ebook essays pieces of the puzzle
Wednesday, October 13th, 2010
the line

Sometimes it takes a good long while for the unwinding of the fruits of a competitive advantage.  Above please find the chart of Value Line (VALU), long the most venerated name in independent stock research.  The great bull market spurred on public interest in stocks, and investors ignored the grave mismanagement at the firm for years, thinking it would continue to be a beneficiary of the embrace of equities.  But VALU was a slow follower as others came out with new products, did not embrace the electronic dissemination of investment information, suffered a depletion of analytical talent, and generally became a case study in the corporate governance traps that lurk when insiders control a firm and run it for themselves.

The Value Line Investment Survey was once used widely by professional investors as well as individuals.  For a trip down memory lane, you can peruse its current reports on the Dow Industrial stocks, which the firm has made available for free.  The reports have changed very little over the years, packing more good information per square inch than found elsewhere, with a rating system that did remarkably well over time.

So, now, what’s the line on Value Line?  The vicious downtrend line of the last few years makes it look like the stock is going to zero, but there are subscribers still and investors in its mutual funds, both of which tend to be “sticky,” even in the face of decline.  Can the franchise be reborn?  There is a bid on the table for the mutual fund business, there’s an acting CEO, but the ownership situation remains the same.  Will there be a catalyst that revives the carcass?  Putting the question another way, if you were to mimic the Value Line approach and put a pair of dashed lines on the chart where it’s likely to be in a few years, where would you place them?  (Chart:  Bloomberg terminal.)

pricing the flow

A posting on Zecco Pulse provides a look at the jump in Adobe (ADBE) last week based on speculation that it had something in the works with Microsoft (MSFT).  The speculation, as the posting notes, apparently came from a New York Times blog.  Adobe stock has been doing a lot of jumping — in both directions.  Zecco notes that ninety percent of the shares appear to be owned by institutions, and “it makes you kind of wonder which ones rely on blog posts to make their decisions.”

That’s one thing to wonder about, as the flow of information is changing:  Which institutions are using online idea scraping of a sort in their investment decisions and what “works” and what doesn’t?  But there are other considerations too, including how the news-related (opinion-related, rumor-related, etc.) movement in stocks has changed with the dominance of vogue traders.  Not only has the communications environment changed, but the market structure has changed, and I don’t think that the regulators have a good conceptual map of what is happening.  It may be that many investors, amateur and professional, don’t either.

on volatility

Equity volatility has been falling and garnering lots of attention.  If you are a watcher of volatility measures or invest in a vehicle based on it, you may want to read a recent piece from Standard & Poor’s on access to volatility via listed futures.

good question

“What will you decide to be curious about Monday morning?”  That’s the start of a short blog post from the Harvard Business Review.  As good a question as there can be, although why wait until Monday?  The great thing about the markets is that at any time there are new discoveries available for the taking.  What are you curious about today?

ever thus

“Curiosity is one of the permanent and certain characteristics of a vigorous mind.” — Samuel Johnson (1751).