Risk/Reward Vol. 138
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You know it seems the more we talk about it/It only makes it worse to live without it
But let's talk about it/Wouldn't it be nice."---lyrics from "Wouldn't It Be Nice" by the Beach Boys
"I'm half a world/Half the world away
I had too much to drink/I didn't think
And I didn't think of you."---lyrics from "Half a World Away" by REM
"High anxiety, whenever you are near/High anxiety, it's you that I fear
My heart's afraid to fly/It crashed before
But then you take my hand/And my heart starts to soar"---lyrics from "High Anxiety" by Mel Brooks
Next week, the First Lady and I depart for a sojourn in Nice. I will be thousands of miles and several time zones removed from my trading desk. But, it does not "make it worse to live without it." "Let's talk about it". Armed with a third generation Kindle that has international capabilities and with wifi in the apartment we have let, I can do my daily reading (IBD, WSJ and Financial Times) and access all of my stock accounts. On our day trips throughout the Riviera, I will carry my iPad which has international 3G coverage thus allowing me to trade at a cafe, on the beach or in a casino. With a daughter, son in law and grandson in London, we have made the trip across the Pond many times, and this array of technology has allowed me to buy and sell seamlessly. But, "wouldn't it be Nice" not to worry about the market ?
Yes. So this trip, "half a world away", I decided to halve my portfolio. "I don't want to think, and I want too much to drink." And this is how I did it---painlessly. Half (actually about 40%) of my tradable portfolio is in self directed retirement accounts (IRA's or a 401k). Income and capital gains in these accounts are not taxed until withdrawal, so they make excellent vehicles for holding high yielding securities that are not otherwise tax advantaged such as real estate investment trusts, oil trusts, exchange traded debt and various closed end funds (but not master limited partnerships). Having already reaped this quarter's dividends, I sold these holdings after Thursday's move upward, with no tax consequence. My only potential loss is an uptick in the market in the next ten days or so. When I return, I can repurchase any or all of them with nothing lost other than $7 in selling commissions and $7 in repurchasing commissions. I am looking forward to some carefree REM.
Frankly, I may have pruned my holdings even if I were staying Stateside. With last week's riots in Spain, with labor unrest at the Foxconn (Apple) plant in China, with the Dow heading lower in 5 of the last 6 trading days, with Israel and Iran no closer to ending a nuclear standoff and with threats from both sides of the aisle that Congress may actually stalemate us over the Fiscal Cliff , I have "High Anxiety". Although "my heart is still not afraid", this week I sensed more "fear" in the market---the kind that I sensed when it "crashed before." I certainly do not believe that the market "will soar"---at least not while I am gone. And I am not alone. One longtime reader and a person whose investing acumen I admire emailed me this week that he had exited.
Not counting my spouse-imposed 25% cash cushion, I am 60% invested. I am heeding advice from that noted philosopher, Mel Brooks who penned:
"Hope for the best/Expect the worse"---lyric from "The Twelve Chairs"
Saturday, September 29, 2012
Saturday, September 22, 2012
September 22, 2012 Gangnam Style
Risk/Reward Vol. 137
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"We shall survive, let us take ourselves along/Where we fight our parents out in the streets
To find out who's right and who's wrong/B-B-B Benny and the Jets"---lyrics from "Benny and the Jets" by Elton John
"In New York, concrete jungle/ Where dreams are made of
There's nothing you can't do/Now you're in New York"---lyrics from "Empire State of Mind" by JayZ
"Bubbles, bubbles/I wish my name was Bubbles, Bubbles
I wish my friends were bubbles, bubbles/I go real far on bubbles, bubbles"---lyrics from "Bubbles" by Linkin Park
As I have detailed over the past few weeks, two of the three economic conditions necessary for a stable stock market appear to be developing: 1) a plan to address sovereign debt in the Eurozone and 2) a stimulus program in China. The third condition, a resolution of the impending U. S. Fiscal Cliff, likely will develop before year end, but its contours (left, right or more likely a postponed decision) will not be known until after our elections in November. My concerns now run to possible exogenous events that could disrupt the world economy---and number one on my worry list is "B-B-B Benny and his Jets". Prime Minister Benjamin Netanyahu has proclaimed that in order for Israel to "survive" it must deliver a debilitating blow to Iran's nuclear capability. Some wags are predicting a strike by Israeli "Jets" sometime before our elections, a move that would force President Obama's support so as not to alienate Jewish voters. Whether you believe such a strike is "right" or "wrong", one consequence could be a blocking of the 21 mile wide Strait of Hormuz through which passes each day 17million barrels of oil, 20% of the world's daily consumption. Disruption of that flow would wreak havoc on the world's economy and would cause stock markets to plummet. This is a real concern, but is not one that has caused me to exit--yet.
