Thursday, April 06, 2006

Barron's Piece on Blogwriter Charles Kirk

Venerable financial trade journal Barron's had a long overdue article on Charles Kirk, his blog, and his amazing ability to produce eye-popping returns. Kirk's blog is here.

It truly is amazing when you consider Kirk's results. "In 2003 his trades returned a whopping 85.2%, in 2004 65.3%. Even amid 2000's meltdown, which he correctly called that February, Kirk managed an eye-popping 36.7% return. Although last year's 16.6% gain didn't quite match his recent outperformance, Kirk still made some outstanding moves. In one day last August he registered 28%, 53% and 93.5% returns trading three lots of China's Web-browser powerhouse Baidu.com"

Below is the full article:

SATURDAY, APRIL 1, 2006 6:02 a.m. EST

Highway 61 Revisited

By KATHY YAKAL

THERE ARE TWO WAYS TO DRIVE THE 12 MILES NORTH from St. Paul to Charles Kirk's house in Hugo, Minn. You can join the long line of cars speeding along the six-lane I-35E past countless car dealerships and a giant Wal-Mart. Or you can cruise the road Minnesota native Bob Dylan made famous, Highway 61. It gradually narrows from four lanes into a slower-paced country road surrounded by beautiful farmland the closer you get to Hugo (population 10,000). Highway 61 seems like the better route to reach Kirk, the 34-year-old trader whose uncommonly genuine personal style, coupled with outstanding performance, have made his online blog one of the Internet's best-read financial sites.

A simple graphic -- a weather map for New York City -- on one of the seven computer monitors in his converted-bedroom office suggests that Kirk offers an outsider's perspective. "The markets go up when the weather's nice in New York City," he says. And unlike most traders or professional investors, who jealously guard every scrap of information about their activity, Kirk shares his ideas and strategies with others. As he explains: "Trading is a zero-sum game. You're taking money away from other people, so there's a mentality that you can't share anything." But, he adds, "I don't think that by helping other people that I'm hurting myself." "Members" of the Kirk Report are asked to make a paltry $50-a-year "donation" to gain access to everything on the Website (www.kirkreport.com).

As refreshing as his approach is, Kirk's remarkable record trading stocks gives his blogs their heft. In 2003 his trades returned a whopping 85.2%, in 2004 65.3%. Even amid 2000's meltdown, which he correctly called that February, Kirk managed an eye-popping 36.7% return. Although last year's 16.6% gain didn't quite match his recent outperformance, Kirk still made some outstanding moves. In one day last August he registered 28%, 53% and 93.5% returns trading three lots of China's Web-browser powerhouse Baidu.com (ticker: BIDU).

[kirphot]
Stock-screen addict Charles Kirk and his West Highland terrier, Ernie, at home in Hugo, Minn. The softspoken 34-year-old has every reason to be confident: He's got an amazing record. So why does he lack conviction about the current market?

"Kirk to me is a rare combination of unusual talent, combined with a very rare humility," says Dick Davis, founder of the successful investment newsletter Dick Davis Digest. "Four out of every five trades he makes are profitable. No one has that kind of track record."

UNSETTLING FOR THOSE WITH STRONGLY BULLISH or bearish convictions, Kirk decided back in November that the times were -- with apologies to Dylan -- "a-changin'." He moved to cash and, with the exception of a handful of trades, has remained on the sideline for the longest period of his stock-trading decade or so. "I don't see a distinct advantage in being on either side of the market," he explains. He confesses to a lot of questions. Among them: How will earnings fare next year? Will housing fall apart? And how resilient will consumers be? "Until we get some clarification on those things," says Kirk, "the best thing for me to do is to sit and to wait."

The soft-spoken former Cornell philosophy and political-science major shares at least one preoccupation with the herd on Wall Street. "I have to figure out if the Fed is going to make the same mistake they did previously. Will they increase interest rates higher than they should? Or will Ben Bernanke do something different?"

Kirk blends judgments on these fundamental issues with technical analysis to arrive at an overall market view and specific trading plays (technical factors get a much heavier weight to determine individual trades). A self-confessed "stock-screen addict," he runs more than 200 different sortings a month in search of attractive trades. "The art of stock screening," he says, is to find the proper screen for current market conditions. Among his favorites are those that seek out poor-performing shares with good fundamentals or, for trading purposes, stocks with scant analyst coverage, little institutional ownership, positive money flow/accumulation, strong earnings and improving relative price performance.

"I'm a flexible chameleon -- I go where the money is, and my strategies will vary quite a bit depending on market conditions and where the money is flowing," says Kirk, who got hooked on investing while working in a Motorola kiosk at a local mall about 10 years ago to help pay tuition at St. Paul's Hamline Law School. (He realized the company was selling lots of flip-phones, bought the stock and ended up making about as much on the shares as he did hawking the phones.)

