August 31, 2007

Sorry for the long delay. Moving from Philly to Charleston takes time. I've been keeping up with the markets, and like what I see. Capitulation seems to have been/was on Thursday, August 16 ~1pm. S&P 500 dropped to ~1370, then recovered nicely later that day. Since then, we're up and have a healthy economy. Stay long and ignore noise.

My portfolio lost a lot of value until that Thursday, and has gained a decent amount back. I still have a "ways to go" to get back where I was in mid-July, but I'm confident it'll get there soon and then some.

Right now, I really like most of my core: AAPL, LF, GR and PRE. RL took a hit. I still like the company and fundamentals, think prospects are bright, and most of the 'bad news' is baked in. Now could be an extraordinary time to buy RL calls. LF took a hit in the last month, but it's small-cap anyway, and going from ~$11 to ~$7 isn't a big deal to me.

Remember, there's a time to buy, a time to sell and a long time in-between to do nothing. Now is still a good time to buy. Quite good, actually.



July 29, 2007

Wow, what a week. It's a bull market. Shush now, don't tell anybody, because bull markets always look best when they don't appear like bull markets. Deal with the short and swift correction. Deal with the fact that the market thinks that private equity buyouts are ending. Deal with the market's thought that credit problems are widespread and rampant. Deal with the fear. Deal with the uncertainty. Stay in the game.

My portfolio took a hit this week, like most. However, I continue to look at my main holdings. AAPL, PRE, GR and RL are all well-known, quality global corporations with plenty of growth potential. LF is my speculative play, and I bought more LF last week in the upper 8's and low 9's. I also added some call options on CHTT; they make Bullfrog products and I'm quite impressed with the new Bullfrog spray mist. I think it's going to be big, and the company looks healthy.





July 16, 2007

Quick update....in the middle of vacation. Markets look good, and they're working off of fundamentals. I have some July calls expiring this week. Most I'll sell for a profit (AAPL, KG, LF, RL, SPY) but two I'm looking to exercise: 10 AAPL 85s and 3 RL 85s. Bought these a while back, and like each company's fundamentals going forward.



July 1, 2007

Easily the biggest tech/phone/iPod product launch ever this weekend. And yes, the Tomlin's are proud owners of iPhones. Major issues getting one activated (AT&T......ugh), but the other was fast and simple. Yes, the iPhone is extremely awesome.

Great book to read. Markets, Mobs and Mayhem by Robert Menschel, senior Goldman Sachs dude. I figure, people who've made lots of money and want to publish their hints/rules/suggestions....why not read the book. Here are some of his rules.

* Stock markets are always shifting between greed and fear. At the extreme of greed, great buys simply disappear. At the extreme of fear, when all excess has been wrung out of the market, great buys are all over the place.

* The stock market always comes back, no matter how shocking the events that drive it down.

* Define the sandbox you want to play in. Maintain a list of up to 20 or 25 companies. Only buy when they are selling at sensible multiples, and don't add new companies to the list unless you sell the weakest on the list.

* Have a buy strategy and stick with that.

* Stick with what you know (familiar companies, industries, sectors, etc.).

* Stick with who you are. Everyone has a different stomach. When personality and portfolio get out of whack, bad decisions follow.

* Always do due diligence. This is your money, your future security. Invest it wisely and only after thorough study. It's the mistakes that kill your investment performance. Evaluate downside risk as much as the reward side, and you'll never have to be brilliant.

* Never make a buy or sell decision in the broker's office or on a trading room floor (don't worry....).

* Buy for the long term. If you were to die tomorrow, would this be a stock you would want your heirs to hold?

* Accept a little boredom in your life. Look for companies where there is a certainty of earnings predictability, ones selling at a resonable multiple, generally no more than 50 or 60% greater than the rate of growth in earnings.

*The faster a stock has run up in value, the faster it is likely to run down.

* It's the small things that count. Avoid losses. Have a long-term strategy, follow it consistently, and you'll finish in front.

*The miracle of compounding.

*The easier information arrives, the less valuable it is.

*The more certain the crowd is, the surer it is to be wrong. If everyone were right, there would be no reward.

*The price of freedom is eternal vigilance.



Good stuff. 14 days until July OE.





June 17, 2007

Finishing up personal research from Barron's data. Seriously, looked back at their 'Big Money Polls' through 1997. First, I figured the Bull/Bear ratio for each issue (2 issues or polls per year). That is, I divided the % bulls by the % bears to get a ratio. Then, I plotted the answers on a scatter diagram (?) and used natural breaks. The top break was more than 4.9. The bottom break was less than 2.2. Then, I calculated the S&P returns (sans dividends) for 1,3,6 and 12 month periods after publication. Make sense? If not, email me.

