NCTY - The9 Limited

NCTY - The9 Limited - Company brings MMORPGs to China. Been following this company for past eight months and I can not think of too many stocks I would rather be in. My rationale is as follows:

THE FUNDAMENTALS, It is growth at a reasonable price. Look to Japan for an Asian culture where video games are a national pastime. Will it happen in China? Possibly, but even if it doesn't the growing middle class will have more and more disposable income. In addition, a legitimate well-paying job for the Chinese has been created through these games. Hardcore gamers and well-to-do casual gamers in countries with higher living standards have been increasingly paying for items in these games. These Chinese workers make their living by investing time in online games. (which of course brings value to NCTY, it has a Rockefeller™-esque market share) ERTS has $167m invested in them, why don't you? This leads me to speculate that investors may not have the chance to own The9 forever. With such a strong market niche and growth potential it would look good in many of the large internet service companies/game makers business portfolios.

ALSO, It is difficult to understand but some stocks just "trade" well. Pull up a six-month chart and the bollinger bands will tell you the story. Pull up a 5-day chart and you will see similar possibilities for short-term profits. It is not financially irresponsible to build a position in a stock you love while making small trades around the market's swings. For this strategy to work take a position (hopefully at a good entry point) , unload some of your position when it gets hot-take some $, and reload when it has lost it's way again. Using charts to determine levels to buy and sell is a good start but a valuation model probably isn't a bad idea either. Even though support/resistance can be misleading it will give you some control so you are not trading with your emotion only. For this strategy to make sense for anyone there must be a strong belief in the company's future. For NCTY I have strong belief the future looks bright.

Happy Bday

Today would have been Milton Freidman's 95th birthday. No person has ever been more influential to the concepts of free market economics. The work and life of Milton was to defend liberty and individual freedom. The world could use another voice of clarity like his right now, that's for sure.

"I start…from a belief in individual freedom and that derives fundamentally from a belief in the limitations of our knowledge, from a belief…that nobody can be sure that what he believes is right, is really right.…I’m an imperfect human being who cannot be certain of anything, so what position…involved the least intolerance on my part?…The most attractive position…is putting individual freedom first."

"It’s fortunate that the capitalist society is more productive, because if it were not it would never be tolerated. The bias against it is so great that…it’s got to have a five-to-one advantage in order to survive."

In all situations of life Milton has influenced me to encourage the freedom of choice and support the only thing I truly have control over. My own personal choices. Alright, I'm going to go ride a motorcycle with no helmet now.

"Hell hath no fury like a bureaucrat scorned."

Last Week Market Recap

People headed for the exit sign in the stock market last week. Factors widely acknowledged throughout the rise in stock prices such as the financial excesses in private equity, sub-prime loans/housing, and the global credit boom were generally reported as responsible. With no direct catalyst for Mr. Market to pick last week to slow gains I am curious if there is any reason or logic to be learned from the timing.

Two weeks ago investors had just as much information about the economy as they do now. Timing the market is an awful game to play (there are plenty of statistics that validate this but just trust me.. ) BUT the way the market fluctuates is important for all participants to take note of. Having followed since 2004 I have begun to sense what movement is coming next. I called the downturn in the market earlier this year several days prior. (At an investment club meeting-I made no money off of my hunch, which makes it pretty worthless.)

There is no way to explain the logic and no easy way to learn this "sense". My only thought is that through a combination of checking the averages daily, regularly feeling out general investor sentiments, knowing your history, watching the charts, and staying well-read you can have a better chance of knowing when a good entry point is. I know blah, blah, blah, do this and do that but no one said that it was easy. However, this "sense" is important for index investors as well as more active investors. You can never expect to be completely right but it's worth trying. The ebb and flow of human nature is reflected in the moods, beliefs, and emotions of investors. A greater understanding of human nature can help give meaning to the movements in financial markets.

What To Look For..

Build-A-Bear hired Lehman Brothers for "strategic consulting" a month ago. Thinking maybe SHLD, DIS, or JCP as potential takers for a buy-out. Regardless if the company gets taken out it has shown strength in December consistently.

Buying opportunities(?): BWLD, SBUX, SPWR

Why doesn't a cash cow like NBR pay out a dividend? They should look for inspiration in PCU (5.40% Yield)

StockCharts.com public chart lists are always a great source for ideas and inspiration based on technical analysis.

RIMM continues to go higher after that killer quarter. Check out the excellent review over at widely-read TechCrunch that compares the gorgeous new Blackberry 8820 w/ the iPhone.

SCHL a possible short soon now that Harry Potter series is over?

Cerner (CERN)

To get an idea of the type of investment CERN is consider the year to year growth rates:
Sales - 16%, 21%, 10%.
EPS - 32%, 22%, 18%
BVPS - 20%, 13%, 16%
ROE - has improved by 27.5% over this time period (2004-2007)

This company will have consistent earnings due to the contractual nature of the revenue stream. They have proven it over the past four quarters by exactly making EPS estimates twice and having a very small positive surprise in the other two. This is a long-term investment, that is priced correctly by the market at 26x next years earnings for the rate at which is growing. There is no reason that earnings would deviate greatly from estimates.

This stock should continue to provide investors with growth from a sector that has unquestionably high upside. It has proven itself to investors, is becoming more efficient, and is growing at a rate faster than the industry average. This is pretty much all you can ask for sometimes in industries in which you do not have an information edge.

The stock got sold off early today on some analysts CF concerns. Reads to me like noise. Sometimes you gotta take the lay-ups when you can get them. However, this is the rare lay-up that has the potential to double your investment many times over. The stock has done nothing but go up since 2003 with a 530% return since May '03.

Income Investing - Better than your CD

The closed end funds from Alpine have proven themselves to be incredible investments for the unsure, lazy, and current income focused investor. Which means they could find a home in pretty much any portfolio.

The primary selling point of the funds AOD and AGD is the high dividend which pays out monthly. The funds offer automatic reinvestment and yield around 10%. Even though they sell at a premium to the NAV this can be a positive thing for investors who can pick up a premium on the shares along with the 10% a year in dividends.

It's not worth your time to understand the dividend capture strategy they utilize just to understand the performance for a realtively safe investment. Why have your money in a savings, CD, or bond when this company has proven itself through AGD's performance and is offering a 10.8% yield in AOD.

250 shares automatically reinvested over five years at the current yield would be worth $12,118.67 at the end of the period.