Friday, May 27, 2005

Bill Cara: Capital Markets & Social Equity

Bill Cara: Capital Markets & Social Equity

On May 16, Jim Cramer did one of his (becoming famous) 180's and said he would no longer recommend oil stocks. Bill Cara said he would take the other side of the trade and buy oil stocks. Today, Bill has posted the recent move in energy stocks.

On May 17, I said I would not take either side of the energy trade but would keep buying value stocks. I have been buying stocks that offer high sales per share. One group in particular has been the airline stocks.

The bottom line is that I have been having even more fun than Bill (without doing a detailed analysis, it seems that Cramer has hit some good stocks but has also churned in and out of a lot of stocks with only a small profit or a small loss). My families most aggressive account has experienced several days of net new high gains. Yesterday was a very sweet day as our equity jumped more than 4%! When you are already sitting on net highs, it is fun to have another strong up day. The excitement comes with our belief that the airlines are just beginning a long-term move.

One of our fundamental beliefs is that investors should keep their costs low. One way to do so is to trade infrequently. In addition to lowering brokerage fees, one can hold for long-term gains to cut the tax burden by better than half (one can deduct up to $3,000 in net short-term losses each year).

Bill may have won his 10 day bet with Cramer in one sense but the oils have not been the top performing group during this time. Yesterday, the average airline stock was up 4.76% in one day! Even better, the gains made will not be taxed for probably 4 more years and even then at half the short-term rate.

The price of oil is up again today, but how long will it last? The reason Buffett purchase a power company is because electricity is going to be used indirectly to power automobiles. The continues to use more and more coal and less and less oil. Airlines are going to raise ticket prices to more than off-set the price of oil!