The Third Pig

Articles that appear on The Third Pig occasionally appear on the Seeking Alpha website and are regularly picked up by the general financial media outlets including Yahoo Finance, Reuters and other financial blogs. I have listed some of the latest entries and other locations they can be found:

Asset Allocation in 2009: Best to Go with the Devil You Know at:
Yahoo Finance: http://finance.yahoo.com/q/h?s=SBUX and http://finance.yahoo.com/q/b?s=BRK-A
Fav.or.it: http://fav.or.it/post/953406/asset-allocation-in-2009-best-to-go-with-the-devil-you-know

Coach: Luxury on the Cheap at:
Guru Focus: http://www.gurufocus.com/forum/read.php?2,42620
Fav.or.it: http://fav.or.it/post/929527/coach-luxury-on-the-cheap

Five Things to Be Thankful for in This Market at:
Reuters: http://www.reuters.com/finance/stocks/marketViews?symbol=COH.N
Yahoo Finance: http://finance.yahoo.com/q/b?s=COH&t=2008-12-15T03:55:28-05:00

GM Bailout Would Be Agony For Taxpayers at:
Yahoo Finance: http://biz.yahoo.com/ic/news/330.html?time=1226885400 

Obamanomics and the Stock Market at:
Stock Shoot: http://stockshoot.com/content/view/6602 

Buffett and Cramer Agree: It’s Time to Buy Stocks at:
AOL Finance in the Headlines area: http://finance.aol.com/related/berkshire-hathaway-inc-cl-b/brk.b/NYS?topic=144012971&tab=3 

Greed, When Others Are Fearful, Is Good at:
Wall Street Oasis: http://www.wallstreetoasis.com/newswire/greed-when-others-are-fearful-is-good

If you would like to share some of the above articles with your friends, family or associates just click any one of the icons below for the various websites including ShareThis, Digg.com and Facebook. Here is to a wonderful 2009 in the market.

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Posted by Benjamin Taylor at 05:28 PM |
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The stock market ended the year of 2008 posting one of its worst annual price performances ever. The Standard & Poor's 500 index dropped 38.5% for the year marking its worst performance since 1937’s 39% drop in the index. In fact it was the first time the index saw a 30% or more drop in price in those 71 years. So if you survived this year, give yourself a pat on the back.

Investors over the past year made many wrong moves, paralyzed by fear, they drove down stock market prices to unreasonable levels. One bright spot is patient investors could invest in stocks very cheaply. Valuation levels had not been at those levels since the early 1980’s. Although the S&P 500 has advanced more than 20% from its low of November 20^th, there remain bargains to be had.  

With so many bargains to choose from, some investors may experience paralysis because of greed. Which stock does one pick? In such an instance, it is best to invoke the spirit of Charles Munger, co-chairman of Berkshire Hathaway. In an Outstanding Investor Digest article some years back Munger was quoted as saying:

“For an ordinary individual, the best thing you already have should be your measuring stick. If the new thing isn’t better than what you already know is available then it hasn’t met your threshold. This screens out 99 percent of what you see.”

Although I picked up a few new positions for myself and my clients’ portfolios, in following Munger’s advice I found that the positions already in the portfolios were of solid companies that were similarly beat down as the market. Every nook and crannie of the market was hurt this year. It couldn't be avoided. And the potential of being hurt further is still present. However, when choosing where to allocate funds, sometimes it is best to go with "the devil you know".

Instead of scouring the investment universe for the new thing, I simply averaged down. The following chart marks the return of a few positions from the beginning of the year to the S&P 500’s low on November 20^th and then the return to the end of the year from that November date compared to the market’s return.

Although as a group the stock of these companies declined to a similar degree as the market, their rebound so far as been nearly 50% greater. Although it is too soon to say, I believe superior companies will bounce back to a greater degree than the average stock. I think this is what we are seeing in the chart above.

Disclosure: I and the clients of Brick Financial Management, LLC owned shares in all the companies mentioned in this post at the time of this writing. But positions may change at any time.

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Posted by Benjamin Taylor at 06:10 PM |
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The shares of coffee maven Starbucks' (SBUX) took a 10% tumble Thursday after the company announced it was lowering earnings forecasts for the remainder of the year. Howard Schultz, the company's CEO, cited "...The current economic environment is the weakest in our company's history, marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers." Schultz also mentioned the California and Florida markets, which make up 32% of domestic retail revenues have been especially impacted by the downturn in the housing market. Thus he/the company draws a connection between the struggles consumers are having in the housing market with a downturn in Starbucks' traffic in those states.

