Security Musings

Security Musings

Market Investment Strategies for Busy People

I have been investing for over 41 years, so at least I know a few things not to do. With this series I'd like to share my thoughts on market investment strategies, and I would welcome hearing about your personal investment experiences, so please write to stephen@sans.edu.

Other Related Articles in Market Investment Strategies for Busy People


A Real World Example of the Investment Strategies


By Stephen Northcutt

A Real World Example of the Investment Strategies 2012




[January, 14, 2012] First (hopefully) buy of the year


My PC died, I was able to work on my Mac, but couldn't find a decent WYSIWYG HTML editor so I have been kind of stuck. I have a thesis that water is going to be very important over the next decade and beyond. I want my portfolio to have some exposure to water. I find there is some ETF, Powershares Water Resources, PHO and Powershares Global Water, PIO as well as two barely capitalized micro ETFs CGW and FIW. The first thing I do is compare PHO to my benchmarks SPY and ACWI for a year. PHO -11.7% , SPY -7.4%, ACWI -8.7%; yuck, glad I did not buy it a year ago! What about the past 30 days? PHO +9.7%, SPY +6%, ACWI +4.1%; wow, wish I had bought this a month ago :) We do our research, the market capitalization $914M, that is only a little more than it cost to build the Hoover dam if you adjust 1931 dollars to 2012 dollars. So this isn't really going to give us an awesome linkage to the importance of fresh water, but at least we realize that. If you click on the link, it will take you to the prospectus, the most important thing we learn is that the fund is going to be changing from one index to another in March. So there is likely to be an incredible amount of chop in between. Before I do anything else, I need to research the NASDAQ OMX US Water Index. Let's build our targets. During 2012, I want to increase the exposure of my specialty portfolio to water to the tune of 5% total. PHO is the only water ETF with anything close to real capitalization, with the others the hope must be the name makes someone feel good. It last closed at 17.68, has a beta of 1.23 (jumps around more than normal), and it is changing index. So my buy around will be based on an extreme limit order of 15.50, if I can't get it cheap I do not want it till the index change is complete. My short term target is 20.00 a share which will need to be recalculated after the index change settles down.

2/12/2012 Update, it has continued to go up, so I still do not have it :(

[February 12, 2012] Working on my own personal mutual fund Ts


Mostly this basket is going well. Unrealized gain/loss is +5.3%. However, we have a few problem children. The strategy for Ts is to take suggestions from Motley Fool subscription services and if I agree, make small initial investments. Then monitor, learn more about the companies and add to the position, i.e. reward the winners. Today I want to lock in the losses against some of the losers to apply against the tax liability for selling some of the winners to take the profit and use it to buy bonds. My thesis is that the market will go up more than down in 2012 and when I close a position, I will look for a better choice in the same industry segment. My opinion is that I do not want to be on the sidelines right now. There is no such think as market timing, so I could be dead wrong, but even with Greece making all kinds of trouble, I think there are more positive indicators than negative indicators for the world economy.

Balchem, BCPC, I am down 21%. From everything I have read, this is a well run company with a good product. Over the past five years, it has rewarded shareholders about 300%, but it has been dropping. I cannot find a stronger competitor so I have decided to hold my existing shares and on the hope it is really cheap, purchase 30 more. Limit@33.00.

Gramercy Capital Corporation, GKK, I am down 35.6%. This real estate management company was a mistake in the sense I violated one of my own investment rules; stay clear of companies with high debt. I am closing my position and using the proceeds to probably open a position in EFC using a limit order. If the Greece nonsense is good for anything, it makes the odds of a limit go up a bit. Limit@19.00.

Hilltop Holdings, HTH, I am down 10.6%. This insurance company has a higher debt to assets ratio than many of its competitors. I will hopefully open a position with ERIE for the same amount of money using a limit order @78.50.

Pebblebrook Hotel Trust, PEB, I am up 38%, locking in my losses in GKK and HTH will give me tax cover to jump ship on this equity which is irrationally high.

I also have limit orders in place to hopefully open new positions:

Baidu, BIDU, I know, I know, you are laughing at me, but I think the hype phase is over for this Chinese Search Engine company and so limit@135.00. UPDATE: February 21, 2012: my dear (very smart) friend Cynthia asked me about the wisdom of this stock tonight. Whew! Individual Chinese corporations are crazy risky to invest in. The *only* reason I ever opened a position in BIDU was that Cynthia mentioned it a year ago, so I opened a modest position to be able to converse with her about it. My thesis is that the accounting and audit system in China is very poor and in general investing in individual company's is foolish. However, I have been on BIDU, it works, Chinese are not going to use a USA English speaking search engine as a general rule and there will be more Chinese ( with minimal English capability ) joining the Internet every day. 80% of the time, I invest in great companies. However, sometimes it just makes sense to invest in trends ( Water, PHO). BIDU could fail if they are mismanaged and those of us trading on the U.S. stock markets probably will not see it coming. But from a trend perspective, they are in the right place at the right time. I hope my limit hits.

Chochlear PLC, CHEOY, a hearing aid company, limit@32.00

Omega Protein, OME, if fish oil is the next big thing, I hit paydirt, limit@8.75

Silicon Laboratories, SLAB, I am big on chips, limit@43.00.

Sanofi, SNY, I would like open a position, but they are facing a patent cliff, so unless I get it cheap, no way, limit@32.00.

Paychex, PAYX, small day only limit to add to existing position, @31.00. It is really hard to figure out what is the stronger company, ADP looks pretty good as well, but I am sticking with PAYX for now.

Update 2/20/2012 so far the following limits have not hit: SNY Limit 32.00 Last 37.18, EFC Limit 19.00 Last 19.44 and it went down .01 last Friday, SLAB Limit 43.00 Last 45.89. Have a really good chance with EFC, but SNY and SLAB are going to need to tomfoolery from Greece to hit. For tonight I am not making any changes.

