Thursday, November 4, 2010

What is the Correct Stock Price?

How is a stock's price determined?  I looked at's price evaluator and here's the definition: "Our Price Check Calculator can help you estimate a fair price to pay for a stock based on three main things: the company's earnings, the rate at which those earnings are projected to grow and the stock's volatility."  So, it's determined using earnings, projected earnings growth rate, volatility. I also looked at MoneyChimp and they had a formula I got lost in.  I went to Wikipedia and found this for the P/E ratio, just part of what goes into determining a stock's price:
\mbox{P/E ratio}=\frac{\mbox{Price per Share}}{\mbox{Annual Earnings per Share}}
I went through all that for a reason. The pieces of each formula are reported quarterly. So if either of these is the "correct" formula for determining stock prices, why do stocks fluctuate by the minute? For example, if the formula was A x B + C/(DxE) = T, if A thru E don't change, then T should not change, right? What if T constantly fluctuates? That would mean the formula must be wrong.  I think the very smart people that came up with these formulas were trying to get close to actual price of a stock, using all known current information, and they explain their misses as buying opportunities (the stock is priced lower than the formula determines) or buying at a premium (the stock is priced higher than the formula determines).

Here's a very loose example. Say I decide I want a way to predict/estimate how heavy passenger vehicles are that come down a certain road. I assume a certain load per vehicle based on the tire size and multiply by 4.  Later, when I check my results against the actual, I find that sometimes my results are too high, sometimes too low.  So I decide that the formula is right, the tires are over or underinflated.  The problem is not with my formula, reality is wrong.  Yeah, that makes all the sense in the world. But that's the equivalent of what's being said when the experts say a stock is over priced or under priced based on the assets of the company, projected sales, etc.  The price of the stock reflects what someone is willing to pay for it at that moment. Period.

Speaking of charts, I put the following chart together comparing the prices of all my holdings since the beginning of the year. I haven't held each of them that long, but I wanted to see in general which way my portfolio was heading.  What this tells me is that, with few exceptions, my portfolio, and probably the market in general has been headed up most of the year. I think we're probably about to have a good run for maybe the next year or two.  Fortunately I'm in the game.

Thursday, October 21, 2010

3 Cheers for Netflix

As mentioned, I bought this stock a few weeks ago when Blockbuster filed for bankruptcy - and only for that reason. Netflix (NFLX) rose 13% today. Not this week. TODAY!  All I can say is wow. Didn't see that coming, but happy I was standing in front of the train when it did.  Coincidently, their website went down today too.  What caused the gain?  They had 3rd quarter earnings rise 26%. Still, that's crazy. But I'm glad to be on that side of crazy.  Still keeping my eye on Fannie Mae and Freddie Mac. They're up to $.40/share each, but I don't think they're going to stay there long. I see $.30/share in their futures.  When/if they get back down there, I'll consider buying them again.  Why? Because they are still backed by the government and they recently sold at $60/share.  As The Terminator said, they'll be back....

Wednesday, October 20, 2010

Just call me butter...

'cause I'm on a roll. Seriously, my portfolio's doing great at the moment. I have to seriously look at taking some profits off the table. 

I came across this USAToday article today about the risk and reward of investing in a stock, specifically Apple.  With all do respect to the author, I just don't think all of this is necessary.  They talk about the compounded rate of return, "Apple's trading history back to 1984, we see the company generated an average annual compound rate of return of 31.7%".  That's all well and good, but right above that the article says "Shares of the company are up 49% this year,".  That to me is more important than what they were doing back in 1984. I've been a follower of Apple since about 1990.  They were a totally different company in 1990 and 1984. Steve Jobs was there, then he left, now he's back. I don't see the value in tracking what they did the last 25 years.  Let me move on.

The article says "To get that much better return, you had to take a lot of risk. You accepted risk — standard deviation — of 69 percentage points. So, by investing in Apple, you took on 341% more risk to get a 213% higher return."  I don't even know what they're talking about. "Measure the stock's discounted cash flow." Again, huh? Apple had a butt kicking quarter - again - and they've got about $40 billion in the bank. Next.

"Compare the stock's current valuation to its historical range. BetterInvesting's Stock Selection Guide can help. If the company can increase earnings more than 18.1% a year the next five years, as analysts expect, that would put the stock in the "buy" range. " Um, they just rolled out a new Macbook Air, they have Mac OS X Lion coming out next summer, the iPhone may be rolling over to a new provider in the states come Christmas, the iPad is running out of stores... Need I say more?

Finally, the article says " An old adage on Wall Street is that the crowd is usually wrong. But Apple continues to disprove just about every tenet of investing, as the crowd has been continuously right on this one." Sooo, all the stuff you wrote in the article is bullpucky?  Again, I think the only people who are worried about measuring risk, compound rate of return and increased earnings over the next 5 years are "the experts". My portfolio is up 49% since last year and over 100% the last 2 months. And I have no clue what the 25 year chart looks like for anything I own.  'nuff said

Tuesday, October 12, 2010

Blockbuster Busted...