You don't have to be JayZ or Carrie Bradshaw to know "what the dreams of real New Yorkers are made of": finding a rent controlled/rent stabilized apartment in "the concrete jungle". Once located, tenants rarely leave. Consequently, underwriting mortgages on rent controlled buildings is a safe, if boring way for banks to earn interest. And the recognized leader in underwriting rent controlled building mortgages is New York Community Bank (NYB), the nation's 21st largest bank. Sixty eight percent of its loan portfolio is multifamily residential building mortgages, most of which are rent controlled. But, what makes NYB attractive to me is its 7.2% dividend. Moreover, it has appreciated 7.8% since I bought it on July 26th.
Speaking of real estate, is anyone else concerned that cheap mortgage credit is creating another real estate bubble? Oh, don't get me wrong. So far this "bubble is my friend", and I "have gone real far" toward financial independence on this "bubble". Dividends from those real estate investment trusts that prosper in a low interest rate environment have rewarded me handsomely. I especially like the preferred stock of those REITs, the dividends on which must be paid in full before the even higher yielding (and less consistent) common stock dividends can be distributed. I am so attracted to this "bubble" that I am overweight in this sector. Under traditional rules of diversification, I would be deemed foolish. I take solace in the fact that I am vigilant to a fault so that at the slightest hint that any portion of this sector is weakening I can exit. For example, I am currently watching closely the impact of the Federal Reserve' s recently announced mortgage buying program (QE3) on agency mortgage reits (AGNC, NLY, etc.) which could be adversely impacted by a plethora of refinancing. I do not recommend this overweighting for the less diligent.
Despite the negative tenor of this article, my portfolio (a list of which will be provided under cover of a separate email) just experienced a great week, performing far better than the market in general. Indeed, the stable to upward performance of the market since my re-entry in June has provided me a welcome "Psy" of relief from the turbulence that dominated the first several months of the year. At this rate (my portfolio averages 7.5+% in dividends), even in retirement I will be able to afford my "sexy lady" and to otherwise lead my life-- "Gangnam style."
Sunday, September 16, 2012
September 15, 2012 The Dreamers
Risk/Reward Vol. 136
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"On a day like today/We pass the time away
Writing love letters/ In the sand."---lyrics from "Love Letters in the Sand" sung by Pat Boone
"Kick your feet up/Swing your arms up too
Move your head both ways/Like you see me do
Then jump three feet to the swinging beat
Do the Freddie/Do the Freddie"---lyrics from "Do the Freddie" by Freddie and the Dreamers
"It's like thunder, lightning
The way you love me is frightening
I'd better knock, on wood, Baby"---lyrics from "Knock on Wood" sung by Eddie Floyd
With its high court affirming Germany's participation in the Eurozone bail out (at least so far) and Federal Reserve Chairman Ben Bernanke announcing an open ended, $40billion/month round of quantitative easing (QE3), the Dow Jones Industrial Average (DJIA) shot skyward, ending the week up 287 points. The DJIA closed on Friday at 13,593, its highest point since December, 2007. The events necessary to underpin a rising stock market are coming to pass with two more left to go: 1) further Chinese stimulus and 2) resolution of the U.S. Fiscal Cliff, both of which I have discussed extensively in previous editions. Look for announcements relating to the former after next month's Chinese Communist Party Congress. The latter will not be addressed until after our elections. If these two events happen, and no major disaster occurs (e.g. Israel strikes Iran), I look for a stable to upwardly moving stock market for the remainder of the year. As the Eurozone and the US compete in a contest to determine who can debase its currency more, staying in cash looks to be the riskiest of all investment strategies no matter how the Fiscal Cliff is resolved. Resolving the Fiscal Cliff is what matters--no matter who sits in the White House. In the interim and assuming a resolution is reached, dividend paying stocks should do well as yield hungry investors seek refuge from low interest bonds. Inflation hedges such as gold and commodities should shine as well.
