Tuesday, March 30, 2010

Top Stocks I'm Watching Right Now

1) United States Steel (X) - $65.28, .31% yield.

2) Citigroup (C) - $4.13, no dividend.

3) Telecomunicacoes de Sao Paulo (TSP) - $21.76, 9.85% yield.

4) Montpelier Re Holdings Ltd. (MRH) - $16.85, 2.14% yield.

5) San Juan Basin Royalty Trust (SJT) - $20.58, 10.46% yield.

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Sunday, March 28, 2010

Investing Based on Cash Flow

In one of my first posts on this blog at the beginning of the year, I devoted an entire blog post to "My Dogs of the Dow". In that post, I detailed some of the metrics I use to identify undervalued stocks. Among the criteria is the price to cash flow ratio. While reading my new issue of Forbes over the weekend, I came across this article. The Forbes article details cash flow much more eloquently than I can, and in much more depth than I previously did. This is well worth the read, and I encourage everybody to take a look at this article and study it.

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Saturday, March 27, 2010

Portfolio Update 3/27/10

Before reading, please see the disclaimer in the 'About Me' section.

The Wilshire 5000 closed at 12,133.00, up from
12,058.70 since my post on 3/21/10. The Wilshire 5000 is now 11.36% above it's 200-day moving average, up from 11.31% last Sunday. The Wilshire 5000 reached a level 12.63% above it's 200-day moving average on the 23rd.

The Investor's Intelligence Survey was released on Thursday night. This week's reading was 48.9% BULLS, and 20.5% BEARS, for a spread of 28.4%. This is in comparison to a reading of 46.1% BULLS, and 21.3% BEARS, for a spread of 24.8% on March 16th. Last week was the largest bull reading and spread we had seen since January 19th, and this week has managed to outdo last week yet again.

The Volatility Index closed today at 17.77, up from
16.97 last week. The VIX continues to trade below the 20 mark, and has done so for at least four weeks now.

Now for the portfolio...
1) Verizon at $30.37, down 7.86% for the year.

2) AT&T closed at $26.72, up .11% for the year.

3) GE closed at $18.34, up by 21.98% for the year, including the reinvestment of a dividend in February.

4) TBT, the doubleshort U.S. Treasury ETF closed at $49.24, down by 1.28% since my buy.

5) FXP, the doubleshort China ETF, closed at $8.40, down by 2.55% since my buy.

6) GOOD closed at $14.51, up by 7.53% since my buy, including the reinvestment of a dividend which was received on the 19th that I did not include in last week's update.

7) NLY closed at $17.33, up by 2.08% since my buy.

8) AAPL closed at $230.90, up by 19.17% since my buy.

Overall, the portfolio is up by 9.40% (4.73% for the DOW Dogs, the total DOW has returned 4.05% without dividends, gaining 2.56% just this week), versus 5.53% for the Wilshire 5000. The current basket of eight stocks that I am currently invested in, including dividends, is up 4.85% year-to-date. The spread between my performance and the overall market (Wilshire 5000) has increased to 3.87%, up from 3.85% last week.

As of right now, I have $2,591.60 sitting on the sidelines from my recent sale of Citigroup and United States Steel. The total value of my simulated portfolio is $10,939.71. I am going to let this cash be for the moment.

When I said a few weeks back that I thought the market was overextended, I was not kidding, and I have not changed my mind. As you can see from the data above, the VIX is at a relatively low level, the Wilshire 5000 is well above it's 200-day moving average, and the Investor's Intelligence Survey indicates that the market is getting more and more bullish/complacent. The market cannot go up forever without correcting or consolidating some. It is my belief that money is made over the long run by being the first one in the ocean when the tide is out, and getting out of the ocean as the tide starts to come in. I'm not sure if that analogy works, but you get my point. I have picked out several names which I think are good investments at these levels. If I can get my money in on the long side after the market goes on sale, even better. I have also not ruled out the idea of buying back into Citigroup or United States Steel, depending on what levels they get to if and when we see a pullback/consolidation. Among the other names that I am currently looking out to fill the two open slots in the portfolio are Telecomunicacoes de Sao Paulo (TSP), Montpelier re Holdings (MRH), Permian Basin Royalty Trust (PBT), and San Juan Basin Royalty Trust (SJT). Some of these names have some pretty hefty dividends. I have yet to decide what I will do, but rest assured it will be published in this space when something is done.

