rovo's Market Journal -- 2011

[rovo]

AAPL blew right thru my buy price of $357 so I now own 500 shares and it is trading at 356.48 with a local low of 355.74. Oh well, such is life. This is a longer term play.

[cashflowz]

Update on New Millennium Capital: "New Millennium Capital Corp. ("NML" or "the Corporation") (TSX VENTURE:NML) announced today that Tata Steel has given notice to NML that it is exercising its pre-emptive right to maintain its pro-rata interest in the Corporation, which is currently approximately 27.2% of the total basic shares outstanding, in connection with the bought deal financing announced by NML on February 2 and 3, 2011. As a result, Tata will subscribe for 5,860,832 common shares and up to 879,124 common shares in the event the underwriters' overallotment option is exercised in full, in each case at the issue price of $3.50 per share. "
Tata had until Feb. 28 to become a partner in NM's LabMag and KeMag taconite projects; they are already a partner in their DSO project.
So there is quite a lot of activity at $3.50 per share. If NML's share price were to retreat from $4 to around that $3.50 level in the near future, it might make an attractive entry point. Risky, yes, but interesting, with huge potential. For the very speculative sliver of the portfolio.

[mtntigger]

Feb 18, 2011 10:08:03 GMT -5 rovo said:

Nothing traded yesterday so all the orders were for naught. I had canceled the MCD order as we were discussing fast food. So I changed plans today and entered an order for 500 AAPL at 357.00.

Good! I think you'll be much happier with AAPL than MCD given your investment strategy. Nothing wrong with MCD, but I see that as more of a dividend play than anything else.

[rovo]

I think you'll be much happier with AAPL than MCD given your investment strategy.

I intend to take this summer off from the markets and I'm trying to position myself with less risky plays. Stuff I can walk away from for a while without concern for major dips. AAPL appears to be dropping like a rock as of now. The daily charts looked bad but AAPL is so unpredictable I thought it would be a good entry at 157. If it moves to the lower Bollinger Band I'll be doubling up on it.

[livinincali]

Do you hold that same opinion on BIDU (PE of 84) too? That stock baffles me to no end.

Yeah for the most part. One of the things about a market is there will always be bubble stocks here and there. There's countless examples over the years of sure thing can't miss companies that go parabolic and then blow up. Look at CROX back in 2007 or countless internet companies in 2000. You have stocks where people are paying for 30% growth for the next 5 years, the growth finally slows down one quarter and all of the momo chasers that had been buying the stock hit the exit and look for the next growth play.

AMZN has been a bit of a weird one that has stayed highly valued even though it's growth has slowed way down, but for the most part you see 18-24 months of parabolic growth in a stock and then it hits a wall. I'm not saying CMG will collapse anytime soon, it's just another one of those stocks which will have a perfectly good explanation for a major drop in price when/if it happens. I'm certainly not going to be surprised if CMG drops over 50% and gets to around a 20 P/E. I can' tell you if or when that would happen but I can tell you it won't come as a surprise if it does.

[livinincali]

AAPL appears to be dropping like a rock as of now. The daily charts looked bad but AAPL is so unpredictable I thought it would be a good entry at 157.

First good spot for a bounce would be around $350. After that you might have something in the low $340's.

[Bluerobin]

Rovo, are you looking for slow moving dividend stocks for the summer? I can probably put together a list.

[rovo]

Blue, No, I'm good. There are a handful of stocks I watch and I generally stay within that group.

[Bluerobin]

Rovo, good! I just counted, and it is a list of about 30, kinda hard to go from excel to word.

[mtntigger]

Feb 18, 2011 11:21:26 GMT -5 livinincali said:

Do you hold that same opinion on BIDU (PE of 84) too? That stock baffles me to no end.

Yeah for the most part. One of the things about a market is there will always be bubble stocks here and there. There's countless examples over the years of sure thing can't miss companies that go parabolic and then blow up. Look at CROX back in 2007 or countless internet companies in 2000. You have stocks where people are paying for 30% growth for the next 5 years, the growth finally slows down one quarter and all of the momo chasers that had been buying the stock hit the exit and look for the next growth play.

