It’s all about timing. You might run into somebody that has a list that is hot right now. And it’s a newsletter that wasn’t even around a few months ago. They’re hot! You should use that list because it’s going to be effective.

The year’s starting now. Everybody was off for the holidays. I’m trying to see what lists have been working right now. Because there’s been inactivity from December and into January, things are kind of dead right now. In the next couple of weeks, though, we’ll learn what list is working… who’s being effective.

I’ll give you some symbols for you to follow and we can see if it works out.

The key is knowing beforehand. If somebody gives you a symbol… tells you there’s going to promotion next week and then you see that the deals work and there’s liquidity and activity that wasn’t there before, and you were told by this group beforehand, then you know that this group was responsible. However, after the fact, you’ll find a lot of people that want to take credit for a promotion that they had nothing to do with. Maybe they heard something about it while it was happening. They just jump on the bandwagon.

These promotions are expensive. Usually the rate is 5 to 1. Meaning if you’re expecting to move $500,000 worth of stock, you’re gonna have to pay $100,000. Usually these promotions are paid for by a third party that has a position in the deal. They try to get liquidity for themselves.

In the past, promoters would get paid with free trading. Usually these promotions are paid for in cash. It all depends on the deal.

The SEC has created a situation where the availability of free trading stock has been minimal. The ability to DTC the stock has been restricted through rules. Now it’s difficult to acquire that free trading paper for promotions. What has to be done is full disclosure. If a newsletter promotes a stock they can have a great writeup, but at the end they have to make a full disclosure about what was paid that writeup. Who paid what? As long as that’s done, that’s fine.

This week I should be getting a “hot” list from a stock promoter.

Traders will keep buying this as long as it holds $35, which it appears to be doing.

This is an unusually low-uncertainty situation. Everyone knows that 4G will replace 3G in the coming cycle. IDCC’s royalty revenue is sure to increase. Just about the only thing that is uncertain is the Nokia litigation.

I started a long position in IDCC today.

We used to have security analysis based on Graham and Dodd. Shares were supposed to reflect the underlying earning power… discounted earning power of the companies concerned. I mean… people who run hedge funds know that that’s not what it’s about. It’s about are the stocks going to go up or down? It doesn’t matter whether the earnings are going to go up or down. It depends on how people perceive the market. As Keynes said, it’s like trying to judge how other people will judge beauty in a contest… it’s not about how YOU judge beauty.

When I see a bubble, the first thing I do is buy. If I’m right and a bubble does develop, I’m going to make money. If I see the flaw in the bubble, then I’m really happy because I’ll know that I have to sell.

http://finance.yahoo.com/q?d=t&s=TLB

“We decided that systematic trading was best. Fundamental trading gave me ulcers.”

“It took us six years to learn how to trade stocks.”

“Trend-following is not such a good model. It’s simply eroded.”

“Statistic predictor signals erode over the next several years; it can be five years or 10 years. You have to keep coming up with new things because the market is against us. If you don’t keep getting better, you’re going to do worse. Our models change every week.”

“Past performance is to some degree indicative of what it’s going to be in the future. Past performance is certainly not a guarantee, but somewhat, it’s likely correlated.”

“It’s 100% automated. It’s as automated as it can be. The computer does its thing. It generates its trade, and the trade gets executed. No one sticks its head to the door, and says: ‘Jeez! You should buy IBM!’ We couldn’t model that.”

Me: “When you were a floor trader, did you use technical analysis much?”

Nick: “Not really. You couldn’t really look at a chart and trade off that reliably. A lot of it was momentum, though. When it was going up, you had to buy it. We did a lot of spreads. We’d check open interest and figure out what deliveries would look like for each month. Some big institutions with a position of 50,000 contracts would close it in April and then redo it for May. They would roll their positions. So we tried to get in front of that.”

“As far as technical analysis for stocks is concerned… I think the fundamentals are IN THE TECHNICALS. Something wouldn’t be going up if it didn’t have good fundamentals. I know a guy who made $1,000 to $2,000 like nothing just trading moving averages. He’d get a buck out of a $13 stock consistently.”

“I saw that the market was gonna drop this summer. Volume was low on the up days and high on the down days. We were making lower highs and lower lows.”

I have watched traders use technical analysis and I must say I find it all very confusing. I’ve seen really good trades and really bad trades based on chart patterns, and the logic behind the good trades was no more scientific than the logic behind the bad ones.