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Wednesday, March 24, 2010

What It Takes To Be A Great Investor

The investment world is often a cloudy, intimidating landscape. For sure, it is not for the faint of heart. Sometimes it can be very difficult for one to put up their own money lacking any formal training or guidance. Oftentimes, it is difficult to trust those giving you advice who have had formal training. With that said, short list of the toolbox that you need to navigate through the scary and meaningless:

1) Confidence. One must have the ability to believe in the thesis which they have drawn, and to stand by it when your own money is on the line even if it does not work immediately. If you believe in your thesis, and your thesis makes sense, more likely than not you will make money. If you're not sure if your thesis makes sense, or you fear your judgment is biased, ask a friend for a second opinion.

2) Patience. If it's too good to be true, it probably is. Historically the entire market only returns something like 8%. At that rate, your money will double roughly every nine years. Every portfolio has winners and losers, and you're not going to pick 100% winners. Don't expect every investment to return 50% every year, you're just setting yourself up for disappointment. If the story is good, and your thesis is sound, you will make money over the long run.

3) Diversification. Jim Cramer says that diversification "is the only free lunch", and he's right. This is right up there with "don't put all your eggs in one basket". Diversification will smooth out your returns over the long haul, and will make you less susceptible to huge swings.

4) The ability to read financial statements. Financial statements tell a story. If you don't know what the story is, where the company has been, and where it is likely going, you might as well throw darts blindfolded. Also, read the notes to the financial statements, the independent auditor's report, the CEO's letter, and listen to the conference calls. Often there is a lot of good information in these pieces. Not everybody reads or listens to this stuff, doing so gives you a leg up on the market, and makes you a savvier investor.

5) The ability to research and seek out new ideas. If mainstream America knows about an opportunity, you're probably the last one to know, and you probably already missed the boat. Be the first one in. Buy when others say sell, and sell when others say buy. Do research to seek out new ideas and opportunities. Then, research those opportunities until your thesis is well supported.

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Sunday, March 21, 2010

Portfolio Update 3/21/10

Before reading, please see the disclaimer in the 'About Me' section.

The Wilshire 5000 closed at 12,58.70, up from
11,984.30 since my post on 3/14/10. The Wilshire 5000 is now 11.31% above it's 200-day moving average, up from 11.29% last Sunday. The Wilshire 5000 has been able to extend it's percentage above the 200-day moving average for yet another week

The Investor's Intelligence Survey was released on Thursday night. This week's reading was 46.1% BULLS, and 21.3% BEARS, for a spread of 24.8%. This is in comparison to a reading of 44.9% BULLS, and 23.6% BEARS, for a spread of 21.3% on March 9th. Last week was the largest bull reading and spread we had seen since January 19th, and this week has managed to outdo last week.

The Volatility Index closed today at 16.97, down from
17.48 last week. The VIX continues to trade below the 20 mark, and has done so for at least three weeks now.

Now for the portfolio...
1) Verizon at $30.41, down 7.74% for the year.

2) AT&T closed at $26.71, up .07% for the year.

3) GE closed at $18.07, up by 20.18% for the year, including the reinvestment of a recent dividend.

4) TBT, the doubleshort U.S. Treasury ETF closed at $46.88, down by 6.01% since my buy.

5) FXP, the doubleshort China ETF, closed at $8.37, down by 3.25% since my buy.

6) GOOD closed at $14.50, up by 7.53% since my buy, including the reinvestment of the monthly dividend.

7) NLY closed at $18.170, up by 7.91% since my buy.

8) AAPL closed at $226.70, up by 17.01% since my buy.

Overall, the portfolio is up by 8.73% (4.16% for the DOW Dogs, the total DOW has returned 1.49% without dividends), versus 4.88% for the Wilshire 5000. The current basket of eight stocks that I am invested in is up 4.13% year-to-date. The gap between my performance and the overall market has increased to 3.85%.