AMZN has been a bit of a weird one that has stayed highly valued even though it's growth has slowed way down, but for the most part you see 18-24 months of parabolic growth in a stock and then it hits a wall. I'm not saying CMG will collapse anytime soon, it's just another one of those stocks which will have a perfectly good explanation for a major drop in price when/if it happens. I'm certainly not going to be surprised if CMG drops over 50% and gets to around a 20 P/E. I can' tell you if or when that would happen but I can tell you it won't come as a surprise if it does.

I won't be surprised either as I see a couple items of concern outside the high P.E. - the high calorie count even if the ingredients are good quality and not having the really cheap food options like so many other fast food places. CMG, however, has been very conscientious about keeping prices down (especially their most popular chicken burrito) to be comparable to other fast food chains, they are looking into expanding into breakfast burritos and the Asian fast food market, they can still expand into other states/countries and they have been following the environmentally-friendly footpath for years. So, I just see growth for at least another year or two. BTW, I did put a small amount of $ where my mouth is this morning during the dip.
I think Amazon is another loyalty-driven company and I agree with you here. They are going to need another Kindle-type product soon to maintain their stock value.

[2kids10horses]

rovo,

Back in the day, I used to be quite the stock picker. I made a small fortune on Cray Research back in the 70s and 80s. Then, was in early in HD, MSFT, INTC, CSCO and DELL.

Boy! Those were the days...

But now, with the index ETFs and the leveraged ETFs where I can go long or short the market, I find it much easier to use those than individual stocks.

Mind you, I still own some MSFT and INTC that has such a low basis that the taxes I'd have to pay would retire more of the National Debt than I feel is my "fair share"! But for trading? I love the new ETFs.

And, it's ok to "Sell in May and go away". Your powder will be dry for September.

[clarkrl2]

I've put a hedge on my portfolio by using a 132/127 bear put spread with an Apr. expiration. I used some estimation but I figure that I bought enough contracts so I'm roughly covered for 7.5% drop in the SPY at the expiration. Probably I'm early but the situation in the middle east and the fact we haven't had a correction in many weeks makes me a little nervous. The cost of the spread was only about 2% of my portfolio value so I can still make money if the markets rise by more than 2% or fall by more than 2% but less than 7.5%. Again those are estimations.

[yclept]

This might be adding to Ford's woes today: www.reuters.com/article/2011/02/23/ford-recall-idUSN2315275320110223

[livinincali]

F is in the second leg down that I was looking for. It's getting dangerously close to breaking a significant support in the 14.50 area. AAPL is clinging on to support at $340. CSCO is starting another leg down. If the current conditions hold we could be looking at a significant top in the market at least one that will last a couple of months, but we may see some dip buyers coming in to save this market.

[rovo]

The announced recall by Ford has to be playing a part in the decline but I don't consider it significant. The stock is just being dragged down by heavy selling on average volume. The earnings miss was the initiating factor and now with the entire market being sold off Ford is just out of favor. This is in line with something mentioned by Cali or Majeasy a couple of weeks ago. I didn't think it would drop this far but I wasn't expecting the Middle East to fall apart either. I'll just let the dust settle and see where Ford stands at that time. It is a longer term hold and should recover by the fall.

[yclept]

I sold a bunch of stuff this morning -- they had all fallen from the screens that picked them (except QLD, which was a case of irrational exuberance, I think!): CADC, CNIT, GILT, WATG, XIN, YONG, QLD, CEG.

My limit buy order on GLL hit, so I'm now the proud possessor of a couple of hundred shares of that.

The sells this morning took me to a bit over 50% cash, which is not an allocation I particularly want to be in, this being the normally favorable seasonal period for stocks, and this being the third year of a presidential term, and my moving average indicators still showing "buy" status. But, as mentioned above, by falling off the screen, these were stocks that my mechanical system was telling me I have no good reason to own. I'm only up about 3% so far this year after these sells (almost all of which were losses). Still, the way the last few days have been going, I didn't want to be looking at the portfolio next week and seeing no gain for the year or a loss.

