DRYS

DRYS reached a low of $7.28.  I didn't have a limit order in place to catch this price.  I put one in later this evening.  Maybe I can get it around this price in the near future.

Now I feel different about the Bailout of Wall Street

A couple of days ago, I was really unsure about the Bailout plan. However, I’ve had a change in perspective. Here in Metro Atlanta, we are experiencing disruptions to our gasoline supply. There are many days that we can’t get gas. So, when you do see a station that has petro, you would be wise to fill up.

Case in point, two days ago, my wife called me at 6:15am to come and some gas from the station about a mile from the house.  I arrived only to see at least 30 or more cars waiting in line. I got in line and after about 10 minutes of waiting, a vehicle pulled into an empty gas stall with a red bag over the pump. Some lady walks over to the vehicle and started telling the person they can’t pull into the stall because she and other have been waiting for 30 minutes. She was right; however, her approach was all wrong. She started yelling and the vehicle pulled off. She got into another altercation with another customer. She told the other customer, who was from the Middle East, that she should go back to her country. She also shouted, ‘Why are you over here (America) anyway?’ That was not cool at all and I told her so.

Later on in the day, the House of Representatives did not pass the Bailout Plan and the stock market declined 777 points. This got me thinking about, if we were to suffer an economic collapse, how the average person would respond to the inability to get cash or pay with a debit card. What if grocery stores were unable to stock food because they don’t have enough cash on hand to purchase inventory and their credit lines have been frozen? What would happen then?

I don’t know, but I don’t really want to find out. Let’s not forget Washington Mutual is out of business and Wachovia’s banking assets have been purchased by Citigroup, Inc.  All of things have caused me to change my position over the last few days. Maybe, just maybe, something really bad could happen if things get much worse. So, the Bailout may not be just about Wall Street, it could soon be about My Street.

The Bailout of 2008

All weekend I listened to the proposed $700 Billion bailout by the Government.  Many financial experts on TV declare that this must be done and done quickly.  This may be true; however, there is one thing that doesn't seem right.  This plan states that the Courts will not have the ability to review actions taken under it, as noted in a Bloomberg article.  Why?  Also, there is an urgency to get the plan signed within a week.  I've heard the reason for such hastiness is to instill confidence in the market to stabilize it.   But does that justify signing a blank check, tomorrow?

This seems a bit fishy to me.  It's virtually impossible for an individual to acquire a home loan to be underwritten, approved, and closed within a few days.  So why would lawmakers possibly think of signing off on a loan of this size within a few days?   Another point worth mentioning is that I've heard the plan doesn't contain many details.  The summary is reported to be only three pages long.  In exchange for $700 Billion, the details should be spelled out reasonably well.

Is the American Taxpayer on the brink of being duped again?  Is the current administration pulling another fast one on us?  I don't know, but it sure feels like it.

September 19, 2008, What a week!

My wife and I was on vacation this past week and we had a great time.   However, the market had one of the worst weeks in a very long time.  There was blood in the streets.  Fear and anxiety was the prevailing mood on the street.  A week earlier, I added to several of my positions, but now I was feeling the pain from the steep and rapid decline.  My resolve was being tested, but I held on to my conviction and added to all but one of my positions again on Wednesday. 

At the end of the week, talk of an RTC solution along with a restriction on short selling made my recent trades look pretty smart.  However, it was fortunate timing more than anything else; possibly a blessing.  It is definitely too soon to tell.  The positions I added to are ICO, AAPL, PBR, DRYS, and PLM.  I don't know what will happen next week but, it seem like the US dollar has reversed its recent uptrend and commodities look to have put in a bottom.  With the treasury putting up billions of dollars for bailouts and the financial system breaking right in front our eyes, many may be flocking back to hard assets for fear the US dollar can't hold its value.  I don't know if this is the case, but it might be valid.

I'll be watching closely next week and to see what happens.  I'm reminded of the bear market of 2000 and how a great deal of money was made after we recovered from the Internet Bubble.  If history repeats itself then we will be much better off in 5 years.

Down 300 points!

The market got crushed today.  Many are seeing their gains of 2008 turn into losses.  Do run for cover or do you stay the course?

An Apple a Day

I've recently added to my Apple position.  Today, I read an article from analyst stating that now is the time to be long AAPL.  He sited new product releases as a catalyst for the stock and the upcoming holiday season.  He  said the stock could appreciate 40% by year end.  That's would be just fine for me.

I sold another loser. What is the market telling me?

I had been long on POT for a couple of months and I made money initially.  In the past month or so, the stock fell from $240 to $171.  This week I sold it.  This market has confused me.  Earlier in the year I vowed to be an investor, but the harsh sell off of recent months forced me to sell a few positions.   Previously, I wrote about selling a loser and the anguish it caused me.  Both of the stocks I sold were commodities stocks, that have experienced great price appreciation of the past couple of years.  But the US dollar stopped falling, institutional investors started to take profit and rotated into other equities, as these stocks had became richly valued.   I stayed too long and tried to fight the trend.  I did not take the profit in these stocks when it was available.

