SNDA: Latest Data

Here are some new data related to Shanda (SNDA), which last week reported above-consensus earning. Other data I've found include a recent interview transcript of its CFO, a speech by CEO Chen TianQiao and an interview of a VC who happens to be a lead investor when SNDA went public. All things considered, the company is in good shape and its share value should recover.

#1: Short Interest Decreased

Aug. 15, 2006 4,786,613
Jul. 14, 2006 5,246,709
Jun. 15, 2006 3,874,942
May 15, 2006 4,905,655

#2: Q2 results comparison of top online game companies:

#3: Poll Result: SNDA rated the favorite Chinese game company.
Source: China Game News, 8/17/2006

#4: Poll Result: SNDA is the company that users like to host the new version of "UO" game
Source: http://vote.17173.com. Caution: my own testing showed that the site allows multiple clicks by one user. So the results can be manipulated.

[See Also]

• Q2 earning conference call transcript, especially on the "free-to-play and pay-for-virtual-items" model.
  
• Previous Posts:

• Shanda Entertainment (SNDA) Now A Turnaround Play?
• Shanda: A Nice Case Study

UTSI: Recovery In Progress

[Originally posted on August 11th, 2006] The share price of UTStarcom (UTSI) went up 13% today to $7.47, following its Q2 earning report. Prior to that, the price had dropped from $8+ to mid-6s on a downgrade ("underperform") from a Bear Stern analyst, who stated that UTSI's high margin bussiness, PAS infrastructure and handset, will drop to insignificant level within a couple of years. In the mean time, the Yahoo! message board was filled with negative "assessments" by fundamental and technical analysts with allegedly good track records. Lessons learned here:

1. BS's downgrade, either the motive or his judgement, just before the Q2 report while the price was recovering was clearly questionable. This just adds to my long-time suspicion about the trustworthy of the whole financial "news" industry, which in my opinion is corrupt. [The same guy downgraded China Mobile a couple of years ago when CHL was priced $16. CHL now trades at $33.]
2. All the analyses by BS as well as other online commentators clearly missed the very important point: valuation. UTSI's Price/Revenue of 0.3 is the lowest in telecome industry, which averages above 1. The company has over $600 mil cash balance and has had five consecutive quarters in which the operating cash flow was positive. Even if the entire PAS revenue (30%?) disappears, its other divisions (broadband, PCD, IPTV, etc.) are worth something. Before UTSI had its PAS business prior to 2002, its share price were rarely below $12!
3. Contrary to hangman's TA analysis on the Yahoo board, which said that UTSI was technically in a downtrend, I believed the otherwise. The MA alignment is perfectly positive. In fact the recent pullback is almost necessary so that the weekly relative strength retouch the 20-period MA, which has turned up during last couple of months. UTSI formed a double-top breakout pattern recently and it's still valid.
4. Almost all of the UTSI-related news and articles found online recently had a negative tone, questioning UTSI's very survival and offering analyses of why it had "failed" as a company. This reminds me of early 2004, when every report about the Company was rosy. At the height of it, the Company was featured in a cover story on BusinessWeek and named the Best Employer of the Year by another news organization. Recently the Company has been labelled one of "the ten worst managed tech companies in US" on Seeking Alpha. In both times, the contrarian approach seemed working well.
5. It pays off to follow a company very closely and for many years. Doing so has, up to now at least, made me a better analyst than some of those working for big financial institutions. Theoretically the process can last forever and one can make money from the same company forever as long as it is publically traded and that its business, hence the share price, fluctuates.

In summary, my hypothesis is that UTSI will stay in an uptrend from now on, with its customary volatility expected along the way. The next quarter is a slow one and the real breakout may be six month away - when the Company reports positive earning for the first time in a long time. Any new contracts (IPTV in China/India/LatAm/Europe) or a PCD aliance with a tier-1 telecom in US) could cause spikes in price. Exit Strategy: Sell if price breaks below 5.9, which is the support for the recent double top breakout.

Access From China and Migration to Google

To my surprise, I am able to access Blogger today from China. I hope this is permenant.

I also found out that, hopefully in a few weeks, I will be able to migrate to a new blog system created by Google, which acquired Blogger several months back. It's still in beta version, but there seem to be a lot of features that I could use (such as dividing posts into categories, allowing access controls, spelling check and a graphical layout manager).

