Friday, July 29, 2005

Skype Journal: SkypeOut gets cheaper....

Skype Journal: SkypeOut gets cheaper....

Free computer to computer calls and land line international calls for only 2 cent per minute. SBC, VZ, BLS had better watch out!

BUY THE BULL! POCKET COMPUTER PHONES ARE GOING TO BE VERY POPULAR VERY SOON!

Major Reform of Telecom Act Proposed

Major Reform of Telecom Act Proposed

The above is a link to an article about telecom deregulation. There are several key points. On the one hand, the telephone companies lose because VoIP is encouraged. On the other hand, the cable companies lose because the cable companies lose the exclusive franchises to offer video. On both hands the consumer wins!

The cost of telephone and cable service will go down and the level of services offered will go up! The promise of cable TV 30 years ago was a reduction in advertisement. This will be another blessing--consumers will have more control over what advertising to watch.

Fox is the latest large player to start restructuring for the new environment. Of course Comcast has been preparing right along with the other big players.

The other winners will be the equipment companies. Companies such as Motorola, TIVO and Scientific Atlantic who make set-top boxes will sell a lot of new sophisticated "boxes". The debate has raged about the new media center computer. The question has been will it be a box or a full blown computer that controls the media. Both sides have good arguments. Because the content owners want to be careful not to have video go the way of songs, the first winners will be the set-top box providers. Later, I believe the boxes will communicate so well with computers that they will be indistinguishable from computers.

The bottom line is that the promise of the internet to revolutionize the entertainment industry is about to happen. During the great gold rush, it was the pick and shovel sellers who made out like bandits. MOT, JNPR, TXN and other manufacturers should do well in these years of change.

BUY THE BULL! WE ARE INTO THE SECOND HALF OF THE GROWTH PHASE OF THE INTERNET AND WIRELESS INOVATIONS. THIS PHASE SHOULD LAST ABOUT 4 YEARS. MAKE SOME MONEY WHILE YOU CAN!

JUMPING ON JNPR!

The telecommunications market is hot.

I assist a number of folks with their accounts. In them, we hold stocks such as MOT, FON, TXN, GLW, NXTL, QCOM, AMX, and LU. The least profitable of these is LU and we have better than a 100% gain in the past 2.5 years. We have purchased a few others. A couple such as AWE were bought out at more than 100% gains and a few, such as CSCO and LVLT were sold at small losses. NT was sold at a substantial gainer but we should have sold when it ran too far too fast.

Today we jumped on Juniper Networks or JNPR. JNPR provides internet network connections equipment. During the bubble of the 90's, this was one of the high fliers as was GLW. We could have added to our GLW position but it is always prudent to spread your capital around in these volatile businesses.

We all know reform is needed in the area of cable TV service. We know that VZ, SBC, BLS and others are spending billions in preparation to compete with the cable companies. My common and recent experience with Time Warner makes me hunger for an alternative provider. I am not saying that I will switch. I am saying that the cable company monopolies lead to poor service at high costs.

A bill was recently introduced in congress to deregulate the industry. It is very late in the legislative year. It is hard to tell what priority this bill will be given. One would normally be pessimistic about the chances except that the congress is on a roll. CAFTA was passed with a two vote margin, the energy bill and highway bill both passed after 4 years of wrangling. It is clear that our congressional representatives do not want to be painted as a "do nothing congress" before the next elections. There is even a slim chance that congress will pass Social Security reform after the August (6 week) recess. Of course a lot of time will be spent on the Supreme Court vacancy.

Regardless of the bill in congress, the need for telecom equipment is clear. The growth over the next several years is going to be huge. In a few years, the average citizen will wonder how he ever got along without having his pc in his pocket! All of these wireless connections have to be "connected and routed". We are talking about sophisticated science when communications are sent over electrical waves and light waves and switched numerous times from Bangladesh to Maine in an instant. GLW is one of our favorite stocks partly because it holds a number of fibre optic patents.

As my daughter reported in her blog last week, our family purchased computers before DOS was invented. We owned computers that had virtually no memory. To look through a file of names we had to insert floppy disk after floppy disk. My children learned to type and to play games on Digital Research Software. The point is that the early computers were not connected to one another and were not productive. People spent a lot of money and wasted a lot of time learning how to use them. When Visicalc was written, users finally had a spread-sheet program that could actually save the user time and effort. The usefulness grew when email was invented. At first, even dial up connections were difficult to make. The mosaic browser and gopher networks added functionality. The development of the World Wide Web was a watershed event.

In the same way that computers became much more valuable after they were connected by the internet, the pocket PC is going to gain value when it is commonly connected via the wireless internet. The next several years will see the adoption by millions of wireless internet devices.

We like MOT, FON, TXN, GLW, AMX, QCOM and LU and we have added a position in JNPR. On Kramer and Co. Tell Labs, Dycom Industries, MRVC, JDSU, EWY and IWZ were all recommended yesterday. Cisco has continued to buy small companies to expand its dominance. Of course the EFT's, EWY and IWZ are the conservative ways to play the field.

Those of you who hide in mutual funds do not know what you are missing in individual stocks. You can save yourself a tremendous amount of money by avoiding the hidden fees and have the joy of seeing your winners take off. Buying individual stocks will mean that you hit some losers along the way. No big deal, hit the sell button. Weeding the garden is an important part of managing a portfolio. A friend of mine likes to buy and hold. One look at the portfolio tells the whole story. There are some good stocks in it but there is also a lot of dead weight. It would be an advantage to sell the losers for the tax loss and add more lively positions.

Investors who are not willing to weed the garden and to perform other logical management functions, should allow a knowledgeable investor to help. One should not be forced into mutual funds or other high cost accounts to avoid the minor headaches of managing an account.

In any event, BUY THE BULL! It is clear that growth is going to occur and that the big established companies are going to keep or expand their market share. Little guys will continue to be bought out but other little guys will simply lose out. The same bet now is on the large established telecom companies.

The above is not a recommendation for the large mainline phone companies; SBC, VZ or BLS. These companies pay large dividends. However they are having to invest heavily to do battle with the cable companies. They are growing their cell phone businesses but their main line phone business is over priced and getting eaten up by new technology. The reason I like FON so much is because it has chosen not to battle for the main line business. FON is willing to partner with cable companies to gain the connection to the home. The cable companies need a cell phone service provider. It seems unlikely that the cable companies would build or buy a cell phone provider. T-Mobile is certainly a possibility as are several regional providers but FON is offering attractive terms for a partnership.

BUY THE TELECOM BULL! THE WORLD IS CHANGING. YOU ARE GOING TO OWN A WIRELESS POCKET COMPUTER. YOU MIGHT AS WELL OWN SHARES IN THE MAKER OR SERVICE PROVIDER.

Thursday, July 28, 2005

OIL AND CRAMER VERSUS TECH!

I have been listening to Jim Cramer shout about oil stocks. He suggest that XON and Royal Dutch be sold. These are perfect stocks for the person who wants solid returns with relatively low risk. Cramer wants investors to replace them with oil drillers; very speculative businesses.

I have no problem buying oil drillers but speculators should consider buying tech stocks. The sector cycle typically rotates as follows: consumer discretion, technology, industrials, materials, energy, consumer staples, health care utilities and financials. We have been through the cycles since the recession, experienced a mid recovery slow down and are now working our way back through the cycle.

Note the recent move in GM, Best Buy and other consumer discretion stocks and the huge recent moves in telecom equipment stocks. These stocks typically do well immediately after a recession. The expansion is under way. Companies are buying equipment again.

The truth is that now is not a great time to focus on S&P sectors as it is to recognize that large growth stocks will do well. MSFT is finally going to grow rapidly again. The upgrade cycle is upon us. Businesses will need to raise wages and benefits to attract employees. Cramer was onto a nice trade a couple of nights ago when he talked about laser eye surgery stocks. Companies will add eye surgery at little net cost. Eye surgery is a one time absence from work where as eye glasses consume hours of time year after year.

The bottom line is that in a BULL MARKET almost every thing works. However, one should move away from international and small stocks and invest in big US growth companies. The big companies will continue to buy out the small companies so you may get lucky buying certain small fries but the big companies will gain share and make big money in the expansion.

