I don’t get things right as much as I’d like when it comes to the market but my Latticework Linkfest back in late February was spot on:

In times of recession, when unemployment is high, the unemployed go back to school to add marketable skills and increase future earnings power. The leading companies in for-profit education include Strayer Education (STRA), DeVry (DV), ITT Educational Services (ESI), Career Education Corporation (CECO), Capella Education (CPLA), Corinthian Colleges (COCO), and industry giant Apollo Group (APOL). Apollo operates the ubiquitous University of Phoenix campuses. This investment thesis has worked in past recessionary times, but the unique risk this time around is the possibility that the credit crisis will hamper students’ ability to repay or obtain school loans.

The for-profit education companies mentioned have for the most part been immune to the market’s recent collapse. Some have even made significant money for their investors. The risk that students and prospective students being unable to borrow tuition dollars is still very real but has yet to have a material effect. Unlike a sample basket of leading technology bellwethers like Apple (AAPL), Google (GOOG), Yahoo! (YHOO) eBay (EBAY), Microsoft (MSFT), Amazon.com (AMZN) and Oracle (ORCL) that destroyed wealth, if you invested in a basket of these education stocks, you’d have a juicy profit or at least preserved most of your wealth.

The leading education companies collectively appreciated approximately 31% since my post published February 25 all the way to yesterday’s closing prices. If an investor had put $100,000 in each of the leading companies in that space, that basket would be worth over $921,000 today. The leading technology companies, as great as their brands and products may be, collectively lost almost 26% of market value. The index that is most apropos as a benchmark in this comparison, in my opinion, would have to be the NASDAQ Composite, which lost 26% of its value as well. An investor putting initial capital of $700,000 in either the NASDAQ Composite or the technology basket would have only $518,000 of value remaining. That’s a whopping difference of approximately $403,000 between the education portfolio vs. the technology portfolio or the NASDAQ index.

Have I been able to profit off this insight? Unfortunately no. I went into cash on June 25th for the majority of my portfolios and my private investment partnerships. In a summer of uncertainty and volatility, I thought it would be a prudent measure to preserve wealth – which has turned out to be a service for my investors and myself (unless of course inflation is higher than what the government is officially reporting). The real estate asset bubble appeared to have made other things expensive as home equity propped up prices in the stock market and other financial markets.

What’s next? Given the stellar performance of for-profit schools, I would take some profits off the table. As much as I admire Warren Buffett, I don’t have the capacity for pain to buy and hold like the old master of value investing. On a macro level, the risks to the education sector in particular and the market in general are still profound. The next shoe to drop will be fund redemptions or withdrawals from mutual funds and hedge funds, which I alluded to in Long Term Capital Mismanagement. If this occurs in a heavy way, the overall market will lose some more value and push us deeper into this bear market. The other shoe that could drop would be a failure of the consumer credit market. Credit card companies will reduce credit lines as consumers fail to meet monthly credit card payments. Consumers no longer have rising home equity to feed their spending habits. Rising unemployment also increases the likelihood of household bankruptcies.

What can we learn from this downturn?

From an investing point of view, there are always countercyclical investments available. Higher in the value chain of countercyclicals are the for-profit education companies. They are far more attractive than the conventional defensive stocks such as food manufacturers like Kraft Foods (KFT).

From a business point of view, I can only speak from the technology startup standpoint as that is where I spend much of my time. It is nice to see that people will be going back to school to learn new skills and improve their future earnings. But as much as I believe that talent can come from anywhere, as a startup entrepreneur I can seldom take the risk of hiring people out of these for-profit vocational schools. I’d rather hire someone without a degree but was passionate enough to teach himself how to write code. Or I’m looking for the genius from Stanford or MIT who dreams in code.

We all know that the rigor of most of these vocational schools like Strayer and University of Phoenix just isn’t up to par with our top national universities or even regional ones like University of Utah, Brigham Young University, University of Colorado, University of Arizona, or University of Nevada Las Vegas. Vocational institutions’ lack of selectivity (anyone can sign up for school with Strayer while prestigious institutions like UC Berkeley reject an overwhelming majority of applicants) and their lack of rigor means a bunch of job candidates with bad habits. Of course there are rare outliers and standouts, but does a startup have the time to evaluate and separate the few good from the mostly mediocre?

A startup’s early days are its most productive and critical. Founding teams employ magic to make something out of nothing. Startups cannot afford to take risks on what most likely will be mediocre talent. Let the large soulless organizations like Ingenix (UNH), Convergys (CVG), and IT departments across the Fortune 500 suck up all the graduates from vocational schools like Strayer, Capella, and DeVry. While the for-profit education companies can make for great investments, their graduates would usually make poor investments.

