7/27/02 Posting #2
Margin Calls
This is a very short note. Unless you are extremely comfortable owning stocks on margin, please think twice about it. As stocks drop, others on margin are forced to put up more equity to meet their calls. As such, the stock you own on margin maybe at the mercy of another holder who does not have more equity to put up, and that individual's stock will be sold to meet the call. That's one way stocks can gap down- due to margin selling and liquidation.
Saturday, July 27, 2002
7/27/02
Reese's Peanut Butter Cups
On Thursday the lead article in the WSJ concerned the possible sale of Hershey Foods. That got my attention in a quick hurry. I specialize in risk arbitrage. My mind though focused on Reese's and not on what Kraft, Nestle, Wrigley, Mars, or Cadbury Schweppes might pay for the business. In trading that day Hershey stock rose 14 points, and it was obvious to me the market thought Hershey could be sold for as much as $11 billion. I don't care about Hershey chocolate bars or the kisses or the cocoa or the syrup or the Almond Joy. York's peppermint patties or Twizzler's don't send me. But the Reese's that's another story. Then I thought why would I spend $11 billion on this company(that's presuming my piggy bank had the jack). Hershey's, at that price, would be valued at over 2 times annual sales and over 50 times earnings. That's a lot of Reese's. Milton Hershey would be laughing all the way to the bank- if he could. He died a very long time ago. Then I got to thinking. Milton and I have two things in common. We both love chocolate and we both come from a German immigrant heritage. Maybe I should try to keep the company in the family, so to speak. Then I thought. Am I for real? This is not a value. So I went to the Grocery Outlet and bought 4 Reese's Peanut Butter Cups for a $1. I savored every bite and realized this was the way to go. Putting $11 billion on my American Express Card makes absolutely no sense. I had come to my senses! My Mother would be proud of me.
Reese's Peanut Butter Cups
On Thursday the lead article in the WSJ concerned the possible sale of Hershey Foods. That got my attention in a quick hurry. I specialize in risk arbitrage. My mind though focused on Reese's and not on what Kraft, Nestle, Wrigley, Mars, or Cadbury Schweppes might pay for the business. In trading that day Hershey stock rose 14 points, and it was obvious to me the market thought Hershey could be sold for as much as $11 billion. I don't care about Hershey chocolate bars or the kisses or the cocoa or the syrup or the Almond Joy. York's peppermint patties or Twizzler's don't send me. But the Reese's that's another story. Then I thought why would I spend $11 billion on this company(that's presuming my piggy bank had the jack). Hershey's, at that price, would be valued at over 2 times annual sales and over 50 times earnings. That's a lot of Reese's. Milton Hershey would be laughing all the way to the bank- if he could. He died a very long time ago. Then I got to thinking. Milton and I have two things in common. We both love chocolate and we both come from a German immigrant heritage. Maybe I should try to keep the company in the family, so to speak. Then I thought. Am I for real? This is not a value. So I went to the Grocery Outlet and bought 4 Reese's Peanut Butter Cups for a $1. I savored every bite and realized this was the way to go. Putting $11 billion on my American Express Card makes absolutely no sense. I had come to my senses! My Mother would be proud of me.
Friday, July 26, 2002
7/26/02 Posting #2
Mutual Fund Outflow
For the most recent weekly July reporting period investors pulled out over $30 billion from mutual funds. That amount exceeds the outflow figure just after 9/11. Contrarians would consider this event significant in that it shows overwhelming bearish sentiment. That is an accurate appraisal of the sentiment. On the other hand, the individual investor, believe it or not, has quite frequently outperformed mutual fund money managers over the past several years. I don't believe one should shortchange the individual investor. The so-called experts clearly have been underperforming the S&P for many reporting periods.
Mutual Fund Outflow
For the most recent weekly July reporting period investors pulled out over $30 billion from mutual funds. That amount exceeds the outflow figure just after 9/11. Contrarians would consider this event significant in that it shows overwhelming bearish sentiment. That is an accurate appraisal of the sentiment. On the other hand, the individual investor, believe it or not, has quite frequently outperformed mutual fund money managers over the past several years. I don't believe one should shortchange the individual investor. The so-called experts clearly have been underperforming the S&P for many reporting periods.
