Portfolio Update 05.31.2009

I took a little spill along with the rest of the market on the 13th. I've since rebounded. I bought 165 shares of AgFeed on the 12th for about $4.50 a share. On the previous day, I bought 25 shares of Boardwalk Pipeline Partners and on the day before that, I sold all of my Freddie Mac holdings at a significant loss. I'm up 18.67% since October 1st.

AgFeed Industries, Inc.

My largest holding right now is of Agfeed Industries (NASDAQ: FEED). It's an American firm and the largest independent producer of hogs in China. I'm tempted to liquidate everything I hold and just load up on it. The last time I had this crazy urge, MGM Mirage was my target, and it was trading under $3 a share. It hit a peak of $13 a month and a half later. Needless to say, I never put all of my money in MGM. I probably won't put more money in Agfeed either. I don't have the stones for that much risk. But I acknowledge that if I ever want to get rich investing on my own, moves like this will be necessary.

So, Agfeed has two market segments. They produce premix feed for pigs (farmers combine premix and different sources of protein to feed their pigs with) and sell it in independently-owned chain stores (pictured below) and directly to larger commercial farmers. As of December 31, 2008 they had 1,000 chain stores (which sell to small, backyard operations) and 660 commercial farm customers.


The feed business has been good (prices are currently high), but they've recently expanded into hog farming. AgFeed wants to raise 2,000,000 pigs in 2010, and they are now the largest producer (with less than 0.3% market share!) in a country that consumes 600,000,000 pigs a year. So, the market in China is very, very fragmented. I think China is going to move toward larger, consolidated producers like those that exist in the West. One reason is that larger farms are more efficient and in order to feed a rising China, increasing output will be essential. Another reason is that with the passage of China's new Food Safety Law (it comes into effect June 1, 2009) unsafe backyard operations could be shut down (assuming Chinese authorities don't use the law to drive foreign firms like AgFeed out of business). China's recent food scares (melamine in baby formula, etc;) have caused consumers to trust backyard production less. Just like in the West now, Chinese consumers will need brand names they can trust. As AgFeed is already a large producer with brand names, it seems like they're poised to do quite well.

AgFeed's financial statements look good too, but don't take my word for it. Here is their 2008 annual report.

China will demand more meat as it becomes wealthier (pork makes up 65% of the meat consumed), so even in a market 6x larger than in the US, it can only go up from here. Hog prices have appeared to bottom recently, which is also great for AgFeed. Growth is what makes me want to get on board though. And the fact that AgFeed is trading at $6, from a high of $19, and its revenue growth is monstrous.

Innovation Nation by John Kao

Full disclosure: I didn't get past page 110. The second half of the book might be brilliant. Someone else can find out.

The book's full title says it all: Innovation Nation: How America is Losing Its Innovation Edge, Why It Matters, and What We Can Do to Get It Back. If you already think America's best days are behind it and it's going to get eaten alive by Finland (#1 in global competitiveness according to the World Economic Forum in 2005), then you're going to love this book. If you read that expanded title and say, "OK, prove it to me" then you're going to hate this book. I'm in the latter camp.

What Thomas Friedman did for globalization, John Kao is trying to do for innovation. And I detect much of Mr. Friedman's writing in this book. Subheadings for the chapter "The New Geography of Innovation" include "Silicon Valley is now everywhere," "Talent is now everywhere," "Capital is now everywhere," and the verbose "Government investment in military and aerospace is now everywhere." Kao even calls the current period of innovation "Version 4.0" to distinguish it from earlier ones. And like all of Mr. Friedman's books, this one is heavy on anecdotes and statistics, but light on structure and predictive models (it also cherry picks history).

In addition to graduating from Harvard, teaching at MIT, and starting several companies, John Kao is "a leading expert on innovation" according to the book jacket. The leading expert on innovation defines his own specialization as "the ability of individuals, companies, and entire nations to continuously create their desired future." I guess having terminal cancer isn't very "innovative." He also says that innovation isn't all about science and technology. Grameen Bank, Southwest Airlines, American Apparel, the index fund, and W Hotels are all examples of innovation. Now, here's where I began to have a problem. Kao demands that we be exact when talking about innovation, because innovation is not a vague concept like love, but something that we can measure and actively promote. So, how then? How do we measure innovation? He dangles the idea of measuring innovation in front of the reader, offers some suggestions (the number of PhDs or patents), but then disappears into his next thought. He asks us to take innovation as seriously as accounting, but even a "leading expert" has no real idea of what that means.