Betting on the price of oil is a 50/50 guess. The strong economy may keep the price high but will it drive the price higher still? Will supply start to catch up? The passage of the energy bill says yes! The passage says give companies time and they will replace natural gas and oil with electricity in many situations.

Betting on growth stocks is better than 50/50. The infrastructure is being put in place to save consumers and business much time. The new computers will require new software. There are many good plays that are not being talked about on the TV shows. Run a few screens and you can find many good stocks selling at low prices.

BUY THE BULL!

SPORT CHALET

Sport Chalet, Inc. operates specialty sporting goods superstores in Southern California and Nevada. The Company sells traditional sporting goods merchandise like footwear, apparel and other general athletic products and nontraditional merchandise like downhill skiing, mountaineering and SCUBA products. In addition, Sport Chalet also offers value-added services from “The Experts” enabling their serious sports enthusiast customers to take lessons, giving them a complete experience from getting advice to receiving training in their sport. In addition, they operate a retail e-commerce store at http://www.sportchalet.com/

Their legacy started on April 1, 1959, when a young man named Norbert Olberz heard about a little ski shop for sale. It was located north of Los Angeles. In 1981, Norbert doubled the size of his Company by opening a store in Huntington Beach and began to build a loyal following of beach customers.

In 1992, Sport Chalet went public, trading on the NASDAQ Stock Market under (SPCH). In 2001, Sport Chalet expanded beyond Southern California for the first time, entering Nevada. In 2003, Sport Chalet opened stores in Northern California. Today they have 36 stores and are continuing to expand.

In June 1998, six years after gong public, the founder of Sport Chalet, Norbert Olberz gave nearly 300,000 of his own Sport Chalet shares to all employees who had been with the company for more than 10 years and managers with more than one year of company loyalty in celebration of its most profitable year in sales and gross profits.

Trading on July 28th @ $17.05. 48% higher than their 52-wk low (11/3/2004): $11.51. Their 52-wk high (6/29/2005):$19.50

Their goals for 2005 are to leverage the investments they have made to intelligently grow. This year they expand into Northern California with three new stores. Their first Central California store will open and they will add another Southern California location. These five new store openings will set a record for new store growth.

Remodeling older stores will give them 44% of their store base being three years old or less. Their employees have been challenged to work more closely together than ever before to improve their logistics processes, bringing in merchandise to market even faster yet at a lower cost and making sure every item is received in their stores in "floor-ready" condition.

Are they on the right financial track? On June 28, 2005 Sport Chalet, Inc. announced the results for its fiscal year ending March 31, 2005. Sales increased 17.0%, from $264.2 million last year to $309.1 million this year. The increase was the result of opening five new stores this year and three last year, as well as a same store sales increase of 5.7%.

The same store sales increase is due to better inventory assortments compared to the same period last year and increased customer traffic from the appeal of winter related merchandise. Sales of winter related merchandise were driven by record winter weather conditions at the resorts frequented by their customers. Same store sales excluding winter related products increased 4.7%.

Gross profit margin increased from 30.3% last year to 30.9% this year primarily due to a strong winter season, which reduced the need for markdowns as well as reduced costs from more efficient inbound logistics.

Net income increased $1.5 million, or 32.9%, from $4.6 million to $6.2 million this year.

Commenting on the results, Craig Levra, Chairman and CEO said, "Our outstanding results for the fiscal year reflect the consistent and effective execution of our strategic plan. The entire Sport Chalet team contributed to a very successful year during which we made strides in both enhancing our operational performance and implementing our growth plans. As we expand into Arizona in the new fiscal year, we believe we are well positioned for continued strong performance.

“As we announced in a separate release today, the Company’s board of directors has proposed a recapitalization plan that is designed to facilitate the orderly transition of control from Norbert Olberz, the principal stockholder, to the Company’s management and increase financial flexibility for the Company and its stockholders. The proposed recapitalization plan retains current stockholders’ existing voting interests and allows management to maintain our strong culture and continue to focus on our growth strategy. Overall, we are pleased with our results for fiscal 2005 and encouraged about the direction of our business. We remain committed to our strategy to generate long-term top and bottom line growth and increase stockholder value.”

Being debt free for the last seven years, this forty-five year old sports company seems to have a feel for their customers and what they want. Can Sports Chalet successfully have a “changing of the guard”, add new stores and still be a climber in this Bull Market?

COMMUNICATIONS PORTALS COMING!

Google, Yahoo, MSN and AOL to name the most important players are all preparing to be communication portals. In other words, instant messaging is about to morph into a voice, data communications home base.

It is going to be very interesting to see who buys Skype. Skype has 42 million registered users. It is the plumb of plumbs in this area. Yahoo recently purchased Dial-Pad which has been a VoIP provider for many years. I suspect Yahoo is still willing to bid on Skype.

Companies such as Comcast and Sprint are working together to make VoIP and cellular seamless. Who knows, maybe Comcast will be the big bidder for Skype which has also made moves to become "mobile". Can you imagine the traffic when kids can play video games and carry on conversations wirelessly from any location for no additional costs--no wonder GLW keeps trading higher and higher.

Google's home portal is now an RSS reader! Gmail also accepts RSS feeds. This means that if you have a favorite news source, you can have updates feed to your home page automatically. It also means the days of the home delivery news paper are numbered. It means the day is coming when consumers will look at one screen to see who has called, who has left voice mail, who has sent email, who has made the news and much more. Voice activation is the next huge step to taking the pocket computer to the next level and changing our lives in ways we cannot understand.

Google is not the only firm to recognize that digital storage space is virtually free. Promise.tv is a personal video recorder similar to Tivo. The big difference is that it records all your TV channels so that you can watch anything at anytime! This sounds so much easier than the Tivo approach of allowing you to burn any shows you record to DVD so that you can take them anywhere. In the long run, the methods will merge such that you really can watch what you want when you want and where you want. Radio anywhere has been available for a long time but the big difference coming is personalized TV and radio anywhere.

One of the many mistakes I made during the past three years was to never double up on my AMX position. The stock is up 275% since we purchased (note the 3 for 1 stock split) and we never purchased another share. It is not too late to buy this one but I really like FON. Using Cramer's term, FON is the best of breed by far. I know! Yes, I know! Sprint does not have the best coverage in the world and a friend had a billing problem and you have heard that xyz is the best cell phone company.

Sprint is the pure play in the US. When you buy SBC or VZ, you are making a bet on their success in the TV business as much as anything else. When you buy FON you are betting that the growth in cell phone business is going to continue. The part of SBC or VZ that are growing the fastest is the cellular phone business. FON is the one who has said it does not want to be in the land line business but would rather partner with the cable companies for connections to the home. The strategy is right on.

Communication portals are coming--Google, Yahoo, MSN and AOL but how are they going to go wireless? FON could be the biggest winner of all in this game.

BUY THE BULL! AS HARRY DENT HAS POINTED OUT, THE PEOPLE WHO BOUGHT GM 7 YEARS AFTER FORD INVENTED THE PRODUCTION LINE MADE 22 TIMES THEIR MONEY IN THE NEXT 8 YEARS! FON DID NOT INVENT THE CELL PHONE BUT IT SURE IS POSITIONED TO SELL A LOT OF SERVICE!

NET NEW HIGHS?

A reader has asked how I was able to start talking about net new highs a couple of months before the S&P reached net new highs. The answer is simple--good stock selection!

As a general rule, I avoid mutual funds but one of the funds I purchased for a friend last year, TEMFX, an international fund, is up 19% while the S&P is up 13% year over year. My stocks, on average have done much better. In the past 12 months, here are a few of my good selections and the percentage change for the year (not including any dividends paid): FON 39%, GLW 59%, GT 65%, UNH 70%, AMTD 80%, GOOG 200%.

Did all of my stocks do so well? No! I purchased Kellogg for a conservative account and it was up 8% (plus a nice dividend). I owned EBAY that dropped dramatically at one point but is currently down 10% year over year. Lost in this number is the fact that I doubled up the position while the stock was down and actually have a large gain here as well. AMZN was down as much as 18% during the year and I never pulled the trigger to buy more. Never-the-less it is now up 12% for the year.