7/26/02
"Confidence Comes Not From The Talking Heads On TV But From The Fundamentals"
This was a statement made yesterday by Treasury secretary Paul O'Neill before the National Association of Manufacturers in Washington. Yesterday the Commerce Department released information that factory orders dropped for the first time since March and was the sharpest drop since December.
Mr. O'Neil opined that he was optimistic about the rebound in investment. I suggest he look at the fundamentals rather than be a "talking head". The fact is business investment fell at the sharpest pace since 9/11. That comprises all non-military investment. If business is shying away from investing in business, then what does that tell you about the confidence going forward? Based on this lack of confidence, why should someone invest in business? This is telling, and will have an impact on future stock prices. Decreasing investment will directly impact the profits of corporations. Just look at IT spending and the telecom industry or what's left of it. Additionally, this lack of confidence will continue to weigh on the dollar.
"Confidence Comes Not From The Talking Heads On TV But From The Fundamentals"
This was a statement made yesterday by Treasury secretary Paul O'Neill before the National Association of Manufacturers in Washington. Yesterday the Commerce Department released information that factory orders dropped for the first time since March and was the sharpest drop since December.
Mr. O'Neil opined that he was optimistic about the rebound in investment. I suggest he look at the fundamentals rather than be a "talking head". The fact is business investment fell at the sharpest pace since 9/11. That comprises all non-military investment. If business is shying away from investing in business, then what does that tell you about the confidence going forward? Based on this lack of confidence, why should someone invest in business? This is telling, and will have an impact on future stock prices. Decreasing investment will directly impact the profits of corporations. Just look at IT spending and the telecom industry or what's left of it. Additionally, this lack of confidence will continue to weigh on the dollar.
Thursday, July 25, 2002
7/25/2002 Posting#2
Advance/Decline
As we move into the last 40 minutes of trading today, the Dow is off about 100 points and the Nasdaq is off about 50 points. Irrespective of the final numbers the last couple of days should have illustrated a point. A market's direction is ultimately determined by its internal strength and or weaknesses, and one of those internals is the advance/decline line. This line has been negative for some time, and even a large Dow upsurge yesterday was not confirmed by a change in the advance/decline strengthening very much. That's why the rally was suspect. Additionally, the new low list has kept expanding and expanding while the new high list was reduced to single digits.
The one bright spot is Hershey Foods as it skyrockets in price. The company is putting itself up for sale.
Advance/Decline
As we move into the last 40 minutes of trading today, the Dow is off about 100 points and the Nasdaq is off about 50 points. Irrespective of the final numbers the last couple of days should have illustrated a point. A market's direction is ultimately determined by its internal strength and or weaknesses, and one of those internals is the advance/decline line. This line has been negative for some time, and even a large Dow upsurge yesterday was not confirmed by a change in the advance/decline strengthening very much. That's why the rally was suspect. Additionally, the new low list has kept expanding and expanding while the new high list was reduced to single digits.
The one bright spot is Hershey Foods as it skyrockets in price. The company is putting itself up for sale.
[7/25/2002 7:14:45 AM | michael buchsbaum]
7/25/02
Arresting Reporting
God help us all. Yesterday many in the media suggested, while the markets were rallying, that the strength could be the result of the arrests made at Adelphia Communications. When handcuffs and not profits make stocks move, then we are in deep deep trouble. I for one would like to see some real growth in homeland free cash flow. I am an optimist. I see something really positive coming out of Adelphia Communications. It's possible that handcuffs might become the restraining unit of choice and replace handguns. If that did occur, we might research the number one manufacturer of handcuffs, and possibly buy their stock at value levels. Until that happens, show me the real net income per share. Green is my color of choice, and I hope yours as well.
Yesterday my early morning blog did not get posted for over 8 hours. I am at a loss of words to explain this happening. Someone suggested that a great many people in Northern California were fixed to their tv screens watching the Adelphia execs being carted off. I believe it was just a technology glitch but not the same one that has hit the Nasdaq for the past two years.
7/25/02
Arresting Reporting
God help us all. Yesterday many in the media suggested, while the markets were rallying, that the strength could be the result of the arrests made at Adelphia Communications. When handcuffs and not profits make stocks move, then we are in deep deep trouble. I for one would like to see some real growth in homeland free cash flow. I am an optimist. I see something really positive coming out of Adelphia Communications. It's possible that handcuffs might become the restraining unit of choice and replace handguns. If that did occur, we might research the number one manufacturer of handcuffs, and possibly buy their stock at value levels. Until that happens, show me the real net income per share. Green is my color of choice, and I hope yours as well.
