Thursday, February 28, 2013

A stock's price does not matter (to the regular functioning of a business).  It is important to remember that, unless a company is actively seeking to raise capital, the stock price does not change the functioning of the company except through incentive plans where employees are paid with stock.

I still like AAPL, but it is feeling like we have some more pain to go through on the downside.  While it seems silly to me, the stock needs to go through a complete washout in order to build up again.  What will that level be?  I don't know but it may have to get to a level where even diehards throw in the towel.  I am not selling now, but I am also prepared to keep buying if we get further weakness.

JCP is getting interesting at these levels again, but we may want to wait a few days and let some real panic selling come in.  If you can pick it up in the 16 range I think there will be some value there going forward.  This is very speculative however.

LO has continued dropping and I have bought some more.  It's yield is now 5.7%

We shall see what the sequestration effect will be.  I expect a drop and a buying opportunity.

Also, I updated returns for February in the performance tab.  My portfolio was up 0.73%.

Monday, February 25, 2013

Big move today.  Europe biting us again perhaps?  Certainly the move in bonds would corroborate a flight to safety.

My options are helping eased the pain a little bit, but pain is unavoidable on a day like today.  I do not have any particularly good ideas here, other than the standard which is decide whether anything has substantially changed - I do not think so - and then if not then hold the course.  Hopefully you still have some dry powder and can use this opportunity to purchase something that you feel is cheap.

I like KO, PG, GE, KMI, AAPL

VVR is at a huge premium and I missed that.  I still like the theme, but I would not buy any at this level.

Friday, February 22, 2013

Depending on your moral stance on investing in the "sin" stocks (tobacco, gambling and others) you may view the drop in LO today as an opportunity to buy.  I think it is.  These stocks are under owned largely because there are large funds that specifically exclude them from their universe.  I understand the stance and respect it.  That said, it does provide an opportunity for others in the market that are not as concerned.

Bonds today found a bit of footing, as did stocks, when Bullard of the Fed came out with what I mentioned yesterday - that the Fed is not moving anywhere away from the easy policy any time soon.    My current thinking is that stocks provide better upside and bonds may take a small hit from here.  They are still good, but stocks are better.

I also like RAX and icon tinge to buy on this big adjustment downward.  I believe wholeheartedly in the cloud computing and RAX will be well positioned.

Thursday, February 21, 2013

The big news yesterday that seemed to cause the market some concern was that the minutes of the Fed meeting revealed a lack of unanimity in the current path of supporting the bond market with 85 billion per month in purchases.

While I agree with Gartmann that the purchase program is helping to underpin the stock market, I do not agree that they have changed course. It should not be surprising that there are conflicting opinions at the Federal Reserve.  I do not believe that the program will end sooner than we thought and certainly not abruptly.

My thesis is that there will be pullbacks in equities but they will be shallow and represent an opportunity to buy.  I am buying some in here now.  Nothing has changed.

Thursday, February 14, 2013

Just now, I sold my TLT position.  My thesis has been that government bonds will still be a good hold because 1) overall economic growth will be slow ans 2) they offer the only true hedge for a stock portfolio.

While I still believe in the overall thesis, I have stronger conviction that stocks will be rising over the next few weeks and in that environment, bonds will struggle.  I would look to buy again if we trade a bit lower.  Today's rally in  TLT gives me a chance to get out at a reasonable level.

Wednesday, February 13, 2013

Another opportunity today in a speculative name.  RAX has fallen 20% despite turning in very respectable numbers.  This on has a high PE ratio so it is not my usual buy recommendation, but as I have gotten to know this company a bit and the space it operates in, I have grown to like it more.  I believe that cloud computing is here to stay and will only become more integral.  This has all sorts of implications, but I think that RAX is well position as a small but early player in this market.  AMZN is a big player and perhaps will be the dominant force but for now there is room for RAX.  I have bought some here in the 60-61.7 range.

Big days for GE and LO.  I wouldn't change anything here.  Good holds.

