n <'--Google Analytics-->

RVB's Market Musings

What began here as an avenue to interact and learn has far exceeded those goals.

If you are a prospective employer, please consider this site a place where you can see my passion for investing...

Friday, July 22, 2005

Google (Again)

It's down 10 as I type.  It was a good quarter in my opinion.  There is some debate as to whether or not EPS met or beat expectations...but whatever.  Revenues were fantastic at $890 million.  But, I was wrong when I thought that analysts wouldn't have been able to set expectations too high.  Perhaps my passion for GOOG overrode logical thinking.  The markets are great this way - they are humbling. 
With Google execs warning that typically the 3rd quarter is weak, I think that we'll see some psychological selloff and profit taking.  I mean, GOOG has certainly performed well.  And now my Marketocracy Aggressive Growth Fund (linked on the right) has a position that has become a little bit tougher to manage.  It's still in the money - having been initiated well below $300 but I'll have some decisions to make over the weekend. 
Note that I am still a GOOG bull in the longer-term, however!

Thursday, July 21, 2005


Another favorite topic of mine - Google.  Google is good. 
I laugh when I see Cramer write the "GOOG" on his four fingers and then makes a fist, shows the camera and starts screaming about Google (GOOG is Google's ticker symbol).  Again, I am neutral on Cramer and his opinions, he's just one man.  But people think he's nuts, calling GOOG the one stock that personifies our economy.  You know what?  I think he's got this one exactly right.  I'll bet I do 15-20 Google searches a day.  Because it's the best engine - period.  And man, do they make money.  They've won the search engine battle, and the technology is almost, gulp, mature.  So NOW the ad revenues, and gmail, and blogger (yep this site is a google site) can start ringin' registers.  We got it wrong in the 90's when speculation ruled.  We thought advertising on the internet was the next automobile.  It turns out we were right - we just got the timing way wrong.  Now, Google's the Internet winner, and it actually has evidence to prove it.
Cramer says GOOG is worth $450 in the future.  People say, "That's just too high."  Investors say, "It can't get that high.  It will burst, just like the internet stocks in the 90's."  A guy in a meeting I was in yesterday said, "Man, I shoulda bought google."  Well, shit, that's easy to say.  But why don't you buy it now?  The answer is fear.  And, in my opinion some misunderstanding.  Like I said above, GOOG is NOT like an internet stock of the 90's.  It's 2005 - and they've won the race.  But that fear is has a neat effect on stocks that fly high.  The more fear there is towards it - the higher it propels the stock.  The market has a wonderful way of making the majority wrong. 
So how do we play this?  It can be scary buying a stock with a chart like GOOG's.  It's done nothing but go up.  It's not a stock for everyone - it can be volatile, no doubt.  Although, with a $300 dollar stock, owning fewer shares does help shake out some of the volatility.  And one earnings warning, miss, or statement that appears to be lower than the high expectations could see the stock tumble.  But, the stock is still new, and I don't think it's well understood enough yet for people to have expectations thaht are too high. I think it will take some time yet for GOOG analysts to catch up with the company.

The bottom line is that GOOG's a winner, and this investor doesn't think it's done just yet.

Wednesday, July 20, 2005

Oil, Oil, Oil

Come on, I had to write a blog on oil. It's like black gold. No - better yet, let's start calling gold "black oil". In fact, we need to submit a request to Webster's Dictionary that the word "OIL" has its spelling changed to $$OIL$$.

This blog has been on my "to do" list for some time. In the US, people get freaked out now that they're paying over $2 per gallon of unleaded gasoline at the pump. Well, I have news for you, $2 gas is here to stay. We ain't seein' it fall below $2. Ever. I just don't see it.

The US is so reliant on oil that I think gas prices could hit $4 per gallon before Americans would actually start to change their ways. Think about that - $4 bucks.

But that's not why Oil prices are skyrocketing. It's not so much about the situation in the Middle East,either, though it is a factor. It's China. It's India. Hello everyone! China and India are undergoing a revolution. Will this cause the world to run out of oil? Geez, maybe that might actually come true before I kick the bucket - though I am going to bet that Oil does outlast me, the world's oil supply could actually be in danger.

Oil prices have had one heck of a big run this year. But, I don't see them headed lower in the longer-term view. Shorter term - you might be able to catch a "sale" on oil and oil stocks, but let's just be ready because high oil prices are here to stay and, in this investor's opinion, aren't headed down anytime soon. I do think we'll get near 80, then maybe even 90 dollars a barrel within 18 months.

For a great article on the topic of oil, visit this Time Magazine article

Best Buy and Money Management

Today's the day. The day I would take some off the table. It's time. Let's not be piggish, and sell some. This way, if the stock heads higher, we still participate in the run, and the market looks pretty good these days. We might be headed to new highs, and, in fact, the nasdaq hit a new high on some pretty darn strong volume today.

So, what's with best buy? It's really been on a tear, and has been resting. I think that it's going to pull back a little bit. A strong player might actually risk it and buy more then, but I would just let the position unfold. Here's a technical justification for selling 1/3 of the position:

The bearish divergence is why I think BBY will take a quick dip. But I think that it will be quick because the trend is REALLY strong - indicated by the Stochastic oscillator being saturated in "oversold" territory. So I think BBY is headed to 72, and then headed to 80. But I would be taking a little bit off, because it's been good sailing, and now we hope that we're on to something big - and I'd be using some house money to find out!

So, if we have no chance, what do we do?