Yesterday my early morning blog did not get posted for over 8 hours. I am at a loss of words to explain this happening. Someone suggested that a great many people in Northern California were fixed to their tv screens watching the Adelphia execs being carted off. I believe it was just a technology glitch but not the same one that has hit the Nasdaq for the past two years.
7/25/02
Arresting Reporting
God help us all. Yesterday many in the media suggested, while the markets were rallying, that the strength could be the result of the arrests made at Adelphia Communications. When handcuffs and not profits make stocks move, then we are in deep deep trouble. I for one would like to see some real growth in homeland free cash flow. I am an optimist. I see something really positive coming out of Adelphia Communications. It's possible that handcuffs might become the restraining unit of choice and replace handguns. If that did occur, we might research the number one manufacturer of handcuffs, and possibly buy their stock at value levels. Until that happens, show me the real net income per share. Green is my color of choice, and I hope yours as well.
Yesterday my early morning blog did not get posted for over 8 hours. I am at a loss of words to explain this happening. Someone suggested that a great many people in Northern California were fixed to their tv screens watching the Adelphia execs being carted off. I believe it was just a technology glitch but not the same one that has hit the Nasdaq for the past two years.
Arresting Reporting
God help us all. Yesterday many in the media suggested, while the markets were rallying, that the strength could be the result of the arrests made at Adelphia Communications. When handcuffs and not profits make stocks move, then we are in deep deep trouble. I for one would like to see some real growth in homeland free cash flow. I am an optimist. I see something really positive coming out of Adelphia Communications. It's possible that handcuffs might become the restraining unit of choice and replace handguns. If that did occur, we might research the number one manufacturer of handcuffs, and possibly buy their stock at value levels. Until that happens, show me the real net income per share. Green is my color of choice, and I hope yours as well.
Yesterday my early morning blog did not get posted for over 8 hours. I am at a loss of words to explain this happening. Someone suggested that a great many people in Northern California were fixed to their tv screens watching the Adelphia execs being carted off. I believe it was just a technology glitch but not the same one that has hit the Nasdaq for the past two years.
Wednesday, July 24, 2002
7/24/02 Posting #2
Fools Rush in Where Others Fear to Tread!
The Dow up 488. The Nasdaq up 61. Merck, JP Morgan Chase, Citicorp, Microsoft, and GE lead the way. They look similar to the stocks mentioned in my pre-opening blog of today. The rally has bad breath! On the New York Stock Exchange the advance/decline was 20 stocks up for every 13 down and on the Nasdaq 20 up for every 15 down. Those ratios don't make for lasting reversals.
Fools Rush in Where Others Fear to Tread!
The Dow up 488. The Nasdaq up 61. Merck, JP Morgan Chase, Citicorp, Microsoft, and GE lead the way. They look similar to the stocks mentioned in my pre-opening blog of today. The rally has bad breath! On the New York Stock Exchange the advance/decline was 20 stocks up for every 13 down and on the Nasdaq 20 up for every 15 down. Those ratios don't make for lasting reversals.
7/24/02
Bad Breath and New Lows
You probably think I am referring to this weekend's Gilroy garlic festival. Actually, I am talking about yesterday's trading when, on the New York Stock Exchange, there were 28 stocks down for every 5 that were up. Certainly that would indicate a market much worse than the Dow 30 stocks.
Yesterday the two companies with the highest market caps, GE and Microsoft, made new lows. Both market caps approximate $280 billion. At one time both had market caps of well over $500 billion or much larger than the GDP for most countries!
In the financial sector Citicorp and JP Morgan Chase traded down to levels not seen in some time. Their charts look like both stocks dropped off a cliff.
Talking about drops, Merck fell to a new low of 39 1/2. The board of directors announced a $10 billion buyback of shares. Since 2000, under a previously announced buyback, Merck had already spent $7.7 billion on buying their own shares. Maybe they should have increased the R&D budget for discovering new drugs. I would prefer to see corporate officers and directors reach into their own pockets and purchase shares- not by exercising options- but by making market purchases. That would be more meaningful, and something that you don't see too frequently these days. Maybe insiders are nervous about the market. If they aren't buying, why should the investing public buy? They should know more about their own company.
