***Official*** 2010 Stock Market Thread

[lothar]

If you tell me what OE is, I can try getting it into the new gurufocus screener that is coming (in a few months)

Owner Earnings.
If you were to look at companies such as SHLD, HTZ, and others using "P/E" instead of P/OE, your eyes would be easily deceived.
Those companies have a lot of depreciating assets. I find using P/OE evens out the statistics a bit. Just something to know once in a while.

http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii
Definition of Owner Earnings.

 

[lothar]

SVU (Grocery/wholesale company)

Supervalue or Supervalutrap?

Great FCF, large debt, tons of competition, low price (market cap) vs. sales/FCF.

I dipped my feet a bit in this one, but it definitely is risky.

I looked at SVU in June when someone on Gurufocus mentioned it along with GME. Back then, it was an $11 stock.
It screamed "value trap" IMO.
http://www.investopedia.com/articles/stocks/08/value-trap.asp

Grocers in general are a highly competitive market and are barely making any profit...Unless you're a company like Whole Foods with a niche selling "organic" high priced products to stupid customers.
http://www.youtube.com/watch?v=JQ31Ljd9T_Y
http://www.youtube.com/watch?v=3M4MiobwycE
http://www.youtube.com/watch?v=L20Gf7E-yrw

 

[lothar]

Hey lothar,

I have to revisit our discussion above later but I was wondering if I mentioned Sandridge Energy before (SD)? I see them as a beneficiary of higher oil prices. Even if it takes 10 years for this to occur, buying now gives investors time to win out.

Yup you did.
I already entered into Sand Ridge since August and have a cost basis of exactly $4.36
I thought about going all natural gas and was looking at CHK(which seemed undervalued) this summer but I cannot predict where NG prices will go(and neither can most financial analysts), so I thought...Why not invest in both?
That's where Sand Ridge came about to me after you mentioned it a few months back before then.
All in all, my energy stocks are ICO, BOLT, NE, NOV, SD from largest to smallest.
Besides ICO which I bought earlier this year, everything else I bought between June-August after the BP oil spill.

ICO: To be honest I'm not sure about an "exact" value yet, but I'm just hanging along for the ride with Watsa. They were losing a lot of money before a few years ago, but they seem to be turning around. They have come a long way. Despite what stupid environmentalists say, coal isn't going anywhere anytime soon.
BOLT: Once it gets to my value of $16, I'm selling the stock. Amazing that I bought this business gem for $9 back in August(I think I made a post here saying so as well)
NE: Value seemed to be in the mid $40's when I looked at it, so I bought the stock around $30-31 which was kind of late.
NOV: My favorite oil stock from years ago...I dreamed that I'd never be able to own it again...until BP oil spill happened.
SD : Already discussed above. Earlier shareholders had been largely diluted from the Arena merger, so it was a perfect time for me to come in. Hanging along for the ride with Watsa with this one.

 

[lothar]

Hey lothar,

Anyway, I almost sold JNJ and PG 1-2 months ago to move the money into LEE and SD when they were at lower prices. Still kicking myself that I didn't. I was basically waiting for either to drop 20% more. Got to greedy I guess. I own both but wanted to dollar cost average. Well, I was happy with my holdings yesterday and there is no reason not to be happy tomorrow.

I didn't have to sell anything.
I was sitting on 23% cash after selling ACF and AXP since May. I was busy saving that for a "safe" financial bank I was looking for, but this stuff is way more complicated than I thought. BBT seems to be one of the best I've seen so far and a bit easier to understand than the "mega" banks, but the price has rapidly risen from the $23 range.

With WFC as my new brokerage account, I no longer see the need to carry cash or Vanguard's Prime Money Market in my brokerage and can leave it with Alliant or my RCA earning high interest.
With Fidelity and others, you have to wait 3+ days for the transfer to settle or for the check to clear.
With WFC, just transfer the money from an external financial institution using your brokerage account and it is added immediately to your buying power!
I previously always carried cash as dry powder in my brokerage because I didn't want to "Sell what is cheap to buy what is cheaper".
http://www.moneycone.com/what-i-love-about-wellstrade/
http://www.moneycone.com/howto-trade-commission-free-with-wellstrade/

I wanted to buy LEE at <$2 but price went down then up before I even knew what happened.