Sometimes I make it sound as though people have no chance in the markets.  Indeed, it is hard, but money can be made in the markets.  One of the things that people need to be sure not to do is to simply ignore their investments and hope that they'll do what they want them to do.  Ignorance is not bliss.  In the words of William J. O'Niel (Founder of Investor's Business Daily), "Diversification is a hedge for ignorance."  So, diversification can help investors in that they are less likely to get completely taken out of the markets.
Really one thing that people need to do it to admit their love or hate for the markets and then play them based on their decision.  If the markets simply bore you, or you do not have much time, actively managing your money is probably not for you.  But, you should use your time to find a fund, or several funds, that you believe fit your style.  I've written about the T. Rowe Price Capital Appreciation and Vanguard Wellington funds before.  They're good investments - funds you can feel comfortable holding for long periods of time.  And in those funds, the managers will pay attention to the markets for you...so you don't have to. 
When I am a portfolio manager, I will be doing the same!

Wednesday, July 13, 2005

Hope is for suckers

I want to point you to a link that is a good explanation of why hope is for suckers in the markets. If you have a 401k or alot of stock and never look at it, and hope that it will be worth something when you need it to be worth something, you might want to rethink your approach a little bit.

Monday, July 11, 2005

Best Buy / Money Management

Today I had a discussion with a co-worker of mine who I have had discussions with regarding stocks. I like to think that I have made him some money, or at least, kept him from losing some.

He recently loaded up on Best Buy after the fantastic earnings report. He said that his goal was to make 15% on the stock and sell if he did.

Today he said he'd already made more money on the stock than he'd expected to and was thinking of selling it. All of it. He wondered, though, if he should hold it.

This brings up a common pitfall people have when thinking about positions and how to manage them. That is, people tend to think of their positions as all or none, when, in fact, they are not. There is no rule that says one must buy all your shares at once, nor sell them all at once. My suggestion was that he needed to still be in the stock, because it would appear that the exuberance has not even come close to wearing off. But, he might think about selling 1/3 of his position (or 1/4 or 1/2, though 1/4 seems too small to me). This does several things:

1) It means you made money. Remember, you haven't made any money until you cash some out. If the stock falls to the point where you think the market is wrong, you can always buy it back!

2) It pays for the trade AND covers quite a bit of downside risk. By taking some profits off the table, a terrible news event might knock the stock down to breakeven for the position. Of course a stock COULD theoretically go to zero overnight, but the likelihood of this is fairly improbable.

3) It allows you to play with house money. Since, like #2 mentioned, this trade is now almost risk-free, it means that you are in the best place possible - playing with money that is no longer yours.

4) It gives you peace of mind. Because of #2, and #3, you can rest that the position can move for or against you and...

5) you will be able to think much clearer and evaluate your decisions as the position unfolds over time.

You do need to let your winners run, but it's ok to take money when the market makes it available! Scaling back on a position is not a bad thing to do, as long as you are disciplined enough to get out of your losers very, very quickly.

By the way, Best Buy is headed higher.

Thursday, July 07, 2005

The Markets and Terrorism

My heart goes out to all those directly affected by today's events in London. Terrorism is an evil that this world will defeat as time goes by, but only by teaching the world's citizens not to hate, but to embrace differences. We indeed have a long way to go.

Now, the point of this post is to discuss what happens to markets when events like this strike. So we will look at the last three major terrorist events: 9/11, the bombing in Madrid, and today's events.

As Jim Cramer said today on his "Mad Money" show, no one ever made a dime by panicking. While I am not the biggest Cramer fan when it comes to stocks, he is right here. Panicking can only lead to financial loss.

So, the question is, what is one to do when the world gets horrible news? This morning, on my ride to work, the morning show mentioned news of a terrorist attack in London, AND that the FTSE was down. Now, since this is a comedy-based morning show, I know there's something big when they mention that the financial markets are getting crushed. Chart of FTSE

Indeed, U.S. futures were also down. I remember hearing that the DOW futures were down 136 points. I usually get excited if they're up or down about 40 points in either direction! 136 is big movement.

And that's about the time when I said to myself, if I were home to daytrade, I'd be loading the boat with index funds. I'd be buying the SPY like nobody's business, and I'd be dumping them soon, if not today.

Why in the world would I do such a thing? Let's look at a chart of the S&P 500 a few years ago when 9/11 struck. Notice that this time it took a few days for the rebound to occur but you'll notice the index snapped back, very strong and for quite a while.

How about when the Madrid rail bomb went off on March 11th, 2004? Let's look at a chartof the Spain index.

Notice how in both cases, there was some selloff where stocks declined very rapidly, then almost immediately snapped back as the news was absorbed.

The point here is that markets react quickly and violently in what appears to me to be overreaction. It's only human nature. Not only that, but the pattern seems to be similar here. This is yet another example of human nature controlling the markets more than academic valuation models.

"Intelligent" ETF's

Welcome back from vacation!

Today, on BusinessWeek, there was an article that caught my eye. It was titled "Intelligent ETFs". If you don't know what an ETF is, well, where have you been? Just kidding. Exchange Traded Funds are basically mutual funds with two major differences (there are other differences but I will not discuss them):

-They can be traded at any time on the clock when the market is open. Mutual funds are traded on an end-of-day closing price
-They typically do not trade nearly as often as a mutual fund. Thus, commissions are lower

The article talks about PowerShares, run by PowerShares Capital Management. The ETF's are built to try to beat the overall market indices. In their short history, they have been able to do just that with their shifting of stocks based on performance.

These ETFs are an interesting play. You get a 0.60% expense ratio which is MUCH higher than most ETFs, but you get more active management of the ETF, which on the surface seems worth the price.

PowerShares do not have a history of success, which could mean more risk than buying the SPY (S&P 500 Spyder). However, these funds seem like something that I would perhaps offer if I had my own investment firm, and it looks possible that Powershares just MIGHT wind up in my personal portfolio!