ABR, BRT & CBF blend is up 14% from my Jan 7th post. QID is up 11% from there. Google and BIDU are down - I haven't tracked how much BIDU long puts have benefited but the stock is down 21% so I'd imagine they'd be doing well if they're within the next 12 months.
Even though BoA deal with CFC might not go through I'm still glad I closed my position over there. Sometimes its better to cut your losses.
The benefit out of this reshift though is that not only has the REIT appreciation benefited me, but now my portfolio yield is roughly equivalent to high grade bonds with a much better appreciation opportunity.
I will however have to diversify away from financial a bit over the next year as opportunities arise. I'm currently looking at some defense contractors and did look into Activision and AMD. Those two had shoddy accounting, with AMD deducting tax liabilities they inherited from their aquisition of ATI from their goodwill and Activision carries their development as an asset at cost. When I start seeing deceptive accounting, common to the industry or not, I bail.
Friday, February 1, 2008
Friday, January 11, 2008
CFC Shareholders Screwed
Mozillo agreed to sell CFC to Bank of America for $7.17/share, or more accurately a .1822 share swap where CFC shareholders would get basically 1/5th of a share of BAC for every share they own.
If you take BAC's record high price of $54.77, that'd be just under $10/share for CFC shareholders. Mozillo sold $15B of equity, roughly $20/share of assets for between 50% and 75% discount.
Of course, its not a big deal for him because he's entitled to a $120M severance package.
If you take BAC's record high price of $54.77, that'd be just under $10/share for CFC shareholders. Mozillo sold $15B of equity, roughly $20/share of assets for between 50% and 75% discount.
Of course, its not a big deal for him because he's entitled to a $120M severance package.
Monday, January 7, 2008
Turning a Profit in a Bear Market
Bear markets can be disheartening but they can also be very profitable. There are four ways you can make a lot of money off of bear markets:
1) Short term plays on over-panics. You'll notice that small issues in unpopular sectors tend to have incredible volatility. This means that, generally speaking, there's a lot of movement and options are priced highly. As a result you can either buy stock directly or buy call options at extremely depressed prices and turn a profit in a day or two when the market realizes its error. See my E*trade transaction from November for an example. This tends to be purely technical so your mileage may vary. (A nice example of this today is CFC, which dropped 17% on an unsubstantiated rumor that the company will file for bankruptcy this week.)
2) You can short securities. I wouldn't do this on single issues because on a day to day basis its tough to time properly and almost all the action happens pre-market or post-market. As a result you're day trading and when some surpise information comes out you'll wind up getting caught on the wrong side of the trade and eroding all your profits in trading costs. Rather, I'd consider trading QID (Powershares UltraShort ETF). Its a leveraged ETF that amplifies the inverse of the market. In other words, if the market goes down 1%, QID goes up 2%.
3) Instead of shorting securities you can buy long term put options. A put option contract is a contract to allow someone to sell a given security to someone at a pre-determined price by a given date in the future if it is profitable for them to do so. As an example right now you can buy BIDU Jan 2009 $350 put contracts for about $86. That'd be $8600 per contract plus brokerage fees. If BIDU were to drop 10% the option contract might go up by over 30%, since now it'd be profitable to use right away. Options unlike stocks themselves however can become worthless, which means the risk can be total. (As a sidenote its worth noting here that the options market has Baidu priced at $110 in January 2010, which says a lot about smart money's view of Baidu in the long term.)
4) High yield securities. This is my personal favorite since they are relatively easy to find. I'm currently scooping up various bond funds and most of all, a small diversified selection of REIT's (real estate investment trusts). Some REIT's right now are paying out yields of over 20% thanks to their stock depreciation overshooting their earnings. The way an REIT works is that pay out at least 90% of their profits as dividends; its like a mutual fund that allows you to get into the real estate market as a landlord or loan originator. As a result, their dividend is entirely based on their earnings. In essence, a yield of 20% would indicate the market believes their earnings will be impaired by roughly 40-60%. If you choose a commercial oriented REIT do you really believe the earnings will face 40-60% impairment?
1) Short term plays on over-panics. You'll notice that small issues in unpopular sectors tend to have incredible volatility. This means that, generally speaking, there's a lot of movement and options are priced highly. As a result you can either buy stock directly or buy call options at extremely depressed prices and turn a profit in a day or two when the market realizes its error. See my E*trade transaction from November for an example. This tends to be purely technical so your mileage may vary. (A nice example of this today is CFC, which dropped 17% on an unsubstantiated rumor that the company will file for bankruptcy this week.)