Note that I have not mentioned airlines. The reason is that I bought most of them in the last 3 to 5 months. The returns have been on average wonderful even though I have down positions in NWAC and DAL. Being down 10% in these is more than offset by being up in the larger positions of CAL, AMR and AWA. These three are up 55%, 65% and 84% respectively.

Yes! This is a fun market! Net new highs are always nice! They are especially nice to have when the second half of the tech boom has just started. The market will not go straight up from here but it will go up over time. A couple of prognosticators whom I respect have indicated that the market may pull back now that the BUSH ROLL will be temporarily suspended.

Yes! President Bush is on a roll! Energy reform is about to pass, the high way bill is about to pass, the budget deficit is dropping like a rock as revenues are surprising everyone, the democrats are fighting old battles and losing them badly. Bill Frist was so bold to bring up gun manufacturing liability reform this week. The cost to consumers are ready to decline due to tort reforms and deregulation. The energy bill throws out antiquated laws passed during the depression and a telecom bill was introduced yesterday that would do the same for communications. Inflation keeps getting hit up side the head with the reduction in costs. The probability of a more conservative supreme court is already built into the market--keeping inflation expectations and bond rates low.

The American economy is sitting pretty; high growth, low inflation, high productivity and an FOMC chairman that is doing his job. A few weeks ago, pundits screamed that Greenspan was bringing on a recession. Today some of the same folks are amazed at the growth in the tech sector. Greenspan is shooting at a moving target and he may eventually miss as he has done in the past--so far this cycle he has been winning every turkey shoot on the circuit.

Yes! The folks who take my advice had net new highs two months ago and have since seen serious increases in account values. We do not think the move is over. The innovation cycle is largely over but over the next few years more and more businesses and consumers will use wireless equipment to save a tremendous amount of time and money. Investors have a rare opportunity to take advantage of an innovation that is as significant as the printing press invention of about 500 years ago!

BUY THE BULL! THE CURRENT SITUATION IS SIMILAR TO THE YEARS OF 1995 TO 1998 WHEN LARGE CAP GROWTH STOCKS OUT PERFORMED OTHER SECTORS. IT WAS ONLY AFTER YEARS OF OUT PERFORMANCE BY THE BIG CAPS THAT THE BUBBLE OF 1999 AND 2000 EMERGED. BUY NOW--DON'T WAIT FOR THE BUBBLE. (BY THE WAY, FOREIGN STOCKS, BONDS AND SMALL CAPS DID RELATIVELY POORLY DURING 1995 THROUGH 1998--DIVERSIFY BUT DON'T HOLD LOSING SECTORS JUST TO BE DEVERSIFIED).

My sources include The Callan Periodic Table of Investment Returns produced by Callan Associates and The Next Great Bubble Boom by Harry S. Dent.

SLOWER BLOGGING AHEAD!

I have yelled and screamed to BUY THE BULL long enough. I started my email newsletter in September of 2002 because I was a raging Bull and I wanted others to follow my lead and make serious money. Those who followed have done extremely well.

Recently I have spent less time blogging. I have a lot on my plate. I must spend more time closing down my business, selling my house and preparing for retirement. I also intend to spend a few months preparing for and taking the certified financial planning exam. After a life-time of investing, I am confident that I can complete the course work quickly and pass the exam. When I studied at Merrill Lynch 23 years ago, I was one of few to pass the rigorous brokerage exam at the first opportunity with only 2 months preparation. Many folks have taken cram courses for 6 months or more and still failed on the second and third attempts. Ironically the background knowledge needed to pass the exam has little to do with successful investing.

Back to the point about the BULL. Many folks have lost focus. If it is not the housing bubble it is the terrorist. If it is not inflation brought on by oil and commodities it is the obvious deflation predicted by the bond market yield curve. The reality has been and continues to be that the US has gone through a metamorphoses since Ronald Reagan took office. The result has been open markets that have lowered our costs and increased productivity. Productivity is another term for wealth creation. Standards of living have increased dramatically; especially in our new trading partners.

We are now in an information revolution. The seeds of this revolution were started in the early 1980's. The next few years we will see the bulk of the benefits. All of us will win! Consumers are reaping the benefits in expanded services at lower costs. Smart investors have made fortunes already and bigger gains are ahead.

Two positions to which I have added shares in recent days were TXN and FON. Many folks are chasing small cap stocks at the wrong point in the business cycle. For the most part, the innovation cycle is over. Sure, Google and others will come up with new applications for the internet, but for the most part the wireless internet is going to be built out on platforms already in existence. TXN and FON have leading positions in this market that will expand rapidly for years to come. MOT, INTC, CSCO and QCOM are other big companies that are leading the way to wireless broadband internet.

Should one review the path of FON over the years, one can see that the company caught on early. It must have been more that 20 years ago when the company sold off its analog cell phone business and went all digital. In the near future, after the merger with NXTL, the company will spin off its land line phone business. At that point the company will be totally focused on the fastest growing part of the telecommunications business which is wireless communication. The link ups the company is making with the cable TV providers will be important profit drivers for years to come.

Many folks have been surprised by the great earnings of AMZN. However, many of those same folks will soon be driving down the road when they order goods from AMZN. Better still, they may be standing in the middle of a department store when they compare price and decide to order through AMZN. The customers will be using a portable device made by MOT out of TXN parts connected via FON. When the customer is at home the same portable device will be connected through his cable TV wireless router. Best Buy and many other retailers will do well but many customers will check prices and buy through AMZN.

I can't remember the author but a recent article in a major publication told how the big gains are being made by services that save people time. A growing percentage of the population is willing to pay more for a product or service if it saves them time. Yes, the brick and mortar businesses are growing their online sales at a fast pace but AMZN still has a great future.

NFLX just had an explosive quarter. It is amazing that the company has withstood the onslaught of Wal-Mart and Blockbuster and is the WINNER! The company has become the EBAY of the movie rental business--the most available titles and captured preferences that make users not want to change companies. Blockbuster cut the price dramatically but the loyal NFLX customers didn't move. The movie owners (companies like TWX and Sony) must eventually allow movie down-loads over the internet. NFLX will offer a few titles later this year. The loyal customer base will prefer NFLX down-loads versus VOD services from cable companies.

The other thing about NFLX is that it learns what its customers wants and provides it. The recent innovation is counter intuitive but a super success. The company has offered lower cost price plans that only permit one or two movies out at a time. The churn rate is very small on these plans because the consumers do not feel they must see a lot of movies to get their monies worth. If a customer is paying less than $10 a month, he is likely to leave the monthly draft in place even if he knows that he will vacation the month of August and not view any movies. He feels he will make up the difference in the winter when he might view 8 movies for $10.

I will write several more blogs today if I can but again, it is up to you to climb on board this BULL MARKET. I have recently discovered that several of my most loyal readers have improved their investment performance by taking some of my suggestions but they have continued to leave a lot of money on the table. I think part of the problem is that the idea of diversifying has been drilled into the heads of investors to the point that they stay in losing investments in order to stay diversified!

For example, I believe in owning small stocks over the long-term but during the current phase of the business cycle I expect large stocks to do better. Therefore, I have purchased mostly big cap stocks. As another example, I recently encouraged a couple of readers to sell residential and resort real estate properties but to add commercial real estate. One reader questioned the idea of buying real estate "during an real estate bubble". This attitude shows how easy it is to get caught-up in the "phrase of the day".

Last week INTC announced a $3 billion dollar plant in Arizona and in my own community we are watching a huge Dell plant being constructed. Folks we are in the expansion phase of the economic cycle. In this phase, factories will be built and jobs will be added. The strength of the economy will push up interest rates to a level that will make houses more expensive to buy. This does not mean that housing prices are about to drop! To the contrary, housing values will go up as payrolls are increased by new workers and raises for existing workers. It is a matter of relative performance. Commercial real estate does not require low interest rates! If Dell sees that it is about to sell billions of new computers, it will build a new factory even if it has to take out a 10% mortgage. The owner of commercial real estate will be more likely to be able to raise rents than will owners of residential real estate. Also the rent rates on residential properties are at historical lows. Why buy residential when it yields 3% if you can buy commercial that yields 8%? 8% is pretty low but if your cost of funds is 6% then the total return can be quite decent--especially if you escalate the rents over time.

