About Apple

August 25th, 2015

August 25,2015

Apple offers a very clear illustration of the difference between ” specific risk + market risk“…AAPL versus plain “ market risk “… SPY.

They say almost everyone who invests owns AAPL one way or another, either  directly or through a 401K plan or whatever. Spy is almost 4% AAPL. You can count me in AAPL  both  via SPY, and direct share ownership .

Until last week I was asking myself  why I didn’t invest even more in AAPL.  It didn’t take long for the answer to arrive!

The AAPL picture compared to other growth stocks is very compelling.  A PE Ratio of +/- 10, wonderful !…  Price / Earnings to projected growth ( PEG….0.82 ), wonderful !….Free Cash Flow Yield 12.987% versus 2% for the 10 year Treasury, wonderful !….Return on Assets 20.5%, wonderful! ….lots of cash for possible dividend increases, debt pay down and stock repurchases, great !

The problem arises when you consider that all these numbers are based on the past.  But, ” Mr Market”  is more like a sales manager… interested only  in tomorrow’s result.  That’s where the trading price arrives from.  Differing opinions about the future. .  Who is right ?  Who has an edge ?. The risk  is that your opinion about APPL’s future may be incorrect.

In moving from past absolutes to future estimates ….

Q. Just how dependent is AAPL  iPhone sales on China’s growth ?

Q. Taking it one step further, just how dependable is China’s stewardship of its own economy ? Will there be sufficient buyers to meet Apple’s  China and southeast Asia sales and margin  estimates ?

Q What about the emergence of the Chinese smart phone manufacturer XIAOMI, which has announced the introduction of its smart phone to 10 new countries this fall. It has been reported Xiaomi’s Mi3 is almost 60% cheaper than the iPhone 5C …and better,  with a larger, sharper screen and a camera with higher density pixels.  Plus, Xiaomi’s pricing policy promises to be very aggressive in the emerging markets it has targeted.

Just considering the above, how do you think these factors could impact Apple’s numbers going forward.?…Still wonderful ?

The answer, for me,  is to give Apple the respect it deserves by owning some, and then, calculate at what price I want to acquire many more shares.

For me, it means that however much I want to own AAPL, its best to let it come to me and offer me a pitch I can swing at.  It means I should never let AAPL  account for more than 5% of my investment funds  and that I should buy it with a ” margin of safety ” in mind.  For instance, Morningstar says buy AAPL at $80 per share which is 20% off its Fair Value estimate and almost 30  % below this morning’s opening price of $111.07.  After yesterday, I’m not that confident this is impossible!

I am not strong on patience, so I’ll probably own 25 shares just to feel I am not being left behind !

SPY is also priced looking forward, but when you buy SPY you are buying the USA.  Its much easier to own SPY because SPY ‘s future is much easier to predict and the risk is not as compounded by facts you don’t know, you didn’t know.

At present, the yield of the 10 year Treasury is 2.09%.  The forward earnings yield of SPY is 7% ( 1 year out ). Which would you rather own ?

Richard Maurice Gore

 

 

Your Choice !

August 24th, 2015

Early AM….August 24, 2015

Awoke to see Dow futures down over 600 points with SPY and Nasdaq down big time as well.

What to do ?!

As many of you know, I am committed to a timing model on SPY.

SPY’s price relative to it’s 200 day moving average ( at month end ) determines how I react to sell offs.

SPY penetrated it’s 200 day moving average support on August 20.

Why wouldn’t I sell SPY ( and stocks acquired in the positive SPY environment ) the day of the crossover instead at month end ?

Here is  back tested data ( Courtesy of ETF Replay )  going back to January 3, 2000.

Sell day of crossover…..60 trades…..14 winners……46 losers.

Sell at Month End……   6 trades………5 winners…….1 loser

No one can deny this sell off has been ferocious.  BUT……..the market has been churning for 7 months and it seemed as though which ever way it broke,up or down,  would be a doozy.  I said in an Archived Post that Apple was my canary in the mine.  But, it still cost me $5,000 to bury my canary !

I have been saying in Posts that China looked like a Black Swan masquerading as a Dragon.  And, yes, Dragons are dangerous.  But, not being in the SPY model and not feeling my every equity sale should be tied to it, I’ve lightened up considerably,as I informed you.and have  more than 70 % of my funds in cash for deployment.

The big question for me  is….how much blood needs to be in  the street before I begin to buy ?  Reminds me of the time in high school that I caught a fly ball but didn’t know which base to go to with my throw.  Only this time I’m not day dreaming !