2) You can short securities. I wouldn't do this on single issues because on a day to day basis its tough to time properly and almost all the action happens pre-market or post-market. As a result you're day trading and when some surpise information comes out you'll wind up getting caught on the wrong side of the trade and eroding all your profits in trading costs. Rather, I'd consider trading QID (Powershares UltraShort ETF). Its a leveraged ETF that amplifies the inverse of the market. In other words, if the market goes down 1%, QID goes up 2%.
3) Instead of shorting securities you can buy long term put options. A put option contract is a contract to allow someone to sell a given security to someone at a pre-determined price by a given date in the future if it is profitable for them to do so. As an example right now you can buy BIDU Jan 2009 $350 put contracts for about $86. That'd be $8600 per contract plus brokerage fees. If BIDU were to drop 10% the option contract might go up by over 30%, since now it'd be profitable to use right away. Options unlike stocks themselves however can become worthless, which means the risk can be total. (As a sidenote its worth noting here that the options market has Baidu priced at $110 in January 2010, which says a lot about smart money's view of Baidu in the long term.)
4) High yield securities. This is my personal favorite since they are relatively easy to find. I'm currently scooping up various bond funds and most of all, a small diversified selection of REIT's (real estate investment trusts). Some REIT's right now are paying out yields of over 20% thanks to their stock depreciation overshooting their earnings. The way an REIT works is that pay out at least 90% of their profits as dividends; its like a mutual fund that allows you to get into the real estate market as a landlord or loan originator. As a result, their dividend is entirely based on their earnings. In essence, a yield of 20% would indicate the market believes their earnings will be impaired by roughly 40-60%. If you choose a commercial oriented REIT do you really believe the earnings will face 40-60% impairment?
Intertwined Support Levels
There's an interesting thing about support levels which is worth noting. When the larger market breaches a support level, all other support levels are up for grabs. You can see this with CFC as an example. Shortly after the DJIA broke its support level at 13,000 CFC went and broke its support level at $8.60. The result? CFC is down in the $7's and approaching its support level of $6.00.
If you're into technical indicators this is a pretty nice one because its rare to see the DJIA break multiple support levels without a rally. When the DJIA does rally, you're likely at least to see stocks like CFC hit their prior support levels as resistance points and you can trim the profits on that action.
If you're a long term buy and holder you want to know the support levels because those will represent levels you want to buy more stock at. If CFC drops past $6.80 for instance I'll probably double up assuming its only price action and the fundamentals haven't changed.
If you're into technical indicators this is a pretty nice one because its rare to see the DJIA break multiple support levels without a rally. When the DJIA does rally, you're likely at least to see stocks like CFC hit their prior support levels as resistance points and you can trim the profits on that action.
If you're a long term buy and holder you want to know the support levels because those will represent levels you want to buy more stock at. If CFC drops past $6.80 for instance I'll probably double up assuming its only price action and the fundamentals haven't changed.
Friday, January 4, 2008
The Sky Is Falling
The Sky Is Falling
You might believe that if you saw the way the end of December went. ASFI has been beaten down badly because it was a few days late filing its annual report and the market as a whole is down 5.5% over the last 3 days.
I'm not going to bother to predict what is likely to occur over the next few days but here are some of my general thoughts:
1) ASFI went down on a meaningless downgrade. It then went onto the naked short list which speaks volumes of why this low-turnover, low-volume stock dropped so far and so fast for no apparent reason. I doubled up, this is a great business.
2) My problem with the market is not that its gone down. My problem is the stocks that should have gone down haven't gone down enough to bring the markets to an attractive overall valuation.
3) Ultimately I would keep putting smart money into well priced, high yield, high quality securities. If you want an example look into ABR (I'll talk about this in a following article).
Currently I myself have been rebalancing my portfolio to make sure its not heavily weighted towards financial services thanks to my recent aquisitions. I only typically keep roughly ten issues at a time, excluding option speculations, but I wanted to shift some weight into a close ended municipal bond fund.
I sold out of SPN after its 20% day earlier this week for a net of just over 35%. I like the company for the long haul but when you get a 20% profit in a single day on mildly good news its time to take some profits and walk away.
You might believe that if you saw the way the end of December went. ASFI has been beaten down badly because it was a few days late filing its annual report and the market as a whole is down 5.5% over the last 3 days.
I'm not going to bother to predict what is likely to occur over the next few days but here are some of my general thoughts:
1) ASFI went down on a meaningless downgrade. It then went onto the naked short list which speaks volumes of why this low-turnover, low-volume stock dropped so far and so fast for no apparent reason. I doubled up, this is a great business.
2) My problem with the market is not that its gone down. My problem is the stocks that should have gone down haven't gone down enough to bring the markets to an attractive overall valuation.
3) Ultimately I would keep putting smart money into well priced, high yield, high quality securities. If you want an example look into ABR (I'll talk about this in a following article).
