One That I Missed

Just about one year ago a relative of my wifes got all excited about one particular stock. Smith & Wesson Holding Company (Nasdaq  SWHC). At the time they were trading at just above $5.30. they were of interest to me. They make and wholesale guns and a variety of weapons, so would appear on the face of it to generate lots of lovely cash.

At that time though sales were relatively flat, there was no dividend and quite a debt load with uncertain prospects. 

My wifes aunt  was quite bullish though but I backed out gracefully saying it wasn't for me.

This week however Smith & Wesson posted massive sale and stock prices topped the $10 mark, though they have now fallen back.

According to Bloomberg TV this morning Smith & Wesson had a exceptional third quarter ending January. Sales of guns rose following the school shootings in Connecticut in December and the subsequent calls for federal gun control.

The main reason I can see for my missing this particular boat is my personal ignorance of the market for guns.

Not being an American by birth and not being immersed in a gun culture. I didn't see the calls for gun control as a positive for a company which sells guns, in fact it is a definite negative. But then I ignored the love affair many Americans have with the Second Ammendment and the right to bear arms.

In this case I missed out on an important facctor. The emotion of panic can make some people run out and buy some remarkable things if they believe they won't be freely available in the near future.

Would I buy SWHC today? No, I missed that boat and it may be a short lived boost in sales.

But it makes the point that knowing all aspects of the market is important to investors.

Proceeds of Heinz Sale.

Thank you Mr. Buffett for forcing my hand to sell out of H.J. Heinz (HNZ)

Looking around a lot of the stock market I was unsure about investing in food production stocks. A few weeks ago there was a rumour that Mr. Buffett was looking at Kraft Foods (KFT) that I am sure was only a rumour and the purchase of HNZ was the real food company purchase. Anyway Kraft looks expensive to me. I have some concerns with the whole food production sector in the wake of the Heinz purchase. So I stepped aside from Kraft Foods. For the time being.

A nice little area though for me was Barclays Preferred Stock ETF.

As you may know I love those ETF's that return a monthly dividend, and the Barclay US Preferred  Stock ETF is currently just over $40 and paying an annualized rate of about 5% yield.

No too shabby, I estimate a monthly return of about 17 cents per share in dividends.

The dividends do vary a little from month to month but I like the return so opted to buy into Barclays US Preferred Stick ETF (PFF) for the shortish term, not less than a year. Then to reassess the situation in February 2014.

The sale of HNZ was forced by the purchase of HNZ by a consortium led by Warren Buffett' Berkshiew Hathaway and the Brazilian owners of the Burger King chain announced last week.

I do now own PFF stock, this is not an endorsement of that stock, I am not a financial advisor and you should examine the purchase of any stock very carefully to assure yourself of the risks and possible rewards. If in doubt consult a tax professional or your accountant before making adjustments to your stock portfolio.

I Hate Warren Buffett

What is it with Warren Buffett?

For many he is the guru of investing. We lesser investors are to look for investments just as he would.

Look for strong brands. Look for strong income strams. Look at continuing profit streams and buy the stock.

I do all the things suggested by Buffett's followers.

There is however a big danger for following such rules. When you see a company that Buffett might like you may just find yourself bought by Buffett.

Over the past couple of years I have been afoul of Buffett twice. First Burlington Northern and Santa Fe (BNSF) anyone who has read my other posts know I love trains. Maybe I was a deprived child never getting that toy railroad for Christmas. But trains are magical, they move lots of goods across country for little cost. Generating cash.

I saw BNSF as a good deal in 2006, Buffett jumped in a couple of years later. Bought it and took my income stream from the market.

Now he looks around and sees the world of tomato ketchup as prime for taking private. Whoops who makes the world's most popular Ketchup. H.J. Heinz (HNZ) bang. Buy it, take it private and bag it. My foresight in buying Heinz back in 2006 when it was $46 was a great moment.

My saddest moment this last week was seeing the shadow of Buffett fall over HNZ. Another income stream bites the dust.

I wish Buffett would just be nice and leave these companies public. I love to invest the Buffett way. It is my way in all cases except one.  I don't buy out the company and then steal it away for myself.

Mr Buffett leave some pickings for the rest of us. Otherwise we will only be left with Facebook (FB) and other companies that you don't inderstand.
If you leave me with no choice in the markets then I might really start to hate investing the Buffett way.