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Thursday, March 18, 2010

Market Update - 3/18/09

Apparently the market CAN go up every single day. The Wilshire 5000 closed today at 12,134.20, now 12.14% above it's 200-day moving average.

The VIX (Volatility Index) closed today at 16.62, a level that hasn't been seen since sometime in 2008 according to the chart I looked at.

As I have been saying for a while now, I think the market is near-term overbought, and we are looking at some type of short-term correction. However, I could very well see this rally extend through the end of the quarter next Friday. Buckle your seat belts.

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Tuesday, March 16, 2010

Market Update - Tuesday March 16th

Wow, the market is just unbelievable these days. Today, the Wilshire 5000 closed at 12,076.31, up from 11,984.3 at the close of last week and 11.93% above it's 200-day moving average.

The VIX closed today at 17.69 as it remains below the 20 level.

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Sunday, March 14, 2010

Portfolio Update 3/14/10

Before reading, please see the disclaimer in the 'About Me' section.

The Wilshire 5000 closed at 11,984.30, up from
11,846.48 since my last post on 3/7/10. The Wilshire 5000 is now 11.29% above it's 200-day moving average, up from 10.72% on the date of my previous post. The Wilshire 5000 began the week more than 10% above it's 200-day moving average, and grew that margin over the course of the week.

The Investor's Intelligence Survey was released on Thursday night. This week's reading was 44.9% BULLS, and 23.6% BEARS, for a spread of 21.3%. This is in comparison to a reading of 42.1% BULLS, and 22.7% BEARS, for a spread of 19.4% on March 2nd. This is the highest Bull reading we have seen since January 19th, as well as the largest spread.

The Volatility Index closed today at 17.48, up from 17.40 at the date of my last post. The VIX has now been below the 20 mark for an extended period of time.

All of the data I have mentioned above, as well as the large profits that had been realized in X and C in a short period of time forced me to take profits this week. I now have $2,591.60 in free cash sitting on the sidelines, about 25% of my beginning balance of $10,000. Luckily, I took the profits in C on Thursday, as it was down big on Friday, down to $3.97. As a whole, I think the entire market is overbought in the short-term. If you've been following this blog, you would know that the data certainly points in that direction. When we get a correction, I will put all of the cash to use, possibly buying back into C and X.


Now for the portfolio...
1) Verizon at $29.73, down 9.80% for the year.

2) AT&T closed at $26.57, down .45% for the year.

3) GE closed at $17.04, up by 13.33% for the year, including the reinvestment of a recent dividend.

4) TBT, the doubleshort U.S. Treasury ETF closed at $47.85, down by 4.07% since my buy.

5) FXP, the doubleshort China ETF, closed at $8.29, down by 3.83% since my buy.

6) GOOD closed at $14.44, up by 7.09% since my buy, including the reinvestment of the monthly dividend.

7) NLY closed at $18.11, up by 4.50% since my buy.

8) AAPL closed at $226.70, up by 17.01% since my buy.

Overall, the portfolio is up by 7.76% (1.01% for the DOW Dogs), versus 4.23% for the Wilshire 5000. The current basket of eight stocks that I am invested in is up 2.91% year-to-date. The gap between my performance and the overall market has increased to 3.53%.

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Thursday, March 11, 2010

Time To Take Some Profits!

I am going to write an expanded post tomorrow, but for right now I want to announce that I am going to take some profits on two stocks: Citigroup ($4.18/share close) which is up 25.46% year to date, and United States Steel ($60.42/share close), which is up 36.98% since my purchase on February 4th. Nobody ever lost money taking profits, and this move frees up $2,591.60 in cash from the sale. When added to the current cash balance of $70.65 that was not previously invested, my cash balance of my portfolio is $2,662.25. I still like the long-term story of both of these stocks, and will look for a pullback to buy back in at a later time. As of right now, as I will detail in a later post, I think the market is overbought in the near term. My $10,000 starting balance is now worth $10,748.57, (7.49% total portfolio gain, a little over 8% on the invested balance, if you're keeping score at home) and I will look to build on that in the time ahead.

