Tuesday, October 25, 2011

The Example of Kodak (Trend is your friend)

The sad story of Kodak, once a powerhouse and film monopoly, has made the rounds lately, as the stock has dropped to around a dollar a share, from the mid-teens just 3 years ago, and the mid-20's 4 years ago.  The stock peaked at around 80 in 1999.

With a large cash hoard just a few years ago, and such a good brand name, many investors are surprised that Kodak declined so much over the past few years (even with the rise of the digital camera).

Click here to look at the chart.  The 3 or 5 year chart shows the big decline.

Forbes had a good article on some of the history about Kodak -- why some believed they would succeed, and the story of some of their failures:

When Kodak was founded in 1888, quality was its “fighting argument.” It gladly gave away cameras in exchange for getting people hooked on paying to have their photos developed  — yielding Kodak a nice annuity in the form of 80% of the market for the chemicals and paper used to develop and print those photos.

Inside Kodak, this was known as the “silver halide” strategy — named after the chemical compounds in its film. Kodak had a fantastic success formula that keyed off of international distribution, mass production to lower unit costs, R&D investment to introduce better products, and extensive advertising to make sure consumers knew about Kodak’s superior quality.

Read more here:

Many believed that Kodak, with it's cash flow and cash supply, would be able to recover from digital cameras.  One of the most highly-respected investment gurus, legendary Bill Miller of Legg Mason also believed in Kodak.

Maverick value investor Bill Miller has apparently sold his stake in Kodak (EK). Filings show that the manager of the Legg Mason Capital Management Value Trust (LMVTX), who put together a 15-year winning streak against the S&P 500 through 2005, sold 18.2 million Kodak shares late last year and during this year’s first-quarter for about $3.89 each on average.
The fund realized a $551 million loss through the divestiture, according to a report by Bloomberg.
At one time, Miller owned nearly a quarter of Kodak’s shares. He and other Legg Mason fund managers reportedly held onto the shares for more than a decade, even after Kodak suffered big losses.

Read more here:

It's actually interesting to us -- how different types of investors and traders can outperform the markets using various strategies.

One moral of the story, for us -- is that no matter what we "think," we will follow our trading systems and trading strategies (that we have researched, based on decades worth of data).  We generally follow trends, and use tight risk management controls.  In this case, following the trend may have helped some Kodak investors...

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