The answer for me is…. to recognize how difficult it is to pick market bottoms…..if the present situation persists, and SPY is under water on August 31,  I’ll prune almost all my remaining positions   back to ground level and then wait for SPY to cross its 200 day moving average to the upside before I re-deploy.

Richard Maurice Gore

 

 

China

August 17th, 2015

August 17, 2015

My Post August 2….” Black Dragons aren’t dangerous …right ? ”  The answer is they are not dangerous unless the Dragon is really a Black Swan masquerading as a Dragon.  If last week was any indication,  I can swear my hand was pecked  to the tune of about $5,000.  Keep an eye on that Dragon because if China goes, a lot of market value is going with it.

So,  with October just over the horizon and the overall market treading water for the past seven months, with SPY support at $204 and $ 198, I’m continuing to keep a low profile with slim positions across the board and a ready reserve of dollars  to  deploy.  Although I am a bull, I must enter the market at prices that allow me to consider myself sitting pretty.

I don’t have any Chinese investments, nor emerging market Asia investments because of the impact China can have on these economies. China is too opaque for my money.  They , Germany and Japan are attempting to gain an advantage over us by creating or allowing currency disequilibrium to make our exports more expensive to them and their exports to us priced just right.  I can accept this from Germany and Japan because they are attempting to reignite their economies and we see this as ultimately beneficial for our exports.

But, China is a different story.  Their currency manipulation seems more a crisis reaction to mismanagement.  I find it more than a coincidence that Macao is such a prominent site for gambling.  The Chinese love games of chance and it wouldn’t surprise me that their stock market and real estate market is grounded on a bedrock of speculation well beyond our present perception.  This could be the Black Swan for this bull market.

Prediction;  Interest rates will not be increased tomorrow.  The possibility of  additional negative news of an emergency  in China could make the dollar even stronger, trigger a big cap sell off and lead directly to a USA recession.

Richard Maurice Gore

 

About Iran,

August 13th, 2015

August 13, 2015

Nobody asked me , and since  very few will probably  read this, I thought I’d chime in on the proposed Agreement with Iran, if only to clarify my own thinking..

To me, the whole idea of signing a political  agreement with Iran is a non starter.  Why?….Because Iran is a religious state , not a secular state.

How can the USA believe it can arrive at a ” workable ” political solution with a country run by religious zealots who have never come close to repudiating their assertion that we are the Great Satan.  A country which  refuses to release the few USA hostages it is holding…. as a sign of good faith. That is a “tell” on the eagerness of our government to reach an agreement. … Ridiculous!

We are fooling ourselves if we think in terms of politics. Instead, let’s think in terms of religion. Do you believe  there is any possibility for a religious settlement with a fundamentalist Muslim regime ???

Starting with Abraham, more deaths and killings in history go back to governments run  by  God’s will,  and that trail ends at Iran’s doorstep.

If,  we are the Great Satan, exactly what is binding them to the terms of any agreement made with the devil ???

If an oath made under duress ( sanctions ), is no oath at all, ( Richard II , Peasants Revolt of 1381),  and if,  under their religion, any undertaking is non binding without first invoking the blessings of Allah,  how   can we possibly believe  they will consider themselves  bound by the terms of this  agreement. My  perception is that  their ongoing  purpose will be to deceive and not comply… by any means possible.

Them fooling us is far too big a risk for us to take for whatever short term emotional relief it gives our leaders.  The Israelis understand precisely what’s at stake,  and as close to Iran as they are geographically,  they see less risk to themselves if nothing is done.

And…everything else aside … I don’t have too much faith in our  performance oversight many  thousands of miles away, if we can’t even  keep people off the White House lawn!

No, it seems to me that our government officials will once again misread the situation,  just as they failed to see China and Viet Nam were enemies for two thousand years and that when the chips were down, the Vietnamese felt far more strongly about being Vietnamese than being Communist .. Who among our so called  ” Best and the Brightest ” understood that and took that tack. And, lots of costly perceptions since then including, but not limited to invading Iraq.

Looking back it seems we learn ONLY from our mistakes.  I don’t credit anyone in our present government with a precise understanding of the outcomes. And with the ” flash crash ” penalties of the digital revolution shrinking the world while multiplying the potential for sudden gigantic  loss, I’d rather slow it all down and do nothing…at Iran’s sanction expense.

I truly believe that if we sign this Agreement, Iran’s Ayatollahs will alter their opinion of us.  In their eyes, we shall have evolved from the Great Satan to the Great Stupid Satin.

We need proposals that make us strongly believe we are  safe and we need the hostages thrown in as a sign of good faith and a statement from the head Ayatollah repudiating their assertion we are the Great Satin.  Without that …let’s wait for the sanctions to unseat their religious government and replace it with a secular regime.

