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Posts Tagged ‘stocks’

Dow 12,000…Now What? Part II

Friday, June 10th, 2011

Yes… the image you see is what Dow 12,000 looks like coming from the other (less desirable) direction. Today marks the sixth time the Dow Jones Industrial Average has crossed the 12,000 level since the first time on October 19th 2006 (no relation to Black Monday, October 19th 1987).     We felt this was an opportune time to revisit our post from January 27 of this year entitled Dow 12,000…Now What?’ and to share our sentiments on the current environment for the economy and the financial markets. 

The market has declined now for six straight weeks and the decline accelerated recently when a trifecta of negative indicators came in worse than expected.  These areas of weakness included housing, employment and consumer confidence.  As of this writing, the tech heavy NASDAQ composite has slipped into negative territory for the year as the technology, materials and financial sectors have declined the most over the last month.  Utilities, healthcare and consumer staples have held up best over the last several weeks.  (more…)

Actionable Investment Ideas: COW

Monday, February 7th, 2011

Following up from last week’s post DOW 12,000…Now What?, where we asked what is an investor to do when the broad equity, bond, gold and energy markets have all rallied handsomely, we offer the following actionable investment idea.

COW is an exchange traded fund (ETF) that seeks to track the overall returns of the Dow Jones-UBS Livestock Total Return Sub-Index. The index is composed of two futures contracts, lean hogs and live cattle. We find it compelling and worth taking a closer look for several reasons.

Looking at the fundamentals, the demand for meat from the United States is strong. With the price of grain at record highs, many ranchers are choosing to take their “breeders” to slaughter resulting in a significant reduction to supply.   One of the themes that  investors try to capitalize on relates to the many opportunities that present themselves in a global economy as the quality of living improves in under-developed nations around the world. From infrastructure to technology, opportunities abound in these countries and a change  to a higher protein diet is one of many known improvements that consistently take place.  Accordingly, the increased demand for livestock may prove to be an ongoing driver of price for the years to come.  In fact, China has been experiencing a shift to beef accompanied by a reduction in supply and the US recently became a net exporter there for the first time.  Some of our other (in depth, proprietary) research suggest that there may be a lot of people in China.

Since the fundamentals for “COW” appear strong, we next look to the technicals and the chart puts us in a good moo-d. Unlike so many other segments of the markets, it is not up 75-150% over the last two years.  It isn’t in free fall either.  The long-term chart looks appealing since it was in a down-trend for some time, consolidated, turned upwards and remains in an uptrend with momentum.

We believe COW is a compelling opportunity with sound fundamental reasons to drive demand/price and attractive technicals.*  We will be watching it closely and feel that it may prove to be a timely opportunity with significant upside potential over the next six to eighteen months.

Super Bowl Stock Market

Friday, February 4th, 2011

This weekend will be the much anticipated and hyped Super Bowl 45 between two historic teams, the Pittsburgh Steelers and the Green Bay Packers. Now if you are looking for a full NFL breakdown of the game, head over to ESPN.com, but I think there is an interesting lesson that coincides with successful investing. 

Looking back at numerous preseason NFL polls, the Steelers and Packers were both in the top 10 with a high probability to make it to the Super Bowl. This is in sharp contrast to the Detroit Lions, Carolina Panthers or say, Cleveland Browns who have historically underachieved.  Those are just basic assumptions based on recent history.

So if I asked “Who do you think is going to be a better team next season – the Pittsburgh Steelers or the Carolina Panthers?” What would you say? On one hand, the Steelers were 14-2 this season and have won the Super Bowl in two of the last 5 years, while the Panthers finished a woeful 2-14 this year, only making the playoffs in 4 out of the last 15 years. Of course the Steelers.  Why?  Because they have put together a strong franchise.  They have proven game plans, elite players, and savvy coaches.

 The funny thing is the way investors typically invest.  They look to the “Carolina Panthers” stocks and sectors and bet on those in hopes that they have a miraculous turnaround and are amazed when the turnaround doesn’t happen overnight.  Focus on  “strong teams”  to invest, those that possess the same qualities of the Steelers and Packers, while avoiding teams that are in need of long term rebuilding and overhauls.

Enjoy the game!

-by Tim Dyer

Dow 12,000…Now What?

Thursday, January 27th, 2011

With the Dow Jones Industrial Average trading above 12,000 (intraday) the last several trading days, we felt compelled to share some thoughts and opinions on the markets.  For starters, what a wild ride it has been.  It was just under two years ago (in March of ’09 ) that the Dow dipped all the way down to 6,440.08  from a previous all time high of 14,279.96 back in October of ’07.  Simply put, the Dow declined 54.9% and has rallied 86.33% and now remains down 2,279 point or 16.28% off it’s all time highs.

Dow Jones Industrial Average

So what’s an investor to do when “The Market” is up 86.33%, interest rates remain at multi-decade lows and commodities (materials, metals, agricultural, and oil to name a few) are teetering near their all time highs? If you don’t pay taxes, don’t need to spend your money and aren’t worried about inflation, the answer might be nothing.  It is possible you might even “beat the markets” (all of them) by sitting in cash.  The problem is that “relative returns” don’t put food on the table, pay the mortgage or take you on vacation. Furthermore, after taxes and inflation, you really end up going backwards when you go sideways.

If you’re concerned about the markets getting a bit “toppy” and that we are either long in the tooth for a correction of if you are optimistic that  the economy is in a legitimate recovery yet we just need some time to catch up with the strong rebound, click below on “read the rest of this entry”  and see 4 suggestions to help enhance returns and put the risk of your portfolio in check.

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Option Series #2 Put Selling

Thursday, January 27th, 2011

Conversation with client…

Client: “I see that ABC company is trading at $50 a share. I love the company for the long term but feel that they are currently over- valued at this level.  If it sinks to $40, I think it would be a bargain and accordingly, I would like to place a GTC (good till canceled) limit order to buy 100 shares at $40.”

Decision Investments: “Sure Mr. Client…Would you like to get paid TODAY  for your order?”

In our second series on investing with options we would like to introduce the strategy of “Put Selling”.  When an investor sells a put, he or she receives an up-front payment to stand ready to buy a stock at a given price for a given period of time.  It can be a very lucrative strategy and it  can also be implemented in a manner that greatly reduces risk as compared to simply owning the underlying stock. 

Put Sell

Like a covered call strategy, selling  puts can provide downside protection  and furthermore  you choose the price level at which you are willing to step in and buy the underlying stock (the put “strike price”).  Among other benefits of the strategy, you hold onto your cash while waiting to see if you get “exercised” or if the stock will be “put to you”. You won’t receive the dividend of said stock like in the case of a covered call but you may leave your cash in a high yielding money market fund or wherever you’d like.  Conservative investors should  avoid buying more securities with the cash because if the market declines your losses will be leveraged and when the stock is put to you it could result in your account being on margin (having a negative cash balance). 

Put selling can be a great opportunnity to pick up quality companies “on sale”, add substantial income to your portfolio AND reduce the risk of an equity portfolio.  What’s not to like? Really, please give us your comments and feedback.