Did you see Cashin' In this week? I was very confused by Wayne's ordeal with a company called Diamond Cluster (DTPI). According to the Fox News site Wayne bought the stock in January at $17.10. DTPI had some bad news that caused the stock to open Thursday at $13.29 after closing at $14.30 the day before. A big deal was made on the show about a miscommunication between Wayne and the producers that fouled up his intentions for a stop order for the challenge. The Fox site shows he sold at $11.90 on Thursday but for his own account his stop order allowed him to sell much higher but no specific numbers were given.
My confusion is over how Wayne places stop orders. He said on the show, for his account, he was stopped out on Thursday. That probably means he was taken out at the open, $13.29, when the stock gapped down at the open. According to Yahoo finance the lowest the stock ever got before Thursday was $14.09 on April 21 so we know his stop price was below that level but we don't know where so for the sake of discussion lets say it was $14.08, one penny below the low since he bought it. That is $3.02 below where he bought it or 17.6%.
I don't place a lot of stop orders but does placing one 17% below where you bought a stock make sense? Is that something people do? I am not being a wise guy. I usually only use stops after a stock has run up and I want to preserve a gain (I say usually but in fact I don't recall ever putting in a stop order right away but maybe I did and I forget?).
As I look at Wayne's holdings in the challenge I see he also own Tessera Tech (TSRA) which he bought on March 31 at $43.50. It closed Friday at $26.57. I know it had very bad news but I don't recall exactly when. But that stock is down 38.9% since he bought it and he has not been stopped out?
Let me be perfectly clear, I am not doubting anyone's veracity. I am under the impression from watching the show that Wayne uses stop orders on anything he has bought in the last few years. I may have the specifics wrong about how he uses stop orders but he talks about them all the time on the show.
Based, again, on the Fox News site he has not been stopped out on TSRA. Does anyone know what his philosophy or method is?
I have written many times that I am not a huge fan of stop orders. They are very problematic. You can get stopped out at the low, chase it back up and buy at a high, end up in a substitute that is an inferior company and so on. The point being they are not the be all end all to every trade.
Chances are that if you have a diversified portfolio you have some stocks that are down a lot right now, that is only logical. I have reduced stock exposure by selling some high beta names which has been my plan all along. We'll see how good my strategy was in a few months but right now I don't want to sell out too much of the portfolio.
So I guess the conclusion is I'd like Wayne to tell us what his strategy with stop orders is. Is it me, do I have this upside down?
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Wikinvest Wire
Saturday, April 30, 2005
Friday, April 29, 2005
Whippy Action
The rally today begets all sorts of questions as to whether today really had any legs and staying power. I think a compelling argument, for a short term trade, could be made in either direction. Obviously my concerns are longer term. While I have been saying all along that a big rally with no fundamental basis could come at any time I admit I'm not sure if that is what is next or not. I have only made a few defensive changes so I will capture most of a monster rally if it comes.
That is the point, I'm not sure what's immediately next. I don't think things have changed much but I don't have everything riding on only one outcome.
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That is the point, I'm not sure what's immediately next. I don't think things have changed much but I don't have everything riding on only one outcome.
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Busy Morning
I had to take our dog Kramer to the vet for, ahem, acupuncture and manipulation. We are also adopting a new dog that we are bringing home this afternoon.
On the way back I stopped at Costco and spent $100 on HP ink cartridges. We all have to have ink cartridges. HP can charge whatever they want, and I think they do, so why has the stock been such a dog (forgive the pun) for so long?
Obviously tech has been the wrong sector for a long time. I don't know how much it costs to make an ink cartridge but if it is more than $5 something's gotta be wrong. And yet the company seems, to me as a person that follows that market but does not know the company inside and out, to be totally lost.
Maybe this is yet another flaw in the Peter Lynch model.
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On the way back I stopped at Costco and spent $100 on HP ink cartridges. We all have to have ink cartridges. HP can charge whatever they want, and I think they do, so why has the stock been such a dog (forgive the pun) for so long?
Obviously tech has been the wrong sector for a long time. I don't know how much it costs to make an ink cartridge but if it is more than $5 something's gotta be wrong. And yet the company seems, to me as a person that follows that market but does not know the company inside and out, to be totally lost.
Maybe this is yet another flaw in the Peter Lynch model.
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Personal Finance Issue?
I don't write very often about personal finance, I differentiate between investing concepts and personal finance issues as I am no CFP.
I am very interested in the subject as you might imagine. I enjoyed this article by Robert Powell that addressed whether or not to pay off your mortgage as you move into retirement.
While I am no guru I am not illiterate either, I'd like to think. I tend to think it is good to pay down the mortgage with extra payments from the beginning. This is what my wife and I did so now the mortgage on our cabin is paid off, homes in rural Arizona were quite cheap when we bought up here in 1998.
For someone that has not been aggressive in paying down the mortgage I don't think taking a big chunk of your savings and paying off is the best idea. Clearly every aspect of this issue is subjective so maybe the article can be helpful.
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I am very interested in the subject as you might imagine. I enjoyed this article by Robert Powell that addressed whether or not to pay off your mortgage as you move into retirement.
While I am no guru I am not illiterate either, I'd like to think. I tend to think it is good to pay down the mortgage with extra payments from the beginning. This is what my wife and I did so now the mortgage on our cabin is paid off, homes in rural Arizona were quite cheap when we bought up here in 1998.
For someone that has not been aggressive in paying down the mortgage I don't think taking a big chunk of your savings and paying off is the best idea. Clearly every aspect of this issue is subjective so maybe the article can be helpful.
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Thursday, April 28, 2005
Muy Interasante
That is Spanish for muy interesting (humor attempt).
On March 29 I posted an article about the changes Tim Middleton was making to his all ETF portfolio. My conclusion was that he was making a huge bet on energy (huge relative to energy's weight in the SPX) and that he would either lag or beat the market by a lot.
His proxy for energy was the iShares Goldman Sachs Natural Resource (IGE). In the month since that article IGE is down 6% and the SPX is down 2% (I know, I can't believe it is only 2% either but that is according to Bigcharts.com)
He also had a heavy weighting in EFA which is down about 3% in the same time period so I imagine his portfolio has lagged a little in this too short of a time frame but I have not calculated. It is clear to me (from the stand point of not limiting yourself to only one product) that having a few low beta, high yielding, foreign stocks instead (sound familiar?) would have helped. EFA only yields 1.51%.
This is stuff I have been trying to convey for a long time. In looking at the big picture a month ago or two months ago or whenever, I think the current environment was predictable, I've been predicting it all along and I assure you I am not gifted. If you are ETFs only you have a tougher time capturing yield.
I'm sure my regular readers who are ETF proponents will post later, intelligently refuting this so you can get both sides.
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On March 29 I posted an article about the changes Tim Middleton was making to his all ETF portfolio. My conclusion was that he was making a huge bet on energy (huge relative to energy's weight in the SPX) and that he would either lag or beat the market by a lot.
His proxy for energy was the iShares Goldman Sachs Natural Resource (IGE). In the month since that article IGE is down 6% and the SPX is down 2% (I know, I can't believe it is only 2% either but that is according to Bigcharts.com)
He also had a heavy weighting in EFA which is down about 3% in the same time period so I imagine his portfolio has lagged a little in this too short of a time frame but I have not calculated. It is clear to me (from the stand point of not limiting yourself to only one product) that having a few low beta, high yielding, foreign stocks instead (sound familiar?) would have helped. EFA only yields 1.51%.
This is stuff I have been trying to convey for a long time. In looking at the big picture a month ago or two months ago or whenever, I think the current environment was predictable, I've been predicting it all along and I assure you I am not gifted. If you are ETFs only you have a tougher time capturing yield.
I'm sure my regular readers who are ETF proponents will post later, intelligently refuting this so you can get both sides.
Read more!
No Man's Land
I have written a couple of times that I didn't think oil in the low $50's (compared to the high $50's) mattered much to stocks. That still seems to be the case. So the obvious questions is what oil number will be positive for stocks? An obvious answer would be less than $50 and maybe that will be correct but I think it might need to go to and stay at $47-$48 and I'm not sure it can.
What makes oil confusing, to me, is that we hear different things about the capacity to refine crude oil. What makes oil simple, for me, is growing demand from China and India. Growth rates will probably ebb and flow but it is logical to me to that these two countries have added upward pressure on the price. There will be periods where short term supply issues trump this demand but it is there and growing nonetheless.
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What makes oil confusing, to me, is that we hear different things about the capacity to refine crude oil. What makes oil simple, for me, is growing demand from China and India. Growth rates will probably ebb and flow but it is logical to me to that these two countries have added upward pressure on the price. There will be periods where short term supply issues trump this demand but it is there and growing nonetheless.
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The President In Primetime?
I just heard the President Bush is going to address the nation tonight in primetime. My wife will be furious if this interferes with Survivor.
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The Last To Know
I'm sure I'm the last to know but Vanguard came out with three new ETFs that focus on foreign stocks. One is for emerging markets (VWO), another for Europe (VGK) and the third is the Pacific (VPL). The may come to regret the symbol for that last one;-)
VWO has four of the same top ten holdings as iShares emerging Markets (EEM). What strikes me about VWO is that with in the top ten is Brazilian oil giant Petrobras (PBR) and the Petrobras preferred. VWO has Sasol (SSL), which is a South African oil stock, at number 6. Where as it is number 18 in EEM. So there are differences.
VGK compares to the iShares Europe 350 (IEV). These two have nine out ten top tens in common so expect a very tight correlation.
VPL is 74% weighted in Japan so it will likely correlate to iShares Japan (EWJ). I have no exposure to Japan for clients so this one holds very little appeal.
Vanguard seems to have only created me too ETFs. I can understand the risk a firm takes by creating an ETF product line that people don't care about, hello Morningstar?, but there is demand for different regions and at some point soon I expect providers to ramp up the innovation.
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VWO has four of the same top ten holdings as iShares emerging Markets (EEM). What strikes me about VWO is that with in the top ten is Brazilian oil giant Petrobras (PBR) and the Petrobras preferred. VWO has Sasol (SSL), which is a South African oil stock, at number 6. Where as it is number 18 in EEM. So there are differences.
VGK compares to the iShares Europe 350 (IEV). These two have nine out ten top tens in common so expect a very tight correlation.
VPL is 74% weighted in Japan so it will likely correlate to iShares Japan (EWJ). I have no exposure to Japan for clients so this one holds very little appeal.
Vanguard seems to have only created me too ETFs. I can understand the risk a firm takes by creating an ETF product line that people don't care about, hello Morningstar?, but there is demand for different regions and at some point soon I expect providers to ramp up the innovation.
Read more!
Wednesday, April 27, 2005
Shorting ETFs
The folks over at ETF Digest sent me an article about the difficulty of shorting ETFs. The article cites several factors contributing to the problem.
1) Timezone issues make hedging foreign ETFs more difficult (for the party on the other side)
2) Brokerage firms don't want the liability that might go with allowing someone to go short
3) No net new share creation for the provider means no new fee income
4) Institutional clients get preferential treatment
5) ETFs not linked to any known indexes
There were a couple of other ones that you can read in the article. There were a couple of things missing from the article, in my opinion. My understanding of how short sales work is you have to borrow shares. The only shares that can be borrowed (hypothecated {spelling?}) are shares owned in a margin account with a margin debit. If you check the agreement for whatever firm you use you will find this somewhere. I asked author and site proprietor David Fry if this was part of the problem. I also asked if the new rules on naked shorts were part of the issue either.
Mr. Fry replied that the big issue is that it is not profitable to carry ETFs in inventory. I don't think that's how it works. I called Ameritrade and Schwab and found out that the rules about hypothication have not changed from my understanding. That being the case if I try to short iShares Belgium (EWK) today I might get told none are available. If you then buy 2000 shares tomorrow on margin (with a debit in you account) the shares would then be available for shorting to the first caller.
The hedging point is not clear to me. A straight sale would get executed in the market place, same as a short sale with whatever hedging means available. Once an order gets to the floor it has to be executed if it is due to be executed. I don't think the brokerage firm needs to hedge, the offset would be one of the long positions on the firm's books.
I found out from Schwab that ETFs often show up on the naked short sale list (this is actually referred to as SHO). This is not a shock to me. They are index funds. I am inclined to think that not too many people buy the difficult to short ETFs on margin. I would also think that large traders would trade more often in things like IWM, SPY and so on (not exclusively of course).
I could be wrong about all of this but it seems to me that all firms need as many revenue producing trades (DARTS) as possible. Also brokerage firms usually don't pay interest on cash used to secure short sales, yet more income for the firm.
Mr. Fry cites, the bond ETF, TLT as his example. Well TLT yields 4.65% which less than the margin interest rate at most (if not all) brokerage firms. So why would someone buy TLT on margin? If no one buys on margin there is no stock to borrow.
Anyone who reads this blog work in stock loan? If so feel free to anonymously shed light on whether, as the article suggests, there is a conspiracy here. Good stuff!
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1) Timezone issues make hedging foreign ETFs more difficult (for the party on the other side)
2) Brokerage firms don't want the liability that might go with allowing someone to go short
3) No net new share creation for the provider means no new fee income
4) Institutional clients get preferential treatment
5) ETFs not linked to any known indexes
There were a couple of other ones that you can read in the article. There were a couple of things missing from the article, in my opinion. My understanding of how short sales work is you have to borrow shares. The only shares that can be borrowed (hypothecated {spelling?}) are shares owned in a margin account with a margin debit. If you check the agreement for whatever firm you use you will find this somewhere. I asked author and site proprietor David Fry if this was part of the problem. I also asked if the new rules on naked shorts were part of the issue either.
Mr. Fry replied that the big issue is that it is not profitable to carry ETFs in inventory. I don't think that's how it works. I called Ameritrade and Schwab and found out that the rules about hypothication have not changed from my understanding. That being the case if I try to short iShares Belgium (EWK) today I might get told none are available. If you then buy 2000 shares tomorrow on margin (with a debit in you account) the shares would then be available for shorting to the first caller.
The hedging point is not clear to me. A straight sale would get executed in the market place, same as a short sale with whatever hedging means available. Once an order gets to the floor it has to be executed if it is due to be executed. I don't think the brokerage firm needs to hedge, the offset would be one of the long positions on the firm's books.
I found out from Schwab that ETFs often show up on the naked short sale list (this is actually referred to as SHO). This is not a shock to me. They are index funds. I am inclined to think that not too many people buy the difficult to short ETFs on margin. I would also think that large traders would trade more often in things like IWM, SPY and so on (not exclusively of course).
I could be wrong about all of this but it seems to me that all firms need as many revenue producing trades (DARTS) as possible. Also brokerage firms usually don't pay interest on cash used to secure short sales, yet more income for the firm.
Mr. Fry cites, the bond ETF, TLT as his example. Well TLT yields 4.65% which less than the margin interest rate at most (if not all) brokerage firms. So why would someone buy TLT on margin? If no one buys on margin there is no stock to borrow.
Anyone who reads this blog work in stock loan? If so feel free to anonymously shed light on whether, as the article suggests, there is a conspiracy here. Good stuff!
Read more!
Planning Ahead
It is worth noting that things like beer and food would likely do well if this environemnt persists. The point being that neither an economic nor stock market downturn would alter your consumption pattern of relish or Nilla Wafers.
This effect tends to cause money to flow to these areas as demand for safe havens increases. This is probably why healthcare has done well over the last couple of weeks.
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This effect tends to cause money to flow to these areas as demand for safe havens increases. This is probably why healthcare has done well over the last couple of weeks.