[February 13, 2012] AT&T Ck Basket


The stock market went up today, so none of my limits hit, But I remain confident some piece of bad news will happen this week. The media is very good at bad news. I made a change to basket Ck. This basket has two strategies. One is Canada (hence the C). I remain confident Canada is a resource rich, well run nation, but wow is it sensitive to the US market or European market. When the US was down Canada was up, but then it crashed. The other strategy is dividend stocks. I know, I know, everyone is running to dividends, that will pump up the price, the pros will pull out and those of us still there will be crushed. However, once you move past a base of broad based ETFs, dividend stocks have to be a part of any rational strategy at some point. And let me be clear, I am not choosing those stocks because they have a dividend. This basket is for stocks I can believe in that offer a dividend. Since Kathy and I are still employed, we are reinvesting the dividend whenever possible. That way, when we need them for income, we have the largest possible portfolio. Tonight I am adding PAYX.

I read an article about AT&T, ( one of the dividend stocks we hold), that says as they switch to all IP networks, there is a potential 100 Billion dollar windfall because they do not need as much building space which they can then sell. And this is one of the rare times I understand what they are talking about, IPv4 and IPv6 is my home turf. This really could be a game changer. I think this is one time I possibly know something before all the big Wall Street mainframes know it. I am placing the biggest bet of the year by far, setting "T" to be my 3rd largest holding. This night may become "Stephen's Folly" in my household, but the wonderful thing about placing hundreds of small, well considered bets, is that you can take a chance every once in a while do a big throw down. This is my big early 2012 throw down.


[February 20, 2012] Gosh, investors sure are smart


See what I mean? In good times, you check your baskets and see all that green. You know you are smart and so is everyone else. In 50 days, my 3 Motley Fool mutual funds are up 9, 10 and 11 percent. That is incredible. But I surely know that what goes up must come down. This week I need to reduce my equities and pick up a bond or CD. I will never be able to time the market, but when a number of equities are up 20% or more, it is time to sell some of them off and buy municipal bonds or CDs. Sold UNH today, it went up 30% in the time I had it and tried to use that money to lock in a CD. Every CD CUSID I tried has already been purchased, so will try again tomorrow morning just before work. Don't you find that interesting. Stocks are popping, but every CD I tried to buy to lock my gains in on stocks was already sold. Maybe someone else is locking in gains. Tonight I will add about $500.00 worth of the following stocks to positions I already hold: ADSK, CRL, LULU, MAKO. Each of them is overall up and they went down last Friday. In a generally climbing market, I can use market buys on the little dips to ensure I get the equity and get it as cheaply as possible. MAKO is a limit@36.00. It has a lot of short interest according to http://www.highshortinterest.com/. I only need a dip of .16c and I expect that may well hit.

[February 23, 2012] HSTRX


Tonight I have only one thing to do. Kathy has a mutual fund that has not performed very well. She asked me to do an analysis on it. It is HSTRX and in the past it did quite well, but it relies on treasuries and the fed continues to force the rate to be low. So what to do? The good news is that she has returned a higher rate than a savings account, the bad news is that we are talking .52 percent. However, it is pretty stable. The past 30 days have had a bit of upside. I think I set a Google calendar to defer the decision for another few months.


[February 25, 2012] The role of small caps


My investment strategy is to have a base of low cost index based ETFs anchoring my system, much as a rudder sets the course for a sailboat. I have been using Charles Schwab low cost ETFs for this purpose. They say that small caps should be a part of our portfolios. Brian Nichols posted a table on Seeking Alpha saying it should be 10%. Robert Brokamp, Motley Fool Analyst for Rule Your Retirement has several model portfolios where small caps range from 7 - 15% depending on age and finances. I am underweight. Charles Schwab has one SCHA, that you can trade for free. So does Ameritrade, IJR is on their free list. Since I am behind and the market is generally going up, I will have to trade on the dips until I am more in alignment.

Saw another dividend stock article. Whew, it is a bit late to the altar for that strategy. There is nothing wrong with buying a stock that pays dividends, that is even pretty cool, but do not buy a stock because your primary reason is dividends when everyone else is doing the same thing.

[Update August 19, 2012] At this point the dividend strategy is very dangerous. If Congress does not pass the dividend tax extensions, dividends could be a very bad place to be overweight in. But there are other opinions. A WSJ blog article correctly points out, " If nothing is done, the dividend tax rate is set to skyrocket from 15% to 43.4% for the nation’s highest earners." The article goes on to say, Congress will never allow a 30% tax increase, that the Democrats are breaking rank with the President and limiting the increase to 23.8% and that companies are going to offer a special dividend in 2012 and points to a few that already have: CHH, LTD, and HFC.

[March 16, 2012] We are still in an up market

I have closed my position with HSTRX. It was still up, but I do not think it will be net positive much longer. Also closed my position with LULU, it has done well, I am up 18%, but even though the investing strategy of the Ts basket is to add more to the winners, at some point a stock tops out. Of course when I look at this file in a couple months I may be kicking myself, but I think it was a good call. I also closed my position with PCBC, it was up 45% and with the upcoming merger, I just do not have time to track it. I am taking the money I earned from these and putting it into a CD. It may only be 1%, but I bought it with a basket of money that has appreciated about 30%. I read an Op Ed piece that investors should expect a very slow 4 to 5 years based on the Fed's monetary policy. If interest rates are a 4%, bonds tend to be 6% and stocks average 9%, but with interest rates near zero all of that is pulled down.

[Update Aug 19, 2012] This basket (Ak) which had HSTRX now looks like:
ETFs
PCY
GTIP
TIP

Mutual Funds

DODIX
FHIGX
HABDX
MDBFX
PRFSX
USSTX
VIPSX

The best performance in the past 30 days in the mutual funds is HABDX and you can add to the position in $1,000.00 increments, but I am afraid of the "fiscal cliff" dividend exposure so not going to do that at this time. So, I am going to get out while the getting is good and sell the lot and take that money and open positions that are similar with ETFs. I will try two limits (BND and BIV) and one market ( AGG).

[March 24, 2012] Flash Crash


The market is still generally going up, so not much to do. That said, it turned silly yesterday, but I was flying so no worries. I added to my Ak position in PCY, an emerging market sovereign debt fund. I also opened a position in Ck (only dividend payers are allowed in this basket) in L (Loews) based on an article in Kiplinger's personal finance magazine. I am also wondering how to trade ASOS, the London based etailer.

