Archive for April, 2012

No Man’s Land

Saturday, April 28th, 2012

April 28,1012

No Man’s Land…..That is precisely where we are now.

If you are a market timer, almost by definition, you are a trend follower.

Standing on the sideline , I respect the following:

1 – We are in a secular bear market,  so every up move is suspect.

2- This trendless market is especially dangerous for an ” impulser” such as I am.

3- We are in the May – November time frame which is likely to lure the ” its different this time ” crowd  and be enticing to me.

SPY has violated its 50 day moving average three times in the past 10 days, but has most recently clawed back above its 50 day moving average.  I’d be game for a short term let my winnings run ( to a point ) trade if SPY can take out its April high with conviction (  serious volume ) 

At that point , I probably would do the following –  SPY 40% of my capital and 10% each for FBT, XHB, IWF, IWO, QQQ,  DDM.

Now, all I need to do is wait and be ready to pounce !

Richard Gore aka Rich, Dick, RMG, …..Smiley from Woodlawn.

Sell Alert – Its Almost May

Monday, April 23rd, 2012

April 23, 2012

Its almost May – I think I’ll leave the market a week early because we are almost at the end of our normally positive  November to May run  and I don’t see any compelling reason to hang around and needlessly risk capital..

Plus….

I don’t see a definite positive market trend

Too much European worry overhang

China  engine not humming.

Mixed bag of USA earnings

Gold sending a disinflation  signal. 

Housing re-sales are down and there is plenty of foreclosure material out there.

Apple is our canary.  Think I just heard a cough. Watching closely.

The last week of April last year was the 2011 high for the market.  I overstayed my welcome only 10 days and was lucky to escape with 11% instead of 14% profit.   That is how fast the climate can change.

We are now entering the May / October  danger zone.

As of  Today ..

Realized profits….$272 since Jan 3

Dividends…………$4,368

Total Profits on Jan3 / Feb 10 Portfolio ….$ 4,638 on Average Investment of $800,000 –

Equals 0.57% profit

I almost would have done just as well to have kept my capital in a Chase Savings account.

So, I’m out of the market with my capital intact.  I’ll wait patiently ( grrr )  for a compelling reason to re-enter the market.  But,  it better be a very good reason if its after May 1.

I keep reminding myself –  its better to burn capital for living expenses and NOT lose in the market  than it is to burn capital for living expenses AND lose market capital.

I’ll be working on putting together a new defensive interest / dividend oriented portfolio that can work till I can assess the late November market climate.  I’ll give you all a heads up on what I’m doing just before I do it. 

Richard M. Gore

A Vote for “SPY”

Thursday, April 5th, 2012

April 5,2012

My financial journey remains a work in progress. And, every so often,  I believe I need to step back and cast a revisionist eye on what I’m doing.

Until now, I have followed the rule of thumb taught me as a young officer at Citibank.  Risk no more than 5% of your capital  in any one name.  I have followed this rule, whether lending or investing,  my entire business life.  That is why,  at this moment, I have 4 reserve positions of $ 40,000 each ( earning nothing ) instead of building out my existing positions..   No existing  position exceeds 5%.of my total investment capital.

But wait !  On reflection, I believe I have been totally ignoring the idea that the ETF (  SPY )  is really  500 stocks in one basket. How much more diversification do you need than investing in  500 of the largest USA corporations? !!   And what a bargain it is at $7.00 commission per trade!  If  I bought each of the 500 stocks to fill my own personal  basket, the brokerage commission would amount to $7.00 x 500 trades  = $3,500. instead of $7.00.  I consider that a very big break for the private investor.

Until recently, much higher brokerage fees encouraged a buy and hold strategy.  This was reinforced by successful people such as John Bogle, the founder of Vanguard who claims that a buy and hold strategy on the S&P 500 Index  (SPY ) would outperform the majority of  portfolio managers over time.

If you look back 10 years that claim may be true relative to portfolio managers.  But, a passive buy and hold strategy took your capital  on a complete round trip all the way back to your starting point  10 years ago. That’s definitely not for me.!

So, what to do. ?

A ) I can either invest time and effort to surround SPY with other ETFs which represent Sectors, Countries, Commodities, Precious Metals, Currencies etc. such as I am doing now.  The goal is  to enhance the roughly 11% SPY has gained over the past three months. But, that takes a great deal of effort and time for maybe only  marginal success .  Or, 

B )  I can spend time sifting through charts and technical data to become  a better SPY market timer. And additionally. subscribe to a timing service such as The Chartist ,  as I have. Or, 

C  ) I can  invest only  in SPY  on a ” buy and hold ” basis  and  know I own the USA stock market for better or worse and concentrate on swimming and golf .  Here time ( if you have enough ) will ride to your rescue even if  you entered SPY at a less than optimum price. Or,

D  ) I  can invest some  of my money in SPY ( on a buy and hold basis )  and market time the  rest in SPY  by following a rigorous  mechanical strategy to catch intermediate trends.  In no way am I interested in day trades.

I think I like ( D ) Buy and Hold , say 20% ,  Time 80% and add a little rocket  fuel from IWF ( Russell Growth 1000 ) and QLD ( QQQ x 2 ) . The timing portion would be 70% SPY, 15% IWF, and 15% QLD.  The timing driver would be the SPY chart.  Only 3 symbols instead of 25 to simplify and save commission ( $7  x 25 positions = $175 = $350 for a round trip ) ( $7 x 3 positions =$21= $42 for a round trip.

As for the immediate future, I’ll  just  ” go away ” ( sell my aggressive positions  )  April 30,  unless there are compelling reasons to stay invested.  But, I’ll  be gone before April 30,  if SPY violates  $ 127.75 ( with conviction ).  I’ll be watching all the action and volume around the 50day, 100 day and 200 day moving averages for SPY.

