Buying for the New Year

I hope that everyone is done their Christmas shopping. I had to dodge down to the mall last night to exchange a gift because the particular item I bought was just purchased by the person I was supposed to give it to. Bad Luck.

Anyway, as I was hemmed in traffic, I decided to counter my road-rage (to which I am easily prone) with some deep thinking. So I sparked a cigarette with my Tim Horton's (I have been a shareholder since its I.P.O.) and pondered away.

I sold my stop-loss point on DUG as of Friday, as it hit and carried on through the rest of the day. A small loss at the opportunity for great profit.

But buying opportunities are out there for me. By the time I got home I know what I was going to write about. After some scribbled notes last night, I will put a few generic stock tips out there for people interested in buying right now.

The first note to make is that we are in what is referred to as a sideways market. The S&P 500 has been hovering between 1400 and 1550 for almost a year now with subprime woes smashing it down and individual, surprising company growth pushing it back up. Many factors are involved in this situation but the main point to take away is that over 75% of large-cap stocks practically mirror the S&P 500 barring extraordinary circumstances either bad or good. I.e. the large-caps are moving sideways as well.

Charts on this page provided by Yahoo! Finance

This has created many buying opportunities for value-investors, but even more importantly it opens the doors for smaller companies to grow as the large-caps tighten down the screws to weather the storm.

There are a few things you as an investor can do:


1) Follow those large companies that have been most hurt by the economic woes of this sideways market. Citigroup (C) has lost over 44% of its share value because of the sub-prime problems of the last year. However they haven't lost 44% of their business. So, when the tables start to turn (i.e. watch the chart. If Citigroup finds a strong support that it bounces off of a couple of times, it might be a good time to buy and catch a chunk of that 44% downturn and maybe even scoop up a dividend while you're at it.

But more importantly is this: The entire financial industry has taken a very solid hit because of the sub-prime mess. Even banks that had very little sub-prime loans in their portfolio. So if you buy one of those at a good point and hold, it will retract and GAIN on the companies hurting from defaulted loan losses.

All it really takes is a good eye and an ability to take advantage of the panic of other investors who are less intelligent or rational than you are. If you look at SCSS, I have made over 1.00/share in less than a week from the panic-selling of other individuals.


2) This is the opportune time to buy small-cap companies that have been trying to squeeze precious market share from the big players. Well now is their chance to do just that as many of them are cutting back operations and budgets, laying off thousands of employees, and simplifying product offerings.

This is a small company's dream! One small cutback by a large company might let the little guy DOUBLE his market share overnight. And by doing that they suddenly have twice the revenue with the same or close basic overhead and the addition of only variable costs. The result: A huge spike in earnings which draws publicity, which means a flood of money from the two-steps-behind, news-following investors. But we've already beat them to the punch, and every time one of them is willing to pay a cent more for a share, that's another cent of profit to us.

On a side note I just purchased E*Trade Financial after hours on Friday. This is another of the companies that have been hammered the last year (-85%). But they are making big changes (I am happy for one because I make some of my trade with E*Trade) for the better and I see their share even doubling over the next 12-18 months. My favourite part of this purchase is a review of their key statistics. The company's intraday market-cap (the number of shares x the price of the shares) is only $1.5B, while their actual real enterprise value is $21.5B, and it is trading at a MEASLY 3.5 P/E (share price to earnings ratio). In a situation where people have been dumping this share left and right for as long as I can remember, I think it's finally time for a turnaround.


I got into the stock for $3.60 just before the close for 1000 shares. I am setting my stop in at $2.50 because I am expecting returns of $6.00 - $10.00/share over the next year, a 50% retraction on the past 12 month's massive decline. If you refer to the chart, you will see an outrageous increase in volume (i.e. panic selling) as the stock price plummets.

Many of these sellers will start to buy back the stock at the first sign of a few good headlines and I will profit because I am one step ahead of them. Even if this stock makes it halfway back to its valuation I stand to make a profit of $6,000 to $10,000 versus a maximum potential loss of $1100.

The final thing I like about E*trade is that is far smaller than the big players in the sub-prime losses. For example, Citigroup has 1.06 TRILLION in cash assets to manage and thousands of offices. E*trade is much more flexible and can innovate much faster to offset losses.


And finally,

3) Because the US market is in the middle of stagnation, for the near future, it pays to take a look at foreign markets.