I'm probably going to sit on the cash for a little while and let some of the geopolitical dust settle, then I'll start moving back into the newly screened stocks that have replaced the ones I sold. If there's a public hanging or shooting of Gaddafi ala Ceaușescu, I would think the markets will jump like crazy. Ceaușescu's execution was almost funny -- court found him and his wife guilty and they were marched out in the back yard and shot by firing squads -- so much for appeal!

It's only 46F outside today, but at least it's not raining, so I reckon a good use of the rest of this morning would be to take Mr. Ruff on a walk up to the barber -- several weeks overdue on my part and the barber is one of the few places we can go where the owner knows him and lets him come inside. We've got another storm coming tomorrow and the weather people are saying there's a chance for snow all the way down to sea level (certainly anything over 500 feet or so) -- that hasn't happened in about 40 years around here. Better get our walking in today while the walking weather is tolerable.

[livinincali]

This is in line with something mentioned by Cali or Majeasy a couple of weeks ago.

I was expecting a 2 leg move down but I thought it would bounce a little higher and it would hang on to support at 14.50 or so. It didn't bounce as high as I was expecting. I thought high 16's/17 was probable before a move down to current levels. The technical picture is starting to favor a more bearish scenario but it still could hold this level of support. Next spot for strong support is 13.30 or so, but we do have the 200 day moving average at 13.91. If 13.30 were to fail for some reason the long term technical picture really starts to favor the bearish case. Of course if that were to happen I can see how people would just hold on to it no matter how low it goes.

[rovo]

I was expecting for Ford to challenge the 50 SMA at $17.00 before any further declines occurred. I purchased a handful of shares with that expectation. When the entire market goes into a funk it is hard to consider all of the moves rational. From a fundamental standpoint Ford looks solid and should recover when the rest of the market does.

Geopolitics can play havoc on our markets but most of the time the market over reacts to the events. Sometimes the market moves are justified and sometimes not. Currently I just don't know whether or not the downward move is justified. Time will tell.

I still have quite a bit of cash on the sideline so there may be some good opportunities going forward but I won't be doing much of anything until the Middle East settles down.

[IPAfan]

It appears that after buying back 30% of its outstanding shares ENH now trades at about tangible book value (probably a tad less than TBV, but not a lot.)

This company has written excellent business, and I hope that buying back the company shares will allow the company to focus on its profitable business and keep producing terrific underwriting profit. If the company can continue to produce mid-high teens ROE it should be a profitable investment going forward, even at this price.

Also, the dividend was just increased by 20% annually. This company doesn't increase the dividend every year, but does seem to grow the dividend along with the earnings and value over time. I'm glad that the company spent money on buying back shares at a discount to book value instead of paying a dividend. I can now see the company devoting a bit more effort to dividend growth and building further capital reserves.

I continue to stay long ENH, and would like to do so for quite some time to come. If I get the opportunity at a discount to book value I will try to buy more of this company.

[rovo]

I have buy orders in for more AAPL at $340.00 and SOXL at $60.00. AAPL is getting close.

AAPL order filled at 340.00. SOXL has a long way to go before it will fill as it is currently at 62.75.

[Deleted]

was stopped out with nice profits this morning of some long time holdings.... i had a triple on URE
port has biggest percentage cash position i can remember....

[lovetobike]

POT executed its 3:1 split today but the price hasn't changed yet. I'm assuming it will go to its "split" price tomorrow? I bought some more at $165 yesterday for a short term trade. I'm guessing those shares will be split too. It didn't show up since I purchased them for my Roth. Right now I'm up 30% with my initial POT purchase at $134.

[rovo]

Futures are currently green but I still don't trust this market. This could just be a little blip up on a continuing downtrend. I suppose the biggest mover will be what happens in Libya between now the opening. Gold has backed off from 1415 to 1405 but this is a very minor pull-back. So, it looks like another interesting day tomorrow.

