Wednesday, December 22, 2004


My criteria for a great day is "up 1% or more on assets". For many years, I read the "Prudent Speculator". It was a good letter with a good track record. Hulbert and others would take its ratings down a notch by making risk adjustments. The adjustments were possibly unfair in a couple of ways. Knowing when to use leverage requires knowledge and mental toughness and those who use leverage often do so against bigger, safer securities.

My favorite investment after ocean front beach property is US Treasury Bonds. However, I only buy Treasury Bonds when I believe long interest rates are too high! When I buy bonds, I buy them on margin. OH MY! LIONS AND TIGERS AND BEARS! Treasury bonds are backed by the full faith and credit of the US Government. How can anyone who has ever bought a house have a negative attitude about a person who uses bonds for collateral?

Often times I will review an investors accounts and find what initially appears to be a risk averse posture; loads of cash and short term notes. Then the stock portion turns out to be 50% or more in his company stock and another 25% in high flying "news-making" stocks. Finally it is amazing how many investors are holding on-to a mixture of losing positions waiting for redemption day. Mention margin to this guy and he is apt to join the chorus; OH MY! LIONS AND TIGERS AND BEARS!

I admit to being aggressive. I heavily over-weight sectors and buy on margin in certain family accounts. I buy and hold too many stocks but typically own more than one or two stocks in the same sector. Today was one of those great days. The assets went up more than 1% in value and the return on equity went up by about 2%. A 500% annualized rate.

A few days ago, I enjoyed several days when my top three positions were my top three gainers. Those were fun days. Today was different. My top 7 gainers were all stocks that were purchased in the past few weeks. Five of these were new positions. Two were old positions to which I added shares (average up often--average down seldom).

My top seven today were CAL, RNWK, PFE, DAL, ET, T and LVLT. Clearly CAL and DAL were bumped by the lower oil price but data suggest that revenue seat miles have finally turned, costs have been reduced and the risk of bankruptcy has been reduced. RNWK received the good news that Microsoft lost the Euro anti-trust case. PFE has bounced 12% in three days. One rarely gets the chance to buy a super stock at a discount to the market. Forget the bad news and buy the stock. ET is the leading money making discount broker, on-line mortgagor, integrated banker, internet stock. It will benefit and suffer from trading peaks and valleys but will prosper. My family has owned T all my life but I bought more recently. I also bought a few shares of Level Three recently. The volume of voice, data and video to be sent over telephone lines in the next several years is truly incredible. T and LVLT have the capacity in place to "haul the freight".

The best buys in the market are when you know something that others have heard but that they do not believe. The average person in the US has heard about picture phones, pocket computers, music down-loads and more. However, the average person does not really know or believe. Pocket communicating computers are about to change our way of living. In a few years, many people will do many things by pocket computer and wonder how they ever got along without them.

The majority of consumers may not have heard of VOIP or SKYPE. However, I know, without a doubt in my mind, that most consumers will send and receive volumes of voice mails, video voice mails, streaming video, music videos, sports shows and more over LVLT or T lines. I know that I can't even imagine half of the ways these devices will be used but I know they will be used.

LVLT is a high risk security. The company is currently spending more cash than it receives. This letter is written for the entertainment of the author and his readers. The author is an amateur private investor. Readers should do their own research or seek the advice of qualified professionals prior to investing in securities.