The way I see it gold goes up for 3 reasons. 1) Either people think the dollar is going to be worth less (inflation) or 2) they think the world is going to end (fear) or 3) simple supply/demand.
Both gold and the stock market can go up under 2 of the 3 items.
Gold - market pundits are arguing that investors should own gold in their portfolios. They suggest 5% of the total portfolio. Right now that number is 1.5%. So there is a lot of room to grow. Gold supply also continues to dwindle. Finding gold to mine is becoming more difficult. Inflation is going to happen. Demand for food and energy only continues to increase as emerging markets grow and we can't keep up with the demand yet. That is why you hear about these agriculture stocks all the time.
Market - Great multinational companies with exposure to the rest of the world are at very low PE ratios and most have very nice 3% or more dividends which is 3x what you get in a money market. Not to mention the record amounts of cash these companies have on their balance sheets. They are a very undervalued asset class in my opinion. Apple has $70 billion dollars in cash. That is more than the GDP of 150 countries and twice the size of Goldman Sachs.
Things that could make the market go down:
Europe issues - specifically the PIIGS - Portugal, Ireland, Italy, Greece and Spain. Worst case scenario here (in my book) is that the European Union just removes them from the union and are off on their own. Not sure what this does for us though.
China - they need to pick their growth back up. They are trying to cool down their economy so they don't have a housing and food bubble over there.
Washington - no confidence that they can do what is necessary to get our fiscal house in order and with the election coming up and republicans trying to make the Obama administration look bad, the uncertainty is preventing businesses from spending money short term. Other bills like Dodd/Frank and Obamacare are causing even more uncertainty for the long term and preventing business from hiring because they don't know what employees will cost.
Japan - too slow to get back online and rebuild after the earthquake.
>$3.50 gas - apparently this the magic number. The lower the price of gas, the bigger the "tax break" for the consumer and they can spend more money on flat screens.
Housing - lots of jobs come from housing. Need a turnaround here, but no immediate catalysts.
Earnings - corporate earnings were great the last few quarters but due to expense cuts. These beats need to come from top line growth in future quarters.
My take - invest in high dividend multinational companies, have a portion of your portfolio in gold, keep some cash on the sideline and buy in small increments on the dips. Take some small risks for big growth in key areas that have been beaten up and/or are poised to grow.Let dividends provide income and a floor if things get bad. They will also provide growth if things get better as earnings and PE ratios should increase.
Thursday, July 21, 2011
Monday, March 24, 2008
Changing Tone
The tone is changing in the market so I no longer would want to be short. My stop was hit on DXD (down 7%). It served its purpose as insurance to protect against any major downside but with the rally over the past few days the tone feels so much more positive. I would also be nervous shorting the DOW with so many financials in it. A lot of people took gains out of the commodities and are now holding cash on the sidelines. I wouldn't be surprised if that excess cash started finding its way into the beaten up financials. BSC's bid being raised, the Fed's various programs to help with liquidity and the lowered Fed Funds rate all seem to be providing catalysts to this market. There are still liquidity issues (See CIT) but the many think that the market is extremely oversold so any news that isn't as bad as expected is a big positive for the market.
Tuesday, March 11, 2008
Dow Up 417pts!
This is a gift. You can now buy DXD (Insurance) at $2 lower!
All the Fed did today was keep the 20 largest banks in business. It will help but providing liquidity to these guys doesn't mean they are going to pass it along to anyone else. We are in a recession. The economy is not growing. Jobs are not being created. Shorts covered today so that just means they don't want to be short not that people are willing to buy. In fact, all we need is one negative headline and down 200pts we go.
I am a buyer of DXD here and have an order in after hours.
All the Fed did today was keep the 20 largest banks in business. It will help but providing liquidity to these guys doesn't mean they are going to pass it along to anyone else. We are in a recession. The economy is not growing. Jobs are not being created. Shorts covered today so that just means they don't want to be short not that people are willing to buy. In fact, all we need is one negative headline and down 200pts we go.
I am a buyer of DXD here and have an order in after hours.
Friday, March 7, 2008
BUY INSURANCE
Think the market is going down? You have 2 choices
1) Sell your stocks and go into cash which pays you 2-3% (and going down with each rate cut)
DXD
1) Sell your stocks and go into cash which pays you 2-3% (and going down with each rate cut)
2) Buy insurance and keep the dividends on your stocks rolling in
I recommend high safe dividend paying stocks (VZ, GE, MO, MCD) that pay higher dividends then cash (money markets & high yield savings) and then buying ETFs that go up when the market goes down. This way you get your dividends and you protect you overall portfolio value.
See below:
DOG - is an ETF that goes up 1 for 1 as the Dow Jones Industrial Average (DJIA) goes down.
