My Portfolio

An unpleasant drop in the US market yesterday, but for me the damage was minimal.

Since 2000 I’ve had a relatively neutral approach to the market, and seek alpha by going long on companies I like in sectors I like, and short on the reverse. (I have other money with Gareth Morgan who has a (recommended) diversified portfolio approach.)

Last year I was long TM (Toyota) and Short F (Ford). I made good percentage gains out of that one, and exited just as Ford started to climb back in late July 06.F vs TM

Now I’m long on EBAY and short EQR.

eBay has options over three potentially huge markets – auctions, payments and telecommunications.

eBay’s implementation of auctions isn’t as elegant as Trade Me, especially in developing markets where they struggle to compete with locals. Indeed Trade Me owns the New Zealand market because eBay arrogantly or ignorantly decided that servicing this market from the USA via Australia would be effective. There was barely a fight for dominance and $US500m of value was left on the table. We can see the same thing happening in China and other markets. However, eBay are smart enough to buy incumbents when the price is right, and hopefully smart enough to pass enough real control of the China operation to locals. eBay have dominance of most ‘local’ international auctions – the next question is whether they can extend that to cross-border trade.

Skype is the voip monster and has the telcos running scared (which is why my Skype does not work at the moment – thanks to the local telco). Skype isn’t merely a replacement for telephony, it is a better replacement for telephony. While there is a lot of revenue being lost by telcos, the question is whether eBay can become the dominant international telecommunications player and actually earn a significant portion of the disappearing revenues.

Paypal, like eBay, suffered from parochial US-centric policies for too long. This year has seen some opening up to international markets, but there is still a long way to go. Trust and Safety remains an issue, and only a handful of countries are trusted by online stores. When anyone in the world can get a Paypal account, and can buy from any store online, then we will have a system to rival the credit cards. Until then it is up to eBay to continue to expand the potential.

EQR is Equity Residential – a REIT that concentrates on multifamily property development and management. I’m short for two reasons. Firstly the residential real estate values are sky high, and it is unlikely that EQR will see much capital appreciation from sales. This is a hedge against housing prices falling. Secondly I’m uneasy about Sam Zell‘s involvement – that’s it.

I went into eBay harder as the price dropped from $39.50 to $22.85, and have an average cost of $27.81. With the current price at $32 that’s a 14.5% gain to today.

EQR acts as a good hedge – I am down marginally (0.8%) at the moment, but the price movement essentially mirrors eBay and reduces my beta risk substantially. eBay’s beta (volatility versus the market) is clearly much higher than EQR’s, but I am, sticking with equal long and short positions for now.
With EQR it is really a matter of waiting for the penny to drop – either a Sam Zell scandal, or a big real estate crash. eBay to me is a longer term hold – I’m waiting for the market to correctly price the full value of the three options, and waiting for eBay to actually execute on two or three of them.

ebay vs EQR

Published by Lance Wiggs


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