Rule One Investing Blog

Sorry for the long delay in posting.  I realize that I started this blog all gung-ho spent all my money then had to wait.  That’s the tough part about rule one investing, waiting.  Waiting for the indicators to turn the ‘correct’ direction be it up or down.

Now I’m back to posting.   Interestingly enough I’ve actually missed quite a bit while I was gone.  This ranges from apple’s stock going up (and a bit back down), acceleware’s stock moving to $1.00 (and back down) and coldwater creek’s stock taking a little rollercoaster.

Anyway, I’ll try and provide at least a ‘tri’ weekly post on this blog.  So without further ado we’ll have blog posts here eventually.

Yesterday, I discussed if Apple’s stock was going to increase. Well, after looking at the charts I decided to purchase some stocks. I woke up and saw that the price was around the same as yesterday, good.

So I put in a limit order at $129.10 and left for work. Got to work and checked to see if it went through and noticed that the price had dropped to 127, doh! oh well!


To summarize my stock purchase. I bought 4 shares (yes, 4 it’s a pathetic number and the broker fees will eat a big chunk out of any profit I make. As a trade a day states, it’s a learning experience and let’s call it “tuition.” )

• 4 shares of AAPL at $129.10 = $516.40

As always I’ll be watching the technical indicators to see when to get back out. Let’s hope that those iPhone 8GB sell good in the next year.

Today COO Tim Cook announced Apple’s (AAPL) Intention of selling 10 million IPhone’s this year (that’s a whole bunch of Iphones!).

As we know I’m a huge fan of Apple and the company in general as I discussed after the big Apple stock drop. I think they have everything that qualifies as a “bang on” Rule #1 Company. In fact, I think if Phil Town was rewriting Rule One he’d consider adding Apple as a example Rule One Company.

Anyway, I’ve been keeping my eye on this stock since I started trading. The stock price was either above the Margin of Safety ( back in December 2007) or the technical indicators were telling me to stay out (during the stock drop). Well, luckily for me there was a stock price drop and after the announcement today looks like the stock price could be back on the rise. Check out the image below.

The technical indicators tell us two important things

1. The Stock Price is just moving through the 30-day moving average
2. The MACD buy line is above the sell line and the average number of buyers is larger then the number of sellers.

So is the stock going to make a HUGE increase like before? Nobody can tell you that 100%. However, with consistent growth rates over the previous 9 years and incredibly good Return on Investment Capital it wouldn’t’ be a bad bet. I have a sticker price of over $200 so I see this as a steal of a deal!

Today KSwiss (KSWS) released the fourth quarter report. KSwiss reported fourth-quarter net income of $0.6 million, or $0.02 per share, compared with $10.7 million, or $0.30 per share, a year earlier. So, definitely a drastic decrease from last year. However, being the optimist that I am I really like the comments of the CEO today,

“We’ve been saying for several quarters now that domestic business will be weak until at least late in 2008,” Nichols said. “From what we have seen in the retail environment as of late and order indications, that expectation needs to be extended until 2009.”

He goes on to state that the dramatic decrease in sales is directly related to domestic growth. And a small glimmer of hope can be seen in the international market which had an increase in sales.

“Worldwide revenue and backlog are down overall on continued weakness in the domestic market, while international revenue is up albeit at a slower pace in the fourth quarter than we experienced earlier in the year.”

Anyway, it looks like KSWS has had a tough year. I’m still going to keep my eye on this stock. I don’t expect to purchase anything till the market strengthens.

Lowes (LOW) released it’s fourth quarter report today with some interesting news. Normally when a company releases a statement saying “lower then last years quarter earnings” the stock decreases. However, because the market has drastically undervalued these stocks they expected even worse news. Therefore, the “lower earnings” were better then expected, according to the market. If that makes any sense?

It’s an interesting point to consider as a Rule One Investor. If the company did worse then last year in the fourth quarter what does that mean?

Well, obviously we need the whole year and the previous 9 years to make an appropriate statement. However, this does show that the growth rate is probably falling. A decreasing growth rate is not something that a rule one investor wants to be concerned with. It makes the business less predictable.

Does it matter that the stock price actually increased? No! It would matter if we were buying or selling the stock, however, I don’t have a position in the stock as discussed when I was selling my Lowes (LOW) stock. The price increase is simply a reajustment because of the undervaluation of the stock.