Currently I myself have been rebalancing my portfolio to make sure its not heavily weighted towards financial services thanks to my recent aquisitions. I only typically keep roughly ten issues at a time, excluding option speculations, but I wanted to shift some weight into a close ended municipal bond fund.
I sold out of SPN after its 20% day earlier this week for a net of just over 35%. I like the company for the long haul but when you get a 20% profit in a single day on mildly good news its time to take some profits and walk away.
Tuesday, December 4, 2007
Hand Holding
Want to know why handholding and coddling people and businesses is bad? This blog has a cornucopia of information regarding the subprime nonsense that's been plaguing the news lately. Below is an interesting (if somewhat nauseating) tidbit:
My personal thoughts?
1) Every entity that loans money to people without figuring out if they can pay it should go bankrupt.
2) Every person who takes a loan they can't possibly afford deserves to foreclose.
The reason why this is bad for the rest of us even if we are not investors or homeowners lies in the subtle question, "Who is buying all these loans?"
The answer to that question is the states. Municipalities (states, cities, etc) buy up these loans repackaged as bonds to support their pension obligations. Who is going to pay to put more money into those funds? If that isn't bad enough the states are also going to be funding the "rate reset freeze" plan of Paulson.
So in other words the rest of us will eventually pay it only it will show up as increased sales tax, public transportation costs and land taxes. Those of us whom are fiscally responsible will have to pay to keep the wonderful world of bottomless lines of credit going because if it stops so does the entire economy.
In many ways this is why you cannot help but want to invest in banks, lines of credit and retail. With so much in the way of support to keep this scheme going I would rather be on the side that benefits to some extent even as I watch it erode my savings value year after year.
It is sort of like gasoline. You can pay $3.50/gallon at the pumps and be a sucker or you can invest in the energy sector and "outperform".
“Aside from violating the sanctity of a contract and scaring off potential investors, what’s the good news here? ‘It’s a big misconception to think that (mortgage) resets are responsible for the delinquencies,’ said Andy Laperriere, a managing director at the ISI Group in Washington.”
“Of the subprime loans made in 2006 and scheduled to reset in 2008, some 25 percent are already delinquent, he said. ‘What’s driving the delinquencies is that people can’t afford the initial payments,’ Laperriere said.”
“That’s a problem Paulson’s plan won’t fix.”
My personal thoughts?
1) Every entity that loans money to people without figuring out if they can pay it should go bankrupt.
2) Every person who takes a loan they can't possibly afford deserves to foreclose.
The reason why this is bad for the rest of us even if we are not investors or homeowners lies in the subtle question, "Who is buying all these loans?"
The answer to that question is the states. Municipalities (states, cities, etc) buy up these loans repackaged as bonds to support their pension obligations. Who is going to pay to put more money into those funds? If that isn't bad enough the states are also going to be funding the "rate reset freeze" plan of Paulson.
So in other words the rest of us will eventually pay it only it will show up as increased sales tax, public transportation costs and land taxes. Those of us whom are fiscally responsible will have to pay to keep the wonderful world of bottomless lines of credit going because if it stops so does the entire economy.
In many ways this is why you cannot help but want to invest in banks, lines of credit and retail. With so much in the way of support to keep this scheme going I would rather be on the side that benefits to some extent even as I watch it erode my savings value year after year.
It is sort of like gasoline. You can pay $3.50/gallon at the pumps and be a sucker or you can invest in the energy sector and "outperform".
Tuesday, November 27, 2007
E*Trade
Just a quick update since I haven't commented on this. I bought E*trade @ $3.84 and I intend on selling it for between $5.75 & $6.50 per share. This is, in my opinion, an easy buy. With a $630M write down (using the same write down as Citigroup, which isn't dead accurate given different CDO portfolios but works for a quick rough figure) they are worth $8/share in book value. At $3.84, it was a steal. I don't view this as a long position though, I'll get out of it in a day or two from this point (I bought last Tuesday). I'm not very bullish on the company from the standpoint of long term investment.
I generally don't go after short term price movements but every once in a while opportunities appear that are simply too good to pass up in terms of risk & reward. This was one of those rare opportunities. I'd like to thank the negative speculators who were willing to part with their shares for less than half book value. Since the stock market can often be zero-sum, its handy to have people around that will freak out and panic easily - so I appreciate your lack of intestinal fortitude.
Update: And I'm out of this with a 60% profit :).
I generally don't go after short term price movements but every once in a while opportunities appear that are simply too good to pass up in terms of risk & reward. This was one of those rare opportunities. I'd like to thank the negative speculators who were willing to part with their shares for less than half book value. Since the stock market can often be zero-sum, its handy to have people around that will freak out and panic easily - so I appreciate your lack of intestinal fortitude.
Update: And I'm out of this with a 60% profit :).
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