I am making a call right now, but before i do lets lay down the foundation. We have seen some short-term positive effects of the stimulus packages, the stock market has recently broke the 10,000 barrier, and the VIX has come down to near long-term avgerage levels.
The bad news is this, the Fed has kept interest rates low, which makes safe investments less attractive, the unemployment rate is pushing toward double digits, the dollar is at all time lows, and there is not a good piece of news on the horizen after GDP.
Once this week is over, reality is sure to set, and it's not pretty. The market has been on a high because the safe investments (the Dollar, Bonds, etc.) are not providing a return right now due to near zero interest rates. When we get past this week, as soon as reality sets, people are going to start seeking these safe investments again even though they are not attractive. More negative news, along with the slight shift in demand for risk is going to start making investors shift their money from assets in the stock market to safer investments like the dollar and bonds. This shift to safety is going to bring the stock market crumbling. If you start seeing the dollar rising and interest rates dropping, get out!
I see a fairly large scaleback coming in the stock market in the next several months. Like I said, after GDP, it starts to go downhill and the storm sets again.
Tuesday, October 27, 2009
ING has passed
I have been a big proponent for quite some time of ING. In fact I have watched it over the last year gain nearly 375%. I personally made over 25% on a lot of money. I played options on the stock at the same time, so i was also able to protect myself from any downside, while also collecting a premium (1-2%). I did miss nearly 40% by getting out too early, but in retrospect, I am glad I did get out.
The ING that you read about today is a new ING, with different prospects, different businesses and most importantly, different management. I once called this company my pride and joy, but now it is time to move on, I can no longer recommend this business because fundamentally it is different, and it is a company I don't know anymore.
What this split shows me is that nothing is safe from the powers of regulatory bodies. So to those of us owning companies who have recieved a hand from the government recently, I say stay sharp and alert. ING took a 20% hit yesterday, and the business has changed dramatically, and that is something that could happen to any of these companies.
There is still a lot of uncertainty in the market, so protect yourselves - use options or whatever means of protection you are comfortable with, but there is still a need to protect against the unknown.
The ING that you read about today is a new ING, with different prospects, different businesses and most importantly, different management. I once called this company my pride and joy, but now it is time to move on, I can no longer recommend this business because fundamentally it is different, and it is a company I don't know anymore.
What this split shows me is that nothing is safe from the powers of regulatory bodies. So to those of us owning companies who have recieved a hand from the government recently, I say stay sharp and alert. ING took a 20% hit yesterday, and the business has changed dramatically, and that is something that could happen to any of these companies.
There is still a lot of uncertainty in the market, so protect yourselves - use options or whatever means of protection you are comfortable with, but there is still a need to protect against the unknown.
Tuesday, October 20, 2009
Conoco Phillips (COP) Made me over 210%
If you were wondering what stock I was referring to in the message to my facebook group, it was COP. I have owned this company's stock for almost a year, when just recently I heard some promising "Rumors" about a large increase in the stock price coming in the near future. Now, I am the biggest proponent of doing my own research (I did do plenty of my own before i purchased the shares) because following the lead of others is not something that typically turns out rewarding. But several of my mentors have encouraged "Piggybacking" of other professionals - so I took a shot.
I have been keeping a close eye on the company for the last few months after discovering some potentially impactfull debt coming due in the near future, so I was starting to weigh my options about what I may do with my position (hold or sell). After I read of an article that detailed the purchase of a substantial amount of options contracts by one billionaire, I calculated the potential returns from my current position and theirs in the coming months. With the potential of a large price movement at hand, I decided to simply turn in my shares for options, leaving me with the same dollar amount invested in COP. I purchased Jan $50 Call options for $1.46 a share (it really sounds more complicated than it is - see my section on options).
I have seen this position grow over a short period of time, and have realized over 200% return on my investment - if you had invested $1,000, you would have a total of$3,000 when you cashed out!!!
I have created a comments section where I would like to start communicating these types of finds with all of you, and as well as hear your ideas when you find them. This is the time to take educated risks and make some money - I would like to hear what ideas you may have as I share mine.