From 2006 to 2009, I commuted each week to Eau Claire: from Milwaukee by car; from South Haven by airplane through Minneapolis. I often "passed the time away" by marvelling at the beauty of Wisconsin's rolling landscape, especially that between Mauston and Menomonie. Little did I realized that underneath those mounds lay "love letters" in the form of Northern White "sand". These monocrystals found just below the fertile top soil are the perfect proppant or medium for fracking, that newly exploited horizontal drilling process that, since 2008, has revolutionized oil and gas production the the United States. Indeed, in the past 3 years, the number of frac sand mines (approximately 90) has doubled in Wisconsin, the Saudi Arabia of Northern White. Few sand mining companies are available for investment, but last month HiCrush Partners (HCLP) offered partnership units in its Wyeville, Wisconsin operation to the public. I read the prospectus and was impressed by the likelihood that it will exceed its projected 7.8% dividend for many years to come. But, what prompted me to buy was the fact that Kayne Anderson Capital Advisors, the saviest of all of the oil and gas investment fund managers, purchased 15% of the units.
Speaking of fracking, the year to date performance of Indianapolis based, Calumet Specialty Products, LP (CLMT) ( founded by none other than my high school classmate, Fred Fehsenfeld) is reason to "kick your feet up, and to swing your arms up too". This refiner of specialty petroleum products (plastics, cosmetic bases, crayons, ski wax, jet fuel etc.) has taken advantage of inexpensive oil and natural gas liquids emanating from the fracking fields to improve its production and profits. The shares I bought last January would have appreciated 34% if I had not sold them (for a profit) in May, and have appreciated 14% since I repurchased them in July---all the while paying an 8%+ dividend. CLMT is a good reason "to jump three feet to the swinging beat." Thank you, Mr. Fehsenfeld! In your honor, I "Do the Freddie".
In the aftermath of the 2008-2009 financial crisis, commercial real estate (CRE) was in the dumpster. As a result, banks eschewed underwriting CRE mortgages as part of their own de-leveraging. Hearing opportunity "knock", several savvy investment funds formed commercial real estate mortgage investment trusts (mREITS) as quickly as "thunder" follows "lightning." The largest and one of the most successful of these post 2008 mREITS is Starwood Property Trust formed by Barry Sternlicht of Starwood Hotels fame. Recently, STWD has been underwriting commercial mortgages in Europe to great advantage which leads me to believe it will increase its already impressive 7.4% dividend.
This week, in addition to HCLP and STWD, I added more AAPL in advance of the iPhone 5 launch and more Vanguard Natural Resources (VNR) on a secondary offering dip. I also initiated a position in a newly issued preferred stock of Annaly Capital. In anticipation of a rise in commodity prices, I bought shares in a closed end fund, BCF, which holds positions in all of the major commodity players. Frankly, I am sorry that I sold my iron ore mining stocks (CLF, RIO and BHP) two weeks ago. Proof again that timing is everything.