Bad Breath and New Lows
You probably think I am referring to this weekend's Gilroy garlic festival. Actually, I am talking about yesterday's trading when, on the New York Stock Exchange, there were 28 stocks down for every 5 that were up. Certainly that would indicate a market much worse than the Dow 30 stocks.
Yesterday the two companies with the highest market caps, GE and Microsoft, made new lows. Both market caps approximate $280 billion. At one time both had market caps of well over $500 billion or much larger than the GDP for most countries!
In the financial sector Citicorp and JP Morgan Chase traded down to levels not seen in some time. Their charts look like both stocks dropped off a cliff.
Talking about drops, Merck fell to a new low of 39 1/2. The board of directors announced a $10 billion buyback of shares. Since 2000, under a previously announced buyback, Merck had already spent $7.7 billion on buying their own shares. Maybe they should have increased the R&D budget for discovering new drugs. I would prefer to see corporate officers and directors reach into their own pockets and purchase shares- not by exercising options- but by making market purchases. That would be more meaningful, and something that you don't see too frequently these days. Maybe insiders are nervous about the market. If they aren't buying, why should the investing public buy? They should know more about their own company.
Tuesday, July 23, 2002
7/23/2002
Bear Market Rallies
Overnight the dollar staged its largest rally against the euro since last September. With the dollar strength U.S. stocks in foreign markets rallied sharply as well. That's the natural course of events. Stocks don't go up or down in a straight line. Just look at historical charts and that will be plain to see.
Focus on the current trends and don't be misled by day to day fluctuations. Again, looking at a chart will give you a picture of the trend. There should not be any doubt that the stock markets and the dollar are in bear markets and that the bond market has been in a bull market. Trends can last a very long time. When a long trend is broken, it stays broken for some period. That period can last 10-20 years and not 10-20 days. Rallies in bear markets give a respite to those investors needing to calm their nerves, and to raise the question as to whether a bottom has been reached. No one rings a bell at market bottoms. Only in hindsight do we know a market has reversed itself.
Yesterday I asked what is the rush. Today I am suggesting to keep your eye on the ball, and particularly the trend provided in charts. As the old saying goes, make the trend your friend. Daily fluctuations are the norm. That's what makes markets.
Bear Market Rallies
Overnight the dollar staged its largest rally against the euro since last September. With the dollar strength U.S. stocks in foreign markets rallied sharply as well. That's the natural course of events. Stocks don't go up or down in a straight line. Just look at historical charts and that will be plain to see.
Focus on the current trends and don't be misled by day to day fluctuations. Again, looking at a chart will give you a picture of the trend. There should not be any doubt that the stock markets and the dollar are in bear markets and that the bond market has been in a bull market. Trends can last a very long time. When a long trend is broken, it stays broken for some period. That period can last 10-20 years and not 10-20 days. Rallies in bear markets give a respite to those investors needing to calm their nerves, and to raise the question as to whether a bottom has been reached. No one rings a bell at market bottoms. Only in hindsight do we know a market has reversed itself.
Yesterday I asked what is the rush. Today I am suggesting to keep your eye on the ball, and particularly the trend provided in charts. As the old saying goes, make the trend your friend. Daily fluctuations are the norm. That's what makes markets.
Monday, July 22, 2002
7/22/2002
What's the Rush?
The media spends too much time talking and writing about searching for a market bottom. It makes for bad press and fruitless airtime.
Let's be productive and rational. Most bottoms are comprised of consolidation after consolidation. True bottoms can take place over long periods. On rare occasions there will be a V bottom marked by a long downturn and a sharp reversal. This happened in December 1974. Values were so extraordinary at that time. That is not true today.
I dislike shopping. I look at a sale and see an item marked 50% off. I'm rarely impressed by the markdown. Even going out of business sales aren't great as far as I'm concerned. So many company stocks were marked up to ridiculous prices that 50-60% price reductions aren't that exciting. I can do without almost all of the items on sale. But that's just me.
Please don't think you are going to outsmart a treacherous bear market. It's not going to happen. As they say, when they raid the whorehouse they take all the girls. (That is not meant as a male chauvenist remark. It's an old saying on Wall St.) Your "sister" or "cousin" maybe the prettiest of the bunch, but she's going too. That's the reality of bear markets.
Please take your time prior to investing more money. Do your homework. Invest a little at a time. Do not commit all the funds at one time. You are not about to pick the bottom. Hope may spring eternal but we're not in the hope business. What's the rush?
