selling a bit into market strength

It's been an exciting few months in the stock market recently as long positions have done well. Following the run-up and run of buying I've decided to take a little bit off of the table given some uneven economic data along with international concerns like Isreal/Iran, and the always present Greece and significant economic slowing across Europe that I've heard discussed in several conference calls.

In addition I was just running out of interesting buy opportunities so I changed approach and raised some cash. (Most of my funds are in retirement accts so tax impacts don't come into play very often for me).

These are my first sells of 2012.

NEU - Newmarket was my largest position and it has continued to act weak following the conference call, so I liquidated. I actually expect to re-establish the position as mgmt characterized the slowdown they saw in Q4 as inventory drawdown, especially in Europe, and said it was not due to lost customers. They sell petroleum additives and there's only so long folks can go without re-ordering. But the stock currently is just short of buyers so I'll step aside for a while.

TEO - I took about half of my Telecom Argentina off the table. Again, I'll be glad to re-establish the position at lower prices, but it's just too weak in this market. The conference call for the company sounded excellent to me, so I gotta think the market is concerned more with international issues (seems like it reacts particularly negatively to bad news in Europe), and concern over Argentine regulatory issues the company may have to deal with. Sounds like alot of analysts are concerned the dividend may be in question due to Argentine govt influence. (TEO is traditionally a big dividend payer). This is still a long term hold for me, it's just smaller now than it was. Will re-buy more on pull-backs. All the metrics tell me this is still cheap.

CHL - China Mobile. Sold my full stake after watching it bounce around in a trading range for several years. It pays a very nice dividend also. I expect to repurchase should it fall back to the 47 range. The metrics look very good on this one. They may be getting the AAPL i-phone soon so might see upcoming bump, but it's near the top of it's range and I promised myself the next time it got here...

WFR - a small position betting on rebound of semi-equips/solar. while those areas in general have done well for me - WFR was the dog of the bunch and it may be too wounded and not the best vehicle to invest in this theme.

In selling I normally try to pair losers and there's a couple of recent buys in the material area I'm keeping an eye on (CLF and BBL in particular), but here are my larger position by size now.

LHCG - LHC Group - home health
SNDK - Sandisk - digital storage - flash drives
AFAM - Almost FAmily - home health
EBAY - eBay
TEF - Telefonica SA -
CLF - Cliffs Natural Resources - mining - iron ore in particular
DAR - Darling Intl - grease recycling
ASML - ASML HOlding - semi equips
HITK - Hi-TEch Pharmacal
VECO - Veeco Instruments - semi equips
TEO - Telecom ARgentina
BBL - BHP Billiton - diversified mining
.... and I'll stop there. the rest tend to be smallish positions, many more speculative small caps so I'll stop here.

Happy investing all

Distribution of Stock Price Movements

So maybe this will be a boring post, maybe not. I found it interesting as I'd tried to google information on this subject before and had been unable much that was useful.

My basic question was "what is the distribution of stock price movements?" (what % of the time do they go up, down, and by how much when they do?)

I didn't really feel like a "normal" distribution made sense as down moves "seem" larger and more violent than upward movements in stock prices. (A normal distribution is the normal "bell shaped" distribution we've all come to "assume" in many cases so we can use basic statistical tools such as standard deviations and allows us to constrain probabilities - example if a normal distribution applied we could assume 95% of price movements would fall within +or- 2 standard deviations of the mean of the distribution. This is particularly useful understanding risk).

Well, I was reading Jack Schwager's "The New Market Wizards" this morning - the chapter on trader William Eckhardt and the topic comes up, and when asked about statistics and stock price movements - and he is talking about only using "blunt statistical instruments" and says "I believe that price distributions are pathological." Ha. I kindof cracked up when I read it, but he goes on to talk about fractals and the problem seems to be that sample variance increases as data increases when you look at stock price movement. The more you look at, the more weird, unusual, unexpected moves you find... The implication of this being "it means that lurking somewhere out there are more extreme scenarios than you might imagine". This book came out in 1992, so the term "black swan" wasn't used then, but what he was talking about is the "black swan" concept that's so popular now after the financial collapse of 2008. Market outcomes that you think might be so highly improbable as to not exist might in reality be far more likely than we expect.