 

[IHateMyJob2004]

Lothar,

Nice work on the SD entry point. I bought in in the $7s and wanted to double up i nteh $3.50-$4 range but it never got there. Dropped to about $4 as you probably know and it is now up to about $6. I am regretting not buying more now. Oh well, live and learn I guess.

Right now I am pretty much just monitoring my holdings. I'm to busy working on the new screener for gurufocus to do much investment reading.

I'll try to get owner earnings into the new screener.

With LEE, I wanted $1.50 to double up. I bought in for somewhere in the $3s initially.

As for cash, I would happily liquidate my PG and JNJ holdings for a good opportunity. That would give me 30-40&#37; cash if I did.

Can you expand on SD a bit. You got in at a low cost basis. When did you start buying it? What was your lowest price? What % drops do you dollar cost average at? I usually wait for 40%+ drops and double up. I don't buy more on every 10% dip as other may since I just view that as giving money to the intermediary. I think I have to change my view on this though since I obviously lost out on SD here. This is not the first time I had a moment like this where I find myself shaking my head.

Sorry for any spelling errors. Have to run.

 

[lothar]

Lothar,

Nice work on the SD entry point. I bought in in the $7s and wanted to double up i nteh $3.50-$4 range but it never got there. Dropped to about $4 as you probably know and it is now up to about $6. I am regretting not buying more now. Oh well, live and learn I guess.

Right now I am pretty much just monitoring my holdings. I'm to busy working on the new screener for gurufocus to do much investment reading.

I'll try to get owner earnings into the new screener.

With LEE, I wanted $1.50 to double up. I bought in for somewhere in the $3s initially.

As for cash, I would happily liquidate my PG and JNJ holdings for a good opportunity. That would give me 30-40% cash if I did.

Can you expand on SD a bit. You got in at a low cost basis. When did you start buying it? What was your lowest price? What % drops do you dollar cost average at? I usually wait for 40%+ drops and double up. I don't buy more on every 10% dip as other may since I just view that as giving money to the intermediary. I think I have to change my view on this though since I obviously lost out on SD here. This is not the first time I had a moment like this where I find myself shaking my head.

Sorry for any spelling errors. Have to run.

I was much more comfortable in my assessment of BOLT's business value than SD, so I bought 6x more shares in BOLT than I did in SD.
http://forums.anandtech.com/showpost.php?p=30305470&postcount=1867

I only bought SD once at $4.36 and went on vacation from Aug 23rd until Sept. 11th. I was in my 3rd world home country and didn't have much access to the internet or outside world, so I missed the market dips that happened to stock market at the end of August. That sucked.
I am still amazed that I didn't know Ted Kennedy died until I read it in a local Newspaper 2-3 days after he had already died.

You need to change your strategy. Maybe to a 25+% dip or something else that doesn't sound so absurd.
Your strategy is certainly interesting in that it may prevent one from catching a falling knife but if one feels like they've already done due diligence on a business I see no reason why one should have to wait for a 40+% drop to buy more shares.
I typically consider buying more after 15-20% dip, but that's not always an automatic yes because I first do a quick re-evaluation of the business and ask myself first "what changed?". If the drop is without merit, I buy more.

If you think JNJ at $60 is a good deal, why should you have to wait for the stock to drop to $36 or less to reload? See how absurd your strategy sounds?

 

[lothar]

You suck then, it only takes Cramer 5 seconds, and three of it to ring the cowbell.

People still watch Cramer? Seriously?

 

[Imp]

Stressing out over RIMM. I've been telling myself not to buy it because it can fly or flop with so much competition. A week ago, I put a huge chunk in, and it's been hovering around or slightly under my buying price since.

Quarterly results come out Thursday morning, expectations are that they will exceed, but damn, way too much risk, not doing this again.

Cashed out half of my C, waiting for (hoping for) a major market correction in the next week.

