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Nick's Place

Nick's Place: Lets Throw Money Into the Market (Intelligently): Complete Archive

November 16, 2006

The New Blog and the New Delta....

So, the "new" old blog.. For the technically inclined this is Movable Type blog has been hanging around for a while, as the New "Blog", Did I get shit done today?. Given the fact it got to one entry in five months, I took the same installation and re-skinned and repurposed it, much like what America West did with US Airways.

So this blog is titled "Lets Throw Money Into the Market (Intelligently)". Its a place where I'm going to put my comments on the stocks that I own, or stocks that I am thinking of purchasing. The point behind it is to both give my rationales for later review for myself, but also open my choices up to feedback..

At this moment my portfolio is composed of the following (If you work through the numbers as of last Friday's close you'll come up with a 9.35% return including CQB, excluding CQB you'll come out with a 44.64% return. I keep numbers both inclusive and exclusive of CQB calculated, for reasons to be discussed in another entry.):
StockShares OwnedTotal Spent
with Commissions
Cost Basis
per Share
A note about cost basis: I calculate cost basis based on what I spent to purchase the shares (including commissions in this case), any dividends that were utilized to purchase additional stock, and in the case of Employee Share Purchase Programs shares, as if I purchased them at full price. In the above C was purchased via a 401k, but was purchased at full price, most of CQB was purchased at a discount, but some was purchased at full price.

Right now, I don't have a clear rationale for all of the stocks that I've bought. I have a general idea, but I don't know the specific reasons. Some of them are pretty stupid, for example I own DUK because I realized one day that I had every light in my apartment on, and I repeated the question that my parents often posed when I left lights on: "Do you own the power company?" Since this was my apartment and my electricity bill, I decided I should buy some Cinergy, the power company... Now, I don't even get my power from Duke, Cinergy's successor anymore.. I bought DIS because I wanted to vote against Eisner, but I think I missed the record date for that. So some of this portfolio is composed of companies that I did business with, but much of it is composed of companies that I consciously decided to buy for their business prospects.

So, I've got this muddled understanding of why I own what I own, and I think I need to start keeping track of why I bought the stocks I bought, my thoughts at major events in the company's history, and other related thoughts. Thats where this blog comes in...

So my first knowledge of US Airways's merger offer occurred this morning when my radio woke my up to NPR, the first thing I said was "oh, thats a bad idea" then hit the snooze alarm and went back to sleep.

This quick dismissal was based on a few major concerns:
  1. US Airways and Delta have dissimilar fleets, specifically
    • US Airways mainline flies primarily Airbus A320 family jets, some old Boeing 737-classics that are being phased out, a smattering of Boeing 757s and 767s, a handful of Airbus A330 aircraft, and it will be getting some Embraer E190 jets soon. US Airways has a stated goal to operate a completely Airbus fleet. This is logical because each aircraft type increases costs.
    • Delta mainlines flies primarily Next Generation Boeing 737s, Boeing 757s and 767s, internationally relies on Boeing 777s, and has a cackle of those Volkswagen bugs of the sky the DC-9 derivatives, specifically late model MD-80 jets.
    These fleets look nothing alike, the 737s don't match up, they're both from different families and have different maintenance requirements, the narrow body jets are mostly different pitting new-737s and DC-9 derivatives, against old-737s and A320 family jets. The one commonality in the narrowbody field is the 757s, which are ironically becoming more valuable now than they used to be due to their ability to serve thin international routes. In the widebody field both airlines operate the 757's larger sister the 767, although US Airways operates the older models of 767, and Delta operates the newer models. Beyond the 767 they widebodies are a crapshoot, with US Airways operating Airbus A330 jets, with an order for the Airbus A350XWB (whenever the hell Airbus decides to build that) and Delta operates the cool Boeing 777.
  2. US Airways and Delta workforces are rivals, deep bitter rivals. I've heard stories where US Airways pilots have refused the company provided shuttle to the hotel because they had to share with Delta crews. These companies have been at each other's throats for a while.
  3. Delta of late has been a shitily run, directionless airline without a business plan to keep itself afloat. My understanding that the business plan post 9/11 was to "Sit tight, run the airline like we've been running it, and wait for US Airways to go out of business." Yes, essentially we're going to be successful after our competitor goes under. To be fair Delta has tried many things, but they all fall under the directionless business plan, a poorly thought out airline-within-an-airline product, Song, that was operated on the wrong equipment, spending money on things like designer uniforms, and closing a hub and shuffling aircraft around the country pushing up, and pulling down hubs with no clear goals evident. Add in the fact that between 9/11 and their bankruptcy filing Delta managed to double their outstanding debt and Delta has spent the last five years pursuing Murphy's law: Murphy didn't even have to do anything, Delta made sure everything went wrong without him. Yes, I'm being harsh, but idiotic management should be called such. I'll be the first to admit that the old US Airways did many of the same things for many years.

I know that is a pretty extensive rationale but this is the general analysis I did before hitting the snooze button.

So when I actually woke up, I did a bunch of reading, I listened to the conference call, I read the press release and worked through the investor slide show.

