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Newsletter Archives
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- Sure are glad we sold LEH stock pick for a loss. It went down another almost 8% yesterday. We recommend staying away from financial stocks right now. Banks, brokers, insurance, you name it. The fall out may be bad in certain types of bonds also. This is far from over. We are just seeing a few hedge funds going under, there will be more. The firings will also continue like at BSC. We know some of the financial names look attractive, but I have no idea what is lurking in their portfolios. Stay Away.
- We are recommending an average down on SAIA now. It is much undervalued and we will pick up more if it goes down further. Railroad and trucking companies are heavily owned by hedge funds and they are selling heavy right now, which is part of what is driving down the markets.
- It is amazing to see how vulnerable the markets are to a small increase in bid/ask ratio. This is buyers and sellers. Supply and Demand. Selling increases on any fear, and the markets tank. Not enough buyers of course. When the sellers are satisfied, it will return moving up.
- For the next few weeks our portfolio performance is likely to look bad, but everything is declining. But remember, in all of history the markets always come back.
- There are stocks that are moving up in this market, but they do not fit our strategy. Our strategy is predominantly holding stocks for the long term in good companies, getting out if they become overvalued, and then buying back in. Our screener helps us determine the entry/exit points. However, during correction times we go into predominantly hold mode with lots of buying. With room for 15 to 20 positions available in our portfolio we will quickly move to holding many more positions over the next 8 to 12 weeks.
- We see short term opportunities in stocks that are losing money, growing fast towards profit though, and are heavily speculative. We will have to save this for another service in the future. We have to stay true to our value vision.
- We may make additions to this newsletter tomorrow, so stay tuned, we are working overtime this weekend analyzing opportunities.
- 8/5/2007: We have found so many undervalued stock picks this weekend, but we need the markets to settle down first. More tomorrow.
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- So we took our first loss after 22 straight wins. Those of you that have been following us from the beggining are disappointed, I know. No portfolio is perfect, ever, and we stand by our record. We think that 22 for 23 is quite good, and the overall return, even with the loss, is extremely high.
- The problem is the unknown with Lehman in how much debt they are carrying related to the loan mess. Their earnings could be cut in half. It might not. No reason to risk half the value from here though with so many other buys shaping up.
- We are happy with all the other positions. We will be averaging down SAIA as soon as things settle. We have a ton of new ideas for positions also, but we need to see where the broader market is going. Test highs? Or lows?
- Best call is to sit in cash for a bit here before new stock picks.
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- Don't forget 22 winners in a row before reading the next line :)
- We may decide to sell the LEH position at our first loss! Ever. Part of disciplined investing is being willing to take a loss. Not a panic loss, but a well thought out reasoned loss. We will do that, maybe, on the next bounce. Since this will happen intraday, we will be sending out an intraday sell, so be ready. It is not definite, but there are going to be much better stocks to be in when the bulls come back. This is our reasoning. While we like LEH long term, but there are better stock tips on the return of the bull market.
- Today was nothing. Nothing. Meaningless. Don't be fooled. We have a long way to go. Ride the storm with us and you will not be sorry!
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- So, just what we said would happen, happened. More downside. We do not think it is over.
- A good hedging strategy is to buy QID. This is an ultrashort portfolio that is going to outperform in a down market and especially if this is an emerging bear market. Buy it at open tomorrow if you want a hedge. There are two strategies. Ride it out, or hedge. Up to you. Long term people should ride it out. More short term people will want to buy the hedge.
- We put together some data for you to consider in 6,7, and 8:
- In 6, this illustration is to show the recovery after a 22% crash.
- In 7 & 8 are the news during similar circumstances. This will allow you to see how things could potentially play out.
- http://www.thelimitorder.com/djia-1987.JPG
- http://www.thelimitorder.com/Atlanta-1989.htm
- http://www.thelimitorder.com/1987.htm
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- So the question is this the start of recovery or a bounce? We think a bounce with a re-test of lows. No idea how far the bounce will go though. There is no real way to know no matter who says they can.
- It seems that any bad news around real estate, sub-prime, M&A, CDO, LBO, you name it; sends the markets dropping fast. The increased fear potential is definitely there. Given that the financial bad news is certainly not complete, the potential for some big drops are still there. In fact, it is more than potential, it will probably happen. This is why we are waiting for new buys.
- Will this be as bad as the S&L crisis? Probably not. The bank crisis of 1990? Nope. Could it be, yes. We do not have enough data to determine how deep rooted this is and how far it could impact the markets.
- It all depends on the 'ripple' effect. If too many people default on their mortgages, after deliquencies, the impact could be widespread across financials. Not only impacting earnings and leading to layoffs, it could then ripple to their other lines of business such as credit risk aversion which could create a reduction in debt based M&A. This would then reduce liquidity in the marketplace driving the markets down as the sellers overwhelm the buyers. Yep, back to Econ 101. This is just 1 of many scenarios. Too early to tell. We are burning the midnight candles analyzing as much data as we can get our hands on.
- Finally, we are considering hedge for stock tips scenarios, but we are not quite there yet. An acceleration in any of the bad news in areas discussed above and we will be there.
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