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Sunday, March 7, 2010

Portfolio Update 3/7/10

Before reading, please see the disclaimer in the 'About Me' section.

The Wilshire 5000 closed at 11,846.48, up from
11,439.10 since my last post on 2/25/10. The Wilshire 5000 is now 10.72% above it's 200-day moving average. The Wilshire 5000 was last 10% above it's 200-day MA back on 1/21 when the market closed at 11,539.80. The market then closed below 11,000 on 2/4/10, a correction of 4.9%.

The Investor's Intelligence Survey was released on Thursday night. This week's reading was 42.1% BULLS, and 22.7% BEARS, for a spread of 19.4%. This is in comparison to a reading of 41.1% BULLS, and 23.3% BEARS, for a spread of 17.8% on February 23rd. This is the highest Bull reading we have seen in over a month, as well as the largest spread.

The Volatility Index closed today at 17.40, down from 19.50 at the date of my last post. The VIX has now been below the 20 mark for over a week, and I see this as a sign that the market is perhaps a bit overbought. When added to the data of the Wilshire 5000, as well as the Investor's Intelligence Survey, the writing seems to be on the wall in the very near term.

Now for the portfolio...
1) Verizon at $29.23, down 11.32% for the year.

2) AT&T closed at $26.73, up .15% for the year.

3) GE closed at $16.35, up by 8.74% for the year, including the reinvestment of a recent dividend.

4) Citigroup closed at $3.50, up by 5.05% for the year.

5) TBT, the doubleshort U.S. Treasury ETF closed at $48.13, down by 3.51% since my buy.

6) FXP, the doubleshort China ETF, closed at $8.62, down by 3.48% since my buy.

7) GOOD closed at $14.13, up by 4.79% since my buy, including the reinvestment of the monthly dividend.

8) NLY closed at $18.14, up by 4.67% since my buy.

9) X closed at $58.90, up by 33.53% since my buy. This stock has shot up like a rocket. X last reached this level a month or so back when it got into the low $60's. Given the extent of my gain so far in this stock, and what I believe to be a looming market correction, I may take my profit on this one in the next few days.

10) AAPL closed at $218.95, up by 13.01% since my buy.

Overall, the portfolio is up by 5.05% (-.84% for the DOW Dogs), versus 3.04% for the Wilshire 5000. The gap between my performance and the overall market has shrunk to 2.01%.

Have a great week, and happy trading!

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Monday, March 1, 2010

Taxes, The World, Your Money, and You...

As previously stated, I am not an economist, nor do I practice in a field related as such. From time to time in this blog I will discuss things outside the realm of stocks and bonds, and hopefully it give us an opportunity to learn together.

I have been crafting this blog post in my head for quite some time now. Through the course of my six years of higher education, my recent relentless studying for the CPA Exam, and my new found love for the Glenn Beck program on Fox, I have come to worry about the economic conditions in America. In this post, I am going to discuss what is on my mind, and what I think other people should be analyzing.

For those who are not aware, the current debt of The United States is almost $12.5 trillion. That is a level which is unsustainable, and as that compiles, much like your credit card bills do, the national debt will soon overwhelm the yearly budget. I think there are things that should be done to fix this mess, and this post is going to discuss those measures, and how they related to you.

First, the government should adopt a flat tax that EVERYBODY pays into. Art Laffer was recently on the TV and stated that the United States could begin to eat away at the national debt if we adopted a 12% flat tax that everybody pays into, as well as tacked on some sin taxes. Sin taxes would be tax on guns, alcohol, gambling, and the like. Think about your current tax rate, and then think about how attractive 12% is. Are you with me?

The idea is that more people need to pay more of the tax. The recent statistics indicate that something like half of Americans pay no tax at all. In fact, some people actually get PAID BY THE GOVERNMENT thanks to Refundable Tax Credits (discussed in a previous post). The theory is, and I agree with Laffer, if more people pay more tax then a small percentage of people get big cuts.