DXD - is an ETF that goes up 2 for 1 as the DJIA goes down.
I like DXD since you can buy it cheaper and get twice the protection. Keep in mind that if the market goes up then you lose twice as much though.
DOG
DXD
Saturday, December 29, 2007
Thoughts for 2008
Some time has passed since I last wrote. Things got a little hectic towards the end of the year but I want to start a new in 2008 and try to at least provide a weekly update of what the market did and what moves I made in my portfolio. Writing things out helps me to recap and refocus. I hope it helps you as well. Feel free to write back with your comments.
I was also thinking of starting an investment club that we could all partake in. We can discuss strategies and re-adjust monthly. We can all pitch in ~$500 each to start and then $25 a month to help accumulate funds. I would like to get at least 5 people interested so we have some capital to play with. Once a month, everyone will send an email with their thoughts and one suggested idea (buy this stock and sell that or go 50% into cash). We will vote on the best idea and execute it that month. At the end of the year, we can all get together, have a drink and give out stuff for the best trade, the worst trade, etc. Let me know if you are interested and I will look into it further. I have attached a few links to check out:
http://www.fool.com/InvestmentClub/InvestmentClub01.htm
http://www.investmentclubhelp.com/
http://biz.yahoo.com/edu/ed_clubs.html
My personal thoughts going into 2008 are more pessimistic than optimistic but that doesn't mean there isn't money to be made. I think both the US and World economies slow with the US slowing at a faster pace due pressure on the US consumer. There is just too much bad news and not enough good news. We have housing that is a mess. Inventories continue to rise, home prices continue to fall and liquidity non-existent (Liquidity is needed by banks to lend out money to the consumer. Banks are constrained right now and therefore are hesitant to lend money. This is why after 100bps in Fed cuts, mortgage rates have not changed). Jobless claims are rising almost to levels where the last recession took place. The weak US consumer coupled with rising inflation leads to stagflation which is the worst case scenario. People don't have as much money yet prices keep rising!
So with all that said, I am positioning my portfolio into recession proof stocks and high dividend payers. I am also somewhat bullish on well capitalized (lots of cash on hand) small caps. I think the Fed is going to have to cut at least another 50bps if not 100bps so this bodes well for smaller companies. They will be able to borrow at lower rates to finance their growth. If not, they still have plenty of cash. As long as they are not laden with debt and have good, experienced management, I would venture into some small cap. I also like US based companies that have over 50% of their revenue coming from overseas. The dollar should continue to be weak against other currencies and this is a positive for these companies as they make money in the foreign currency and then translate it back into dollars. I am a big fan of staying in at least 30% cash right now. This will give me the opportunity to pick up stock that I believe is “on sale.”
Depending on the type of stock and tax implications, I put my positions into 1 of 3 accounts. I have a trading account, Traditional IRA (former 401(k)) and a Roth IRA. I put most of my speculative positions and options trades (other than covered calls) into the trading account. This is so I can write off any losses. I am the most aggressive in this account. I put all of my big dividend payers into my Roth since this grows tax free. My traditional IRA has the biggest chunk of change in it so I use this for things I really believe in and want to take bigger positions in. I usually put positions I wouldn’t mind holding for the long term in this account. I also write a lot of covered calls in this account.
I get all of my info and research from the following sources:
Bloomberg
Etrade
Scottrade
Yahoo! Finance
Thestreet.com
Realmoney.com – Subscription
Actionalertsplus.com – Subscription
Stocks under $10 – Subscription
Currently owned stocks
Most of these stocks come from recommendations from the above sources. I invest by a top down method. I take a view of the overall economy (US and World) and then I breakdown those sectors which I think will outperform and then select those stocks which I believe are undervalued or best of breed. I purchase and sell stocks in layers. I rarely sell or buy all at once. My investing philosophy is modeled after Jim Cramer’s.
Roth IRA
NLY – Is a REIT (Real Estate Investment Trust) that is well capitalized and is able to pick up MBS (mortgage backed securities) at huge discounts in this volatile market. Since they are a REIT they have to pay out most of the earnings thus giving this stock a current 7% dividend
MCD – McDonald’s is a defensive stock that pays a 2.5% dividend and has a big chunk of its income coming from overseas. They are also taking market share from Starbucks with their premium coffee.
VZ – Verizon has a 3.5% dividend and has a great growth story with their new FIOS service. I have FIOS recommend it highly. The quality is that much better both internet and TV. This is one of my favorite stocks.
OHI – Is a Healthcare REIT. Pays a 7% dividend. I have owned this stock for years. It consistently moves between $13 and $17. I always own shares but I trade it the range as well. One day this company will be bought out.
