Had the choice between Excel Maritime and SSO. I made the wrong choice. Ugh.

The Disciplined Investor #99

Andrew Horowitz is getting bullish for a 'dead cat bounce'. His guest from TrimTabs is about as bearish as you can be. Notes on TDI Podcast 99:

• This could be the start of a dead cat bounce
• If you look at the charts on TDI site there are some indicators that look severely oversold
• Wade in
• Dip your toes, not dive in
• A rally is inevitable, sooner or later
• Be careful. Be disciplined
• Clear that we are hitting a low point here
• However, the negativity can go on for a long period of time
• Doug Kass, who is very highly respected, is taking his foot off the pedal of the shorts and going long
• Bill Fleckenstein said he wouldn't invest in his own fund (Grizzly Short Fund)
• Declining volume on the selling
• At the end of the quarter, fund managers will rebalance to maintain their stock/bound ratios (e.g., they will move from cash to stock)
• Is it enough to spark a bear market rally? Its still a dead cat bounce remember.
• (TrimTabs) the market turns around generally when companies start buying back shares hand over fist, and they ain't doing that. They are doing the opposite.
  
• (TrimTabs) Incomes are plunging
• (TrimTabs) People are forced to sell stock to survive
• (TrimTabs) The fundamentals are horrible!
• (TrimTabs) 24 trillion in loans out there, and income is down hugely. Guess what can happen there?
  
• (TrimTabs) Several European countries will go bankrupt this year. Euro less than parity.
• (TrimTabs) FDIC has no money, they collect money and give it to the Treasury who spends it, giving them a note in return.
  
• (TrimTabs) Things are probably going to get worse before they get better
• (TrimTabs) Government stats are wrong, wrong, wrong. They use old data
• (TrimTabs) Obama's 'Save or Create' will do nothing essentially
• (TrimTabs) Prediction - S&P 500 could go to around 500
• (TrimTabs) Diary of a Stock Market Operator - moral: he got back in too soon
• (TrimTabs) Wait until companies start buying back shares and buying other companies for cash, thats the bottom. Until that happens, stay away!
• Watch the charts and indictors
• I like the 2 minute stochastics
• Short the double shorts
• Use the Edge Strategy
  

His charts are interesting. VIX (Volatility or Fear Index) is tightening.

Strategy for the week.

Wait a week and read everything about Excel Maritime. Figure out what the purchase price will be and what this company should be valued at.

Dvorak-Horowitz Unplugged #19

Columnist John C. Dvorak and money manager Andrew Horowitz were on the best damn podcast that isn't called No Agenda. Here are the quick highlights:

• The stock market is a wounded animal, do you want to be in the prescence of a wounded animal?
• The short squeeze will be like an immense puss filled zit popping
• The amount of negativity is amazing. Some companies are way oversold
• General Motors is dead (stock price 1.86, EPS -54)
• Autozone is at a 52-week high right now, people are fixing their own cars rather than buying new ones
• Home Depot, at 1:30 on a Thursday, the parking lot was overflowing
• Of any nuclear war, there will be survivors
• Riots in Russia
• Eastern Europe has been abandoned by Western Europe
• Trading movement is trending to the upside
• I'm not bullish yet ... but we're sneaking in and getting long
• Mutual funds have to rebalance at the end of a quarter, from bonds into stocks at the end of a quarter
• General technology has shown a lot of resilience
  
• Jacob's Engineering
• AECOM Technology
• Excel Maritime
• Baltic dry index has moved nicely off its lows, people are shipping
  
• Apple is overpriced, but the stores are still packed
• Berkshire Hathaway has very large positions in derivatives that are imploding right now

A short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock. Short squeezes result when short sellers cover their positions on a stock.

Just sitting on the sidelines, watching the market fall. Waiting for a signal. They say the stock market preceeds the economy by 6 months, and, well, does there look like there is any hope that things will be better 6 months from now? Mish seems to think that until these banks finally die, it will just be a long, slow decline. Let them die like it should in a real capitalist economy and then we go back to normal.