 

Am I missing something ?

 

Richard Maurice Gore

 

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About Cecil…..

August 5th, 2015

Can’t focus on the market when an outrage like this happens.

Too much talk about legality and not enough talk about morality.  Too much talk about conservation practices and not enough talk about reverence for life. What a beauty he was !

And don’t give me  that crap about misplaced sensitivity to animals while people are suffering.  So, why can’t we worry about both people and animals ?

When I hear Walter Palmer’s explanation about  the” alleged”  illegality of his transgression, as if it were some misunderstanding,  I don’t hear any sympathy whatsoever  for Cecil.  Palmer doesn’t understand what the fuss is all about.  He just doesn’t get it . I want him to get it !

I wouldn’t be a bit surprised if Palmer  had ” experiences”  with little animals when he was a young boy. And, for him,  trophy hunting is a legally safe alternate outlet for other dark impulses within him.  That he needed to shoot Cecil with an arrow so that the kill experience could be prolonged by 40 hours says a great deal more.

Serial killers like BTK need souvenirs to re-live the experience.  So too do trophy hunters.

If I were allowed  to pronounce sentence on Palmer ,  the souvenir I would deliver would be to brand his forehead with a  ” C ” so that for the rest of his life he would be forced to explain and re-explain why he  lured Cecil from the protection of a preserve to a makeshift ” hunting farm ” .

 

Richard Maurice Gore

Month End…The Buy Survives

August 2nd, 2015

August 2, 2015

Once again SPY ( S&P 500 Index ) has survived….900 uninterrupted days returning an accumulated 79.99 %.

SPY closed July 31 at $ 210.50, 2.53% above it’s 200 day moving average price of $209.48 and 6.7% above its 52 week mid-range price of $197.35.

SPY’s  20 day moving average price  is $209.48 and it , ( SPY’s 20 day moving average price ),  has crossed under it’s 50 day moving average price of $209.61,  reflecting this week’s happenings in China.

Whew ! It turns out that wasn’t a Black Swan sighting…it was a Black Dragon sighting !  Black Dragons aren’t dangerous….right ?

Richard Maurice Gore

Listening to Jim

July 12th, 2015

July 12, 2015

I try to watch Jim Cramer’s ” Mad Money ” on CNBC as often as I can.  He clearly enjoys what he does…his nightly stated intention being to help you make money.  His encyclopedic knowledge of equities impresses me.  He has helped me by pointing out paths less travelled which deserve  investigation by me.

Superficially, he seems to be all about stocks, but his real message is to stay away from stocks…UNLESS you have the time and motivation to do all the research required to match wits with the guy on the other side of your trade.  He  suggests you channel your equity investments toward Index funds and Index ETFs  such as SPY ( S&P 500 largest USA Equities ).  That being accomplished, he will teach you to invest your ” Mad Money “, the money you have to play with,  in a manner which is thoughtful not playful.

The USA stock market ended  the week of July 10,  as a week of Greek and Chinese inspired turmoil. This was the type of week sure to give one an ulcer had he not been occupying a knowledge inspired zone of calm and confidence.  This comes from having a game plan and seeing the market obeying your every command.

The action of  SPY since January 1 carries a relevant message…. tug of war within.

Market close December 31,2014,. $ 205.54.  Market close July 10, 2015 $ 207.48.  A gain of 9/10 of 1 % year to date.  That is about as flat as you can get.  That tells me this is a stock picker’s market.  In other words, a market where having an edge wins.  A market where the specific risk of individual stocks is higher than normal .  A very dangerous market for the average investor. You had better know what you are doing or stay within the relatively safer precincts of SPY.  The twelve moth appreciation of SPY has been 5%.  Not a loss !,  and its not scanty money market interest ( a net loss when adjusted for inflation )

If you are retired, and 5% will float your boat, I suggest you stay with SPY.  Unhappily, 5% will not float my boat,  unless I enjoy sailing with water up to my thighs in the main cabin.

The far more dangerous alternative is to invest in stocks,  and here is where focus, motivation and knowledge improve your risk profile.  The underlying question for every stock in your portfolio is ….WHY?  Goldman Sacks has a ” Conviction List ” and you better have your own conviction list. And, you better be able to articulate a plausible reason for every stock on your list.  And,  your reason shouldn’t be because its on this list or that list.  True conviction comes from your knowledge that you have done your work, not that Goldman has done theirs.  Jim Cramer gives lots of clues on how to approach the work.

For instance,  just the other night Cramer  pointed you toward the ” 52 week  new highs list ” as a place to start an investigation in a market that is selling off.  If a stock is making new highs while the rest of the market is selling off, doesn’t that tell you that  the new high stock is worth investigating !