Traditional IRA
CVS – Defensive stock tied to healthcare. Consolidation has taken place in this industry with Walgreens buying Happy Harry’s. I could see CVS buying Rite Aid to compete. CVS is well run and more a defensive holding than anything. I will probably look to sell in the upper 40’s
SGP – Pharma company that is best of breed. Has been beaten up lately but should trade back into the 30’s early in 2008.
CLNE – Small cap natural gas play. Very volatile and I would normally hold it in my trading account but I wanted to take a big position. It has great management and has just been initiated as a Strong Buy by Broadpoint. I think you will see many more analysts start to cover this stock.
RTN – Defense contractor – Defense spending will continue in any economic environment and regardless of who wins in November.
WB – Wachovia bank - My worst pick in 2007. The only saving grace so far is its 6.75% dividend. Hopefully they don’t cut it. I don’t think they will. The CEO came out and was bullish on the stock but who knows. I continue to write covered calls to try to recoup some of my loss as I wait for it to trade back up.
TASR – Small cap with great growth potential. Orders keep coming in from all over the world and there is no real proof that stun guns harm people. They have had over 50 cases that have been thrown out. Best thing about this stock is the residual income it gets from the sale of its stun gun cartridges. Think razors blades. That is why this stock will continue to grow. The cartridges are not reusable so you have to buy more!
Trading Account
EMC – Tech company that owns over 60% of the hottest IPO VMWare. The stock doesn’t fully value this let alone its core business. Stock should trade back into the 20’s.
SIRI – The merger will go through, it’s just a matter a time.
EGT – Small cap slot machine company. Sells machines in Asia. Asia loves to gamble and with more disposable income being created there = more gambling!
I was also thinking of starting an investment club that we could all partake in. We can discuss strategies and re-adjust monthly. We can all pitch in ~$500 each to start and then $25 a month to help accumulate funds. I would like to get at least 5 people interested so we have some capital to play with. Once a month, everyone will send an email with their thoughts and one suggested idea (buy this stock and sell that or go 50% into cash). We will vote on the best idea and execute it that month. At the end of the year, we can all get together, have a drink and give out stuff for the best trade, the worst trade, etc. Let me know if you are interested and I will look into it further. I have attached a few links to check out:
http://www.fool.com/InvestmentClub/InvestmentClub01.htm
http://www.investmentclubhelp.com/
http://biz.yahoo.com/edu/ed_clubs.html
My personal thoughts going into 2008 are more pessimistic than optimistic but that doesn't mean there isn't money to be made. I think both the US and World economies slow with the US slowing at a faster pace due pressure on the US consumer. There is just too much bad news and not enough good news. We have housing that is a mess. Inventories continue to rise, home prices continue to fall and liquidity non-existent (Liquidity is needed by banks to lend out money to the consumer. Banks are constrained right now and therefore are hesitant to lend money. This is why after 100bps in Fed cuts, mortgage rates have not changed). Jobless claims are rising almost to levels where the last recession took place. The weak US consumer coupled with rising inflation leads to stagflation which is the worst case scenario. People don't have as much money yet prices keep rising!
So with all that said, I am positioning my portfolio into recession proof stocks and high dividend payers. I am also somewhat bullish on well capitalized (lots of cash on hand) small caps. I think the Fed is going to have to cut at least another 50bps if not 100bps so this bodes well for smaller companies. They will be able to borrow at lower rates to finance their growth. If not, they still have plenty of cash. As long as they are not laden with debt and have good, experienced management, I would venture into some small cap. I also like US based companies that have over 50% of their revenue coming from overseas. The dollar should continue to be weak against other currencies and this is a positive for these companies as they make money in the foreign currency and then translate it back into dollars. I am a big fan of staying in at least 30% cash right now. This will give me the opportunity to pick up stock that I believe is “on sale.”
Depending on the type of stock and tax implications, I put my positions into 1 of 3 accounts. I have a trading account, Traditional IRA (former 401(k)) and a Roth IRA. I put most of my speculative positions and options trades (other than covered calls) into the trading account. This is so I can write off any losses. I am the most aggressive in this account. I put all of my big dividend payers into my Roth since this grows tax free. My traditional IRA has the biggest chunk of change in it so I use this for things I really believe in and want to take bigger positions in. I usually put positions I wouldn’t mind holding for the long term in this account. I also write a lot of covered calls in this account.
I get all of my info and research from the following sources:
Bloomberg
Etrade
Scottrade
Yahoo! Finance
Thestreet.com
Realmoney.com – Subscription
Actionalertsplus.com – Subscription
Stocks under $10 – Subscription
Currently owned stocks
Most of these stocks come from recommendations from the above sources. I invest by a top down method. I take a view of the overall economy (US and World) and then I breakdown those sectors which I think will outperform and then select those stocks which I believe are undervalued or best of breed. I purchase and sell stocks in layers. I rarely sell or buy all at once. My investing philosophy is modeled after Jim Cramer’s.