Elliot Waves

So both Andrew Horowitz and Mish Shedlock seem to be into this Elliot Wave Theory. Great, more chart reading. Well, I trust them I'm making a mental note to pursue learning about it.

Its 3 spurts up with two intermediate drops down, ratcheting to higher and higher levels. Except when the whole thing is reversed and its 3 down with 2 smaller up ticks. Ugh, I was just getting used to picking double heads or double tails in reading charts.

Mish Shedlock on The Disciplined Investor

Mish Shedlock predicted 40% down on Andrew's podcast back on Oct. 23. The DOW was 8690 back then. 40% down would be 6,200. We are at 6,800 now. So yeah, should have listened to Mish. Just based upon his blog, he really does keep a good finger on the pulse of the world economy.

He was on TDI again. He was pessamistic, and not making any more bold predictions.

• "I can see that technically, the S&P rallies at 600"
• "We could just drift lower for the next two years"
• "Its too late to short"
• "Nothing looks good"
• "Our strategies are market neutral, long some stuff, short some other stuff"
• "Very dangerous environment to start thinking about going long"
• "Very dangerous environment to start thinking about going short"
• "Its a great environment to just be sitting on the sidelines, watching and not caring, and thats what I recommend"
• "This is very scary times. I have not been this scared in my 25 years of experience"
• "Should I get out now? I don't know"
• "Looking ahead, I can see technically that the S&P rallies at 600 or something but thats just at fibonnaci support, theres no real technical support until at 450 if you look at the chart"
• "Technical support on the Dow is 4,500"
• "Hands up in the air very shortly. I am very fearful, if we don't see something tangible, people could be throwing their hands up in the air and it will be like October."
• "Hard to say, but I think more likely is that we just drift down to a bottom with a panic low in September or October coming up..
• "We could just drift lower for the next two years like Japan, interupted by brief rallies. That would be the worst case."
  

Andrew Horowitz noted that he is getting nervous shorting now, just because there is the possibility for a massive rally. Well, that would be really freaking nice right about now. During which point, sell stops get slapped on everything I own.

He also advised his friend Vlad to draw his trend lines, figure out support, then put sell stops slightly below where you think most people are going to get stopped out. i.e. give it a little bit of extra play room.

A sell stop activated on Boralex Power Fund and I exited with a 20-25% profit. Combined with my trust distributions I've got a big chunk to invest in now. Where the hell do I go now? Sangoma Technologies looks undervalued, I'll run it through Andrew's screens and see what it says.

Reading Andrew's book, I came across this table:

The PEG Ratio
The calculation: price/earnings (P/E) ratio divided by
expected per-share earnings growth over the next year.

0.5o or less - Strong Buy
0.50 to 0.75 - Buy
0.75 to 1.00 - Hold
1.00 to 1.25 - Possible Sell
1.25 to 1.75 - Consider Shorting
Over 1.75 - Short/Sell

Peter Lynch and Warren Buffett got screwed

Should I feel good about this, or bad because I bought a share of BRK.B recently?

From the Motley Fool:
"But in September 2008, Peter Lynch also had the ignominious honor of holding bothAIG (NYSE: AIG) and Fannie Mae (NYSE: FNM) in his personal portfolio -- as they dropped 82% and 76%, respectively, during that month alone."

Warren Buffet in the meantime:
The dumbest, he said, was buying a large amount of Conoco Phillips stock when oil prices were near their peak and in no way anticipating the dramatic drop in prices that subsequently occurred. Buffett said he still thinks the odds are good that oil will sell in the future at much higher prices than the $40 to $50 per barrel now prevailing. But even if prices should rise, he said, "the terrible timing" of the Conoco purchase has cost Berkshire several billion dollars.