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Right or Wrong
I sold two aggressive stocks today for clients. Despite the market being a hair over the 200 DMA my gut tells me that there is more downside coming. If I am wrong I don't think client accounts will lag in a big way. But as I first started saying a while, down a lot has a greater probability.
As an FYI the only names I have sold have been relatively high beta. I have sold no boring stocks.
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As an FYI the only names I have sold have been relatively high beta. I have sold no boring stocks.
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Durable Goods
The durable goods report missed by such a wide margin that it is logical to wonder if it is a blip. I have written several times about this. Data points tend to have trends (no kidding), a number that is too far off the trend is usually a one off for whatever reason. It is possible that the turn around so far is evidence of the market realizing that it may be a blip.
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What Happened to Morgan Stanley
Remember a couple of weeks ago when the infighting at Morgan Stanley was such an important story? At the time I wondered why it was so important, on TV, and questioned the value of the news to me or my clients.
Now the big thing is the NYSE/AX. While interesting I'm not sure how important this is to me or my clients.
If a bigger story comes along, like maybe a deathblow to AIG, will that be the end of the NYSE/AX coverage? I don't know the answer but I would not get too wrapped up in this story it has more relevance for traders than investors.
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Now the big thing is the NYSE/AX. While interesting I'm not sure how important this is to me or my clients.
If a bigger story comes along, like maybe a deathblow to AIG, will that be the end of the NYSE/AX coverage? I don't know the answer but I would not get too wrapped up in this story it has more relevance for traders than investors.
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I'm Back In Business......
.....But Infospace (INSP) may not be. More on that in a sec.
First to wrap up the deal yesterday; it was an preemptive internal episode. Before I joined the company there was no type of Internet or media presence within the firm. This boils down to growing pains for our firm. I was not accused of anything unethical or deceptive. This site needs to be disclaimed differently, which I have taken care of. Some of the other things that I have been able to do because of the site may need to change but to repeat, it won't alter the content here. The work done here is very important to me. Thank you to everyone that emailed.
Moving on.
Amazon (AMZN) and Infospace, yikes:-O. Chances are the market has over reacted to these earnings reports but tell that to anyone that bought the stock trying to game the number. A theme here lately is the market is not being kind to risk takers and the action in these stocks shows that continues for now. This theme is playing out this morning with some foreign tech names too.
The way in which the SPX continues to pin around its 200 DMA tells me that it is a significant level (not a shock, but nice to see). Chances are I will make another defensive tweak today in client accounts. The go slow approach I have been taking is consistent with my philosophy in general. The market could on any day permanently take back the 200 DMA and while the trend seems to be down and while I doubt things will turn up, the market is not crashing. At least not yet. I had a chat with a client yesterday and reminded him that while we are down about 5% over the last few weeks it is still only down a little. In October 1997 and a six week period in the summer of 1998 went down 20%, that was 20%.
For all I know we may be on the way to that and while I hope that does not happen we should be ready.
Remember the goals here are to try to miss most of down a lot (if that happens) and not worry about being right this week. My time horizon is a little longer than a few days.
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First to wrap up the deal yesterday; it was an preemptive internal episode. Before I joined the company there was no type of Internet or media presence within the firm. This boils down to growing pains for our firm. I was not accused of anything unethical or deceptive. This site needs to be disclaimed differently, which I have taken care of. Some of the other things that I have been able to do because of the site may need to change but to repeat, it won't alter the content here. The work done here is very important to me. Thank you to everyone that emailed.
Moving on.
Amazon (AMZN) and Infospace, yikes:-O. Chances are the market has over reacted to these earnings reports but tell that to anyone that bought the stock trying to game the number. A theme here lately is the market is not being kind to risk takers and the action in these stocks shows that continues for now. This theme is playing out this morning with some foreign tech names too.
The way in which the SPX continues to pin around its 200 DMA tells me that it is a significant level (not a shock, but nice to see). Chances are I will make another defensive tweak today in client accounts. The go slow approach I have been taking is consistent with my philosophy in general. The market could on any day permanently take back the 200 DMA and while the trend seems to be down and while I doubt things will turn up, the market is not crashing. At least not yet. I had a chat with a client yesterday and reminded him that while we are down about 5% over the last few weeks it is still only down a little. In October 1997 and a six week period in the summer of 1998 went down 20%, that was 20%.
For all I know we may be on the way to that and while I hope that does not happen we should be ready.
Remember the goals here are to try to miss most of down a lot (if that happens) and not worry about being right this week. My time horizon is a little longer than a few days.
Read more!
Tuesday, April 26, 2005
Solution
We are on the way to getting things worked out. This site will not be compromised or changed which I am quite happy about. Some other doors that have opened for me may have to change that remains to be seen.
You will notice in the about me section is a disclaimer that I hope you will read. The primary intent of this site is to provide free information.
I recently started a newsletter that may have to end. If so, subscribers will be refunded but that is a detail that I do not have an answer to yet.
My affiliation with TradersLive is in question at this point and hopefully will be resolved shortly.
I offer free second opinions about individual stocks to people. I forgot to ask whether that would have to stop or not.
I am not in trouble and this blog will stay the same after a little bit of a scare. I will post again tomorrow morning about the market. Thanks to everyone and no this is not a hoax.
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You will notice in the about me section is a disclaimer that I hope you will read. The primary intent of this site is to provide free information.
I recently started a newsletter that may have to end. If so, subscribers will be refunded but that is a detail that I do not have an answer to yet.
My affiliation with TradersLive is in question at this point and hopefully will be resolved shortly.
I offer free second opinions about individual stocks to people. I forgot to ask whether that would have to stop or not.
I am not in trouble and this blog will stay the same after a little bit of a scare. I will post again tomorrow morning about the market. Thanks to everyone and no this is not a hoax.
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Problem
I may have to "cease and desist" this blog.
Feel free to post a supportive comment. I will post an update, if allowed, when there is a resolution.
Thanks to everyone that made this blog so successful.
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Feel free to post a supportive comment. I will post an update, if allowed, when there is a resolution.
Thanks to everyone that made this blog so successful.
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Apprenticed Investor: Bull or Bear? Neither
Apprenticed Investor: Bull or Bear? Neither
This is the latest from Barry Ritholtz. I think this is along the lines of one the themes I have written about. Listen to what the market is saying and take action based on your interpretation of that message.
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This is the latest from Barry Ritholtz. I think this is along the lines of one the themes I have written about. Listen to what the market is saying and take action based on your interpretation of that message.
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New Site!
Tony Craze
For me anyway. Tony Craze is a well respected market commentator in the UK. He was on CNBC Europe's Closing Bell today. I have UK exposure for clients so a good outlet for local commentary will be very helpful.
The site has numerous contributors offering insight in a wide array of topics. Oh by the way you have to register but it is free.
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For me anyway. Tony Craze is a well respected market commentator in the UK. He was on CNBC Europe's Closing Bell today. I have UK exposure for clients so a good outlet for local commentary will be very helpful.
The site has numerous contributors offering insight in a wide array of topics. Oh by the way you have to register but it is free.
Read more!
Salutations From The Sell Side
I got a great email from a new reader who works at one of the big wirehouse firms. I will respect his confidentiality by not revealing any detail other than to say that he acknowledged that there is a huge time crunch that plays a role in dictating what he does and does not do with clients.
He was struck by a comment that I made ages ago about managed money at a wirehouse. When your broker gives your money to a manager, that manager has to assume that the asset allocation decision has been made and invest that money in whatever discipline that is their job.
I suppose there may be exceptions but not at the emailer's firm.
I have friends at various stages of production who all talk about how much time they do or don't have or how much new business they have to create. The situation puts the brokers in a huge dilemma.
At my firm I see all sorts of statements from prospective clients with holdings that, when not put together by a separate account manager, clearly show a lack of training and understanding about how to diversify a portfolio.
There may be no broad societal consequence to anyone for this quagmire, but it is that; a quagmire. This is not a pitch to hire someone like me as I have made it clear that I think the future is with more empowered do-it-yourselfers. But there will be isolated destruction of individual wealth at the wirehouses.
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He was struck by a comment that I made ages ago about managed money at a wirehouse. When your broker gives your money to a manager, that manager has to assume that the asset allocation decision has been made and invest that money in whatever discipline that is their job.
I suppose there may be exceptions but not at the emailer's firm.
I have friends at various stages of production who all talk about how much time they do or don't have or how much new business they have to create. The situation puts the brokers in a huge dilemma.
At my firm I see all sorts of statements from prospective clients with holdings that, when not put together by a separate account manager, clearly show a lack of training and understanding about how to diversify a portfolio.
There may be no broad societal consequence to anyone for this quagmire, but it is that; a quagmire. This is not a pitch to hire someone like me as I have made it clear that I think the future is with more empowered do-it-yourselfers. But there will be isolated destruction of individual wealth at the wirehouses.
Read more!
Monday, April 25, 2005
MSCI launches global combined stock/bond index
MSCI launches global combined stock/bond index
This looks interesting to me. Do-it-yourselfers are going to have all sorts of new ways to efficiently and effectively manage their own assets. Investment companies and index providers are going to seriously ramp up the quality of new products as competition forces them to do that. Existing offerings from the wirehouses will obsoleted (if that is a word) right out of the water. Good for you and bad for them.
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This looks interesting to me. Do-it-yourselfers are going to have all sorts of new ways to efficiently and effectively manage their own assets. Investment companies and index providers are going to seriously ramp up the quality of new products as competition forces them to do that. Existing offerings from the wirehouses will obsoleted (if that is a word) right out of the water. Good for you and bad for them.
Read more!
Ford Again
I wrote about Ford earlier today. Maybe I should rethink about it as an investment. Bill Cara wrote positively about the name today and it is worth the read.
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Technical Analysis
I had the following question left for me after posting a link to an article in Barron's.
Just wondering, Roger, since you posted the link to this Barron's article: In your approach to investment management, how often do you use technical analysis, and why? What are some indicators you use?
First do a search for this blog at the top of the page for 200 DMA. This is by far the biggest technical indicator I use. I have written about it so many times that I'll just refer you to the search results.
I do believe in technical analysis but it is not the most important part of what I study. Believing in top down I am concerned about the technical condition of the market. The 200 DMA is the easiest way for me to do this. I tend to rely on more fundamental things to make the smaller decisions. The slope of the yield curve is something that I care about when it comes to overweighting or underweighting certain sectors. I usually try to spot supply and demand themes to help with certain sectors or countries.
I also listen to Bill McLaren whom I have written about before. I also keep tabs of various support and resistance points for the broad market that may influence small tweaks I make in client accounts.
I use charts to tell me how volatile a stock is, in the hope of ascertaining how volatile it may be in the future. Within a sector I have some lower beta names as core, larger positions and some higher beta names that I hope will add alpha that would be smaller positions. As I wrote last week I usually watch a given stock for several months, learning the story as I go, before buying it. I would rather know how a stock can react to good or bad news as opposed to knowing the 10 DMA is crossing over the 20 DMA. I realize this is a matter of preference.
So to sum up it plays a role but not a huge one. How's that for a clear maybe?
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Just wondering, Roger, since you posted the link to this Barron's article: In your approach to investment management, how often do you use technical analysis, and why? What are some indicators you use?
First do a search for this blog at the top of the page for 200 DMA. This is by far the biggest technical indicator I use. I have written about it so many times that I'll just refer you to the search results.
I do believe in technical analysis but it is not the most important part of what I study. Believing in top down I am concerned about the technical condition of the market. The 200 DMA is the easiest way for me to do this. I tend to rely on more fundamental things to make the smaller decisions. The slope of the yield curve is something that I care about when it comes to overweighting or underweighting certain sectors. I usually try to spot supply and demand themes to help with certain sectors or countries.
I also listen to Bill McLaren whom I have written about before. I also keep tabs of various support and resistance points for the broad market that may influence small tweaks I make in client accounts.
I use charts to tell me how volatile a stock is, in the hope of ascertaining how volatile it may be in the future. Within a sector I have some lower beta names as core, larger positions and some higher beta names that I hope will add alpha that would be smaller positions. As I wrote last week I usually watch a given stock for several months, learning the story as I go, before buying it. I would rather know how a stock can react to good or bad news as opposed to knowing the 10 DMA is crossing over the 20 DMA. I realize this is a matter of preference.
So to sum up it plays a role but not a huge one. How's that for a clear maybe?
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Ford
Are there companies that are difficult for you to figure out?
One of mine is Ford (F). I know about the debt, health costs and the other things that have contributed to the woe that has plagued shareholders. I also know that it sells a lot of trucks and SUVs. It also has the Volvo, Jaguar and Land Rover names in its stable too. In theory this should mean good things for the stock price.
The theory/reality conundrum strikes hard here. The quality and the breadth of the product are very good (could be better I suppose) so it is surprising to me that the positives pale compared to the negatives but that's the way it is.
To be clear I am not making a case for buying the stock but this may be an example where the Peter Lynch buy what you know and use method comes up short. There will be other stocks with good products that have real problems that will make good returns a long shot. You can find other 3% or 4% yielding old economy stocks with much less risk than Ford has.
On a less confusing note, the April issue of the Exchange Traded Funds Report came in the mail on Saturday with a couple of interesting nuggets. There was news about Turkey's first local ETF (which was not new news to me) and Norway's first local ETF (this was news to me). I write about this type of thing when I see it to hopefully create some awareness and demand. I continue to believe that markets will globalize and accessing these now difficult markets will become easier.
I also saw where the Profunds Falling US Dollar fund (FDPIX) and Rising US Dollar fund (RDPIX) priced back in March. I read about these funds months ago and then forgot about them. I am not sure what role these first to category funds will have but it opens the door for simple currency hedging by individuals. My guess is that a leveraged product will come out soon because these types of funds tend to be very expensive and the leverage helps overcome the expense. Leverage is not a bad thing, it depends on how it is used. If a currency fund is going to be used at all it would be as a small hedge to a portfolio not as a core strategy.
Lets hope there is more competitive innovation still to come.
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One of mine is Ford (F). I know about the debt, health costs and the other things that have contributed to the woe that has plagued shareholders. I also know that it sells a lot of trucks and SUVs. It also has the Volvo, Jaguar and Land Rover names in its stable too. In theory this should mean good things for the stock price.
The theory/reality conundrum strikes hard here. The quality and the breadth of the product are very good (could be better I suppose) so it is surprising to me that the positives pale compared to the negatives but that's the way it is.
To be clear I am not making a case for buying the stock but this may be an example where the Peter Lynch buy what you know and use method comes up short. There will be other stocks with good products that have real problems that will make good returns a long shot. You can find other 3% or 4% yielding old economy stocks with much less risk than Ford has.
On a less confusing note, the April issue of the Exchange Traded Funds Report came in the mail on Saturday with a couple of interesting nuggets. There was news about Turkey's first local ETF (which was not new news to me) and Norway's first local ETF (this was news to me). I write about this type of thing when I see it to hopefully create some awareness and demand. I continue to believe that markets will globalize and accessing these now difficult markets will become easier.
I also saw where the Profunds Falling US Dollar fund (FDPIX) and Rising US Dollar fund (RDPIX) priced back in March. I read about these funds months ago and then forgot about them. I am not sure what role these first to category funds will have but it opens the door for simple currency hedging by individuals. My guess is that a leveraged product will come out soon because these types of funds tend to be very expensive and the leverage helps overcome the expense. Leverage is not a bad thing, it depends on how it is used. If a currency fund is going to be used at all it would be as a small hedge to a portfolio not as a core strategy.
Lets hope there is more competitive innovation still to come.
Read more!