[March 31, 2012] Up, up and away

The market continues to climb. I know I am repeating advice I have made a gazillion times, but at this point, just about every buy should be a limit order on a dip. If I start accumulating a bit of cash on the sidelines that is OK. Spend some time doing research for when things are cheaper. We can't time the market, but we can say for sure it will go up and down; it is crucial I do not spend more money than I have to; limit, limit, limit from now on. I made a significant investment in SP 500 ETF SPY in 2008 just before the big crash. Yeah, four years later I am finally back in positive territory. However, if things continue to be positive and SPY gets ten percent or more into the positive, I will sell it and pick up a CD or Municipal bond with the proceeds. I realize most people are conditioned to think it is not possible that SPY has another 10% upside, but the Fed is driving investors out of bonds. This may be an artificial bull market, but if we can collect the proceeds and buy something more stable the fact it is artificial is not relevant.

Also Apple dropped $10 on Friday, do I splurge and pick up five more shares? Maybe a limit in case it drops another $10? I find it is a lot easier for me to invest when the market is down, but for now, we look for dips and limits. And we practice patience. If the limit does not happen it is cash on the sidelines looking for opportunity.

My online retail basket is up 18%, but that does not mean anything since the market is out of control. I am thinking about adding PETS. It is an online retailer of pet medicine. The online retail basket includes both MasterCard and Visa. With the news of the major hack, they are both down a smidgen. It might make sense to add just a bit on a limit. Will ponder that over the weekend.
http://www.businessweek.com/news/2012-03-30/global-payments-trades-halted-as-card-firms-probe-breach

[Update August 19, 2012] SPY is in basket Ek and is now at 142.18 which is only up 2.18% since I bought it. However, I do not have a better place to put the money today so, I am going to let it ride.

[April 6, 2012] Up with wobbles

I know I can't time the market, but I also know the economy wobbled a bit today, lower number of new jobs etc. And for my gloom and doom friends, some professor at MIT reports we are headed for a global economic meltdown. Nobody died and left me smarts, but I am not quite ready to put my money in my mattress. Well, as soon as I get a mattress and I will not need a mattress until my bed is returned to my flooded house which is almost totally repaired and looks great. We decided on the Postur pedic HD Rhapsody. You can spend more and get a cashmere mattress cover, but it would feel really cheesy cutting a slit in cashmere to hide my money in my mattress. In other words, this might be a nice time to pick a couple securities that climbed over 20% and cash them out and buy a CD, but only a couple, only a smidgen of the portfolio. In basket Ts, the best candidate is McCormick (MKC), it is up 18%, I have enough to buy a CD or Municpal bond and I have held it longer than a year. On the other hand, it pays a dividend and that dividend is increasing. Made a calendar note to decide next week.

I put in some limit orders today for stocks I hold that are generally up, but took a dip today. One of these was RGR (Ruger). I already had a holding, but it dropped 73 cents today, so I added a conservative limit for 10 shares to the Ts basket ( my mutual fund, small holdings of what has grown to be a large number of stocks). I also decided to set a limit to open a position in IRE @ 5.50. Then, I did some more reading about the risks and modified the limit to 5.25, then I looked at the pressure on other Euro banks and dropped the limit to 5.00. The Bank of Ireland has been a mess and has been dropping steadily. And any position in a PIIGS (Portugal, Ireland, Italy, Greece, Spain) country bank is very risky and this could be my third stock to go bankrupt, Worldcom and General Maritime are my first two total losses. Why take such risks? Well, I don't want to take many of them, but this stock is so beat down. I finished out my trading for the night with some free to trade ETFs that dipped today, SCHH, SCHM, SCHC, since it is free to trade, I could add a single share to that basket if I wanted to.

[April 15, 2012] Friday was gnarly

There I was, busy with work and I didn't get the memo that the world was ending. I am going to close my position in McCormick. I have 100 shares that I have held for a long time and want to take my profit and buy a CD or municipal bond. Tonight, most of the work I did was in my Ts basket. This is my own U.S. mutual fund. Because the market is efficient and smarter than I Ts is my radar scope. Since I have a lot of positions, I can use a day like last Friday and study what went up when everything else was going down. So, I have put a number of trades in play, some of the limits are so aggressive they probably will not strike, but I can cancel the order in ten days or so and recycle the investment cash. Limits that I set tonight: JCI@30, TDC@68, ISRG@540. And since I did not get the memo that the world is ending and the market is going to come crashing down on my head, I also set three market buys in place, adding to MA, MAKO and I am opening a position in INVN.

[Update August 19, 2012] INVN has continued to underperform since I opened my position, but I believe strongly in the company. Their gyro technology was used by Black and Decker in a really cool new powered screwdriver.

[April 20, 2012] IBM

IBM has dropped back below the $200.00 level. I don't tend to panic when a stock drops, after all, it has gone up a lot. But the Robert Cringely blog series has me seriously thinking about reducing my exposure to IBM; I hold more IBM than any other equity.
http://www.cringely.com/2012/04/watch-out-IBM/
http://www.cringely.com/2012/04/somethings-rotten-in-IBM-dubuque/
http://www.cringely.com/2012/04/magical-thinking-at-IBM/
http://www.cringely.com/2012/04/how-to-fix-ibm-in-a-week/

Interestingly enough, SANS just bought a piece of software from IBM and the envelope came from one company and the content references another company, so there may be truth to the Crigely blog. Of course if you sell something, you need to buy something else to stay invested. I have easily doubled my money on IBM, so thinking about selling a partial stake and put it into something safe and fairly long term, maybe a ten year CD? Update: I sold 2/5 of my stake and used that money to buy a ten year FDIC insured CD at a whopping 2.8% interest, but since I over doubled my money on the stock, I do not care. Also, purchased another small CD with the earnings from MKC.

[Update August 19, 2012] IBM is back above 200.

[April 21, 2012] VBR

I think I may be moving too boldly into individual equities. It is great when they go up, because they usually go up faster than ETFs, but what goes up, must come down. For this week's new position, I picked up an ETF called VBR. It tries to be a value focused collection of small caps. I think it is highly likely I am picking it up at a market top, but if I am serious about not attempting to time the market and to hold on for a long period of time, then it is rational to move forward. I was also reminded why I am patiently moving away from mutual funds. I have one called UMBMX, I have been in it for years. I decided to add to my holding, one thing I like about it is you can add as little as 100 dollars, I did 500. Now I am starting to rethink that analysis. There is a 2% penalty for withdrawing your money if held for less than 90 days. Now to be sure, 2% of $500.00 is not enough money to choose to or not to do something related to investing, but it was one more reminder. Use ETFs to get the job done.

