Double Journey

Much like I figured it would, the market reversed sharply. At the beginning of the day, stocks started higher, but eventually fear took over greed and stocks plummeted.  Much of it can be attributed to the exact opposite reason that stocks went up.  There was hope that the financial sector had seen the worse of it.  This move down shows that the fear still exist that the worse is not over.

However, there was one bright spot.  Visa had its IPO and it was up about 28% from the open.  Now the good thing about Visa is that its market is actually growing and some would argue that it is almost recession proof.  You see, Visa makes money on its transaction fees.  It owns the largest credit card network in the world and makes money each time one of its cards are swiped.

Its actually a fantastic business model.  If you are like me you can appreciate it because you pay for everything with credit cards, even the little transactions.  What’s even better is that they actually don’t have liability for consumers who don’t pay their bills, that is the responsibility of the issuing bank.

So do I think its a buy?  Maybe.  Mastercard has quadrupled since its IPO, and Visa is the better company.  I still think its kind of dicey right now to be playing in the market, but if you want a good risk in a time when nothing really looks very good, Visa may be it.
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Stocks had a better day than I expected.  The Dow was actually up while the Nasdaq came off its lows of the day.  This is probably in reaction to what is perceived to be a sure thing, the Fed cutting the rate very deeply.  Most are predicting a 0.75% cut.  Some even believe the Fed will cut as much as 1%.

But it is my belief that this is too little too late.  I really don’t think it matters what the Fed does at this point.  The Fed Funds rate is a blunt instrument and the economy is way to far in its downward trajectory for something like this to rescue things.

While I think the market will continue to go down, it is about the time you need to create a shopping list and start thinking hard about the companies you want to own 5 or 10 years from now.  My shopping list needs to be updated but I still think its a good list.  Actually, if you take a look at the list, all my stocks are doing well comparatively to where the market was at the time.  Some of them are doing great like Potash.
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Google Closed yesterday at $486.44.  This represents a 4% drop from the previous close.  This despite the fact that the rest of the market saw a strong day with an up 1% day on the Nasdaq and a 1.5% up day on the Dow.

I’ve actually been looking for an in to Google stock since it originally broke and stayed above the $500 barrier in Jun of 2007.  It broke it a few times before that but could not sustain itself.  in August of 2007, it took a brief dip below $500 but recovered soon thereafter.

Now it has gone under $500, and I believe that will be a strong resistance point from now on.  If it can rally in the next few days and find a way above it, then perhaps it will stay there, but in all likelihood it will stay below.  It is never good when a stock like this, which has been a leader for so long, goes in a tailspin down.  Part of it up until now could be blamed on the overall market.  But when the market turns, and a stock like this doesn’t turn with it, you have to be concerned.

I don’t think it has much to go down from here, but I still don’t think its a buy.  Long term, I believe Google is probably a good buy,especially at a 30P/E.  Short term, $450 is possible, and perhaps lower.
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Berkshire Hathaway disclosed a very large stake in Kraft yesterday. They are the largest shareholder and own a little under 9% of the cheese maker. I like this pick up because I too own Kraft. In fact it is one of the few stocks I do own. I have kept most of attention in the consumer staple area as I have believed for a long time that we were heading into a recession, and consumer staples will do well in this environment. In addition, I thought that a lot of value would be unlocked as soon as it split up from Altria.

I told someone else this and I will say it here too. Berkshire here is a good buy if you can hold on for several years. Stocks are getting cheap and Buffet is going to be like a kid in the Candy store. He is going to pick up some names that seem crazy in this environment, but his craziness has made him the second richest man in the world.
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If somehow you haven’t realized it, today is Valentines Day.  I don’t have very strong feelings about the holiday one way or another.  I definitely don’t like the holiday and don’t celebrate it despite the fact that I have a girlfriend.  I don’t hate the holiday either, probably due to the fact that I’m in a happy relationship.  But even when I wasn’t, I never begrudged happy couples their day.

I guess the one thing I never could get behind is doing what everyone else does.  This has helped me throughout my life, especially financially.  You shouldn’t go where the crowds are, it is simple supply and demand.  There is a huge demand for things like flowers and gifts on Valentines day and the markup on these items are ridiculous.  Wait a day and things get a lot more reasonable.  I guess I just never understood why this one specific day was the one day you had to be romantic.  What about the other 364?

This also dictates who I am as a stock picker.  I tend to not follow the crowds. I  just can’t stand  going with the crowds.  I like to buy stocks that have dipped and are a good value.  This can be a painful thing to do because stocks in the short run are very momentum driven meaning that if they have been down, they are likely to go down further.  People will tend to watch fasting rising stocks go up, and continue to go up and then jump in right when they are about to top out.
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Almost time to re-enter the market. The market opened sharply down and recovered after the Fed announced a 3/4 point rate cut.  One quick comment on that.  Not sure what type of house that my former professor is running.  I would prefer to see the fed leading the way rather than reacting to every little thing (OK a 500 point drop isn’t little) that happens.