If INTC, Dell and GLW are all building new factories and MSFT is about to release software that will make every computer in America obsolete is there any doubt that we are about to enter a major upgrade cycle? Come on! Investing for profit does not take the brains of a rocket scientist. It only takes an attitude of being willing to put your money where you know the odds are good.

Some will tell you that the odds are better at black jack or craps than on the lottery. They are right but the odds are still against you. The odds for long term investors in several stocks are overwhelmingly positive. You simply should not wait until stocks have reached high prices before you buy. Even if you buy at the highest price you will still make money if you continue to buy more. Use income streams to reinvest all the time. With stock earnings yields far above the yields on bonds and real estate, now it the time to add to your stock holdings!

BUY THE BULL! IF YOU ARE A CHICKEN WITH LOTS OF MONEY ON THE SIDELINES, ADD A MIXTURE OF LOW BETA HIGH YIELD STOCKS ALONG WITH BIG GROWTH COMPANIES. HOWEVER, REALIZE THAT THE MORE VOLATILE BIG GROWTH COMPANIES WILL BE WHERE YOU MAKE YOUR BIG MONEY. THE LOW BETA HIGH YIELD STOCKS WILL DAMPEN YOUR TOTAL RETURN. THE RETURN ON EVEN SLOW STOCKS WILL BEAT THE RETURNS ON BONDS AND RESIDENTIAL REAL ESTATE!

Wednesday, July 27, 2005

BULL MARKET CONTINUES! BREAKOUT IN TECH!

The BULL MARKET continues this week; the past few months have been a lot of fun! Some of my readers have listened to me and done extremely well. Others were slow to get on board; they made some money but not what they could have made. It is frustrating to write and write about how attractive stocks are and then have readers confess that they are putting their money in over-heated resort real estate. The real estate run is not over but the BULL in stocks still has a long way to run. Today it was the telecom equipment and services stocks that broke out.

While at Myrtle Beach, I added HDTV to one of my condos and as usual I had to deal with the horrible service from Time Warner Cable. My family owns shares in the company and we receive service at at least 20 locations but, boy! is this an industry that needs competition! The employees can never get an order right and they don't care. I am sure there are caring persons working at TWX but you seldom run into them when trying to set up new service.

Today, a bill was introduced in congress to deregulate telecom services. This would be a blessing to consumers. SBC, VZ, BLS and many others are chomping at the bit to be able to offer cable service without fighting through layers of local bureaucrats. Internet phone service and TV services is ready to expand rapidly. Yes, cities earn franchise fees from cable companies; yes, the citizens pay dearly in the poor service and weak selections they receive.

Google and others have invested in new broadband service through electricity lines. The recapture of the tremendous amount of radio spectrum dedicated to analog TV is going to make Wi-Max omnipresent. The future is coming but not soon enough. Deregulation would set off a tremendous round of upgrades to equipment in homes and offices. When the AT&T monopoly was killed, a long distance call cost more than $2 per minute in today's dollars. Today people carry a phone in their pocket for less real dollars than a home phone cost before the deregulation.

Sprint doubled its earnings this quarter. The demand for wireless communications is there. The second phase of the telecommunications revolution has begun! Motorola, for example, just introduced a thin "email phone". The amount of computing power in these mini-computers is more than was in a desk top computer a few years ago!

FOR THE PAST FEW MONTHS, I HAVE POUNDED THE TABLE! I HAVE SAID ALL I KNOW TO SAY TO ENCOURAGE YOU TO INVEST IN TIME TO CATCH THE MOVE! IT IS NOT TOO LATE TO MAKE SERIOUS MONEY!

The market has a lot of momentum now but many stocks have already made a big run. The risks have increased in the past few months. On the other hand, pundits such as Jim Cramer are now fully on board--shouting to the public to buy-buy-buy! Yes, he hits the sell-sell-sell button often because his style is that of an active trader but he is telling investors to aggressively buy stocks. In the next couple of years, late adapters will buy digital TVs, pocket computers, and more.

Earlier this week, I encouraged a family member to sell Wal-Mart to buy TXN. It is not that I dislike WMT. The situation is that TXN is well positioned for the build out of the digital communications networks that is taking place. TXN is particularly strong in cell phone tech and in flat screen TV tech. I was tempted to put the money into GLW (Corning). GLW has been a sweet stock. We paid around $2 for our first shares and bought more at $4, $6, and $9. The stock was strong to day around $19. TXN has already been a good stock to us but we think the potential is big.

It is interesting that this has been such a great year so far because it surely started off in the wrong direction. The key was that after the market went down, we went into an aggressive mode. We sold low beta slow movers, added cash and bought high beta stocks. Our aggressive account is up more than 30% on the year.

The reason to report the numbers is to encourage others to join us in making money. A river crossing always seems risky. The water flows to fast, it is too deep and you can't see what is swimming in the dirty water. However, the other side is a neat place to visit. Give it a try!

BUY THE BULL! THE MARKET IS OVERBOUGHT A BIT AND THERE WILL BE PULL BACKS BUT STOCKS ARE STILL CHEAP RELATIVE TO BONDS AND REAL ESTATE!

HOW MANY TIMES HAVE I WRITTEN THAT STOCKS ARE CHEAP RELATIVE TO BONDS AND REAL ESTATE! THE REASON FOR THE REPETITION IS THAT INVESTORS SHOULD FOCUS ON VALUE AND NOT GET CAUGHT WHINNING WITH THE NAYSAYERS. THE BEST MARKETS ALWAYS ARE IN THE MIDDLE OF ONE CRISIS OR ANOTHER. THERE ARE TRILLIONS OF DOLLARS ALWAYS LOOKING FOR A HOME AND RIGHT NOW THE BEST HOME IS STOCKS--NOT BONDS OR REAL ESTATE! BUY THE BULL!

Tuesday, July 26, 2005

America West Partners With DHL to Offer FlightFund Members a New Opportunity to Earn Miles

America West Partners With DHL to Offer FlightFund Members a New Opportunity to Earn Miles

What a good stock to buy a week before my vacation. The stock is up 42% in about two and a half weeks. GO BABY GO!

The linked article is about a new deal with DHL. DHL has been making a strong move. AWA is the second largest discount carrier. The deal offers AWA customers the chance to earn extra miles by shipping with DHL.

This program is a good move for AWA. When an airline fills and empty seat, the cost is next to nothing. The miles can't be used on flights where the seats can be sold.

AWA will triple its size when the deal with USAir closes. The cycle has turned. Revenue seat miles are up. Capacity is up. Loads are up. Fuel is up but is from here fares will increase at a faster rate than fuel.

BUY THE BULL!

Today, it was NFLX, MOT, AMZN, GLW and others that kept the momentum going. AWA was up again. BUY THE BULL!

WHICH ARE YOU? SPECULATOR, COLLECTOR OR INVESTOR?

Investors come in all varieties. Some folks are cautious others emotional. Some are busy while others are casual. However some folks who think they are investors are not true investors at all! Most folks are observers, speculators or collectors. Most of the observers are those who have given up!

My parents did very well investing in real estate. They worked hard, saved money and invested with success. They also invested in stocks but their returns were not as good as in real estate. This is interesting because the long term average return in stocks is better than the average long term return in real estate (they did well with leverage and without leverage in real estate).

My Dad was smart. He was successful in many ventures. He taught me much about investing and I appreciate his lessons. I have often wondered why he was more successful in real estate than in stocks. Gary Keller in "The Millionaire Real Estate Investor" hit the nail on the head. He lists four investment profiles: the observer loves ideas but never takes action; the speculator loves the action and buys anything; the collector loves ownership and buys something; the investor loves opportunity and buys to the right thing.

THE SPECULATOR

Mom and Dad were very successful real estate investors because they shopped around to find what they wanted, bought it and generally held it long-term. On the other hand, Dad speculated in the stock market. He saw the stock market as the place to make a quick buck. He held a number of substantial positions long term but for the most part, he sought quick trading action. He loved the action!