The stock market has performed beyond expectations since my re-entry in June, especially this week thanks to the QE3 "sugar high". Although I remain cautious and ready to exit if necessary, I must admit that today, when I think of the stock market, I channel Freddie and the Dreamers who sang:
"I'm telling you now/I'm telling you right away
I'll be staying for many a day/I'm in love with you now."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"On a day like today/We pass the time away
Writing love letters/ In the sand."---lyrics from "Love Letters in the Sand" sung by Pat Boone
"Kick your feet up/Swing your arms up too
Move your head both ways/Like you see me do
Then jump three feet to the swinging beat
Do the Freddie/Do the Freddie"---lyrics from "Do the Freddie" by Freddie and the Dreamers
"It's like thunder, lightning
The way you love me is frightening
I'd better knock, on wood, Baby"---lyrics from "Knock on Wood" sung by Eddie Floyd
With its high court affirming Germany's participation in the Eurozone bail out (at least so far) and Federal Reserve Chairman Ben Bernanke announcing an open ended, $40billion/month round of quantitative easing (QE3), the Dow Jones Industrial Average (DJIA) shot skyward, ending the week up 287 points. The DJIA closed on Friday at 13,593, its highest point since December, 2007. The events necessary to underpin a rising stock market are coming to pass with two more left to go: 1) further Chinese stimulus and 2) resolution of the U.S. Fiscal Cliff, both of which I have discussed extensively in previous editions. Look for announcements relating to the former after next month's Chinese Communist Party Congress. The latter will not be addressed until after our elections. If these two events happen, and no major disaster occurs (e.g. Israel strikes Iran), I look for a stable to upwardly moving stock market for the remainder of the year. As the Eurozone and the US compete in a contest to determine who can debase its currency more, staying in cash looks to be the riskiest of all investment strategies no matter how the Fiscal Cliff is resolved. Resolving the Fiscal Cliff is what matters--no matter who sits in the White House. In the interim and assuming a resolution is reached, dividend paying stocks should do well as yield hungry investors seek refuge from low interest bonds. Inflation hedges such as gold and commodities should shine as well.
From 2006 to 2009, I commuted each week to Eau Claire: from Milwaukee by car; from South Haven by airplane through Minneapolis. I often "passed the time away" by marvelling at the beauty of Wisconsin's rolling landscape, especially that between Mauston and Menomonie. Little did I realized that underneath those mounds lay "love letters" in the form of Northern White "sand". These monocrystals found just below the fertile top soil are the perfect proppant or medium for fracking, that newly exploited horizontal drilling process that, since 2008, has revolutionized oil and gas production the the United States. Indeed, in the past 3 years, the number of frac sand mines (approximately 90) has doubled in Wisconsin, the Saudi Arabia of Northern White. Few sand mining companies are available for investment, but last month HiCrush Partners (HCLP) offered partnership units in its Wyeville, Wisconsin operation to the public. I read the prospectus and was impressed by the likelihood that it will exceed its projected 7.8% dividend for many years to come. But, what prompted me to buy was the fact that Kayne Anderson Capital Advisors, the saviest of all of the oil and gas investment fund managers, purchased 15% of the units.
Speaking of fracking, the year to date performance of Indianapolis based, Calumet Specialty Products, LP (CLMT) ( founded by none other than my high school classmate, Fred Fehsenfeld) is reason to "kick your feet up, and to swing your arms up too". This refiner of specialty petroleum products (plastics, cosmetic bases, crayons, ski wax, jet fuel etc.) has taken advantage of inexpensive oil and natural gas liquids emanating from the fracking fields to improve its production and profits. The shares I bought last January would have appreciated 34% if I had not sold them (for a profit) in May, and have appreciated 14% since I repurchased them in July---all the while paying an 8%+ dividend. CLMT is a good reason "to jump three feet to the swinging beat." Thank you, Mr. Fehsenfeld! In your honor, I "Do the Freddie".