While I personally cannot be certain there isn't a direct connection between the housing crisis and lightened traffic at Starbucks's stores, I'm skeptical. If folks are making the choice between their daily java fix and making a mortgage payment, then times are worse than I thought. If there is any diminished traffic at Starbucks' stores it is more likely a result of internal missteps than outside economic forces.

An outside force I am convinced is not to blame for Starbucks' troubles is headwind created by the success of the coffee products from McDonald's or Dunkin' Donuts. Each of these companies does something well - McDonald's makes Egg McMuffins (delicious), Dunkin' makes, well donuts (also delicious) and Starbucks makes high-end specialty coffee. And the customers of each of these companies are as unique. McDonald's customers want a drive-thru window. Dunkin' Donuts' customers want sugar. And Starbucks customers want a place they can sit and enjoy a conversation, a newspaper or search the web. So I'm not troubled by competition. (Read my friend and fellow Starbucksian, Wayne E. Pollard's take on the subject at the Huffington Post.)

There were some encouraging words from the press release. Schultz committed to cutting costs and refocusing the company's efforts on making the best coffee in the world. Today, the company announced it was stepping back from its efforts in entertainment as well. If these actions reignite the company's growth, this period would have marked a prime and rare buying in opportunity.

Disclosure: I and the clients of Brick Financial Management, LLC owned shares of Starbucks at the time of this writing.

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Posted by Benjamin Taylor at 10:10 AM |
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I saw a great movie this past weekend. Akeelah and the Bee, is about an gifted 11 year-old whom finds her way to the National Spelling Bee Championship. Along the way she finds that she has people in her corner who help her conquer her demons and want to see her succeed.

I liked the movie because it addressed a little known phenomenon in the African-American community in which academic achievement is considered a white people thing. There were several references to large and complicated words as being white words. Akeelah is torn between fitting in and reaching her true potential. I won’t give away the ending but let me provide a hint. It’s an inspirational story with a moral and a happy ending.

Even though I enjoyed the movie, the plot wasn’t the most interesting facet of Akeelah. What most interested me about the movie was the way in which it was marketed. You didn’t see the typical deluge of trailers and movie posters plastered every which where. Instead, what you saw were green and yellow neon coasters, coffee sleeves, and signs placed strategically around your local Starbucks [SBUX].

Long the number one purveyor of your favorite java concoction, Starbucks has been expanding its reach into other, seemingly unrelated businesses. The company has seen success in satellite radio, production and sales of CDs, and is now getting into the marketing of movies. Recognizing its power as a place where “communities meet” and “word-of-mouth” is created, Starbucks is making an effort in earnest to capitalize on that unique position.

As a frequent customer of Starbucks [Full disclosure: I’m currently drinking a caramel macchiato and writing this blog in a New Jersey based Starbucks. So I’m a little biased toward the company.] I’m all for the long-term success of the chain in these non-caffeinated aspects of its business. I emphasized long-term because I need this company to slip up somehow. The business is so excellent and execution so on point that the market has rarely priced the stock to a level where I felt comfortable buying it. [Click graph to view a larger image.]



Akeelah is a great movie. Critics (namely my favorites Ebert & Roeper) are already calling this movie an Oscar contender. Which is actually a little disappointing. I’m glad Starbucks and Ken Lombard, the head of Starbucks Entertainment, picked a great movie – one that falls right into line with their culture. I’m confident they will continue to pick great films. But can’t they mess up at least once so the market can depress the stock? I want to buy!

Maybe this weekend’s box-office is a good sign as Akeelah came in eigth-place. Well behind the critically unacclaimed [Two thumbs down from E&R] Robin Williams’ film RV. I hope this is the slip up I’ve been waiting for. As a value investor I wait for disappointing news that is temporary and then wait to see how the stock reacts. Akeelah is a great movie (and a great product) that I’m hopeful will not do well. This would be a perfect example of a good company with a temporary setback. If that happens let’s hope that the manic depressive market punishes the stock, and at that point I’ll probably be a buyer.

We’ll see what the stock does after today’s conference call.

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Posted by Benjamin Taylor at 12:44 PM |
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