I have been keeping a close eye on the company for the last few months after discovering some potentially impactfull debt coming due in the near future, so I was starting to weigh my options about what I may do with my position (hold or sell). After I read of an article that detailed the purchase of a substantial amount of options contracts by one billionaire, I calculated the potential returns from my current position and theirs in the coming months. With the potential of a large price movement at hand, I decided to simply turn in my shares for options, leaving me with the same dollar amount invested in COP. I purchased Jan $50 Call options for $1.46 a share (it really sounds more complicated than it is - see my section on options).
I have seen this position grow over a short period of time, and have realized over 200% return on my investment - if you had invested $1,000, you would have a total of$3,000 when you cashed out!!!
I have created a comments section where I would like to start communicating these types of finds with all of you, and as well as hear your ideas when you find them. This is the time to take educated risks and make some money - I would like to hear what ideas you may have as I share mine.
Monday, September 21, 2009
Are We In the Eye of the Storm?
Well it's about time for our correction, we need a break in the market. The market has gone too far too fast, and we are due for a correction. There are really only two ways for this to happen. Either we will see a few weeks of up and down movements without much shift from where we are now (down to 9,400 for the DOW and then back up again near 9,900), or the other option is to have a quick drop in the next several weeks that will bring the market down into the low 9,000 range.
We are currently in the midst of recovery, but there is little progress on the future of the economic state. We have no answer on unemployment, we have no answer on the budget deficit, and we have no answer as to where growth will come from. Services account for approximately 70% of GDP (that's a lot!!) which means we produce very little domestically. A weak dollar does help secure some domestic production, as this means our goods are less expensive to foreginers, however, there are not immediate answers at this point on where such needed growth could come from.
For these reasons, it would not be reasonable to assume we will have a strong recovery. Until we solve these long term problems we are looking at a very long recovery, and I think what we were facing was a potential depression (yes I said it, we were very close to a depression) and I am still not quite sure the word should be swept off the table. While there is not a concrete definition of what classifies a depression vs. a recession. After facing the longest recession in history, and continuing to endure high unemployment rates for some time, I am calling this a depression.
With a storm still on the horizon I am saying it is still not safe to venture into the market, and if you do, use options as protection because this is only the eye of the storm!
We are currently in the midst of recovery, but there is little progress on the future of the economic state. We have no answer on unemployment, we have no answer on the budget deficit, and we have no answer as to where growth will come from. Services account for approximately 70% of GDP (that's a lot!!) which means we produce very little domestically. A weak dollar does help secure some domestic production, as this means our goods are less expensive to foreginers, however, there are not immediate answers at this point on where such needed growth could come from.
For these reasons, it would not be reasonable to assume we will have a strong recovery. Until we solve these long term problems we are looking at a very long recovery, and I think what we were facing was a potential depression (yes I said it, we were very close to a depression) and I am still not quite sure the word should be swept off the table. While there is not a concrete definition of what classifies a depression vs. a recession. After facing the longest recession in history, and continuing to endure high unemployment rates for some time, I am calling this a depression.
With a storm still on the horizon I am saying it is still not safe to venture into the market, and if you do, use options as protection because this is only the eye of the storm!
Wednesday, September 9, 2009
The Obama Effect
I just got done watching President Obama deliver his speech about healthcare reform. All I could think during his speech was how this was going to affect health insurers. The message seems to be that these insurers have plenty of spare fat to be trimmed, and with this means that profit margins will narrow if the insurers are not able to cut costs. If this plan is put into motion, and it is still far off, it will put quite a bit of pressure on them to meet these expectations. Stock prices these days are based on earnings, and in this day and age there is a lot to be said about expected earnings. With the pressure of reducing costs to maintain earnings, it is fairly likely the prices that can be justified today for a share of these companies will not be justified by future earnings. Based on the implications of this new plan, I would imagine that the prices of health insurers stocks should decline, likely now, and likely in the future, at least until the insurers bring down their overhead costs.