In the aftermath of the 2008-2009 financial crisis, commercial real estate (CRE) was in the dumpster. As a result, banks eschewed underwriting CRE mortgages as part of their own de-leveraging. Hearing opportunity "knock", several savvy investment funds formed commercial real estate mortgage investment trusts (mREITS) as quickly as "thunder" follows "lightning." The largest and one of the most successful of these post 2008 mREITS is Starwood Property Trust formed by Barry Sternlicht of Starwood Hotels fame. Recently, STWD has been underwriting commercial mortgages in Europe to great advantage which leads me to believe it will increase its already impressive 7.4% dividend.
This week, in addition to HCLP and STWD, I added more AAPL in advance of the iPhone 5 launch and more Vanguard Natural Resources (VNR) on a secondary offering dip. I also initiated a position in a newly issued preferred stock of Annaly Capital. In anticipation of a rise in commodity prices, I bought shares in a closed end fund, BCF, which holds positions in all of the major commodity players. Frankly, I am sorry that I sold my iron ore mining stocks (CLF, RIO and BHP) two weeks ago. Proof again that timing is everything.
The stock market has performed beyond expectations since my re-entry in June, especially this week thanks to the QE3 "sugar high". Although I remain cautious and ready to exit if necessary, I must admit that today, when I think of the stock market, I channel Freddie and the Dreamers who sang:
"I'm telling you now/I'm telling you right away
I'll be staying for many a day/I'm in love with you now."
Saturday, September 8, 2012
September 8, 2011 Right to Party
Risk/Reward Vol. 135
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Singin' songs loud on the way to the game/Wishin' all the things could still be the same
Chinese home runs over the backstop/Kakua on the ball and soda pop"---lyrics from "Mudfootball" by Jack Johnson
"Overture, curtains, lights/This is it the night of nights
No more rehearsing/And nursing a part"---lyrics from "This Is It", the Bugs Bunny Overture
"A transition is occurring/And I am not blind
As the pendulum swings/A new age we enter"---lyrics from "Update" by the Beastie Boys
"Overture, please". On Thursday, Mario Draghi, the president of the European Central Bank (ECB), stole the show by announcing (finally!!!) that the ECB was prepared, on its own, to buy sovereign debt from troubled nations (read, Spain and Italy) under its inherent authority to preserve the Euro. No need to seek permission from Germany; no handwringing with the French. So long as each country abides by fiscal promises to be made to the International Monetary Fund and the European Commission, the ECB will buy unlimited amounts of such bonds. In the words of Mr. Draghi, the ECB is now the official "backstop" against a monetary collapse of the Eurozone. Immediately, the stock markets were "singin' loud on the way" to a huge day. By the close on Thursday, the Dow Jones Industrial Average reached a point it had not seen since December, 2007! Buyers believed "all things could still be the same" as back then--before the Lehman Brothers meltdown. Let's all hope that the ECB's commitment is not a "Chinese home run" (slang for a foul ball hit over the backstop).
The ECB's bond buying commitiment is one of the three legs necessary to support a healthy stock market and about which I have been writing since June. One of the others, a massive Chinese stimulus package, likely will not be forthcoming before the Communist Party Congress scheduled for mid October ( A $150billion infrastructure program was announced yesterday, however) As for the third leg, resolution of the U.S. Fiscal Cliff, nothing will occur until after our November elections. One word of caution is warranted in the interim. If the stock markets continue to shine, the Federal Reserve may hold back next week on an anticipated quantitative easing (QE) program despite the disappointing jobs numbers issued yesterday. If Fed Chair Bernanke does not pull the QE trigger, the stock market could be negatively impacted, but not enough to warrant an exit. Let's hope for some more QE and pray that some extragenous event (e.g. Israel bombing Iran or the German Supreme Court declaring the ECB bailout unconstitutional) does not disrupt this great run.
Following on a theme I addressed last week, the information available on the Web is truly amazing. I often access the homepage of a company the stock of which I am contemplating purchasing, click on the "Investor Relations" tab and look for "Presentations". These powerpoint or pdf card decks are as illuminating as an "overture, the opening of curtains or the shining of lights". Oh, management has clearly "rehearsed and nursed" these slides, but they are extremely informative, nevertheless.