My gut tells me to support this. I bought LCC because I saw that a well run airline, America West, was buying the old US Airways, a poorly run airline that had managed to stay in business because they had a serviceable set of assets and a descent route presence. Essentially, I think the disciplined management of America West was able to take the rough old US Airways and carve out a diamond (one that still needs some final cuts and some polishing, but its there). I see many of the same qualities in Delta as I did in the old US Airways. This takes care of concern number three.

Concern number one was addressed in the conference call. I believe Scott Kirby (or maybe it was Doug Parker) stated that they looked at the fleets and overall each fleet type has enough aircraft that it isn't a concern. The exception he stated was the 777 and A330 fleets, but that is a small quantity of 20 aircraft or so.

I just stepped out for a bit, and did a little more analysis of the fleet. I took the fleet charts from each airline's respective Wikipedia article, combined the fleets in an Excel spreadsheet. (I've excluded aircraft that had been ordered, but didn't have a seat count.)

Current AirlineTypeOperated (Ordered)Passengers
US AirwaysEmbraer 1900 (57)99 (11/88)
US AirwaysAirbus A31993120 (12/108)
US AirwaysBoeing 737-30056126 (12/114)
DeltaMcDonnell Douglas MD-88134 (134) (Shuttle)
DeltaMcDonnell Douglas MD-88120142 (14/128)
US AirwaysAirbus A320-20075142 (16/126)
US AirwaysBoeing 737-40040144 (12/132)
DeltaMcDonnell Douglas MD-9016150 (12/138)
DeltaBoeing 737-80078 (42)150 (16/134)
US AirwaysAirbus A321-20028 (15)169 (26/143)
DeltaBoeing 757-200121 (13)183 (24/159)
DeltaBoeing 757-200184 (26/158)
US AirwaysBoeing 757-20046193 (8/185)
DeltaBoeing 757-200199 (All Economy Ex-Song)
US AirwaysBoeing 767-200ER10203 (24/179)
DeltaBoeing 767-300ER59214 (36/178)
DeltaBoeing 767-400ER241 (41/200) International
DeltaBoeing 767-30024250 (24/226)
US AirwaysAirbus A330-3009266 (42/224)
DeltaBoeing 777-200ER8 (3)268 (50/218)
DeltaBoeing 767-400ER21285 (36/249) Domestic

Its a bit messy, but I think the most important thing to note how the the combined fleet provides a greater ability to match seat counts of aircraft to demand via additional options than either airline has on its own. The more I look at it the more the differentiated fleet seems to be an asset and not a liability, as is commonly thought.

The final concern, concern number two, is one of those harder things to work through. I see many comparisons between US Airways's CEO Doug Parker and Gordon Bethune, the Continental Airlines CEO responsible for that airlines stunning turn around from crap that Frank Lorenzo created, to one of the best run airlines in the world. The more I listen to the guy the more I know that he is a capable leader and focused on team work. (A major cultural artifact note from the current US Airways is the focus on the company's heritage; Every aircraft carries a heritage logo that harkens back to the airline that every employee was originally hired by, in the same vein, there is a fleet of Heritage Aircraft, celebrating the airlines combined history.) I think US Airways is generally willing to work with their unions, despite some saber rattling by the unions, I don't think you're going to get any murder attempts al la teamster style (don't laugh, I used to work with a gentleman who negotiated union contracts, and he shot at several times during teamster negotiations, and only during teamster negotiations.) Finally, on the labor front I think Delta's employees would welcome a change in leadership. Yes, this is mostly unsourced but the last time I flew Delta I managed to get a flight attendant to talk for 30 minutes or so on the idiotic management.

So there you have it, my analysis of the merger, and why I support it. Yes, there are risks, but I think there is a solid set of assets, professional employees, and a proven management team behind this one, that has the benefit of many lessons from their most recent merger integration effort.

Posted by nickb at 05:20 AM | Leave a Comment

Why Friday?

You might've caught the phrase "of last Friday's close" in my last entry.. It'll be a phrase that you'll see me using a lot here.. And you may ask what is so special about Friday?

Nothing really, but its a nice point that gives me three days to update the share prices in my portfolio spreadsheet.

I decided when I started working on the stats for my portfolio that I would only keep track of closing prices (and ergo my portfolio value) once a week. When I got started I decided that I was going to invest for the medium to long term, so intra-week variations aren't a huge worry of mine. On the same token monthly price updates to my portfolio didn't seem to provide gradation in the data to make charts and the like worthwhile.

Every once in a while I'll crack out what my share value is midweek (I did that yesterday with JBLU and LCC) but as a rule I don't do it very often.

Posted by nickb at 05:55 PM | Leave a Comment

March 06, 2007

Patiently Wrapping the Portfolio Up

I needed cash back in December, and I had no other sources, so I sold off all of my portfolio. It wasn't a happy moment.