Last week Blockbuster, after months (maybe years) of speculation, filed for bankruptcy protection. I had a buddy who managed a local branch and years ago he told me they'd spent some money to get into online streaming of movies, but after a year, decided to get out.  Basically, they didn't have a clue. So I bought the combustion engine to their horse and buggy: Netflix (NFLX). I think I used to own this stock a few years ago when it was about $40/share but I got out. It's now $155/share and I'm kicking myself. No worries, it's showing up on lots of other devises like XBox and iPad, so I think it's got some more legs in it.

Still keeping an eye on Fannie Mae and Freddie Mac, and they're still selling for $.29 and $.30 a share.  Anyway, I'm doing pretty well. My prediction that the market would hit 10,000 before 11,000 was waaaayyy off.  My big winner today is Starbucks, it's up 4% because some analysts suddenly have "more confidence" in the company.  Last month they said they were raising prices.

Here's my current holdings and returns as of close today:

AAPL 178.72%
AET 1.67%
AGP 50.94%
AIG 12.10%
AXP 186.36%
BP 7.29%
COF 2.89%
DIS 34.65%
EBAY 16.12%
F 223.65%
JBLU 12.91%
LF 3.95%
LVLT -30.94%
MA 33.89%
NFLX 0.35%
PG -5.67%
SBUX 35.70%
SIRI 17.39%
TJX -0.22%
TM -8.81%
XRX 65.24%

Sunday, September 26, 2010

They really don't know what they're talking about!

When I started this blog, part of the reason was because I was doing is because after the financial meltdown  it confirmed to me that making my own decisions was the best way to do. Sure,  I may miss out on some great runs, but I also haven't lost several BILLION dollars.  The question that keeps coming up is how did they lose so much money? Simple, THEY DIDN'T KNOW WHAT THEY ARE DOING!

First, here's the Cliff Notes version of what happened when the whole financial world went crazy:

  1. People were being given fixed and adjustable rate mortgages they absolutely could not afford (yours truly included). In some cases, the person getting the mortgage didn't have to verify that they even had a job.  They figured they could always sell the house at a higher price and make money. Remember all those house flipping shows on A&E on Saturday mornings?
  2. Because so much money was so easily available, housing prices kept increasing. This is what was known as the housing bubble. (um, bubbles pop..)
  3. These mortgages were grouped together and sold to investors as a big block of A-rated assets. Why?  Because the rating agencies and the financial institutions selling them did not actually look at the individual mortgages that were making up the blocks. They kinda sorta took each other's word that it was all good.  They then borrowed money, using these "assets" as collateral.
  4. It's more complicated, but some people looked into the blocks and realized what a mucking fess they were. They then made bets against the assets, realizing they were eventually going to blow up. It got so crazy that some fund managers were having blocks put together that were as bad as they could make them, sell them to their clients, then bet against the same block they told their clients were rock solid. These were all still getting A-ratings.
  5. Eventually, when the adjustable mortgages reset to their final rate the mortgage payments shot up, much higher than the mortgagee could afford. And the fixed rate mortgagees couldn't sell the house they shouldn't have bought anyway, nor could they afford the payments. As a result, a few new things happened:
  • Housing prices stopped rising because there were no new people to get ridiculous mortgages.  For more info, take a look at Tulipmania.
  • Mortgagees started defaulting like crazy because they couldn't afford the payments.
  • Because the mortgages started defaulting, the blocks of mortgages lost value.  Remember these blocks were used as collateral for loans. If suddenly you don't have collateral, your loan can get called in. If you don't have the money to replace the lost value, screwed is an understatement. By the time the mortgages were defaulting and taking the investors with them, Wall Street had been buying each other's crappy crap crap, so when one went over the cliff, they were all handcuffed together and they all went.

That's the truly Cliff Noted version of the mess.  For a more detailed and entertaining summary, read Michael Lewis's The Big Short: Inside The Doomsday Machine.  I recently heard Mr. Lewis in an interview on NPRs Wait Wait Don't Tell Me game show. The one thing he reiterated is that Wall Street still doesn't have a clue. (Read his book Liar's Poker for a more in depth discussion of Wall Street's cluelessness.)

I guess the long overdue point I'm making is, why would anyone blindly trust their future to an industry that does not have anywhere near your best interest at heart and take their fees up front whether they actually make you money or not?  Trust me, investing in stocks and bonds is not rocket science  So long as they make you believe 1) it's too hard to do on your own and 2) they know what they're talking about, they have you.

Before I get beat up, I have no ax to grind with financial advisors or investment bankers. I just think that those "experts" on Wall Street that almost destroyed the economy of the planet are probably as collectively stupid as they appear.

As for me, my portfolio has been on a roll as of late.   My return has doubled in the last month. Still looking at Fanny Mae and Freddie Mac, they're still under $.30 a share so I'm still watching it.