 

[IHateMyJob2004]

Lothar,

I think I'll be changing the block sizes of how and when I buy and sell. At -40&#37; I usually think about buying more. I just have this fear of buying on a 10% drop, then a 20% drop but when a 30% drop happens I might have no cash left.

For now, maybe I'll relax things to consider DCA after a 25% dip.

 

[lothar]

Lothar,

I think I'll be changing the block sizes of how and when I buy and sell. At -40% I usually think about buying more. I just have this fear of buying on a 10% drop, then a 20% drop but when a 30% drop happens I might have no cash left.

For now, maybe I'll relax things to consider DCA after a 25% dip.

Maybe modify it to something like this...
If 25% drop from original price, increase original share count by 30%.
If 35% drop from original price, increase original share count by 50-60%.
If 50+% drop from original price, increase original share count by 100%.

I haven't back tested this strategy, I'm just throwing out ideas in the air.
Feel free to change the percentages around to suit your needs.
I'm not sure who your broker is(and I know you mentioned that you were concerned about paying money to brokers), but with Wells Trade I get 100 free trades a year PER account.
100 free trades Lothar's normal investment account.
100 free trades Lothar's Traditional IRA account.
100 free trades Lothar's Roth IRA account.
100 free trades Mom's 401k rollover from previous job.
100 free trades Mom's Roth IRA account.

I can't possibly use all those trades in a single year...Not to mention, I can buy almost any low expense ratio Vanguard funds/ETF's for free regardless of whether I have any free trades left or not.

 

[IHateMyJob2004]

People still watch Cramer? Seriously?

The fact that he is on TV proves that advertisers pay for ads during his time slot. For that to happen, people have to watch.

What is really interesting is how Jim gets people so emotional over investing. Emotional, the one thing you do not want to be. Jim also advocates frequent trading. I don't care if he says otherwise. Hhis lightening round alone is proof othewise along with the mention of probably 100 stocks in the hour he is on. He is simple getting people to buy and sell way more often than they should while not doing any due diligence. So, the viewers of his show bascially are playing in a zero sum game with eachother. The middle man, the advertisers, are taking a cut with every trade. After this mini rant, people either get it, or they do not. Kinda like value investing. You can be told what it is and you either get it in 10 minutes or you never will.

 

[IHateMyJob2004]

Maybe modify it to something like this...
If 25&#37; drop from original price, increase original share count by 30%.
If 35% drop from original price, increase original share count by 50-60%.
If 50+% drop from original price, increase original share count by 100%.

I haven't back tested this strategy, I'm just throwing out ideas in the air.
Feel free to change the percentages around to suit your needs.
I'm not sure who your broker is(and I know you mentioned that you were concerned about paying money to brokers), but with Wells Trade I get 100 free trades a year PER account.
100 free trades Lothar's normal investment account.
100 free trades Lothar's Traditional IRA account.
100 free trades Lothar's Roth IRA account.
100 free trades Mom's 401k rollover from previous job.
100 free trades Mom's Roth IRA account.

I can't possibly use all those trades in a single year...Not to mention, I can buy almost any low expense ratio Vanguard funds/ETF's for free regardless of whether I have any free trades left or not.

Honestly, I've been thinking about moving my checking account from BAC to WFC anyways. Now I have another reason to do so.

The commissions don't concern me as much as I lead on. But they are still commissions. I use Ameritrade right now. $9.99 is not that much in terms of percetnages. It's really negligable.



For ease of conversation about DCA, let's assume 100 shares initially at $100 per share. So a total invstiment of $10,000.

What I don't like about DCAing on a 25% drop is that if you double the share count, the cost basis drops 12.5% to $87.50. Not bad I suppose.

If 30 shares were added at $75, you only drop your cost bassis from $100 to $94.23. This is almost pointless, reducing the costs basis by about 5.7%. It's not bad, but it is not that good.



Current strategy:
On a 50% drop though, let's say that I add $10,000 in shares. Or more specifically, 200 shares for $50 at a cost of $10000. So, I have 300 shares now at a cost of $20,000. With an average buy price of $66.66. A 33% reduction in cost basis whcih require a 9% run up from $50 per share just to break even. In reality, I would probably do an increase in the 100-200 share region somewhere.