I have never know anyone to make consistent profits trading puts and calls but Dad loved to try. He loved to study stock charts and to buy and sell for short term moves. This was a form of entertainment. It was a fun hobby that could be practiced from his home office. He also purchased many a speculative low cap stock. For example, he purchased SIRIUS satellite radio based on tape action when he did not even know what business the company was in. Dad did very well in the market for long periods of time, however, he eventually landed on the wrong side of the market--giving back his gains. Please do not take my comments about my Dad the wrong way. After-all, I and other investors have made plenty of mistakes. We all need to gain perspective in order to be better investors. The reality is that winning by placing thousands of short-term trades over many years has lower odds than winning the lottery. Short-term trading is similar to rolling dice in Las Vegas. The transaction cost and spreads are like the house advantage and the house always wins.

THE COLLECTOR

Mom is a collector. For example, she owned AT&T for decades. It didn't really matter if there were better investments around, she loved ownership of "Dad's" company. The same idea extends to IBM. She has owned it for a long time, she knows it to be a solid company and she will never sell the stock unless prodded very hard. She has little knowledge about the company and does not wish to compare it to other investments. Stocks for her are like her antique pottery collection--she does not know what it is worth and does need to find out. When asked if she will sell a piece for a high price, she declines because she is a collector not an investor. Again, if my any member of my family should read this, I hope they will not take offense. The good news is that collectors do make money. They do not make as much as investors but assets do tend to go up in value over time. There are no transaction costs and taxes are deferred.

Being a collector or a speculator is not a bad thing--I respect either more than the observer who talks a good game but is afraid to put his big toe in the water. Speculators have fun trading and collectors enjoy owning. With just a little more work, either could become an investor but that is like saying that with a little bit of work most of us could become decent bowlers.

Investors buy good value and hold until the value is realized. Investors examine what they own and are willing to sell when the price is high relative to another opportunity. Mom is right to hold her Rosewood pottery. The values continue to rise and she enjoys owning. Should she sale, she would be hard pressed to find an investment that would give her equal value. However, owning a large number of IBM shares just because she has owned them for a long time is not a good reason to own the stock without examining other opportunities. (By the way, IBM should do well for the next several years as the economy has moved into an expansion phase).

The following paragraph from Keller's book is a summary of his thoughts on the subject:

"Investing requires action. Successful investing requires the right action. Observers, Speculators, and Collectors are not true investors--Investors take action, minimize risk, and buy based on investment value; they are a breed apart."

BUY THE BULL! I HOPE YOU ARE NOT AN OBSERVER IN THIS MARKET! BIG GAINS ARE BEING MADE DAILY! ONE OF MY FAMILY ACCOUNTS IS APPROACHING A 100% GAIN IN LESS THAN 2 YEARS! ANOTHER FAMILY ACCOUNT IS UP 30% IN ABOUT 2 MONTHS! YES-ONE NEEDS TO BE CAUTIOUS ABOUT THE STOCKS THAT HAVE MOVED BUT THERE IS MORE TO COME! A DIVERSIFIED ACCOUNT WILL HAVE DIFFERENT WINNERS AND LOSERS EACH DAY BUT IN THIS MARKET THE TOTAL RETURN SHOULD BE SUBSTANTIAL!

Monday, July 25, 2005

Wal-Mart to double China outlets!

NewsFinder

It is nice to be home from the beach and nice to read that Wal-Mart has plans to grow in China. The tremendous success of Wal-Mart in the US has slowed the companies growth potential as local businesses fight to avoid Wal-Mart competition. Many a local curb market buys its goods from Sam's Clubs. Wal-Mart pricing is hard to beat.

Of course, Wal-Mart is expanding in other areas. In Europe, the company sometimes buys into a partnership as those markets are tough to enter. Consumers are the beneficiaries when Wal-Mart arrives.

This company is too large to grow at the pace of years gone bye but it is an efficient money making machine. Not a bad core holding at the current price.

BUY THE BULL! THE SITUATION HAS CHANGED A LITTLE SINCE MY VACATION STARTED BUT THE BULL IS STILL ALIVE. THE US ECONOMY HAS MOVED FROM THE RECOVERY PHASE TO THE EXPANSION PHASE. MORTGAGE RATES WILL GRADUALLY RISE DURING THIS PHASE. THE HOUSING BOOM WILL SLOW. HOWEVER, THE INCREASE IN RATES WILL BE CAUSED BY THE STRENGTH OF CORPORATE SPENDING. INDUSTRIAL EXPANSION IS A GOOD THING.

Sunday, July 17, 2005

A Tribute to Mole

When we realized that dad’s 55th birthday was approaching we started thinking about what we could do to honor and celebrate him. It was apparent that just another material possession wouldn’t suffice. We thought about the things that he seems passionate about and wanted to give him something that he would truly appreciate. Since investing has been one of his lifelong interests, a gift dealing with investing seemed like the place to start.

Growing up Dad was always introducing us to the latest technology, teaching us how to use the computer as young children, encouraging us to create email addresses and use the internet, and talking about what would be possible in the future. He instilled in us a desire to learn and taught us that we were capable of doing it ourselves if we put our mind to it.

For example, we had a computer before any of our friends and although we mostly just played Wheel of Fortune on it, we still learned valuable computer skills at an early age. We can remember having our own email address before most knew how to access the internet. Courtney even recalls him predicting the ability to run more than one program at a time, basically describing Windows before it had been released. In addition, as we have gotten older, he always stops to ask us if we’ve heard about the latest products or developments in technology. While we frequently laugh at him asking us if we have heard of Skyp or whatever else he’s been reading about, we truly appreciate his knowledge of the latest trends. Dad is technology savvy and he has always been the one to teach us about the economy, investing, and other financial matters.

More recently, he has created his own weblog where he has been able to combine both his loves for investing and the latest trends in technology. We decided a great way to celebrate Dad on his day would be to honor him with our own contributions to his weblog. Although these are certainly not the only things our dad has taught us about, they are some reasons why we believe he is a great dad! Today on his 55th birthday we hope this tribute will honor him and make him smile. We love you Dad!

"To provide fast and friendly service, quality products in clean and convenient locations"

"To provide fast and friendly service, quality products in clean and convenient locations"

is the mission statement of Sheetz. Sheetz is a convenience store that was founded in 1952 and has grown to 300+ locations which are located in 6 states. It still remains a privately owned and operated business which earns it the title of industry leader. The Forbes 500 List of Top Private Companies lists it as #87. As well as competitively priced gasoline and the usual convenience store items, this "store" sells fresh, fantastic and fabulous sandwiches.

One thing that makes Sheetz a joy to visit is the touch screen ordering. Jack has talked for years about how one day you would have the ability to order for yourself at a fast food restaurant and now that I’ve used it, I recognize the extreme value that he envisioned years ago. By walking up to the touch screen and ordering yourself, customers no longer have to put up with the "wah, wah, wah wah wah" from drive through windows and not knowing that what you ordered is not what you are taking home. Each order is freshly "made to order" and tastes great! By being open 24 hours a day and 365 days a year, you have the flexibility to try some today!

Sheetz employess are pleasant and play an active role in their communities. During the holiday season, Sheetz works with the Salvation Army to identify deserving children and make their holiday dreams come true with a shopping spree. Furthermore, Special Olympics has received more than $1 million from Sheetz since 1991. Employees have produced and catered thousands of lunches for the Special Olympic events.

I encourage you to visit your local Sheetz convenience store or mall location soon.

Marilyn Miller

Vroom Vroom Vroom Volvo

When I think about my dad and all of the things I have learned from him over the years, I immediately think of his knowledge about investments. Some basic principles that I have heard repeatedly growing up include buy stocks in products that you love and use, greater risks equals greater profits, and everything is cyclical.

In December I will graduate from the University of North Carolina at Greensboro with my MS/EdS in School Counseling. Recently, after discussing my upcoming graduation with my parents, my dad suggested that I begin looking in to buying a new car. Although my first thought was about how much I have enjoyed riding in my friend’s 2004 Volvo S40, a second thought quickly followed. Another principle that dad has engrained in me is in regards to buying two of life’s most basic possessions: houses and cars. He has always taught me that when buying a house, you spend more than you can afford, because houses appreciate in value. On the other hand, cars depreciate in value as soon as you drive them off the lot, so you do not buy the most luxurious car on the market, but instead you try and get the best deal possible. Despite hearing Dad’s words of wisdom in my head, I have my heart set on buying a new Volvo S60 as my next car.

Through my research online, my discussions with Volvo owners, and my experience at the dealership, I have learned that Volvos are considered one of the most dependable cars. One owner said, “Volvos have earned a well-deserved reputation for being safe, dependable and durable.” Statements like these have fueled my attraction to Volvo.

