Thoughts on Apple’s iPad

Although most analysts predict that the iPad will not add much to Apple’s bottom line for the fiscal year, most see the device evolving over the years into an important earnings source for the company. Here are some reasons why demand might pick up for the iPad in the coming years.

Videogames

Neil Young of iPhone game maker Ngmoco predicts that the iPad will attract gamers and reduce the time they spend on consoles and PCs. It is expected that iPad games will sell for significantly less than traditional console and PC games, further increasing demand. In addition, iPad will most certainly gain a dominant market share in the handheld gaming device market.

E-readers

Amazon.com Kindle’s e-reader has dominated the e-book reader market, but that seems like it is about to change. Priced at $259, most analysts agree that Amazon must cut its price to around $149 to prevent consumers from paying up for the full-featured iPad. The one downside for Apple is that the iPad’s screen brightness might make it harder for some people to read versus the Kindle.

Textbooks

Here is where I think there is huge potential for the iPad. If the iPad, or similar devices, are popular enough, many colleges might adopt e-textbooks. E-textbooks would definitely defeat traditional textbooks in the features department as many would be expected to have interactive graphics, video, etc.

Video

The attractiveness of the iPad’ screen could lead people to turn to it as a video-viewing device. Netflix might launch a free iPad application allowing its subscribers to access thousands of movies and TV shows.

Netbooks

Although current netbooks are cheaper than the iPad and have more features (i.e. Adobe Flash), the keyboard-free touchscreen of the iPad might convince buyers to move away from netbooks and towards touchscreen devices.

Bernstein Reasearch hardware analysts Toni Sacconaghi predicts Apple will sell 5 million units in the first 12 months. Sacconaghi doesn’t see the iPad contributing much to the bottom line in the short-term, but sees it picking up long-term. He expects iPad to add less than 2%, or 15 cents, to Apple’s earnings for fiscal year.

As for me, I’ll be waiting on the sidelines to get my iPad. Without multi-tasking or a webcam, it makes little sense to make the plunge now.

Jim Rogers: Gold Will Go Higher

In an interview with Bloomberg television, Jim Rogers stated that he believes commodities will continue their bull run in the coming years. Specifically, he stated that he expects gold to climb higher. Rogers hinted that institutional demand for gold is still weak, which could change in the coming years.

Rogers: “I spoke in Prague recently and we did a survey of the room and there were 300 major money managers from all over the world [and] 76% of them had never owned gold. Can you imagine that?”

Although we are short-term bearish on gold, due to the stagnant growth 0f money supply measure M2, we remain long-term bullish.

The Role of Short-Selling in Markets

In the chapter “Short Selling” in the 1935 edition of “The Securities Markets”, Wright G. Hoffman wrote:

One of the most essential functions of organized markets is to reflect the composite opinion of all competent interests. To admit only opinion looking to higher prices is to provide a one-sided market. To bring together an open expression of both long and short opinion is to provide a two-sided market and…a better reflection of prevailing conditions will be shown in the price structure (pp. 398-399).

Michael Burry: Sell on New Lows

We’re combing through Michael Burry’s posts over at Silicon Investor. It is clear from this post, in which Burry details his philosophy on avoiding significant losses, that he uses a bit of technical analysis to gauge the supply and demand situation for a stock. Burry:

As you know, I have a simple philosophy: sell on new lows.

There are two reasons for this:

1) Many people do this. It’s a self-fulfilling prophecy. I try to do it quicker.

2) If I know something is a fundamental value and it breaks to new lows, the selling is irrational by definition and I don’t want to be in the way of irrational selling. Better to wait for the buyers to show where they are willing to step up and give support.

I suffered for several years trying to be stubborn in the face of irrational selling and all it got me was a lot of 50% haircuts on stocks that had already been too cheap. One of the biggest lessons I’ve learned was that PE 8 stocks can become PE 4 stocks and stay that way for a long time. AT&T’s long-distance business is getting close to trading for 1X EBITDA, yet everyone looks at it like this big albatross around T’s neck. Maybe in the future I’ll get the long-distance biz for free. All we need is another $15 billion in lost market cap.

Michael Burry Recommends “Why Stocks Go Up (and Down)” by William Pike

Here is an archived post by Michael Burry from Silicon Investor:

Try “Why Stocks Go Up (and Down)” by William Pike for the basics on fundamental measures of value. Because it isn’t offering a system, it is a good reference across systems and may be of help in finding your own system. I think everyone finds that he/she comes up with his/her own system after a few years. Alas, if it was as easy as buying a book, we’d all be rich.

Whoa! Michael Burry’s 3304 Archived Posts Available!

We just stumbled on a page at Silicon Investor which shows the message archives for Michael Burry. In total, there are 3,304 archived messages.

Michael Burry’s Reading List

Vanity Fair recently published an excerpt from Michael Lewis’ new book, “The Big Short”, detailing how hedge fund manager Michael Burry managed to clean up $100 million betting against subprime mortgages. We’ve compiled a list of books we spotted in the photo spread of his office.

1.) Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance

2.) Against the Gods: The Remarkable Story of Risk

3.) Benjamin Graham: The Memoirs of the Dean of Wall Street

4.) Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, Expanded Third Edition

5.) Atlas Shrugged

6.) Security Analysis: The Classic 1934 Edition

7.) Guns, Germs, and Steel: The Fates of Human Societies

8.) America’s Great Depression

9.) Mistakes Were Made (But Not by Me): Why We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts

10.) Structured Credit Products: Credit Derivatives and Synthetic Securitization

11.) Why Stocks Go Up (and Down)

Michael Burry an Austrian?

Vanity Fair recently published an excerpt from Michael Lewis’ new book, “The Big Short”, detailing how hedge fund manager Michael Burry managed to clean up $100 million betting against subprime mortgages.

The article is a must-read for any investor, but what caught my eye was a book I spotted on the photo spread of Michael Burry’s office. Clearly visible in one of the stacks is “America’s Great Depression” by Murray N. Rothbard, the brilliant Austrian economist.

Paul Tudor Jones “Trader” Video Leaked on Net

In the late 1980s, a documentary film crew followed around Paul Tudor Jones, then a small time hedge fund trader at Tudor Investments, and now mega-billionaire, as he went about his day. The documentary was released in the 1980s under the title of “Trader”.

Concerned with how he had been portrayed in the film, Jones started buying up and destroying released VHS copies in the 1990’s. Now, after more than twenty years since its production, the video has leaked onto a Chinese internet site.

The film itself is riveting. We see Jones in action, analyzing markets and placing trades with floor traders at various futures and currency exchanges. The crew also follows Jones to the small ski town of Gstaad, Switzerland where we’re allowed to see how he mixes business with pleasure, meeting clients and skiing the Swiss Alps.

Although we wouldn’t recommend adopting Jones’ trading strategy, the film itself is a must-watch. Here is a link to the video.

Russell Glass Offers $7 a Share for Benihana

Former Carl Icahn executive, Russell Glass, has offered to buy Benihana (BNHN) for $7 a share, the New York Post reports.

Benihana quickly shot up 15% in trading on Tuesday, closing at $6.40.

This is the second offer Russell Glass has made for the company.