By now I've read alot of the stories of these traders in both "Market Wizards" and "The New Market Wizards" and one theme that they keep coming back to is cut your losses fast - and keep your risk small so that no one event can wipe you out. It seems the field is littered with traders who can make money for years but then "blow up" when they run into something unexpected and haven't properly respected risk. Assume risk is much larger than you expect it is, because how you manage risk makes the difference between surviving and getting wiped out.

Been adding back to my portfolio

I'd raised alot of cash a few months back, but now moved some of that back into the market recently.

This week I've added to or opened positions in the following stocks:

MSFT - Microsoft - back in again. I like the softy. It just looks cheap to me and I can't figure out why.
AAPL - aaahhhh! I broke down and bought the Apple too! First time for me, but it looks cheap too.
EBIX - Added some more back to my position today.
MDF - Metropolitan Health - I doubled up my position here. This is a deep value play for me.
MED - Medifast
DST - DST Systems

I've got my eye on a few others, but sticking my toe back in the market with these.

Revising Greenblatt's Magic Formula approach

I've been spending alot of time working on Joel Greenblatt's Magic Formula approach to stock selection, and thought I'd refine an initial model that I'd put together to help select investments. Over the past week I've spent almost every free waking hour away from work working on this new model (I say waking hour because I'd often fall asleep at my PC at night while building out the calcs). The new model was designed to take into account several more factors than the one he describes in his book. I added several variations of return on capital, a few more measurements on valuation, added an entire section on growth measurements, and added a couple of components on balance sheet strength and price strength.

Well, the new model is pretty much completed and I downloaded new data, sorted things, and .... despite all the changes I pretty much end up with the same list of stocks that the initial simplified model supplied. Maybe in slightly different order, but they're all there. Greenblatt's initial criteria of Ranking stocks based on Return on Capital and EBIT earnings yield seems to be pretty robust, even when supplemented with quite a bit of other types of similar desirable measurements.

Stocks at the top of the interest list are same as before: ARO Aeropostale, WDC Western Digital, TJX TJ Maxx, MRK Merck, BBY Best Buy, GD General Dynamics, and so forth for the bigger names.

I'm still digging around with some of the smaller company names, but overall I'm being presented with a similar set of companies as before.

I guess the next step in working with this is figuring out buy/sell points to make this an ongoing/workable approach.

Stock purchase activity

I had the day off work and spent some time working on my investments. I'd been doing a lot of work on a new investment method advocated by Joel Greenblatt called Magic Formula Investing. Greenblatt is the author of "The Little Book that Beats the Market" where he describes his quantitative value investing approach - an approach that suits me well since I like stock screens (from AAII Stock Investor software) and working with and modeling data in Excel.

Today I opened positions in quite a few companies that seem to score highly using a modified version of the Greenblatt methodology. I'm still not completely comfortable with what's going on, but there's nothing like having real money on the line to make me pay attention better and learn from the trades I do using this method. Greenblatt's methodology directs us toward some underperformers and many of these companies have well-known issues, but that's the kind of company that often scores well using Greenblatt's approach: it's often "hold your nose and buy" because he's found that stocks with issues are often undervalued (when they meet certain criteria).

Purchases today
INTC Intel - semiconductors
NE Noble Corp - oil drilling
GILD Gilead Sciences - Drugs
AZN Astrazeneca - Drugs
TXN Texas Instruments - semiconductors
ROST Ross Stores - retail apparel
GES Guess Inc - branded apparel
TEO Telecom Argentina - telecom

The most troublesome stocks to me are the drug companies because I don't understand the industry, patents and pipelines, so I'm just going with the approach on these so far. I also had a buy order in for MRK Merck today that didn't fill. I may end up getting MRK at a future date. There are tons of drug companies showing up on the screen right now, and I'm also currently in JNJ Johnson and Johnson. I'll watch and learn how to deal with Health Care stocks as things progress. The drug companies pay big dividends so I like that cushion with these stocks.