Sunday, April 24, 2005
The Big Picture for the Week of April 24, 2005
I was amused by a segment on the Cavuto show called retire rich. Each of the four panelists gave one pick. Gregg liked Citigroup (C), Bob Froehlich liked China Mobile (CHL), Dani Hughes picked eBay and Jim Rogers picked commodities and airline bonds.
If you saw the segment you saw that Ms. Hughes could not come up with the P/E ratio for her pick. Having been in that seat (literally) before, I would attribute that to adrenaline and excitement. You have in you mind what you will say and momentarily forgetting everything else you know about the company is easy to do under the circumstance.
The reason I was amused by this segment is that there are a ton of stocks that you could buy with the intention of holding forever. Chances are many of the stocks could in fact be held forever. They may not be the best performer forever, may have painful downswings and you can not buy any stock and never think about it again but the likelihood that Citi is something you can hold forever is pretty good.
I continue to have the same concerns about the market that I have been writing about for a while now. The path of least resistance seems to be down. I expect to take more defensive action on Monday if it is a down day.
One thing that I have started to think about is things that happen at market bottoms, but I don't think we are there now. One thing I have not written about is that significant rallies often happen in the face of spectacular bankruptcies. A few years ago there where three; Enron, Worldcom and Arthur Anderson. There have been others just as big that escape me at this early hour.
General Motors has a clear path to bankruptcy. We are not there now and we may not get there but the company has $300 billion in debt and very little in the way of assets, relatively, to service that debt. I am not making a prediction but who would be surprised at this point? I think thus far GM has contributed to the market action and a bankruptcy would cause a big panic that would probably be a turning point. I'll write more about this if it happens.
Bob from Bob's Advice for Stocks has left some excellent comments about his bottoms up approach here, here, here and here. In these comments, Bob has generously shared his process for stock selection and risk management. Bob and I have gone back and forth on this before. I can't refute what he says but after you read his comments you probably know what I would say; sorting out the big picture first would do a lot of the heavy lifting for you.
For example I have been writing about being underweight tech for ages. There are some clearly visible headwinds hurting the group. I don't think this is particularly insightful analysis. What would require keen insight is being able to find tech stocks in this environment that have gone up. Google is one. Yahoo (personal holding and client holding) has also done a good job of holding most of its value too. The point is trying to pick the right stock in the wrong group is an uphill battle.
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If you saw the segment you saw that Ms. Hughes could not come up with the P/E ratio for her pick. Having been in that seat (literally) before, I would attribute that to adrenaline and excitement. You have in you mind what you will say and momentarily forgetting everything else you know about the company is easy to do under the circumstance.
The reason I was amused by this segment is that there are a ton of stocks that you could buy with the intention of holding forever. Chances are many of the stocks could in fact be held forever. They may not be the best performer forever, may have painful downswings and you can not buy any stock and never think about it again but the likelihood that Citi is something you can hold forever is pretty good.
I continue to have the same concerns about the market that I have been writing about for a while now. The path of least resistance seems to be down. I expect to take more defensive action on Monday if it is a down day.
One thing that I have started to think about is things that happen at market bottoms, but I don't think we are there now. One thing I have not written about is that significant rallies often happen in the face of spectacular bankruptcies. A few years ago there where three; Enron, Worldcom and Arthur Anderson. There have been others just as big that escape me at this early hour.
General Motors has a clear path to bankruptcy. We are not there now and we may not get there but the company has $300 billion in debt and very little in the way of assets, relatively, to service that debt. I am not making a prediction but who would be surprised at this point? I think thus far GM has contributed to the market action and a bankruptcy would cause a big panic that would probably be a turning point. I'll write more about this if it happens.
Bob from Bob's Advice for Stocks has left some excellent comments about his bottoms up approach here, here, here and here. In these comments, Bob has generously shared his process for stock selection and risk management. Bob and I have gone back and forth on this before. I can't refute what he says but after you read his comments you probably know what I would say; sorting out the big picture first would do a lot of the heavy lifting for you.
For example I have been writing about being underweight tech for ages. There are some clearly visible headwinds hurting the group. I don't think this is particularly insightful analysis. What would require keen insight is being able to find tech stocks in this environment that have gone up. Google is one. Yahoo (personal holding and client holding) has also done a good job of holding most of its value too. The point is trying to pick the right stock in the wrong group is an uphill battle.
Read more!
Friday, April 22, 2005
Yet More Aftermath
I asked this morning in a post if I was whipsawed by the market. I said maybe I was but hopefully it came through that I was not that wrapped up in being right or wrong for a couple of days. I am still in the middle of change. The plan all along has been to take what the market gives me as far as implementing a defensive strategy.
I don't think good things are immediately in front of us. That's my thought but I may end up being wrong. My biggest concern is trying to do my best for clients. I imagine I will take more action on Monday or Tuesday as laid out a week ago. I moved a little earlier in the week and then I was going to wait a week and perhaps do more. That was my plan and I am sticking to it.
To reiterate this is neither bullish nor bearish but listening to what I think the market is saying and doing what I think is logical. What I am trying to convey is that my logic (such as it is;-) is dictating what I do, not emotion.
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I don't think good things are immediately in front of us. That's my thought but I may end up being wrong. My biggest concern is trying to do my best for clients. I imagine I will take more action on Monday or Tuesday as laid out a week ago. I moved a little earlier in the week and then I was going to wait a week and perhaps do more. That was my plan and I am sticking to it.
To reiterate this is neither bullish nor bearish but listening to what I think the market is saying and doing what I think is logical. What I am trying to convey is that my logic (such as it is;-) is dictating what I do, not emotion.
Read more!
Launch of ISEQ 20 ETF (Irish Stock Exchange)
Launch of ISEQ 20 ETF (Irish Stock Exchange) profile | Yahoo! Finance-
Most clients and I have exposure to Ireland through a bank stock. I found this story on Yahoo Finance. There are local products like this being created in Turkey, Iceland and other hard to access countries. I think that in a few years it will be much easier to invest in these, at least I hope so.
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Most clients and I have exposure to Ireland through a bank stock. I found this story on Yahoo Finance. There are local products like this being created in Turkey, Iceland and other hard to access countries. I think that in a few years it will be much easier to invest in these, at least I hope so.
Read more!
Information Evolution
I've written many times about my belief that access to information about capital markets is evolving. There will be less reliance on brokers, salesmen and separate account managers as people will rely on new investment products, consultation with professionals and (dare I say it?) investment blogs.
I also think that part of the equation here was the mess created by the 'net bubble. Sell side firms could not be trusted to give good forward looking analysis or operate ethically. Wining that trust back will be a tall order.
One nugget of anecdotal evidence, I think, is the type of traffic I get at this site and the traffic that I'm sure other bloggers get as well. I get traffic from just about every big media outlet, investment firm and university you've ever heard of (although I have never had a visit from my alma mater's domain, San Diego State University).
I have friends on the sell side and I can tell you that they are interested in other content outlets in addition to their firms own research. Although no one has said as much, I think this is because clients and prospects are still skeptical of sell side research.
I think this ties into a long held belief that to help you form your opinions you take a little from here and a little from there and weave together your own approach. All bloggers, pundits, analysts and the like have strengths and weaknesses. Sort these out and you have a good chance of reasonable success.
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I also think that part of the equation here was the mess created by the 'net bubble. Sell side firms could not be trusted to give good forward looking analysis or operate ethically. Wining that trust back will be a tall order.
One nugget of anecdotal evidence, I think, is the type of traffic I get at this site and the traffic that I'm sure other bloggers get as well. I get traffic from just about every big media outlet, investment firm and university you've ever heard of (although I have never had a visit from my alma mater's domain, San Diego State University).
I have friends on the sell side and I can tell you that they are interested in other content outlets in addition to their firms own research. Although no one has said as much, I think this is because clients and prospects are still skeptical of sell side research.
I think this ties into a long held belief that to help you form your opinions you take a little from here and a little from there and weave together your own approach. All bloggers, pundits, analysts and the like have strengths and weaknesses. Sort these out and you have a good chance of reasonable success.
Read more!
Aftermath
So, was I whipsawed this week? It may turn out that way, who can say? This is was the reason that I only tweaked client accounts. I laid out a multi week process to make changes and I implemented only part of the plan as I intended, as wrote about from the start that I could be wrong. We may know over the next few weeks whether the breach of the 200 DMA was only very temporary.
The market had a screaming rally yesterday. If the next 50 SPX points are straight up and it stays up my clients will capture most of the move.
The market had a huge down week now it looks like it will have a huge up week. What's next? Will 1160 hold as resistance? Are all the market's problems now over? To be clear I don't know and I would say no outcome here would surprise me. Basically I just took some, not all, of the beta out of portfolios that I added last fall. As I wrote earlier, it was beta that wasn't working.
My clients are still unambiguously long so I want the market to go up. While the trades I made this week may or may not turn out to be correct I am pleased that I was disciplined enough to stick to plan and that I kept my head emotionally. I think that is more important than getting every last basis point in a given week.
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The market had a screaming rally yesterday. If the next 50 SPX points are straight up and it stays up my clients will capture most of the move.
The market had a huge down week now it looks like it will have a huge up week. What's next? Will 1160 hold as resistance? Are all the market's problems now over? To be clear I don't know and I would say no outcome here would surprise me. Basically I just took some, not all, of the beta out of portfolios that I added last fall. As I wrote earlier, it was beta that wasn't working.
My clients are still unambiguously long so I want the market to go up. While the trades I made this week may or may not turn out to be correct I am pleased that I was disciplined enough to stick to plan and that I kept my head emotionally. I think that is more important than getting every last basis point in a given week.
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Thursday, April 21, 2005
Vernon L. Smith
CNBC Asia had a very interesting interview with Vernon L. Smith who won the Nobel Prize for economics in 2002.
I have to admit I am not familiar with Mr. Smith or his work. Among other things now he is on the Board of Advisors for LGT Capital Partners (aka the Bank of Liechtenstein). His interview was about behavioral finance and the mistakes that individual investors make. He said investors often assign emotion to the market as the market is good or bad and that too often people end up chasing the market. He said sometimes the market goes up and sometimes it goes down and that if normal volatility bothers you, you should own index funds.
He is a big believer in diversification and does not think that short term trading makes sense to do because it is too difficult.
As I say I was not familiar with him before I saw the interview but it appears I have stolen all of my material from him except for the ponytail and the bolo tie (humor attempt).
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I have to admit I am not familiar with Mr. Smith or his work. Among other things now he is on the Board of Advisors for LGT Capital Partners (aka the Bank of Liechtenstein). His interview was about behavioral finance and the mistakes that individual investors make. He said investors often assign emotion to the market as the market is good or bad and that too often people end up chasing the market. He said sometimes the market goes up and sometimes it goes down and that if normal volatility bothers you, you should own index funds.
He is a big believer in diversification and does not think that short term trading makes sense to do because it is too difficult.
As I say I was not familiar with him before I saw the interview but it appears I have stolen all of my material from him except for the ponytail and the bolo tie (humor attempt).
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Alberto Vilar?
Alberto Vilar from the Amerindo Fund (ATCHX) was just interviewed on Bloomberg TV. Wow. How long has it been since you thought about that name?
The only thing missing was the next Yahoo is Yahoo quote that he has said many times. Show host Matt Nesto took him to the hole about eBAY because it is down 40% recently, down today and Alberto has no sell criteria for the name to speak of. He said they might think about selling it if the earnings did something worse than they have done? It was not very clear to me.
Nesto asked why someone shouldn't just sell his fund and buy an oil fund and he had a good answer in that he said everyone should have a little tech as part of a diversified portfolio. True that.
Oil or tech is never going to be a great choice. They two tend to have a very low correlation. Get that one wrong and you could severely lag the market.
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The only thing missing was the next Yahoo is Yahoo quote that he has said many times. Show host Matt Nesto took him to the hole about eBAY because it is down 40% recently, down today and Alberto has no sell criteria for the name to speak of. He said they might think about selling it if the earnings did something worse than they have done? It was not very clear to me.
Nesto asked why someone shouldn't just sell his fund and buy an oil fund and he had a good answer in that he said everyone should have a little tech as part of a diversified portfolio. True that.
Oil or tech is never going to be a great choice. They two tend to have a very low correlation. Get that one wrong and you could severely lag the market.
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Stock Selection
Yesterday I was exchanging emails with a friend who manages money in San Diego. Our backgrounds in the business are very similar which leads us to invest very differently, funny.
He asked me how I pick stocks. I'll paraphrase my answer and add that many of the names in client portfolios are names that I have been watching for years back to my days as a trader.
I took his question to mean how do I find new stocks. The process is not that fancy. I might read about a stock somewhere or see something about it on TV. If what I read or see is interesting I'll add it to MyYahoo to watch for a while not knowing much more than what I learned from that first story. I like to watch a name for a while to see how it reacts to micro and macro news and to see how much it is capable of moving in a day.
From that point I might then start to research it a little more at the company website and other financial content providers in an effort to learn some nuts and bolts about the company. I might also call a couple of friends in the business to see if anyone smart that they know is in the name. This does not mean that I am being told who specifically owns it but every trader has clients that are smart and some that aren't.
The sum result of this is that I have learned about the business, learned the numbers and learned what the stock might do as a reaction to various types of news. If I get more right than wrong my clients will be in good shape more often than not. At least that is my belief.
From that point I need to try stay current with events going on with each name. Obviously no one can get every news story on every stock but I try.
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He asked me how I pick stocks. I'll paraphrase my answer and add that many of the names in client portfolios are names that I have been watching for years back to my days as a trader.
I took his question to mean how do I find new stocks. The process is not that fancy. I might read about a stock somewhere or see something about it on TV. If what I read or see is interesting I'll add it to MyYahoo to watch for a while not knowing much more than what I learned from that first story. I like to watch a name for a while to see how it reacts to micro and macro news and to see how much it is capable of moving in a day.
From that point I might then start to research it a little more at the company website and other financial content providers in an effort to learn some nuts and bolts about the company. I might also call a couple of friends in the business to see if anyone smart that they know is in the name. This does not mean that I am being told who specifically owns it but every trader has clients that are smart and some that aren't.
The sum result of this is that I have learned about the business, learned the numbers and learned what the stock might do as a reaction to various types of news. If I get more right than wrong my clients will be in good shape more often than not. At least that is my belief.
From that point I need to try stay current with events going on with each name. Obviously no one can get every news story on every stock but I try.
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Tardy Response
At the beginning of the week a reader posted a question about how I decide what to sell . I specifically wanted to answer this and am now getting to it.
The answer is not that simple because there are several reasons why I would sell a stock and any of them could come into play at any time.
The stock I sold at the beginning of the week was sold for a couple of reasons. First I am shifting, so it looks based on the trading in the market, to a more defensive posture. The name I sold was a higher beta name I added last fall. I will look to sell a couple others here very quickly. Another reason why I sold that stock in particular is that I got something wrong in the process. To me there is clear an obvious demand for the product along with a catalyst for growth yet the stock had fallen much more than its sector and the broad market. I could spend some time trying to figure out what went wrong but that wouldn't change the fact that I was wrong about that one.
As I often write, that goes with the territory. I have a couple of other that I have been flat out wrong about too. There are a couple more where I have not been wrong per se but that are candidates for a sale as I get more defensive. For example clients own a high beta industrial name that I expected to move more than the sector. In the last month the sector is down about 6% and the one stock is down about 16% with no story changing news. Or maybe I was wrong about that too.
Not too ago I wrote about my process for getting stopped out of a high beta oil stock. It had a great run, well ahead of the group and oil had moved to high. It seemed like a good point to reduce exposure. That was more of a gut call.