Wednesday, September 2, 2009
Double Dip on its Way
The economy has had quite a run, but while the third quarter results are likely to show our economy grew during the quarter, too much of this growth is due to short lived stimulus programs. Everyone who had the opportunity to trade their clunker in for a newer car, and all those first time home buyers, have gotten their share of the pie, and this causes problems down the road.
With the unemployment rate still high, and a lack of job creation (did I mention a growing budget deficit), those who fall into the long list of people looking for a job and even those who are fortunate not to have made the list are likely cutting back on purchases.
Without another round of quick pop stimulus programs such as "Cash for Clunkers" the fundamentals are sure to come into plainsight once again, and drag us easily back into negative growth. All those end-of-year purchases (homes, cars, durable goods) have likely already been consumed in the third quarter and boosted us out of recession - really a great way to ignite spending - so without additional programs we are likely looking at another disappointing 4Th quarter.
With the unemployment rate still high, and a lack of job creation (did I mention a growing budget deficit), those who fall into the long list of people looking for a job and even those who are fortunate not to have made the list are likely cutting back on purchases.
Without another round of quick pop stimulus programs such as "Cash for Clunkers" the fundamentals are sure to come into plainsight once again, and drag us easily back into negative growth. All those end-of-year purchases (homes, cars, durable goods) have likely already been consumed in the third quarter and boosted us out of recession - really a great way to ignite spending - so without additional programs we are likely looking at another disappointing 4Th quarter.
Tuesday, September 1, 2009
Time for a correction
Well, it seems like people are starting to wise up and take profits. The market has slipped over 3% in the last two days and even with some good news today in the job market, it seems that it is questioning further and even long-term growth. The large budget deficit that's expected to accumluate, along with the lack of direction as to where job growth is going to come from, has officially stalled this rally.
I sold my Citi (C) position on Thursday and took a nice 120% profit - I haven't used options very much but this shows you how nice the reward can be when you get it right! Citi was the last of my sizing down that I did on my portfolio, I expected the market to pullback soon and I too wanted my profits. I am sitting on the sidelines waiting for some more oppotunities, and if the market keeps dropping they should be plentiful. The last opportunity I saw was AIG on Friday, as it approached a price that screamed rediculous I called my dad - unfortunately I was at a golf tournament and couldn't make my own moves - and I told him he should short the stock. Well if he did (he's a bit stubborn sometimes as all parents are so I doubt he did), he would have made about 30% on that quick play.
My strategy for now is to stay out of the market until I can get an idea of where the mass population is going with this selloff and until some more opportunities present themselves. I'll let you know when I find another opportunity, until then hold steady!!
I sold my Citi (C) position on Thursday and took a nice 120% profit - I haven't used options very much but this shows you how nice the reward can be when you get it right! Citi was the last of my sizing down that I did on my portfolio, I expected the market to pullback soon and I too wanted my profits. I am sitting on the sidelines waiting for some more oppotunities, and if the market keeps dropping they should be plentiful. The last opportunity I saw was AIG on Friday, as it approached a price that screamed rediculous I called my dad - unfortunately I was at a golf tournament and couldn't make my own moves - and I told him he should short the stock. Well if he did (he's a bit stubborn sometimes as all parents are so I doubt he did), he would have made about 30% on that quick play.
My strategy for now is to stay out of the market until I can get an idea of where the mass population is going with this selloff and until some more opportunities present themselves. I'll let you know when I find another opportunity, until then hold steady!!
Thursday, August 27, 2009
Running out of time for Citi
Ok, so if you haven't gotten in on Citi by now, I hate to break it to you but you probably missed the boat, at least on the sure bet, and now it's pure speculation. It has reached Book Value and anything beyond that is subject to people emotions - which doesn't mean it won't go higher, but now it's a gamble. If your lucky there's another quick 10-15% - If your lucky but I sure won't recommend it!!! Now, this isn't to say if you bought it now and held it for a few years it won't go higher than that, but if you had bought Citi back when I did you would be up over 45% on the shares, and if you had played options you would have been up more like 100%. Not a bad return on three months.
