Apparently, the market is reacting negatively to the consumer sentiment numbers released this morning.
I do not think that I ever bought or sold anything based on that number.
1. FBR Downgrades Alcoa to Underperform: My last add was an extremely timid buy of Alcoa shares at $5.6Buys of DKF, AA and a Lottery Ticket in 50 shares of RF/Heinz & its Boston Market Line/ FBR downgraded AA to underperform based on some myopic here and now analysis. Market StreetInsider Dividend Stocks I am convinced that the world still needs aluminum and will need more of it during the next economic up cycle. So why exactly would I sell Alcoa at FBR's target of $8 rather than a rational P/E based on a more normalized earnings pattern. Maybe it is best to just be patient sometimes and wait. This is a link to a London Metal Exchange price graph for Aluminum: Price graphs
2. JNJ Wins Jury Verdict Against Abbott Labs for Patent Infringement: A Texas jury awarded 1.67 billion to JNJ against Abbott Labs accepting JNJ's contention that Abbott's main drug Humira infringed on JNJ's patents. This would be a major blow to Abbott in the event it is upheld on appeal. This case was filed in a Texas Federal District noteworthy for accepting claims of patent violations, another example of forum shopping. WSJ.com I own 30 shares of ABT in a Roth. Since this kind of news creates too much uncertainty for a stock position in a retirement account, I sold those shares this morning at over $47 which were bought a few weeks ago at 44 and change. Bought ABT and PGN/Obama Misleads on Projected Budget Deficits
3. Miller Tabak Strategist on Inflation/GS Economist on Treasury Yields/Inflation: Most of the mainstream economists who work in the securities industry do not see inflation as a problem. Dan Greenhaus from Miller Tabak says the market has overestimated the timing an strength of a recovery. The WSJ also quoted Jan Hatzius from GS who maintained that treasury yields can be kept low since bank customers are not borrowing much money these days, so there is a "lack of competition" for borrowed money. WSJ.com In a Reuters article, Hazius stated an opinion, echoing the Fed, that the slack in the economy will keep inflation at bay. Reuters The 10 year treasury has rallied in price after recently hitting 4% and was around 3.49% yesterday.
The general economic theory is that the free flowing money creation by the Fed will pose no inflation threat because the weak economy has sapped the demand for credit by bank customers. So, in theory, the FED has plenty of time to soak up that excess money. Reuters And when exactly was the last time that any of these economists had any experience with the U.S. doing what it has done over the past year? We shall see. I am a skeptic. But, I am also "illiterate", as the S & P chief economist would say, in the scholarly ruminations of the dismal "science". I have been thinking about reading one of Hayek's books, which would be a first for me, however, after I read his nobel prize acceptance speech about economists making a mess of things. Japan GDP/ Economists: Secular Theologians with a lot of Numbers
4. Duke Energy/General Mills/Advantages of Dividend Paying Stocks over Fixed Coupon Bonds: Duke (DUK), one of my core electric utility holdings, was started at outperform by Oppenheimer. One of the consumer staple stocks bought a few weeks ago was General Mills ($48.52). Freedom from Regulations and Irresponsibility/ Sold KXI and Bought GIS GIS raised its quarterly dividend by 9% to 47 cents a share. YahFin
One benefit of owning a common stock, compared to a fixed coupon bond, is that the firm may raise the dividend continually. Until recent times, it was possible to have a reasonable degree of confidence in a number of blue chip companies raising their dividends virtually every year. While this assumption now has to be constantly challenged on a company by company basis, with little long term confidence in the dividends of financial institutions as an example, the major consumer staple stocks appear to weathering this financial crisis, and are continuing to raise their dividends. That is one reason I gravitated toward them, starting in early March 2009 with buys of such firms as GIS, KO, PEP, SYY, UL, PG, and many others. The firms that increase their dividends yearly provide me with an advantage that the fixed coupon bond never will, an increase in the yield on my investment based on my original cost. Over a long period of time, say fifteen years, buying a more or less reliable dividend payor, who habitually raises the dividend, could increase my yield from say 3.5% or 4% to over 10% annually, as my cost basis in the shares remains constant.
Many major industrial firms, other than General Electric & Alcoa, have maintained their dividends during this downturn. I am not enamored with a couple of them, DuPont & Avery Denision, bought in early March, but I will keep them as long as the dividend is maintained, because the dividend yield was really juiced by my low purchase cost. I will lose my affinity for those type of companies in the event my income stream is reduced by any amount. I am staying with General Electric notwithstanding what that company did to its shareholders.