At some point conditions will be favorable for tech again. At that point I would have to sell a couple of the defensive names I may be adding now.
There is probably no exact answer to the question but that should give some idea. Keep in mind that most clients own 40 stocks or so. As is always the case some are working better than others. That's just how it goes.
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The answer is not that simple because there are several reasons why I would sell a stock and any of them could come into play at any time.
The stock I sold at the beginning of the week was sold for a couple of reasons. First I am shifting, so it looks based on the trading in the market, to a more defensive posture. The name I sold was a higher beta name I added last fall. I will look to sell a couple others here very quickly. Another reason why I sold that stock in particular is that I got something wrong in the process. To me there is clear an obvious demand for the product along with a catalyst for growth yet the stock had fallen much more than its sector and the broad market. I could spend some time trying to figure out what went wrong but that wouldn't change the fact that I was wrong about that one.
As I often write, that goes with the territory. I have a couple of other that I have been flat out wrong about too. There are a couple more where I have not been wrong per se but that are candidates for a sale as I get more defensive. For example clients own a high beta industrial name that I expected to move more than the sector. In the last month the sector is down about 6% and the one stock is down about 16% with no story changing news. Or maybe I was wrong about that too.
Not too ago I wrote about my process for getting stopped out of a high beta oil stock. It had a great run, well ahead of the group and oil had moved to high. It seemed like a good point to reduce exposure. That was more of a gut call.
At some point conditions will be favorable for tech again. At that point I would have to sell a couple of the defensive names I may be adding now.
There is probably no exact answer to the question but that should give some idea. Keep in mind that most clients own 40 stocks or so. As is always the case some are working better than others. That's just how it goes.
Read more!
Wednesday, April 20, 2005
Barron's Online - Getting Technical
Barron's Online - Getting Technical
If you think I have been pessimistic about the market you should read the latest from Michael Kahn (subscription required) at Barron's. Yikes:-0
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If you think I have been pessimistic about the market you should read the latest from Michael Kahn (subscription required) at Barron's. Yikes:-0
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Not A Shock
Recently I wrote about bond insurer MBIA (MBI). The company was going through an episode that took down its stock price.
Today comes news of another bond insurer, AMBAC Financial (ABK), that is down a lot in the face of an earnings report. For now this is just the wrong part of the market, or you could look at it as being the wrong part of the financial sector. I promise this is no kind of smartness on my part.
This all speaks to my belief in starting with the big picture first. As I asked in the MBI article, is it such a stretch to think that some sort of problem might come up with these types of complex companies? That is the sum and substance of my analysis. At some point things will change. I'm not sure I know yet when that will be nor am I sure what I'll be looking for. For now I am keeping things as simple as possible in all sectors because simple seems to be the only type of company that has a shot of being rewarded by the market these days.
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Today comes news of another bond insurer, AMBAC Financial (ABK), that is down a lot in the face of an earnings report. For now this is just the wrong part of the market, or you could look at it as being the wrong part of the financial sector. I promise this is no kind of smartness on my part.
This all speaks to my belief in starting with the big picture first. As I asked in the MBI article, is it such a stretch to think that some sort of problem might come up with these types of complex companies? That is the sum and substance of my analysis. At some point things will change. I'm not sure I know yet when that will be nor am I sure what I'll be looking for. For now I am keeping things as simple as possible in all sectors because simple seems to be the only type of company that has a shot of being rewarded by the market these days.
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Turkey
Pension fund giant Calpers is going to be directing some of its fund into Turkey. For now capturing very much in Eastern Europe is very difficult. I 've written a few times about the various CEFs available. There are very few ADRs and it is only logical that they should want US capital flowing into their markets.
I think over the next few years there will be more ways for Americans to invest but in the mean time a little bit of exposure in the way you can now capture it probably makes sense for people than can tolerate volatility.
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I think over the next few years there will be more ways for Americans to invest but in the mean time a little bit of exposure in the way you can now capture it probably makes sense for people than can tolerate volatility.
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Reader Question
I have been having an interesting exchange about market timing with a regular reader whom I'll call Mr. Z.
This was Mr. Z's last email to me.
I think that for people who follow the market everyday it makes sense to try to play weekly trends like you said to try to avoid the big down chunks. I remember in Feburary you said that the market fells very flimsy. That was due to the Nasdaq lagging. Then in March I remember you said that the market going down a lot seems like a good probability and if there is a bounce that might be a good time to sell without a positive fundamental change. You also had the correct call the Feburary jobs number could be a blip. The rally a couple weeks ago was on light volume so it was no surprise it was a false rally. So for someone such as yourself who can guage things very well would playing trends that are backed up by opinion be a good idea. If you are correct why not try to profit. Of course patience is very important with this method.
To read his email I must now proclaim I am the greatest prognosticator in all the land!! This is of course a humor attempt. It might be more correct to think I've been in touch with the current state of the market and have strung together a couple of accurate calls. To my way of thinking market timing every 4% or 5% based on a hunch I have or some other type of indicator would, I think, violate my fiduciary obligation. Very very few people can time the type of trades Mr. Z talks about. I can not envision a scenario where my trying to manage someone's life savings this way would be the best possible thing for them. Trying to allocate a small portion to this strategy, as Mr. Z suggested in a previous email, would not work either. This type of trading has to include some trades that go bad. So how much alpha could be added with 1/3 of the portfolio exposed that way? Probably not much.
I also think that a timing strategy, as suggested, would put clients through extra stress. Most folks I deal with want to keep up with the market with as little volatility as possible. This is problematic enough without the possibility of ramping up the trading.
Also from the standpoint of knowing your limitations I would have a much harder time remaining emotionally detached if I rolled everything into SPY the day before a 2% drop. This would create a greater possibility of getting whipsawed.
To close I don't think it is a given that getting more big picture things right than wrong (a big focus of my work) necessarily equates to success with shorter term trading.
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This was Mr. Z's last email to me.
I think that for people who follow the market everyday it makes sense to try to play weekly trends like you said to try to avoid the big down chunks. I remember in Feburary you said that the market fells very flimsy. That was due to the Nasdaq lagging. Then in March I remember you said that the market going down a lot seems like a good probability and if there is a bounce that might be a good time to sell without a positive fundamental change. You also had the correct call the Feburary jobs number could be a blip. The rally a couple weeks ago was on light volume so it was no surprise it was a false rally. So for someone such as yourself who can guage things very well would playing trends that are backed up by opinion be a good idea. If you are correct why not try to profit. Of course patience is very important with this method.
To read his email I must now proclaim I am the greatest prognosticator in all the land!! This is of course a humor attempt. It might be more correct to think I've been in touch with the current state of the market and have strung together a couple of accurate calls. To my way of thinking market timing every 4% or 5% based on a hunch I have or some other type of indicator would, I think, violate my fiduciary obligation. Very very few people can time the type of trades Mr. Z talks about. I can not envision a scenario where my trying to manage someone's life savings this way would be the best possible thing for them. Trying to allocate a small portion to this strategy, as Mr. Z suggested in a previous email, would not work either. This type of trading has to include some trades that go bad. So how much alpha could be added with 1/3 of the portfolio exposed that way? Probably not much.
I also think that a timing strategy, as suggested, would put clients through extra stress. Most folks I deal with want to keep up with the market with as little volatility as possible. This is problematic enough without the possibility of ramping up the trading.
Also from the standpoint of knowing your limitations I would have a much harder time remaining emotionally detached if I rolled everything into SPY the day before a 2% drop. This would create a greater possibility of getting whipsawed.
To close I don't think it is a given that getting more big picture things right than wrong (a big focus of my work) necessarily equates to success with shorter term trading.
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Tuesday, April 19, 2005
This Just In
We learned from Ron's interview with the President that Mr. Bush still isn't negotiating with himself.
The other day on one of the Fox shows Jack Welch wondered where the leadership was on this issue. I couldn't agree more.
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The other day on one of the Fox shows Jack Welch wondered where the leadership was on this issue. I couldn't agree more.
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More Content At TradersLive
I have been invited to participate in a new content destination called TradersLive. TradersLive is a subscription based site where I, along with three other bloggers, provide content throughout the day on trades made and why.
The Random Roger site will not change. I will continue to focus on process, big picture issues, providing links to and commentary about other content and investor education. The way to think about TradersLive is that it will pick up where this site leaves off. I write about how I specifically apply what is discussed here into what stocks I buy or sell, what catches my attention during the trading day with more detail and specifics about how I work a trade in the market, more nuts and bolts. It is, to me, a logical extension the content here.
As an example I wrote in detail about the start of some defensive action taken in the last few days. On TradersLive I named names of what was done, why I sold what I sold and so on.
There is a free one month trial period to check out the service. I hope you will give it a shot for the month and let me know what you think.
Again I want to reiterate that the content here won't change, Traderslive merely builds on what it written here.
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The Random Roger site will not change. I will continue to focus on process, big picture issues, providing links to and commentary about other content and investor education. The way to think about TradersLive is that it will pick up where this site leaves off. I write about how I specifically apply what is discussed here into what stocks I buy or sell, what catches my attention during the trading day with more detail and specifics about how I work a trade in the market, more nuts and bolts. It is, to me, a logical extension the content here.
As an example I wrote in detail about the start of some defensive action taken in the last few days. On TradersLive I named names of what was done, why I sold what I sold and so on.
There is a free one month trial period to check out the service. I hope you will give it a shot for the month and let me know what you think.
Again I want to reiterate that the content here won't change, Traderslive merely builds on what it written here.
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Dour Outlook From Across The Pond
Gavyn Davies, a former economist at Goldman Sachs in Europe, sees an average real growth rate for equities of 2.75%, 6% in nominal returns for the foreseeable future due to oil hurting consumer growth. He thinks the Fed may slow down, in a few months, as high oil is doing some of the Fed's job, but the bond market is in trouble.
He sees world equity markets decoupling, the correlation has been might tighter than normal lately.
This all ties in with some of what I have written in terms of having foreign exposure, dividend paying stocks and low expectations. You don't need me to tell you investing is an exercise in patience. The next couple of years may test everyone's patience.
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He sees world equity markets decoupling, the correlation has been might tighter than normal lately.
This all ties in with some of what I have written in terms of having foreign exposure, dividend paying stocks and low expectations. You don't need me to tell you investing is an exercise in patience. The next couple of years may test everyone's patience.
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Why The Dow Doesn't Matter
This is not my idea but I have believed it for years. The Dow doesn't matter.
Yesterday was a perfect example of why the Dow 30 should not be the benchmark. 3M had a bad earnings report and accounted for about 35 points, I believe each constituent point equals seven Dow points, to the downside. One stock caused the Dow to lag the rest of the indices.
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Yesterday was a perfect example of why the Dow 30 should not be the benchmark. 3M had a bad earnings report and accounted for about 35 points, I believe each constituent point equals seven Dow points, to the downside. One stock caused the Dow to lag the rest of the indices.
Read more!
Tuesday Items
Yesterday was a bit of milestone for this website. I had my first 1000 hit day. I know some blogs get thousands of hits everyday but I am quite pleased with the traffic progress of Random Roger. Thank you for visiting the site.
Hugh Johnson, formerly of First Albany, was the smart interview before the open. He was talking about his cautious approach for the time being. The whole crew was trying to label his sentiment and Hugh played along but I think he thinks the notion of labeling the market is a waste of energy. I try to focus on strategy not labels. I think that makes sense for everyone.
The other day I posted a quote from Barron's about the market caring about different things at different times. For example the market seems to not care about oil in the low $50's. I also don't think earnings are the most important thing yet but that may change this afternoon with Intel and Yahoo. I am keeping my fingers crossed.
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Hugh Johnson, formerly of First Albany, was the smart interview before the open. He was talking about his cautious approach for the time being. The whole crew was trying to label his sentiment and Hugh played along but I think he thinks the notion of labeling the market is a waste of energy. I try to focus on strategy not labels. I think that makes sense for everyone.
The other day I posted a quote from Barron's about the market caring about different things at different times. For example the market seems to not care about oil in the low $50's. I also don't think earnings are the most important thing yet but that may change this afternoon with Intel and Yahoo. I am keeping my fingers crossed.
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Monday, April 18, 2005
ETF Investor: The ETF Resource Page
ETF Investor: The ETF Resource Page
It has been a while since I visited this part of the Seeking Alpha blog complex. The aggregation of resources is great. Always worth a visit.
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It has been a while since I visited this part of the Seeking Alpha blog complex. The aggregation of resources is great. Always worth a visit.
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Follow Through
I partially implemented my defensive action. I sold one stock across the board and moved a little money into the inverse index fund already owned.
I am ready to take more action tomorrow if need be but I wanted to try to give the market a shot at going back up. At this point I don't discount any move in the market. Nothing would surprise from here.
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I am ready to take more action tomorrow if need be but I wanted to try to give the market a shot at going back up. At this point I don't discount any move in the market. Nothing would surprise from here.
Read more!
MSN Money - Fund Spy: How to pick the right dividend ETF
MSN Money - Fund Spy: How to pick the right dividend ETF
This is an interesting take on DVY and PEY. I should disclose that I own DVY.
I don't know that I buy into the conclusion but there is good info here.
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This is an interesting take on DVY and PEY. I should disclose that I own DVY.
I don't know that I buy into the conclusion but there is good info here.
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Indicator Of A Problem?
You decide.
Yesterday I watched a good part of the Diamondbacks loss to the Washington Nationals. The D-backs are on one of two channels, either Fox Sports Net or a local channel with no network affiliation. Yesterday's game was on the local channel. Most of the commercial breaks had no commercials just promos for the channel's news programming.
Uh-oh.
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Yesterday I watched a good part of the Diamondbacks loss to the Washington Nationals. The D-backs are on one of two channels, either Fox Sports Net or a local channel with no network affiliation. Yesterday's game was on the local channel. Most of the commercial breaks had no commercials just promos for the channel's news programming.
Uh-oh.
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Real Estate Vs Stocks
A reader who says he is new to stocks but not RE sent in an email asking if there is any reason to own stocks other than to diversify RE holdings. He included bullet points that were drawbacks of stocks and benefits of RE. His points are in green followed by my attempts to answer. I should mention that this reader knows much more than I do about RE. I am only including his negative bullets on stocks though because I believe in RE. We are currently saving for an investment property ourselves.
STOCKS 1-The stock market tends to go up around 10% per year over the long haul(15 years plus)
2-There are periods when the stock market has been flat or down for over 10 years (1929 to1946 and 1968 to 1981) This is not correct. During both of these "flat" periods there were huge up years. The mid 1930's had some massive, massive rallies. Missing big chunks of down a lot in these decades would have lead to substantial market beating performance. The market may now be on its way to down a lot for years. My using the 200 DMA to get defensive and stay defensive would mean I would have big market beating performance for a while. I realize the absurd assumptions made here, its just an example. Check the history of what the market did in certain years during the periods the reader has cited.
3-Stocks can decrease to zero value This is true. But very few stocks go to zero and if you factor out market extremes like the Internet bubble it is even less during most periods. Aren't there some RE investors who lose their equity, albeit due to their own stupidity or mis-management?
4-I can invest in stocks tax defered in a pension or IRA There are ways to buy RE in an IRA but I'm no expert with that.
5-Stocks produce very little income But they often provide more growth. Even if that statement is only true half the time in a 20 year period, it speaks to the reader's point to about diversity
6-Stock prices can fluctuate wildly But you can easily build a portfolio where the value does not fluctuate wildly. The portfolio's movement should be much more of a concern than a single component's volatility.
