November 10, 2008

In class today we had a very special guest speaker, Mr. Dennis Gartman. Dennis Gartman is the primary author of the famous Gartman Letter. He runs a true hedge fund consisting of 5 million dollars of his own money and 250 million of others money. Mr. Gartman’s central theme to the class was that people do not listen to the market; when you lose money you should get out, not buy more. This theme was reiterated through clever anecdotes and catchy phrases such as “buy things that are going up, sell short things that are going down”, “value is crap, it is only good when the market is going up”, “admit when you are wrong, losing money means you are wrong”. Mr. Gartman discussed his personal beliefs about trading, that is a grinding, boring job. He spends all his time reducing his exposure to the market and if a trade goes against him by 7% he gets out. Mr. Gartman also suggested a few books for the class before opening up the floor to a Q&A session. These books were: “Reminiscence of a Stock Operator”, “Market Wizards” and “Market Wizards 2”.

The Q& A session offered more insightful anecdotes and opinions on the market. Mr. Gartman answered questions about the current economic climate. He believes that trading is smaller now because of high volatility, the system will be deleveraging for the next five years, and the bailout plan was extremely necessary but it is not necessary to bailout the automakers in Detroit. Mr. Gartman believes that China is the new growth opportunity in this global economy and as of today they announced that they would be changing from an exporter to focusing on its own consumers.

Todd Preheim of Campanile Capital listened to Mr. Gartman over the phone as Mr. Gartman spoke to the APM class. Mr. Preheim called in after the class to discuss what Mr. Gartman had to say. Todd reads the Gartman Letter daily, using it for its macroeconomic outlook. Todd agreed that reading charts can be important but he personally believes in the use of fundamental analysis. He suggested that the class use stop losses or loss limits in order to protect itself from downward trends in a long stock position.

After Todd Preheim spoke to the class there was a quick discussion about the company KWK. The stock mentor believes it is time to sell KWK because the company is decreasing its capital expenditures instead of increasing them. The stock mentor believes Petrohawk is a better natural gas alternative. This short discussion was followed by reporting of earnings calls from various stock holdings. Below is a short summary of the earnings call reporting:

Valero: Great earnings call. Repurchased 23 million shares this year. Decreased capital expenditures. Pushed back Port Arthur project.
Ryanair: Increased revenues but decreased net income due to poor hedging of oil. It plans to double its fleet by 2012. Investors liked the results which lead to the stock jumping up by 15%.
Scientific Games: Increased revenues, but did not meet expectations.
KWK: Increased revenues and EBITDA but had decreased net income because of equity loss from Wrightburn Energy partners. However, the loss is expected to reverse in the 4th quarter. Also, a very negative item was the decline in capital expenditures.
PXP: Gains from hedging, not operations. A decline in capital expenditure projections as well as 2009 guidance.
EGOV: Bad news from loss of contracts.
Interceramic: Increased revenues but decreased EBITDA. The company did not meet debt covenants.