I took advantage of dips in the prices of MHRpD, NS, EEP and TAC occasioned by secondary offerings to buy more of each this week. So, John, how does one know about these secondary offerings in time to take advantage of the dips. Easy. I list all of my stocks in the "Portfolio" section of SeekingAlpha.com and have "Updates" sent to my email account automatically. Thus, when "a transition is occurring, I am not blind." I buy "as the pendulum swings" to a favorable price.
One reader emailed me this week asking how my taxman keeps his sanity. Good question. Before anyone embarks on an aggressive program like I have adopted, one must identify a competent tax person who is familiar with master limited partnerships, real estate investment trusts, oil trusts and business development companies. Ironically, I received my 2011 tax returns this week (I always get an extension). They were 1/2" thick! Yes, Dear Readers, we need to simplify the tax code. Oh, and as for the cost---about the same as our anniversary dinner at Charley Trotter's. Well worth it on both accounts.
It was a great week to be invested, with the Dow Jones Industrial Average ending up 216 points. Standing firm in these uncertain times tries one's resolve, but so far, it has been worth it. Remember what the Beastie Boys preach:
"You have to fight for your right to party."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Singin' songs loud on the way to the game/Wishin' all the things could still be the same
Chinese home runs over the backstop/Kakua on the ball and soda pop"---lyrics from "Mudfootball" by Jack Johnson
"Overture, curtains, lights/This is it the night of nights
No more rehearsing/And nursing a part"---lyrics from "This Is It", the Bugs Bunny Overture
"A transition is occurring/And I am not blind
As the pendulum swings/A new age we enter"---lyrics from "Update" by the Beastie Boys
"Overture, please". On Thursday, Mario Draghi, the president of the European Central Bank (ECB), stole the show by announcing (finally!!!) that the ECB was prepared, on its own, to buy sovereign debt from troubled nations (read, Spain and Italy) under its inherent authority to preserve the Euro. No need to seek permission from Germany; no handwringing with the French. So long as each country abides by fiscal promises to be made to the International Monetary Fund and the European Commission, the ECB will buy unlimited amounts of such bonds. In the words of Mr. Draghi, the ECB is now the official "backstop" against a monetary collapse of the Eurozone. Immediately, the stock markets were "singin' loud on the way" to a huge day. By the close on Thursday, the Dow Jones Industrial Average reached a point it had not seen since December, 2007! Buyers believed "all things could still be the same" as back then--before the Lehman Brothers meltdown. Let's all hope that the ECB's commitment is not a "Chinese home run" (slang for a foul ball hit over the backstop).
The ECB's bond buying commitiment is one of the three legs necessary to support a healthy stock market and about which I have been writing since June. One of the others, a massive Chinese stimulus package, likely will not be forthcoming before the Communist Party Congress scheduled for mid October ( A $150billion infrastructure program was announced yesterday, however) As for the third leg, resolution of the U.S. Fiscal Cliff, nothing will occur until after our November elections. One word of caution is warranted in the interim. If the stock markets continue to shine, the Federal Reserve may hold back next week on an anticipated quantitative easing (QE) program despite the disappointing jobs numbers issued yesterday. If Fed Chair Bernanke does not pull the QE trigger, the stock market could be negatively impacted, but not enough to warrant an exit. Let's hope for some more QE and pray that some extragenous event (e.g. Israel bombing Iran or the German Supreme Court declaring the ECB bailout unconstitutional) does not disrupt this great run.
Following on a theme I addressed last week, the information available on the Web is truly amazing. I often access the homepage of a company the stock of which I am contemplating purchasing, click on the "Investor Relations" tab and look for "Presentations". These powerpoint or pdf card decks are as illuminating as an "overture, the opening of curtains or the shining of lights". Oh, management has clearly "rehearsed and nursed" these slides, but they are extremely informative, nevertheless.