In the meantime, I will still maintain my WordPress-based blogs on my own computer and gradually move some of the old posts to Blogger.

Link: China's Economy: Out of Control

Jim Jubak's column in TheStreet.com: China's Economy: Out of Control. What's said in the article is unfortunately true.

Stock Investing as a Zero-sum Game?

While doing research on machine learning and data mining, I encountered an online discussion on whether or not stock investing, as well as computer-assisted stock picking, is a zero-sum game.
The discussions were initiated because of a New York Times article "How a Computer Knows What Many Managers Don't". There are quite a few good and informative points raised by contributors that are on either side of the debate.

My personal answer to the debate is: it depends. It depends on the type of the investors concerned (speculators, manipulators, serious value investors, etc.) and investing time-frame (day-trader, short- and long-term traders). When a company continues to provide goods or services that the world needs, its value (and the stock price) increases over time and everyone could be a winner, though a better investor would win more. One such example is BHP over last three years. Almost everyone has been making money from BHP not because other people have "lost" money, but rather because the Company's value has increased due to the world's demand for its products.

Even if a trade is zero-sum, as it seems so on a short term basis, the trade increases the liquidity for the market, which is positive for the whole system.

One may compare stock-trading to sports. Each of individual games in a sports competition seems a zero-sum game: one side wins and the other loss, even though the outcome is not zero-sum for the players: the winers takes more home than what the losers loss. For the rest of the world, it provides entertainment value and, arguably, improves the health and well-being of human kind. Stock trading is a competition, participated by millions of people worldwide. Even though each trade may seem a zero-sum game, the system rewards hard-working, highly-motivated people and with better skills or tools, machine-learning tools included. In addition to liquidity, a trade, zero-sum or not, provides entertainment for everyone (that's what you are doing anyway when you watch CNBC), and rewards managers and company employees that work in the company and, hopefully, offers incentives for them to develop even better products and services for the rest of the world.

The debate will never ends, but in the mean time, let's work hard and try to stay on the positive side of the game.

Investing in Chinese national banks

A friend forwarded me an article by MarketWatch: Taking Stock of Chinese Banks.

In addition to what's mentioned in the report [about the risks associated with investing in the Chinese banks which are rushing to go public lately], these companies, or any banks everywhere in the world, are companies that I try to avoid:

• I simply don't understand their business or how to value them (even though financial stocks have out-performed the overall market in the US duing the last 20 years or so).
• I prefer companies that run a simple business, i.e., with only a few key products/services whose market acceptance can be more or less tracked. Banks are not those kind of companies.
• These banks offer few "hard data points" I can rely on to make investment decisions. These data typically include 10-Q/K reports, news reports and price actions. For the same reasons, I usually stay away from any company that just had its IPO, despite of the "fact" that these companies yield higher returns than the market average in its first year after IPO.
• Banks make profit from _their_ investments. Logically speaking, _IF_ I am a good money allocator/investor, why should I ask someone else, i.e., a bank, to invest or allocate money for me and expect a higher return? In other words, I am supposedly a better bank myslef. [If I am not, I should invest in an index fund or mutual funds].

Of course what I said above doesn't mean that the banks' stock price may not go up in next few months or years. For example its IPO price may be too low. Or their business may be indeed very good. But who knows? I wouldn't gamble without at lease some hard data points.

It hurts!

The market has been tanking lately, and hard. I must have lost half of the gain that I made earlier this year! It hurts!

Lesson learned: do not resist to sell in order to save tax! USG went from 60s to almost 120 and now is back to 70s. I should have sold it in 90s when it clearly broke down the uptrend.

Lesson two: always stick to the winning strategy. No second guessing. Especially when it comes to selling.

On the other hand, UTSI is looking good relative to the broad market. Loading it up, heavily. Hopefully it will pay off.

Staggering Pay for Top Hedge Fund Managers

Hedge funds are where money is. According to an article in yesterday's USA Today, $363M is the average pay for the 26 top hedge fund managers last year, up from $251M in 2004. It's staggering! Outragerous!

The key reason seems to be the huge amount of asset the managers manage. They typically charge 2~5% management fee and take 20% (up to 40%) cut from profits. "A $10 billion fund would earn $200 million from the 2% management fee alone". If the very manager happened to bet on oil last year, it's no surprise that he/she could have gotten a pay check of more than $300M in total.