My Bank of Ireland limit order has still not hit. Possibly the issues with PIIGS have now been fully factored into the stock price by the Wall Street Computers, but I am not changing that limit, I would be much happier to tie up my money for a little while longer and risk not getting the equity than to buy it at too high a price and get creamed when the market corrects.

Apple, the first company to have any chance of being a trillion dollar company has lost a lot of ground lately. I could personally care less, I first bought the stock a long time ago. But here is the big question. Has Apple reached an apex? Or will it cross $600.00 again? I think it will and I think that there is a reasonable thesis that this is a chance to buy a winner at a cheap price. Of course at $573.00 a share, the average investor is thinking about one or two shares of Apple. However, according to Google Finance, AAPL has a beta of 1.26, which means there will be some wild swings. I have currently tapped my investment budget for this pay cycle out, so I just have to hope Apple drops a bit more instead of jumps back to stratospheric climb mode.

[April 24, 2012] Goodbye Wal-Mart


I subscribe to a stock trading service, the Motley Fool Million Dollar Portfolio (MDP). The rule of the Es basket is to do whatever MDP tells me to do. I obviously do not have a million dollars in that basket, but I trade proportionally, if MDP says open up a 3 percent position in some stock, I do exactly that. Wal-Mart was on its way to becoming a core stock, but the order to sell came in today. Wal-Mart had some bribery problems in South America and as a result that stock has been dropping. MDP's reasoning was that it was close to its intrinsic value and why hold on to it. I am taking my principle and my profit and rolling both into a 7 yr CD. I will refund the account with the investing money portion of my next three pay checks. Now don't get me wrong, I think Wal-Mart is a well run company and it will get past this. If it drops another 5% I will be very tempted to buy it in another basket that has rules that allow me to do that, but it is gone from Es.
Update: May 26, 2012 Ouch, ouch, ouch, I sold it and it went up like a rocket. However, in the end it is far better to have baskets with strategies and to follow those strategies. There will always be anecdotal event where the strategy fails, the question is how well does it work over three or five years in up and down markets.

[May 26, 2012] Under Armour

Sorry it has been so long since I posted, Kathy and I have been sailing a boat in French Polynesia with no access to the Internet. My son wrote and asked if he should invest in FaceBook, I told him absolutely not. He also asked about Under Armour, that is a more interesting question. Here is what I wrote him back:

Buy more UA? It is a good brand that seems to be increasing its earnings per share. On the other hand according to Yahoo Finance, corporate officers have been steadily selling their shares, 744,507 shares in the past six months, so the guys driving the boat are not buying more. It is at 98 and most people place the price target at a bit over 100, if they are right, there is two dollars per share of easy upside until something else changes; I think you have a bit more upside than that because the 52 week high is 102, but whether there are two more or four more dollars per share to earn, there is not a lot of easy upside left. They have more cash on the balance sheet 100M than debt 75M. It's P/E is an astonishing 55. Now, to be sure there is no statistical proof that a high P/E limits growth, but it certainly DOES mean you are buying shares at a premium. They do not offer a dividend and dividends are pretty important these days. Bottom line: we have both had a good ride, hopefully it will get up to a bit over 100 easily, maybe 102, then it will probably start bouncing around. There are probably better buys than UA to consider. We have been in a long bull run, so I think think value style investing would be the better choice.

I opened my position June 8, 2011, but have added to it since. If it will be a nice stock and get to 102 by then, I would want to start selling my initial stake and take the profit and put that into a CD or municipal fund. Capital gains can really eat into profit, so I have to be careful. I will set a Google calendar reminder.

[May 30, 2012] Microsoft and reflections on the Es basket


The Wal-Mart experience has me rethinking the rules of the Es basket. I think Ron Gross is a good stock picker and intend to consider his thoughts, but I am not going to follow them exactly anymore. Which leads me to Microsoft. It is part of the Es basket and it has done well, it is up 19.61%. But I do not think it will continue to do well:
  • Too much is riding on the Windows 8 operating system
  • MSFT does not appear to have a chance of capturing a major part of the tablet market
  • Google is far ahead in cloud office applications
The honest truth is they could be in a pickle in a couple of years and Wall Street's super computers and analysts either know it now, or will know it and I suspect their stock will start to drop long before they miss earnings or whatever. Tomorrow I plan to profit take with my entire stake and use the proceeds to buy a CD. Didn't quite get to 20%, but close enough. Microsoft closed today at 29.34.
[Update September 13, 2012 MSFT is at 30.93, so if I had held today I would have made my 20%. However, it is worth noting the bonds and CDs right now are beyond terrible, I got a nice one.]

[June 3, 2012] Gasp the world is ending so I put in a limit buy order for Visa


Blood in the streets, the economy is faltering, Europe is failing ( still). There is only one thing to do; buy stock wisely. In the Sk basket ( ecommerce and Apple), I have been really impressed at Visa's growth this year. Granted right now things are on a tear, but that means we can add to this holding. So I set a limit of 106.00. It is 112 right now and almost dropped 3 dollars on Friday. This is a fairly conservative limit in terms of the size of the buy, the 52 week low was in the 70s, so it could have a lot further to drop, but I want to add to my position.
Update: June 7, 2012. Whoops, that will never hit, suddenly people got happy, the market went up and Visa is at 116.34. Even though I missed in this case, I promise you that by using limits over the long haul, you will be better off than market buys except when the market is climbing strongly.