The recent financial crisis has highlighted the main disadvantage of relying on common stock dividends for an income stream, as opposed to bonds. The common dividend can be eliminated or reduced, and many firms have done so during this crisis as we all know. For the most part, with some notable exceptions, the firms that reduced or eliminated their common stock dividends kept paying the full amount on their bonds. That highlights one major advantage of bonds. Of course, while a junior bond typically allows for a deferral of interest, most firms have kept paying interest on the junior bonds even after reducing their common dividends to just about nil, at least the ones that have so far stayed out of bankruptcy or kept from being seized by the FDIC. A senior bond holder does not have to worry about a legal deferral, generally speaking, but has to worry about a bankruptcy. I have discussed gravitating to REIT cumulative equity preferred issues rather than the common shares due the common dividend being eliminated or reduced by most REITs. So, there is a need to always be flexible.
One problem that I have sometimes is what do I do after buying a company like GIS and then seeing the price rise fairly quickly by 30+%. Then what do I do? If I think primarily about the next fifteen years, and the dividend stream flowing from increases in dividend over time based on my cost, I might lean toward keeping shares bought at $48. If I bought 200 shares, I might keep 100 and sell 100 after such an advance. Or, if I start to think about the uncertainty of future events, thinking about all of those potential black swan type events, then I may dump the entire lot. There is never a clear answer in that hypothetical situation, so sometimes I let my magic coin make the decision, just leave the decision to chance, as I recently did for my Disney shares: Disney: Quandary What to do with the Shares Just Bought
5. Closed End Funds: I gave a reader in an email a list of my current owned closed end funds and left some of them out. This is a current list: RVT, RMT, ADX, EOI, ETW, IGR, IGD, IAE, IRR, SWZ, ERC, ERF, PSY, BCF, GCS, BTO, BDJ, GDV, CSQ, EBI, DVM, FAX, GGT, JQC, JRO, JGT, ESD & OLA. I think that I got them all this time. I would emphasize that I view my strategy of selling the mutual funds in 2007, and instead going with a bevy of closed end funds, to be the worst mistake that I made in my asset allocation in 2008.
In retrospect, I needed to dump them all.
Just as an example, I mentioned that I sold my small cap mutual funds, as well as my small cap positions in 2007, as my indicators indicated a high probability of a bear market, with multiple confirmations of one for small caps. Corrections Corporation Mention in Barrons/Small Caps and RVX model As a bet against my opinion, I kept RVT and RMT which were then paying good dividends under a managed distribution policy. I figured that I would keep them and reinvest the dividends. If I was wrong about a bear at the doorstep, I would have something going up in a continuation of a bull move in this sector. Otherwise, I would be averaging down with the dividend distribution, which might look good in the next bull market. Well, it did not work out so well. I was right about the bear and wrong about these funds. The Royce funds ended their managed distributions, their assets under management fell in value far more than I anticipated in 2007, and their discounts to net asset value expanded from a small discount to a large one. The later was primarily due in my opinion to ending the managed distribution policy, as many individuals depend on the closed end funds for income. Prior to 2008, I had been accustomed to winning in three ways with the closed end funds, a narrowing of the discount after my purchase at an abnormally high discount to NAV, the usually generous dividends, and an increase in asset prices, and now I have lost in two ways and in three ways with some of the funds like the two from Royce. I am attempting to dig my way out of this hole. The closed ends are one of my top 10 asset categories, and account for most of the damage to my taxable accounts in 2008. I say top 10, judging from their values now, they probably were in the top five in early 2008. As a class, they were miserable failures in 2008.
6. What to Sell?: I can not decide what to sell to raise a grand to offset the funds used to purchase IGE yesterday, as required by my trading rules. When faced with this kind of quandary of indecision, it is best for me to leave it up to chance. I have a different method when I have to choose one of maybe 3 to 5 securities. The magic coin can only decide between 2 alternatives, buy and sell, right and wrong, true and false. So, many years ago, I developed another method to solve my current type of predicament. I write the symbols down on pieces of paper, shake those pieces in my cupped hand, throw them up into the air, and the piece of paper which falls nearest my big toe on my left foot will be bought or sold, as the case may be. Now, I hear some readers saying something like, "you have got to be kidding". No, that was no joke. After all, I did select the the 3 or 4 securities to be included in the toss out of 300+ so there was a degree of intelligence, or lack thereof, entering into the equation. I can wait until tomorrow to do this exercise, without earning a demerit for a trading rule violation.
DISCLAIMER
I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing readers of these posts with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments NOT A RESEARCH SERVICE/Add of PWE Last Week These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post. Everyone is responsible for their own investment decisions, and no one should ever make any decision unless they are willing to accept full personal responsibility for it.
No comments:
Post a Comment