So, if America is losing its innovative edge, who does Kao want to get gay with? Singa-bore, Finland, Denmark, Ireland, and a few other places. Why does he want to get gay with those countries? Because Singapore just built a giant mall and it successfully got the Culinary Institute of America to open a school there. The mall I'm referring to is One North. It's an international research and development center created by Singapore to mimic the successes of Silicon Valley. Many of the world's leading tech companies, venture capitalists, and universities are opening branches there to take part in this collaborative, scientific community. Kao says that many parts of the world are engaging in these efforts, and without similar initiatives here, we're going to fall behind the rest of the world in cultivating innovation (and with innovation, economic and scientific success).

I want to shout 'bullshit' from a mountaintop. Singapore is luring venture capitalists, biotech firms, and universities to the same location with the goal of creating Silicon Valley. Why does that sound so familiar... oh yeah, the Arabs just tried that. If I remember correctly, a certain city in the UAE was supposed to rival London and New York as a global financial hub. The Emiraties were awash in oil money and made such brilliant moves as building the world's tallest building in the middle of the desert. For anyone who missed it by the way, Dubai is dead. Don't expect it to bounce back when the world comes out of this recession. Add Dubai to the ranks of Kuala Lumpur, Bangkok and anywhere else that blew all of its capital on poor investment decisions. A fool and his money, as they say. Singapore wants to lure all of the world's finest? If that's possible, I don't think its accomplished with a green campus and access to banks alone. The pharaohs built the pyramids, not the other way around.

Innovation is very important. I'm not saying that it isn't. I'm saying that this book is crap. Government support, a good school system, and all the rest of it are essential, but I think John Kao isn't thinking hard enough about this. As part of his argument, America became mighty by introducing the GI Bill after World War II, allowing a whole generation of Americans to go to college. OK. But we were able to defeat the Germans AND the Japanese without a GI Bill. America's innovation and success didn't begin when John Kao needs it to. It began way before then, when America wasn't doing many of the things that he claims are now essential. I think Mr. Kao needs to go back to the drawing board and come up with a new theory on innovation. But, if in 10 years the best universities are located in Singapore, Finland, and Denmark, I'll take it all back.

Technorati tags: John, Kao, Innovation, Nation, Singapore, Dubai

At 9 Weeks

T. Boone Pickens, I'm On Board

While still at Investors Bank & Trust, I remember being horrified by the reading choices of my superiors. A director was reading Cod: A Biography of the Fish that Changed the World, my manager was reading Jack Welch's Winning, and one of the senior fund accountants was reading some crap about being successful in business and the greatness of America. I felt superior to every one of them with a Dostoevsky novel tucked under my arm. And now what am I reading? The First Billion is the Hardest by T. Boone Pickens. I am filled with self-loathing. Only not.

I saw a televised meeting of the National Clean Energy Project (its members include Bill Clinton, Al Gore, Senator Harry Reid, and T. Boone Pickens) recently and was impressed by what T. Boone Pickens had to say. He seems like one of the few people in the country with an actual plan for weening us off of imported oil, and here's the skinny: stop using natural gas for energy generation and put it into transportation instead, build wind and solar capacity, put an energy czar in place to open up transmission from the Great Plains to the coasts, and increase efficiency across the board. You can get the details here. Why don't we already have all of these things? Lack of leadership.

So, I wouldn't recommend the book. It's mostly a biography, and not a particularly interesting one at that (not that Mr. Pickens didn't have a great life -- except for that period where he had a messy divorce, lost some of his friends, was forced out of his company and severely depressed). I picked it up because I wanted information about his energy plan, and that is withheld until the final chapter of the book. Visit the PickensPlan website instead. Or just watch the video that I included beneath this post.

Pickens Presentation

50 Cent -- the Belgian Remix

Daniela's Birthday BBQ

I had some of our friends over on Saturday and threw Daniela a surprise birthday BBQ. I told her to keep the 16th free, but didn't tell her what we were doing. When she aggressively tries to figure out what the surprise is, she almost always gets it. I either smile or blush uncontrollably when she gets close. So she was much better this time about allowing it to be a surprise.