Furthermore, the Volvo website, www.volvocars.com, simply states, the S60 is “uncompromised performance, technology and safety in the body of a stylish European sports sedan.” One test driver said, “These vehicles have capabilities other manufacturers will be chasing after.” Another said, “While relatively small on the outside, the S60 is very spacious inside and the 2.4T was a pleasure to drive.” Most importantly, you can load it with lots of premium features. The main options are a navigation system ($2,120), leather trim ($1,300), Dynamic Stability and Traction Control ($1,100).

In my research I once again considered my dad when I looked at the optional GPS system. This would most definitely be one of his favorite bells and whistles, as for years he has told me about how cars will drive themselves someday. This particular system is described as an “information and route guidance system which helps people to reach their destination in the simplest way possible.” The system uses satellites to track the location of the car and then a recorded voice directs the driver to the desired destination. The key here is that the driver can then direct their attention on the driving. While my dad was disappointed that the navigation system is not yet standard, it is still a nice option and supposedly it is easy to operate using a few buttons on the steering wheel.

While the decision will ultimately be up to me, I will certainly consider Dad’s philosophy when I purchase my next car.


Whitney Miller

"Yes We Can!"

I recently started a part-time summer job as a sales associate at the major retail store Kohl’s. Upon completing four days of training classes I was immediately impressed with the store’s customer service policy. Their philosophy concerning customer service is simply put, “Yes we can!” Should someone ask an associate to hold their purchases for four or five days the answer should be, “Yes we can!” Should a customer ask if they can be given a discount off of an item because it is missing a button the correct response is, “Yes we can!” Should another ask if they could have the recently advertised sale price on a product because they weren’t available to shop during the sale duration the associate answers, “Yes you can!”

Furthermore, a customer can return any Kohl’s purchase at any of the stores locations. The Kohl’s Associate Handbook states, “Kohl’s views customer service as the most important aspect of our business. Every decision that is made, whether at a Store, Distribution Center, or Corporate Office, is made with the customer’s needs in mind.” Basically the old adage “the customer is always right” truly does apply at Kohl’s.

Not only does Kohl’s have an excellent customer service policy, but it is among America’s fastest growing department stores. It began in Brookfield, Wisconsin in 1962 and became a publicly traded company in 1992. Kohl’s has since spread to most areas of the United States including most recently the mid-Atlantic and Southwest. In 1999 Kohl’s reported its fourth consecutive year of earnings growth over 30%. As you can tell, Kohl’s continues to grow at an impressive rate, both from opening new stores and from existing store sales increases. As my father always says, “if it ain’t broke, don’t fix it.” One of the biggest mistakes some companies make is going in and making changes when they are not needed. Kohl’s is a solid company that in my opinion does not need change.

In addition, the family-oriented company dedicates its charity efforts to improving health and educational opportunities for children in its communities. This is accomplished through the store’s Kohl’s Cares for Kids Program. Kohl’s also supports community programs such as the United Way and offers many additional benefits to its associates.

Kohl’s trades on the New York Stock Exchange, ticker symbol KSS. It is currently trading at about $58 per share. Kohl’s is part of the Standard & Poors Top 500 Index.

Courtney Tucker

Hewlett Packard Pocket PC/Phone/Camera

Today’s technology has allowed people of all ages to communicate, play games, listen to music, watch movies, take pictures, and perform computer operations from anywhere the user might be. The biggest problem with doing each of these functions is it requires a separate gadget for each function. Several gadgets have tried to incorporate more than one of these functions but the gadgets still treat the initial function as its primary and the other functions are mere afterthoughts. For example, camera phones lack the ability to take clear pictures. Hewlett Packard has attempted to consolidate these major functions into their iPAQ h6325 Pocket PC.

The HP h6325 offers all the functionality of a PDA, along with a mobile phone, and a camera. It’s the first and the smallest handheld with integrated three-way wireless (GSM, GPRS, WLAN, Bluetooth®). This allows the user to access the internet, email, send text messages, and make phone calls. Take pictures with the built-in camera then print to a printer or synchronize with your PC via Bluetooth. Accessories allow even greater flexibility such as the snap-on thumb keyboard for composing email, notes and instant messages. You can even buy a GPS module that will turn the iPAQ into a navigation system giving you turn-by-turn driving directions.

Many reviewers have mixed feelings about the HP h6325’s wireless phone service. Cingular and T-Mobile both offer service and several users have complained that calls are often dropped or the phone has little signal. Others have stated that a software upgrade has resolved the issue. However, they all agree that if you want a small, sleek phone that will run days on a battery, this is not your huckleberry.

While not everyone sees the need for such an item, numerous people already use many individual gadgets to do what the HP h6325 will do by itself. As one reviewer so put it, “I shed a whole pile of devices and cables for something I can put in my front pocket.”

Jonathan Tucker

Friday, July 15, 2005

WSJ.com - The Evening Wrap

WSJ.com - The Evening Wrap

ECONOMIC BOOM!

The economic boom, written about in the Wall Street Journal, is powerful. High paying job growth, booming exports, and growth across most industries. The best news is that the strong growth is concurrent with low inflation!

The strong growth implies that long term interest rates will rise; the low inflation numbers imply that the rise will be moderate. The recent strength in the stock market has been accompanied with an increase in long rates. Our SOW portfolio has done very well while the recent increase in rates has pushed the equivalent bond portfolio down.

Just a short time ago, I convinced a friend to replace the bond portion of his IRA with AAA grade high yield stocks. The payoff is already apparent. Stocks perform well during economic growth--bonds do not. One must expect interest rates to creep up during an economic boom; same with the cost of fuel. Higher interest and higher fuel are simply a part of the costs of doing business. Were our resources stretched thin one would expect higher inflation. The world continues to export jobs to under-employed nations. The world wide standard of living is making progress and Americans are saving billions on their purchases.

After a few years of boom, resource utilization will grow tight and it will be time to grow cautious. This will be a time when all know how strong the economy is. For now, those who recognize the strength early will be able to take advantage and make serious money long before the crowd arrives.

BUY THE BULL! OUR ACCOUNTS HAVE LONG PASSED THEIR OLD HIGHS! WE ARE IN PROFIT LAND! THE STAMPEED WILL CONTINUE!

Earnings Outlook: Pockets of profit amid airlines' red ink - Airlines - Transportation - Earnings

Earnings Outlook: Pockets of profit amid airlines' red ink - Airlines - Transportation - Earnings

POCKETS OF PROFIT!

5 months ago, airline owners would be happy talking about pockets of profit. Now, writers discount the profits because the higher fuel costs are keeping the pockets from being buckets of profits.

The owners of home builders should express a similar complaint. Profits would be much higher except the cost of building materials has gone up dramatically. It is an old story. You don't hear much about fuel cost and truckers because the truckers are turning profits and like the airlines they are passing along the higher costs.

In the short run, the costs of fuel has absolutely nothing to do with the price of a ticket. The airlines charge as much as the market will bear as do the oil companies. Of course, airlines cannot stay in business if their expenses are lower than their costs for a long enough period of time.

The time of loss is coming to a quick ending. One after another, the airlines net has turned from very negative to a declining negative and in some cases to a positive.

The best news of all is that the majority of investors do not believe it. This is allowing the building of large positions at low prices.

The big carriers are playing hard ball with the discounters. I have not checked the numbers lately but, just a few months ago, the market valued LUV more highly than all the legacy carriers combined. The revenues of AMR, CAL, NWAC or DAL are dramatically higher than LUV revenues. LUV is more efficient and has lower costs. Just remember, it is a cyclical business and the worm has turned.

BUY THE BULL! IT TOOK A LONG TIME TO BREAK OUT TO 4 YEAR HIGHS! NOW THAT THE BARBARED WIRE FENCE HAS BEEN TRAMPLED, THE STAMPEED COULD RUN A LONG WAY!