Life is “solitary, poor, nasty, brutish, and short.” Thomas Hobbes might say the same about life in the stock market for hedge fund managers. The mortality rate found in the hedge fund world is extremely high; it is an ecosystem that is filled with predators and would-be predators. By mid-2007, an estimated 9,700 hedge funds controlled approximately $1.7 trillion in assets. According to Hedge Fund Research, 1,518 launched in 2006 and nearly as many called it quits. The battle for investment survival mirrors Hobbes’ State of Nature found in his Leviathan, where life is a war of all against all (bellum omnium contra omnes).

As an asset manager, I aim to exist in this world with selective company, wealth, civility, and longevity. This Investing Linkfest deals primarily with the State of Nature as we find it. We find the world in a state of war and our homes plummeting in value. We have witnessed the demise of Bear Stearns (BSC) and the thinning of the investment banking species. Fear, not greed, permeates a volatile atmosphere and these are conditions ripe for skilled hedge fund managers to protect wealth. Staying in the game is the name of the game.

Will we continue to call on our defense sector companies to provide services that help us to protect our homes? Even if our houses continue to depreciate in value into negative equity territory, would we not still defend what little value we retain? Defense related stocks take the limelight while we examine the dark recesses of housing related stocks.

IHS Q1 results top Street estimates, ups ’08 rev view – I’ve always found Jane’s Intelligence Solutions to be peculiarly named. Jim’s Intelligence Solutions might be more apropos for its implied masculinity. In parallel, the hedge fund world is filled with macho names like Tiger Global, Cerberus Capital, Pirate Capital, and Fortress Investment Group (FIG). Then again, only an estimated 7.8% of hedgies are women. The military relies on IHS (IHS) to provide technical information, logistics support, safety handbooks, and consulting. Chances are that a Democrat will take the White House, our best prediction markets say so, and this would be a high risk investment.

Moog sees China sales more than doubling in 2-3 yrs – Founder Bill Moog started the company in 1951 and was probably an alpha male as well as a brilliant engineer. Moog (MOG-A) manufactures precision control systems that are primarily used by the aerospace and defense industry for satellites, missiles, and aircraft. The company also has a medical device division building pumps for delivering nutrition to hospital patients. This is obviously not a household name like Lockheed Martin (LMT), Northrop Grumman (NOC), or Boeing (BA), but it pays to look where no one else is looking.

ManTech Q4 earnings rise, sees Q1 above Street view – This is a quintessentially manly name befitting a company in the business of providing information technology products and software that help the military secure its data, manage logistics, and organize intelligence. ManTech International (MANT) has seen strong growth in the recent past but of course the real question is whether it will see strong results in the future. Prediction markets should explore the differences between a potential Clinton presidency versus an Obama presidency as well as the implications for the defense sector. The highly unlikely McCain presidency would probably keep the defense stocks healthy with government orders.

CRH says agrees to buy U.S. Pavestone for $540 mln & Ireland’s CRH to enter India with MHIL buy – Prudently run companies should take advantage of a downturn in the economy and grab market share from flailing rivals. CRH (CRH), an Irish producer of cement and building supplies seems to understand the opportunity at hand to capture market share and position itself for the inevitable recovery. Emerging markets continue to demand copious amounts of the company’s products. Beware of debt, it is relatively manageable compared to the competition but significant nonetheless.

Global Prefabricated Housing Market to Exceed 836 Thousand Units by 2010 – This little note is a rare bright spot in the abyss that is the housing market. Of course, it is easy for analysts to cite “global” demand in “emerging” economies as offsetting the slump in the domestic market. I am skeptical of the arguments for decoupling. In ancient times when isolationism prevailed, decoupling was a natural phenomenon. In this era of global integration, decoupling seems highly unlikely. I would argue that we are more interdependent and correlated than ever before. Tangentially, it is this argument that lends credence to the theory that democracies never go to war with each other. Cavco Industries (CVCO) has a clean balance sheet and may be able to weather the current storms on the housing front. Marty Whitman, the legendary aggressive conservative investor at Third Avenue Management’s Value Fund (TAVFX) seems to agree. I think things get worse before they get better, but that’s probably what Whitman thinks too.

Avatar 2007 earnings fall on weak market – Florida and Arizona remain two of the weakest real estate markets in the country. Avatar Holdings (AVTR) happens to be concentrated primarily in these two states. Foreclosures and negative equity threatens to plunge real estate values further. Have we reached the depths of despair? The recovery will occur as boomers retire to the sunny climes of the desert and the beach. The question is when will the turnaround occur? Remember that the market anticipates the future.

Herman Miller Sees Difficult Fiscal 2008 – Everyone at my previous venture-backed startup, mediaFORGE, loved the Herman Miller (MLHR) Aeron chair. It has become an iconic fixture at wasteful software startups in Silicon Valley and beyond. Its home furniture unit has suffered along with the rest of the residential real estate market. There doesn’t appear to be a slowdown in technology startups and venture capital funding remains strong. The high capital expenditures necessary in the furniture manufacturers space puts many of these companies in precarious positions. Debt payments do not slow down along with slowing revenues in a faltering economy.