Wednesday, November 20, 2013

This is an interesting article.  It points out a fairly subtle point, but an important one nonetheless.

Dispersion is a measure of how varied a sample population is on a given measure.  In this case, the article talks about PE ratios.  Dispersion goes down when the market stops distinguishing between companies.  Typically this happens when markets are saturated with money.  The bears point to the Fed actions and say that the market is being flooded with cheap money.  However, this conclusion flies in the face of the evidence that leverage has been going down.

So, what is the truth?  Maybe, as Jack Nicholson might say,  "we can't handle the truth!"  The market is getting more streamlined and efficient and as such, there is no place to hide.  No cheap valuation cushioning the blow if earnings don't come through.  If there is a cheap company out there, the readily available flow of information ensures that everyone knows about it.

So what we are left with is...economic growth (for most) and innovation for some.  Of course there will always be new products disrupting the current market, but the prices won't be cheap.  Imagine, a casino (I know, this is a dangerous analogy for the markets, but stay with me) with many games, each with very attractive (for the casino) payout rations.  That is to say, better than statistically fair.  The casino does well as it has customers that are willing to come and be entertained.  As new casinos see the success, they open up with more statistically fair games which attract the original casinos customers.  Of course, over time, the first casino has to make it's games more fair (margins/probability of success for the casino come down).  Eventually, the market gets to a point where all the players are at the payout ratios that allow them to stay in business with some probability.  But that probability is not 100%.

I think that is where we are approaching with the stock market.  Information is available like never before and access to trading is cheap and high quality.

We are getting closer to truly efficient markets!  This is a good thing, but not always comforting.  It would be nice to imagine that there is a crystal ball out there and someone has the key to successful investing.  I do not believe there is such a thing, but there are prudent management strategies, ie: diversification, position management (not letting positions get too big), keeping speculation small in proportion, and others rules.

While I think it is too difficult to pick the winners and losers, it is much easier to consider (and forecast) economic growth.  In the US, without too much intervention, it happens.  Sometimes we have recessions and that will cause profits to fall and stocks to decline.  More times than not, we will turn around and stocks will recover in aggregate.

Right now, we are toeing a fine line.  I could easily see us dip into recession territory, but I can see us accelerating as well and that is why my equity exposure is very low (around 15%), but I am probably being too bearish.  Long term, I see positive growth and as such, stocks should be a healthy portion of one's portfolio in order to participate.

I like this one as well:

Thursday, November 14, 2013

I have entered into a small GLD position @124.18.  I am persuaded by the very public position dumping by big hedge funds.  At some point in the future, there will be an inflation scare (and perhaps more than a scare).  I'm not much of a chart person, but it seems to me that the pullback has brought gold to it's previous trend line.  So, to me, it seems a reasonable buy.  I will start small and look to build a position.  I have not decided on a percentage weight yet.

Those who know me will recognize this as a big departure from my usual stance.  I have not been a fan of gold.  However, the market works in "mysterious ways" and who am I to judge?  I often find myself "fighting the tape" in Wall Street parlance and it tends to cost me money.

I am resolving to be better about that.

I have also sold a bit more S&P futures which brings my exposure down to about 21%.  I have been losing this month as stocks are up over 2%.  I think there will be a pullback where I can buy back the hedge, having protected gains in the meantime.

Friday, November 8, 2013

Puzzled.  I think the market is trying to get a bit too cute in pricing.  Economic growth is close to ideal level of around 3%, inflation is low, employment improving.   Yes, the improving economy means that the Fed will reduce it's activities in the future, but not yet and in any case they would pull back in the face of a better economy.  So, there may be more of a pullback, but I will buy some more into the sell off.

Thursday, November 7, 2013

Nice result for JCP

Very nice jump in economic growth up to 2.8% (annualized).

QCOM is being hammered because it is predicting slower growth than some on Wall Street predicted.  I see no cause for alarm This company is strong and worth buying more here at 66.52

COP and the other energies getting hit perhaps because the beginning of tapering (augured by the stronger economic growth) would potentially hit growth.  I find this argument a bit chicken and egg.  If we get growth that is good and the cyclicals will do well.  If we's because we are getting growth!  I like buying more.

I am maintaining a low equity exposure because I do feel that overall, things are a bit fluffy, but I am getting more positive if we get any more confirmation on growth.

Wednesday, November 6, 2013

What can I say...I am a sucker for downtrodden companies.


All of these qualify.  CHK ($26.23) and CLMT ($28.08)  actually did ok on the revenue side which is rare these days.  I'm buying CHK and not selling CLMT.  JCP ($7.80) we know is a long shot, but they do still have a (albeit damaged) brand and prime retail space.  I think all of these are worth speculative positions.

FCX  I'm buying more
COP  Buying more solid company with room to go relative to it's larger peers.

VZ  Not selling.  Very solid numbers here.  Telecom is a main theme of mine and it does not make sense to sell any.  I like ATT slightly better from a value perspective, but VZ is still a solid hold.