Ignore the March lows!
Posted on | October 21, 2009
I keep on reading stock recommendations that mention how a stock has rebound x% from the March or October ‘08 low. I wish that the financial press would stop doing this. It encourages people to buy stocks because they’ve done well after hitting a ten-year low. Don’t drive by looking through the rearview mirror. Also, don’t become anchored to 52-week highs or lows. They are fairly arbitrary numbers. Just because a stock is trading at the low doesn’t mean it’s undervalued and will eventually snap back to the higher end of it’s 52-week trading range. The same goes for the 52-week high. That said, I think that the list of 52-week lows is a good starting point for finding cheap stocks.
Getting what you pay for with ETFs
Posted on | October 16, 2009
You have to look under the hood with ETFs. Don’t be fooled by a name that sounds about right. It could be in the ballpark of what you want, but not what you think you’re getting. For instance, take a look at the PowerShares Listed Private Equity ETF (PSP). According to Yahoo! Finace, it
“seeks results that correspond to the price and yield performance, before fees and expenses, of the Red Rocks Listed Private Equity index. The fund will invest at least 90% of assets in securities that comprise the index. The index consists of stocks and ADRs of approximately 34 publicly-listed private equity companies. This includes business development companies and other financial institutions or vehicles whose principal business is to invest in and lend capital to privately-held companies.”
First of all, this gives the ETF a wide range of companies in which to invest. PLEASE DON’T THINK THAT EXPOSURE TO THESE COMPANIES IS THE SAME AS INVESTING IN THEIR FUNDS.
Next, look at the top 10 holdings: AMG, AINV, ARCC, CHL, KEN, LUK, OTTR, PICO, SIVB, BX. These aren’t all even private equity shops. Most are investment companies, not necessarily private equity firms.
So look before you leaving.
The Dow hit 10,000. So what?
Posted on | October 14, 2009
I’ve written previously about how foolish pyschological benchmarks centered around large, round numbers are, so I’ll spare you that lecture. I marked the passing of 10K with a yawn and a sigh. I can attach no meaning to it beyond buyers outnumbered sellers today. I’m going to take a breather from the markets. I find that I’ve been following my positions too closely. This has at times led to me panicking and closing a position too soon or chasing a stock. I’m going to take a month break from following the market. What shall I do instead? I’ll still read about the market. I just got a hold of Predictably Irrational by Dan Ariely. I’m very interested in learning more about behavioral finance. I’ve also been recommend Quality of Earnings by Thornton O’Glove. I want to read that next. As always, I’m trying to increase my knowledge about evaluating stocks fundamentally. I’m also trying to know myself better as an investor. One thing that I already know is that my returns are better the longer I give a investment to work. Not paying so much attention to my stocks aids me in this.
How to read the financial press (including this blog)
Posted on | October 13, 2009
This is actually quite hard to do. It requires as much self-discipline as dieting. When reading the financial press, you have ignore the vast majority of what you read. It is nothing but empty calories. When you read a headline that screams, “The Best Stocks For the Next Ten Years,” do not go out and immediately buy these stocks. I’m not saying that the those stocks won’t provide decent or really good returns over the next decade. It’s just unlikely that you’ll be able to buy the stocks at the prices recommended in the article.
Also, ignore website sections touting “hot stocks” or ”stocks to watch today or this week.” These aren’t helpful either. I don’t care if so and so is announcing earnings or the results of a drug trial. That information is most likely cooked into the price. IF it isn’t, then it would be truly surprising, and thus unlikely that anyone but an insider would be able to make an intelligent purchase.
So what should you do when reading “SmartMoney”, “Money”, or “Bloomberg”? You should try to divine the reasoning behind the picks. Do they make sense? What is the time-frame? What is the catalyst that will move the stock higher or lower? Can this be applied to another company? Use it to learn about an unfamiliar sector. You have to learn general principles and then be able to apply them to different situations.
Losing my shirt on E*Trade Oct2 Call
Posted on | October 12, 2009
I am down 50% and am probably going to close out the position. What lesson have I learned? I have zero ability to predict short-term movements in stocks. I thought I already knew this, but apparently I need to re-learn it and lose money int he process. I still think that ETFC is going to be acquired, it probably just isn’t going to happen very soon. Despite the huge runup in the shares of bank stocks this year, or perhaps because of it, many investor are beginning to turn bearish on the sector. Check out this article from Forbes about Gerald Ford( former partner of Ron Perelman). He made his bones in the banking sector. Now he’s cautious. Like a lot of people, he thinks that commercial real estate is set to crater. He’s being patient and waiting for the next opportunity.