Monday, September 20, 2010

The Recovery

Since my last post, I've done pretty well, actually more than doubled my gains. Still, I'm bearing on "the market" even if "my market" is doing great. Today the market stands about 10,700. I still think it will hit 10,000 before 11,000. Why? I just see this market as still pretty skiddish. I got rid of Freddie Mac (FMCC.OB) & Fannie Mae (FNMA.OBand they are still tanking. I still plan to jump back into them when they look like they're going to recover.

 A few months back, the markets went buck nutty because of the collapse of the Greek economy. While I still don't know why my stocks got hit because of it, there is a very good NPR podcast called Planet Money that explains exactly what mess Greece got itself into.

The problem I will have soon if this market keeps going like it is, is when do I get out?  Here's my holdings and current gains & losses.

AAPL 163.44%
AET -0.13%
AGP 34.75%
AIG -1.74%
AXP 219.72%
BP 0.39%
COF -0.23%
DIS 35.97%
EBAY 16.08%
F 194.85%
JBLU 2.44%
LF -5.06%
LVLT -19.69%
MA 30.99%
PG -6.61%
SBUX 30.60%
SIRI 1.74%
TJX -4.53%
TM -6.46%
XRX 53.03%

I'm approaching my alltime high in dollars  and will start paring down soon. Stay tuned...

Monday, August 30, 2010

Bye Bye Banks

I got out of some of my banks and a telecom today, Citigroup (C), Bank of America (BAC) and Research In Motion (RIMM). They were killing my returns. I think the banks will rise at some point, but I think they will continue to fall until at least 1Q11 (first quarter 2011). As for RIMM, unless they got an answer to the iPhone, they're toast in the long term. And it's getting warm...

And looking at my holdings, I'll be pulling out of more stuff tomorrow. The "market" is hovering around 10,000. It dropped 140 points today, the big loser was Frontier Financial (FTBK.PK), losing 25% today on absolutely no good or bad news. I think the Dow will hit 9,000 before 11,000. Why? Because it is having a heck of a time holding itself above 10,000 and the economy is still stalled. Businesses aren't hiring (trust me, I know). The market has tried to lift itself for the past 6 months, but it can't sustain it. Therefore, I think 10,000 is an artificial level and it will slowly drift down over the next 4-6 months. Given that, I think some of my good holdings might have to be cut. Ironically, I'm only down 8% in AIG (AIG), the one who started this mess.

Wednesday, August 25, 2010

Run For the Hills!

Another bad day in StockMarketVille. The Dow lost 133 points, due to a huge drop in home sales, ie, "..nobody bought houses last month, I better sell all my stocks!". My big loser was Web Media Brands (WEBM), who lost 10% yesterday, they announced financials a week ago - apparently it took everyone a week to read them. They did announce a smartphone games summit yesterday. I guess nobody wants to go. No, I don't see a correlation between smartphones and home sales either.

As we get toward the end of the year, I think mutual fund managers will start trying to clean up their holdings so when they report out in December they don't have all that crap they been losing money on all year on their books. That and the housing news will make for an ugly time ahead, at least until the mid term elections in November. In my logic, that will put downward pressure across the board. I see the downside a higher likelihood than the upside, at least for a few months. I'm not going to sell everything, but I'm going to take a good hard look at RIM, Yahoo and a few of the bank stocks I'm holding and been getting my butt kicked on. I'm not making any predictions on what I think these companies will do, but I don't see their stocks going anywhere positive for a while. I think/hope today will make a bit of a recovery since the market has been dropping for a few days. But I don't think it will last, so I'm going to actually try to time the market this time. OK, let's be honest, we all do that but don't call it that.

Thursday, August 19, 2010

He Giveth and He Taketh

As good as the last few days were, today is worse. "The Market" is currently down about 156 points, but so are about 90% of the stocks I follow. It ended losing 144 points for the day. The "experts" are saying it's because jobless claims were announced to day and are higher than expected. Apparently, most of the people who are trading stocks (Ma and Pa Public) are sitting around waiting for bad or good news and making their immediate trading decisions based on what they hear. Here's a new one: The Hindenberg Omen! I guess if you frequently cry doom and gloom, eventually you will be right.

The big loser on my watch list is Frontier Financial (FTBK.PK) who lost 20% today. No headlines so I can't tell you what was behind it. They were followed by Motors Liquidators (MTLQQ.PK), that quasi company that sorta kinda owns GM (article), down 14.8% for the day. Bummer news since yesterday they announced they were going to push for an initial public stock offering. I haven't decided if I would buy GM in their IPO. Chances are, if you can get in good the first few days you'll make out like a bandit on speculation, just not sure if I believe they've turned themselves around sufficiently to warrant any long term consideration.