Investing isn't hard if you use your brain, and if you think your going to beat the odds by picking a stock for speculative reasons you are eventually going to run your course. Try looking for a stock that has everything to gain and nothing to loose and when you do maybe you just found the next Citi.
Investing isn't hard if you use your brain, and if you think your going to beat the odds by picking a stock for speculative reasons you are eventually going to run your course. Try looking for a stock that has everything to gain and nothing to loose and when you do maybe you just found the next Citi.
Sunday, August 23, 2009
August 23rd, 2009
I spent some time tonight taking a look at my portfolio and I examined a position (ING) that I have held, coupled with a collar strategy (involving the sale of a call and a purchase of a put). I have been holding this position for ~10 months and unfortunately my luck ran short and the call broke even and was exercised, which, forced me to lock in my profit and close out my position. I may jump back into the position within the next 30 days which would be considered a wash, but I am waiting to get an interpretation whether or not the 10 months would still count or not, and if the clock restarts - the goal being to try to cash out with a long-term capital gains rate vs. a short term rate.
The capital gains rate being my worst scenario, I am proud to say that including all commissions paid, pretax, I pulled out a sizable 27% gain on my position. I have been in the stock long enough to have seen the price per share drop to $3, and although that day I probably had a second thought or two, I stuck to the fundamentals that I learned from Buffett and I watched as every analyst dropped their 12 mo. prediction as the stock price crashed and then raise it as the stock's price soared. Just as a side note, I realized after this analysts are nothing more than a meteorologist for stocks.
The best thing I did was to dollar cost average on it's way down, and although most of my shares were quite a bit higher I did believe in this position enough to go as far as to purchase some down when the stock was at the low $4 mark - if that doesn't show confidence, I don't know what does.
Sticking to the fundamentals of value investing has truly paid off thus far, and while it means I am finding myself in positions that give most the chills, my portfolio is on fire.
The capital gains rate being my worst scenario, I am proud to say that including all commissions paid, pretax, I pulled out a sizable 27% gain on my position. I have been in the stock long enough to have seen the price per share drop to $3, and although that day I probably had a second thought or two, I stuck to the fundamentals that I learned from Buffett and I watched as every analyst dropped their 12 mo. prediction as the stock price crashed and then raise it as the stock's price soared. Just as a side note, I realized after this analysts are nothing more than a meteorologist for stocks.
The best thing I did was to dollar cost average on it's way down, and although most of my shares were quite a bit higher I did believe in this position enough to go as far as to purchase some down when the stock was at the low $4 mark - if that doesn't show confidence, I don't know what does.
Sticking to the fundamentals of value investing has truly paid off thus far, and while it means I am finding myself in positions that give most the chills, my portfolio is on fire.
Thursday, August 20, 2009
August 20th, 2009
I found Citi as a valuable investment based on Warren Buffett's methodology during the first week of June and Jumped on it. Now, Jim Cramer is bragging that he was able to recommend it, and claims that this somehow shows up Warren Buffet!! Cramer, if you're out there I hope you know I called this first and got in on it well before the government got their hands on it, and I did so based on what I learned from Warren - did I mention I'm up over 70%. Boo Yah Jim.
http://www.cnbc.com/id/32484146
http://www.cnbc.com/id/32484146
Wednesday, August 19, 2009
August 19th, 2009
I don’t always agree with Jim Cramer from CNBC, but I think this call is on its mark - http://www.cnbc.com/id/32320452
I personally purchased some Call options on Citi that expire in a couple of years (LEAPS) when the stock was at around $3.5, but I did so on the basis of simple math and some research and had Citi valued at ~ $4.39 book value. This is a stock that I think is going to make it’s way back up in the near future, and I could see you making 25%-50% on this investment within a year or two if you bought it now.
I have been following it closely since May and it’s starting to make a turn for the better, I personally am up ~ 50% on my options investment thus far.
