Friday, November 11, 2005


I am writing this at 1:40 AM. I like to work late at night or early in the morning while it is quiet. This morning I am in here early because after such a good move yesterday, I was afraid the market had moved to a super oversold position quickly. The numbers are not so bad!

No one I have ever met or read about can call short term market moves. The reason that you don't find wealth short term traders is because even those who are right more often than not see their gains eroded by commissions and spreads. Over the years, commissions have come down sharply. Thus it makes a little more sense to trade more often. However, a word of CAUTION, I believe in the results of the 1991 to 1996 study made by Barber and Odan, professors at University of California at Davis. They discovered that the 20% of traders who traded most often underperformed the market by 36%!

Many folks who read my blog regularly get tired of the redundancy. They wonder if there is anything in the world that I care about than Google or the airline industry; but note the payoff. I have been harping on the airlines for at least a couple of years and those who have listened and built large positions in CAL, AMR and LCC have done very well and the long term move is just underway. Yes, some of my friends and family lost money when UAL, DAL and NWAC filed bankruptcy, but have more than made it up on the survivors. Without looking up the exact numbers, I can tell you that AMR, and CAL are up 300 or 400% since UAL filed. These stocks have the potential of going up another 300 or 400% in short order.

Yesterday afternoon, I was preparing to suggest a short trade hedge to protect some of the big gains made by friends and family. After looking at the numbers this morning, I plan to maintain a "steady as she goes". We may add more AMR on some accounts and we may add more WMT on some accounts. We will watch a few stocks (SIRI is one example) looking for the right entry point on a short sale.

Selling short is risky because the potential gains are limited but the potential losses are unlimited. SIRI is a very expensive stock, the company is losing a lot of money but its revenues are projected to double next year. It will take tremendous growth for at least a couple more years for the company to stop hemorrhaging. On the other hand, many of those who have satellite radios in their cars are hooked for life.

Google is an expensive stock but the big difference is that it already has built a solid business. This search business is more complex and requires more infrastructure than is commonly believed. It is much harder to gain market share than what is perceived by the market; ask Bill Gates if you don't believe me. One day, Google , may offer to help internet users find the exact radio clips they want to hear. Personalized radio, TV, news and other information is what Google is all about. I would not be surprised if Clear Channel and other radio firms made content available for search though Google . Wouldn't it be nice to have free personalized radio? Why pay $12.95 per month for 120 stations if ones radio is smart enough to learn what you like to hear and to filter out everything else?

Of course, free radio would be supported by advertising but, again, the radio (actually the Google software) would be smart enough to learn which commercial things you are interested in knowing about and you would primarily only hear those things advertised. For example, if you like Alan Jackson, your advertisements might include when he is going to be in concert in your area. Having hear the ad once, you could let Google know that you are not interested in hearing about the concert again.

I mentioned that we might add WMT. It is a rare opportunity to be able to buy WMT at a discount to the market. I have been keeping an eye on PFE because I could make the same statement about this company. I like WMT because the natural order of the business cycle is for consumer staple companies do well after the energy cycle has run its course.

WMT is a big company but there is still much growth potential. There is a battle royal raging in Brazil between the home grown retailer, a big French retailer and WMT. I would not bet against WMT in this market but even if the home town boys are able to use political connections to "win", WMT might more than make up the difference in China (for example).

A lot of people hate WMT. The company has gotten a lot of negative press recently because of this hatred. As you might know by now, my most important rule for successful investing is to buy that which is not liked. Bonds were hated by many in the early 1980s. Real estate was hated by many in 1990. Airline stocks were hated by many two years ago (by many today). When Google was about to come public, the IPO price traded down from the mid 100's to $85 because internet stocks were despised. WMT and PFE are big solid companies. PFE has 130 drugs currently in development. It has another 70 drugs that are being tested for additional uses. The pharmas traditionally do well during the second half of the economic cycle. Consumer staples normally lead the way. I was a bit early when I suggested WMT and PFE about a year ago. The damage has not been great (PFE has traded down for 24 and a fraction to 22 and a fraction). The upside is large but I will wait a little longer before building a position in PFE. Today, I expect that one or more of my friends and family accounts will nibble on WMT. Again, we may add more AMR and we will watch SIRI as a possible short sale candidate.