By conviction list , I mean a list of stocks you would invest more money in if the market sells off….rather than freak out and have a perfectly good investment be shaken out of your  hands !  By having a conviction list you would be buying while everyone is selling and selling into strength when your investment more than pans out.  That is the recipe for making money with individual stocks.

My conviction list starts with my conviction about the primary direction of the market. Do I believe this market has legs ( yes I do )  WHY ?..low interest rates and high earnings yields relative to alternative investments.  If you really believe this  (as I do), then everything else you hear or read is just noise, a buying opportunity….so smile !  And, this week you had a pretty good example of the type of damage ( temporary ) noise can create. That the market closed Friday  on a high note was , to me, indicative of its internal strength.

Turning to my portfolio, 40% invested,  I was disappointed that equity prices didn’t continue lower as they hinted they would earlier in the week. Just a hedge fund head fake.

If the market won’t go lower,  and allow me to buy on weakness,  I’ll just need to create some synthetic weakness to allow me to purchase at lower prices.  I don’t have a ton of patience !  I’ll create this opportunity by contracting to purchase specific equities at a specific ( lower ) price I select.within a specific time frame.  For instance, I intend to contract conditionally  to purchase a specific amount of Time Warner Communications at $82, expiry August..    As of the close Friday, Time Warner closed at $88.67 per share.  My contracted buy price is  7.5% below Fridays close.  Is buying at a 7.5% discount, buying on weakness ?  Maybe.  It certainly isn’t buying at a premium. And, here is the kicker….I’m to receive a 10.6% per annum premium ( up front ) for taking this risk.   If I’m wrong and Time Warner gets assigned to me at $82 per share while the market price is $77 per share, I lose ( temporarily ) but I can apply the  premium to reduce my per share cost from $82 per share. And, since I am convinced about Time Warner’s prospects, I’ll take my chances with a smile.

Why Time Warner ? , Why Disney ? ,  Why O’Reilly Automotive, Why Mohawk Industries ? Why Walgreen Boots Alliance ?, Why Apple ?, Why Gilead Scientific ?,  Why CVS ?,  Why SPY ? at a strike price of $199.  Trust me when I tell you I have my reasons.  But, this is my conviction list. I suggest you either create your own conviction list, buy SPY  or stock up on TUMS.  Also please read the DISCLAIMER in my Archives,   April 19,  which explains why your conviction in me could be better placed in you !

Oh, and a final word.  Unless you can operate effectively on two to three hours sleep per night,  I wouldn’t attempt all this ” conviction ” work while pursuing a full time career.  Instead, I would follow Jim Cramer’s advice and  invest in Index funds or Index ETFs. I know I could never have expended anywhere near the research effort required to create a conviction list during my working career.  Its far better to watch grass grow ( SPY ) than fret you don’t have enough information to match wits with the hedge fund professional on the opposite side of your trade.

Richard Maurice Gore

Monday – Early AM – Greece Agreement in the wee hours.  Expect that to impact the premiums I was expecting on my “synthetically”  weakened conviction list.

 

 

Greece

July 4th, 2015

July 4, 2015

Here is my logic on this subject.

A member of the Euro Block and it can’t pay it’s debts = uncertainty about stability of European Economic Union = US dollar safe haven.

Who benefits from a strong dollar = European exporters = primarily Germany.

Europe is trying to re-ignite economically, so a strong dollar/ weak Euro  helps make European export merchandise bargains.  Very similar to what is happening at Buffalo, NY.  With the Canadian dollar worth just 80 USA cents, it pays to shop in Canada.  Who takes the hit….Buffalo storefronts.

A strong dollar versus the Euro hurts USA export storefronts and any USA international company that needs to convert its local currency profits to dollars for remittance and display  on USA home office income statements.

But, it seems a decision has been taken to play on and on with the “Greece” card to allow time for Europe to reflate and be able to balance its strength with the USA. All the talk and uncertainty about Greece  plays right into Germany’s objectives.

Going back to the time of Adam Smith, international economics has been thought to be a self correcting mechanism…sort of like a pendulum’s swing.  At this  moment the ” Greece ” card is causing the dollar to swing toward strength and the Euro to swing toward weakness. At some point in time the crisis will resolve itself.  When ?  Read on.

The Greek crisis also plays into the hands of hedge funds and individuals like Carl Icahn (  and me ) who want to buy equities with less risk at lower prices.  Our wish is being aided and abetted by the talking heads on TV who need to fill air time and do so by treating the crisis as if it were huricaine Greece.  Will it strengthen from a tropical storm and when will it make landfall.? The closer the storm comes to landfall the closer I am to increasing my 41% stake in this market.  I believe its all a ploy and the storm will weaken and/ or miss making landfall. I need to make my move before the crisis abates.