Normally I should exclude ADR's from the screens, but I often don't do that just to see where they fall in the rankings. That left foreign stock AZN in the mix for me, and also left TEO Telecom Argentina in there. I liked the return on capital they're getting, the growth rate, and the 7% dividend (albeit likely not sustainable) given the 100+% payout ratio. We'll see how this goes. (edit: I see the dividend yield was mis-stated. It's an irregular dividend - likely not more than 4% in practice, maybe less depending on if it's paid every year)

I've got my eye on several other retailers, but I started today with ROST Ross Stores and GES Guess. TJX TJ Max is one I'm looking at, as well as companies like COH Coach, BKE Buckle, ARO Aeropostale BIG Big Lots, PETS Petsmart, BBY Best Buy... and several others. My wife likes TJ Max so that may be the next one I go with.

In the Tech side of things I added INTC Intel and TXN Texas Instruments. I already had a pretty big position in MSFT Microsoft from a month or two back, and also have my eye on WDC Western Digital which I likely would've bought today if it hadn't have jumped abut 9% last Friday. WDC ranks well here too.

The last one to talk about here NE Noble Corp. They're a deep sea driller that's been hurt by the spill disaster in the Gulf. The other options I was looking at included DO Diamond Offshore and CEO CNOOC. The purchase in the energy segment was really done more in the spirit of diversification than anything else. I'm uncomfortable with capital intensive companies whose business can dry up /boom with uncontrollable moves in the price of oil.

In the end I'll plan to follow a rotation with these companies and keep updating the Greenblatt approach and changing stocks as appropriate. Most of these are in retirement accounts so I don't have capital gains to worry about.

My new hero: Peter Schiff

Whoa, I just saw a link to video from Peter Schiff on seekingalpha.com, an investing website with alot of great articles.

I'm going to have to read more about Peter Schiff but this guy called the economic mess we are in - and he put the other talking heads to shame. Watch this video of him on various news shows as he's literally laughed at by commentators and other guests when he warns about the coming mortgage crisis, banking collapse, and economic recession.

Peter Schiff is my new hero! Prepare to see who was clueless (utterly) - and consider whether you should listen to these guys ever again. They couldn't even imagine Peter Schiff's argument being accurate - to the degree that they dismissed him with laughs and giggles. It's scary how right Peter Schiff was and few others could see it.

Stocks - still cautious

The stock market's run-up has surprised me over the past month or so. I've been gradually raising cash along the way.

I recently cleared my largest position in CTSH Cognizant Tech - a company I'd been in for around 5 years. I've closed out a few other longer term holdings too, including HANS.

Today I closed out a short term swing trade in WalMart WMT. I was in for about 3 months, picked up a dividend along the way, and sold for about 7.5% net gain in total. So far I'm enjoying the opportunities to move in and out of positions in some of the big companies that just seem cheap to me.

While I'm still taking a very cautious stance on the economy and stock market, I still want to stay partially invested, so after looking over some options I'm thinking MSFT Microsoft will be on the buy list for tomorrow.

Large Caps look inexpensive

I've never in my investing life been a fan of big blue chip stocks - they've always looked expensive to me - until now. Add a nice dividend on top of a low earnings multiple on top of a financially strong company that's growing earnings and in this environment they look pretty good. I think I posted about Kimberly Clark KMB and PEP Pepsico. I recently also purchased WMT Wal-Mart and a couple days back added JNJ Johnson and Johnson.

There are others of those big blue chips on my radar too. I've decided to try to swing-trade some of these as they tend to oscillate - because my main interest at this point is preservation of capital at low risk while picking up income from dividend and/or small price moves.

Today I sold KMB and PEP for about maybe 5-7% gains each. Will keep each of these on the radar for re-entry points. I've never really done these longer term swing trades but there are alot of these big stable companies with dividend that seem to kindof oscillate a bit, and I really don't mind owning them - especially if I can pick up a few dividends in the process, while at the same time being in a decent % cash seems a decent low-risk alternative too while I wait for other buying opportunities.

Like I mentioned I moved into WMT Walmart and JNJ Johnson and Johnson recently, and am interested in Comcast CMCSA amoung some others depending on the price moves from week to week. The market seems to want to be manic and indecisive right now, and all my old growth screens aren't turning up much new of interest right now - so I'm trying something new.

As I work out how to value these big blue chip dividenders I think I'll have some interesting work ahead of me.

Stock update

It's interesting to me that there have been alot of upside earnings surprises out there. Many commentators are reporting the dichotomy between earnings reports and employment, and it is a bit confusing, but there have been several good earning reports from companies I track.