INDIVIDUAL STOCKS CONTINUE TO SHINE



Current Value of the SOW Portfolio:
$82,086
Simple Return: 19.57%
~~>~>~~>~>~~>~>~~>~>~~
S & P 500 Value : $77,863
Simple Return: 2.73%
~~>~>~~>~>~~>~>~~>~>~~
Treasury Bond Value : $73,082
Simple Return: 1.56%
~~>~>~~>~>~~>~>~~>~>~~
As you can see, our SOW Portfolio continues to outperform equal investments in the
S & P 500 index and in the TLT Treasury Bond index fund.

Be sure to check out Kupsky's review of this week's Stock of the Week to see if it's a pick you want to include in your portfoio.
Past performance does not guarantee future performance. We make no recommendations!
Please call or write if you have questions about how to make money in stocks, bonds and real estate. You can reach me during office hours at 336-778-0543 or write me

Social Security seen on hold until fall - Financial - Financial Services - Economy - Bond Market

Social Security seen on hold until fall - Financial - Financial Services - Economy - Bond Market

BUY-BUY-BUY!

The fact that the public is so negative toward the stock market that they are willing to accept 2% returns in Social Security is a buy signal! The depths of the fear that lurks in the hearts of men is worse than even the Shadow knows.

It must have been close to thirty years ago when Buffet said that there are two emotions that drive the market--fear and greed. He went on to say that the whole secret to successful investing is to be greedy when others are fearful and fearful when others are greedy.

The majority of young Americans believe that they cannot count on social security to be around when they retire. I believe they are wrong. Social Security will be around but the size of the account is what matters. The size for each individual will be smaller if the funds continue to be invested in t-bills.

Anyone who looks at the facts objectively will conclude that individuals would be better off if their Social Security funds were invested long term in stocks versus treasury bills. The fact that sentiment is so negative to the market is a strong buy indicator.

Ironically, after the market has done extremely well, there will be pressure from the public to change the system.

BUY THE BULL NOW! YOUR SOCIAL SECURITY WILL BE WHAT THE POLITICIANS SAY IT WILL BE. IN THE MEAN-TIME, MAKE SOME REAL MONEY!

TOO LATE!

I have written, read and heard that the market may really take off when the fed stops raising rates. This does not mean that one should wait for the news before investing.

The markets discount the future. Sometimes the markets get the future wrong for awhile but some folks get the future right before other folks.

In some cases, such as this one, the future is not hard to predict. Yesterday's CPI report showed that the inflation rate is low, today's PPI report showed that inflation is low, other reports out for the past couple of months have shown that worldwide economic growth has slowed. The writing is on the wall!

Besides, it is not necessary to determine if the proper stopping point is 3.5% or 4.25%. It is certainly possible for the fed to overshoot--it has happened before--but it is a reasonable bet that the fed will not over shoot. It is reasonable to assume that the expansion phase of the economic recovery will last for several years. The pattern is well established. The trend is your friend.

BUY THE BULL! PROFITS ARE GROWING, THE ECONOMY IS GROWING, COMPETITIVE INVESTMENTS ARE NOT AVAILABLE. BONDS AND REAL ESTATE ARE IN GENERAL OVER-PRICED RELATIVE TO STOCKS. IF YOU WAIT FOR THE FED TO STOP FIRST, YOU WILL MISS THE BIGGEST PART OF THE RALLY.

Thursday, July 14, 2005

The Peridot Capitalist: Concentration Explains Much of Buffett's Investment Success

The Peridot Capitalist: Concentration Explains Much of Buffet's Investment Success

Buffet has about 70% of his assets in his top 5 holdings. I have built a concentrated position in the airlines. My belief is that a concentrated position in 5 big carriers is less risky than when I had most of my assets invested as the owner operator of a small business.

On the other hand, Buffet's massive shares of AXP, KO and G are not the same quality stocks as are the airlines.

One can only dream of consistent returns approaching Buffet's. Never-the-less, I am comfortable with a concentrated position in 5 of the legacy carriers. CAL, for example, has lowered its labor costs by about 500 million per year while flying more full planes than ever before. Oil price momentum has slowed. The current price is about the same as it was weeks ago. Fares are increasing. Private jets are being squeezed out of prime landing times and first class seats are being added. New international flights are to everywhere and back.

Modern portfolio theory says one should diversify. Common sense says that if you should invest where you expect a high return.

BUY THE BULL! MONEY IS FLOWING TO STOCKS. THE S&P HAS BROKEN TO A 4 YEAR HIGH. INVESTORS DO NOT HAVE THE WILL POWER TO SIT THE BULL OUT. THE PSYCHOLOGICAL PRESSURE TO JUMP ON BOARD WILL BUILD AS EACH NEW HIGH IS REACHED.

UP UP AND AWAY!

What a beautiful day at the beach! There are clouds in the sky but the air and water are warm.

I finally got around to lunch at 2PM. I checked the market and my families aggressive account is up 2.5%! This aggressive account owns airline, internet, tech and other stocks. Gains in AMR and CAL are mounting up. Crude oil is down 2.31 per barrel! Inflation numbers this morning were fantastic.

As one might guess, I added to AWA this morning and all my other airline stocks are up on the day. One can never tell exactly which stock will perform well in the short run but the airline industry has cut cost and while increasing revenue seat miles. Most any business does well after it cuts costs and increases revenues. The airlines have high operating leverage which means that after break even is reached most of the marginal revenue is profit.

In a retirement account, I purchased Ford one day last week. This market is in BULL mode so I want to participate in every way I can.

BUY THE BULL! THE MARKET IS PAUSING MID DAY AFTER A GREAT RUN! SHORT TERM--WHO KNOWS WHAT WILL HAPPEN--LONG TERM STOCKS GO UP!

UnitedHealth affirms outlook as quarterly net rises 36% - Insurance - Health-Care - Financial Services - Earnings

UnitedHealth affirms outlook as quarterly net rises 36% - Insurance - Health-Care - Financial Services - Earnings

Our 120 bagger continues to do well. As reported before, we made the huge mistake of not averaging up in this stock over the years. The company is well managed and it is well positioned. The announced purchase of Pacific is not a problem. The company has always grown organically and by making strategic purchases. A great stock to hold long term.

BUY THE BULL! THE BULL IS RUNNING AGAIN THIS MORNING. OIL IS DOWN AGAIN THIS MORNING. I PURCHASED MORE TIVO AND MORE AWA THIS MORNING. THESE ARE AGGRESSIVE PURCHASES. IN AN BULL MARKET IT USUALLY PAYS TO BE AGGRESSIVE. DON'T WAIT FOR THE FRONT MAGAZINE BULL MARKET HEADLINES TO GET IN.

Google Target $350 at Lehman--GOOGLE GULPING AGAIN!

Google Target $350 at Lehman

Last week I purchased more Google--in a friends IRA account. I made the mistake of mentioning the purchase to a long time reader who pinned my ears back! She asked how I could possibly justify putting Google in a retirement account?

Why not? The allocation made was less than 2.5% of the portfolio. A portfolio that also owns low beta high dividend stocks such as Conagra. The proof is always in the pudding and I am thankful to be able to write that GOOG has quickly moved up 14 points since the purchase. On a $293 base, 15 points is only 5% but still not bad in a week.

The real point has nothing to do with short-term performance. The fact is that this retirement account will not even start being withdrawn for another 20 years and will still be large in assets in 40 years. When you have a long time to stay in stocks then it is a good idea to own at least a few growth stocks.

I have made no bones about the fact that I like Google. I have bought it regularly since it was first offered and I will continue to buy as long as I believe it offers value. I have indicated in the past that I might sell some shares after the stock is added to the S&P 500. Value is often in the eye of the beholder. It is hard to measure. Some folks rely on P/E ratios to measure a stocks value but what meaning does a P/E ratio have when a company has a clear path to extraordinary growth? Crammer arrives at $350 on the stock using $7 as projected earnings and a 50 multiple. Using a 50 multiple is just another way of trying to justify buying a stock that has tremendous growth potential. The important thing for any company is the projected bottom line over future years. In other words, buying a stock always requires one to make educated guesses. My hunch is that Google has many more years of growth ahead. By the way, the same IRA account allocated 2% to EBAY. Time will tell if this was a wise choice or not.

The opportunities for increases in Google's earnings are unusual. The company can go in so many directions and yet it continues to be focused on its primary strategy. Ebay has a very different strategy but both companies are working hard to be big in China because China is very big.