A few interesting links
Posted on | October 1, 2009
Is the market going to re-test the March lows?
Jack Hough let us know Where to look for a clue on earnings .
Are the bears turning bullish?
Did the Thin White Duke cause the crash?
Everyone’s talking about the New Normal.
Marc Faber is at it again.
Do you have the stones to buy value this deep?
Are you okay with volatility? Really? You sure?
Posted on | September 29, 2009
One of the things that bedevils all investors is volatility. Usually, we are trying to figure out how to take advantage of it. Investors, particularly value investors, are always claiming to not care about it. It’s casually dismissed as noise. It usually is. Still, it’s hard to call it noise when your portfolio drops 20%.
I hate volatility. I dread it except when I’m long and it’s to the upside. I think that there are a lot out people out there who would agree with me. I expect volatility, and try to use it get lower my cost basis. I also use it to get out of positions, losing and winning ones.
What to do when you see a list of hurting companies
Posted on | September 28, 2009
The Business Insider recently posted a list of 10 big companies veering towards bankruptcy. Not surprisingly consumer discretionary companies dominate the list. Without a doubt, all of these companies have serious problems. Should you go out and short these companies? No. Absolutely not.
I’m not saying that none of these companies will file for bankruptcy, but I suspect that more will avoid that fate than suffer it. I think that a lot of these companies would make solid takeover targets. I’m pretty sure that someone would want to buy Sprint-Nextel or Interpublic Group. These companies have large customer bases and brands that have real value. While someone could let them fall into bankruptcy and then harvest the good organs, I think that doing that would cause undue harm to the brand.
So should you do with a list like this? I recommend that you use it as an opportunity to learn more about why businesses rise and fall. Try to find out what you could have noticed months ago and would’ve allowed you to short the stock months ago. You can also use lists like this to find good companies. Find out who these companies’ competitors are. Maybe they’ve taken market share from the companies teetering on the brink of bankruptcy. They might be good investments.
A more speculative approach would be to examine each company and determine which one would most likely survive and then go long. The stock is probably trading at or near its 52-week low. Don’t commit too much of your capital to the position, after all, this company might go bankrupt.
Revisiting E-Trade
Posted on | September 25, 2009
As readers of this blog know, I’ve been stalking E*Trade for some time. I first wrote about this stock back in November of 2007. It looked like a baby being thrown out with the bathwater. By my reckoning, there was still a vibrant brokerage business underneath the mortgage missteps. The stock has been a lot of places since then, all of them much lower than when I first started establishing a position.
It now seems that others have rallied to my cause. There are articles all over the web that E*Trade is going to get a bid from one of it’s healthier competitors like Schwab or TD Ameritrade. Why? The same reasons I outlined nearly two years ago. The brokerage business is really sound(over 2 million accounts) and growing. They are slowly but steadily reigning in the mortgage mess at E*Trade Bank. Some are predicting that by year’s end, someone will buy it. I can’t dictate a timeline like that, but I would have to agree. Why wouldn’t you want to acquire on the cheap (people have speculated a price of $3 or $4 per share) one of the most recognizable names in online stock brokerages?
This morning, I took a position in the October 2 calls. I got in a a price of 10 cents per call. At one point this morning, it was 5 cents. At another point, they were going for 15 cents. The volume in these calls has exploded recently, so a lot of people are expecting something to happen soon.
My plan for this trade is simple. I’m going to cash out as soon as the call is in the money. That means I’m betting that within the next 3 1/2 weeks, the stock will pick up about a quarter.
Only time will tell.
Still more on CCTR
Posted on | September 24, 2009
China Crescent Enterprises is like a girl I dated that hurt me, but I’m still fascinated by her. I can’t help but be astonished by how cheap the company’s being valued. I read the press releases and I’m leery. They’re just way too positive. I am willing to miss out on a 100+ bagger here until I get a better sense of the company. I’m waiting for signs that an uplisting is afoot. What are those signs?
One, in order to list on the AMEX or NASDAQ, you need a share price of $3 and $4 respectively. So OTC companies will usually do a reverse split in order to meet those thresholds. Secondly, if the company incorporates in the U.S., that’s a pretty good indicator that they’re considering an uplisting. Third, are they going to be presenting at major investment conferences like Rodman & Renshaw? Once plans have been announced, follow along to make sure that the plan is executed. It’s actually very rare for a stock to go from the OTC or OTCBB to one of the big exchanges. Lots of companies claim that it’s going to happen, but it usually doesn’t materialize.