Category Archives: Investing

Finally – A Clean Financial Data API

For years I have been automatically retrieving financial data from a variety of sources to help manage my stock portfolio, and power the VFS Daily Investment Contest. For years I just scraped prices from various websites and parsed the results into a database. Its not elegant, but it has worked. I have been looking for cleaner ways to do it, but many of the online data services for financial data charged high monthly prices that didn’t make sense for the minimal quotes I retrieve on a nightly basis.

Recently, I stumbled across a great new service to pull all sorts of financial data. In addition, for my needs I can likely stay at the free level, and its the cleanest API I have seen for financial data.

All I had to do was sign up for a free account, which provides a token that I can use to access the data. The API calls are all simple GET requests, with the token in the querystring:

The result is nicely formatted JSON, which can be easily parsed using library (I use Newtonsoft). No more parsing and stripping html to get to the data. The full list of data options provided by the API can be seen here. Below is a C# example of the code I use to pull quotes on a nightly basis:

(click to expand)

Amazingly simple, and I have been re-purposing this code to handle requests against other data points, so its real easy to get at all the API end points.

The pricing structure for this is smart also. The free level that I am currently at provides you with 500,000 request points a month. A delayed quote is 1 point, a dividend list is 10 points, and fancier things like full financials are 5000 points. So if you just want to get daily prices you can get virtually unlimited. If you want more advanced data that has been difficult to get to in the past, the free level limits will likely be exceeded. The pricing for the next level up is $9 a month, and that gets you 5,000,000 request points a month which would more then meet even my wildest data dreams.

This is a relatively new operation (the API came out of Beta in April), and they are constantly updating/improving it. It is missing some features I want (Can’t currently get prices for mutual funds, or dividends for ETFs. But those fixes are on their road map to be done soon. The IEX cloud GitHub repository does a great job of keeping users updated on changes, bugs, and upcoming fixes.

As I said above this is a new service, and in this world of online services, many do not survive. I really hope this one does. If you are looking for easy access to a wide variety of data, give this new API a shot. This is a pretty exciting development for financial data geeks such as myself.

Employment Data As Economic Predictor

Every month the financial press makes a big deal about the total payroll report. I have never really paid attention to it, as it seems like its just headline material rather than anything one can act on financially. Recently, I was poking thru the FRED data sets looking for an employment indicator that I could plug into my valuation model, and the one that caught my eye was a subset of the big monthly number – the Temporary Help Services number.

I put together this chart below comparing the numbers of the Wilshire 5000 stock market index, the Temporary services number, and the headline Nonfarm Payrolls number.

wilshire 5000, temporary employment and full employment chart
(click on image to enlarge)

As far as an early indicator of economic downturn (and hence a stock market downturn), it seems like the temporary help number is a much better indicator. The temporary help number started trending downward months before the non-farm payroll number, and even started rising sooner after the 2001 and 2008 recessions. There are some ‘headfakes’ in the temporary help number, but with a little smoothing I think my stock market model can be taught to ignore those.

One thing I have learned over the last several years while looking for correlations is there are a lot of coincidental correlations. So when I add data factors to my model, I give the data a good old fashioned smell test – does this data seem reasonable? In this case, I have rationalized that yes, it seems reasonable that in an economic downturn, companies would start jettisoning temporary employees early as they start to slow down, since those are typically the easiest and cheapest employees to part ways with.

So now when the monthly noise comes out about the jobs number, I will continue to ignore that number – but that will trigger me to look deeper at the temporary help number that gets released at the same time.

Townsquare Media Goes Digital

Townsquare Media is a company I have followed for a few years. I decided to post an article on Seeking Alpha about the company because I think it has an interesting story. The company primarily runs a number of rural radio stations, but is now working on tools to upsell its advertisers.

This stock has long been a value trap (and may still be), but if this new strategy pans out, it might be worth a look. For more details check out the article on Seeking Alpha.

Townsquare Media: Digital Solutions Could Be Catalyst For Growth

UFPI – To Sell or Not to Sell

Note – Post updated on 4/27/19 – see below.