S is edging up slowly.  It still has down days but slowly the lows are getting higher.  This stock still has 20% upside just from the deal and perhaps more as it makes some headway versus the big boys.

Tuesday, February 12, 2013

Over the last two days, I added four new positions:

INTC   4.2% div
VALE  5.8% div
PMT div 8+%

The last two are definitely in the speculative camp.  I am not sure NUAN deserves to be in that camp, though as it trades at a low PE.  It was smashed recently but I think unfairly.  Same can be said for KO.  This is one of my favorites.  The dividend is over 3% and growing.

Having said all this, I am not necessarily adding much to my overall stock risk as my overall exposure is around 24%.

Stocks have had a great run.  We are in a delicate position.  Overall, I think we will go higher, but we can have pull backs.  We are in an environment where having too high a cash position is very painful and most participants are looking for opportunities to buy.  If that is correct, pull backs will be brief and shallow at the index level.  Individual stocks will give opportunities to buy (like KO or NUAN, right now)

Friday, February 8, 2013

NUAN is a good company that happened to miss on earnings by a penny and perhaps the growth is not as high as the market would like, but it is a growing tech company that actually makes money!
Look for a chance to scoop some up at the lows of the last year.

Thursday, February 7, 2013

Sometimes, no posts for a while and then, 2 in one day!

I came across this one,

Very intriguing.  I agree that some may find the mortgage mess a moral quandary, but I feel that the working out of the problems does not have to be.  If we look to Japan, a key, if not THE, reason it has been in such doldrums for such a long time is that the government never let the banks work out their bad loan problems by selling them.  What our FED has done well, in my opinion, is pump in liquidity to let the banks work out their mess over time.  They are only recently starting to sell their bad loans and the system is not smooth.  I am on another side of this as well because I am buying properties from banks (talk about pulling teeth!).  But the good news, is that it WILL be worked out over time.  When a bank sells a loan, the new buyer is in a better position to work through it.  Options include, lowering the principal, lowering payments and in general working with the homeowners.  The companies that buy these loans want the homeowners to succeed as that will provide a better long term payout for the loan holders.

So, I find this PMT interesting and probably a good speculative bet ont he economy.  If you think we are working our way to the upside, then this will provide a leveraged way to profit from the improvement.  It is trading over book value, so be careful, but it is worth studying it and when you see a better price, jump in with a small spec bet.

Good luck
Good post on TIPS:

I think he has this right, especially concluding that equity and real estate provide better inflation hedges right now.  TIPs are a bit overpriced, but keep an eye on them because they offer a great unfiltered view of the economy.  FOLLOW the money, not commentator's words.

I bought a bit more AAPL today.  A bit more discussion about how AAPL is managing cash and I think this is a good thing.  Perhaps they would consider an acquisition, but that has not been their way up until now.

Buy/watch COP and MRK.  I think there is some value there as well as a good dividend yield.
Also on the energy front, KMI is a core holding.  Very well managed, high dividend yield which will grow strongly over the next few years and a strategy to grow through acquisition.  I like them a lot.  I had sold a little bit around here (37.74) a short while ago ( to even up my stock holdings) and should have bought it back when it dropped below 37.  I missed that opportunity. :(

S deal will probably close mid year.  I still like this deal as I do not expect any regulatory delay.

On the buy side, some stocks I am considering are VALE, SDRL and GOOG

I looked at PBI (Pitney Bowes).  This one shows up on every dividend screen.  It pays a huge dividend but after review, it does not offer good value for me.  It is a dying business (sales have been steadily down for the last few years) and even with the heavy dividend, the loss on the business value (stock price) has overcome the yield.  It's current payout is over 80% of it's earnings which is high and probably unsustainable.  I would pass on that name.

Tuesday, February 5, 2013

Interesting article link:

He gets the tax treatment wrong, I believe, (options have a fixed tax treatment independent of holding period), but he illustrates combining a low risk option strategy to get leverage with a bond portfolio that will protect on big down moves.