What I am thinking though is that i should use the above strategy but only require 35% or 40% dips which I see atleast once each year. I have one stock that is down about 60% right now but it falls under the category of "bought many years ago" and wish I never bought it. But even have said that, it is still undervalued and not a horrible company. I do on occasion think about selling and moving the cash into USG.

Scenarios could go on forever though. I need to bust out an Excel sheet.

 

[IHateMyJob2004]

LOTHAR,

NE is the biggest, ICO is the 2nd biggest and BOLT is the 3rd biggest.

I don't want to pry, but I have two questions. Which of the above do you view as the most likely to be around 20 years from now (all is an answer)?

Also, what are your ball park valuations.

I'm going to read up on them.

 

[IHateMyJob2004]

Lothar,

FWIW: All my holdings are down less than 20&#37; except for GE, down 40%. I have to double check that one with my official records but maybe I should dollar cost average there.

 

[Jassi]

lothar - The WFC brokerage accounts give the 100 free trades for having a $25000 balance. Do they count the money tied up in stocks towards that balance? Also, how do you like the service itself? I'm planning on migrating from Etrade.

 

[IHateMyJob2004]

Jassi, was it $25,000 (as you say) or $2500? I thought I saw a balance requiremnt but only in the thousands.

Lothar,
Does WFC do options, stock, bonds, etc?

 

[yllus]

Anyone doing anything with BBY? They've taken a bit of a tumble recently.

 

[lothar]

LOTHAR,

NE is the biggest, ICO is the 2nd biggest and BOLT is the 3rd biggest.

I don't want to pry, but I have two questions. Which of the above do you view as the most likely to be around 20 years from now (all is an answer)?

Also, what are your ball park valuations.

I'm going to read up on them.

Only in principal...
The biggest now is ICO, then BOLT, then NE, then NOV, then SD if you consider paper gains.

Even though NE was the biggest investment initially, their stock has gone almost nowhere since I've owned it, while all the others have gone up.

NOV will be here for 20 years, no doubt about it. They are highly profitable and will continue to be profitable. No question about it.

BOLT will be around. They've been FCF and OE positive for all the past 15 years except 1 year or so. If they've survived the tech bubble, 2001 recession, and 2008 credit crisis/energy bubble I have no reason to see that they won't be alive the next 20 years in some way, shape, or form. I doubt they'll go bankrupt.

I don't have any ballpark valuations for ICO or SD yet.
I valued NE to be $42 when it was about $31.
I valued BOLT to be somewhere between $16-18 when it was a $9 stock in August.
I valued NOV to be $73(which seems overly conservative).

I picked up most of those businesses when they were trading near book value.

 

[IHateMyJob2004]

Lothar,

All I have to say is good work. So, all your buys are stated with screens? Curious, what do you do for a living? I'm a software enginer

As for SD. I have read enough about them to know that they are well run and that they have recently been picking up assets for less than their worth. So alot of cash is going out hte door and not in. The hard part is value. I honeslty have no clue. But when Prem Watsa is buying SD at $5.15/sahre like he is, it is hard to think that he is unsure of it. He owns 12&#37; of SD which makes up aboutr 1% of his holdings.
http://www.gurufocus.com/holdings.php?GuruName=Prem+Watsa

I really need to dig into SD more. Their value is tied into future natural gas and oil prices. I have a feeling that oil prices will go up. So, natural gas revenues will probably go up also as energy demand increases even if nat gas prices don't. It's a bit of a gamble but cash from ops could easily hit $1 billion. If cap ex is reigned in, FCF could easily be in the low $100 millions.

Some digging:
Proved reserves estiamted at $5/share
Unproved reserves estimated at $8/share

With higher oil prices, those estiamtes go up.

 

[lothar]

lothar - The WFC brokerage accounts give the 100 free trades for having a $25000 balance. Do they count the money tied up in stocks towards that balance? Also, how do you like the service itself? I'm planning on migrating from Etrade.