[June 7, 2012] Under Armour Redux

Stock is up to 101.35, I am up almost 40% and it is seriously getting to be time to pull the plug, take the profits and buy a CD to lock the gains in. We reach the one year birthday tomorrow, but I want to hold on a little while longer. No, I cannot time the market, but the strategy in that basket is to add to winners. So, while the initial purchase was June 8, 2011, but the longer I can hold on the better or I will take some capital gains hit. However, since they are at the top of my projection, I will need to watch it closely or even set a limit sell.
IMPORTANT: There is absolutely nothing wrong with Under Armour, great brand, doing well. However, they do not pay a dividend. That means I am best off to get in and get out if I can while the getting is good. My thesis is that they have reached a peak for a while and that money might be invested more productively in a company with more upside growth. Time alone will tell.
Update June 10, 2012 I set a Google Calendar entry for Tuesday to see about pulling the trigger. I realize it sounds like I am trying to time the market, but I am really just trying to minimize the capital gains hit. If I can hold through June, I can get another chunk through its 1 year birthday.

[June 10, 2012] Locking in a loss - MUX, thoughts about CRM, GNTX, HEI.


I am pulling the plug on MUX (Mcewen Mining ). This was my play on gold and so far my worst performing equity in 2012. Fortunately I did not have that much money in the equity. Unfortunately, now I have half as much money from that operation. I do not think they are going to turn around soon and I would rather have the money to invest in something more promising. The market is bonkers again, last week my stocks gained an average of 4.9%, this just a few days after "the world was ending". People are expecting Monday to be a good day because of some deal worked out with Spain. So I am making these investments market orders.

I was reading an analysis of Salesforce.com that essentially says their house of cards related to revenue is about to come down. So, I am trying a very deep good till canceled limit of 100 and they were last at 136.49. Now I am sure you are thinking that is insane, there is no way that will hit. This way, I will see it every time I log onto my mutual fund basket. 100 is a pretty safe number, even if they do have problems, that is a good discount. And if I need the money for a better opportunity ( the most likely scenario ), I will simply cancel. Most analysts think this is a good stock to own, so I am conflicted a bit.
[Update September 13, 2012, the limit never hit, they are hovering just ten dollars below 52 week high, guess a market buy at 136.49 was not that bad of an idea after all.]

Been thinking about Gentex. My Toyota truck has a rear view mirror camera for backing up and this is a wonderful thing. I honestly do not think I will buy another car that does not have this as an option. Of course the most important reason to get one is to avoid running over children and pets, but it is really nice in tight spaces as well. Gentex is a leading manufacture of these as well as specialty dimming glass that is often used in rear view mirrors as well. However, there cash flow is not what I would like to see in a growth company. Here is an article that explains it well, I think I am going to pass for today.
http://www.dailyfinance.com/2012/06/04/heres-why-gentexs-earnings-are-worse-than-they-lo/

The same analyst did a write up using the same tool for a stock I have been following and opened up a small position in Heico tonight ( custom aircraft engine parts ).
http://www.dailyfinance.com/2012/06/06/a-hidden-reason-that-heicos-earnings-are-outstand/

[Update August 20, 2012, When I was doing my re-balancing yesterday I considered Gentex again. Maybe I am missing the boat, but I am going to wait a while longer.]

[June 11, 2012] More proof you can't time the market


Well all the news about helping Spain would cause the market to go up was wrong. The market went down. Now, this just means that I used market orders last night more than limits and will lose a small amount of money, which hopefully will be recouped in a couple of weeks, but it is a great reminder that us regular people sure do not have the intel we need to participate in the market. So, I am pulling the UA trigger and found a CD that matures in 2015 selling at a discount ( been a long time since I have seen that ) and a 1% YTW and will use the profit from UA up 40.93% when I pulled the trigger to buy the CD.

[June 15, 2012] Bad economic news so the market goes up


Too funny. Unemployment goes up unexpectedly, everybody is flipping out about Greece and the market goes up. Reason? Because now the Wall Street investors think the Fed will intervene. I dunno, I realize they have supercomputers and smart people, but this one is a head scratcher for me.

[June 26, 2012] Bad economic news so the market goes up redux

Too funny again. I truly do not understand the market. This paycheck, I picked up 25 more shares of Ruger. It is way down, because they simply cannot produce enough guns. However, what a great problem to have. I also opened a microscopic position in Psychemedics, (PMD), the drug testing company. I looped back around on Gentex, they are now under 20. The smart way to play this may be a deep limit and it either hits or it doesn't till I need they money for something else.
NOTE: June 27, 2012 I passed on Gentex again.

[July 5, 2012] Bad economic news, but this time the market goes down

Well hey, at least that makes sense. Not enough new jobs were created to satisfy and the smart money says President Obama is going to be in a dogfight to get re-elected. So where does that leave us for investments? Most important we don't panic, there should be a buying opportunity somewhere. On Friday when almost everything was red ( negative ), the following companies that have generally been up since I picked them up, were also up on Friday: CVS, GSK, HAIN, PII, RAVN, SNN. I don't have enough cash on the sidelines in that basket to add to all of these positions, but I can certainly add to two of them. The Ts basket strategy is small positions in companies that I have a thesis for, so that I track them. Then reward the ones that go up. Hopefully this let's Wall Street tell me which great companies they happen to like. CVS will surely be one of the winners, when I compare the to WAG it seems to be CVS's time in the sun.

The other thing I will set into place is to close Acme Packet (APKT), this is a very disappointing 50% loss. I am perplexed, I am supposed to know security and networking, this is my craft. But you can't fight Wall Street. So far, I have done best on IPGP, they have done so well they carry the rest of the networking stocks and then some. I have a small position on FFIV that I find hard to believe is not doing better, they are the real deal. INFN continues to excite me with their technology and bum me out with their stock prices, but I am at the limit I will invest in that equity. I am starting to think I am playing this wrong, maybe I should be investing in the ASIC providers since the days of custom silicon are ending and the future is merchant silicon and there are only about four of these vendors; Broadcom is the 2,000 pound gorilla. Broadcom's patent dispute with Emulex is settled, at least mostly, they have a slight edge in the performance ASICs in my opinion and Cisco is going to start using them in a limited fashion, or at least that is what I hear on the street. So let's open a position, 25 shares, limit at 32.00 using the money we get from the sale of the mountain house via owner financing.

[Update August 19, 2012] INFN had a really good day on Friday, could the long hoped for turnaround be at hand?
[Update August 20, 2012] INFN dropped 3 percent, so they still can't get traction.

