Raw Squid

For those who don't subscribe to BoomBustblog, or haven't read I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction and Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?, not only have you missed out on some unique artwork, you've potentially missed out on 300%...
 Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!  

Hunting the Squid, part 4: So, What Else Can Go Wrong With Goldman Sachs? Plenty!

Yes, this more of the hardest hitting investment banking research available focusing on Goldman Sachs (the Squid), but before you go on, be sure you have read parts 1.2. and 3:  I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To...

Hunting the Squid, Part 5: Sometimes Your Local Superhero Doesn't Look Like What They Show You In The Movies 

What Was That I Heard About Squids Raising Capital Because They Can't Trade?

Reggie Middleton vs the Squid That Can't Trade!

Now, all should sit back and watch as those other two highly contrarian calls take root, involving the biggest NAME BRANDS of all!

Many commenters in blog forums query why I don't admit being wrong on Apple. My response is, "Where was I wrong on Apple?" In October of 2010 I said that although I wasn't short Apple they will eventually feel competitive pressure and they will deliver a rare but well deserved earnings miss. 

On my blog I gave a time frame of 4 to 6 quarters. Well, exactly 4 quarters later, guess what happened! The Only, and I Mean the Only, Investment/Research House To Warn Of An Apple Miss Is Vindicated!!! This is what I would consider being right, not wrong!

The following quarter, Apple had blowout results which were not unexpected at the BoomBust. Alas, if you bother to peek under the hood, all was not indicative of a massive trend updards - see Anecdotal Observations On Apple's Recent Quarter 

Remember, I never said Apple would crash or go out of business. What I did say was that they would face margin compression as a result of competitive pressures. For any other company, this would be common sense, but because this is Apple, sense is most uncommon. If it were not, then the many indications that Apple will not be able to ride solely on marketing powers and trendy fashions would be obvious. Reference Risk Factors Threaten Apple Margins…

There there is the consistent undervaluation of Google and the likelihood that they will control smartphone mobile computing for the balance of the decade...


There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

Last modified on Monday, 13 February 2012 10:14

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