China is not a good choice for the beginner or average investor, because it is so over-valued as a whole right now that you have a very high chance of hitting a bubble stock that will crash down on you. (On the flip-side, if you wait out for a while until the deflation starts, you can make a pile of money short-selling the overbought stocks).

Emerging countries like Brazil are an excellent place to look. This country is starting to develop at an exponential rate and there are billions to be made. I have been reviewing Brazilian stocks for almost a year now and have several companies in my long-term portfolio, every one I purchased at a steal and has made solid growth.

Just remember that there is always some place in the world where your money will grow. It just might not be as close to home as you'd think.

Merry Christmas everyone! I will post again before the new year.

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A Risky Endeavour?

Well it is the morning of Day 2. My second post, and so soon. I guess I'm just excited about today. Last night after I finished posting I still couldn't find it in myself to sleep, so I decided to do a little more poking around for stocks.

I am taking up a few positions on the short-term, meaning typically around a week to one month. I basically do these to catch one or two trend swings then cash out my profits. When I trade short-term trends I set very tight stops on my trades using a volume-related price target. (i.e. I won't sell my position if there is an odd print in trading that is $.75 out of the money from an ECN. I set a minimum requirement of transactions and avg volume per transaction that triggers my stop-loss sell or buy point)

The first position I am taking is in Select Comfort, which just lost about 40% of its share value, declining from about $10.50/share all of the way down to $6.21/share on yesterday's close. The reason: SCSS posted a management update about slowing profit levels in a time when they thought they would be experiencing moderate sales growth. The result, by looking at the MASSIVE volume of the last few days, is that a good chunk of the shareholders are dumping off their shares because of a 2.00 gap down and a subsequent 1.00 + decline over the following day.

What I like about this is that the company is still in the black, and they have always had excellent cash-flow. The second is that as of November 27 they have a 30% short ratio. After this huge decline a large majority of the short position holders will be eager to cash in their profits.

I will demonstrate on the following chart why I want to buy into this stock now and where I am putting in my stop-loss points.



Now you can see on the chart that my hopes are obviously that this gap will close in sometime in the near future. I am anticipating a gap-fill for this morning (.12) and I am going to take up a position around 6.25/share for 500 shares. My stop-loss point will be a solid break through of yesterday's support and a loss of $.50/share, so I am setting my stop-loss point at $5.60 /share on appropriate volume and transactions.

My first sell point is at $7.00. I will sell 200 shares of my 500.00 share position, and reset my stop-loss points accordingly when it reaches that point. My full sell point is a retraction to the point where the gap initial starting trading, around $8.00

So I am basically risking a maximum $.70/share loss for a potential gain of $.80 on 200 shares and $1.80 on 300 shares. As always with investing there is risk. The most important thing about risk is your ability to control it, and to dictate how much of it you are willing to put up with.

I have taken up a 300 share position of UltraShort Oil and Gas Proshares as I said I was going to do last night, and I have made short gains of almost $2.00/barrel of oil. Of course this is just the first day and I am talking about several months of investing, but it always feels good to pick a good entry point. - you can view the chart on Crude Oil prices HERE.

If any of my readers have stock picks of their own they would like me to check out please feel free to post here or email me at any time. Otherwise I will be back with more portfolio positions.

First Post: My First Investment Position.

This is my first post as a blogger. I'm very new to this side of the blog concept but I have been an avid blog reader for some years (my RSS feed has about 145 of them). I love the idea of the blog, the unedited rawness that you find on the internet.

There's no need for the politically-correct softening down of certain topics. No need for the approval of a publishing manager then his manager and finally the general manager to get an article put through. There is just me, the writer, you the reader, and the medium; the blog.

I also love that the responsibility of editing lies solely on the writer. There is no team of proof-readers spilling drops of coffee and cigarette ashes across the pages of my work. In fact, there are no pages period. Just the clean desk.

Not my desk, though. My desk as always is cluttered even as I type this. A box of matches, an ash tray, a fresh pack of cigarettes with only one missing. One empty paper cup and another full of coffee. Speakers, monitor, telephone, and a few scribbled notes. But these are just the things that keep me going, the fuel. The stuff that really matters is slid into 8 Firefox tabs, a word document, a spreadsheet, and a picture viewer.

Which brings me to why I am here. I have thought about blogging for a few years now, but there were first of all several mental obstacles I needed to overcome.