7-I can use leverage with stocks but with little income I have can't cover the cost with the income If you mean margin as leverage I would not suggest that to any individual. There are other forms of leverage that would take up too much space here but RE clearly offers more leverage benefits than stocks.
8-With stocks I can't make the value of my investment go up. True, I have never even thought about "remodeling" a stock.
9-There is no tax advantage to investing in stocks Dividends taxed at only 15% but there are no deductions for stocks, correct.
10-If I sell a stock outside of a pension or IRA I have to pay regular or capital gains taxes Yes but there is visibility for this to change one way or another.
I can't refute what he says, again I believe in RE exposure. As a matter of my own philosophy I believe in owning different types of assets. My philosophy doesn't have to be right for anyone but me. The reader's philosophy only has to serve his purpose. RE is far from riskless and I assume the reader in question knows this. Falling prices in RE induced by some sort of shake out caused by poor lending standards, should this happen, or something else will be a big emotional problem for some RE investors and will cause some desperation. That's how human behavior tends to work with any type of investment or money matter. Take a stock like Deere (DE). It is at $62 down from $74 a few months ago. It may bottom out at $50 before it goes to $80. Some people will get shaken out at $50.
If/when RE prices go down (BTW drops in RE prices are usually much less than drops in stock prices) some people will get shaken out of their RE too. Just how it works.
No investment is the be all end all but the reader makes some very good points. With all the excitement over RE lately I have to think we are closer to a top, which does not mean prices have to crash.
The entire topic has a lot of meat on the bone and this is best I can do with it.
Read more!
STOCKS 1-The stock market tends to go up around 10% per year over the long haul(15 years plus)
2-There are periods when the stock market has been flat or down for over 10 years (1929 to1946 and 1968 to 1981) This is not correct. During both of these "flat" periods there were huge up years. The mid 1930's had some massive, massive rallies. Missing big chunks of down a lot in these decades would have lead to substantial market beating performance. The market may now be on its way to down a lot for years. My using the 200 DMA to get defensive and stay defensive would mean I would have big market beating performance for a while. I realize the absurd assumptions made here, its just an example. Check the history of what the market did in certain years during the periods the reader has cited.
3-Stocks can decrease to zero value This is true. But very few stocks go to zero and if you factor out market extremes like the Internet bubble it is even less during most periods. Aren't there some RE investors who lose their equity, albeit due to their own stupidity or mis-management?
4-I can invest in stocks tax defered in a pension or IRA There are ways to buy RE in an IRA but I'm no expert with that.
5-Stocks produce very little income But they often provide more growth. Even if that statement is only true half the time in a 20 year period, it speaks to the reader's point to about diversity
6-Stock prices can fluctuate wildly But you can easily build a portfolio where the value does not fluctuate wildly. The portfolio's movement should be much more of a concern than a single component's volatility.
7-I can use leverage with stocks but with little income I have can't cover the cost with the income If you mean margin as leverage I would not suggest that to any individual. There are other forms of leverage that would take up too much space here but RE clearly offers more leverage benefits than stocks.
8-With stocks I can't make the value of my investment go up. True, I have never even thought about "remodeling" a stock.
9-There is no tax advantage to investing in stocks Dividends taxed at only 15% but there are no deductions for stocks, correct.
10-If I sell a stock outside of a pension or IRA I have to pay regular or capital gains taxes Yes but there is visibility for this to change one way or another.
I can't refute what he says, again I believe in RE exposure. As a matter of my own philosophy I believe in owning different types of assets. My philosophy doesn't have to be right for anyone but me. The reader's philosophy only has to serve his purpose. RE is far from riskless and I assume the reader in question knows this. Falling prices in RE induced by some sort of shake out caused by poor lending standards, should this happen, or something else will be a big emotional problem for some RE investors and will cause some desperation. That's how human behavior tends to work with any type of investment or money matter. Take a stock like Deere (DE). It is at $62 down from $74 a few months ago. It may bottom out at $50 before it goes to $80. Some people will get shaken out at $50.
If/when RE prices go down (BTW drops in RE prices are usually much less than drops in stock prices) some people will get shaken out of their RE too. Just how it works.
No investment is the be all end all but the reader makes some very good points. With all the excitement over RE lately I have to think we are closer to a top, which does not mean prices have to crash.
The entire topic has a lot of meat on the bone and this is best I can do with it.
Read more!
Sunday, April 17, 2005
Paul B. Farrell: Five steps to taking control of your portfolio
Paul B. Farrell: Five steps to taking control of your portfolio - Financial - Financial Services - Mutual Funds - Personal Finance
This is a good read. I buy into the empowerment aspect of this. I do not buy into the implication that you will stop losing money by being your own money manager. When the stock market goes down your account will go down too.
Also if you call a place like Vanguard as suggested you will be run through a computer model with less chance for customized investment advice. This doesn't make Vanguard bad but it is an obvious drawback that the article does not mention.
If you read this blog, you probably read other blogs and take in other sources of information. This makes you well on your way to managing your money successfully.
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This is a good read. I buy into the empowerment aspect of this. I do not buy into the implication that you will stop losing money by being your own money manager. When the stock market goes down your account will go down too.
Also if you call a place like Vanguard as suggested you will be run through a computer model with less chance for customized investment advice. This doesn't make Vanguard bad but it is an obvious drawback that the article does not mention.
If you read this blog, you probably read other blogs and take in other sources of information. This makes you well on your way to managing your money successfully.
Read more!
Saturday, April 16, 2005
The Big Picture for the Week of April 17, 2005
I had a very good multi layered question come in that I would like to address here.
I read your blog every day (as I mentioned) and have learned a lot from it. I also read Hussman and his strategic growth is where I have most of my stock money at the moment. He believes the market's valuation is close to where it was in 2000 and '87. Do you read his weekly market updates? I came into the market for the first time with a good chunk of change back in January, putting it into mostly broadly diversified index and mutual funds due to a financial advisor's advice and then read Hussman's updates and started believing him and pulled most of it out. His charts about valuation to me are convincing. I put a good bit of it in his fund for the moment and after the last few days haven't regretted it, though I know that could change quickly. Still I'm curious what you think of his reasoning. Have you read him? Your mention of inverse SPX funds if things look bad on Monday was exactly what I was thinking.
First a few things about Mr. Hussman and then I'll offer my thoughts on his thoughts. I have written about him a couple of times before. If you are not familiar with his site you should be. I read it occasionally but I admit I should read it more. He knows more than I do and I believe he is better able to process the totality of what moves markets better than I can. That does not give him, or anyone for that matter, a monopoly on being right. I have had an accurate call or two in my time too:-)
The reader notes Hussman says market valuations are like 1987 and 2000. Huh? The SPX is at about 20 times earnings today. I'm sure that he has data to support his point but there is data that says he is wrong too. More importantly to me is that we have not taken back the highs set in 2000 in the SPX or Nasdaq ( but we have in the small cap market).
Coming off the bottom in March 2003 to year end 2004 is only about 21 months of bull market, short by most historical standards, and (to repeat) those 21 months did not result in new highs. To me that does not add up to an implosion. I do not think it will take three years or more for the SPX to go back to 1220. I would not be shocked if the market dropped to about 1100 (I think I see two different trend lines that both lead to about that level).
Rising rates could get in the way of what I am saying, possibly? At the beginning of tightening cycle I wrote on the blog and commented on CNBC Asia that I thought the fed would stop in a range between 2.75% and 3.50%. Shortly there after I narrowed my range to 3.00%-3.25%. Two months ago I figured that I'd be wrong by a lot but now it looks like it won't be much above that 3.25%. Point being that if the Fed really is almost done they become less of a threat to the market.
My 2005 forecast for equities was that I thought we'd be lucky to see mid-single digit growth so I was not real optimistic but it has been uglier that I thought it would be. I have to think we will take back a good chunk of the 50 or 60 points we have lost, but while it may take a few months. I would be thrilled to see some sort of violent, fundamental-less, snap back rally that has a small chance of happening.
Keep in mind the action I am taking is more important than what I think might happen. I gave specific detail of my game plan for the coming week in a post on Friday. To me this is not a time to try to outsmart market history. I expect to start taking defensive action on Monday and stay defensive for the time being. I'll update this blog with any changes.
Read more!
I read your blog every day (as I mentioned) and have learned a lot from it. I also read Hussman and his strategic growth is where I have most of my stock money at the moment. He believes the market's valuation is close to where it was in 2000 and '87. Do you read his weekly market updates? I came into the market for the first time with a good chunk of change back in January, putting it into mostly broadly diversified index and mutual funds due to a financial advisor's advice and then read Hussman's updates and started believing him and pulled most of it out. His charts about valuation to me are convincing. I put a good bit of it in his fund for the moment and after the last few days haven't regretted it, though I know that could change quickly. Still I'm curious what you think of his reasoning. Have you read him? Your mention of inverse SPX funds if things look bad on Monday was exactly what I was thinking.
First a few things about Mr. Hussman and then I'll offer my thoughts on his thoughts. I have written about him a couple of times before. If you are not familiar with his site you should be. I read it occasionally but I admit I should read it more. He knows more than I do and I believe he is better able to process the totality of what moves markets better than I can. That does not give him, or anyone for that matter, a monopoly on being right. I have had an accurate call or two in my time too:-)
The reader notes Hussman says market valuations are like 1987 and 2000. Huh? The SPX is at about 20 times earnings today. I'm sure that he has data to support his point but there is data that says he is wrong too. More importantly to me is that we have not taken back the highs set in 2000 in the SPX or Nasdaq ( but we have in the small cap market).
Coming off the bottom in March 2003 to year end 2004 is only about 21 months of bull market, short by most historical standards, and (to repeat) those 21 months did not result in new highs. To me that does not add up to an implosion. I do not think it will take three years or more for the SPX to go back to 1220. I would not be shocked if the market dropped to about 1100 (I think I see two different trend lines that both lead to about that level).
Rising rates could get in the way of what I am saying, possibly? At the beginning of tightening cycle I wrote on the blog and commented on CNBC Asia that I thought the fed would stop in a range between 2.75% and 3.50%. Shortly there after I narrowed my range to 3.00%-3.25%. Two months ago I figured that I'd be wrong by a lot but now it looks like it won't be much above that 3.25%. Point being that if the Fed really is almost done they become less of a threat to the market.
My 2005 forecast for equities was that I thought we'd be lucky to see mid-single digit growth so I was not real optimistic but it has been uglier that I thought it would be. I have to think we will take back a good chunk of the 50 or 60 points we have lost, but while it may take a few months. I would be thrilled to see some sort of violent, fundamental-less, snap back rally that has a small chance of happening.
Keep in mind the action I am taking is more important than what I think might happen. I gave specific detail of my game plan for the coming week in a post on Friday. To me this is not a time to try to outsmart market history. I expect to start taking defensive action on Monday and stay defensive for the time being. I'll update this blog with any changes.
Read more!
Worth Remembering
This is a quote from The Trader column in Barron's today.
THE MARKET CHOOSES its own bellwethers, deciding for itself what seems to matter any given day or week, and making hash of investors' efforts to predict what will drive stock prices.
Remember the market cares about different things at different times. Hopefully you have already read this.
Read more!
THE MARKET CHOOSES its own bellwethers, deciding for itself what seems to matter any given day or week, and making hash of investors' efforts to predict what will drive stock prices.
Remember the market cares about different things at different times. Hopefully you have already read this.
Read more!
Friday, April 15, 2005
"Aggressive Call Buying Today In QQQQ"
Dylan Ratigan cited this fact on Closing Bell as a silver lining for a tech bounce, not this month but in May because they were May calls that were bought.
There are a couple of problems with his thesis. April ends today so that should mean a tech bounce any time, right? More importantly the obvious question, that was not answered, is "are you sure it wasn't someone rolling forward one month as part of a larger position?"
I don't know the answer but my experience trading options tells me that it was just someone rolling forward and no real net new open interest was created. If anyone knows, feel free to leave a comment.
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There are a couple of problems with his thesis. April ends today so that should mean a tech bounce any time, right? More importantly the obvious question, that was not answered, is "are you sure it wasn't someone rolling forward one month as part of a larger position?"
I don't know the answer but my experience trading options tells me that it was just someone rolling forward and no real net new open interest was created. If anyone knows, feel free to leave a comment.
Read more!
Game Plan For Monday
The SPX knifed through its 200 DMA today after holding support for a good solid hour (humor attempt).
If Monday starts out lower my plan is to sell two to four individual stocks across the board for clients and then double up exposure to the inverse index funds I use. I will wait until there are about two or three hours left in the trading day to implement this. I want to give the market a chance to bounce. This will reduce my net long exposure by 8%-12% (the inverse fund is leveraged).
For all I know after I place these trades the market may be back above the 200 DMA by Wednesday so I plan on taking my time. If things have not improved I may sell three or four more stocks a week later and use some of that cash to buy short dated preferreds.
The names I will sell on Monday will be higher beta, growthier names; like a consumer stock and some tech to start.
If Monday is an up day I will wait until the first down day to take this action, unless we go back above the 200 DMA. After all I would rather not have to do this.
It is possible I might tweak some aspect of this, although I don't expect that to be the case, but for now that is my game plan.
Read more!
If Monday starts out lower my plan is to sell two to four individual stocks across the board for clients and then double up exposure to the inverse index funds I use. I will wait until there are about two or three hours left in the trading day to implement this. I want to give the market a chance to bounce. This will reduce my net long exposure by 8%-12% (the inverse fund is leveraged).
For all I know after I place these trades the market may be back above the 200 DMA by Wednesday so I plan on taking my time. If things have not improved I may sell three or four more stocks a week later and use some of that cash to buy short dated preferreds.
The names I will sell on Monday will be higher beta, growthier names; like a consumer stock and some tech to start.
If Monday is an up day I will wait until the first down day to take this action, unless we go back above the 200 DMA. After all I would rather not have to do this.
It is possible I might tweak some aspect of this, although I don't expect that to be the case, but for now that is my game plan.
Read more!
Internals
The rate of selling today is, so far, less intense than the last few days. I will feel a touch more encouraged if the SPX can hold in the mid 1150's or so. The trend this week has been to sell down early in the day and then sell more aggressively at the end of the day. We'll have to see.
Unless I have missed it no one is talking about options expiration. We'll see if that comes to play or not.
The Nasdaq is clearly in bad bad shape. I noted the other day it sliced through its 200 DMA badly and has not found any support. I have been writing for ages about having been underweight tech for clients all this time. Underweight though means I own a couple of big cap names and one mid cap. They have all participated in the selloff but I'm thankful I don't own more:-)
The logic behind underweight tech has been quite obvious to me and written about here time and again. There has been no visibility for the sector to do well in many quarters, visibility in terms of the businesses doing well. Poor business conditions reduces, but does not eliminate, the likelihood that the stocks can do well.
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Unless I have missed it no one is talking about options expiration. We'll see if that comes to play or not.
The Nasdaq is clearly in bad bad shape. I noted the other day it sliced through its 200 DMA badly and has not found any support. I have been writing for ages about having been underweight tech for clients all this time. Underweight though means I own a couple of big cap names and one mid cap. They have all participated in the selloff but I'm thankful I don't own more:-)
The logic behind underweight tech has been quite obvious to me and written about here time and again. There has been no visibility for the sector to do well in many quarters, visibility in terms of the businesses doing well. Poor business conditions reduces, but does not eliminate, the likelihood that the stocks can do well.
Read more!
Weird
A normal part of my routine when I wake up in the morning is to go to the Yahoo Finance World Indices page. Every Asian market was down last night (the last time I looked before I went to sleep Kuala Lumpur was the lone holdout) and every European market is down this morning.