Wednesday, August 18, 2010

Fannie & Freddie and GM wants us to buy it, again

Wow. AFont sizeuthentidate Holdings (ADAT), yesterday's big winner, is down 11.6% today. And still no headlines. This is a perfect example of the illogic of the stock market. Freddie Mac & Fannie Mae both got waxed. Probably had to do with "NEW YORK (Reuters) - The four largest U.S. banks could face as much as $42 billion in losses as they repurchase faulty mortgages from housing finance giants Fannie Mae and Freddie Mac, Fitch Ratings said on Wednesday." At least this time there was really something for the market to react to.

GM filed paperwork for an initial public offering today, meaning we'll be able to buy ownership shares in the company we bought last year. I have mixed feelings about GM. I think if they go back public, in the short run at least the stock will jump. But I haven't yet seen that they are doing anything different than what they've done the last 30 years which got them into this mess in the first place.

Read an interesting article about Google. They are up almost 389% since they went public 6 years ago, but they are down 20% YTD. That means if you bought Google on January 1, 2010, you have lost 20% - on the Google! The same company that is selling Andriod cell phones all over the place. I guess the point is you can't invest in the popular companies at the wrong time.

Tuesday, August 17, 2010

Back in the saddle

My apologies to the few of you reading this. Job search has been taking all my time the last few weeks. No excuse, I need to keep writing and I will definitely try harder. Now, let's look at today's market. It's 3:05 and "the market" is up 154 points. Big whoop, what's really important to me is that my holdings are up 1.4% for the day. USAToday says that the markets are up due to rising home sales. Soooooo, because your neighbors are buying houses, you buy stocks. Sorry, that doesn't make sense to me. As time goes on, I'm thinking more and more stock transactions are computer initiated, if stock X goes up, then buy stock Y. The article also said people are encouraged by higher earnings are The Home Depot (HD) and Walmart (WMT). Here's my unbelief, for this all to be true, 100 million investors would have to be glued to their TVs looking at housing starts and big name company earnings and immediately making the decision either buy or sell a bunch of stocks all over the place.

Earlier today Authentidate Holding Corp (ADAT) was up 12% for the day. It's now up just over 2%. What was the big news that caused this spike in this company with a market capitalization of $30 million? Beats me. According to Yahoo they haven't had a headline in 12 days. They have an earnings announcement in September. But they did get a new PR firm a few weeks back. I guess it's working. As I'm writing this, it's back up 11%. My guess is that when some other stock moved some computer algorithm said buy a poopload of ADAT, now sell it, now buy it again. Seriously, imagine the people who work there and maybe have their 401ks wrapped up in this company's stock. They must be going batpoop today.

Netflix (NFLX) is down 2% today, the only news I see is that HBO is going to the iPad and not to Netflix. Theroretically, 2% of the value of Netfilx was due to an impending HBO distribution deal. Um, yeah, right. Frontier Financial got a 13% haircut today. Why? Beats me. The last headline was June 9 about a shareholder lawsuit. My point is, if it was news driving this stock down 13%, we'd know. It's not people, it's Skynet....
Oh yeah, still following Fannie Mae and Freddie Mac. They're still in the $.40 range. Haven't repulled the buy trigger yet. I think they may shrink a little more.

Wednesday, August 4, 2010

The Return of Moe

Hey, I didn't post in July, the job search has been taking all my time. I'm still out of Fannie Mae and Freddie Mac, waiting for them to finally bottom out. I still think they are great long term plays as the government still backs them.

Haven't bought or sold anything over the past 4 weeks, my returns are finally starting to look decent again. I think in general "the market" has probably bottomed out and now is a good time to snag bargains, then again, it's always a good time to snag bargains. It was a gamble, but as of today I'm still up 2% in BP (BP). I am going to keep my eye on RIM, they got smacked down today. Maybe someone besides Priceline (up 22%) had a good day, but in general the market seems to be blah today. For all the hoopla about Android phones, the Google's stock isn't moving.

Tuesday, June 29, 2010

It's an ugly world out there

The Dow dropped 268 points today - and took most of my portfolio with it. All I can say is I don't think this will be a permanent state. I have 20 years to go to retirement so I can afford to sit and wait it out. If you have money you need sooner, you have to decide what to do. One thing to consider, it's not a loss until you actually sell....

Friday, June 18, 2010

BP Rebound, Looking at Fannie Mae & Freddie Mac

It's been a decent week. I'm up about 25% v 40% a few months ago and 20% a few weeks ago. I'm still down in BP about 10%. Hearing about the $20 billion fund they're putting together for the Gulf of Mexico oil spill disaster says they're not going out of business and in a year, if not less, barring anymore SNAFUs I think they'll be right back to where they were a few months ago.

Looking at Fannie Mae (FNM) & Freddie Mac (FRE). Five years ago, Fannie Mae was selling for $70/share, Freddie Mac was selling for about $50/share. They've both been delisted by the New York Stock Exchange, because they're selling for less than a dollar a share, about $.50/share each. They are both still government sponsored enterprises, which I think means they're not going anywhere anytime soon. I'm trying to let it drop a little more, but I think I'll be buying in the next week or so.