*** Begin Sidebar: The Ts strategy and Great by Choice by Jim Collins

Chapter 4 is titled Fire Bullets, Then Cannonballs and it is the concept behind the Ts basket. I fully understand that no human can track hundreds of stocks especially in 15 - 30 minutes per week. However, some of these online brokers will execute trades in the $5.00 per trade range. This gives us the opportunity to fire bullets, to hopefully identify winners we would miss otherwise. Does this work? Can this be applied to the stock market? I do not know. I have been employing this strategy for a bit over two years and am down -.68% at this point and have a strong sense I will drop further on Monday, though I am certainly not trying to time the market, we follow the rules of the basket despite what we see in the news.

Of the three characteristics of a 10X leader Fanatic Discipline, Productive Paranoia, Empirical Creativity, this falls under Empirical Creativity. The basic idea is conduct small inexpensive tests using Bullets, and when you find what you are looking for, invest the big guns. First story in the Chapter is Southwest airlines. Back with airlines were regulated, there was obviously a LOT less competition. The found an airline, Pacific Southwest Airlines that was willing to show them how they did things and even gave them an operations manual. Where is PSA today?

Page 72, 73: "Our biggest shock came when we studied our pair of companies in biotechnology, the one industry in which the correlation between innovation and success should be close to 100 percent." It wasn't. "It's best to be one fad behind, never first to market, but never last."

Page 75, the authors put forth the notion of an innovation threshold and that it varies by industry, in airlines and insurance, innovation's importance is relatively low, in semiconductors, biotechnology, and computers/software it is fairly high.

Page 78, bullets and cannonballs. If you find a surprising success with something, and then it happens again, hit it hard with everything you have. In 2001, a computer worm called code red impacted Microsoft web servers. Jason Fossen's Securing Windows course had a day on IIS, the Microsoft web server. After code red, people were trying to get into that day of the course. We tested running just one day, sold out, we tried it again, sold out. So we brought other people up to speed to teach the course and scheduled 33 courses in a period of 30 days all over the world. It worked out very well. that is an example of a cannonball.

Testing is very important though. A year or so later, under pressure from Judy Novak, we ran a women's only conference in New Orleans; it sold out in three days. We were never able to repeat that success, it was a one hit wonder.

Page 83, is a section that illustrates the danger of big "uncalibrated" bets or cannonballs. The importance of tests. I think it was Chase, but I read a story of a bank trying to enter the already mature credit card business and every time they sent out a direct mail piece, now thing about the letter was different than all the previous letters, every letter was a test. I told the story to a co-worker and he had heard of the concept being called red green testing. He also sent me these two links:
http://www.alistapart.com/articles/a-primer-on-a-b-testing/
https://www.optimizely.com/

Page 91, is the story of Steve Jobs return to Apple. The authors make the point that before the iPhone, iPad and so forth, the most important thing he did was restored discipline to the decision making process. They only opened two Apple stores at first, even though they had an expensive, high powered person overseeing the operation. Get the mix right, then expand.

*** End Sidebar

[July 9, 2012] Blood in the water

The newspaper says investors are anxious as the await earnings reports. I guess I am nervous, but more about not being able to add to my positions than worried about earnings. I try hard to pick quality companies. I mentioned IPGP earlier, this has been a great equity for us, I think we are up 40%. And I never reached my target position for IPGP in the Es basket, with all the work and travel it slipped through the cracks. And IPGP has been going down recently. Maybe Mr. Market does not like its procurement of a Russian company, not sure. So I just changed my limit order intended to add to my GOOG position, ( GOOG is one of my core stocks) by 50% to free up money for IPGP, my limit order of 570.00 for GOOG is starting to look more like wishful thinking than strategy. IPGP was last at 42.48, but it dropped 1.30 today, so let's try 40 shares with a limit at 39.00. That is a bit aggressive, if the market goes up they will leave me at the station, but if people are fearful and it drops I add to my position in a laser company. What geek would not want to own part of a laser company?

BPI dropped a whopping 33% today on news some law firm is investigating them as well as Ashford University not achieving accreditation, taking me out of the green into the red. I bought in at 18.40 over a year ago and they crashed down to 14.25 in a flash. This is a pointed reminder to keep small positions in companies that are not core and make sure you know as much as possible about both my thesis and my core stocks. I still think they have a good economic model and plan to hold the stock, but this may just be the third equity I ride all the way to the bottom. This apparently had little to no effect on LRN ( K12) where I have a very small position, just to make it easier for me to track them.

[UPDATE August 19, 2012] BPI is slowing climbing, not sure if or when it will get back in the green, 10.45 was last close. LRN was originally affected, but is still climbing. If you decide to buy LRN, wait for a dip. Both companies face class action suits which will further muddy the waters.

[July 14, 2012] What is up with UA

Hunter wrote and asked what is up with UA stock prices. Well after a recent dip they seem to be up again. I closed my position on 6/12/2012 so I have not been following them closely of late. I did notice this article, but have not done any research on Nike:
http://seekingalpha.com/article/710391-why-it-s-time-to-buy-nike-and-sell-under-armour
Then I checked my notes, the last time I tracked it, it was 101 so it must be a stock split:
http://www.foxbusiness.com/industries/2012/06/11/under-armour-stages-stock-split/

If I was to add Nike, I think I would want to set a deep limit. I have several deep limit plays on basket Ck ( Canada and dividend reinvestment ) that have not hit for about 60 days. Wondering whether to let them time out or cancel and replace.

[Update August 19, 2012] If I was Hunter or anyone else that had an open position on UA, I would consider closing that position right about now and taking your profits. They have done great since the stock split. They are at 57.93, but when I do my calculations, I can't see the stock moving much above $60.00 unless something changes like a new hit product. This might be a good time to take profits.
[Update September 13, 2012] There is still time to take profits, they are up at $59.30. Now I could be wrong, they could keep going up, but if you passed your capital gains birthday and you have a good profit, it may be time to think about socking that away.

[July 23, 2012] Firmly on the sidelines

Maybe Wall Street computers can time the market, but I cannot. I did not get around to adding Nike, I am glad I have it in my journal so I will not forget. When stocks generally go down, I pay close attention to the ones that go up. And one of those is Aero (ARO). I intend to close this position, but will need to set a limit order to do it. I am going to be wildly busy for the next two weeks and whatever gains I have could be gone in a New York minute in this computer controlled market. It has been a good ride, I am up over 20% and the ONLY reason I have closed it already is that I bought it in stages and some of those buys are less than a year old. If I can hold on a bit longer and avoid capital gains, that is great.