Second, cut government spending. The bigger the ship, the harder it is to turn, and that's our government. The larger government gets, the more inefficient and costly it gets. Cut programs not consistent with the intent of the Constitution, frivolous spending, and pet projects. The government should not have to fund wooden arrow makers in Oregon via the stimulus bill. Capitalism dictates if that business is a worthwhile venture, the free market will prop up that business on its own.

Third, do away with the double taxation of dividends. I am betting some readers of this blog don't even know this is happening. If you own a stock that pays a dividend, you know that you get a check in the mail from that corporation every so often. You also know that come April 15th, you pay taxes on those dividends. However, did you know that the dividend that you receive is actually AFTER-TAX proceeds from the corporation? That is, you own part of a company (a share of stock), that company makes money which you have a right to (that's the purpose of buying stock, a stake in future cash flow), that money is then taxed (effectively, since you are a part owner, you are being taxed), that money is paid out to shareholders, and then that money is taxed AGAIN. The effective tax rate of $100 in dividends is 44.75%! Do the math, $100 profit to the company is taxed at the corporate tax rate of 35%, reducing the corporation's (your) cash to $65. That money is then distributed to the shareholders, and taxed at 15%, or $9.75. You are then left with $55.25 from your original $100.

But Chris, why do I care? Dividends are only for the rich! Tax them and throw rocks at them!
Not so fast young Skywalker. I am not rich, nor do I care to have rocks thrown at me. However, I do collect dividends, and if you have any sort of retirement plan, so do you. Individual stocks are owned in mutual funds. A mutual fund is a collection of stocks, basically. When those stocks pay dividends, they flow into the gains realized by mutual funds, which are also owned in your IRA and 401k accounts. As of 2007, there were 64 million participants in 401k plans alone in this country. That is roughly 1/5 of the population. In addition, when accounting for the funds held in only IRA and 401k accounts, those funds held $6.1 trillion in assets as of 2004. How much is $6.1 trillion? Well, that is roughly half of our national debt, and it is greater than the 2009 GDP of Japan, the world's second largest economy. A lot of people have a lot of money invested in stock market assets, therefore I think it is exceptionally wrong to say that taxes on investments are a tax of the rich. Keep that in mind next time you're at an anti-Exxon-Mobil rally.

Third, and finally, I believe we should cut the corporate income tax rate. Of the world's five largest economies, the United States has the highest corporate tax rate. The world's five largest economies, in order, are 1) The U.S., 2) Japan, 3) China, 4) Germany, and 5) France. Their tax rates are 35%, 30%, 25%, 33%, and 33.3%, accordingly. To go one step further, their 2009 unemployment rates were 9.4%, 5.6%, 4.3%, 8.2%, and 9.7% accordingly.

Now, what does all of this mean? I did a simple regression analysis of the tax rates and corresponding unemployment rates of these five countries. There is an 88% correlation (relatively strong) between the corporate tax rate and unemployment in these countries. However, among the four largest (throw out France), there is a 93% correlation.

By lowering the corporate tax rate, it becomes more attractive for corporations to start, maintain, or re-enter the U.S. market. In doing so, jobs are created, and we increase the available tax pool. The countries listed all have strong labor and education bases. Simple logic tells us that if a company can get similar labor, cheaper, and pay less tax on profits (8% less) in China, why would they stay in the U.S.?

This is all food for thought. As always, please feel free to pass this on or comment on this web page. I will post back later this week with the Portfolio Update.

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About Me

DISCLAIMER: I started this blog as a way for people to exchange ideas relating to investing and finance, primarily. I am in no way a professional in these areas, merely a student of the financial world. The thoughts expressed on these pages have no connection to my employer in any way. Anybody reading this blog should do so with caution, exercise their own judgment, and do their own due diligence on any financial undertaking. About Me: I reside in New Jersey with my wife and my two dogs. I have a B.S. degree in Accounting with a minor in Finance, as well as an MBA in Accounting. Currently, I am employed as a forensic accountant, and am pursuing my CPA designation. I love the stock market, and picking stocks. I spend a great deal of time analyzing market data, as well as individual names.

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