Thursday, June 10, 2010

Finally a Good Day

Today was a good day. After a week of bad days. Very bad days. I'm still down from my high by about 50%. That translates to mean 2 months ago I was up 40% for the year, now I'm only up 21%. I'm down 15% in BP, but yesterday I was down 28%, yeah, it rose 13% in one day. Welcome to the illogic of the stock market. This in the midst of them SNAFUing the Gulf of Mexico oil spill every whichaway they can. But I stand by my thought that it is a good time to be jumping into the stock market. I'm currently reading Michael Lewis' The Big Short: Inside the Doomsday Machine. Fascinating reading. It reinforces my theory that the big brains on Wall Street are just as dumb at the rest of us.

Thursday, June 3, 2010

Why I might buy British Petroleum (BP) stock

Slowly the market is coming back, rising over 200 points yesterday. I'm still down, but having some really good days. I'm looking at British Petroleum (BP), yes the company responsible for the biggest oil spill in history. Why? Because it is getting hammered. This is where personal choice comes to play.

About 20 years ago, several financial companies started marketing mutual funds that excluded "sin" type companies like tobacco, gambling and alcohol. The goal was to attract people who had aversions to the kinds of products and services these companies sold and, therefore, would choose not to invest in them. Very valid point. If you don't agree with what a company does, you are well within your right not to invest in that company. My problem/issue with that type of investment mix is that 1) investing is about, for the most part, getting the best return, not expressing your distaste for drinking, smoking or any other questionable yet legal activities, 2) these portfolios have been put together not becauase someone did research and decided they were a good mix from an investment perspective, they were put together because they are a good mix from a marketing perspective (I don't invest in marketing) and 3) I don't care for mutual funds, see previous posts.

Getting back to my point about British Petroleum, I think they have handled this whole spill horribly, starting with before the spill. They had no plan for cleaning up a mess of this magnitude, yet they've probably thrown millions into figuring out how to drill 5 miles below the surface of the ocean. Having said all that, they are still in business. Their stock has lost about 50% of it's value in the last month, and over the last 10-15 years they have made a boatload of money. Assuming they don't get liquidated due to lawsuits (see Arthur Anderson) or taken over by a competitor, they will be back. Why? Because as George Bush said, "We are addicted to oil." and that addiction ain't going nowhere no time soon. So, yes, it's a gamble, but I can see this working out for BP such that in a year or so the stock price is right back where it was a month ago. A 100% return in 12 months ain't bad at all.
Do I feel bad about investing in a company that royally screwed up the GULF OF MEXICO for decades? Nope. If you want to get picky, go protest the people you see lined up at BP gas stations. They're the ones supporting the company, I'm just gambling.

Thursday, May 27, 2010

It's a mad, mad, mad, mad market

Yesterday the bad news continued. I haven't sold anything so my returns are taking a beat down. But today wasn't as bad, it was ugly early but the markets rebounded a lot by the end of the day. Still it was ugly. Many people sold their stocks as the markets were dropping, this additional sell pressure probably caused the market to continue dropping farther than it would have if everyone just stayed calm. But then, that's the point. Staying calm. Sure, it's scary to think of your life savings going down the drain. But history has shown that the stock market, over the long term ALWAYS goes up. But as this article points out, the market doesn't always rise, it's the indexes. Very important distinction.

Today the Dow gained 284 points. But more importantly to me, my stocks all rose, my big winner, SiriusXM (SIRI) rose 13%. I'm not near where I was a month ago, but had I sold yesterday I would have left several thousand dollars on the table. My point is, there is no right or wrong decision. The best decision is the one you feel comfortable with at the time you make it. Period. If you second guess yourself you will drive yourself crazy.

Thursday, May 20, 2010

Buying in a bear market

I've been away for a few days, life gets involved. Anyway, the markets have been ugly. Now they are blaming it on fears in Europe. Whatever. My portfolio is catching a smack down today. As I've said before, I see this as an opportunity to stock up. There are many stocks out there that have been beaten down for new reason, even more now. When this proctology exam is over, they'll be back. I'm going hunting....