The only downside is it can be time consuming to do all the research.  This can be done at the index level as well with less time investment, but less targeting of stock picks, so you lose the "buffet-like" aspect.

I also like Bill Gross' commentary:

It may seem alarmist, but try to read through it to the key points.  Be ready to accept lower returns and be mindful of inflation.  Focusing on companies that produce and are well managed.  Leverage can lead to spectacular returns - BOTH up and DOWN, so be wary of it both on a personal and at the company level.

It is not easy for me to read through a commentary like his without the obvious question - where is the place to hide.  It is no surprise that the "prepper movement" is gaining followers.  Many individuals are very concerned with the potential for a breakdown of order that may accompany financial chaos.  I would counter that we have been through financial armageddon's before over the course of global and at a shorter scale, US history.  I feel strongly that order will hold and that it makes no sense to invest for the end of the world.  Going to all gold - aside from being a logistical nightmare (if you truly believed in chaos, you would have to keep the gold in your easy reach and it is HEAVY!), why would it really have any intrinsic value.  I would argue that shelter water and farmland are more valuable.

Right now residential real estate is a good buy.  Rental yields are better than they have been in a very long time and it is a natural hedge against inflation.  Buying stocks that have strong, steady cash flows and pay their shareholders are good buys.

I agree that there are some countries that could offer some good diversification and protection.  Canada and Australia come to mind.

I like TIPS despite being subject to the governments calculation of inflation, they offer some protection.  I am waiting for a bit better buying oppportunity.  The "breakeven yield" for the 30 year is currently about 2.7% (inflation would have to be higher than this to be better off in the TIPS).  Ideally I would like to see 2.25% or so, but I may have to settle for something below 2.5%.

I would differ from Gross in the shortening duration argument.  I just don't see any reason to hold the shorter maturities.  I believe the "Great Rotation" that is being talked about in the media will be out of cash which is very painful to hold.

Friday, February 1, 2013

An interesting month, no doubt.  I updated my performance page.  All in all, I can't complain having notched a 1.32% return.  Of course this trails a stock only portfolio and even my 45% stocks/45% bonds/ 10% cash "benchmark portfolio".  I need to study the benchmark issue again and see if another with a lower equity amount is more appropriate.  But, my previous work supported that one and I am probably going to stick with it.

The real question is why I am keeping my equity exposure as low as it is given my view that stocks are cheap.  I think I'll have to consult a psychologist for that one.

Currently I am at 25% exposure ( a far cry from the 45% benchmark).  Given the big January run-up, I feel that it is prudent to be a bit conservative.  I have done well in spite of my low allocation so I shouldn't beat myself up too much!  In addition, the numbers were good in spite of a 0.50% hit from AAPL alone!

I have taken profit on CHK.  Great run from that stock, but I think it is a bit expensive given all the restructuring it is undergoing.  In addition, I have cut back on dividend payers that are not paying much more than the SPY - XOM, for example.  Also, I have rebalanced the stocks I hold to roughly equal dollar amounts (except for AAPL and S).

Options continue to be cheap and I replaced the equity exposure that I sold in the stocks by buying March call options.   I REALLY LOVE THIS TRADE.  I just purchased March 155 Calls at just above 10.5% volatility which is very cheap.  If you are underweight and looking for a way to get in to what could be a big rally, but with some protection, then this is the opportunity.

If you are adventurous, you can buy a bit more than you need and hedge the extra by selling SPY agains it.  I would not recommend this unless you understand the basis of option pricing.  But, as part of the rationale of this blog, I am revealing everything I am doing, so there you have it.

I have been WRONG about bonds on this recent move.  Given that we continue to get poor economic growth numbers, I believe bonds are still good.  Right now, they are going down because you have money coming out of them at the margin to go into stocks.  I believe the right trade is to pull money out of CASH not bonds.  But, that is not the way things are trading right now.  I am sticking with it, though.   And may buy some more.  Currently I have about 9% in long term government bonds through TLT.