November, 2009

'"Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

~ Warren Buffet

The Professional Opinion

S&P 500 Index: 1036.19

LEI  - Leading Economic Index

The LEI has improved for six months in a row now to an annual rate of 11.8% the longest streak since 2003.  

Eight of the ten leading economic indicators (five last month ) have also increased. 

Other Key Factors

Real GDP
:  Up at an annual rate of 3.5%

Operating Earnings:  2010 earnings could rise as 25%.

Housing:  Appears to be stabilizing and mortgage interest rates are expected to remain low.

Industrial Production:  Up .7% in September, another good sign.

Capacity Utilization:  Up .7%  and in part due to Cash for Clunkers.  Inventory is expected to slowly expand.

Retail Sales:  Better than expected for September.  People are spending, but cautiously.

Housing Starts:  Up .5% in September.  Starts increased in the South by about 7.9%  and decreased in the West by about 8.9%

Inflation:  Not.  We are in a deflationary mode but it is moderating.  The CPI rose .2% in September, which brought the Deflationary Rate to 1.3%.  These are deflationary records that have not been seen in decades.


The cyclical bull market in a bearish overall trend remains intact.  Buy on the dips.  Single digit pull backs are expected to be the norm for the remainder of the year.  Buy Suncor in the low 30's as an inflationary hedge against energy prices.

Lake Effedt Snow
Lake Effect snow makes it down to the valley - 10-04-09

Personal Portfolio

~ Boy I hope this gets put to rest.

I think the market is morphing into one for stock pickers and that the easy money has been made.  

Housing stocks and financial institutions are the areas I am using to accelerate the gains for the year.  Find the cheap stuff that really moves on news, put in some stops for predetermined sell targets and let it sit until the trade executes.

I'd still like to know why FAGIX is doing so well  - 25% of my wife's $$ is in this and it turned out to be a great choice.


Personal Portfolio

A Couple Long Term Value Plays (Bottom Fishing)

I would have to agree with the pundits that most of the easy money money has already been made but I think there are still deals to be head if you have a stomach for volatility and a longer term time horizon.
I like the financial sector, regional banks in particular as profit possibilities for this reason.

My only criteria is that the stock is really cheap so I can buy a bunch of it, and that the consensus of opinion seems to think the stock has a chance to resume some kind of normalcy if one is looking a year or two out.  

I looked at about 15 companies and came up with two:

Huntington Bancshares (HRB)




I even added HBAN to the taxable investment account because I think it has long term potential.
I normally won't trade in a taxable account for short term gains because of the taxes so that helps ensure a longer term perspective.

The numbers on this certainly don't look good but that is pretty much par for the course in this sector.

The number that gives me the most pause is the Beta.  

This is one of the smaller regional banks and that Beta can really take you for a ride.


And of  course there is Cramer's perspective, for what that's worth.

Here is Schwab's Perspective.

Regions Financial (RF)




I've owned Regions for some time.  This is a larger company, about two times larger than HBAN.  
It currently has a much lower beta and has been relatively stable but there is no guarantee that will last for any period of time either.
Regions is still relatively cheap and I've noticed Regions advertising on TV so they still have a few $$ to spare.  

The following came out October 27:


How about Stability and a Nice Dividend and Room for Price Appreciation


Altria has been awesome.  The price has appreciated about 20%, they recently increased their dividends, and they are kicking off about $500 a quarter in the tax exempt account which is being reinvested in new shares.

What more can you ask for?

Some have issues with this company for ethical reasons, tobacco being chief among them.  That's ok, we all have lines we won't cross.  While I have no issue with tobacco, I have major issues with Life Settlement contracts.

Anyway, this stock has been a winner for me. It adds stability to the portfolio, has upside potential and pays a nice dividend to boot.

Something even Safer and more Stable with a nice Yield Considering the Climate?

Fidelity GNMA


When  things started going south in 2008,  I placed a large chunk of my wife's portfolio in this Fund and haven't looked back.  
This fund is in a retirement account.  Dividends are paid out monthly and reinvested in more shares.  
Compared to a money-market or CD, there is no comparison.

Trading at or near historic share prices,  there is NAV risk should interest rates rise.  Price fluctuation is generally around 10% so if you are concerned with loss of principle or principle fluctuation, that is something to consider.

Since I am not relying on this for income am using this for stability,  I would be a net seller when interest rates rise to any appreciable degree and invest elsewhere.

If I was relying on this for income,  I would be factoring in how much this yielding compared to other safer securities.  Not much out there that yields this much and is backed with a government guarantee.  As long as the Teleprompter doesn't figure out a way to damage GNMA's, I would consider this a safe investment with a decent yield if you don't mind NAV fluctuation.

A Trading Suggestion


I tend to keep tabs on a couple stocks that are cheap in price,  have some quality behind them and are volatile.
Standard Pacific is one of them has worked out quite well for me and I started buying back in a couple days ago.

I don't buy all-in or sell everything at once.  If I'm looking to buy, I will buy three or four lots on the way down.  
I sell the same way on the climb back up.  

Less commissions, this has worked out to profits generally in the range of  10-25% and since it's in a tax exempt account,
there are no tax consequences.

In order to make this worth your while, you have to buy enough to make a difference and therein lies the risk.
I usually limit this to 2-3% of the portfolio.

When my profits become more than 2-3% of the portfolio,  I invest the balance in more stable holdings and MO is the
current favorite.

I  think that while the market is operating in an abnormal environment, it pays to have a couple stocks of this type.

You don't need to pay for a service to find stocks like this.  Stock screeners like the the ones from Yahoo or Google
do the job admirably.

Closing Comments

Snow Dog

You know, before we decided on a Parti Colored poodle, we actually thought about potential problems associated with partially white dog.
I figured that since most of the backyard is sand, dirt would not be much of an issue.  

Boy was I wrong.

Lake Effect snow, rain and the joys of  playing in same I going to be an issue.