The Keystone: Party like its 1999

Monday, October 29, 2007

Party like its 1999

This week, Barron's did a piece on the Sky high valuation on Chinese stocks. What amazes me is the similarities to the Chinese market and the Tech run up we had back in 1999. Does anyone remember that one? Apparently everyone's ulcers have healed and they are ready for another "this time it is different" market environment. Don't get me wrong, bubbles are fun, except for the popping part, but maybe that won't happen in this new Chinese economy. They have this huge booming middle class that needs as much stuff as the world can provide, right? Well, yes, but not at a growth rate consistently over 10%. Anyone remember how much fiber optic cable we needed last decade? Not near as much as we got. I believe we will see the same outcome in the Chinese market that we saw in the US tech run up in the late nineties. When will it come? That is a much more difficult question. I expect the current run up to last through the 2008 Olympics, however, I play these positions very cautiously. If I can take 20% of a move I am fine with that. I have to have the risk to reward ratio in my favor. Therefore, I only buy these Chinese/Emerging Market type securities on pull backs into support levels. Be warned, we will overshoot the valuations significantly in these securities and the US markets will feel it.......

For Andrew Barry's take in this weeks Barron's...

IT'S TOUGH TO SAY WHEN THE CURRENT mania for Chinese stocks will end, but the potential for a significant decline is growing. China's benchmark index has shot up 109% this year, and major Chinese companies now are valued at steep premiums to their U.S. counterparts.

Warren Buffett urged investors last week to be "cautious" on Chinese stocks, adding that "we never buy stocks when we see prices soaring." Buffett recently sold Berkshire Hathaway's (ticker: BRK/A) 1.3% stake in PetroChina (PTR), China's largest company, based on its sharply rising share price. PetroChina is valued at about $440 billion, nearly double its midsummer capitalization.

The world's No. 2 company based on market value, it rapidly is closing in on ExxonMobil's (XOM) $508 billion valuation. PetroChina trades for more than 20 times estimated 2007 profits, or twice its historic price/earnings multiple, versus Exxon's P/E of 13 and P/Es of about 10 for other Western oil companies such as Chevron (CVX) and ConocoPhillips (COP). Some analysts and investors think the Chinese oil company deserves no premium to its Western peers, and is overvalued by 50% or more.......

For the complete text: China's Sky-High Valuations Don't Compute, Barron's, October 29, 2007

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The Making of a Financial Portfolio Manager

Welcome to my blog. For this first posting I will give you a little of my background via some quick life highlights. I was raised in Midland, TX (yep, 180 degrees away from Boulder, CO). I grabbed my High School Diploma on the way out the door to Colorado, where my real adventure begins.

By the time I had moved to Colorado I had already climbed Mt. Whitney in California, and Mt. Rainier and Mt. Baker in Washington, learned to ice climb (on the local Midland, Tx., trees), and dove off the coast of Kauai.

Once in Colorado I spent my first few years really climbing both rock, ice, and some big peaks. Oh, and I spent some time on the University of Colorado campus with the aspirations of becoming a doctor. My advisor took some issue with that notion as I was not "Med School material". Turns out he was correct, but for different reasons. I did manage to finish up my undergraduate work at the University of Colorado with duel degrees in Biochemistry and Molecular Biology. Turns out that I really didn't have a passion for the sciences but the undergraduate work did wonders to develop my analytical side which plays a major role in my current work.

By my senior year I had worked my way onto the University of Colorado Triathlon Team (to meet girls of course). Well, I didn't meet any girls but did mange to find a skill set that I maintain to this day. I fell in love (for lack of better words) with the sport and immediately took it to the highest level. I began training for the iron distance triathlons (I am too slow for the short stuff). By November of 2000 I completed my first full length iron distance triathlon, The Great Floridian.

By the end of November, that same year, I found my self in the Vail Hospital with two broken ankles. I took a pretty substantial fall ice climbing. I was picked to lead the very sketchy climb because I was the only one with insurance at the time. After being CAT scanned from head to toe (with special interest in my heart; they wanted to make sure it was still attached to my aorta), and having my ankles bolted back together, I was left to deal with the pain and realization that I might never properly walk again. This hurt much more than the mess below my tibiae. Months and months later I did finally take my first run of 100 ft. A year later I would go on to run my first marathon. I did return and returned with a vengeance. If anyone is interested I can make a few posts on that experience.

During the days of crawling on the floor with my busted bones I decided to head into the business world and work towards an MBA. As it turned out my MBA (student loans) helped to finance my professional amateur triathlon career. By 2004 I was qualified to compete in the Ironman Triathlon World Championships in Kona, Hawaii. Yep, the big one. Life is a compilation of each of our past experiences. Ironman training, while not providing me with direct career experience, helped me to develop dedication.

I completed this and began selling Microscopes, and other high end imaging equipment and accompanying software out of Salt Lake City. This lasted about a year and a half. My heart was with the stock market not the sciences. During this time I had also managed to obtain a Master's degree in Finance. My path was now set. I loved the stock market.

My focus was now on my career. I was still athletic but not what I was. Again, a topic for another post. The transition from peak performer to an "also ran" is more difficult than is advertised. I suspect this is why many professional athletes come out of retirement. I did manage to qualify for the Xterra off-road World Championships in Maui, HI but another injury derailed that experience. I would now be starting over at the very bottom of the heaps of people trying to jockey a successful career. I would draw on my years as an athlete to carry me.

Deciding to pursue a financial oriented career, I landed a position back in Boulder, CO, with a stock advisory firm (Winning on Wall Street) where I would take phone calls and tell our members what I thought of their stock ideas. I also was able to spend some time co-hosting the associated radio program.

With my new found knowledge of stock analysis, risk management, economics, and my desire to be a professional portfolio manager I started Keystone Capital Management. This is where we will start this blog. I want to share the trials of being forged by fire into a professional polished money manger. This has been the most difficult venture I have ever undertaken. The street level learning and psychology of dealing with other people's trust and future is more than I ever could have imagined. It has been a fascinating journey that I hope you will enjoy and participate in.

The Keystone

Monday, October 29, 2007

Party like its 1999

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