I took advantage of dips in the prices of MHRpD, NS, EEP and TAC occasioned by secondary offerings to buy more of each this week. So, John, how does one know about these secondary offerings in time to take advantage of the dips. Easy. I list all of my stocks in the "Portfolio" section of SeekingAlpha.com and have "Updates" sent to my email account automatically. Thus, when "a transition is occurring, I am not blind." I buy "as the pendulum swings" to a favorable price.
One reader emailed me this week asking how my taxman keeps his sanity. Good question. Before anyone embarks on an aggressive program like I have adopted, one must identify a competent tax person who is familiar with master limited partnerships, real estate investment trusts, oil trusts and business development companies. Ironically, I received my 2011 tax returns this week (I always get an extension). They were 1/2" thick! Yes, Dear Readers, we need to simplify the tax code. Oh, and as for the cost---about the same as our anniversary dinner at Charley Trotter's. Well worth it on both accounts.
It was a great week to be invested, with the Dow Jones Industrial Average ending up 216 points. Standing firm in these uncertain times tries one's resolve, but so far, it has been worth it. Remember what the Beastie Boys preach:
"You have to fight for your right to party."
Saturday, September 1, 2012
September 1, 2011 Dylan
Risk/Reward Vol. 134
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"But you tell me/Over and over and over again, my friend
That you don't believe/We're on the eve of destruction"---lyrics from "Eve of Destruction" by Barry McGuire
"Some speak of the future/My love she speaks softly
She knows that there's no success like failure/And that failure's no success at all"---lyrics from "Love Minus Zero" by Bob Dylan
"Insight to what's going on/Information keeps us strong
What you don't know can hurt you bad/Take it from me you'll be walkin' around sad"---lyrics from "The Knowledge" sung by Janet Jackson
Faced with the Fiscal Cliff, the Eurozone debt crisis and the slowdown in China, several pundits, wags and commentators "believe/We're on the eve of destruction." But as I have written "over and over and over again, my friend", I believe salvation is available through a Fiscal Cliff compromise, further loosening of monetary policy here (quantitative easing) and in Europe (bond buying) and an infrastructure spending spree in China. So, when Fed Chairman Ben Bernanke, in a much anticipated speech at Jackson Hole, WY on Friday, did not commit firmly that quantitative easing was near, I thought the bottom would fall out of the stock market. I was wrong---it did not. The Dow Jones Industrial Average gained 90 points on Friday and closed the week down 66 points.
Well, as long as I am confessing error, I might as well acknowledge another miscalculation---iron ore. Just two weeks ago, I was touting Cliffs Natural Resources (CLF) and BHPBilliton (BHP). It was my conclusion that both had bottomed and would not fall further because of their healthy dividends. Boy, was I wrong, as both continued to plummet. But, as Bob Dylan wrote "there's no success like failure." What the hell does that mean, anyway? What does any Dylan lyric mean? I choose to believe that it means that we should learn from our failures. I learned--or should I say, relearned-- that I cannot and thus should not guess a bottom. Catch stars on the rise, not on the descent. I have no doubt that both of these stocks will rebound, just not now. I jumped too soon, and as Dylan says "failure's no success at all." What?
Well, as long as I am stuck in basketball analogies, let's talk about stock picking in general. Clearly, practice in picking stocks, like practice at the free throw line improves one's odds. But, practice does not make perfect in either pursuit. The average NBA player makes 75% of his free throws, and I bet that the average professional stock picker's odds aren't any better. Mine certainly are not, and I really work at it. That is why the first rule of stock picking is knowing when to sell a loser. My loss limit is 8%. In addition, to lock in profits, I adjust my 8% trigger upward if a stock appreciates significantly. In a world of $7 transaction costs, one need not absorb big losses---or forfeit big gains.