The other day I was looking over my portfolio to make changes based on what my valuation model suggested. One of the stocks in my top 10 holdings, Universal Forest Products, Inc (UFPI), came up as a stock to underweight based on relative valuation. UFPI is a pretty inexpensive, low growth stock, and it had a small run in the last few months.

As I often do with stocks in which I have a short term gain, I give some pause to selling. My model predicted a .44% increase in May, so its not like I was bearish on the stock, just thought there might be better alternatives in other securities. So I took a quick look to see if it might make sense to sell a covered call against my position, collect some extra income since I don’t think the stock is going to move much in May. So I pulled up the options chain, and saw an interesting tidbit:

It is interesting to see that the volume on most UFPI options is zero. This is a small 1.89 billion market cap stock, not followed by many people. But curiously, in this list of zero options, someone tossed down a 40 contract trade betting that the stock would go from its current price ($31) to over $35 by May 17th. Granted that is only a $400 investment (40 contracts @ $.10 * 100 shrs a contract), so this isn’t likely the so called ‘smart money’, but it is curious. UFPI releases earnings tomorrow (April 24th) after the bell – perhaps some small roller is ‘playing a hunch’ and trying to earn some extra cash.

At any rate, this raised my curiosity enough for me to hold onto my position until after the earnings release. I am not in any big hurry to sell, and maybe this is telegraphing some good news around the corner.

4/27/19 Update

Earnings came out more positive than expected, pushing the share price from around $30 to a $36.65 close on Friday. those options purchased for $0.10 are now worth approximately $1.90. That $400 option investment translates to a current value of $7,600. So it appears that if you are going to sell a stock, it may be worth always check the options trades to see if anybody might be making a big bet.

The Trouble with Boeing

I have owned Boeing stock, but sold out of it last year due to a couple reasons. First, its a very large cap stock that grew a lot, and I didn’t understand why it jumped so much. My current opinion is on large cap stocks, you are competing more against institutional money that really models the company and the profits, so I don’t know if I want to try to outperform those companies with those resources.

The second reason I unloaded Boeing was more anecdotal. A group of guys I socialize with have and had worked for Boeing for the last 30 years. They were always very positive on Boeing and its management – until a few years ago. All of these employees were disgusted with management, and felt things were going downhill. I try to make a point in investing in superior management, and so this change in sentiment was enough to convince me to stay away.

With the recent drop in the price of Boeing stock due to the whole 737 Max events, I gave some thought to re-entering Boeing stock. The consensus had been that the problem is a software problem, easy enough to fix with software update. But more info is starting to come out, and now, I am beginning to think weak management is showing its hand.

This article on Quartz provides a great overview as to the issue surrounding the 737 Max. To summarize, when Airbus came out with a fuel efficient A320, Boeing had to quickly adapt the 737 to stay competitive. And to adapt the 737 to the new engines, they had to move the engines on the wing. This led to some handling problems, so they created software ‘as a kludge’ to offset the handling problem. So this is much more than just a software fix – the need for the software is due to a design flaw, which is additional complexity in the airplane. It seems this need to rush out a new plane for competitive needs may have led to deadly consequences. Also hitting the news is headlines about the approval process and the training provided to the airlines, none of it positive for Boeing.

So now, given this complexity and the headline risk, why would an airline pick the 737 Max over the A320? It seems this puts Boeing at a real competitive disadvantage. Indonesian airline Garunda already cancelled their orders for the Max – I would guess more will follow. Perhaps unsurprisingly, Boeing received no new orders for the 737 Max in March, and only 10 orders in the first quarter of 2019. Add on congressional investigations into the FAA certification process, the extended groundings, passenger perceptions of the airplane, and pilots concern related to the training, and I think the story gets worse before it gets better.

So if your bull thesis on Boeing is based on this 737 Max problem just being a software fix – think again. I think this could be the sign of cracks in the company culture and missteps by management. I think this plane that management forced out for competitive purposes could end up being a long term disaster for Boeing.