Wednesday, May 12, 2010

When your stocks drop

In the last week the Dow (DJIA) has dropped 1,000 points and recovered every one. And many stocks have done the same. Those who panicked and sold locked in their losses. But loss is a relative term. My net gain was cut in half in about 3 days. I didn't sell anything, I bought a few stocks. I've since recovered most of what I lost in total, although some of my holdings haven't come back yet. I was still up good amount, but not as much as I was 2 weeks ago. My loss was on paper, meaning it's not a true loss, and my current gain is not a true gain, until I sell the stocks that are responsible for it, thus locking in a transaction price and the gain or loss. This is one reason why investing on your own is so hard. It is very tempting, when your holdings take a price beat down, to think the sky is falling and try to stop the loss. But in my experience, what goes down usually comes back up, especially if it goes down for no specific reason. The question is how long will it take. In the instance of what we saw last week, I figured it was something non-normal (they were blaming the Greek financial markets) so I figured all the stocks would go back to their previous levels within a few days or weeks. This is or was not guaranteed. Stocks could have kept falling. If they had, before I made any decisions I would have asked the simple question "why?" If there was no quick answer, maybe I hold on and ride it out. During the banking mess of '08 and '09 a lot of people got caught holding the bag when stocks dropped. Many of them sold. In hindsight, the smart ones bought more. Remember, it is a risk. The number one rule of investing is to be able to sleep at night.

Monday, May 10, 2010

Those crazy stocks!

Last week the Dow dropped 1,000 points in one day before bouncing back. My stocks got whupped good. Too late to get out, its due to some drama in Greece. Time to look for bargains. Picked up The Street (TSCM), they dropped 13%, their earnings report says they reduced their loss since last year by $44 million and revenue rose by 7%. To me this looks like a company getting hammered with everyone else. Which means it will probably rise back to its yesterday level. I think this week is going to see a huge rebound, the analysts will say investors are grabbing bargains. After last week, there are a lot more of them.

Wednesday, May 5, 2010

When to sell

The market got hammered yesterday. Time to look for bargains, those companies that are getting slammed today for no particular reason. Sirius XM (SIRI) is down about 8% and they announced positive earnings. Booyah. Bought some at $1.15. I owned them earlier this year and got out at about $1.00. They kept rising, going above $1.20, but got hit today. I expect them to hit $1.20 again. This brings up the issue of when to sell. As you can tell from some of my returns, I haven't figured that out yet. When I sold Sirius earlier this year, they had doubled in about a month. Then they dipped a little so I jumped out. Hindsight is 20/20, I didn't know if the rise was sustainable so I took the money and ran. Same thing with Vonage (VG) a few months earlier, they announced their global flat fee calling plan, the stock took off and I got a nice bump. In general, I don't have a rule about when to get out. I've read that some investors will sell after a certain return, say 7% and will also sell if the stock drops that same amount. This seems like a good and prudent philosophy, but I don't like to set an random return % and sell. If I feel like a stock has no more upside, I will sell it. My return at that point could be 5%, 20% or 120%. When the upside is gone, so am I. On the downside, I have the same philosophy. I bought American Express (AXP) at about $26/share. They dropped to $13/share and I bought a bunch more. They're now around $46/share. I didn't think they were going belly up and the low price was a buying opportunity.
I also bought Leapfrog Enterprises (LF), they make toys like the Leapad. Been watching them off and on for a year, today they missed the ANALYSTS PREDICTIONS by a few pennies but revenue is up 42% and they got slammed, lost 18% on their stock price. I think they will recover that. No time window, may take a month, may take 6.

Thursday, April 29, 2010

The illogic of results v predictions

The market is correcting itselft today, up 119 points. Akami (AKAM) rose 20% today, due to reporting 1Q earnings of $.35/share, v the expected $.31/share. This is where the market's illogic comes in. The estimate of $.31/share was by the "experts" who read tealeaves, looked at fortune cookies, whatever, and decided that they knew what this company would report for earnings, even though they were looking from outside in. Sure, they could call suppliers, but that's not all that goes into reported earnings. I won't go into everything, but trust me, there's a crapload of work that is required to develop quarterly financial statements. And the analysts don't do it because they don't have all the details to develop them. So, where do these estimates come from? "Educated" guesses? Magic sphincters? You tell me.
iRobot (IRBT) is up 33% for the same reason: "announcing better-than-expected revenue... "I digress.
The reason I went through all that is to make the point that Akami's shares are up 20% for one reason: the experts were wrong. Had the experts predicted $.35/share and the company came in at $.35/share, the stock would probably not have moved at all. In conclusion, today some folk got rich(er) because some other folk didn't know what the heck they were talking about.
Palm got bought yesterday by HP. I saw that coming. Don't know what HP is going to do with them. Kinda like when FedEx bought Kinkos a couple years back. I think they royally screwed the pooch on that one. I come to that conclusion from the fact that they are dropping Kinkos from the FedExKinkos outlet signs. Say what you will, but when Time Warner dropped AOL from the name, it wasn't because they couldn't afford all those letters on the headquarters. Again, I digress.
I wonder what HP is going to do with Palm now that the iPhone has opened up the "we want phones to do more than make calls" chant. Not that it's the greatest phone ever, but because it has 20-30,000 developers working to make it do anything and everything. Google's Android OS has a chance, mostly because Google has more money than the Vatican. But at the end of the day, the number or people who want a phone to be just a phone is shrinking fast. The more apps, the more useful. The more useful, the more people will want it. My prediction is that the winners in the cell phone race will be those platforms that have the most apps available. Period.