The first was the easiest: Dare I put my thoughts out into the universe of billions of clicking surfers and reviewers? Dare I test my wit and intelligence against the masses? What if I am ripped apart by the old veterans of the roller-coaster landscape of online publishing?

Thankfully I have just come out the other side of a rather distasteful employment experience. To work for some people there just isn't enough money in the world. But that isn't my point. What I learned, the most relevant to this anyway, is that I no longer care. Either way it doesn't affect who I am as a person if someone is interested or disinterested in what I have to say. If they see my insight as valuable or invaluable.

The ball is in your court after today. I am only the referee, calling the plays as I see them.

The second and far more challenging thing was the topic for me to blog about. I don't want to be one of these universal bloggers who grab at everything around them or narrate their own lives to the general public. A reality television book.

This problem arises from the fact that I have many interests, and some of those interests I consider myself fairly knowledgeable. I am a jazz drummer of 13 years, I have played poker profitably both online and in B&M casinos for some years, I am working on a novel that I have several publishers interested in, I have run three successful businesses and sold them since I turned 17 years old.

And I have a profound love for the world of stocks, commodities, and all things investing-related.

That is the topic I chose and it is for one reason. The very same reason that I would never take a job at a bank or large financial institution.

The many resources out there for making profitable investments are almost all there for one thing: to make themselves money. Whether it be a large brokerage house that profits whether or not you make a cent or lose half of your holdings, a subscription-based advisory service, a black-box system that will only work until the market makes a single significant change - if at all, and the many other ways average investors try to make sense of the endless ocean that is the financial world.

The first thing I would like to demonstrate to my readers is that the markets all and one are driven by a singular thing. I will deal primarily with that in my next post. The second thing I will be doing is simply posting the exact positions I will be taking in my portfolio and the reason for taking my position. That is all.

You as a reader can choose to take this advice, ignore it, laugh at it, ponder it, write it down, anything you like. I am simply opening my own portfolio to the eyes of the public.

Right now I am researching several positions that I will be taking in the next 5 trading days. The first position I have solidified is in Crude Oil. Here is the link for the charts on light crude traded on Nymex

Crude Oil Charts

I will be taking up a short position on futures contracts for April 2008. I will also be using the Proshares Ultrashort Oil and Gas ETF found HERE, which is an excellent resource for people who don't trade in commodities options or futures. Proshares offers the only Short ETFs in North America and holds $9 Billion in equity. They are a very reputable firm and only charge a .95% annual handling fee (the average fee is around 2% so they are very inexpensively priced).

There are several reasons that I am taking a short position :

1. Timing: Oil prices generally take a 5-10% decline from January through May due to decreases in volume because the weather is warming across North America.
2. BIGGEST REASON: Oil prices have reached a top, which I will show in the following chart, and have formed a head-and-shoulders pattern coming down the other side. This generally means that a large crash-down in price will be occurring in or over the next 5-15 trading days. I am very excited to take this position.
3. Higher uses of coal in the last 3 years due to high-sulfur emissions has taken a chunk out of the oil market and OPEC is currently keeping demand levels at an inflated amount to cash in for a while. Once this "oil bubble" bursts the price will slide down.

My estimate is that the price of crude oil will be somewhere in the mid-high 70's by April giving me a tidy 20%+ gain. I will show you what I am talking about on this chart, and introduce you to a few of my cardinal rules.

RULE 1 - ALWAYS take a position you are at least 75% sure will run your way.

RULE 2 - ALWAYS set a stop-loss on your position that only risks a portion of your potential investment. In this case I am risking a loss of roughly $2.50/barrel versus a potential and projected gain of $14.00 - $20.00/barrel.

RULE 3 - Pick you entry Point - I will enter this position immediately as it has already hit its third top of the new downtrend. I did decide, when I started considering this position, that I would wait for a strong indicator in my favor. If you go to the charts for this stock and notice over the last month you will see that a clear head-and-shoulders pattern is formed and oil prices are poised on the brink of a decline. I chose my entry point at my estimated half-decline on the right shoulder to catch immediate gains and ride out profits.

This chart without revisions is provided by TradingCharts

This about sums up my first post. I would like to thank in advance anybody who takes the time to read what I have to say, and especially thank any of those who would like to add input to my posts. I greatly appreciate it.

Enjoy the holidays everyone. I will post another position very soon!