Here's what I found. For the 'bullish' group (more than 4.9), average 6 month return was 1.72% and average 12 month return was 4.75%.

For the 'bearish' group (less than 2.2), average 6 month return was 7.75% and average 12 month return was 15.71%.

Then, I decided that I'd try to include the 'neutral' category. I figured, somebody was either a bull or they weren't. A neutral is as good as a bear, so let's include them in the bear category. Again, I plotted the ratio's of Bull/Bear+Neutral. Natural break was more than 1.75 (bullish) and less than 1.2 (bearish).

The bullish group's (more than 1.75) average 6 month return was -0.15% and average 12 month return was -7.75%.

The bearish group's (less than 1.2) average 6 month return was 3.58% and aveage 12 month return 9.16%.

Who would you believe?



June 10, 2007

Big market drop this week. On Thursday, I picked up some June SPY calls, along with more longer calls for PRE, RL and GR. Up nice Friday, and we'll see about this week.

Reading old issues of Forbes' Ken Fisher columns the past few days. Here's a great nugget, not really from Ken himself, but from Joe Goodman, another long-running (but now deceased) Forbes columnist.

1. Don't be a bull or bear all the time. 2. There is a time to buy, a time to sell and a long time to do nothing. 3. Never buy a stock that didn't rise in a bull market. Smart guys are out of it. 4. Don't buy the sympathy stock. Don't buy a weak railroad because a strong one has started to move. Everyone does this, and it is rarely profitable. 5. When a bull market peaks, sell the stock that rose most. It will fall fastest. Sell the stock that rose least. It didn't rise, therefore it must fall. 6. Early in a bear market the high-class stocks show the most class. 7. In a high market, confine yourself to high-quality stocks.

Good info, huh? The his next column from 1999, Ken had these nuggets as well.

If I am not wedded to either value or growth, what are my principles? Besides researching new discoveries that drive me to change still more, here are five: 1) No investing style can be best permanently. When a consensus forms believing one style to be best, investment bankers create enough new securities to make sure it disappoints. 2) The consensus of professional market strategists tells you what won't happen, cutting down your menu of what might. 3) Foreign investing provides real diversification, but only if you don't buy the same stocks everyone else buys. 4) Markets trading at unusually high multiples of earnings are inherently low in risk and never lead to disaster years. 5) An important but little understood cause of bear markets in history is the fear of redistribution of property rights.

Even after this weeks down-turn, my portfolio is up ~90% for 2007......so far.....

ADBE intrigues me. They report earnings this week. I might buy some call options, as I think they'll be better than expected. Of course, if their guideance is weak....maybe I'll just watch.

AAPL has their Worldwide Developers Conference this week, with Steve Jobs giving the keynote Monday morning. iPhone launch in 2 1/2 weeks. Big times ahead.



May 28, 2007

Memorial Day, 2007. Lest we forget!

On the personal front, this past week, major indices all fell ~1-2% Monday-Thursday. Wednesday and Thursday, I bought more Dec, Mar and Dec 08 SPY calls. I also bought some Mar QQQQ calls and IWM Jan calls. Overall, I like this market, and will buy calls when I see mispricings. Short-term calls still not as attractive as I'd like them, so I didn't do any short-term market calls. I did purchase some June ARO calls before earnings release; ARO has been kind to me in the past....not this time, though. I'll hold them to see what happens, but likely to lose money there. I also sold my stake in CHR for ~$8.90 per share. CHR is being bought by SCO and the price has fluctuated ~$9.00 for the past month, and I figured a ~50% gain is fine. Both AAPL and LF are sailing along.

Options are part of my portfolio, and I've had some success and one big whopping failure with options. What I'm going to describe here is my theory on options. I don't use any fancy option plays nor do I regularly buy puts. I've had success (and one big whopping failure) with this strategy, and will continue, morphing as need be.

My strategy, in simplest terms, is to look for conditions where fear/bearishness/bad news is priced more than optimism/bullishness/good news in a bull market. If I see such conditions and favorable stock and call option pricing, then I'll buy call options.

First, I believe the market is going up. I believe we are in a bull market (a bull dressed in drag as Ken Fisher would say) in 2007. Hence, with my belief, I will look for call options primarily. Next, I look for mispriced market items. Since late 2006, I've believed the S&P 500 would finish above 1700 for 2007. At the beginning of 2007, I bought SPY calls at 180, 170 and 160. Then, in the late February/early March market meltdown, I bought more 170s and 160s, and added some 150s and 165s. To me, they were on sale, a blue-light special based on short-term fear. By the way, what caused that market meltdown? This past week, with the declines, I've already mentioned I bought more SPY calls and have added QQQQs and IWMs to my call option portfolio. Again, with the belief that the markets are going higher, I look for generally mispriced items.

