Archive for July, 2015

Listening to Jim

Sunday, 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.




Saturday, 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

Thursday, 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