This is clearly a washout of some sort with an extreme in negative sentiment. For me this reinforces that this is more about sentiment than fundamentals. To be clear the fundamental environment is not great but I don't think its as bad as the chart action would have us believe.
Of course I could be wrong and/or the market could go much lower but this feels more like a bottom of some sort than a top. Usually money flows into stocks somewhere. That no market is up is weird and that every major market is in an ugly downtrend is kind of weird too. Far from unprecedented just a little odd.
I am thinking that if I have to start taking defensive action next week I think I will start by selling just a couple of higher beta names and adding a little more inverse index fund. If I take action at 1150 on the SPX and 1140 turns out to be the bottom I won't have caused complete tumult in client accounts.
Read more!
This is clearly a washout of some sort with an extreme in negative sentiment. For me this reinforces that this is more about sentiment than fundamentals. To be clear the fundamental environment is not great but I don't think its as bad as the chart action would have us believe.
Of course I could be wrong and/or the market could go much lower but this feels more like a bottom of some sort than a top. Usually money flows into stocks somewhere. That no market is up is weird and that every major market is in an ugly downtrend is kind of weird too. Far from unprecedented just a little odd.
I am thinking that if I have to start taking defensive action next week I think I will start by selling just a couple of higher beta names and adding a little more inverse index fund. If I take action at 1150 on the SPX and 1140 turns out to be the bottom I won't have caused complete tumult in client accounts.
Read more!
Thursday, April 14, 2005
Huh?
Kevin Caron an equity strategist from Ryan Beck was the guest to cover US markets during the first half hour of Asian Squawk Box today. Did anyone hear this interview? To hear him speak, they have gotten every major call right over the last couple of months. I have no idea about this because he is not on very often but take it from him he's been right about everything.
He said they have been selling higher beta and small cap names, they have expected consumer spending to grow at the exact pace it has been, well you get the idea.
But that is not the point of this post, because for all I know he could have been right about all of it. No, the point of this post is that Mr. Caron hangs his hat at the same firm as Joey Bats. Big Joe is on TV a lot. Mr. Caron expressed concerns about areas of the market that they have had for a while. Have I missed something? Has big Joe expressed caution about the market at any time in the last few months? If he has I haven't seen it. Anyone, feel free to correct me on this.
So if I am right about this we are getting different messages from two guys at the same firm. This goes on a lot but Joe hasn't been right about the market yet again. Has he ever been correctly bearish? If not how can anyone take his bullish calls seriously? That he gets air time and has a job baffles me.
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He said they have been selling higher beta and small cap names, they have expected consumer spending to grow at the exact pace it has been, well you get the idea.
But that is not the point of this post, because for all I know he could have been right about all of it. No, the point of this post is that Mr. Caron hangs his hat at the same firm as Joey Bats. Big Joe is on TV a lot. Mr. Caron expressed concerns about areas of the market that they have had for a while. Have I missed something? Has big Joe expressed caution about the market at any time in the last few months? If he has I haven't seen it. Anyone, feel free to correct me on this.
So if I am right about this we are getting different messages from two guys at the same firm. This goes on a lot but Joe hasn't been right about the market yet again. Has he ever been correctly bearish? If not how can anyone take his bullish calls seriously? That he gets air time and has a job baffles me.
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Beat Stocks -- With Bonds
Beat Stocks -- With Bonds
This story is about an interesting fund that has been around for a while. It is an SPX index fund but instead of buying the stocks it replicates the index with futures contracts.
As the manager puts it in the article each $100 that comes in goes to buy $100 of equity exposure but with less money, futures leverage in action. The rest of the money goes in to bonds for extra yield.
This is similar to an idea I have written about before, but which I did not invent, which is to use zero coupon treasury bonds and index funds.
It works like this, if you have $100,000 you would buy $100,000 face value of zeroes for, maybe, $0.60 on the dollar. Use the remaining $40,000 to buy an index fund. I've usually written about this as a substitute for a variable annuity.
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This story is about an interesting fund that has been around for a while. It is an SPX index fund but instead of buying the stocks it replicates the index with futures contracts.
As the manager puts it in the article each $100 that comes in goes to buy $100 of equity exposure but with less money, futures leverage in action. The rest of the money goes in to bonds for extra yield.
This is similar to an idea I have written about before, but which I did not invent, which is to use zero coupon treasury bonds and index funds.
It works like this, if you have $100,000 you would buy $100,000 face value of zeroes for, maybe, $0.60 on the dollar. Use the remaining $40,000 to buy an index fund. I've usually written about this as a substitute for a variable annuity.
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Not Anyone's Fault
In case you've missed it the market has had a nasty slide down, but nowhere near as bad as 1997 or 1998 in percentage terms but may have a more lasting impact because of the way the market has deteriorated as opposed to crashing in those other years.
Money is flowing out of almost everything. Health is doing well as are some consumer stocks, as talked about earlier on CNBC.
As I have been writing about for a while I may take defensive action soon for my clients. That will not entail selling everything, not even close. There are plenty of good companies with, now, much lower prices than just a few weeks ago. If the industrial sector is down 7% from its recent high and you own a name in the group that is down 11%, to repeat from a past post, that is not automatically a sell because something is wrong. See the big picture that stocks are not doing well for the time being.
The above scenario is true of a lot of companies in all of the sectors. Being disciplined, in my opinion, does not mean indiscriminate selling of everything you own.
If the market keeps going down that will be a bummer but hopefully a little of what I have been writing from the beginning of this blog is sinking in. Have a clearly defined and simple trigger point with a thought out course of action.
Oh, and keep your fingers crossed.
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Money is flowing out of almost everything. Health is doing well as are some consumer stocks, as talked about earlier on CNBC.
As I have been writing about for a while I may take defensive action soon for my clients. That will not entail selling everything, not even close. There are plenty of good companies with, now, much lower prices than just a few weeks ago. If the industrial sector is down 7% from its recent high and you own a name in the group that is down 11%, to repeat from a past post, that is not automatically a sell because something is wrong. See the big picture that stocks are not doing well for the time being.
The above scenario is true of a lot of companies in all of the sectors. Being disciplined, in my opinion, does not mean indiscriminate selling of everything you own.
If the market keeps going down that will be a bummer but hopefully a little of what I have been writing from the beginning of this blog is sinking in. Have a clearly defined and simple trigger point with a thought out course of action.
Oh, and keep your fingers crossed.
Read more!
Diversification?
Yesterday I worked at our office in Phoenix. I left shortly after the close and decided that instead of listening to CNBC in the car I would listen to the Diamondbacks game.
The game ended right around the time the Cramer Show started, so I bit my lip and listened. He did one segment that has the potential to really be helpful called Am I Diversified? Callers tell Jim their top five holdings (I guess by position size?) and Jim quickly renders an opinion enforced with several sound effects.
He commented that he didn't know what the callers had until about two minutes before the segment started. Most of the callers clearly did not have very diversified portfolios and Jim let them know. One guy had five energy stocks, another had two of his five in gaming. Despite what Jim said, assessing whether five names give decent diversification is quite easy. If you only have five names you need to have five sectors represented, four at an absolute minimum. Hello, how hard is that?
That being said a lot of people need the help and I think it is a good thing that he is trying to help with this.
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The game ended right around the time the Cramer Show started, so I bit my lip and listened. He did one segment that has the potential to really be helpful called Am I Diversified? Callers tell Jim their top five holdings (I guess by position size?) and Jim quickly renders an opinion enforced with several sound effects.
He commented that he didn't know what the callers had until about two minutes before the segment started. Most of the callers clearly did not have very diversified portfolios and Jim let them know. One guy had five energy stocks, another had two of his five in gaming. Despite what Jim said, assessing whether five names give decent diversification is quite easy. If you only have five names you need to have five sectors represented, four at an absolute minimum. Hello, how hard is that?
That being said a lot of people need the help and I think it is a good thing that he is trying to help with this.
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Reader Angst About Texas Tea
I had the following comment left for me;
Roger-I am having the same dilemma with my oil holdings,,when to sell?? I have watched them drop for a week now...am getting anxious, but I keep hearing from Craner that nobody ever made money panicking, yet everyday my oils (ECA, VLO, BR, RIG, UPL-about 25% of my portfolio-up big on ECA, and up little on RIG and BR)drop.
First some questions. How much of your portfolio did the group represent when you moved into the names? Oil is about 8.5% of the SPX. 25% where it currently sits is a HUGE overweight. A couple of those names are hot potatoes. If the sector craters from here the hot potatoes would likely drop more than the overall sector. A few weeks ago I blogged about the fact that I was stopped out, for clients, of a high beta oil name taking my energy exposure to a very slight overweight. Most clients are maybe at 10% in energy. I still like oil long term for all the reasons I have written about before but my lucky sale of the one stock speaks to a reasonable short term concern.
No matter how much I loved a sector I would not be exposed to triple the weight of the market. I would reasonably expect to lose clients, or worse, if I was on the wrong side of such a big bet.
I would take some beta out of your portfolio. VLO offers an interesting business, with the refining, but I have to admit that I don't any of the same names for clients.
Thanks for the kind words, I hope this can be helpful.
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Roger-I am having the same dilemma with my oil holdings,,when to sell?? I have watched them drop for a week now...am getting anxious, but I keep hearing from Craner that nobody ever made money panicking, yet everyday my oils (ECA, VLO, BR, RIG, UPL-about 25% of my portfolio-up big on ECA, and up little on RIG and BR)drop.
First some questions. How much of your portfolio did the group represent when you moved into the names? Oil is about 8.5% of the SPX. 25% where it currently sits is a HUGE overweight. A couple of those names are hot potatoes. If the sector craters from here the hot potatoes would likely drop more than the overall sector. A few weeks ago I blogged about the fact that I was stopped out, for clients, of a high beta oil name taking my energy exposure to a very slight overweight. Most clients are maybe at 10% in energy. I still like oil long term for all the reasons I have written about before but my lucky sale of the one stock speaks to a reasonable short term concern.
No matter how much I loved a sector I would not be exposed to triple the weight of the market. I would reasonably expect to lose clients, or worse, if I was on the wrong side of such a big bet.
I would take some beta out of your portfolio. VLO offers an interesting business, with the refining, but I have to admit that I don't any of the same names for clients.
Thanks for the kind words, I hope this can be helpful.
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Apple
Last night during both the preinterview and the actual interview on CNBC Asia I was asked about Apple computer's earnings. My answer was along these lines; Apple has regained some of the importance it had in the 1980's over the last few months with the success of the Ipod. I think that the crushing it has taken with the very good earnings report supports the notion that there is a problem with the demand for tech stocks. Not a shocking revelation but it is a corroborating piece of evidence.
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Wednesday, April 13, 2005
Alert
The Nasdaq has seriously breached it 200 DMA. This is not a trigger point for me, as opposed to the S+P 500. But I wrote a while ago that down a lot seemed like it had a very high probability of happening. I suppose some folks would say the market is already down a lot, fair game.
The 200 DMA for the S+P looks to be at about 1155. We either breach that or we don't. That will mean I either take action or I don't. I'm not going to worry about it. Honestly my only concern is how busy I will be in implementing a defensive strategy.
I can stress enough the importance of staying disciplined and emotionally detached.
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The 200 DMA for the S+P looks to be at about 1155. We either breach that or we don't. That will mean I either take action or I don't. I'm not going to worry about it. Honestly my only concern is how busy I will be in implementing a defensive strategy.
I can stress enough the importance of staying disciplined and emotionally detached.
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CNBC Asia Appearance
I am scheduled to appear in my usual slot about 15 minutes into the first hour of Asia Market Watch tonight. I have been gloomy about the market for a while now and emotionally taking the under on every data point.
If asked, I will say that I think it unlikely that any of the near term economic data can provide a lasting positive impact and that I would be surprised if good, as opposed to great, earnings will do the trick either. I have a chance to be proven wrong this afternoon with Apple.
I will also try to throw in that often in this type of washed out environment a huge rally can spring out of nowhere for no reason. To repeat myself, I have no expectation of a click up your heels type of move but I think it has more probability than it did a month ago when so many people thought April would be a good month.
For what its worth I don't think the stock market will get a lift from oil around $50. Earlier in the week I was talking to an old buddy of mine and I said that between $50 and $53 was kind of a no man's land and that oil would need to go below $50 to be a positive. But now maybe it will need to go below $48?
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If asked, I will say that I think it unlikely that any of the near term economic data can provide a lasting positive impact and that I would be surprised if good, as opposed to great, earnings will do the trick either. I have a chance to be proven wrong this afternoon with Apple.
I will also try to throw in that often in this type of washed out environment a huge rally can spring out of nowhere for no reason. To repeat myself, I have no expectation of a click up your heels type of move but I think it has more probability than it did a month ago when so many people thought April would be a good month.
For what its worth I don't think the stock market will get a lift from oil around $50. Earlier in the week I was talking to an old buddy of mine and I said that between $50 and $53 was kind of a no man's land and that oil would need to go below $50 to be a positive. But now maybe it will need to go below $48?
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Permanent Portfolio
I have written a few times about a fund called the Permanent Portfolio (PRPFX). It is a quirky little fund that owns things like gold and Swiss bonds in an effort to conservatively grow with very little correlation to the US stock market.
If you are not familiar with the fund you can listen to a lengthy interview with the manager, Michael Cuggino, at MarketWatch.com by clicking here.
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If you are not familiar with the fund you can listen to a lengthy interview with the manager, Michael Cuggino, at MarketWatch.com by clicking here.
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MWD? BFD
Apologies for the almost profanity.
For a while I found myself wondering if I was missing the importance of the Morgan Stanley story. All the TV channels are giving it so much attention and I could not figure out how this was relevant to my clients, given that I don't own the stock for them. Then the other day I heard someone in an interview say this is a car wreck story not a market story. I'm glad I'm not alone in not really caring about this story.
I wonder if it would be possible to have CNBC attempt to totally dissect every stock that hits a bump in the road, my clients have a couple of names that could use some help.
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For a while I found myself wondering if I was missing the importance of the Morgan Stanley story. All the TV channels are giving it so much attention and I could not figure out how this was relevant to my clients, given that I don't own the stock for them. Then the other day I heard someone in an interview say this is a car wreck story not a market story. I'm glad I'm not alone in not really caring about this story.
I wonder if it would be possible to have CNBC attempt to totally dissect every stock that hits a bump in the road, my clients have a couple of names that could use some help.
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Stocks or Real Estate?
Tyler Matheson moderated a stocks versus real estate segment yesterday afternoon. Both the equity guy and the real estate guy said the all the right things about being diversified. The most constructive comment came from Tyler.
He said he knows plenty of people that have lost their shirts in the stock market but that he doesn't know anyone that lost their shirt investing in their house.
This was a great point. Not that I invented this line of thought, but people don't check the price of their house several times a day and sell it if it goes down in price in a month. The mind set is much different. Clearly some stocks need to go sooner than expected, that goes with the territory but how many times would you guess the average investor sells a stock too early or badly?
I don't know the answer but you get the idea.
Take a company like Wells Fargo (WFC), not a client holding just an example. Assuming no death blow news, is there any reason to ever get panicked out of this name? Despite a few corrections along the way it has consistently out performed its sector and it yields 3.2%. If you own a stock like this but you make a decision to reduce exposure across the board and you decide to sell it along with some other names, that would be a tactical decision not made out of panic.
Also if you by a stock for a specific reason and that reason does not take the stock where you expect it to, that might logically be a sell. Logically, not emotionally.
If the financial sector takes a hit and WFC goes down by a similar amount, is that a reason to get shaken out? Probably not.