I still think that the market is flat to down over the next few weeks if not month.  But it is impossible to pick the bottom of a market.  If you can take the long term pain, you should start thinking about putting your money back into the market.  Financial stocks are going to be the first to recover, but they might still be pretty scary here.  I still like my MO and I really want to by Home Depot, but I’m holding off for now.  Bottoms take a long time to form.  In 2000, it took months before we actually reached bottom even though there were several sharp drops.

There is still weakness however.  Apple is touching the 130’s in after hour trading.  They had a good quarter, but their outlook was grim.  That is going to be the theme for a lot of companies.  Good earnings, grim outlooks.  Thank god I passed on it at 195.  Tech is going to be a hard place to be.
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This week at Mac World, Steve Jobs announced the company’s latest product, the Macbook Air. I have to admit, it is pretty cool. I’m actually in the market for a new laptop and I’m leaning toward getting a mac (despite my dark Microsoft days). In case you haven’t heard yet, here is a video showing the Macbook Air.



Now the problem is that it starts around $1800 and goes up from there all the way up to $3000. It’s a little bit more than I want to spend.On a related note, boy am I glad I didn’t buy Apple when I was looking at it.The stock looked poised for weakness there and boy was I right. Rick urged me to buy at $195, but I resisted. The stock closed just under $160 today, down 6%, I would have taken a huge haircut on that trade (although I would have gotten out way before now) Maybe I should ask Rick for advice, and then do the exact opposite. I might make my double then! Actually, my advice would be to short Apple at this point. The market is looking ugly, and the former leaders like Apple are going to get whacked. Short the market as a whole (sds) or short some of the stocks that have been great like Apple or Monsanto. Sphere: Related Content

A few weeks ago, Aaron had asked me why I buy individual stocks rather than invest in index funds. He makes a good point. Index funds beat 80% of the market. When you factor in their very low cost, it would seem silly to invest your money any other way.

And I generally agree with the principle that for most people, the right thing to do is to invest your money in index funds. However, I’m not most people. I love thinking about what trade to make. I love doing the research before I buy a stock.

Some liken stock picking to gambling. I really don’t think anything could be further from the truth. True, short term stock picking can be very hard. There are random fluctuations that happen for no other reason than the sentiment “feels” something is going to happen. That can be quite scary.

However, a stocks long term price is 100% correlated with its earnings, and with enough homework, you can figure out which stocks have the best earnings potential. You won’t be right 100% of the time, nobody ever is, but you can certainly pick more winners than losers.

I take the Warren Buffet advice on investing. Put all your eggs in a basket, and watch the basket closely. My portfolio at this time is relatively small, and I watch it closely. That being said, I’m getting hammered along with the rest of the market. So who knows, maybe I’m totally wrong about picking individual stocks, but I’m having fun doing it.

Update: It occurs to me that my point wasn’t totally clear here.  I actually think that index funds are good things.  Most of us are dummies when it comes to the market.  Most people don’t need to be experts.  If you aren’t, then you should invest in index fund.
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I was going to respond to the comment that Stephen left in my post about smoking being good for you but decided that a full post would be better served. Full disclosure. I don’t smoke. I hate smoking. I hate being around smokers. I generally won’t go to a place if they allow smoking. That being said, I have no problem buying shares of the largest tobacco producer around.

One of the things you can’t do when you are trying to pick stocks, especially in the short term, is worry too much about the social impact of what you are doing. When people tell me that they have a problem buying a certain stock this is what I tell them. Buy the stock, and when you make a lot of money, support a charity that tries to address the issue. So if you don’t like smoking, fund lung cancer research. If you don’t like alcohol stocks, fund a charity like MADD.  Stocks are just pieces of paper.  Buying the stock doesn’t actually help the issuing company.  A stock trade is between you and some other third party, the original company does not directly benefit from your purchase (they do indirectly but that would be a whole other post)

That being said, there are literally thousands of stocks you can buy. So if you really feel that strongly about it, just try to find a similar stock with a similar thesis. If you don’t want to buy a stock like Altria, look at other consumer staples like Coke or Kellogg (I don’t recommend these like I do Altria by the way).
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GameStop (GME) is set to announce guidance tomorrow. The stock has been killed the last few days on relatively no news. It has been down with the rest of the market as people are fleeing almost anything retail and connected to the consumer. However, I strongly believe that GameStop had a fantastic holiday and their guidance will look good. This should provide great stock price movement tomorrow. Be warned, if Gamestop comes out with bad news, this stock is going to come down. I just think you have more upside than downside at this point. If I can get in before the announcement, which is doubtful considering when I get up in the morning, I’ll look at getting in. It closed at $55.11 today, and I think you might have $7 or $8 of upside, maybe $4 of downside right here.
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