[mtntigger]

Since rovo mentioned the TQQQ stock split earlier today and lovestobike mentioned POT, I have a question... what happens to go-until-cancelled orders on stocks? Do they automatically fill at the requested price? Are they cancelled? Or do trading houses take the stock split into account?

[rovo]

I tried to find an answer to SBS's question but couldn't find anything. My guess would be one of two things would happen. The buy order price gets cut in half or the buy order gets canceled.

I placed orders in pre-market for SOXL and TQQQ at yesterday's close but the gap-ups caused them to not fill.

SBS, Did you make a trade on PBR?

[mtntigger]

Feb 25, 2011 11:37:07 GMT -5 rovo said:

I tried to find an answer to SBS's question but couldn't find anything. My guess would be one of two things would happen. The buy order price gets cut in half or the buy order gets canceled.

I placed orders in pre-market for SOXL and TQQQ at yesterday's close but the gap-ups caused them to not fill.

SBS, Did you make a trade on PBR?

What? rovo doesn't know everything? My image is now shattered.

Yup, I bought PBR on the 11th at $36 something and it sold sometime earlier this week at $40.03.

[IPAfan]

I've been keeping the stock portfolio the same size (and mostly the same constituents) for several months now. I've got a bit of leverage, and I think that with high stock market valuations I'd do best to save cash and pay off debt without adding to investment portfolios for now.

I'm trying to get up to 3 months of business/living expenses in cash, and then pay off debt. I exceeded 3 months business expenses recently, but have started paying down some credit cards that are reverting to high interest rates. I feel like business has been quite good recently, but I need to keep up the momentum for several months if I want to get debt paid off, an adequate buffer of cash, and get to saving for stock investments again.

[IPAfan]

RE: Ideas on Positioning a LONG ONLY portfolio in the current market environment.

I'm certainly not an expert on market timing or investing. I've made my share of bad mistakes. With all those I've still managed to eke out about a 20% annual return during my experience investing (and most of that has been investing small amounts of money, along with a few good investments in gold (which I sold too soon), and then into MLPs and stocks at the bottom of the recent market turmoil where these investments were OBVIOUSLY way under priced.

I've made some good investment returns investing into bad companies that have been simply mauled by the stock market. I've also incurred MOST of my losses when investing into bad companies that I THINK are undervalued.

I think that with current market conditions (and valuation), pretty much everything looks overvalued. I don't think lower quality companies are good buys right now. The only things trading at big discounts to NAV have some bad problems (a couple exceptions..I'd really consider an investment in CNA right now until the valuation gap closes.) Nothing is nearly as obvious of a long investment anymore.

One could raise a lot of cash and wait for a pullback, or try to hedge their portfolio. Personally I will continue to remain long with my investment portfolio. However, with the current valuation of stocks I'm not finding as much deep value (steep discounts to asset values.) So my new theme is:

HIGH QUALITY COMPANIES TRADING AT APPARENTLY FAIR OR FULL VALUATION

I define high quality a lot differently than most. I'm interested in a good business which offers the ability to earn high ROE/ROIC cash flow and offers opportunity for growth without the likelihood of cyclical earnings. Another category would be a company purchased around asset value with a high likelihood of a growing asset value per share (not always accompanied by accompanying earnings per share.)

This investment approach is very subjective. I have to pick companies that are trading at the same price as the S&P, but are better run and have better potential going forward. I feel like I'm best at picking up companies trading at prices obviously far below a rational fair value, but when those opportunities don't exist I will devote my portfolio towards investments that I think can perform better than average (especially in a down market.)

I do personally market time to some extent, in that I'm devoting extra cash flow to building an emergency fund and pay off debt that cost me a lot more than I can earn in the bond market (and are guaranteed in that I don't expect to declare bankruptcy.)

[IPAfan]

INDIVIDUAL SECURITIES THAT I INVEST IN

Terra Nova Royalty Corporation - This company has management with a history of creating value. However a lot of this value creation has come through distressed investing, so there's going to need to continue to be distressed opportunities for Terra Nova to deploy its cash (with that said, Michael Smith, the capital allocator has a history of investing in Eastern Europe, Asia, and Africa. I think he will move to the opportunities wherever they are.) This company trades around its asset value, but I think has a good likelihood of growing its NAV per share at a reasonable rate going forward.