A couple things, the prediction about higher oil prices mirrors what a wide assortment of other experts think. Pretty much the only guy I can think of who thinks otherwise is podcaster John C. Dvorak, who made one good bet by shorting oil at $135 a barrel.

Do I put a sell stop on Berkshire? Even though I'm down about $500, I think I better.

Sangoma

I bought $5,000 worth of Sangoma at $1.24. It was a KeyStone recommended stock. Like most of Keystone's picks, it got hammered even harder than the index and its currently languishing at $0.45.

Its trading within a well defined range, and it is a solid, profitable company. The problem with trading this thing back and forth is that the amount of money is no so low that commissions are now going to eat brutally into any profits I make.

Ugh.

Well, its a trading market, but I won't be too aggressive. I will put a trailing sell stop order on this turkey when it hits $0.50. They had a good first quarter earnings report, hopefully combined with Bernake shutting up for 5 minutes will lift this to the top end of its trading range.

The Brick Group

I like MoneySense Magazine. Its conservative. It's Canadian. It revers Warren Buffett and Benjamin Graham.

Last year they published a list of the top income trusts in Canada. I began buying these early in 2009. My picks included:

• Boralex Power Fund
• PennWest Energy Trust
• The Brick Group
• InnVest REIT

The Brick Group was the most interesting. I bought at 2.07 a share when it was paying well over 20% dividends. As it climbed up during the January market rally, I followed Andrew Horowitz's advice, use sell stops.

I was very aggressive, using a trailing 5% sell stop. This caused me to unload everything at 2.50. Then the stock climbed and climbed and climbed. Fairfax Financial was buying into The Brick big time.

The stock hit $3.00 a share and I was sad.

Then Brick decided to cut all distributions immediately.

Bloody hell! The stock plummeted to $1.30. I would have been killed if it were not for those stops. I expected a distribution cut of maybe 50%, not a blood bath of 100%.

Lessons here:

• Use sell stops
• Individual stocks are fucking risky. Maybe if I had a brain I would be using ETFs
  
• Fairfax Financial isn't as smart as I originally thought
• I hate the market

Reading

Here are the book's I've read and will be rereading soon:

1. The Warren Buffett Way
   
2. The Disciplined Investor
3. The Intelligent Investor (chapters 8 and 20)
4. Beating the Dow with Bonds

The trick with this will be writing everything down in a fashion that will serve as a checklist to review before buying a stock, and a way to review whether to buy or sell that stock in the future. (or put in a sell stop)


Here are the daily sites to read:

1. The Disciplined Investor
2. GuruFocus.com
3. globaleconomicanalysis.blogspot.com
   

A challenge appears

God I hate the stock market. But no more, time to make this thing my bitch. Time to figure out who has beaten the market, then become their disciples.

Warren Buffett - the classic. Problem is, Berkshire has been utterly clobbered recently. Just buying and holding it may not be enough. Also, as Andrew Horowitz points out, he is more of a business man, he has the leverage to do things normal investors cannot. And he can speak to the CEOs directly and they will listen.

Andrew Horowitz - aka, The Disciplined Investor. I like this guy for two reasons:

1. He's friend's with John C. Dvorak, of whom I am a great fan
2. He's made money during 2008

Horowitz offers many tips on how to prosper: hedging, short selling, and his own special voodoo called quanta-funda-techna. We are currently in a trading market, Mr. Horowitz may offer the best advice on how to profit from the market.


Mike Shedlock - aka, globaleconomicanalysis.blogspot.com. I like this guy for two reasons:

1. He's friend's with Andrew Horowitz
2. He's made money during 2008

I'm considering adding a fourth man to this group:

Michael O'Higgins - author of How to Beat the Dow with Bonds. He saw the crash coming and I presume positioned himself accordingly. I must get a copy of his book and learn what he knows. It is quite possible, however, that he could be a Peter Schiff type character, a person who say 2008 coming, but still suffered horrendous losses.

I'm off to read "The Disicplined Investor" and see what Mr. Horowitz has to each.