Ain't the information age wonderful! "Insight to what's going on" is literally at your fingertips via the internet. In the investing world, "what you don't know can hurt you bad", but with access to the web there is no excuse to "be walkin' around sad". The quality and the quantity of analysis on just one website, www.seekingalpha.com , is simply astounding, and there are several more sites of similar ilk. I peruse SeekingAlpha nightly, especially the tab entitled "Dividends and Income". It is the source of many of my investing ideas, and a reference I consult before every purchase.
In today's reality of depressed interest rates, achieving a decent return is hard work indeed. I long for the days of buy and hold, but alas I believe them to be gone--at least for now. Today, one simply can not afford to sit still. As Dylan wrote so many years ago,
"If your time to you is worth savin'/Then you better start swimmin'
Or you'll sink like a stone/For the times they are a changin'. "
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"But you tell me/Over and over and over again, my friend
That you don't believe/We're on the eve of destruction"---lyrics from "Eve of Destruction" by Barry McGuire
"Some speak of the future/My love she speaks softly
She knows that there's no success like failure/And that failure's no success at all"---lyrics from "Love Minus Zero" by Bob Dylan
"Insight to what's going on/Information keeps us strong
What you don't know can hurt you bad/Take it from me you'll be walkin' around sad"---lyrics from "The Knowledge" sung by Janet Jackson
Faced with the Fiscal Cliff, the Eurozone debt crisis and the slowdown in China, several pundits, wags and commentators "believe/We're on the eve of destruction." But as I have written "over and over and over again, my friend", I believe salvation is available through a Fiscal Cliff compromise, further loosening of monetary policy here (quantitative easing) and in Europe (bond buying) and an infrastructure spending spree in China. So, when Fed Chairman Ben Bernanke, in a much anticipated speech at Jackson Hole, WY on Friday, did not commit firmly that quantitative easing was near, I thought the bottom would fall out of the stock market. I was wrong---it did not. The Dow Jones Industrial Average gained 90 points on Friday and closed the week down 66 points.
Well, as long as I am confessing error, I might as well acknowledge another miscalculation---iron ore. Just two weeks ago, I was touting Cliffs Natural Resources (CLF) and BHPBilliton (BHP). It was my conclusion that both had bottomed and would not fall further because of their healthy dividends. Boy, was I wrong, as both continued to plummet. But, as Bob Dylan wrote "there's no success like failure." What the hell does that mean, anyway? What does any Dylan lyric mean? I choose to believe that it means that we should learn from our failures. I learned--or should I say, relearned-- that I cannot and thus should not guess a bottom. Catch stars on the rise, not on the descent. I have no doubt that both of these stocks will rebound, just not now. I jumped too soon, and as Dylan says "failure's no success at all." What?
Well, as long as I am stuck in basketball analogies, let's talk about stock picking in general. Clearly, practice in picking stocks, like practice at the free throw line improves one's odds. But, practice does not make perfect in either pursuit. The average NBA player makes 75% of his free throws, and I bet that the average professional stock picker's odds aren't any better. Mine certainly are not, and I really work at it. That is why the first rule of stock picking is knowing when to sell a loser. My loss limit is 8%. In addition, to lock in profits, I adjust my 8% trigger upward if a stock appreciates significantly. In a world of $7 transaction costs, one need not absorb big losses---or forfeit big gains.
Ain't the information age wonderful! "Insight to what's going on" is literally at your fingertips via the internet. In the investing world, "what you don't know can hurt you bad", but with access to the web there is no excuse to "be walkin' around sad". The quality and the quantity of analysis on just one website, www.seekingalpha.com , is simply astounding, and there are several more sites of similar ilk. I peruse SeekingAlpha nightly, especially the tab entitled "Dividends and Income". It is the source of many of my investing ideas, and a reference I consult before every purchase.
In today's reality of depressed interest rates, achieving a decent return is hard work indeed. I long for the days of buy and hold, but alas I believe them to be gone--at least for now. Today, one simply can not afford to sit still. As Dylan wrote so many years ago,
"If your time to you is worth savin'/Then you better start swimmin'
Or you'll sink like a stone/For the times they are a changin'. "
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