Endurance Specialty Holdings - Specialty Ag Insurance, P&C insurance, and Reinsurance company. This company has a very safe investment portfolio, has been making money hand over fist on its insurance operations since it was started in 2005, and even with the softening market continues to post good underwriting results (combined ratios in the 80s.) The company trades around tangible book value per common share right now. It has bought back 30% of its outstanding stock over the past 18 months (most at a discount to book value per share) and just hiked its dividend by 20% now that the company trades at book value. I think this is pretty wise capital allocation, and the Ag market is booming right now.

Fairfax Financial Holdings - This company trades around book value as well. Historically well run, albeit risky and with some very lumpy years. I think the current leadership is taking steps to become more conservative, carry more cash at the holding company level, buying out specialty insurers with good underwriting, etc. Fairfax has a long history of returning good investment returns with its insurance float, and will hopefully continue to do so in the future. However, Fairfax has taken over poor quality insurance companies to get at more investment float. I think the company is trying to improve the quality of its investment float, and paying over book value to acquire specialty insurance companies with profitable underwriting. Over the long term this may lead to returns that are a bit less lumpy going forward.

This stock is especially attractive in a cautious long only equity portfolio. While the company invests a lot of its assets in equities, it also hedges these positions against indexes when it feels the market could be overvalued. This company has missed most of the recent runup in equities because of these hedges. However I believe Fairfax will probably end up profiting even if stocks drop dramatically. It may be a drag on the portfolio when the rest of the market is good, but I believe can continue to deliver good long term results.

Phillip Morris Int - I have a very hard time investing in this company at 15X earnings, and with essentially no tangible assets per share to speak of. This is what I consider to be one of the best earnings streams in the world. PM is the dominant global cigarette producer, earns an obscene ROE, has a long history of shareholder friendly management and capital allocation skills. The US business (Altria) has managed to grow EPS despite a long history of volume declines. However, unlike MO, PM sells cigarettes all over the world. The obvious political risk to cigarettes is mitigated with PM where income is derived from multiple countries with different legal regimes. PM is a company valued in the market at $115 billion, with negligible NAV per share, trading at 15X last year's earnings. It's hard to imagine the company being able to grow at an ample rate to provide a high long term return.

Well first, PM is the dominant global cigarette seller, but still has less than 20% of the global market. There's plenty of room for expansion. Since PM is the best run cigarette company I believe it could add value to any acquisitions. Another big thing is capital management. Since PM has a high quality, non-cyclical earnings stream, it can borrow money at pretty good rates. It pays out a high percentage of its earnings as dividends, and can grow the business with retained cash flow. However, PM can borrow money, and then use those proceeds to repurchase shares (decreasing the NAV per share even more.) However, the interest on these bonds is tax deductible, whereas the dividends on the repurchased common stock isn't. By putting money towards share buybacks, PM can increase the dividends per share and price per share, but still keep the market cap around the same level.

[IPAfan]

DI,

I realize that it looks like I'm doing a 180 in investment strategy, but I'm really not. I always look for undervalued assets to invest in. I'm usually willing and happy to invest in low quality businesses when they trade at steep discounts to their fair value. However, right now I think the low quality companies tend to be trading at prices not justified by business fundamentals.

However, I think there is still value to be had in the market. I still don't look at any overvalued companies (regardless of whether they are growth companies or not.) But it can be worth buying a very high quality stream of income with good management for 15X earnings (like PM) or worth buying a company right around NAV where the management should be able to grow that NAV at a good clip (like at TTT, FRFHF, or ENH.)

There are still investments out there that fall more into the deep value realm, but I'm not finding a ton of them that I like. Some of these are larger companies that I've invested in typically in the past. That's fine so long as the valuation is right. CNA is a good example of a company that's trading for a pretty big discount to NAV. I don't think it's nearly as high quality as ENH, but the discount makes this company worth looking into.