I think everyone can get better at this. Knowing when and why to sell is important and difficult. This is a work in progress.
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He said he knows plenty of people that have lost their shirts in the stock market but that he doesn't know anyone that lost their shirt investing in their house.
This was a great point. Not that I invented this line of thought, but people don't check the price of their house several times a day and sell it if it goes down in price in a month. The mind set is much different. Clearly some stocks need to go sooner than expected, that goes with the territory but how many times would you guess the average investor sells a stock too early or badly?
I don't know the answer but you get the idea.
Take a company like Wells Fargo (WFC), not a client holding just an example. Assuming no death blow news, is there any reason to ever get panicked out of this name? Despite a few corrections along the way it has consistently out performed its sector and it yields 3.2%. If you own a stock like this but you make a decision to reduce exposure across the board and you decide to sell it along with some other names, that would be a tactical decision not made out of panic.
Also if you by a stock for a specific reason and that reason does not take the stock where you expect it to, that might logically be a sell. Logically, not emotionally.
If the financial sector takes a hit and WFC goes down by a similar amount, is that a reason to get shaken out? Probably not.
I think everyone can get better at this. Knowing when and why to sell is important and difficult. This is a work in progress.
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Tuesday, April 12, 2005
Whipsaw Intensifies
Earlier I said that huge rallies start with sentiment we had this morning but that I was not predicting a rally. Perhaps I should have said I was predicting a rally ;-)
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Whipsaw
The Fed minutes came out at first the SPX lost two more points and then moved a little higher. This is tough to read but belies the fear that exists.
Before you totally give up realize that huge rallies often start when things look lousy. I am not predicting a rally here but I am positioned to catch a chunk of one if it comes.
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Before you totally give up realize that huge rallies often start when things look lousy. I am not predicting a rally here but I am positioned to catch a chunk of one if it comes.
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Jeepers!
Simon Hobbs had a lengthy interview with Robert Dudley, the CEO of Russian oil giant TNK-BP, on European Closing Bell. TNK-BP has a big tax bill due because of changes in the law.
TNK-BP is a favorite of Putin, of sorts. What struck me about the interview is how little Mr. Dudley knows about what is going on up to the minute with the government and the law. It was clear to me that this is more about Russia figuring things out and not Mr. Dudley being out of the loop or being dumb, quite the opposite about Mr. Dudley.
I did not realize how upside down things are there. To me this ramps up the risk profile of investing in Russia. Of course it may be me that is upside down.
I should disclose that my clients own British Petroleum (BP) which is the BP in TNK-BP.
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TNK-BP is a favorite of Putin, of sorts. What struck me about the interview is how little Mr. Dudley knows about what is going on up to the minute with the government and the law. It was clear to me that this is more about Russia figuring things out and not Mr. Dudley being out of the loop or being dumb, quite the opposite about Mr. Dudley.
I did not realize how upside down things are there. To me this ramps up the risk profile of investing in Russia. Of course it may be me that is upside down.
I should disclose that my clients own British Petroleum (BP) which is the BP in TNK-BP.
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Fed Minutes?
The Fed minutes will be out soon. I don't know what they will say but one of the Fed's tools is jawboning. This may be a chance for them to get some work done without taking any action. The market has been on pins and needles for what seems like ages. Some forethought at the last meeting could be important today in the minutes. We'll see if it plays out this way but it could be interesting.
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Dismally, as it relates to the markets.
Dismally, as it relates to the markets.
New blog.
Well new to me actually but its been around for a while. Dismally is written by David Andrew Taylor, a hedge fund manager/economist.
The site focuses on the dollar and the way in which economic data influences the dollar. It is a very good read but there is a lot of meat on the bone.
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New blog.
Well new to me actually but its been around for a while. Dismally is written by David Andrew Taylor, a hedge fund manager/economist.
The site focuses on the dollar and the way in which economic data influences the dollar. It is a very good read but there is a lot of meat on the bone.
Read more!
MSN Money - No guts, no glory, even in retirement funds
MSN Money - No guts, no glory, even in retirement funds
This is an important concept. If you retire at 60 and you live another 25 or 30 years you need more equity exposure than a lot of folks will tell you.
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This is an important concept. If you retire at 60 and you live another 25 or 30 years you need more equity exposure than a lot of folks will tell you.
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Oil Decline?
CSFB is calling for a near term price decline in the price of oil of 9%.
The trade gap came in at $61 billion for February.
The trade gap numbers put downward pressure on the dollar. If the dollar drops 4% or 5% against major currencies (back to where it was a few weeks ago) it would invalidate CSFB's oil call. Oil is priced in dollars. If the dollar falls, oil has to go up to keep everything equal. If the dollar falls 4% that might mean would drop a lot less than 9% everything else equal in CSFB's call.
I don't know what oil will do but there is a clear and obvious reason for CSFB to be wrong due to external factors. Tricky stuff sometimes.
On a personal note we fought a small fire last night just down the road. It some how started underground where the power line was anchored in. It was tiny but still took two hours to completely put out.
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The trade gap came in at $61 billion for February.
The trade gap numbers put downward pressure on the dollar. If the dollar drops 4% or 5% against major currencies (back to where it was a few weeks ago) it would invalidate CSFB's oil call. Oil is priced in dollars. If the dollar falls, oil has to go up to keep everything equal. If the dollar falls 4% that might mean would drop a lot less than 9% everything else equal in CSFB's call.
I don't know what oil will do but there is a clear and obvious reason for CSFB to be wrong due to external factors. Tricky stuff sometimes.
On a personal note we fought a small fire last night just down the road. It some how started underground where the power line was anchored in. It was tiny but still took two hours to completely put out.
Read more!
Monday, April 11, 2005
Conflicts Of Interest
Bill Cara: Bubble, Bubble, Real Estate Trouble, Mon., April 11, 2005, 8:38 AM
Bill Cara has an interesting post about conflicts of interest. I take Bill's meaning to focus on talking your book types of conflict. I don't spend much time thinking about this type of issue. Long time readers will know I go out of my way to avoid talking my book.
The conflict I have written about when advisors spend too much time managing their own account, that is trading a lot at the expense of managing client accounts.
If you work with an advisor of some sort or if you plan to, I would suggest asking about these types of things. If you need your account conservatively managed and your advisor is an adrenaline junkie in his account, you may want to know about that.
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Bill Cara has an interesting post about conflicts of interest. I take Bill's meaning to focus on talking your book types of conflict. I don't spend much time thinking about this type of issue. Long time readers will know I go out of my way to avoid talking my book.
The conflict I have written about when advisors spend too much time managing their own account, that is trading a lot at the expense of managing client accounts.
If you work with an advisor of some sort or if you plan to, I would suggest asking about these types of things. If you need your account conservatively managed and your advisor is an adrenaline junkie in his account, you may want to know about that.
Read more!
More on Stop Orders
The Cashin' In mail bag had a viewer question about stop orders. She was stopped out on several stocks and she said that most of them then went higher. Should she give up on them was her question?
This is a dilemma with stop orders that I have written about several times. The panel said that they would keep using stop orders and that there is nothing that says once you are stopped out that you can't get back in. I think I remember that a few weeks ago Jonathan said he does not like to go back into something after he has sold it, but I might have that wrong.
The take away is still that stop orders as a strategy, like all strategies, have flaws. Any time you sell a stock, stop order or not, the next move could be up a lot. Any time you buy a stock the next move could be down a lot. A few weeks ago I wrote about a stop order I placed on a hot potato of an oil stock that was up 20% very quickly. I was stopped out, the stock spent most of the next couple of weeks a little lower and today it is about .25% above where I was stopped out although it has been higher in the interim.
I think part of selling a stock has to be that you are willing to take the price you get. If you get panicked out of a stock at a low (happens to everyone sometimes) and then it rallies, well that is too bad but once you sell it the stress of holding the name is gone, is that worth something to you? Small consolation, I know.
The best thing I can suggest is to, recurring theme here, detach emotion from the trade. Learn from your losers and your winners. For some folks the best thing is to completely leave the name alone for awhile and come back to it later. Whatever works.
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This is a dilemma with stop orders that I have written about several times. The panel said that they would keep using stop orders and that there is nothing that says once you are stopped out that you can't get back in. I think I remember that a few weeks ago Jonathan said he does not like to go back into something after he has sold it, but I might have that wrong.
The take away is still that stop orders as a strategy, like all strategies, have flaws. Any time you sell a stock, stop order or not, the next move could be up a lot. Any time you buy a stock the next move could be down a lot. A few weeks ago I wrote about a stop order I placed on a hot potato of an oil stock that was up 20% very quickly. I was stopped out, the stock spent most of the next couple of weeks a little lower and today it is about .25% above where I was stopped out although it has been higher in the interim.
I think part of selling a stock has to be that you are willing to take the price you get. If you get panicked out of a stock at a low (happens to everyone sometimes) and then it rallies, well that is too bad but once you sell it the stress of holding the name is gone, is that worth something to you? Small consolation, I know.
The best thing I can suggest is to, recurring theme here, detach emotion from the trade. Learn from your losers and your winners. For some folks the best thing is to completely leave the name alone for awhile and come back to it later. Whatever works.
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Lemme See If I Have This Right?
The Spitzer Posse wants to know about finite reinsurance that General Re sold to AIG. So instead of calling in the person that sold the product to AIG or the salesperson's immediate supervisor they call in the CEO of the parent company? Am I alone in thinking this is not the most direct path to the truth?
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Ford
Ford Motor (F) had a nasty earnings warning Friday after the close. What concerns me the most about this is that S+P changed its outlook on Ford's long term debt to negative. The debt already has the lowest investment grade rating. According to Yahoo Finance, Ford has $172 billion in debt. Between Ford and GM there could be all sorts of distortions in bond land that could result.
Money could flow into corporate bonds from other investment grade bond issuers thus lowering yields. Or money could flow out of the corporate sector altogether, lifting yields, and into treasuries. Spreads getting very narrow or very wide; either way could cause upheaval.
Being more of an equity guy, I'm not sure which is more likely or if there is yet another scenario I haven't thought of that will come to pass. I know enough to know this could matter. I plan to track down what I can in the way of informed insight on this and I would suggest you do the same.
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Money could flow into corporate bonds from other investment grade bond issuers thus lowering yields. Or money could flow out of the corporate sector altogether, lifting yields, and into treasuries. Spreads getting very narrow or very wide; either way could cause upheaval.
Being more of an equity guy, I'm not sure which is more likely or if there is yet another scenario I haven't thought of that will come to pass. I know enough to know this could matter. I plan to track down what I can in the way of informed insight on this and I would suggest you do the same.
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Sunday, April 10, 2005
More About Process
My post the other day called Evolution of Process was in response to a reader's email. The post has generated more questions that I'll try to answer.
The follow up questions, if I properly understand the intent, are along the lines of how do I decide what I think will happen and more specifically how do I pick stocks to position around this expected probability. I'm not sure I can answer this satisfactorily but I can try.
The way a new (new for me) stock makes it into one of my clients accounts is first I will read about it or hear about it. This creates some awareness and I begin to watch it. I am curious to see how it does when the market rallies or sinks. I also want to see how well it correlates with the rest of the sector. I also want to know how it trades after its own good or bad news. Then I will try to learn more about the company. Eventually, after I think I know what the stock is capable of, it might go into client accounts. A while back I went through this process with Cummins Engine (CMI). This stock is no stranger to getting smacked down hard on bad news, same with SPX Corp (SPW).
To me both companies have obvious investment merit but I have never bought either one. These names have the potential for very sharp drops all at once. I'd rather own industrial stocks that don't seem to have the capacity for violent sell offs, there are plenty of them. If I devoted some time to it I might be able to figure out why this happens, but what good would it do?
CMI was had some great moves over the last couple of years but I would give up a little of that upside for a name that does not have the capacity to drop more than 50% as it did in 2002. Again there were plenty of similar names that did not cut in half. Usually I don't look to the industrial sector to add a lot of beta. That may change in the future but not in this environment.
Remember that I am not trying to pick a bunch of stocks that I think will move up 20% in two months and then flip them. Occasionally that happens and I may take the trade. But forcing my clients to rely on my ability to do this regularly would dramatically increase the risk I expose them to. It should be obvious why this would be a bad idea.
If you believe, as I do, in top down management, the notion of right stock in the wrong sector or wrong stock in the wrong sector becomes very important. As an example of this, back in October I wrote an article for Motley Fool about Ely Lilly. My take was this might be the right stock in the wrong sector (although I never considered buying it). That was right for a while but Lilly has dropped with a lot less news than the other names in the group. To me, knowing that the back drop for big American pharma was lousy was much more important to that article than the few positive things Lilly had going for it back then.
I should throw in that my feel for this has come from paying attention to things like this for my entire adult life. Even more important is that I know I can not get them all correct but that I have learned from experience success does not hinder on getting them all right. I've written many times that I am just trying to get more right than wrong.
Read more!
The follow up questions, if I properly understand the intent, are along the lines of how do I decide what I think will happen and more specifically how do I pick stocks to position around this expected probability. I'm not sure I can answer this satisfactorily but I can try.
The way a new (new for me) stock makes it into one of my clients accounts is first I will read about it or hear about it. This creates some awareness and I begin to watch it. I am curious to see how it does when the market rallies or sinks. I also want to see how well it correlates with the rest of the sector. I also want to know how it trades after its own good or bad news. Then I will try to learn more about the company. Eventually, after I think I know what the stock is capable of, it might go into client accounts. A while back I went through this process with Cummins Engine (CMI). This stock is no stranger to getting smacked down hard on bad news, same with SPX Corp (SPW).
To me both companies have obvious investment merit but I have never bought either one. These names have the potential for very sharp drops all at once. I'd rather own industrial stocks that don't seem to have the capacity for violent sell offs, there are plenty of them. If I devoted some time to it I might be able to figure out why this happens, but what good would it do?
CMI was had some great moves over the last couple of years but I would give up a little of that upside for a name that does not have the capacity to drop more than 50% as it did in 2002. Again there were plenty of similar names that did not cut in half. Usually I don't look to the industrial sector to add a lot of beta. That may change in the future but not in this environment.
Remember that I am not trying to pick a bunch of stocks that I think will move up 20% in two months and then flip them. Occasionally that happens and I may take the trade. But forcing my clients to rely on my ability to do this regularly would dramatically increase the risk I expose them to. It should be obvious why this would be a bad idea.
If you believe, as I do, in top down management, the notion of right stock in the wrong sector or wrong stock in the wrong sector becomes very important. As an example of this, back in October I wrote an article for Motley Fool about Ely Lilly. My take was this might be the right stock in the wrong sector (although I never considered buying it). That was right for a while but Lilly has dropped with a lot less news than the other names in the group. To me, knowing that the back drop for big American pharma was lousy was much more important to that article than the few positive things Lilly had going for it back then.
I should throw in that my feel for this has come from paying attention to things like this for my entire adult life. Even more important is that I know I can not get them all correct but that I have learned from experience success does not hinder on getting them all right. I've written many times that I am just trying to get more right than wrong.
Read more!
Saturday, April 09, 2005
The Big Picture for the Week of April 10, 2005
Barron's had an article that talked about how growth has badly lagged value in all cap sizes. The article quoted many people that think growth may finally assert some leadership. As best as I could tell the logic was that growth has to do better because its done so poorly. Okey doke.
I have been underweight growth for a while but I did add some last fall that has not worked out very well, I'm glad I didn't add more.