So, what did I learn from all of this?

1. Take profits when available.  
2. Don't fight the trend.  
3. Be disciplined!

Should I Buy Stock in Company X - Part 5

As promised in part 4 in this series, we are going to discuss growth.  Growth can be applied to many aspects of a company's performance, we are most interested in revenue and earnings growth.  Earlier we discussed the date when a company releases their financial performance to the public. This is called an earnings release.  This occurs once a quarter or 4 times a year.  For example, Kid's Toy Store will report their 2nd quarter earnings on 8/15/2008.  This information is usually released on the company's website and followed with a conference call.  The conference call is conducted by senior management.  Analysts and investors can listen and ask questions about the latest quarterly report.

One may be asking, 'What does all of this have to do with growth?'  The company's revenue and earnings reported are measured against previous periods.  Let's say for the 2nd quarter of 2007, Kid's Toy Store reported revenues (sales) of $45,000 and this quarter they reported $90,000.  Revenue growth would be 100%.  Another way of saying the same thing is year over year revenue has increased 100%, or top line growth year over year is 100%.  Also, the quarter's revenue number will be compared to last quarter's.  For instance, Kids Toy Store 1st quarter revenues for 2008 were $38,000 will be compared to this quarter's number of $45,000.  So the quarter over quarter revenue growth , otherwise referred to as sequential growth, would be 18.4%.  The same concept is applied to earnings per share (EPS), net income, expenses, debt and other categories.

Now that you know how to compute the percentage growth for revenues and earnings, how do you use this information?  As an investor in the stock market, you must make assumptions about future sales of a company.  Sometimes the company will provide some growth projections (revenues, earnings, etc..) to assist you.  This is called forward guidance.  Your assumptions about a company is crucial to investing in the stock market.  If your assumptions are too high, this could effect the price of the stock.  A conservative assumption could prove to be positive for the company's stock.

Let's look at an example to aid understanding.   Previously we said that Kid's Toy Store 2nd quarter revenues were $90,000 and their earnings per share (EPS) was $1.09.  If you had previously projected that Kid's Toy Store 2nd quarter revenues were going to be $85,000 and an EPS of  $0.99, this would have been lower than what was reported.  This should help the stock price move higher.  On the other hand, if your revenue estimates were $95,000 and EPS was $1.14, you would have been too aggressive in your projections.  The stock might decline in this case.

While conducting your research, you want to find companies that are growing their revenues annually.  Also their revenues should be greater than expenses. This will insure that you are investing in companies that are earning money (profitable).

Until next time, keep learning and remember investing in the stock market can be rewarding.

Slow to Rotate

Recently, two of my positions, Mechel (MTL) and Petrobras (PBR) started to sell off very fast.  A few months ago, I had adopted a long term investment strategy.  In a rising market this approach worked well, but the last few weeks commodities stopped working.

My conviction about my approach was being tested.  I thought about the long term thesis for these two companies.  Mechel, a Russian integrated steel maker has a great outlook because of global expansion and they recently purchased a company that produces coal, a major component in making steel.  This acquisition will help to reduce raw material cost because they would not have to purchased coal from another company.  Petrobras, a Brazilian oil company recently made a major oil reserve discovery.  This in addition to the increased global demand for oil and the Brazilian economic growth, I concluded my long term outlook was correct.

Last week, I was on vacation and I checked on Mechel and read an article about the Russian Prime Minister making negative comments about Mechel and the stock was down 18%.  I sold it.  Also, the last few weeks, oil has dropped from a high of $147 per barrel and now was $125.  As a result, Petrobras was down 25% from its high.  I sold this stock as well.  Both of these stocks started decreasing a week or two earlier, but I held them.  I did have a warning.

What investment lesson did I learn from this?  Don't try to fight the market.  If the market is telling you something, listen.  Take it from me, don't be slow to rotate.

Selling a loser is tough!

I have a stock, Mechel (MTL), which is a Russian mining company.  This morning, I checked the quote, only to see it down 18%.  I immediately went to look for news to determine the reason for the severe drop.  After going to Yahoo, I discovered a news story that stated the Russian Prime Minister reprimanded the company for selling steel prices for double the amount in Russia than in other international markets.  Prime Minister Putin said a probe would be opened to investigate the claims of excessive price hikes.  Posts on message boards seem to indicate that this could be a death sentence to MTL considering what Putin has done to other companies in Russia that he has aggressively gone after in the past.

After trying to digest the news, I waited as I struggled with selling my position.  I thought maybe this is a temporary situation.   I didn't want to realize an 18% loss.  I was unwilling to part with this company, but internally I knew that I had to.  Now the stock was down 20% to $28.42.  I had to do something.  Finally, I put in a order to sell my entire position.  This was an agonizing trade to execute.  Even as I write this post, I can still feel the anxiety.  But, this was the right thing to do.

Investing in the stock market can be rewarding, however, sometimes one has to make tough decisions.  There are times you will have to admit you were wrong about a particular company.  Other times, external circumstances will cause you to sell your position.  This is not easy, however, its an necessary part of managing your online trading account.