What To Look For...

One of my favorites stores and stocks Costco has done a good job of making Target look stupid. (I still like Target.)

Stocks fully realizing rockstar status and still going higher: PCLN, RIMM, CMG, PCU

Wish I would have made a post about SIGM sooner. But now that it has made a 61% gain since I added it to myCaps picks I figured I would explain it. Sigma Designs makes the chips that make it possible to view Internet programming on your TV. It does not take a genius to realize what is happening to content and the possibilities (inevitability) that this will become standard very soon. They have a 70% share of this market currently, supply the chip for MSFT's IPTV box, and have been getting strong upward EPS revisions. No debt, a obscenely low PEG of .82, and 42% sales growth last year. Giddy up. This one has got legs.

Market will probably bounce around for a couple of weeks with a slightly upward trend. Turns out, Bernanke is a team player but some of the macroeconomic conditions are heading into uncharted waters. There are plently of reasons this market will not stop going higher. Supply and demand for equities being an important one.

Earnings Season Starts With A Whimper

-Walgreens reported unexpectedly awful earnings today and understandably gapped down big. Out of 16 analysts covering the stock 6 had a strong buy, 2 had a buy recommendation, and 8 had a hold on WAG. Typically right in line with estimates with a record of nominal positive suprises they reported .40 per share which was a 14.89% downside surprise. Ouch. First analyst to downgrade should also submit a press release saying they have no idea what's really going on. Just another example of how the analysts are not working for you.

-Other companies reporting this week include RIMM, FDO, and PALM.

-Moon shot, four-bagger potential: PRCP. On a related note the DJ Auto Parts Index is up 26.5% this year.

Factors At Work

Factors At Work:
-Typically the third year in the presidential cycle has been the best year for the market. There has not been a down year since World War 2.

-Nothing has predicted the direction of the market as well as the CBOE put-call ratio.

-The home price growth charts give the clearest picture of how awful things have gotten.

- According to the WSJ 26.9% of CEO’s say business has been affected by credit crunch. 30.5% are delaying/reducing capital spending.

-So much money is being pumped into the system at the expense of the already weak US Dollar.

What now?
The real estate market is in correction mode. Many individuals who own property are unable to sell at a price acceptable to them. Just like investors in the stock market people are refusing to accept they bought a top and sell a losing investment.

The stock market has become an individual stock pickers game. Any fund managers buying Lennar and Countrywide in June should consider a new profession. (And may have to..) For those of you who like to take an index fund/hands-off approach it may be time to consider handing it off to a professional.

Look for multinationals based in the U.S. who do a lot of business overseas for strength over the next couple quarters. They will benefit from the valuation of the US dollar.

What To Look For..

Resource: MarketGauge organizes the day's winners and losers. Unusual price and volume has pointed me in the direction of great companies being oversold/companies going on big upward moves that usually go bigger. Worth bookmarking for sure.

Discount broker consolidation could become a theme

Financials are now up 5% in last five trading days. I still would not touch them with a ten foot pole except for the pure asset management players like BLK or LM.

Although I never advocate buying companies with negative earnings. I think TTWO has major upside and may be an exception. They publish Rockstar Games makers of Grand Theft Auto. Stock could be a buy due to a new critically successful franchise on their hands in Bioshock.

Ahead of the Curve: After I managed to find over $700 worth of test prep materials through torrents for a certain financial analyst exam, I wondered what's holding college students back? They love free shit! Textbooks are awfully expensive and most students are tech-savvy enough to figure out how to use BitComet. What's stopping someone from helping them? This would negatively effect the McGraw-Hill's of the world obviously.

Remember why you need to invest in the stock market. It is important for young people to understand that there is no better way to save, grow, and get rich than the stock market.

Back To Basics - Stock Operator vs. Warren

The world's richest investor and his famous line: "Be fearful when others are greedy, and be greedy when others are fearful." – Warren Buffett

The market right now is the epitome of what Buffett describes in this quote. For anyone who follows Buffett or the literature that is written about his philosophy could reason that "Mr. Market" is acting irrationally and offering many companies at cheaper with no regard for the underlying fundamentals. It is time to load up and buy the greatest companies now that they are selling far below fair value! So start buying! Right?

Confusing times in financial markets lately with the themes of corporate credit, the leveraging of risky mortgages, liquidity injections, and open-market fed operations. There are very few people who can really grasp these concepts and understand the broad implications of them. I am not one of those people and you probably are fooling yourself if you think you are. What I can understand is price. In my last post I advocated a short/neutral position until the trend reversed. Nothing has changed except for the loss of 2.1% of the value in the overall market. There is only money to be lost until the tape begins to turn green.