We sold a house with owner financing and that check and the part of my paycheck that I use for investing is what I can use in the second half of July. However, I am going to leave the money on the sidelines. Not because I am scared, or I think the market is going to tank, but because until after I complete the Boston job, I cannot take the time to make an intelligent investment. If I was making an investment in the next two weeks, judging from what I have seen so far, I would play deep limits.

UPDATES: K12 (LRN) is starting to take a deep dive. I am VERY glad I only had a small position,just to feel out the stock. BPI is not recovering yet. When I get some time, I may open a few more positions in well run for-profit schools. That is my main line of work and it would be informative to see the pressures other companies in my space are under. My position in UA is closed, but my son still holds a stake, they seem to be on a dip, but it is too soon to know if it is significant. What I do know is that both Kathy and I are wearing DriStar underlayers that retail for less than 50% of the equivalent UA product. Apple (AAPL) may get pushed below 600 dollars again, but they and Google appear to be the dominant forces in tech. If they go back to 570 or so, I would not mind adding to my position. As we approach September a lot will be riding on the next iPhone.

UPDATE: July 25, 2012, it is amazing how many stocks have dropped in the past three days. I spent yesterday on the plane reading Barrons, Wall Street Journal and Financial Times. I am used to gloom and doom journalism, but really? You guys haven't heard about Greece, Spain and Italy before? Oh well, there should be some great buying opportunities shortly. I really think there is some wisdom in putting a deep limit and try to add to my MacDonalds (MCD) and Apple (AAPL) positions.

UPDATE: August 16, 2012, I am still in blur mode and hope to do something on the investment side of the house this weekend. Near as I can tell the market is generally going up during this period of time and it may well be the best thing for me to do is just sit pat. I did notice Aeropastale (ARO) had some major crash and that will delay my plans to profit take from that equity, but they will hopefully climb back from their Aug 01, 2012 slam onto the pavement. Not that this is science, but I do see a number of their shirts where ever I go.


[August 19, 2012] Looking for value plays

The market, or at least the part of it I track has generally been up for a while despite the world is ending based on what is happening in Europe media press. Since this is real money earned by real blood, sweat and tears, I only invest if I believe there is decent opportunity and I am going to lock in some of my profits. It doesn't make any sense to me to assume the market will keep going up forever. The stock market is generally up right now, but I am sure there are some value plays that can still be found and some re-balancing that needs to be done.

  • The foundation of my investments are low cost ETFs that do not have a trade fee. Buying a whopping ten shares each of SCHE, SCHF and SCHC at market.
  • I am going to profit take, and close my Ts "mutual fund" positions in Evolution Petroleum ( EPM), Bank of Ireland ( IRE), TIBCO Software (TIBX), Nuance Corporation (NUAN) and Howard Hughes Corporation ( HHC). I looked today and there was nothing in the fixed income world (bonds and CDs) that appealed to me so I am going to take a portion of the profits to increase my investment in MAKO. I realize that may sound stupid, their stock is way down, but their surgical robots really do work. They are selling them. I have a much bigger holding in IRSG that has done well. I also hold competitors Styker ( SYK) and Johnson and Johnson (JNJ), but my thesis is there is enough business in the knee and hip replacement segment for all of them and that the long term trend will be using robots saves cost.
  • [Update September 13, 2012, MAKO is up to 17.58, who knows, they went into a deep pit over the past year, but may climb out.]
  • I am also going to profit take on part of my Lumber Liquidators position (LL). I am up an irrational 86%. I actually think there could be additional upside, so I am using a trailing stop set at 5%. If it continues to climb next week, then I can participate in the upside. I will also watch this very closely. I also am setting a Google Calendar alert for this coming Friday to take the profit and buy a CD not matter how low the interest rate. It is imperative that I remain faithful to my strategy, or I become a random investment generator.
  • Made an investment neutral ( just moving money around, not adding new money in basket Ck. Close out HABDX and open BND, AGG, BIV with the proceeds.
  • Increased investment in InvenSense (INVN). My thesis is that everything that is portable on earth will soon have motion sensors.
  • [Update September 13, 2012, so far this has not been working out, closed today at $12.31, but when thinking about motion sensors one must have a long view.]

[August 24, 2012] Still looking and this could be a good day to look for value

I was able to find a bond that is short term, comes due December 13 has a YTM of .6 and a low premium. That is where we are parking the LL profit. The pre-market news is bad ( what else is new ), so we have a good chance of a sell off today and that means opportunity to buy on a dip at a fair price. Yup two of equities in my mutual fund that have generally done well, took a hit today, Portfolio Recovery (PRAA) and Westport Innovations (WPRT). Westport makes engines that burn on natural gas and Portfolio Recovery is a repossession operation; both are well run and both had dropped over a dollar a share at some point in the day. This is one time to consider using a market buy. A lot of times after a deep drop there is a partial recovery. So if you use a limit it is easy to miss. I am making small bets in either case, that basket has a very low trade fee. The trading day has not quite closed and PRAA, which was down over a dollar is now up over a dollar. WPRT has only been able to recover a bit of its steep drop. That is OK.

Here is how we were able to execute this quick win.
1) There were a number of "bad" news stories.
2) Once or twice went to Yahoo Finance, biggest price losers. I looked for any stocks I hold on the list. If I find one, I rethink my thesis, do I still believe in the company? If so, execute a small trade at market price. That way we add to a position on a dip.

There is a risk to doing this. Autodesk dropped over $5.00. I used to hold Autodesk, I used Autocad for years, it was tempting to pick it up, but that would be making an impulse decision. I haven't done any real analysis in ADSK for over a year. I do not have an impulse buy basket, so sniff, sniff, can't do it.

Even though the market was generally down at the start of the day, it was not uniform. I have been watching Nike for a while and was hoping this might be the day. Far from it, at one point they peaked $1.50 share in almost zero time. And CBST, the group that makes the antibiotic that can fight MRSA just reached a new 52 week high. So, I am not going to be opening a position with them this week!
[Update 13 September, 2012, CBST is still around 52 week high.]