This is self evident unless you live in a cave. Even among people not remotely interested in technology, Apple comes up in conversation. I hear Apple mentioned on random commercials. Whenever a computer is depicted, it tends to be a Mac.

This weekend I saw John Oliver’s standup routine. Not only did he talk about Apple, but the guy who opened for him did as well. And even Vinnie Brand talked about it.

I think using an iPhone is something new to do with your hands to make social situations less awkward. The old thing was smoking cigarettes. In New York, we can’t smoke inside anymore… or outside in some places.

Memes grow like bacteria. Instead of invading a petri dish, memes invade our minds. One of the richest men in the world said that share of market isn’t important. It’s all about share of mind.

Software Moat

Before iOS 5 came out, I jailbroke my iPhone 4. Jailbreaking allows one to download apps and extra features. It is lawful. I highly recommend it.

Thanks to Haptic Pro, I was able to get touch feedback on my keyboard. (There is now NO REASON left to buy a Blackberry.) Also I was able to use the volume button as a shutter button for the camera. BiteSMS made it easier to send text messages. On my iPad, I could use a split-screen keyboard in portrait mode.

It seems that whatever features are available via jailbreaking eventually end up in Apple’s operating system. I think that Apple closely watches the jailbreak community for hints on what improvements need to be made. Therefore the notion that iOS = “closed” / Android = “opened” is just a myth. As long as you’re patient, iOS is a very open system. Apple has more of a moat on the software side than people think.

Hardware Moat

As far as hardware, no one can argue that Apple doesn’t have an edge. We’ll see this again in a few months when iPad 3 is rolled out. It will be the only tablet with a Retina display. That feature alone will ensure that competing tablets will have drastically reduced sales.

Fear Of The Unknown

One of the reasons that Apple’s stock has been such an outlier is that money managers used to analyze the company through the rear view mirror. No one wanted to “think different” because they didn’t want the career risk. The iPod was released as the Tech Bubble burst. Wall Street was slow to recognize the iPod’s critical mass. When the stock broke through $50, I remember people saying that this was just a one-hit wonder. Then the iPhone came out. That hit critical mass by 2009. And this time the doubters said Apple was a two-hit wonder. Then the iPad came out in 2010, achieving critical mass last year. Now the doubters are saying this is a three-hit wonder.

Maybe I have more imagination than most people and I don’t think looking at past financial performance is very useful. The Street’s attitude towards Apple has changed for the better. A $500 per share price target is a lot more reasonable than $300. A lot of companies remain vulnerable to Apple. See my reviews (1 and 2) of GoogleTV. This is truly one of the worst products ever made. If Apple chooses to enter this market, almost all of the incumbents will go out of business. Without competition from Apple, Sony’s TV business already loses money! Howard Stringer is an idiot for hanging on… and soon he won’t have a choice but to let go. For decades the incumbents have been preoccupied with picture quality. Kind of like the stupid digital camera makers who thought the game was as simple as one-upping the other guy in megapixels. Kind of like Sony, the stupid company who lost its Walkman franchise because it wanted to make smaller and smaller Minidisc players and refusing to acknowledge the world’s love of MP3.

Apple really should enter the TV market. In 2011, LCD TV sales surpassed 200 million. Assuming an average selling price of $500, this market is worth $100 billion. Apple should have no problem owning at least 1/4 of the market in a few years. That would boost revenue by about 15%.

In terms of valuation, the Indian market has pulled back quite a bit. It’s a two tier market. You have some stocks that have not been affected. Then you have others that have been absolutely hammered.

Apart from SMCG and pharma companies… these are the only two positive sectors for the year. Anything related to interest rates… property developers, infrastructure developers, power companies. A lot of factors are coming forth: interest rates are high, inflation is high, wages are high. You have policy backlogs. It’s almost a perfect storm coming through the typical headline. The view on the street is disgust. So no one wants to buy.

One sophisticated investor I know is taking 75% of his funds out of the US and moving to the Indian market.

The mid-cap segment, just given the growth tailwind that we have here… I think it’s just best to focus on that.

I have looked at all the institution firms who are registered to buy Indian shares. Institutions who wanted to go into Indian are already there. They have been allowed to buy before this new piece of legislation. The question is whether the retail investor is going to buy.