Roth IRA
NLY – Is a REIT (Real Estate Investment Trust) that is well capitalized and is able to pick up MBS (mortgage backed securities) at huge discounts in this volatile market. Since they are a REIT they have to pay out most of the earnings thus giving this stock a current 7% dividend
MCD – McDonald’s is a defensive stock that pays a 2.5% dividend and has a big chunk of its income coming from overseas. They are also taking market share from Starbucks with their premium coffee.
VZ – Verizon has a 3.5% dividend and has a great growth story with their new FIOS service. I have FIOS recommend it highly. The quality is that much better both internet and TV. This is one of my favorite stocks.
OHI – Is a Healthcare REIT. Pays a 7% dividend. I have owned this stock for years. It consistently moves between $13 and $17. I always own shares but I trade it the range as well. One day this company will be bought out.
Traditional IRA
CVS – Defensive stock tied to healthcare. Consolidation has taken place in this industry with Walgreens buying Happy Harry’s. I could see CVS buying Rite Aid to compete. CVS is well run and more a defensive holding than anything. I will probably look to sell in the upper 40’s
SGP – Pharma company that is best of breed. Has been beaten up lately but should trade back into the 30’s early in 2008.
CLNE – Small cap natural gas play. Very volatile and I would normally hold it in my trading account but I wanted to take a big position. It has great management and has just been initiated as a Strong Buy by Broadpoint. I think you will see many more analysts start to cover this stock.
RTN – Defense contractor – Defense spending will continue in any economic environment and regardless of who wins in November.
WB – Wachovia bank - My worst pick in 2007. The only saving grace so far is its 6.75% dividend. Hopefully they don’t cut it. I don’t think they will. The CEO came out and was bullish on the stock but who knows. I continue to write covered calls to try to recoup some of my loss as I wait for it to trade back up.
TASR – Small cap with great growth potential. Orders keep coming in from all over the world and there is no real proof that stun guns harm people. They have had over 50 cases that have been thrown out. Best thing about this stock is the residual income it gets from the sale of its stun gun cartridges. Think razors blades. That is why this stock will continue to grow. The cartridges are not reusable so you have to buy more!
Trading Account
EMC – Tech company that owns over 60% of the hottest IPO VMWare. The stock doesn’t fully value this let alone its core business. Stock should trade back into the 20’s.
SIRI – The merger will go through, it’s just a matter a time.
EGT – Small cap slot machine company. Sells machines in Asia. Asia loves to gamble and with more disposable income being created there = more gambling!
Monday, October 15, 2007
Thursday, October 4, 2007
Corporate Capital Management
Management has 2 basic choices on how they fund themselves:
1) Issue Debt
2) Issue Stock
If you were a manager when would you issue debt vs. stock and vice versa?
Generally it is a some combination of both but there are reasons for each.
Debt gives you better tax benefits and when interest rates are low, you might want to issue debt so you pay out less interest. Debt also depends on the credit worthiness of the company (ie AAA vs AA vs A vs BBB....etc). There are a lot of variable that go into issuing debt.
Stock on the other hand is a one and done deal. If you are public company then you already know what you are going to get. If your stock is trading at $50 a share then you are going to get roughly $50 x # of shares you are going to issue. Most likely you will get less than $50 a share since you will be adding to the total shares outstanding and diluting the stocks value but the current price is a good proxy.
So back to the question or more specifically, when would you issue stock?
The answer is when you think it is as high as it's going to get! That way you get the most bang for your buck.
The lesson here is when you hear of a good company getting ready to issue more stock - be very weary - it has a higher probability of going DOWN!
Check out WYNN stock:
1) Issue Debt
2) Issue Stock
If you were a manager when would you issue debt vs. stock and vice versa?
Generally it is a some combination of both but there are reasons for each.
Debt gives you better tax benefits and when interest rates are low, you might want to issue debt so you pay out less interest. Debt also depends on the credit worthiness of the company (ie AAA vs AA vs A vs BBB....etc). There are a lot of variable that go into issuing debt.
Stock on the other hand is a one and done deal. If you are public company then you already know what you are going to get. If your stock is trading at $50 a share then you are going to get roughly $50 x # of shares you are going to issue. Most likely you will get less than $50 a share since you will be adding to the total shares outstanding and diluting the stocks value but the current price is a good proxy.
So back to the question or more specifically, when would you issue stock?
The answer is when you think it is as high as it's going to get! That way you get the most bang for your buck.
The lesson here is when you hear of a good company getting ready to issue more stock - be very weary - it has a higher probability of going DOWN!
Check out WYNN stock:
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