10,000 Millionaires

An interesting thing to ponder based on this article –

Thousands of New Millionaires Are About to Eat San Francisco Alive

With the Lyft IPO yesterday, this kicks off the creation of a new wave of an estimated 10,000 silicon valley millionaires. In addition to Lyft, Uber, Airbnb and Pinterest are expected to IPO in 2019, and given the compensation structures of San Francisco startups, this will result in a huge wealth realization for all those employees who hold stock options.

Should this number of newly minted millionairres materialize, it raises some interesting social issues. What happens to a city when a large amount of money floods a city (San Francisco is approximately 7 square miles)? The supply and demand of housing and premium services is going to be off the charts, likely worsening the homeless crisis currently in San Francisco.

It will also be interesting to see this wealth reverberate up and down the west coast. Historically housing prices in the Pacific Northwest correlate to California, so I would assume we will see ripples of this wealth bomb.

I fear this will also make the growing divide in the US between the technology disrupters in Silicon valley, and the declining income of those unskilled workers who lose their jobs to the disruption of the technological revolution. With all that money from the stock IPO’s going into those companies, it will only speed up the progress of the disruption.

So it will be interesting to see what happens in 2019. The impact on San Francisco will be interesting to watch, and hopefully it will drive some discussion about how to deal with this continued disruption across the country.

The Stock Market and the Fed

2019 has started out as an interesting year for the stock market. The year was set up with a disastrous December 2018, leading to some gloom and doom over the holidays. I recall telling friends in December (following the 5% Christmas Eve drop) that I thought there was a decent chance January would be positive, and if so, take that as a selling opportunity as the rest of the year will be crap.

I was right about January, as the market (as measured by the S&P 500) was up a solid 8%. Time to sell? Now… I am going to answer maybe not. In December the Federal Reserve was signalling 3 rate hikes, and there is an old Wall St saying – ‘don’t fight the Fed’. The saying refers to when the Fed is raising rates, be cautious. Now it turns out, in January the Fed has signaled that it may go more cautiously, presumably because the stock market threw a tantrum. Now there are predictions of a rate cut in 2019, even though the economy is presumably as strong as it has been in recent years.

In my opinion a rate cut may be economic malpractice – but even worse (from a fiscal responsibility perspective) there is now talk that the fed may slow quantitative tightening. This you may recall is the selling off of all the securities the government bought up during and after the 2008 market crash:

Federal Reserve Balance Sheet Expansion

Of course we were told that when good times return, the government would sell off those securities and shrink down the balance sheet. And maybe it’s no coincidence that the stock market had a down year in the first year of quantitative tightening. But now there is talk of stopping this drawdown in 2019 or 2020, presumeably over concern that the economy is slowing too fast. The Federal Reserve now appears to be overly sensitive to the movements in the stock market, which for stock investors I guess is a good thing. This removes one big negative factor for the market I had going into 2019.

If the Fed has our back and is working to protect shareholders, I guess I am less negative than I was over the holidays. Other negative factors still exist, such as slowing growth in Europe, continued governmental dysfunction (i.e. the past and potential future shutdown), and Brexit. So I am still not calling for a great year, maybe just not as bad as I thought. I still think we have some major economic reckonings in the future, it’s just that the Fed is now willing to ‘run up the credit card’ to delay the economic downturn.

eMagin – Still Just Potential

My latest article for Seeking Alpha was just posted – titled eMagin Is Still Just Potential. This covers a company I followed for a long time -eMagin. They make high quality micro-displays, and have been trying to crack the virtual reality market for a long time. I have been waiting / hoping for them to find success, but so far it has been elusive. Recent developments have knocked the stock price down below $1, at a time where it would appear it is starting to perform. It’s an interesting story (I think..).

VFS Rating – RIP

After 9 years I have decided to replace the old Puget Investor / Invest.vfsystems.net VFS Rating.  The VFS Rating uses various fundamental stock metrics to try to determine if the the stock is under or overvalued.  It has never been as accurate as I had hoped, for a variety of reasons.

