Saturday, May 12, 2012
Using an iPad to Stress-Test Earnings
You can do just about anything on an iPad these days, so why not use it to spot the weakness in a company’s profits, giving yourself the chance to sell the shares short? A new app, available on iTunes, lets investors assess the quality of earnings at companies in a given sector. Christopher Laudani, publisher of the new Instant Analyst, runs Short Ideas, a research firm that delves into earnings. Clients often asked him how he generated trading plays; now he’s making some of the basic information available.
Borrowing from the razor-and-razorblade model, Laudani offers the app (instantanalyst.com) free but charges for his reports. Without the reports, the app isn’t very helpful. He organizes the reports by sector and publishes a new one every three months. Laudani is selling a sample analysis for just 99 cents, though his other studies will set you back $24.99. The sample covers the materials business; others provide information on the energy, industrials, consumer-discretionary, consumer-staples, health-care, information and telecom sectors.
Each sector report contains a single-page on 100 to 150 companies, pinpointing current and historical financial data and providing 15 color-coded charts intended to convey earnings quality at a glance. It’s not a sorting or screening service; Laudani envisions the user flipping through the charts and making note of companies to research further.
“What I wanted to do was put everything that you look at on one page and let you flick through it. You didn’t have to know all the symbols of all the companies in each sector—you could just move from one company to the next, looking for ideas.”
One portion of the report is based on fundamental data and includes figures like days of inventory and annual free-cash-flow growth. The charts display quarterly items from the income statement, balance sheet and cash-flow statement such as operating margin and net working capital. If the trend is negative, the chart is colored red; positive trends are green. A sideways trend appears in yellow. The color-coding makes it easy to identify key trends.
The iPad app’s focus is on earnings quality, which isn’t necessarily reflected in static data. For instance, rising sales-per-employee figures might look like a positive, but they could simply be a result of unannounced layoffs that you’ll have to dig deeper to uncover.
“You can screen stocks all day and get lots of numbers, but they’re just numbers,” says Laudani. “The stuff you see on the Internet is all the same: chart different stocks 10 different ways, look at consensus estimates and dividends—so what? I wanted to provide something different that conveyed a sense of earnings quality.”
Initially, Laudani had considered issuing his reports in Adobe Acrobat’s PDF format, but when the iPad arrived, he realized it was a better platform.
In flipping through the sample materials sector, I found the organization into sub-sectors—aluminum, diversified chemicals and precious metals, etc.—helpful in making direct comparisons of similar companies. Navigating around the report, however, is a little clumsy. A progress bar at the bottom of the screen that lets you to go back to the table of contents or jump to a different page took some getting used to.
The Website for Laudani’s business is shortideas.com. As he publishes a second edition for each sector, Laudani plans to offer annual subscriptions. He thinks investors will find the reports interesting. “Is there a reason why this stock is going up and that stock is going down?,” he asks. “Instant Analyst is an ideal app for curious investors.” Drop the 99 cents on the materials sector to see if you agree.
KAPITALL GENERATION (kapitall.com), an online investing platform, has produced a video, aimed primarily at those new to investing, that explains Facebook’s upcoming IPO. It’s short, just 2½ minutes, and can be found at kapitall.com/fb. Did you know that approximately 8.5 billion minutes are spent daily looking at Facebook by its 901 billion users? As the video notes, that’s longer that it would take to walk to the sun and back twice.
A NEW ONLINE INVESTING SERVICE, Motif Investing (motifinvesting.com), came to our attention a while ago. It’s still in late-beta mode, but the firm is accepting customers. It’s an interesting idea, which we’ll soon review in depth. We mention it now because investors are being offered commission-free trades in May as Motif ramps up.
Motif Investing gathers groups of stocks that are set up by general interest—say, biotech, senior care, or home improvement. Each motif features 20 to 30 stocks, and when you buy into a motif with a fixed dollar amount, you own the stock individually—even fractional shares. You can customize each motif as you wish. The usual commissions are $9.95 for a motif, or $4.95 for a transaction involving a single stock.
Published in Barron’s, May 7, 2012.
Saturday, April 28, 2012
A Lesser Mousetrap
A Website called FundReveal offers a new way to pick mutual funds. Why we prefer the old ways.