I got a pony keg of Harpoon Summer Ale and made some food. I asked everyone who was coming to bring something as well. I was nervous about not having enough to eat and drink but we did pretty well. And we scored a bottle of Shiraz and a bottle of Pinot Grigio out of it. Oh, and 6 pounds of ground beef that we didn't need.

I planned on keeping the BBQ a secret until the morning of the party. I had asked our friend Lou to help me get the food and drinks around 11:30 so until that moment it could be kept from her, but not afterward. Then, on Friday, D asked if she could go with our neighbor upstairs, Vanessa, to the gym at 11. I told her that wouldn't interfere with our plans (BBQ started at 3) and that allowed me to take off secretly with Lou to get the food. Lou and I got back after 1 and by then D had already come home. So I kept it a secret until 2 hours before the party, when I started to make the burgers.

I had never put so much junk into hamburger patties before. I found a bunch of recipes online and they all called for essentially the same ingredients. So I put chili powder, BBQ sauce, 2 eggs, garlic salt, pepper, Italian-style bread crumbs, and half an onion into 5 1/2 lbs. of ground beef. I didn't measure anything and I don't think you need to. Just wing it. Everyone (who wasn't a vegetarian) said they were awesome, so I would highly recommend doing the same.

We all just crammed onto our back deck and it seemed like it was OK, despite not really having enough chairs or space to put them in. Vanessa made Oreo balls (I don't think the link I provided is the actual recipe that she used, but you'll get the idea) and an Eclair birthday cake.

Our friends Jared, Laurie, and John stuck around after everyone else had left, so we sat on the deck talking until around 9:30.

D's actual birthday is this Wednesday so we'll go out to dinner and maybe do something else. I'm not really sure yet since I spent the past two weeks planning this party and not the next one.

Thanks to everyone who made it!

Sarkozy Called It

From an April 17th article in the London Times:

"Mr Sarkozy was quoted yesterday as telling an all-party group of MPs that Mr Obama was inexperienced and indecisive. 'Obama has a subtle mind, very clever and very charismatic,' the French President said. 'But he was elected two months ago and had never run a ministry. There are a certain number of things on which he has no position. And he is not always up to standard on decision-making and efficiency.'”

The article's summary has Sarkozy calling Barack Obama a "weak" president. My only problem with that statement is that weak is a relative term, and I'd like to know who is and isn't weak in Mr. Sarkozy's mind.

But I'm beginning to think Barack Obama is a weak president. President Obama isn't going to fight the military over Lt. Dan Choi's dismissal, despite having said "'Don't Ask, Don't Tell' makes no sense. Why would we not want able men and women, who are willing to sacrifice on our behalf, why would we tell them 'no'?" as a presidential candidate. He also reversed his decision to release more Abu Ghraib photos after General Odierno intervened and convinced him otherwise. The president declared fair trials for everyone being held at Guantanamo, but now it looks like military tribunals are back.

Barack Obama watered down his stimulus bill to get Republicans on board (which they didn't do) and, despite his real commitment to fighting global warming, his cap-and-trade proposal doesn't go as far as the Europeans have already gone. Unlike when George W. Bush was president, I agree with the White House's agenda, so I wouldn't mind seeing it shoved down a few throats. How about a little less 'uniter' and a little bit more 'decider?'

I eagerly await the outcome of his health care reforms.

LBIX, EVC, and BWP

I'm almost finished re-balancing my portfolio. I sold my 250 shares of Freddie Mac (FRE) this morning at a 56% loss. They can't all be winners I guess. At least my Freddie losses will help reduce my capital gains taxes at year end (I'm on the hook for realized profits of $1,200 so far).

I bought 1,150 shares of a small bottling company in western Canada (mentioned in an earlier post). Last week I also bought 400 shares of a Spanish-language media company. The company is Entravision Communications (EVC) and it operates TV and radio stations all over the country (its stations are Univision and TeleFutura affiliates). I read their 10-K and listened to last quarter's conference call. I'm sold on the growth potential. Hispanics in this country are on the move and someone's gotta advertise to them. With the economy where it is advertising revenues are waaay down, but I think Entravision will survive it and rebound nicely.

I bought 25 shares of Boardwalk Pipeline Partners (BWP). It's a company that owns and operates natural gas pipelines along the Gulf Coast and up to the Midwest. It's paying a 10% dividend and I don't think they're going to need to cut it. The company just discovered that there are some mechanical problems with its pipelines and they've been running less than optimally. After the problem is fixed, they 'll boost production with minimal extra cost. Plus, natural gas is going to be an important part of any future energy policy in this country.