There have been outflows from mutual funds in the US. I think the slow-grinding trend of capital flowing from the developed market to the emerging market is important. The feedback loop will set in. Perception will start taking over reality. Even if things are cheap, people don’t want to invest. But at any moment people might change and say they want in.

India is a shallow market. If you look at the 2008-2009 crash, the index went from 22,000 down to about a third of what it was. Between 2003 and 2008, it did 50% compound. This is just the index. Even if you include the crash of 2008 and 2009, it has done 28% compound. Someone did a study of all the stock markets in the world and concluded that India was the only market that beat gold over the past 15 years.

The growth is just insane. The organic growth… there’s so much pent up demand. The only thing holding it back is infrastructure. You go anywhere here… there’s no recession in India. I don’t see recession. You can go anywhere in India and you will see lines to pay money.

70% of the economy is farmers and agriculture. The other 30% are in the metropolitan areas. These are the ones that have managed to increase their earnings by a huge amount. They have purchasing power. The demand is there. And the other thing is we don’t have much leverage in India. People who buy a house, they buy with cash. Cars. Anyone who’s buying a Beamer or Merc. Rule of thumb. If you have someone here who has a BMW 3 Series for $50,000 US, he’s got to be worth at least $10 million. What happens is he typically discloses 10% of his income. 90% of it is iceberg money and black money. Work it backwards.

Indians are frugal… there’s a really high savings rate. Maybe not as high as China. They love to spend money on education. I’m interested in those plays, but there aren’t too many of those.

Indians are born value investors. If an Indian walks into a Louis Vuitton store and he likes something, he will think that he can get it cheaper if he goes to London or New York. He has this delayed gratification if he thinks he can get it cheaper. There’s always this constant weighing of whether I’m getting enough for my money. Even someone who is worth $5 million will make sure that he gets every drop of petrol at the petrol station. Getting value for your money is deeply ingrained.

That’s why Western companies who come into India with the Western pricing really struggle. It takes them a few years to figure it out and they reprice everything. The flip side is… yes you have lower prices, margins are less, but you get the multiplier effect of the volume. So your asset turnover is much higher. You don’t have inventory sitting there idle. It just rotates so fast.

When you short, it has to be for a day at most. Options have a very short duration… three months.

The market is not as efficient because the market participants are not as sophisticated. There’s no freely available source where you can get information on a company that is accurate. The database is too expensive for your small investor. The big guys have the database, but the small companies are too small for them. So you see interesting dislocations there.

I think the Indian market is a very emotionally driven, momentum market. 22,000 down to less than 8,000. It is a market that goes up and down a lot. So when the index is doing 300% on the way up, you can imagine what some of the stocks are doing inside. Primarily this is due to foreign investor inflows and outflows. In times of panic, the institutions outside of India pull their money out, sucking out the liquidity and the market just collapses. You can play this to your advantage. You wait for times of great dislocation. In times like that, you just go all in. Nothing in the developed market is going to perform like this.

Special situations might be interesting to look at in India. Open offers where a company is buying back shares, debt restructuring, delisting.

If I look at the US vs. Indian markets, there are some strange effects. You have too much money chasing too few assets. If you look at a company like VIP Industries, which makes suitcases, so the equivalent of Samsonite… look at the chart. You get crazy valuations, but then it collapses. India’s Warren Buffett bought into VIP Industries… that could be why the stock went up 10 times. Then you have situations like Jubilant Foodworks, which holds the franchise for Domino’s Pizza. I think the market cap is higher than the market cap of Domino’s Pizza in the US. And we probably have a small fraction of stores vs. what you guys have in the US.

You really need to be more of a GARP investor or momentum investor in India. And if you go after cigar butts, you might not do as well. A lot of cigar butts remain perpetual cigar butts. There’s plenty of stocks like a land bank worth 1,500 crores, stock’s trading at 300. And it just stays there because the market is pricing it right. The guy sitting in between won’t monetize the assets.

The news of an event actually gives you more of a bang than when the event happens. Let’s say there’s an announcement that a company is opening a factory. That will make the share price go high. Come the time that the event actually happens, the shares go down. I think the market tends to get bored very easily here. Long term in India is six months to one year. Long term investors have an advantage because of the timeframe. It does require a different kind of stomach.

You have State Bank of India, which is the bank with the largest franchise in India. It’s down from 3,000 to 1,800. You have to remember banking in India is one of the most conservative and regulated. Limited in what they can invest in. Therefore, it’s quite safe. You still have these kinds of drawdowns.