So here is how it all ended up:

Stock SymbolTotal Spent w/o Commissions:Total Spent w/ CommissionsSale Value (w/ Commission)Sale Value (w/o Commission)Percent of Spend on CommissionsTotal Dollar Gain/Loss (w/ Commission)Total Dollar Gain/Loss (w/o Commission)Total Percent Gain/Loss (w/ Commission)Total Percent Gain/Loss (w/o Commission)
Total (excluding CQB):540.19592.19799.35930.4430.92%207.16390.2534.98%72.24%

Overall, I'm happy with it. In real terms I made money. Unfortunately I ate up an insane 19.29% in commissions, and that was only helped by the Chiquita volume from my employee share purchase plan, which didn't have a commission. Excluding Chiquita I spent 30 cents of every dollar invested in commissions. Sharebuilder must be very happy.

The figure I'm most proud of is the 72.24% on the Total Percent Gain/Loss (w/o Commission) excluding Chiquita figure. Sure, thats backing out a whole bunch of things but I honestly believe that is the most accurate figure to determine my investment abilities on. The rationales for this:
  1. Commissions tend to be fixed dollar amounts, and I invested a pretty small amount of money, ergo I wasn't investing the right amounts to be efficient with my commissions.
  2. I made the Chiquita purchases mostly out of an understanding of the internal culture change that was happening there. I learned two lessons here:
    1. The market doesn't see from the outside what you as an employee see from the inside.
    2. Invest rationally, and not exclusively on market news. I bought gobs of shares right when the Fresh Express merger was announced, if you look the shares were on an acid high that summer. Instead of that being indicative of the share price of the company for the future it was an anomaly.

The investment choice I most proud of? They're all my babies, (even that bastard child Cincinnati Bell) but I think US Airways (LCC) is my favorite pick. Specifically because I remember that that was a contrarian purchase. Everyone thought that putting together two semi-also run airlines was a bad idea, but in the medium term its been good. (Of course for the long term the jury is still trading.)

So there it is...

Oh, one more thing about last week's stock market fall. Why panic? Sure its a big absolute number, but as a percentage it isn't that bad, and my Rollover-IRA is still up for the year, even the S&P500 Index Fund...

Posted by nickb at 04:15 AM | Leave a Comment

December 17, 2007

Fun in the Market Bed

I've been a bit frustrated about the push to prevent mortgage foreclosures by forcing lenders to restructure their loans.

Don't get me wrong being evicted must suck. (For the record I had an eviction notice served on me once, it nicely happened to coincide with the day I was already planning on moving out…) But, there is the fact that if you signed an agreement that you cannot fulfill you should pay for the consequences of it. This goes for the borrowers who borrowed beyond their means and the originators who wrote the bad loans that they have to repurchase.

The fact of the matter is the market is working. People made commitments that they can't make. The market mechanism for fixing this is foreclosures. It hurts for both the lenders and the borrowers.

Where the problem comes in is that having unoccupied houses has its toll on a community. Instead of attempting to circumvent the market in this case, I think really there should be some controls on unoccupied properties. Things along the line of security fees that are paid to the police, an additional property tax to offset the loss in sales and income taxes, etc. Really governments shouldn’t try to modify the mortgage terms as much as they should implement market costs that make lenders act differently and more quickly.

Here is an interesting story that I'm sure is being played out all over the place, I have a former coworker who wants to buy a house, has made a reasonable offer and the bank that currently holds the title to the place cannot work through the paperwork.

Bottom line you should lay in the bed you made.

Posted by nickb at 07:45 PM | Leave a Comment

January 02, 2008

Be yourself, even if you're an airline.

So I was reading on about the demise of Song Delta's attempt at playing JetBlue.

Honestly I think Delta did amazing work with Song. The executed a strong market research and branding program, and differentiated themselves well.

However launching Song made me less likely to purchase Delta stock.


They weren't sticking to the knitting.

I think one of the key things about successful business leaders is that they run their business with awareness of the market, but not in reaction to it. I'm not kidding when I said above that Song was Delta's attempt to play JetBlue. Song was to be hip, with a single class, friendly bubbly people, and live television in the seatbacks.

But is this hipness what Delta is? No, thats why Delta created Song. It would have been one thing if Song was setup as a stand alone airline subsidiary and was given a wide berth to do what they thought they needed to do to be successful, even to the point of competing with Delta in some regards.

Instead Song was a brand of Delta and subservient to Delta's needs. So you got funky things like "Then they got careless and you would book a song flight only to find yourself stuck in the back of a MD80. They lost more customers with that..." (e.g. They over-promised and really under-delivered.) If Song was a subsidiary this would've been much tougher of a "mistake" to make.

As I've said before Delta's business plan in many ways was to wait out the demise of US Airways and then corner the east coast.

Instead US Airways survived and Delta had to figure out how to be Delta again.

From what I've heard out of Delta as of late is there is more of a focus on "southern hospitality" with specialized drinks and general cleanliness fleet wide. This isn't to say that modernity is lost on them, but Delta is pushing the idea that they're about simple understated hospitality in the air. They'll get you there and they'll make you comfortable.

Put another way, Delta has finally decided that they don't want to be US Air or JetBlue. They're happy being Delta, and proud of it.

Finally Damn it. Now if United could just figure out what they want to do, there will be peace in the universe.

Posted by nickb at 01:42 AM | Leave a Comment