I am waiting to see the annual report to recalculate the Rule #1 numbers and see if Lowes still qualifies as a rule one stock.

In my last article I talked about how KSwiss’s current stock price is currently below the margin of safety. Therefore, it’s important to delve deeper into this company immediately. As soon as you find a stock below the Margin of Safety I think it’s important to analyze the company to determine if it’s worth putting on your possibly buy list.

What is KSwiss?

Kswiss is a company that designs, develops and markets high performance footwear and apparel. As well, they market and design casual footwear. Which is how I know KSwiss. I know KSwiss from products like the shoe to the right.

Who are the consumers?

From the company description it looks like the consumers are sports fanatics and the modern teenager to young adult. As we know these people are large consumers.
Where can I buy KSwiss?

I like to do is determine where people can actually buy the product. I find that this is especially useful for retail stocks. If you can’t get a specific brand at certain stores / locations then this shows some sort of block in the moat or management. Looking online you can buy KSwiss from Foot Locker and Eastbay.com. On ebay there are over 300 items when searching for KSwiss

How’s the Management?

This is always the toughest question. However, if we look at the annual report from 2007 we can see that the CEO seems like a straight shooter.

The athletic footwear industry is highly competitive. There are several marketers of footwear larger than us, including Nike and adidas. Each of these companies has substantially greater financial, distribution and marketing resources as well as greater brand awareness than us.

We have increased our emphasis on product lines beyond our Classic model. In the past, we have introduced products in such highly competitive categories as court, boating, outdoor and children’s shoes. See “Products.” There can be no assurance that we will penetrate these or other new markets or increase the market share we have established to date.

The principal elements of competition in the athletic footwear market include brand awareness, product quality, design, pricing, fashion appeal, marketing, distribution, performance and brand positioning. Our products compete primarily on the basis of technological innovations, quality, style, and brand awareness among consumers. While we believe that our competitive strategy has resulted in increased brand awareness and market share, there can be no assurance that we will be able to retain or increase our market share or respond to changing consumer preferences.

 

Those are the sort of remarks that I can relate to meaning, “we can’t be assured that we’re doing these things, however, we believe this approach might work.”

What about the CEO, Steven Nichols?

Well, Mr. Nichols seems like our kind of player. He’s been on the board since 1987. He also holds a LARGE amount of stocks, over 70% of the voting power stocks. In addition, he only took 1 million as compensation for his work on the board.

Finally, KSwiss has a conference call on Tuesday to report the fourth quarter earnings of 2007. This should give us a great idea of the outlook for 2008. Furthermore, it’ll show us what kind of management we have. I’ll be sure to watch carefully on Tuesday.

Sorry it’s been so long that I’ve posted. I have some other web endeavors that are currently taking up more time then usual. Luckily, they’re starting to wind down and I can finally get back to this blog. Fortunately, rule one allows us to get busy with other endeavors once we have money invested as all we have to do is check our current stocks for the daily progress.

Anyway, in my last few articles I’ve been discussing how I am going about selecting my Rule One stocks. I’ve dealt with purely the rule one numbers, the Moat and in this article I’ll discuss the margin of safety (MOS) of the remaining stocks. Remember, these are simply my margin of safety numbers and could be completely incorrect. You should process the numbers and make your own conclusions.

• Sports
  • Nike (NKE)
    • MOS: $34.07
    • Current Stock Price: $60.59
  • Sketchers (SKX)
    • MOS: $12.15
    • Current Stock Price: $22.24
  • Deckers (DECK)
    • MOS: $92.59
    • Current Stock Price: $120.88
  • KSwiss (KSWS)
    • MOS: $17.72
    • Current Stock Price: $16.73
  • Pool Corporation (POOL)
    • MOS: $12.21
    • Current Stock Price: $19.24
  • Columbia Sports Wear (COLM)
    • MOS: $32.47
    • Current Stock Price: $43.63

As we can see only KSwiss has a margin of saftey under the current stock price.  Therefore, it’s worth taking a more indepth of the company and management of KSwiss.   My next few articles will delve deaper into KSwiss. What’s the market? Who are the consumers? What’s the future outlook?  How’s the management?