Two veterans of Fidelity Investments claim to have come up with a better way for folks to pick mutual funds. Their Website, FundReveal, recommends funds based on proprietary measures of risk-and-return and managers’ decision-making abilities over long stretches of time. The contention is that this approach is more predictive than focusing on past returns and “hunches, opinions and popularity,” in the words of the Website (fundreveal.com).
Intriguing as it all may sound, I don’t care for it. The measurement criteria are explained poorly, and following the instructions is exhausting. FundReveal suggests you scroll through 20 quarters of grades for each fund that interests you to see how consistently it behaves over time. When you reach the results, the presentation is clumsy. The results are displayed in a tiny spreadsheet-style window, and while you can customize this to some degree, that, too, is difficult.
If the site unearthed some funds I wouldn’t discover elsewhere, I might be willing to wade through all that. But in my test, the picks weren’t much different from what I got from other fund screeners.
I set up a screen looking at performance over the past three years for a broad basket of commodity funds and compared it with Fidelity’s Mutual Fund Evaluator. The top two funds on the FundReveal list in this category were Classes D and B, respectively, of the Pimco Commodity Real Return Fund (PCRDX and PCRBX). Class D was second on a list from Fidelity, and carries a five-star Morningstar rating, while Class B was fifth with Fidelity and had four stars from Morningstar.
The top-ranked fund from Fidelity over the past three years is the Direxion Monthly Commodity Bull 2X (DXCLX). While it gets only two Morningstar stars, FundReveal generally likes it, awarding a “B” risk-return rating, second only to “A.” Scouring its 20,000-fund database, FundReveal finds just 61 funds that performed better than the Fidelity pick.
There’s an old saying for analyses like FundReveal’s: a long run for a short slide.
THE MOST RECENT INCARNATION of E*Trade’s iPhone app lets you get quotes or place an order using voice recognition. By tapping the microphone icon at the top corner of a screen and stating an appropriate command, you can now place trades while dashing from your car to the commuter train. This capability will be added to the Android app later this year.
E*Trade has also added the ability to scan a bar code on a product and get details on the parent company, if it’s publicly traded, for both iPhones and Androids. TD Ameritrade launched a similar feature earlier this year. Strolling through a store has never yielded so many investment ideas.
“Our mobile platform continues to grow and has become an increasingly important extension of how customers do business with us,” says Michael Curcio, president of E*Trade Securities. “These enhancements demonstrate how we continue to add innovative functionality to the mobile experience.”
AS ELECTION YEAR HEATS UP, my inbox has been the target of a few too many e-mails that have “Forward This to Everyone You Know!” in the header. These are the times when a good hoax-detector comes in handy, and the best may be Hoax Slayer (hoax-slayer.com). It could be better in terms of design and layout, but its content is top-notch and its price—free—is irresistible.
Besides debunking various hoaxes, the site offers terrific advice about recognizing and avoiding scams, online fraud, or phishing schemes. It also has links to a list of seemingly bogus e-mails that are actually true. And that video of a dog dragging another dog off to the side of a busy road while dodging traffic? It really happened.
The Urban Legends Website (snopes.com) often has more-complete explanations of hoaxes, along with an attempt to explain where a hoax came from, but I’ve found that Hoax Slayer gets their reports up faster. And in their brevity there is often the soul of wit.
Published in Barron’s, 4/23/2012.
Saturday, April 07, 2012
Getting Comfortable in the Cloud
Online investment software is moving from downloadable applications to cloud-based tools—reachable and operable from any computer you choose. What the excitement’s about, and a few cautions.
“Cloud-based computing” is a bit of jargon that has been hard to avoid for the past couple of years. But it’s definitely a phenomenon that’s here to stay, and will only grow in importance.
For active traders who, until now, have been using downloadable software-trading applications that feature streaming data and live charting, is there a cloud-based application that offers a distinct advantage? It’s a question worth answering.
AT CHARLES SCHWAB (schwab.com), Kelli Keough, vice president of active-trading services, detailed for us the plan to move her firm’s high-powered application, StreetSmart Edge, to the cloud. The main advantage, as she sees it, is the ability to run StreetSmart Edge on any computer, allowing a trader to easily move from one computer to another and still have access to all of the necessary features and personalized tools.
A key benefit of a cloud-based active-trading platform is that it lets you store your layouts and preferences on Schwab’s server, rather than your own machine. This means you can have the same screen setup, no matter where you’re located, or what device you’re using.