In other news, Eastman Kodak (EK) posted a gain of $119 million, v a loss of $360 million last year. Their shares lost 17%. Yeah, go figure. Again, don't apply logic. The people who made out on iRobot and Akami today weren't any smarter than you, they were just luckier today. By the same token, those who lost on Kodak weren't dumber, just holding the hot potato at the wrong time. Don't let anyone tell you they predicted any of this.

I bought JetBlue Airlines

Yesterday "the market" lost 200 points because, according to new reports, Greek debt got downgraded. Whatever. I did some bargain hunting, looked at Frontier Financial (FTBK) which lost 16% today, but decided to sit tight after reading this article about another company possibly making a bid for Frontier's president and CEO. That just doesn't sound good. Also looked at Netflix (NFLX) which lost over 5% today, didn't do anything today, but if it opens tomorrow and doesn't shoot up, I may buy some. No negative artcies to be found. Today is "mixed". Authentidate Holdings (ADAT) is down 9% today. Can't seem to find a reason for it, but it's gone from $.97 to $.82 in the last 4 days. That concerns me because it wasn't a 1 day hit, it's been a few days now. Can't figure out why though, none of news stories point to anything negative.
Jetblue Airlines (JBLU)is also down another 11% today. They reported a loss of $1 million, but they had a one time charge of $15 million, so maybe investors are jittery about the loss and not looking at the cause. I bought some at $5.72. Already, the market is starting to rebound.
I tried to buy 1,000,000 shares of MBAY but the offer expired. I guess it's some kind of closed trading environment. I would have owned 10% of all outstanding shares for $800. Darn. Why? To be able to say I own a million shares of something, and more to the point, this stock jumps up and down a lot (260% increase one day last week.) This is a pure gamble. The stock value is so low that it would be pretty hard to get lower. All I need is to be in the game once when it does a crazy jump, then I'm out.

Sunday, April 25, 2010

Why I own Apple

There's a story behind every stock I own. Let me talk about Apple (AAPL). It closed at $270/share on Friday, putting me up over 150% in this stock. I have been drinking the Apple Kool-Aid since the early 90s. If there is any stock I have a emotional connection to, it's Apple. I bought Apple originally because I believed in the products. I own several of them, I've always felt the Mac OS was superior to Windows. Steve Jobs is awesome, having put his footprint on computers, music, movies, cell phones and now tablet computers. What I realized early that a lot of the big boys didn't is that the secret sauce is the iTunes Music store distribution model. Just like when they rolled into MP3 players, there were other players on the market in 1999, but none had an easy way of getting your content onto your computer. When they rolled int cell phones, everyone hated their phones, the cell makes and the service providers knew this, but did nothing to make better phones. They left money on the table and Apple's been scooping it up. They leveraged the iPhone Apps into the iPad. I hope that at some point in the future they put forward and backward facing cameras on it. That's when the whole netbook market will implode.
Back when it was $4/share I owned a bit, sold it at about $100/share and made out nice. Wish I had bought a ton more, but again, the goal of investing is to be able to sleep at night. If you can't sleep, you are investing money you can't afford to lose. Sell something. The challenge I have with Apple is when do I sell? They just announced earnings that blew out estimates and the iPad has got a huge future. How high do I think the stock will go? No clue. Will I sell if it hits $300/share? Probably not. At some point, I will sell my initial investment so I'm playing with "house money". I guess I'm saying the estimates of the stock price by the "experts" don't mean much to me. I will sell when I don't think, based on the market conditions, the upside is as big a risk as the downside.

Anyway, why did I buy Apple? I know the product, I see the potential and they have momentum. Is it too late to buy Apple? I don't think so. I think it will pass $300/share this summer. Just my opinion. You decide for yourself.

Tuesday, April 20, 2010

Media Bay is up over 300% in 2 days

Media Bay (MBAY.PK) is up another 72% yesterday, after rising 262% on Friday. It now sells for $.005, I think that's half a cent. Yes, you could have made a killing on it if you owned it last Wednesday, but who'da thunk? Palm, Inc. (PALM) is down 12% today, their head of WebOS resigned ( and it looks like they may not get sold as quickly as they'd hoped. I'll keep an eye on them. My gut says someone will buy them, but they're waiting for the price to drop some more. The company is worth about half what it was 4 months ago, and their cell phones aren't selling to well. Even though the market was up today, a lot of the stocks I watch are down.
Over the weekend I saw a documentary about the Bernie Madoff scandal. It made me think that if anyone thinks my research methodology is weak, what the heck were people with millions of dollars doing? Not just investors, mutual fund managers! The "experts".