This is as fundamental to the analysis of the markets as Buffett's quote except Warren never tells investors how a market turns from fundamentally supported greed to a bear market. When does "fear" really set in? How do you sense fear in the markets? My next post will look into periods and reference technical indicators that show investors fear.

What To Look For..

The end of the day action this week was interesting with large moves in the last two hours of trading. Monday trended up with increased buying later in the day. Tuesday actually gapped slightly up showing signs of life but sold off hard close to the bell. Wednesday the market was a roller-coaster with a buzzer-beater pop that was caused by a trading error. Thursday was fairly stable but trended up at the end of the day.

The week ended with a free fall in the last two hours of trading. Each index shaved off over 1% causing the week to be in the red for all three. Next week look for more of the same and keep an eye on the charts. The trend is downward. It would be foolish to think that weak buy signals are a sign of a reversal. If the support that is currently being tested holds and the market rallies then the trend would reverse. Watch the RSI and MACD to confirm the upwards price movement. Until it does, and I don't think it will next week, there is only one side of the market I would want to be on. Look for the open to be higher Monday withstanding any market-moving news.

The volatility does provide traders with greater potential for gains, but also losses. In a market environment like this it is important to stay focused. When making a trade always determine a stop but possibly take into account the increased volatility. It is important to follow your support/resistance levels and as always stick to some risk management. Just because the market went against you and you lost money doesn't mean it owes it back to you. Be ready for the next move - don't be blinded by your emotion and desire for revenge.

"Learn to lose your opinions - not your money."

NCTY - The9 Limited

NCTY - The9 Limited - Company brings MMORPGs to China. Been following this company for past eight months and I can not think of too many stocks I would rather be in. My rationale is as follows:

THE FUNDAMENTALS, It is growth at a reasonable price. Look to Japan for an Asian culture where video games are a national pastime. Will it happen in China? Possibly, but even if it doesn't the growing middle class will have more and more disposable income. In addition, a legitimate well-paying job for the Chinese has been created through these games. Hardcore gamers and well-to-do casual gamers in countries with higher living standards have been increasingly paying for items in these games. These Chinese workers make their living by investing time in online games. (which of course brings value to NCTY, it has a Rockefeller™-esque market share) ERTS has $167m invested in them, why don't you? This leads me to speculate that investors may not have the chance to own The9 forever. With such a strong market niche and growth potential it would look good in many of the large internet service companies/game makers business portfolios.

ALSO, It is difficult to understand but some stocks just "trade" well. Pull up a six-month chart and the bollinger bands will tell you the story. Pull up a 5-day chart and you will see similar possibilities for short-term profits. It is not financially irresponsible to build a position in a stock you love while making small trades around the market's swings. For this strategy to work take a position (hopefully at a good entry point) , unload some of your position when it gets hot-take some $, and reload when it has lost it's way again. Using charts to determine levels to buy and sell is a good start but a valuation model probably isn't a bad idea either. Even though support/resistance can be misleading it will give you some control so you are not trading with your emotion only. For this strategy to make sense for anyone there must be a strong belief in the company's future. For NCTY I have strong belief the future looks bright.

Happy Bday

Today would have been Milton Freidman's 95th birthday. No person has ever been more influential to the concepts of free market economics. The work and life of Milton was to defend liberty and individual freedom. The world could use another voice of clarity like his right now, that's for sure.

"I start…from a belief in individual freedom and that derives fundamentally from a belief in the limitations of our knowledge, from a belief…that nobody can be sure that what he believes is right, is really right.…I’m an imperfect human being who cannot be certain of anything, so what position…involved the least intolerance on my part?…The most attractive position…is putting individual freedom first."

"It’s fortunate that the capitalist society is more productive, because if it were not it would never be tolerated. The bias against it is so great that…it’s got to have a five-to-one advantage in order to survive."

In all situations of life Milton has influenced me to encourage the freedom of choice and support the only thing I truly have control over. My own personal choices. Alright, I'm going to go ride a motorcycle with no helmet now.

"Hell hath no fury like a bureaucrat scorned."

Last Week Market Recap

People headed for the exit sign in the stock market last week. Factors widely acknowledged throughout the rise in stock prices such as the financial excesses in private equity, sub-prime loans/housing, and the global credit boom were generally reported as responsible. With no direct catalyst for Mr. Market to pick last week to slow gains I am curious if there is any reason or logic to be learned from the timing.

Two weeks ago investors had just as much information about the economy as they do now. Timing the market is an awful game to play (there are plenty of statistics that validate this but just trust me.. ) BUT the way the market fluctuates is important for all participants to take note of. Having followed since 2004 I have begun to sense what movement is coming next. I called the downturn in the market earlier this year several days prior. (At an investment club meeting-I made no money off of my hunch, which makes it pretty worthless.)

