Wednesday, November 02, 2005


If this market is not fun, I don't know what is! The put-call numbers, investment sentiment numbers, and other market indicators (such as 5 trillion dollars sitting on the sidelines) suggest that the public is afraid to get in the water. On the other hand, earnings have been up at double digits for more that three years! Stocks that have not increased in price in 5 years are earning more than double than the 5 year ago earnings. Yes, stocks were too high 5 years ago, yes, they are too low now. Selected stocks are zooming while the news dwells on the 12 interest rate increases in a row.

Is is not clear that an increase in interest from 1% to 4% is not the end of the world? At 4.6% the 10 year treasury bond is not giving any serious competition to stocks. I named this blog, Socks or Bonds because I love investing in Stocks and in Bonds. However, during the entire existence of this blog I have suggested a 100% allocation to stocks and a zero allocation to bonds. The allocation has worked out extremely well, particularly in the time frame from October 2002 to January of 2004 (during that time this blog was an email list).

It seems that the public is currently caught between the gyrations of quick market timers and the gloom and doom of inflation hawks. The inflation hawks mostly rant and rave as if the world is coming to an end. Some of them push gold and some suggest that the oil wells are nearly empty. The quick traders like a stock for a week (sometimes for a month or two).

Jack Fields, a very successful broker in the 60's, 70's and 80's, used to say that no one can make a fortune taking 50% profits. He was absolutely right. I have never found the person who has traded his way to great wealth. I have known quite a few millionaires who made their money in stocks.

I am coming close to deciding on which stock to load up next (using Crammer's 'mon back analogy). One of the possibilities is PFE. I don't think the business cycle is quite right for this one yet but the numbers are compelling. For example, the respective price to cash flow figures for MSFT, DELL, WMT and PFE are 16.75, 12.27, 11.1 and 8.75! I have heard a lot of people pushing MSFT and this company has a price to sales ratio that is 2.5 times as high as PFE.

I am not loading the truck yet. Partly because I have not finished building my AMR, CAL and LCC position. A few more days like today may cause me to start nibbling at PFE or WMT. Note that WMT and PFE are out of favor. I love out of favor stocks!

To be a good buy, I believe a stock has to be hard to buy. My success with Google has been because few were willing to pay $85 for the IPO and afterward most could not believe the stock was worth $300. Even now, reputable firms such as Morningstar value the stock in the $200 range. On the other hand, many folks are now out with $450 price targets. Most folks still can't appreciate the power of the infrastructure the firm has built.

Anyway, it has been fun doing the Google Gulp. It has been fun loading up the truck in the past few years on AMTD, ET, GT, GLW and others. The most fun of all has been building the airline position. It has the most potential of all. The next positions should be more defensive. Again, WMT or PFE are high on my list. I hope you are having half as much fun as I am.