I wonder what the average pay and portfolio return for all hedge fund managers are. Do they get a return that is close to the whole market, i.e., the mediocre 4% return last year? Do the top managers consistently earn top pay every year? As I said in another blog, the hedge fund as an industry does not seem to outperform the market over the last decade. They do perform better in bad time because they are allowed to go shorting as a hedge against market downturn.

All things considered, there may be reason for slim hope that, someday, even I might earn $300M a year too, if I am given $10 billion to manage!

More on hedge funds:

Book Review: The Philosopher Kings Of Hedging

Shanda Entertainment (SNDA) Now A Turnaround Play?

I've been accumulating Shanda Entertainment (SNDA) last week or so on its remarkable strength in the face of a sharp market sell-off. On Thursday, the company reported earnings that were far lower than last year (down 90%?), but revenue seems to have stabalized quarter over quarter. The market responded to the report very positively, raising the price over 10% the next day.

SNDA has been a near-disaster during last year when its price plummeted from a high of $45 to a low of $12s recently (see my analysis several months ago: Shanda: A Nice Case Study). I think that its business has somewhat stabalized and its free-to-play business model may actually be a workable one, meaning the company can survive even without a hit game. Its failure in venturing into IPTV business and scaling down its EZ Center (hardware) business may actually be positive for its stock price: the company will now stop throwing more money into something that may never work out and, instead, focus on what it does best: providing online game and entertainment contents to the ever-growing population of Chinese teenagers.

More importantly, I think it is now a value play. Its 19.6% position in SINA and net cash accounts for over $8 of its $13 stock price, making the market value of its own business only $5! Sounds a value play for me. The market's strong interest in China stocks lately and the positive technicals don't hurt either. The price may explode when the short positions (40% of the float) are covered on any positive news.

In the meantime, the analysts on the street are still very negative on the company after the release of the quarterly report:

J.P. Morgan maintained its underweight rating on the stock but cut its 06 price target to $11 from $12."1Q06 revenue was better than expected due to stabilizing online games revenue," said Dick Wei. But the analyst added that he believes "visibility on Shanda businesses remains low," given aging game portfolio, uncertainties in its new game portfolio and lack of initial tractions of EZ Center.

Bear Stearns reiterated its underperform rating and said it remains on the sidelines on Shanda stock.

[5/18/06] Analysts at Brean Murray reiterate their "sell" rating on Shanda Interactive (SNDA.NAS). The target price has been reduced from $10 to $8.

[5/24/06] Shaun Rein of China Market Research Group: Shanda Interactive and Importance of Guangxi.

They are right about SNDA's "low visibility" and it is also true that any negative news or market condition can send its price down again. But at today's relatively low price I will see how the analysts' records stand in the coming months. Besides, I wish the analysts had informed us Shanda's problem before its stock crashed from its high of $45, instead of now when everybody knows what's happened!

---

Updates ...

[8/6/06]: SNDA's price now stands at 15.5. I think it may keep going up until August 15, the date of earning release. The reason: short-covering. To play safe, I should sell just before the earning release.

First Day of Month Effect

According to this study, the market performance of the first day of month during the last four years explains over half of the gain S&P500 has had. This is consistent with my own observation and with the performance of my own portfolio. Many times I've had over 5% return in the first trading day of a month, only to see mediocre or even negative performance for the rest of the month.

I am going to China

I will go to Shenzhen, China, tommorrow and will stay there for several months. Since blogspot sites may be blocked in that country, I may not be able to update this blog until I come back to the States.

Meanwhile, happy trading!

[Update from China, 04/06] In China, blogger sites can be maintained/updated by the ower but cannot be accessed by others within China.

Sina's Saga Continues

Following the rumor of Tom Group's buying Sina and the breakout in SINA's share price, the saga continues. More players are allegidly involved, as reported in Sohu's web site (isn't it ironic that the SINA's biggest rival is dedicating a full coverage on the rumor?). Even Google is said to be interested in at least a piece of the fat meat.

Sina is making me richer, but I really feel sorry for the company.

Updates:
[4/14/06] VC Michael J.G. Gleissner has acquired 6.4% stake in SINA.