I personally purchased some Call options on Citi that expire in a couple of years (LEAPS) when the stock was at around $3.5, but I did so on the basis of simple math and some research and had Citi valued at ~ $4.39 book value. This is a stock that I think is going to make it’s way back up in the near future, and I could see you making 25%-50% on this investment within a year or two if you bought it now.
I have been following it closely since May and it’s starting to make a turn for the better, I personally am up ~ 50% on my options investment thus far.
August 19th, 2009
I would like to refer to an incredile article posted in the NY Times today written by Warren Buffett himself http://www.cnbc.com/id/32473352 . This article deals with the problems of the US increasing their debt to GDP ratio. The truth is that we needed to do so in order to fight off another depression, but the consequence is that when we get back on our feet, the government will be faced with a hard reality of trying to tame this debt.
Tuesday, August 18, 2009
August 18th, 2009
I am a value investor and have been study the techniques applied by some of the best including Warren Buffett and his mentor Benjamin Graham and the many alike that have been able to outperform the market over time. I invest in companies that have earnings potential but for many reasons have been disregarded by the public.
This creates an opportunity for value because the price is below book value in these cases and it gives us an element of a margin of safety. During an analysis of the income statements, balance sheets, and cash-flow statements I arrive at a value for a company. If I was describing my examination of a balance sheet to a beginner it would be as simple as assets minus liabilities divided by the shares outstanding. However, what we have learned is that the intelligent investor must be wary of the traps of false accounting and must look at historical data to validate current statements.
Along with this there are the adjustments for different types of debt holders and any sort of dilution factor - the goal being to get the most accurate and realistic numbers. Investing in companies of this kind involves a lot of upfront risk, I say this because if you don't do your research you may very well pick a company that has gotten into this position for very serious reasons. So, I can not advocate that a beginner should try applying any of these techniques because while investing in a sound company with strong fundamentals that is undervalued involves very little risk, the opposite is also true.
This creates an opportunity for value because the price is below book value in these cases and it gives us an element of a margin of safety. During an analysis of the income statements, balance sheets, and cash-flow statements I arrive at a value for a company. If I was describing my examination of a balance sheet to a beginner it would be as simple as assets minus liabilities divided by the shares outstanding. However, what we have learned is that the intelligent investor must be wary of the traps of false accounting and must look at historical data to validate current statements.
Along with this there are the adjustments for different types of debt holders and any sort of dilution factor - the goal being to get the most accurate and realistic numbers. Investing in companies of this kind involves a lot of upfront risk, I say this because if you don't do your research you may very well pick a company that has gotten into this position for very serious reasons. So, I can not advocate that a beginner should try applying any of these techniques because while investing in a sound company with strong fundamentals that is undervalued involves very little risk, the opposite is also true.
Monday, August 17, 2009
August 16th, 2009
A co-worker asked me last Friday morning (before the market opened) what I thought the market would do in the short-term. I told him that because companies had just reported earnings that we were due to get a dose of reality, and my best guess was that we were bound to see the market trade sidways at best but likely downward. Since then I have watched the major indices drop nearly 3% - my intuition was right.
Germany, France, and now Japan have reported positive GDP and have shown the world that recovery is just around the corner. I expect us (U.S.) to pull out of the recession in the third quarter with a reading between 0%-1% (real GDP), but most likely on the lower side of this range.
Government programs such as the Cash for Clunkers along with housing programs, mortgage rates, and other stimulus efforts have impacted our current results, and we are seeing signs in the housing market of stabilization, and moods are generally better.
The end is in sight although there are still several months of pain to be felt. I expect unemployment to stay relatively flat for several months with the potential for an extended recovery time.
Germany, France, and now Japan have reported positive GDP and have shown the world that recovery is just around the corner. I expect us (U.S.) to pull out of the recession in the third quarter with a reading between 0%-1% (real GDP), but most likely on the lower side of this range.
Government programs such as the Cash for Clunkers along with housing programs, mortgage rates, and other stimulus efforts have impacted our current results, and we are seeing signs in the housing market of stabilization, and moods are generally better.