[kirch]

In early March -- although still neutral on the market -- Kirk took two new positions, Alliance Fiber Optic Products (AFOP), a Sunnyvale, Calif.-based maker of high-performance fiberoptic equipment, and Novavax (NVAX), a Malvern, Pa., biopharmaceutical company. A couple of days later he liquidated them for gains of 11.4% and 12.8%, respectively. His rationale, expressed in his trading notes, was pretty typical of his communications: "Both stocks have been trading nicely in this tape and remain the focus of the momentum crowd. I think with so few stocks acting well, there is a decent chance (the odds are roughly 60/40) that today's gains may draw even more buyers. Since it's been so long since I've held an overnight position it was about time to force myself to get more comfortable doing that. To cut off the downside risk (as well the upside potential) these are smaller size positions with relatively tight stops."

Kirk mixes these chatty, informal insights with pre-opening and post-closing comments about stocks that are moving or other events that catch his attention. Also included is an impressive set of links to other Websites with stories or analysis he thinks might help readers. Even nonsubscribers can get this information. The 711 members of the Kirk Report receive his track record of buys and sells; trading notes, favorite stock screens and monthly Q&As that might touch on a wide range of financial topics. "The focus of the Website is to get you to develop your own strategies and to ultimately think for yourself," says Kirk, who is known to offer personal pointers to subscribers via e-mail (the site attracts more than 30,000 hits a week).

ALTHOUGH HE ADMIRES JAMES CRAMER, the hyperactive host of CNBC's trading-focused Mad Money show, the quiet, deliberate Kirk could be considered the anti-Cramer. The former hedge-fund manager, who also has a law degree, has helped popularize trading but at the same time has created a lot of market participants who want to make "3% a week," as Kirk puts it. "People think you can do a Lightning Round [a segment of Cramer's program where he offers viewers rapid-fire advice on stocks], and say buy, sell, right off the top of your head," he notes. "There's no way I can do that. Anything I say to people I take as if I were doing it myself."

Indeed, Kirk rearranged his business about three years ago to slow down and spend more time, in Dylan's words, "where the wild roses grow." His original creation was a daily newsletter, MoneyXperts, which he started in 1999. The publication, which carried a $350-a-year subscription price, included lots of market news and commentary, dozens of briefs on notable corporate developments, insider buying and selling activity, earnings surprises, mutual-fund moves, a model portfolio, a daily stock recommendation and reams of other information. The performance of Kirk's model portfolio was phenomenal, a cumulative 323% gain between 1999 and 2003, with no down years.

"It got so popular that it pretty much took over my life," says Kirk, who wound up working 12-hour days answering e-mails, writing the newsletter and setting up marketing deals with partners. Blog writing, which was just becoming popular in 2003, offered a less stressful alternative that allowed him to spend more time with his wife, Rachel, who teaches Spanish at a nearby high school, play more golf and fulfill his interest in public service (Kirk helps out at a local church-run program to feed the needy and has served on a number of Hugo city-government commissions). The slimmed-down site achieved another of the Columbus, Ohio, native's long-standing desires: He could charge less and therefore help a broader cross-section of people.

Kirk now has more time to unearth little-known stocks like Alliance Fiber Optic, Novavax or another big winner, Travelzoo Inc. (TZOO), an Internet company that reviews and then selects certain special offers from travel companies to recommend to its readership. Kirk registered gains of 42.6%, 11.2% and 100% moving in and out of Travelzoo shares over three days in 2004.

Why does he focus on companies that few analysts track? "With stocks that have very high expectations, like Google, you're going to have a very difficult time trading. You're going against the smartest people on the entire earth," he says. "You're dealing with all the mutual funds, the hedge funds, and all of the individual investors that are dealing with that stock."

To be sure, Kirk has had his share of bum trades. In 2001, he recalls, he took a substantial short position in hot data-storage networking and applications maker Brocade Communications (BRCD), believing it was due for a fall. Instead, the stock spiked in a classic short squeeze and he absorbed a couple weeks of big losses. Demoralized, Kirk covered his position, only to watch in shock as the shares plummeted -- just as he'd originally expected. Even though he believed tech shares would continue to fall, Kirk couldn't bring himself to short BRCD again and missed a big profit opportunity. "It was a painful lesson," he says, but "you have to learn to hold true to your convictions even in the face of adversity."

Will Kirk's decision to sit mostly in cash be another costly learning experience? After all, his trading portfolio is up just 2.6% this year through March 30 against the S&P 500's 4.2% gain. "I always worry. Who doesn't? But that worry doesn't cause me to make irrational decisions or lose sleep at night. I will certainly miss my share of major market calls in the future. Everyone does. But, this is not a sprint, it's a long-term career for me." For now, he'll keep a close eye on a number of factors that might change his position. For instance, if money starts to flow back toward the U.S. equity market from overseas bourses, that might persuade him to jump back in.

Almost every year offers up one or two good buying opportunities, he says. "I just don't think that right now is that time." Wall Street may have to endure a hard rain or two before the time is right.





0 Comments:

Post a Comment

Links to this post:

Create a Link

<< Home