Please understand the my value shopping has nothing to do with a gloom and doom pronouncement. If the market goes up, I am going to invest. If the market goes down, I am going to invest. If we fall off the fiscal cliff I am going to invest, in fact, I will still invest in dividend paying stocks, I just will not make that my focus. I keep reading bad news, and the bad news is supported by fact. However, have you looked at the S&P 500 or DJI indexs lately? They are looking good. Here is the terrible, terrible truth. Many people are afraid of this crazy market ( and should be to some extent). But mark my words, when it gets very near the top, many frightened investors will jump back in afraid they are losing out and pay too much for their investments. Everyone knows we can't time the market. We can't call the top. But we have had some good times during the bad times and most careful investors should be up. Stay patient, use limits, buy on dips. It is OK to start putting some money on the sidelines and waiting for a good shopping day, but it is also OK to continue to carefully invest. That is what I will be doing.

[September 13, 2012] A lot of happiness ( QE3 )

I was pretty much heads down all day, we are leaving for our Network Security show in Vegas on Saturday. But it was critical to get to the bank, I was down to about $50.00 in cash money and could not even afford a cab when I hit Vegas. So thirty minutes before the bank closed I left work and headed for Heritage bank. They have a TV show focused on the stock market and everything was so green. My best take on what I saw while waiting in line is that the Fed decided to pump more money into the economy. This apparently makes Wall Street happy. Great, but that makes it a bad day to buy stocks. After work I took a peek at my Ts mutual fund. I closed my position with Barnes and Noble, it has been a good ride and I love books, but I think there is pain ahead for them. Even though my thesis is that now through Christmas will probably be good months for BKS, I need the money for some other projects. Next, I looked around the line that separates my winners and losers to see to see who has been really growing that had not been doing so much in the past year. There is a possibility of a value play by doing that. The biggest winner was Sasol (SSL), but a lot of energy companies have been doing well lately ( guess I dropped CVX a bit early). Added ~$500.00 to my position ( 20 shares). I also added ~$500.00 to Meridian Life Sciences (VIVO - 30 shares). That is it, the rest of the BKS profit and principal can sit on the sidelines. My overall strategy is to use equity profits to buy good municipal bonds and CDs.However, even with the profits I made on BKS, I am having a really hard time accepting the current terms at the bond stores. Also used this opportunity to unload 120 shares of Jinpan ( JST), my second worst trade of the past 18 months.

My Es basket holds a ton of INFN which has had a rocky year. Fortunately, I hold five tons of IPGP, which has been really screaming lately. I am starting to think about a basket of nothing but fast network makers. Heck I will even consider buying a bit of Cisco, which is a company I respect and know well, but they are unlikely to be a fast climbing stock, so much about them is priced in by the market. I hate slow networks, everyone does. But more and more there are web sites that do not work on slow networks. I also did profit taking with my Verizon (VZ) out of the dividend Ck basket. It has been so painful to live with my 5 GB limit on my Verizon MiFi and I cannot be the only one suffering. One of my hard and fast rules is if the product is not usable, ditch the company. I intend to early buy out my MiFi contract after the Vegas show. They have had a good year AND having a little less exposure to dividend stocks in the face of the fiscal cliff is an additional bonus. Found a two year CD with an .85% APY. Terrible rate, good thing VZ did such a good job of earning money to make it doable. And hopefully, when that money becomes usable again, we will be in a better fixed income environment.

[September 27, 2012] Getting ready for the fiscal cliff

Well the market must be generally up! I just looked into three baskets Ek, Es and Ts and all three are up, even with me taking profits and using that money to buy CDs and Municipal bonds. I added about $500.00 to GLW, HEI and ZINC and $1,000.00 to TEVA. TEVA is a rule breaker for this basket because they have a debt to assets ratio of over 20 percent. However, they do not seem to be losing any ground as the largest producer of generic drugs. And I now have Comcast in Seattle, so I am not at the mercy of the Verizon MIFI. I hope to visit some other baskets later, but for now, need to make supper ( Coho Salmon, brown rice with chicken stock/spicy pesto gravy and salad, yumm).

The Ck basket is also up, people must just love QE3. This is my dividend basket. I am very concerned about the fiscal cliff. You can almost tell for sure what is going to happen. When they raise taxes on dividends, the market is going to react and then stocks will go down; especially generous dividend stocks. It will be a glorious day for money on the sidelines to come off the sidelines. However, it will also mean this basket will drop for a season and I am expecting about 20%. Does it make sense to profit take now? Yes, but profit taking is not the same as panic. If I have not held the stock for a year, there is no way I am going to sell it; I will ride it out. I expect they will recover fairly quickly because, there is no better game in town. The yields on CDs and Bonds are laughable. It will be an intense, emotional period, so start making your decisions now. Between now and the presidential election all of us have a few homework assignments.

  • I need to pull out my tax returns and see if I still have any loss credits from the great recession. In my case I do and that will give me $3000.00 to offset any gains from positions I liquidate. Probably worth reading IRS Publication 50 a couple times.
  • Are there any positions whether loss or gain you ought to close. For instance I still have a small amount of DELL. They appear to be losing ground to the cloud providers. So, it is unlikely they are going to go particularly up. And their debt to equity ratio is about 100.
  • Do I have any money on the sidelines? Yes, I am not fully invested right now and will close a few more positions to have some firepower.
  • If I do have a once in a decade shopping opportunity what are the stocks or ETFs I want to be hold? Companies with a strong and rising brand and a strong balance sheet. What if Google or Apple was to drop to $500.00, or IBM to $120.00? This is where all that research you have been doing, that trade notebook you have been keeping, are worth their weight in gold. Think about the companies and the price points. Pay close attention to how fast they recovered from the March 9, 2009 market bottom. Past performance is no indicator of future gains they say, but that was not so long ago. Charles Schwab has a dividend ETF, SCHD and it is free to buy from a Charles Schwab account, no trade fee. That means we can make lots of little bets and buy on dips, because you can expect some market chop. Vanguard's VIG is well thought of and has a low expense ratio.