Of those I track and/or own that seem to have business going well for them: CTSH, EBIX, HANS, DECK, KMB.

I'm actually looking to add to the EBIX position again. I want to be careful and not get top heavy without the market validating reported results, but I feel like EBIX's results deserve upping the ante a bit.

KMB Kimberly-Clark has had a good run (I recently purchased this consumer staple company as a dividend stock and it's up nearly 10% since then - so I'm considering cashing out and waiting for a pullback as KMB has pretty much traded in the same price range for nearly a decade and I've more than made what I was expecting to get from the dividend in the first place.).

Other recent additions to the portfolio including PEP Pepsico and WMT WalMart. I may try a similar in-out on PEP like KMB as I bought it similarly for dividend and have more cap gain than dividend in short period. All of this is in retirement accts so no tax implications.

Anyhow, overall I've been pleasantly surprised with earnings so far, especially given such a pervasive bearish mood that seems out there.

Yet another reason to avoid big name stock recs

I know we've talked about this before, but just a reality check in case that memory has faded. This time it's Goldman-Sachs.

From this NYT article
"Goldman Sachs can’t seem to stay out of the news, and I keep thinking about the amazing first quarter they had. In case you missed it Goldman made money on its own trades every single day in the first quarter. Meanwhile in the real world, people who followed Goldman’s recommended top trades for 2010 lost money on seven of the nine recommended trades."

2 new dividend stocks

I didn't do much research on these, but I picked up a couple of dividend oriented stocks today: PEP Pepsico and KMB Kimberly-Clark. Again, not much research on either other than they seem to pass some screens and showed up in several articles trying to identify dependable dividend picks at reasonable prices. I simply did a quick look through a few of the companies and selected these.

The main goal here was to attempt to diversify my portfolio a bit away from the growth type stocks that dominate my portfolios, as well as make a little money at the same time via dividend since money markets are so lousy right now. Both companies have strong consumer brands, and Pepsico while a bit pricier still seems to have pretty good growth prospects.

I also had an order in for Comcast but that one didn't get filled.

Sold the rest of Garmin GRMN

I sold the rest of my Garmin GRMN position this morning. This is one of those stocks that looks so cheap to me on the metrics and their financial position is excellent, but I'm starting to buy into the idea that their business is trapped by new on-coming smartphone technology and they might not have a way out. I'm hesitant to write GRMN off because to me stand-alone navigation systems just seem so easy and make alot of sense, but the more I talk to fans of i-phones and google-phones I'm less sure of the future. I don't get really "get" what's going on here - but alot of people really seem to love their way expensive cell phone plans and - at least to me - "complicated" phones/multipurpose devices.

This is probably dangerous to me as one of my larger holdings at the moment is RIMM - makers of the Blackberry - and it looks very cheap to me also and growth is still there - but I'm keeping my eye open on it also.

I don't really have any other good ideas for where to put the proceeds right now, so I'll have to start some research for new companies.

Stocks

Though wary, I haven't totally given up on our capitalistic system. Even though stocks have been basically flat over the past decade and the past couple of years have been terrible, I'm still looking for places to invest.

I sold the eBay stock I purchased back in January - the first trade I've recorded a gain on in a while. Over the past several weeks I've also opened some new positions that I wanted to post.
DAKT - Daktronics - they make scoreboards and alot of digital signage
DECK - Deckers Outdoors - shoes of various varieties. This has been on my watchlist for a while.
EBIX - Ebix - software for insurance industry customer, insurers and agencies. This one has been on my watchlist for a long time.
GME - Gamestop - video game retailer. There's concern the industry may be changing away from a retailer based model to more web delivery of games, and it's brought this company's stock down considerably. Slower guidance going forward by mgmt also.
VSEC - VSE Corp - government contractor - particularly dept. of defense. I don't really understand all the stuff they do - it's a broad array of services - this pick is more based on the numbers and a strong historical trend.