With USA internationals taking the hit, temporarily , the S&P 500 is flat. The mid caps, small caps and micro caps are carrying the market, temporarily.

Q…..When will the crisis resolve itself ?   When will USA interest rates rise ?.

A…. When Europe has reflated itself sufficiently well that it’s economies are following the same growth trajectory as the USA .  At that point a rise of USA interest rates will not strengthen the dollar or weaken the Euro.  The US economy will be able to resume export- import activity with  Europe in a balanced way and sales will be based on factors other than price advantages / disadvantages  based on currency disequilibrium.

For sure, this little post will be drowned out by TV and anyone who wants to see stocks fall.

If stocks do fall,  I’m an Index ETF buyer ( but maybe not SPY )  and an Index ETF Put writer( definitely SPY ) . As long as my perception is that USA will continue to keep interest rates low and SPY remains above its 200 day moving average ( at month end ), I’ll be searching for opportunities to be long.

Richard Maurice Gore

 

 

Tale of 2 Tapes

July 2nd, 2015

July 2, 2015

SPY ( S&P 500 Index ) closed 2014 at $205.54. …. It closed June 30, 2015 at $205.85.

What’s going on here ? ….. Not exactly a wealth recipe !

On the other hand, the SPY trade of December 30, 2011 is still marching on.  This trading theory requires you buy SPY if it has  penetrated and closed above its 200 day moving average on the last day of any month. The last day of the previous month should have found it below its 2oo day moving average. I have been waiting 878 days for SPY to create a sell signal and it still hasn’t.  During this time, SPY appreciated at an average annual gain of 21.71%…..without me on board!  ….That 21.71%per annum is a wealth recipe !

Even though I’m not in the trade, I am using this SPY trade as a signal that its safe to swim. When SPY  takes its month end dip below its 200 day moving average, I’ll consider that either a Great White Shark sighting or a Black Swan sighting.  Take your pick ! ….I’ll be gone !

SPY represents the” varsity ” of the  USA economy which presently  is considered healthy enough to foster a debate about when the FED will raise interest rates.  But, these 500 SPY entrants  perform on a world stage either by conducting operations overseas or by exporting to the world….so the dollar’s strength has a head wind  influence on profits.   Additionally,  15.3 % of SPY holdings are in the financial services sector ( including banks ).  Bank’s , yearn for an interest rate hike to ensure a profitable loan book…..And,  7.8% of SPY holdings are in depressed energy names.  It’s the pulling and pushing of this mixed SPY  bag of 500 which is dictating that SPY follow a flat biased upward trajectory.

So,  if you don’t want to watch grass grow,  but are uncomfortable with any more than market risk ( SPY ),  You may want to consider an alternate slice of market risk which steers clear of the strong dollar and low oil prices. For instance, here are several alternative index ETFs  and their returns  YTD

IWM….the smallest 2000 companies in the Russell 3000 index…..5% return YTD

MDY….Tries to match returns of the S&P Midcap 400 ( average market cap of each included stock $4.9 billion versus SPY…$ 73 billion.  This ETF has appreciated 4.5% YTD

VTI…holds almost every liquid USA stock and includes 3,800 holdings in its basket. Return 2.5% YTD  with the largest 500 of the 3800 acting like a sea anchor.

If you are willing to accept more risk for more return, you may be willing to assemble a small portfolio of Sector ETFs to complement IWM and MDY.  Such as Biotechs as represented by XBI, 49.95% appreciation  since November 3, 2014,  Health Care as represented by XLV,  11.66% return since November 3, 2014, and Defence / Aerospace as represented by ITA with an 8.19% return since November 3, 2014.  These are not indexes, so you are relying on stock pickers selections  for the ETF.

In my opinion….

#1   There are a lot of people who want the market to correct but it resists giving ground for more than a day or two…an indication of its internal strength.

#2  The USA can’t raise interest rates in any meaningful way until signs of over heating are prevalent because it will cause the dollar to strengthen to the disadvantage of USA international companies

#3  As long as interest rates remain low and alternative investments can’t compete with USA earnings yields,  intelligently selected equities will continue to prosper.

 

Richard Maurice Gore

 

Channels are Open

June 30th, 2015

June 30, 2015

I have been advised by web hosting service that, if you wish,  you can again use ” Word Press ” Comments “.

Or, you can contact me at RMG81836@gmail.com

Look forward to hearing from you…..Richard Maurice Gore