I wrote about this at the time, but my logic was (and I still believe in the reasoning) with a flatter yield curve more mature value companies have a harder time issuing debt and they rarely offer stock because it is too dilutive to earnings. Companies that do not dilute themselves too badly by issuing stock (growth names) tend to do better with flatter curves. Check the history and you'll see this has worked in the past.
The thing that kept me from overweighting growth was just kind of a common sense sniff test about demand for equities. Yes there was a nice fourth quarter rally but long time readers and the three of you that saw me on Cavuto know that I thought it would only last into year end, 2004.
I still see no visibility for great things anytime soon but as I have written before markets like this tend to turn very quickly for no reason at all. I would be surprised if I totally nail the turn. Fortunately, or at least I hope, that the way I am currently positioned will let my clients get most of a huge rally should it come.
There may actually be more risk to the upside, meaning that everyone seems to be afraid of the market and defensive to some degree. Although I do not put much into this line of thought it could happen which is why I keep writing to not completely abandon sectors that aren't working.
Read more!
I have been underweight growth for a while but I did add some last fall that has not worked out very well, I'm glad I didn't add more.
I wrote about this at the time, but my logic was (and I still believe in the reasoning) with a flatter yield curve more mature value companies have a harder time issuing debt and they rarely offer stock because it is too dilutive to earnings. Companies that do not dilute themselves too badly by issuing stock (growth names) tend to do better with flatter curves. Check the history and you'll see this has worked in the past.
The thing that kept me from overweighting growth was just kind of a common sense sniff test about demand for equities. Yes there was a nice fourth quarter rally but long time readers and the three of you that saw me on Cavuto know that I thought it would only last into year end, 2004.
I still see no visibility for great things anytime soon but as I have written before markets like this tend to turn very quickly for no reason at all. I would be surprised if I totally nail the turn. Fortunately, or at least I hope, that the way I am currently positioned will let my clients get most of a huge rally should it come.
There may actually be more risk to the upside, meaning that everyone seems to be afraid of the market and defensive to some degree. Although I do not put much into this line of thought it could happen which is why I keep writing to not completely abandon sectors that aren't working.
Read more!
FYI
In case you missed it and if you care (I do), the Fox News Channel business block will be on Sunday Morning this week at the normal Saturday times.
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Read more!
Friday, April 08, 2005
Groundhog Day
Well, maybe that's not the best description but its Friday, warm and sunny.
Very little is going up today, breadth is putrid and we have mentally erased all the gains from the earlier this week. One thing is working and that is foreign. About 75% of the foreign names I either watch, own for clients or own personally are up today. About 90% of the domestic names are down.
Before today I was going to write a week ending piece about what a boring week we'd had and that I hope we get more like this. Doh!
I haven't made any big strategic changes since last fall (and actually the change made then was not a big deal). I continue to be heavy in foreign, low beta and high yield stocks. I see no visibility for a change anytime soon. To address a post from earlier this week about perma bulls or perma bears I hope you will realize I am not a perma anything. At some point it will make sense to be overweight tech and financials, and I'll do that when the time comes. Investing requires patience, we all need to be aware of this and try to employ this in our actions. How patient are you?
Read more!
Very little is going up today, breadth is putrid and we have mentally erased all the gains from the earlier this week. One thing is working and that is foreign. About 75% of the foreign names I either watch, own for clients or own personally are up today. About 90% of the domestic names are down.
Before today I was going to write a week ending piece about what a boring week we'd had and that I hope we get more like this. Doh!
I haven't made any big strategic changes since last fall (and actually the change made then was not a big deal). I continue to be heavy in foreign, low beta and high yield stocks. I see no visibility for a change anytime soon. To address a post from earlier this week about perma bulls or perma bears I hope you will realize I am not a perma anything. At some point it will make sense to be overweight tech and financials, and I'll do that when the time comes. Investing requires patience, we all need to be aware of this and try to employ this in our actions. How patient are you?
Read more!
Stock Picker's Continued?
Som Dasgupta from PNC Capital Markets was on with Liz Clayman and said this is definitely a stock pickers market and said he sees opportunity in the housing and gaming sectors.
Sinking in.
I was no English major but wouldn't that be a sector picker's market? Sector.
Read more!
Sinking in.
I was no English major but wouldn't that be a sector picker's market? Sector.
Read more!
Evolution of Process
A frequent flier here at Random Air emailed a question in response to my taking what the market gives comment from the other day. First let me say that I have written about that several times on the blog before.
The reader specifically asks how I have come to have the approach that I do. I'll do my best to address this with out it being too much like a manifesto (cabin in the woods humor).
I have been working in the industry since 1984 (I was 18). Right from the start I have been fascinated by all aspects of capital markets. Throughout my time I have always read, watched and studied more than anyone else I have known or worked with. This continues today. The time spent on the computer and watching CNBC Asia has often come up a sore spot in my marriage. To give you an idea, my wife and I have negotiated that if she is up on Saturday I can't watch the Fox shows. I have to TIVO them and watch Sunday morning before she gets up.
Over the years I have held on to most of the market history I have lived through (anyone remember when the Dow fell 200 points in 1989 because the UAL LBO fell apart?) and studied history that was before my time. I do believe that history tends to repeat itself but precedent can only be an aid not the entire decision process.
I have often written that stock selection is the least important part of my process. I have read several studies in my time that helped me develop my beliefs here. I readily concede that it would be easy to find a study that says whatever you want it to say. As a matter of my sense of history though, in many years big cap financials tend to do about the same thing, or similar pharma names have tight correlations more often than not. I have made good calls on AIG and Pfizer but not because I picked apart the balance sheet and found something. Both calls were top down as being the wrong sector.
I was decently early about Australia, New Zealand and Norway. This was even bigger picture, these economies will benefit from demand for basic materials. For the time being materials have the wind at their backs, but a properly diversified portfolio needs some of this exposure if for no other reason than these countries historically are at different points in the economic cycle.
The way I try to add value is being able to see things like current events and blend that together with how the market historically works and hope that result in getting more picture themes right than wrong.
The market goes up most of the time and down some of the time, sound familiar? Think about all the nasty corrections you can personally remember. What happens every time? The market comes back (please note that I respectfully differentiate between corrections and bubbles). At some point the S+P 500 will take 1500 back. I could guess at the timing and be wrong by a little or a lot. Good companies tend to do the same thing. To prove my point I randomly looked at Ingersoll Rand (IR). since January 1, 1995 the stock has had, by my count, 38 corrections that were 10% or greater (I would guess that 1/3 of them were 20% or more but I did not count) yet according to BigCharts IR is up 250% in the last decade compared to about 130% for the S+P 500. Honestly that was the first name I thought of. I did not know there would have been than many dips and I don't know how representative that is of other companies.
Over the last ten years I don't recall any death blow news coming for this company. At some point in the future the company may go the way of Bethlehem Steel or Polaroid but not now.
I believe that with this perspective in your corner it makes weathering bad stretches in the market much easier. Despite all these corrections, this one random name has wildly outperformed the market. I have no idea how many of those 38 corrections were because of the market and how many were caused but IR's own news but I feel safe in assuming that none of the news changed company.
There is some news that, for me, does change the company. My favorite story along these lines, and I've written about it before, is Worldcom. I remember hearing, while the stock was still in its heyday, that Bernie Ebbers had huge margin loans on his stock. CEO's of large public corporations don't need margin loans. I don't know why he had them but that was all I needed to know.
I often write about supply and demand being behind a lot of the themes I invest in. I heard about this time and again in any interview with someone I was told was smart. As time went on I saw how this was right more often than not. Obvious supply and demand issues are no guarantee but can put the odds in your favor.
All of my ideas about portfolio management, and there are some I have missed as this has evolved over 20 years, come from the same place. Picking stocks is very difficult. If you pick a portfolio of stocks and manage that portfolio you will get some right and you will get some wrong, no one is immune from that. I look for ways to put the odds in my favor, to do some heavy lifting for me. Oil is an obvious theme and has been for a couple of years. Basic materials is another one. In another year or three there will be a new obvious theme. Common sense big picture things are an easier starting point than industry specific, bottoms up trends like wafer size or something new with protease (spelling?) inhibitors.
My primary job is to make sure I get my clients to their goal with as little volatility and stress as possible. Remaining emotionally detached from the volatility allows me to help clients manage their concerns. My ability to remain emotionally detached comes from my unyielding faith in how the market works.
Stocks go up, stocks go down. Always maintain a clearly defined trigger point for getting defensive. Ride out flat periods and be there for the huge up years. Thanks for the question and hopefully that covers some of it.
Read more!
The reader specifically asks how I have come to have the approach that I do. I'll do my best to address this with out it being too much like a manifesto (cabin in the woods humor).
I have been working in the industry since 1984 (I was 18). Right from the start I have been fascinated by all aspects of capital markets. Throughout my time I have always read, watched and studied more than anyone else I have known or worked with. This continues today. The time spent on the computer and watching CNBC Asia has often come up a sore spot in my marriage. To give you an idea, my wife and I have negotiated that if she is up on Saturday I can't watch the Fox shows. I have to TIVO them and watch Sunday morning before she gets up.
Over the years I have held on to most of the market history I have lived through (anyone remember when the Dow fell 200 points in 1989 because the UAL LBO fell apart?) and studied history that was before my time. I do believe that history tends to repeat itself but precedent can only be an aid not the entire decision process.
I have often written that stock selection is the least important part of my process. I have read several studies in my time that helped me develop my beliefs here. I readily concede that it would be easy to find a study that says whatever you want it to say. As a matter of my sense of history though, in many years big cap financials tend to do about the same thing, or similar pharma names have tight correlations more often than not. I have made good calls on AIG and Pfizer but not because I picked apart the balance sheet and found something. Both calls were top down as being the wrong sector.
I was decently early about Australia, New Zealand and Norway. This was even bigger picture, these economies will benefit from demand for basic materials. For the time being materials have the wind at their backs, but a properly diversified portfolio needs some of this exposure if for no other reason than these countries historically are at different points in the economic cycle.
The way I try to add value is being able to see things like current events and blend that together with how the market historically works and hope that result in getting more picture themes right than wrong.
The market goes up most of the time and down some of the time, sound familiar? Think about all the nasty corrections you can personally remember. What happens every time? The market comes back (please note that I respectfully differentiate between corrections and bubbles). At some point the S+P 500 will take 1500 back. I could guess at the timing and be wrong by a little or a lot. Good companies tend to do the same thing. To prove my point I randomly looked at Ingersoll Rand (IR). since January 1, 1995 the stock has had, by my count, 38 corrections that were 10% or greater (I would guess that 1/3 of them were 20% or more but I did not count) yet according to BigCharts IR is up 250% in the last decade compared to about 130% for the S+P 500. Honestly that was the first name I thought of. I did not know there would have been than many dips and I don't know how representative that is of other companies.
Over the last ten years I don't recall any death blow news coming for this company. At some point in the future the company may go the way of Bethlehem Steel or Polaroid but not now.
I believe that with this perspective in your corner it makes weathering bad stretches in the market much easier. Despite all these corrections, this one random name has wildly outperformed the market. I have no idea how many of those 38 corrections were because of the market and how many were caused but IR's own news but I feel safe in assuming that none of the news changed company.
There is some news that, for me, does change the company. My favorite story along these lines, and I've written about it before, is Worldcom. I remember hearing, while the stock was still in its heyday, that Bernie Ebbers had huge margin loans on his stock. CEO's of large public corporations don't need margin loans. I don't know why he had them but that was all I needed to know.
I often write about supply and demand being behind a lot of the themes I invest in. I heard about this time and again in any interview with someone I was told was smart. As time went on I saw how this was right more often than not. Obvious supply and demand issues are no guarantee but can put the odds in your favor.
All of my ideas about portfolio management, and there are some I have missed as this has evolved over 20 years, come from the same place. Picking stocks is very difficult. If you pick a portfolio of stocks and manage that portfolio you will get some right and you will get some wrong, no one is immune from that. I look for ways to put the odds in my favor, to do some heavy lifting for me. Oil is an obvious theme and has been for a couple of years. Basic materials is another one. In another year or three there will be a new obvious theme. Common sense big picture things are an easier starting point than industry specific, bottoms up trends like wafer size or something new with protease (spelling?) inhibitors.
My primary job is to make sure I get my clients to their goal with as little volatility and stress as possible. Remaining emotionally detached from the volatility allows me to help clients manage their concerns. My ability to remain emotionally detached comes from my unyielding faith in how the market works.
Stocks go up, stocks go down. Always maintain a clearly defined trigger point for getting defensive. Ride out flat periods and be there for the huge up years. Thanks for the question and hopefully that covers some of it.
Read more!
Thursday, April 07, 2005
Bull vs Bear Debate
In between periods of the Frozen Four NCAA hockey I caught the bull vs bear debate between Art Hogan and Michael Metz.
Does anyone else think it is weird that some folks are always on the same side of the trade? Michael Metz has always been bearish no matter what, always! Art Hogan does not stick out in my memory as a perma bull. If I'm right about that, you can substitute Joey Bats or Ned Riley.
All of these guys, one way or another, service clients. I really don't understand how someone can look at all circumstances that arise and always draw the same conclusion, no matter what. How can this possibly meet the fiduciary obligation these folks have. Seriously.
Read more!
Does anyone else think it is weird that some folks are always on the same side of the trade? Michael Metz has always been bearish no matter what, always! Art Hogan does not stick out in my memory as a perma bull. If I'm right about that, you can substitute Joey Bats or Ned Riley.
All of these guys, one way or another, service clients. I really don't understand how someone can look at all circumstances that arise and always draw the same conclusion, no matter what. How can this possibly meet the fiduciary obligation these folks have. Seriously.
Read more!
Global Investor: Ukraine
Global Investor: Ukraine's tiny stock market draws a growing crowd - Telecommunications - Mining and Metals - Food and Beverage - Oil and Gas - Gas/Utilities - General News - Fiber Optics - Natural Resources - Energy - Personal Finance - Mutual Funds - Commodities - Economy - General
This was on the MarketWatch page. The Ukraine has been in my span of awareness for a while due to great returns but I have no exposure. According to ADR.com there are a few pink sheet ADRs but I've never studied any of them.
The article is a good read to learn and create awareness, that all.
Read more!
This was on the MarketWatch page. The Ukraine has been in my span of awareness for a while due to great returns but I have no exposure. According to ADR.com there are a few pink sheet ADRs but I've never studied any of them.
The article is a good read to learn and create awareness, that all.
Read more!
That's What I'm Talking About
I have mentioned that I do some portfolio consultation for people. The quarter just ended so I exchanged emails with these folks in the last few days. One of these clients summed up the quarter noting a slight outperformance of the market attributed to a heavy weighting in dividend paying stocks.
Hello!
This was an astute observation and ties in with a lot of what I have written about over the months. A lot of smart people have been calling for flat(ish) returns for the foreseeable future. While we can't say how long this will persist it makes sense to think along these lines for now. This is a repeat of what I have written before but if the market only is up 1% for the year but you have a 3% yield for your portfolio that can help a lot.
This ties in with a belief of mine that you can only take what the market gives. The next 25% or 30% up year will be likely be where most of your growth will come from. Until then let healthy dividends do some of the work for you.
Read more!
Hello!
This was an astute observation and ties in with a lot of what I have written about over the months. A lot of smart people have been calling for flat(ish) returns for the foreseeable future. While we can't say how long this will persist it makes sense to think along these lines for now. This is a repeat of what I have written before but if the market only is up 1% for the year but you have a 3% yield for your portfolio that can help a lot.
This ties in with a belief of mine that you can only take what the market gives. The next 25% or 30% up year will be likely be where most of your growth will come from. Until then let healthy dividends do some of the work for you.
Read more!
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