There is no way to explain the logic and no easy way to learn this "sense". My only thought is that through a combination of checking the averages daily, regularly feeling out general investor sentiments, knowing your history, watching the charts, and staying well-read you can have a better chance of knowing when a good entry point is. I know blah, blah, blah, do this and do that but no one said that it was easy. However, this "sense" is important for index investors as well as more active investors. You can never expect to be completely right but it's worth trying. The ebb and flow of human nature is reflected in the moods, beliefs, and emotions of investors. A greater understanding of human nature can help give meaning to the movements in financial markets.

What To Look For..

Build-A-Bear hired Lehman Brothers for "strategic consulting" a month ago. Thinking maybe SHLD, DIS, or JCP as potential takers for a buy-out. Regardless if the company gets taken out it has shown strength in December consistently.

Buying opportunities(?): BWLD, SBUX, SPWR

Why doesn't a cash cow like NBR pay out a dividend? They should look for inspiration in PCU (5.40% Yield)

StockCharts.com public chart lists are always a great source for ideas and inspiration based on technical analysis.

RIMM continues to go higher after that killer quarter. Check out the excellent review over at widely-read TechCrunch that compares the gorgeous new Blackberry 8820 w/ the iPhone.

SCHL a possible short soon now that Harry Potter series is over?

Cerner (CERN)

To get an idea of the type of investment CERN is consider the year to year growth rates:
Sales - 16%, 21%, 10%.
EPS - 32%, 22%, 18%
BVPS - 20%, 13%, 16%
ROE - has improved by 27.5% over this time period (2004-2007)

This company will have consistent earnings due to the contractual nature of the revenue stream. They have proven it over the past four quarters by exactly making EPS estimates twice and having a very small positive surprise in the other two. This is a long-term investment, that is priced correctly by the market at 26x next years earnings for the rate at which is growing. There is no reason that earnings would deviate greatly from estimates.

This stock should continue to provide investors with growth from a sector that has unquestionably high upside. It has proven itself to investors, is becoming more efficient, and is growing at a rate faster than the industry average. This is pretty much all you can ask for sometimes in industries in which you do not have an information edge.

The stock got sold off early today on some analysts CF concerns. Reads to me like noise. Sometimes you gotta take the lay-ups when you can get them. However, this is the rare lay-up that has the potential to double your investment many times over. The stock has done nothing but go up since 2003 with a 530% return since May '03.

Income Investing - Better than your CD

The closed end funds from Alpine have proven themselves to be incredible investments for the unsure, lazy, and current income focused investor. Which means they could find a home in pretty much any portfolio.

The primary selling point of the funds AOD and AGD is the high dividend which pays out monthly. The funds offer automatic reinvestment and yield around 10%. Even though they sell at a premium to the NAV this can be a positive thing for investors who can pick up a premium on the shares along with the 10% a year in dividends.

It's not worth your time to understand the dividend capture strategy they utilize just to understand the performance for a realtively safe investment. Why have your money in a savings, CD, or bond when this company has proven itself through AGD's performance and is offering a 10.8% yield in AOD.

250 shares automatically reinvested over five years at the current yield would be worth $12,118.67 at the end of the period.

You Are What You Think

"Human beings can alter their lives by altering their attitudes of mind" - William James

"All virtue lies in individual action, in inward energy, in self-determination. There is no moral worth in being swept away by a crowd even toward the best objective - William Channing

"Someday I hope to enjoy enough of what the world calls success so that someone will ask me, "What's the secret of it?" I shall say simply this: "I get up when I fall down."

“It is not the critic who counts; not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs and comes up short again and again; who know the great enthusiasms, the great devotions who spends himself in a worthy cause; who, at the best, knows in the end the triumph of high achievement, and who, at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those timid souls who knew neither victory or defeat.” - Theodore Roosevelt

And my favorite investment related quote:

“A bull market makes you feel smarter than you are the same way a bear market makes you feel dumber than you are. Feeling smart makes you do the opposite of what you should be doing." – Vitaliy Katsenelson

Welcome.

The dreams, goals, and desires of young people move at a faster pace than ever before. An intersection of capitalism’s drive to consume and the information ages instant gratification has turned our countries future leaders jaded and money hungry always on the look-out for their golden ticket. We know this to be true because we all see it every day.

The talking heads and authors who speak from an educational or inspirational stance offer us young people hope. That hope is that we can ride their coat tails and become wealthy “just like they did”. Unfortunately things change quicker than ever before and while some of us may one day be wealthy it most likely will not be because we did it “just like they did”. I am going to strive to be relevant to what is happening NOW not what worked or happened THEN.

This blog is for the aspiring wealthy. It is about personal finance, free enterprise, real estate, and the stock market.