August, 2010

"As a novelist, I tell stories and people give me money. Then financial planners tell me stories and I give them money. "

Martin Cruz Smith

The Professional Opinion

DJIA: 10465.94


The Correction:  
A 15% correction has occurred. Bob is happy.

S&P 500  - The low 1000's should be regarded as a buying opportunity.

Bond Market - The US and Europe is stabilizing.  Bob is happy.

Double Dip Recession - Not likely to happen, but growth will be slow.

Secular Bull Market - We are in the second year of same.  No new secular bear trends anytime soon.

Critical Factors Going Forward:

Tight Money:
 Not happening in the near future.  Bob is not worried.

Rising Rates:  Not happening in the near future.  Bob is not worried.

High Inflation:  Not happening in the near future.  Bob is not worried.

Rapid Growth:  Not happening in the near future.  Bob is not worried.

OverValuation:  Not happening in the near future.  Bob is not worried.

There are no bear market warning signs at this time.


Assuming you wish to take on market risk, stay fully invested and buy on the dips.

Buy Recommendations

Suncor (SU)
when you can get it under $33.00 a share.

Comment:  I have found that with this stock and a beta of somewhere around 1.7,  Suncor makes for a better trading stock than a buy and hold stock.  You just need a little patience.

The Dog Days of Summer
Ah, the Dog Days of Summer - when the worlds skinniest, spotted chicken discovers he is in fact a water dog.

Personal Portfolio
It has been an interesting month.

Talk about a jobless recovery......

Earnings have been coming in better than expected for a while now.  It started with Alcoa is continuing.

It's looking like we might actually have a month whereupon we close up - that is if the teleprompter can manage to keep its mouth shut for three or four more days.

I'd be for keeping an eye on those better-run regional banks.  I continue to think there are opportunities to be had with a bit of patience.

Masco (MAS), as well as some of the home builders are getting quite attractive again.  Standard Pacific Homes (SPF) moves on good news and it is cheap.  Of course to make some serious change, one would have to make a sizable investment and therein lies the risk.  With a little patience, the stock can be rewarding.


Personal Portfolio

July has been shaping up nicely.  I sold the rest of Huntsman in the taxable account ahead of the planned tax hikes.  That figured out to a 342% profit - one of the best gains I've ever made.  Might as well keep as much of it as I can.

I decided to take some gains to cash last week,  planning on the teleprompter's monthly trashing of some area of business and thus creating a temporary buying opportunity.  To my utter amazement, it hasn't happened - yet.


Perhaps the teleprompter had something a bit more destructive in mind.......

About those Regional Banks..



I took the opportunity to start picking up some more shares of HBAN and RF this month at what I think were depressed prices.  
Emphasis was on HBAN.  I think people picking up shares on the dips could end up being quite satisfied if they have a longer term perspective.  

Regions Financial

One day later,  Regions reported their earnings and while they did not turn a profit, they lost less than what was expected.

I don't see much else out there worth looking at, at  this point.  

There is One Exception

In the world according to me,  I think in order for the economy to recover,  the financial sector has to recover first.  Commodities and materials suppliers will recover second.


Masco supplies the likes of Home Depot and Lowes.  They supply the suppliers, especially in the area of home building materials. Disappointing earnings tanked the stock today (looks like a buying opportunity to me, so I did) and I think it is trading at very attractive levels.  This stock I regard as a core holding and I have lots of it - all dividends set for reinvesting in more shares of the stock.
I think it is going to pay to go over-weight on this stock in the short term :).

Financials Recover First and then.....Commodities?


PSPFX has made me a lot of money over the years and I have been eye balling it again lately.

When I decided it is no longer prudent to be over weight in financials,  I will probably diversify out into this fund again.

It's not for the faint of heart and it is volatile but it can be worth the time and effort.


ADRE is an ETF and it is more concentrated than PSPFX.  I've done well with this one too.  It pays out a dividend as well.

Trading Software - Your Road to Riches?

Ball Street Trading

In my view, the surest way to accumulate large sums of money is to do so over time, deferring as much as possible in tax privileged accounts.

In my view, the surest way to lose large sums of money is to fall victim to on-line proprietary trading platforms with their claims that your road to financial salvation is just around the corner.  All you  have to do is trade using their software and your troubles will be over.  Heck, you can win free prizes too!  

These programs are not about saving and investing.  They are about trading because that is how the companies selling these trading services make their money.  While they may have their place for some, I would say with confidence that 90% of the investing population should stay away from them, myself included.

The reason for this?  Pretty simple actually if your remember that:

A:  It takes money to make money.

B:  It takes a lot of money to make a lot of money.

These companies are counting on you the small investor, not to think this through.

Companies like these cater to anyone and they make the bulk of their profits off the small investor.  It is also the small investor who ends up losing the most in the end.  They have some money to make money, but they don't have a lot of money to make it truly worthwhile.

The primary reason for this is the fees and taxes generated from frequent trading and I will provide a simple example.

BallStreet's trading program indicates a rising trend in DavidsLiteDonuts, trading symbol DLD.

DLD is trading at $10.00 a share and you, the small investor have $1000.00 to spend.


The charts and candle sticks and everything else look quite pretty (that is the point, isn't it?).

It costs $4.95 to make the trade so you end up investing $995.05 in 
DavidsLiteDonuts and are now the proud owner of 99.505 shares of same.

Now if only they go up in value.........

The market is trending up and it is a decent day all in all and DLD is moving with the market.  DLD is a fairly volatile stock, thinly traded and the candlesticks and colorful charting lines indicate an exit point of $11.20, or a gain of 12%. 

The program encourages you to take the profit so you put in a sell order of 99.505 shares at $11.20.

The trade goes through!

You made $111.44!

Oops, we forgot about the $4.95 it also costs to sell the stock.

111.44 -4.95  = $106.49 of Pure Profit!

But lets not forget that this is a Short Term Capital Gain and assume a 25% tax rate.

Uncle Sam wants a cut and that is going to cost $30.66.

What's left when all is said an done?

You have a gain of $78.84, or about 7.8%


Do you think that stock trading is something you should give up your day job for?  

That's easy enough to figure out.

Let's say I take home $500.00 a week from my day job, which is $2000.00 a month. I'm doing ok, all in all.

I would need to make 25 trades a week using the above example where I was making 12% every trade. 

For each concurrent trade,  I would need to have an additional $1000 invested.  5 concurrent trades = $5000.00 in capital.

In the real world, do you think your favorite trading software is going to help you get it right every single time, for gains of 12+ percent?

In the real world, that ain't gonna happen.


Every time you lose on a trade, you have to make up for that loss on another trade, which lends itself to riskier trades with more speculative stocks.  It is very easy to get sucked into a downward spiral.

In the end if you are lucky, you won't have lost - much, and those that encouraged you to use their  platforms......well......those watermelon smiles they are wearing got a bit wider.

Sierra Clouds

A rare sight in July, in Northern Nevada