Second, I look for mispriced stocks in this bull market. I have to firmly believe a company is so out-of-favor and will come back in favor soon. I also have to love the company's fundamentals, financials and management. I have to believe that any good news will help the stock, and also might think that if the stock remains so mispriced, the company might be bought at a premium. If that's the case, I will buy call options for such company. Again, here I'm looking at medium-long term calls (6 months+) and will generally only dip my toes in just out-of-the-money call options. A slow and steady climb may reap big rewards, while even if the stock stagnates, I'm not too concerned about my small position.

Lastly, and this is key, I look for ridiculous mispricings which may only last for a few minutes, hours or days. With these, timing is of utmost importance. I have to believe some piece of news (actually, generally nothing more than a rumor appearing to be news) is so whacked that, while many are selling on fear driving the price down, I see a crazy sale occurring. I've done this a couple of times, and have had my biggest success and failure with AAPL. AAPL has been a long-term holding and I continue to add to my long position and purchase call options at times. In December, 2006, Apple trended down from the 90s back into the low 80s, based on rumors of slower growth, lower sales, and a possible SEC/Justice dept. investigation. I knew with Apple's internal review nearly complete (one of the members of the review was former VP Al Gore) and with MacWorld occurring in early January, Apple had too much bad news priced. I also knew that the earnings release in mid-January, just before the options expiration, would blow everybody away. I waited for a good entry point, and my patience was rewarded. On December 27, one day before Apple's internal investigation was made public, an article rehashing the investigation was published, rumored that CEO Steve Jobs could be in trouble, and the stock dropped into the upper 70s for a while that morning. I rushed to purchase January 90, 95 and 100 call options, based on false fears and good news in the short term. Well, Apple's stock price went into the mid-upper 80s before MacWorld, into the mid-upper 90s after MacWorld. I had 'made' a fortune.....on paper. While the earnings report did blow everybody away, some found a few 'chinks in AAPL's armor' and the price dropped before options expiration. My fortune was lost. What did I learn? If my short-term option plays are in the money quickly, sell them....enough to at least cover cost and a little profit. Unlike stocks, options have to be sold before expiration (unless I want to exercise them for actual shares....which I don't right now).

So there you have it....my 3 ways to buy call options: general market trend, stock trend or short-term stock movements. Maybe just reverse it for puts.....



May 20, 2007

A couple of things to write about this go-around. First, OE was Friday/Saturday. Sold the remaining SPY calls ~$2.20 each, sold ADTN calls at a profit, sold LF calls at a loss, and WSM calls expired worthless. LF is a major part of my portfolio, and I don't mind speculating. When good news hits, it'll be a quick and big gainer. Don't mind losing a little bit on options speculation, and the same goes for WSM. As a matter of fact, I bought more ADTN and WSM out-of-the-money calls (fall expiration) on takeover specualtion. Also, bought more Dec SPY 170 calls.

Looking at the housing market, and it's not getting any better that I can see. I could tell stories and stories, but I won't. Found a website 'Charleston Market Report' which details the Charleston housing woes. Thought about it logically. Not only do Southern cities (Wilmington, Myrtle Beach, Charleston, Savannah, Jacksonville, Daytona, Melbourne, West Palm Beach, etc.) have locals in the home buying mix, they also have had a large influx of northerners purchasing homes in the past few years. However.....what do you think happens if those northerners can't sell their home? Do you think they'll still relocate? I don't, and I think the housing problem will get worse in many Southern cities, especially along the coast. If the Yankees can't sell their homes to move South, Southern homes will sit vacant. The problem is...salaries in the South are less than up north, so....house prices will probably fall more percentage-wise in the South. Time will tell.....but it doesn't look like a fun time to be trying to sell a house in many areas.

Now, for comedy. My April 29 post below detailed Barron's article on leading money managers and their year-end forecasts. DJIA - Bulls, 13122; Bears, 11562. S&P 500 - Bulls, 1516; Bears, 1327. Nasdaq - Bulls, 2579; Bears, 2193. As of the close on Friday, DJIA - 13556, S&P - 1522 and Nasdaq - 2558. Both the DJIA and S&P 500 already surpass the "Bulls" year-end forecast for 2007. Amazing. Reading old Barron's articles from the previous decade, I see we're always on the verge of a major catastrophe, right? It's bound to happen again this year, maybe tomorrow....something spooks the markets for a week or two. Things just look too fundamentally good right now for a major market meltdown in my opinion. Full steam ahead. S&P end of 2007 close: 1780. I'd love to see it over 1800, because I have a bunch of calls there as well!

Finally, Converium is in the process of being bought out by Scor. I own 10k shares of CHR, and am looking to diversify. I'm thinking about RL, GR and PRE. We'll find out next time.