Already, several online brokers utilize the cloud; Keough notes that many brokers’ Websites and hybrid platforms have been cloud-based for years. Fidelity, for example, has a “bridge” application that provides streaming functionality. It launches from activetraderpro.com; you can customize the layout, and then save it, so you can access the same software layout from any computer. TD Ameritrade’s Trade Architect, optionsXpress’ Xtend, and tradeMonster’s basic platform also allow clients to customize the layout and user tools, and save those settings for use on another computer.
Schwab plans to make the entire tool-kit available in its downloadable desktop solution to the cloud, Keough says: “With our solution, there aren’t any sacrifices. All the tools from the downloadable application will be in our cloud-based solution.”
A key client group that will benefit: Mac fans, who in the past have had to use a Windows emulator to run most of the desktop applications. Quips Keough, “We think our Mac users will be on cloud nine.”
The newest release of StreetSmart Edge, which will be available starting April 19, will include point-and-figure charting, as well as a block-trade indicator, which helps a client know whether large blocks of stock are being traded. Schwab is also adding exchange-traded fund research to the StreetSmart Edge platform itself; currently, you get moved to a built-in Web-browser page in order to view ETF data and screeners.
Keough says that Schwab has a number of clients beta-testing its cloud-based StreetSmart Edge platform. The firm plans a phased roll-out of the remainder of its active- trading client base, beginning April 19. The plan is to contact clients to let them know they are eligible for the new platform, building capacity as client demand grows. Says Keough: “We want to make sure the experience is great as we grow.” She says that clients interested in switching to the new platform earlier can reach out to Schwab’s active-trader support group, and move higher on the list.
NETWORKING FOR THE CHART-CENTRIC: A new global Website, TradingView (tradingview.com), has opened its virtual doors, allowing traders to exchange ideas based on highly interactive, real-time charts. Right now, the site appears to be focused primarily on technical charting, though there are plans to add fundamental data to the mix in the near future. TradingView’s parent company is MultiCharts, which publishes an analytical trading platform that can connect to a wide variety of online brokers.
The current suite of tools available on TradingView is free, and the charts are actually fun to play with. You can look at studies published by other members, and share your own. You can analyze not only a wide variety of stocks, but also foreign-exchange pairs, futures, and indexes. Members are rated; you can find people who are interested in the same items you’re studying, and follow them as you would on Twitter. There’s a short video introduction at youtube/keuJQJEzg5U.
My main fear when I check out social-networking sites for investors and traders is that pump-and-dump schemers will be hanging out, trying to get the naïve trader to buy into a risky stock.
In the time I spent poking around on TradingView, however, those sorts of smooth operators weren’t in evidence. While it’s important to take what a total stranger on the Internet recommends with a very large grain of salt, I also find value in checking over ideas posted by knowledgeable traders. And there are plenty of people with interesting ideas on TradingView. The Website’s features let them illustrate their ideas with actual price and volume data, as well as a wide variety of technical studies. For the price, it’s well worth checking out.
SPEAKING OF PRICING, there are several ways to figure out how much it will cost you to trade if you’re an ING Direct/ShareBuilder client. In Barron’s annual review of online brokers, we said that ShareBuilder (sharebuilder.com) was one of the most expensive places for both occasional and frequent traders. We used the pricing listed for those who opted for the “Basic” program, but the costs would have been lower if we’d used the “Advantage” program instead.
ShareBuilder customers can sign up for the Advantage for $12 a month, which entitles them to 12 commission-free automatic investments, and a $2 per transaction discount on real-time trades. There is also a discount on margin rates. Had we used the Advantage-program pricing, the monthly trading cost for occasional traders would have come out to $102.60, rather than the $104.60 that Barron’s figured in its online-broker review.
The cost differential is much greater for the frequent trader. We calculated $3,420 per month, based on 100 stock and 100 option trades, plus $30,000 in margin debt, which is correct if the customer is a Basic program member. Ponying up the $12 for the Advantage program would drop the cost to $2,530, and put four other brokers out of the other 26 in the story ahead of them in our “Highest Cost” table. However, ShareBuilder’s tools are more suitable for buy-and-hold investors. The ShareBuilder Advantage Program make sense for those who will make more than three automatic investments each month, or eight or more real-time transactions.
Published in Barron’s, April 9, 2012.