A few more still near the top of the watchlist: FLR, FLIR, JEC, BUCY

Bought some ebay stock

Haven't had much to post about in a while, but wanted to mention that I have stuck my toe back in the market waters with a small purchase of ebay stock. There's so many beaten down stocks right now, but at 9X earnings for a powerful franchise I figured this is a chance to pick it up on the cheap. In addition to the main site, I'd noticed that ebay's paypal is becoming a common payment method on many websites all over the net - and it's my preferred method of online payments. I don't know much about the prospect for their online phone skype, but I liked ebay in the 20s, so at 13 I just wanted to open a small position.

We'll see how it goes.

couple new stocks

and when I got back from Chicago I learned a couple of my limit orders fired on Monday. I now have small positions in auction company Sotheby's (BID), and graphics card maker Nvidia (NVDA). Taking small bites only.

Stock Buy

I made my first trade in 2 or 3 months when I bought some PRXI Premier Exhibitions yesterday. They're a small company and it's a small buy for me. The specialize in museum-style exhibitions that travel from city to city - notably the Titanic exhibition and the controversial Bodies exhibition that shows disected human anatomy. Discover magazine did an article on the Bodies exhibition and I was amazed at some of the photos in the article.

The sourcing of the specimens from a Chinese teaching hospital is at the center of the controversy with the company. I think this is why stock is down along with high expenses in the most recent quarter.

From a business standpoint, I like the numbers a lot and can see continued growth in shows of this kind. ROE is at 27%, revenue growth is crazy, up to $61 million 2/08 vs. 6.9million at 2/09. The multilple on the stock is only PE of 12 right now. I guess companies like this have to continue to build interesting exhibits that will attract visitors - kindof like TV or movie companies, but it doesn't look particularly expensive right now.

I'm counting on their ability to reign in costs which are growing faster than revs and eating into profits in recent quarter. Their growth rate will help them, but they've gotta keep eye on profitability. From the recent transcript it sounds like they're experiencing some growth pains as they transition more company owned venues and increased/more professional staff.

Stocks

It's been a long depressing run for stocks - for at least the past 9 months or so. Despite losing money, I find I've been bored with investments over the past couple months, and I wonder if that means better things are ready to come?

I've noticed in the past that if I'm too interested in what's happening that it's not good. I wonder if being bored with events means the contrary?

I'm a little gun shy due to several picks I've made performing poorly in the downturn, but there are signs of life - or at least stabilization - in the kinds of stocks I like to invest in.

IT Services - Infosys conference call transcript

Obviously based on the large IT services exposure I have in companies like Cognizant CTSH and Infosys INFY, I like to keep track at what management is saying about business conditions.

A transcript of Infosys's recent conference call is here courtesy of Seeking Alpha.

I try not to read with rose-colored glasses, but the statements from Infosys indicate a solid outlook for the future. An area of concern with analysts is that some customer's budget process has been delayed due to macroeconomic concerns, but in the cases where budgeting decisions are final Infosys sees strong demand going into 2008, including in troubled sectors like banking. The ROI for IT services seems strong and companies seem to continue to be willing to spend more in that area.

I guess overall I'm not seeing stock price action in the group that is consistent with the business outlook provided by Infosys. I've been wrong on these stocks so far, but I'm going to stick with them - perhaps looking to add more.

Added to Garmin

Quick Note: I must be an idiot the way the market's behaving and concerns with consumer spending, but I added a bit to Garmin GRMN today.

Month end holdings

I figure it's time to update my holdings for Nov07. There's been alot of movement over the past couple of months that we talked about, and I've been deploying alot of free cash into stocks over this time.

Here's where I'm at now - from largest to smallest holdings
CTSH Cognizant Tech - IT consulting/services, India. Loaded for bear in this position - by far my largest holding.
GRMN Garmin - GPS maker
VDSI Vasco Data Security - data transactional security (paying for stuff electronically) - primarily customers are banks
INFY Infosys - large Indian IT consulting/services.
TRAD Tradestation - online brokerage
LIFC Lifecell - tissue products (like growing skin for burn patients.)
ASFI Asta Funding - a collections company (example: purchase bad debt from credit card companies and try to collect).
HANS Hanson Natural - Energy Drinks
NTRI Nutrisystem - weight loss program/food
BLUD Immucor - blood tests
MLR Miller Industries - Tow Trucks

Anyhow, that's what I'm in now. Obviously I have more confidence in the larger positions than the smaller. Another that I'm looking at now is QCOM Qualcom, but I haven't opened a position there