As of 9/30/18, here are final results of the VFS Rating:

Note that over the life of the VFS Rating, on stocks rated 10 would on average outperform stocks rated 1 by .09% a month (.01x above represents the monthly premium, so on average a vfs 10 rating would equate to .10% a month return, where a 1 rated stock would return .01%).  There is high variability in these numbers, so I think this might be overstating the accuracy of the rating, but at least it is a positive correlation.

Note that on average the stocks in the portfolio outperformed the market by .12% a month, which annualized is over 1% a year over the S&P 500, which I like.  However, that number cannot be credited to the VFS Rating, that number is more a function of the stocks I chose to add to the portfolio.  I would like to think the over 1% number is due to my brilliance in picking stocks,  but I wonder what that number would look like had I not included Amazon in my portfolio during that time.

I am now taking what I have learned from the calculation of the VFS Rating, and using some more modern programming techniques to improve it.  Instead of a VFS Rating, I hope to come up with a target valuation of a stock, from which I can discern the discount or premium the stock market has applied to the stock based on fundamental indicators.  This is very tough, because the valuation of a stock (in my current opinion) is primarily based on the growth prospects over the next 10 years – which is a very subjective (and inaccurate) forecast.  But I have some ideas, and if I set up my measurements right I should be able to see if it can be done successfully.

In the meantime, I plan to rely on my technical indicator that is on the invest.vfsystems.net site.  This indicator has shown some promising early results. Since November 2017,  the performance of this indicator can be described as Y=.077x + .294.  This formula is a little convoluted, but my technical score goes from a -10 to a 10, so a stock with a score of 10 out performs a stock with a score of -10 by approximately 1.5% a month.  Again, this is a small sample set (13 months), but it is promising.

Finally, to repeat what I have told my friends – if you do plan to invest in individual stocks, the most important thing is to get your measurement systems set up.  There are so many wrong strategies out there its important to measure your strategy and make sure you are beating whatever index you would invest in as an alternative.  I have a number of measurements set up, so hopefully now as I embark on this new formula, it will show positive results.  If not.. it could be back to the drawing board once again.

Nordstrom’s 21st Century dilemma

One of the biggest question marks in investing over the last 10 years will be what happens to retail in the online age.  I have been following Norstrom’s off and on over the last 20 years as it is a high quality retailer with dedicated family management.  However, in the last few years I have been out of Nordstrom’s as  I have been avoiding retail all together until more clarity as to the future of retail is visible to me.

One of the statistics that most impressed me about Nordstroms was it was growing it’s web presence at something like 20% a year for the last few years.  It seemed to be one of the few retailers that has a good online strategy, and is keeping itself Amazon-proof.

However, that may be a curse in disguise.  As per this article on Business insider, this expanding retail presence is causing a problem, with digital sales now accounting for 30% of Nordstrom’s sales.

So they may be successfully fighting off Amazon (for now) – but it is clear they are cannibalizing their in store sales.  Online sales grew 20%, while overall sales grew around 3%.

Is this bad?  In Nordstrom’s case, I am now changing my mind, and I think this is a sign of trouble.  In my opinion, Nordstrom has differentiated itself by having premium stores, and excellent customer service.  Translating this differentiation to the web is a whole new challenge, other than the oft mentioned ease of returning things to Nordstrom.  Competing for a premium experience on the web is going to be difficult, especially with Amazon and other competitors (i.e. upstart Stitchfix) building a model around personalization.

My prediction is that Nordstrom’s will have to reduce their average store size, as it probably no longer makes sense to have the same level of inventory in store when people are increasingly buying online.  If this is the case, I think the cost of shrinking and retrofitting stores will exceed the (assumedly) reduced rent cost for the next few years, all the while spending to fight off online competitors.

So while I think Nordstrom’s is still a great brand and premium shopping experience, I am staying away.  I think the moves the company needs to make in the future may further cloud how brick and mortar retailing needs to change in order to survive in an online world.