The $770 I have left in cash is going into a tech or a Chinese ADR. I'm leaning toward AgFeed (FEED), the largest farmer of pigs in China and a major seller of feed.

My performance since October 1st, 2008 (I'm in blue and the Dow Jones is in red):

Some Mistakes, but Overall Pretty Good

Great start to the week. Las Vegas is surging. Ford rose another 40% after I sold it. I'm up 15% overall (about $450). I'm not sure where the market is headed so I'm holding $1,400 in cash.

I replaced my Ford and Tata Motors with $530 worth of Dr. Pepper Snapple (NYSE: DPS) and 1,150 shares of Leading Brands (Nasdaq: LBIX). The Dr. Pepper play is already boring me. I'm up 8% and I couldn't care less. I'm very excited about Leading Brands though. Huge growth potential. It started as a bottling/co-packing/distribution company in western Canada. They made Hansen's Monster Energy Drink a huge success in Canada, only to be dropped for Pepsi. They're trying to build their own brands now and from what I gather online, they're doing pretty well. TrueBlue, Stoked, Trek, and Infinity are a few of their brands. Anyone have any feedback on how they are? The 7-11s and grocery stores near my house don't carry them.

Five Boro Bike Tour -- 05.03.2009

What a great weekend. Daniela and I drove out to Greenfield on Friday (May 1st) for my sister's wedding. I'll post my pictures this week. My new brother-in-law is a great guy and I want to say congratulations again to the new Melnik family. I was also able to see my dad this weekend and play with his 6-week old Golden Retriever puppies.

After being in Greenfield for only 24 hours, we rushed back to Boston on Saturday. I dropped Daniela off and picked up my buddy Dave so we could get to New York for the Five Boro Bike Tour. It's an annual race (the marshals along the route kept reminding us it wasn't a race, but we knew better) through the five boroughs of New York and there were about 30,000 riders this year. Normally the race starts at the southern tip of Manhattan in Battery Park. My friends (Mark, Brucie, Kevin, Dave, Andrew, and Ari) and I joined the tour a mile later to avoid the inevitable bottleneck. We made our way up 6th Ave. to Central Park and then into the Bronx. We crossed the Madison Ave. Bridge and spent only 15 minutes in the Bronx before crossing back over the river at 3rd Ave. We took the FDR south to Queensboro Bridge, and then went north to Astoria Park. At Astoria, they usually hold the racers for 45 minutes or so, so they can close down the next set of highways and roads. By the time we got to Astoria Park I think the waiting period had already ended. We continued south through Queens and Brooklyn. At the southern tip of Brooklyn, we crossed over to Staten Island on the Verrazano-Narrows Bridge and made our way to the finish line. Then it was another 3 miles to the Staten Island Ferry (a trip back to Manhattan was included in the cost of our registration) and 5 or 6 back to Mark's place. For us, it was a 50-mile trip.

First of all, it rained all day long. It was only a drizzle at 7am, but it was raining by the time we got to Brooklyn at 10:30 or 11. We agreed to meet up at the last rest stop before the VN Bridge, which Dave and I thought was one stop, but everyone else thought was another. Dave and I waited for 15 minutes and assumed someone had an accident. Neither of us had a cell phone (and we didn't know anyone's number), so Dave borrowed another rider's to call his wife Kelly back in Boston. She didn't answer, so he left her a message to call Bruce or Kevin and tell them we weren't waiting any longer (at the same time, those guys called my girlfriend in Boston with the same purpose). At that point we had been standing still in the rain for 15 minutes and had lost all of our body heat. My jaw and right leg wouldn't stop shaking. We continued on and eventually met up with everyone at the finish line.

I saw at least two accidents. An older woman tried to take her bike through an enormous puddle on the highway and her bike slid out from under her. On the VN Bridge, an older looking man was lying on the shoulder with at least 10 bikers and possibly some EMTs looking after him. I was nervous about riding in such a large group because I assumed accidents were common and I don't have health insurance. I worried too much I think. I saw several kids racing who couldn't have been older than 12. I don't know if they finished the race or not, but they were doing pretty well when I passed them. Two accidents out of thousands of racers isn't bad. I would love to do the race again, but hopefully in better weather next time.

The Puppies at 6 Weeks