04/14/2006 12:00 am EST
Jim Oberweis, a specialist in small caps, always offers intriguing commentary on stocks. Moreover, some of his most valuable commentary is when he shares his insights into market psychology and investing strategy. Here, we offer a look at both.
"You would never guess there's anything to worry about by watching the markets. The Russell 2000 is trading near its all time high and the S&P 500 is only slightly below its high. How could this be? On occasion, investors tend to be short-sighted, both on the upside and downside. The latest quarterly earnings report, latest comment from the Fed, or the latest piece of economic data moves the market.
"The cycle can be accentuated, as optimism begets further optimism, while pessimism ignites more pessimism.CNBC tends to focus on the 'economy of the day.' Barron's highlights the 'economy of the quarter.' But it's billionaires like George Soros that seem to have a knack for seeing the 'economy of the decade' and it is that 'economy of the decade' that really makes the difference between those who retire wealthy and those that do not.
"So next time you read the paper and get excited about a quarter, pause and think again. Look further out. Adjust your strategy for the decade, as that is what will most heavily influence your long-term investment success or failure. It is that vision that led us to open an office in Hong Kong. It's paying off already, and you can expect to see our international team grow. You will see an increasing emphasis on international investments in our work, and not just in China.
"One last note. Even though we may be worried about the long-term picture for the US economy, we still think there's plenty of money to be made here. The US is not a ship heading for an iceberg, but it may have a leak that needs tending. Fortunately, our investment ideas do not seek to ride a macro wave. We've been able to make more money from finding good undiscovered companies than from forecasting macroeconomic growth cycles.
"Small-caps have the luxury of being able to buck the macroeconomic trend. In the 1970s, for example, the broader market delivered lackluster results overall, while small caps delivered annual average returns north of 20%for much of the second half of the decade. Over our 30 years of publishing, we can think of plenty of names whose fantastic success was far more company specific than macro-economic-growth driven.
"Innovators at tiny companies can make a fortune for their owners no matter what the overall economy does. Peter Drucker said it well: 'Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.' Meanwhile, here are some of our latest new buys.
"Bodisen Biotech (BBC ASE) is engaged in the manufacture and marketing of environmentally friendly organic fertilizers and pesticides used by farmers in China. Revenues for 2005 were approximately $31 million versus $16.2 million in 2004. Net income for 2005 was approximately $7.4 million versus $5 million for the previous year. Clients of Oberweis Asset Management own approximately 580,000 shares. These shares may be appropriate for risk-oriented investors.
"Earlier this year the Chinese government eliminated a 15.5% agricultural tax that has been levied on Chinese farmers since 1958. According to Mrs. Karen Qiong Wang, CEO of Bodisen: 'Elimination of the agricultural tax will significantly increase farmers' income across China. As China's rapidly growing economy continues to rely heavily on imported grains, farmers now have more incentives to purchase high quality, higher crop yield environmentally friendly fertilizers.'
"Based in Mountain View, CA, CyberSource (CYBS NASDAQ) provides secure electronic payment and risk management services to companies conducting business on the Internet. Its Transaction and Support segment comprises nearly 90% of the total revenue, derived from monthly transactions fees in addition to per event fees, and services provided include global payment processing, fraud prevention, exchange rate hedging, tax calculation, export compliance, delivery address verification and fulfillment management.
"The company added 1800 new customers in the latest quarter including Yahoo HotJobs, XM Satellite Radio, and Curves International. In the company's latest reported fourth quarter, revenue increased approximately 43% to $14.9 million versus $10.4 million in the year-ago fourth quarter. Earnings grew to $0.06 vs. $.03 in the prior year. Clients of Oberweis Asset Management own approximately 1.1 million shares. These shares may be appropriate for risk oriented investors.
"FalconStor Software (FALC NASDAQ) is a premiere developer of technology that empowers IT administrators and end users to recover data easily to any point in time in the event of hardware failure, data corruption, deletion, or catastrophic site-level disasters. Products include continuous data protection solutions and disaster recovery solutions; a backup recovery solution that simulates a range of physical tape libraries; and host-resident software tools, and an offsite online data protection service that replicates data to an additional site for a supplementary layer of redundancy.
"The company sells its software through original equipment manufacturers, resellers, and distributors worldwide. Revenues in the most recent quarter increased approximately 37% to $13 million versus $9.5 million in the same period one year ago. FalconStor Software reported earnings per share of $.03 in the latest reported fourth quarter versus $.01 in the same quarter of last year. Clients of Oberweis Asset Management own approximately 1,595,000 shares. These shares may be appropriate for risk-oriented investors."
The key risk-on and off drivers today are the same – U.S. politics, global growth, other centr...