I will buy more stocks after the opening this morning. The purchases will not be GOOG or Ebay. I will not write much today as I am currently watching the waves roll in at Myrtle Beach. Some of my family arrived after 2 AM this morning so several are still asleep. Life is good.

BUY THE BULL! IN CASE YOU HAVE NOT NOTICED, TECH STOCKS AND OTHERS ARE BREAKING TO THE HIGH SIDE. INFLATION REPORTS THIS MORNING WERE OUTSTANDING. BOND YIELDS ARE DOWN THIS MORNING. THE ENVIRONMENT FOR STOCKS COULD NOT BE MUCH BETTER!

Tuesday, July 12, 2005

Yahoo! Buys Internet Phone Provider - BizReport

Yahoo! Buys Internet Phone Provider - BizReport

A few months ago, the buzz was about Google starting an internet phone service. YHOO is making the jump first. DialPad has been around for 6 years and has acquired 14 million users. The number could expand rapidly when integrated into YHOO services.

Yet another example of cost to consumers going down. DialPad has charged 1.7 cents per minute for calls. Hard to beat that price on traditional circuits. Skpe and others offer free computer to computer service.

Ebay has gotten a lot of bad press lately. The buzz now is that Google will start a system similar to PayPal. I added Ebay and Google to an account a couple of days ago. Ebay is making progress in China. Success in China could almost double Ebay revenues.

BUY THE BULL! THE INTERNET IS NOT GOING AWAY. CONSUMERS WILL BENEFIT BUT PROFITS WILL BE MADE!

TECH BOOM!

Technology stocks are BOOMING!

I have not been writing much lately. While at home, I am busy packing to move. In between packing, I am vacationing with family at Myrtle Beach. The next ten days, it will be the Miller family at the beach. I expect to have a great vacation while I keep an eye on the BULL!

Tech stocks are leading the way! Over the next few years, millions of folks will adopt HDTV, Mobile WiFi, Pocket Computers, media center computers, mobile TIVO-to-go, and much more. The "next" tech boom is here! Look at the charts of MOT, TXN, TIVO and other tech stocks to see the break-outs.

This has been a slosh and fill market but the BULL is trying hard to get loose. Whole sectors have traded up and down as investors try to find leadership. SIRI has been on a run for a few weeks but it has back tracked today after some folks pointed out how incredibly expensive the stock is. Many other stock values get out of whack and then there is a correction in the group. Short traders are caught in squeezes. The big problem short sellers have is that most try to own the best values while being short the worst values. However, the best values have been stagnant and the worst values have been participating in the rallies--ouch!

Projecting the value of any particular stock is always very hard in the short-term. The reason to own at least 15 stocks is to avoid big mistakes. Trying to be too precise is a good way to get into trouble. I am not saying to use the dart board approach. Indeed, I have invested heavily in high beta sectors because I believe in the BULL--it is here, it arrived in October of 2002 and only rested a while early this year. Also, I plead guilty of ignoring my own advice. My family is currently more than over-weight in the airline sector. The perceptions of this sector are so negative that we have become very comfortable owning 5 of the legacy carriers. We believe there is less risk in owing 5 carriers than all of any small business.

Market indicators said to sell bonds and buy stocks in October of 2002. This was a wonderful call. In hind sight, bonds did better than most professionals thought possible but stocks have done great. The BIG BULL BOOM is not over--the next stampede has started.

I am concerned that Cramer and others are now shouting about the BULL. The more people that use the word BULL the more cautious I will become. Sentiment indicators are no longer screaming "buy stocks" but we are not near screams of "sell stocks". I will not take money off the table lightly. For now, I will remain aggressive. Stocks are too cheap to be overly cautious.

BUY THE BULL--THE TECH BOOM IS HERE! THE OIL PRICE MOMENTUM IS DEAD--I SEE $55 OIL BEFORE $65--$65 WOULD NOT KILL THE MARKET. CONSERVATION AND INCREASED PRODUCTION WILL GRADUALLY WORK THEIR MAGIC. CHINA AND INDIAN DEMAND FOR OIL IS REAL BUT ONLY PART OF A STRONG WORLDWIDE ECONOMY. INFLATION PRESSURES HAVE SUBSIDED. THE MARKET CAN GO UP IN PARRALLEL WITH OIL PRICES AND SHORT INTEREST RATES BUT IT WILL REALLY MOVE IF OIL AND RATES HALT THEIR MOVES UPWARD.

Losers Average Losers: A Key Trading Concept--AVERAGING UP

Losers Average Losers: A Key Trading Concept

Paul Tudor Jones, Turtle Trader, keeps a sign posted in his office. It says, "Losers Average Losers". The concept of averaging up--not down has been around for a long time. One of the great proponents of averaging up was the great Jesse Livermore.

The concept is a simple and important one to follow; however, it takes discipline. The temptation is often great to buy more of a $10 stock when it falls to $8 and even more when it falls to $5. One should generally avoid buying a stock that is making new lows. In these situations the market may know something that you don't.

Jesse practiced his 20, 20, 20, 40 rule. He put 20% of his average position size into a stock and added another 20 only if the stock went up. If it went up more he bought more. Only after he invested 60% in the stock and it was still going up did he commit the last 40%.

Yesterday and this morning I averaged up several positions. The price of my average purchase went up because I bought shares at much higher prices than my original purchases. Too often, traders have the mentality that they have no profit until they sell a stock. This is totally false. One stock that I am comfortable buying modest amounts of today is Yahoo. It does not matter that I have a 500% profit in my first purchase. It does not matter to me that the stock sales at a high multiple to its earnings. I understand and believe that Jeremy Siegel is correct in his assertion that growth is not the primary determinant of total return. Logic is only part of the formula for making money in the market. I feel comfortable holding YHOO long term and therefore it is a good stock for me.

YHOO is one of the stocks that I might average down. For example if I bought shares today for $36 and later the stock dropped to $26 and stabilized, then I might buy more. I would not buy more just because the stock went down in price. However, I would buy more at a lower price if I still believed in the long term future of the stock.

With YHOO, I am half way to a 10 bagger. I have confidence that this one will become a 10 bagger. I hope to own the stock 30 years from now as a 50 bagger. My best stock so far is a 120 bagger.

Different stocks should be bought with different expectations. CAL traded in the upper 50's in 2000. The company has since lowered its operating costs dramatically. Business has been growing for a few years and in recent months load factors and revenue miles have been going out the roof. My "Old Merrill Pal" and I discussed our outlook yesterday. We figure the stock will exceed it old high during this business cycle. In other words, we believe the stock will trade in the 60's by 2010 or so. From the current price, this would be better than a 4 bagger. My families cost is not dramatically lower than the current price because we have averaged up aggressively.

The airline industry is very cyclical. We do not plan to own these shares more than a few years. Still we did not buy them on the way down. We waited patiently for the shares to make a bottom and then come back and test the bottom. Only after the stocks were "on the way up" did we buy.

One of the most famous gambling stories of all time was when a beginner rolled 9 straight passes. The beginner bet a $5 chip each time and made $40. Nick the Greek did not bet on the first to passes but he bet heavily the third and fourth pass and raised the bets thereafter. Nick netted a couple of million. The idea is that once you are onto a winning position you are playing with "house" money.

BUY THE BULL--BET BIG WHEN THE BULL IS RUNNING--AVERAGE UP! IT IS SILLY THAT THE OIL MARKET IS UP STRONG BASED ON ONE LISTING RIG IN THE GULF. THIS RIG IS A DROP IN A VERY LARGE BUCKET. SUVS ARE DOWN 19% IN PRICE DURING THE FIRST 5 MONTHS OF THIS YEAR--DON'T TELL ME THE MARKET IS NOT ADJUSTING TO HIGHER OIL. THE PRICE MOMENTUM IS ALREADY DYING. PRICES BUMPING AROUND FROM 56 TO 62 AND BACK IS NOT INFLATIONARY. ONLY INCREASING PRICES ARE INFLATION. OIL IS ONLY A SMALL PART OF THE FAMILY BUDGET. CONSUMERS ARE STILL SPENDING. STONG OIL PRICES ARE A SIGN OF A STRONG ECONOMY. PROFIT REPORTS OVER THE NEXT FEW WEEKS WILL SHOW THAT COMPANIES ARE DOING WELL.