Wednesday, October 25, 2006


The Economist has a really good article on the Arab World in its current issue, found here.

In this, the Economist makes one very interesting point. It says (but not in as many words) - "The mistake that the US made after 9/11, that it clubbed all the terrorists together. However, Al Qaeeda is vastly different from Hamas or Hizbullah. Al Qaeeda has a more global agenda, while the concerns of Hamas and Hizbullah are more local." Failure to differentiate between various terrorist organizations has also led to a failure in prioritizing as to which organization to deal with first. Trying to take them all at the same time is now proving burdensome for USA.

Politicians are often criticized for being not idealistic and too compromising. Here, Bush tried to lay out a very idealistic version of his policy - "We are against all terrorism". And it has backfired. Should one conclude that good politics would always call for chosing amongst the lesser evils (minimax, or minimize your maximum losses) ? In this case, for instance, USA could have ranked Al Qaeeda as its number one target, and Hizbullah somewhere down the order. This would have implied that USA continue maintaining relations with Syria (USA clubbed Syria in its Axis of Evil in 2002 for supporting Hizbullah).

Wednesday, October 18, 2006

The Motorola blow up

Motorola blew up today. Down 10% after-market. It is down 15% since hitting $26.30 on Friday. What were my mistakes:

a) There is something called a price-target, which I did not have. I think now I will formally put a price target against all stocks that I buy. And maybe use the Citigroup grid to help in my thinking. If a stock goes up to that price target, it is time to sell.

b) I have been looking at Nokia for this past month, and how cheap it has become compared to Motorola, as MOT kept rising and NOK kept falling. Before today, MOT was trading at 19x, while Nokia at 16x. I never acted though.

Is it time to sell Motorola? I guess the share gains game that they have been playing for the last 2 years is now over. So unless Motokrzr helps them start regaining market share, their 2007 year-on-year comps are going to be very tough. So if they are growing as fast as overall market in 2007, they should command the same multiple as Nokia, which is trading at 15.9x vs MOT at 17.3x, at MOT's after-market price of $23. So MOT can fall another $1, which is not that bad. So I guess risk-reward is again in favor of owning MOT shares.

There are 2 concepts that I will formally drill down in my brain from here:
a) Price target of a stock - i.e. when is it time to sell
b) Risk - reward, what is the upside vs what is the downside.

DRC: What is the price target. Considering that it will generate about $2/sh of FCF, the stock is currently trading at 9.5% FCF yield. At $26.67, the stock will have a 7.5% FCF yield. So I will go with a $27 price target. The stock's total return is about 27% from here.