The end is in sight although there are still several months of pain to be felt. I expect unemployment to stay relatively flat for several months with the potential for an extended recovery time.
April 30th, 2009
Due to the drastic decrease in inventories and a very large Fiscal and Monetary stimulus effort I believe our recovery is going to come much quicker and stronger than people anticipate. The recovery will lead to production because there will be a shortage of inventories and capacity will begin to feel squeezed. If the unemployment percentage stays high, we may lead ourselves into stagflation as prices are forced to escalate due to inflationary pressure caused primarily due to this imbalance of supply and demand. In this scenario I would imagine we should see adverse affects around the end of 2010 or into 2011. The caveat here is that it largely depends on a number of dependent variables which are controllable including things such as the savings rate (long-term), or the Capacity Utilization Rate, which if remain where they are now will greatly alter this outcome and create a much longer recovery.
April 9th, 2009
Today marked a huge for recovery. Wells Fargo announced unexpected record earnings and showed that there is a large quantity of demand for mortgages, and this can only tell us that demand for housing is recovering and prices will too in time. The VIX is down to 36.53 and the price of a barrel of oil closed at $52.15 - both marking a breakthrough of a significant threshold of 40 for the VIX and $50 for a barrel of oil. The decline of unemployment numbers look to be improving and the major indices are reeling in loses. The turnaround has arrived.
March 11th, 2009
The Pharmaceutical sector is in the process of multiple
mergers and acquisitions (M&A). Additionally, four of the largest banks announced they are now making money (JPM, BOA, C, WFC). Oil prices have been on the rise recently, and I have noticed a relationship between the VIX and the market level, which, appears to be improving (decreasing). Mortgage rates are under 5%, marking a record low, and the yield curve is sloping steeply upwards. We should be closing in on a turnaround.
mergers and acquisitions (M&A). Additionally, four of the largest banks announced they are now making money (JPM, BOA, C, WFC). Oil prices have been on the rise recently, and I have noticed a relationship between the VIX and the market level, which, appears to be improving (decreasing). Mortgage rates are under 5%, marking a record low, and the yield curve is sloping steeply upwards. We should be closing in on a turnaround.
February 4th, 2009
The VIX is in the low 40's which is about half of it's peak, however, it is still on the high side. The yield curve is sloping upwards which is typically a bullish indicator. The Fed Rate is near zero and is likely to stay in this range for an extended period while the market goes through its period of healing. Pending home sales rose this past report, however, corporate earnings are mixed. We are seeing some positive signs.
December 17th, 2009
With the Vix down from the high 50's and the Fed Rate cut to almost zero, I believe we have hit bottom and are now starting the very lengthy climb upwards.
October 10th, 2008
On this day (just so happened to be my girlfriend's birthday - maybe i wanted the two to correlate somehow hahah) I claimed the stock market had hit bottom. Now, anyone with a brain in finance and most people with common sense will tell you that these things can not be predicted, but feeling bold I tried and as you can imagine I was wrong. Luckily, the market did not have much further to decline because I rushed in to start investing.
The second mistake I made was to dump the majority of my funds into the market all at once into only a few stocks, hoping that I could capitalize on the volatility - too bad volatility works in both directions because ING ended up cutting my portfolio in half.
The third mistake was to try and correct this mistake by dollar cost averging in very small amounts. I thought that I might as well make the best out of my two previous mistakes, however, I invested in such small amounts each time that I cost myself a few hundred dollars in trading fees.
Ok, so moral of the story is when you invest do the exact opposite of what I did!!!
The second mistake I made was to dump the majority of my funds into the market all at once into only a few stocks, hoping that I could capitalize on the volatility - too bad volatility works in both directions because ING ended up cutting my portfolio in half.
The third mistake was to try and correct this mistake by dollar cost averging in very small amounts. I thought that I might as well make the best out of my two previous mistakes, however, I invested in such small amounts each time that I cost myself a few hundred dollars in trading fees.
Ok, so moral of the story is when you invest do the exact opposite of what I did!!!
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