Saturday, April 17, 2010

Looking for stock bargains

Before I go any further, I want to make it clear that I am not bragging about my stock picking skills. I have made some decisions that have turned out well, and some that have not (see Enron below). Moreso than luck, I have been blessed. I thank God for waking me up every morning and blessing my family. It is in thanks for His blessings that I am trying to spread a little knowledge
The market is down today. this is a good time to look for bargains, will do so over the weekend. I define a bargain as a stock that's down +5% today for no apparent reason other than the whole market is down. My theory is if they dro 5% for no reason they'll probably go back up 5% soon. A 5% return over a few days isn't bad at all. If I see something interesting, I'll look for headlines for that company, if they didn't screw up royally in the last few weeks I will assume their drop is a market correction. There's probably very few stocks that will show a drop of 20-30% today that I would want to touch. But if a company has some really bad news that causes that much of a drop, and the bad new is not "company shutting down" level, I'll keep an eye on them. Right now Krispy Kreme (KKD) is down 10%, ended the day down 14.9%. Ouch. Thinking about buying Glaxo Smithkline (GSK), based on a company they bought last year that I heard about on an old episode of This Week In Tech. On a day when the market dropped 125 points, Glaxo was up .28%. Go figure. Yeah, my research is that simple.
It's 1:40 PM and the Dow is down 146 points (1.3%) and Media Bay (MBAY.PK) is up 262%. It sells at $.0029/share. Yahoo won't even calculate a market cap on the company. I figure it's probably worth about $800. That's a joke.

Wednesday, April 14, 2010

What is a stock's value and what is the stock market

Let me start at the beginning. What is a stock and why does its price change?
Say you own a small company. Things are going well with your business, and you own 100% of the company. You decide to have an IPO (initial public offering) , take the company "public" and allow others to invest in your company. For this investment, you will/may have to give up some control of the company. Remember, you now own 100% of the company and can make any and all decisions yourself. I won't go into the details of finding a bank to run the IPO, creating a board of directors and a host of other things that have to be done to get to an IPO. So when you decide to sell stock in your company, the first thing you have to determine is the value of your company. Say you decide your company is worth $100,000 and you will sell 1,000 shares representing 40% of the value of the company (again, there are tons of calculations that are done to determine these numbers). You are agreeing to sell an interest valued at $40,000 ($100,000 x 40% = $40,000), so each share of stock is worth $40 ($40,000 / 1,000 shares = $40/share) Say a year later, you are doing great and it's determined that the company is now worth $200,000. The 40% owned by stockholders is now worth $80,000 ($200,000 x 40% = $80,000). Since there are still only 1,000 shares outstanding, they are now worth $80 each. ($80,000 / 1,000 shares = $80.00/share). The stock's value changes based on changes in the value of the company, or it's Market Capitalization ("Market Cap").
This is a very simplistic example. The real question is what is value? To me, an item's value is what you can get someone to pay you for it. Your house isn't worth X is you can't get someone to pay you X for it. The stock market is perfect in this example because it matches up buyers and sellers. When buyers are not willing to pay a certain amount for a stock, its price will drop, until it reaches a price where buyers are again willing to buy. When there are more buyers than sellers, the price will increase. Again, this is very simplistic. During the day lot things happen that impact the buyer/seller ratio of any particular stock, which results in price fluctuations. Value also came into play in the financial market implosion of 2009, but that's a story for another day.

What is "the stock market"?
The stock market is literally thousands of stocks, all moving in their own directions for their own reasons. When you hear that the market was up or down on a certain day, they are usually referring to either The Down Jones Industrial Average or any other number of indexes that are supposed to gauge the general direction of the market. The problem is that the market is too big for any index to truly tell what happened in the market. If you go back to the crash of October 1987, you could find 30 stocks that did not drop in value that day. Same thing for the tech bubble pop in 2000 and the train wreck of 2009 If your portfolio happened to contain those 30 stocks, and only those stocks, the "crash" didn't effect you. My point is that an index is only as good to you if the direction of the index mirrors the direction of your portfolio. Everyday.
Since this is a blog about investing, I guess at some point I have to talk about what I'm investing in. Here's what I own and the return as of today:
Apple Inc.128.68%
Aetna Inc. Common Stock4.05%
AMERIGROUP Corporation Common S17.35%
American International Group, I6.10%
American Express Company Common243.19%
Bank of America Corporation Com12.57%
Citigroup, Inc. Common Stock4.03%
Capital One Financial Corporati16.47%
Walt Disney Company (The) Commo40.83%
eBay Inc.27.47%
Ford Motor Company Common Stock212.15%
Genworth Financial Inc Common S7.34%
Level 3 Communications, Inc.35.86%
Mastercard Incorporated Common58.44%
Procter & Gamble Company (The)- 4.08%
Research In Motion Limited9.97%
Starbucks Corporation23.72%
TJX Companies, Inc. (The) Commo2.66%
Toyota Motor Corporation Common4.19%
Xerox Corporation Common Stock55.59%
Yahoo! Inc.5.07%

As you can imagine, I bought a lot of these stocks last year when the market cratered. Somebody famous said do what everyone else isn't, or something like that.