Yes, they do.
Also if you have a mortgage through them, 10% of it automatically counts.
Meaning if you have a $250,000 mortgage with them, $25,000 counts towards the balance requirement for PMA.

WellsTrade is good for what I use it for...It may not be good for what other people want to use it for.
But then again I've never had any problems with any broker. So far I've used WellsTrade, Bank of America (now known as "Merriill Edge"), Fidelity, Schwab, and Scottstrade. Never had a problem with any of them.

 

[lothar]

Jassi, was it $25,000 (as you say) or $2500? I thought I saw a balance requiremnt but only in the thousands.

Lothar,
Does WFC do options, stock, bonds, etc?

Balance requirement is $25,000.
Unlike Bank of America, you don't have to keep $25,000 in checking or CD's to get free trades. If you have $25k worth of shares in JNJ(or any other stock) that count towards the balance.

Yes.
However, I only use them for stock.

Stick with Fidelity or Zions Direct for bonds. Their bond desk are considered to have the best prices among all brokers.
Never use anything else for bonds besides Fidelity or Zions Direct because they have institutional pricing.
http://online.wsj.com/article/SB125634041157104873.html

I don't do options so I have no idea how they compare to other brokers.
I believe they do offer options, but you may want to compare prices. Not sure if they offer "complex" option chains or not since as I said before, I don't do options. If I ever do options, it would only be put on a stock I actually want to own.

 

[TheBDB]

Does anyone worry about having all of their investments through a single company? Once you have 6 figures or so, does it make sense to start a new account with a different company in case there is a scandal or something and a firm fails? I use Fidelity, and while it is hard to imagine it failing, should I bet my entire future on that.

 

[lothar]

Lothar,

All I have to say is good work. So, all your buys are stated with screens? Curious, what do you do for a living? I'm a software enginer

As for SD. I have read enough about them to know that they are well run and that they have recently been picking up assets for less than their worth. So alot of cash is going out hte door and not in. The hard part is value. I honeslty have no clue. But when Prem Watsa is buying SD at $5.15/sahre like he is, it is hard to think that he is unsure of it. He owns 12&#37; of SD which makes up aboutr 1% of his holdings.
http://www.gurufocus.com/holdings.php?GuruName=Prem+Watsa

I really need to dig into SD more. Their value is tied into future natural gas and oil prices. I have a feeling that oil prices will go up. So, natural gas revenues will probably go up also as energy demand increases even if nat gas prices don't. It's a bit of a gamble but cash from ops could easily hit $1 billion. If cap ex is reigned in, FCF could easily be in the low $100 millions.

Some digging:
Proved reserves estiamted at $5/share
Unproved reserves estimated at $8/share

With higher oil prices, those estiamtes go up.

Both ICO and BOLT I found with different screens.
SD, I found because you mentioned it about 4 months before I bought it and I looked to see who owned the shares.
NOV has been my favorite oil stock previously...It's only natural for me to visit them again if I am shopping in the energy sector.
NE? Not sure how I found it. I looked for companies that were in the gulf...It was between them and Ensco. I decided to go with NOV and NE instead of Ensco.

I'm a pharmacist.

How did they come up with those estimates? What price/barrel are they assuming to get those estimates? Would be nice to know.

 

[lothar]

Does anyone worry about having all of their investments through a single company? Once you have 6 figures or so, does it make sense to start a new account with a different company in case there is a scandal or something and a firm fails? I use Fidelity, and while it is hard to imagine it failing, should I bet my entire future on that.

No.
No. I use brokers based on what services they have to offer, not based on me stuffing 6 figures in their accounts. I use Fidelity for their bond desk. I have my reasons for using other brokers. None of them is because I'm scared of them going bankrupt or losing my money.

 

[IHateMyJob2004]

Does anyone worry about having all of their investments through a single company? Once you have 6 figures or so, does it make sense to start a new account with a different company in case there is a scandal or something and a firm fails? I use Fidelity, and while it is hard to imagine it failing, should I bet my entire future on that.

Once I hit the $1M mark I will probably start moving money around. till then I am not that worried.