When I do leave this market, I’ll be investing in 8 to 10 income focused  ETFs to get a better than a mini money market return 

Today , as I  write this, the markets are dancing to Europe’s mournful  tune .  But,  this I know  for sure.   The USA is regarded around the world as the best place to invest. And, with interest rates as low as they are, the main USA risk is to be out of the market because the market has no competition,  So, I am ” all in ” except for the 4 reserve positions.

Richard Maurice Gore

How Corporations Should Compensate CEOs

Sunday, April 1st, 2012

April 1-2012

The 2008 meltdown and bonus hi jinks caused private  investors to lose confidence in Corporate and Wall Street compensation practices. 

Individual investors watched failure being rewarded with outsize bonus packages while their 401Ks became 201Ks.

If you and I owned the business, how did CEOs and compliant Boards get away with this ?

Is this how capitalism is supposed to function ?…or…is this a perversion of capitalism called  What are you gonna do about it ? ..ism

Obviously CEO compensation at public corporations  is seriously out of step with our perception of fairness.  As the power of individual investors, as owners,  has become  diffused to the point of irrelevency,  the power of entrenched insiders has filled the vacuum.

This post outlines my thinking on how corporate CEOs and managers would  be compensated in a fair world and on a level playing field.

 I do not propose how to implement these ideas because I have no idea how. It would take an enlightened CEO, a white knight or someone with the firepower of a Carl Icahn to effect needed changes. 

To my way of thinking there are two types of CEOs….INNOVATORS  and CONSERVATORS.

For example, here are four well known names.  Under which heading would you place  Steve Jobs,  (Apple ),  Larry Ellison ( Oracle ),   Vikram Pandit ( Citicorp )  and Dick Grasso (ex  NY Stock Exchange ) ? 

In my opinion, INNOVATORS  use power to create change and their reward is the very process of achieving delineated excellence. 

CONSERVATORS use their power to maintain the corporate status quo and trust that their reward will be based on recognition of their ability to “shepherd”  their corporation over time through a dangerous world with an acceptable return on investment.  Their actions tend to be  based on accepted precedent.

Books are written about how  INNOVATORS gain power. 

How CONSERVATORS  gain power is shrouded by the clouds obscuring  an outsiders view. It takes the right mix  of education, background,  social  skills, absence of  enemies and almost Dailai Lama  type luck to emerge as the consensus selection at the corporate pinnacle.  According to Carl Icahn very many of the  unsuccessful CEOs he encounters tend to be ” nice guys “.

My basic premise is that in a world that craves justice and transparency, INNOVATORS AND CONSERVATORS  and the teams they lead should be compensated differently.  

CONSERVATOR  CEOs and their top five managers should be paid a multiple of the lowest hourly wage paid by their corporation.  I don’t care whether the multiple is 100 x the minimum hourly wage or 500 x etc. ( no overtime ).  I just want every investor to know what the multiple is and what the dollar result  is, so that they  can be  used as the starting point for determining  fair CEO compensation and for comparison.  No rewards,  just  those perks accorded employees at large, plus reasonable differences ( example – a separate dining room reserved for entertaining business guests ).

No options.  If you want to buy stock, do it the way I do it….do it out of your take home pay.  Why should I make it easy for you to cross the line from employee to owner…..to entrenched owner…..to entrenched owner surrounded by a compliant Board ?. What a slippery slope for me !

Oh … and, by the way…. what does it say about your confidence in your company and yourself as a CEO leader if you don’t purchase stock regularly enough to be considered an insider accumulator. …or do sell stock often enough to be considered a distributor. ?

Innovator  CEOs and their top five managers should also be paid the hourly multiple PLUS  A GRID PERCENTAGE  AMOUNT OF BEFORE TAX PROFITS .   For instance on 200 million profit this could be $4 million ( 2% ) for the CEO  to split between himself and his team.   Same rules as with Conservators. No perks other than those accorded employees at large.

How do you become an INNOVATOR ?

Easy… Every annual report will contain a section which gives management the opportunity to state its case to shareholders on why the year  under review should be considered an innovative season with playoff money. The driving concept being  What has the CEO and his team done to delineate the corporation from its competition by creating or widening a sustainable competitive advantage.

Whether or not innovator status is granted will be determined by the proxy vote.  Yes, the proxy vote !  You and I, as owners, will decide to accept or reject Management’s request for Innovator status.  If the request is approved by proxy vote, the status expires in one year and renewal will be a result of next years annual report / proxy vote process.

I do not wish to denigrate Conservators.  They are the bedrock norm.  Innovator status is elite status…at least for one year.  But, I would almost be willing to wager that there would be very few flip flops in status from year to year.

What will all of this accomplish. ?

1- You can be certain that if CEO pay is based on a multiple, hourly wages will increase precisely to the point where they do no  harm the   corporations competitive position.  That in itself will arrest the growth of the widening  haves versus have not gap.

2- More focus on competition and what can be done to delineate the corporation as elite.

3- Increased effort to create  a corporate culture capable of spawning a self perpetuating meritocracy.

4- More visionary use of cash including greater emphasis on R & D.

5- More focused effort on how to identify, recruit and train innovative and entrepreneurial thinkers

6 – Investors can again think of themselves as owners and know that their are no insider crony deals which draw off a substantial part of their profit for the benefit of a self serving few.

OK …Maybe I’ve oversimplified the solution.  But, I am absolutely certain that the above ideas ( as rough as they are ) take better aim at fairness than the CEO compensation systems we have in place, which are far too secretive and complicated for an owner ( investor ) to understand and control.

Agree ?

Richard Maurice Gore