What's the Rush?
The media spends too much time talking and writing about searching for a market bottom. It makes for bad press and fruitless airtime.
Let's be productive and rational. Most bottoms are comprised of consolidation after consolidation. True bottoms can take place over long periods. On rare occasions there will be a V bottom marked by a long downturn and a sharp reversal. This happened in December 1974. Values were so extraordinary at that time. That is not true today.
I dislike shopping. I look at a sale and see an item marked 50% off. I'm rarely impressed by the markdown. Even going out of business sales aren't great as far as I'm concerned. So many company stocks were marked up to ridiculous prices that 50-60% price reductions aren't that exciting. I can do without almost all of the items on sale. But that's just me.
Please don't think you are going to outsmart a treacherous bear market. It's not going to happen. As they say, when they raid the whorehouse they take all the girls. (That is not meant as a male chauvenist remark. It's an old saying on Wall St.) Your "sister" or "cousin" maybe the prettiest of the bunch, but she's going too. That's the reality of bear markets.
Please take your time prior to investing more money. Do your homework. Invest a little at a time. Do not commit all the funds at one time. You are not about to pick the bottom. Hope may spring eternal but we're not in the hope business. What's the rush?
Sunday, July 21, 2002
7/21/2002
Worth Remembering
The stock market is not like baking a cake from a mix. The ingredients are never the same. It is wise to remember that the market accomodates the fewest number of investors at any one time. As such, there will be times when the risks overwhelm any chance for rewards. Pundits put too much stock in assigning the "proper" P/E for the S&P and the Nasdaq. Obviously, the lower the P/E the lower the risk factor.
When do you commit funds? When it feels right for you; when values jump out at you like in 1974 when I could buy really good companies at a 5 P/E and yielding 10%. We are a long way from that now; however, those times may not return. Microsoft was not in existence in 1974. Very few people had heard of the internet. I hadn't. Times in 1974 were different from today. To be a successful investor you need to remember the past but truly concentrate on the present and anticipate the future. Suppose in 1974 you weighed 160 pounds and 38 years later you tipped the scales at 210. You are the same individual getting on the scale but your well-being is different.
Today the country's balance sheet is laden with debt and that is true of most households. That makes us different from 20-30 years ago. We are not as agile financially. That alone limits our abilities. We can become a two job family but we still work 4 1/2 months for the IRS and the second job pays for credit card and mortgage debt. The gov't can only tax you so much. Their revenue capabilities are limited, and tax receipts from stock market bubbles may only occur once in 50-70 years. The debts keep piling up for the gov't and more bonds need to be issued- almost like a ponzi scheme. Conditions today are different and therefore reading the stock market becomes more challenging. Don't rush your learning curve. Invest at your pace and acknowldege the risks before looking for rewards.
Worth Remembering
The stock market is not like baking a cake from a mix. The ingredients are never the same. It is wise to remember that the market accomodates the fewest number of investors at any one time. As such, there will be times when the risks overwhelm any chance for rewards. Pundits put too much stock in assigning the "proper" P/E for the S&P and the Nasdaq. Obviously, the lower the P/E the lower the risk factor.
When do you commit funds? When it feels right for you; when values jump out at you like in 1974 when I could buy really good companies at a 5 P/E and yielding 10%. We are a long way from that now; however, those times may not return. Microsoft was not in existence in 1974. Very few people had heard of the internet. I hadn't. Times in 1974 were different from today. To be a successful investor you need to remember the past but truly concentrate on the present and anticipate the future. Suppose in 1974 you weighed 160 pounds and 38 years later you tipped the scales at 210. You are the same individual getting on the scale but your well-being is different.
Today the country's balance sheet is laden with debt and that is true of most households. That makes us different from 20-30 years ago. We are not as agile financially. That alone limits our abilities. We can become a two job family but we still work 4 1/2 months for the IRS and the second job pays for credit card and mortgage debt. The gov't can only tax you so much. Their revenue capabilities are limited, and tax receipts from stock market bubbles may only occur once in 50-70 years. The debts keep piling up for the gov't and more bonds need to be issued- almost like a ponzi scheme. Conditions today are different and therefore reading the stock market becomes more challenging. Don't rush your learning curve. Invest at your pace and acknowldege the risks before looking for rewards.
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