Ten Commanmdents of Investing #1

1. Do Not fall in love with any stock.

You  read about a stock. It sounds wonderful and after doing your own research you decide to buy. As you buy the stock starts to rise. It rises and rises for a few weeks, months, a year.

The stock becomes the jewel of your portfolio. Ypu look at it sweetly everytime you look at your brokers portfolio page. The stock is praised  in magazines, on television , everywhere stocks are discussed.

You find that you smile with recognition at the sound of its ticker symbol.

Then suddenly the stocks rise stalls.

The prive teeters.

Its price begins to fall. You remain loyal, you know it will come back.  Pennies become quarters, quarters to dollars. You hold and feel physical pain for your beloved stock. You hold and hold.

The price free falls and hits bottom with a bump.

You cannot sell, you feel the stock is unjustly mistreated. You know it will reach the highs again, but no-one else will buy.

You have made a fatal investing mistake. You fell in love with a stock.

Avoid this costly mistake by setting goals for a stock. Those goals can be a percewntage price rise. A percentage price fall. Set automatic sell triggers if you must but always keep your emotion out of your investing.

Happy Valentines Day. Love your sweetheart not your stock.

First Quarter 2013 Rebalancing

Wow! January was exciting wasn't it?

We had some big days on Wall Street and my main portfolio got out of balance again in no time.

My two main stocks that caused the unbalancing were my old favorite ING Prime Rate Trust (PPR) and a newbire eBay (ENBAY).

I had taken a knife to my PPR stock at the beginning of January lopping a good third of my holding off.

With some of the proceeds of that I jumped into EBAY. Then a nice pick at $50.00. That $50 jumped to $57 last week so looking at the reason for buying to generate a new holding by its own stock increase I am pulling the trigger on EBAY pulling out my original investment. That will leave me with some nice EBAY shares that cost me the equivalent of a few pennies.  Thank you EBAY for your kind gift.

With that cash I am moving back towards some real estate. I like Cohen and Steers Realty Stock (ICF) Before the crash of 2007-8 it traded at over $100 it got hit very badly during the crash and I admit missing seeing its steady crawl back up from the deepest well of despair. Now it is about the $80 mark and getting pretty close to my average cost price so I will round off my holding in that just to add real estate to a major portion of my portfolio.

I also like corporate bonds too. Barccalys Corporate Bond stock (AGG) has given me a good return in dividends every month for several years now. I use AGG to generate cash income for portfolio every month so see little harm building a little more of a holding, though at current prices I see more of a downside risk to the stock than an upward reward.

This risk I have offset with a High Yield Dividend basket (IDV) . Again this is an addition to a long term holding I think dividends are going to steadily increase from this stock as the economy begins to speed up. It is a long term hold and another monthly income generator.

All in all I think that this rebalancing will work out this time.  My policy of using stock rises to give me a free or virtually free stock worked spectacularly with eBay.

Investing is fun when it works out this way.

Would you advise someone to invest in stocks?

A few days ago someone asked me if in all honesty I would advise someone to invest in stocks after the 2007-8 Crash.

Taking a second to decide I said "Yes. Definitely."

The person was taken aback and unleashed a tirade on my stupidity. He had held friends hands as they cried at the latest news from Wall Street. Stocks free falling wiping out their worth as the panicked to sell during the crash. The story is probably familiar to many of you. The market was great as they rose. But vicious when they turned bad.

This person was too emotional in his belief that markets are bad. They are neither good nor bad, they just exist.

The questioner held the very hands of friends whom he had encouraged to buy a "sure thing",, he was embarrassed that they had been hurt, but had he even asked the friends if they were considering the risk?

No he hadn't. He had promised rising returns and an endless bounty. No risk.

How can someone forget that there is always a risk in investing? We do get a reward. I stopped buying for myself in late 2007 while the stocks were free falling, but by late 2008 I was happy to jump back in and begin buying again.

Some of my stocks bought before the crash were almost penny stocks, Bank of America for instance. I lost hundreds on my initial investment of BAC but after the dust settled it was easy to step back in and build a greater investment. Now the average cost and the market price at about breakeven levels. I won in the Crash.

The name of the game is to make money. My portfolio returned 7% in 2012, not as much as the market in general, the S&P returned about 12%. But my 7% by far outweighed the 0.1% earned by my best paying CD at my local bank.

Why then would I not say "Yes. Definitely"? When asked the question. "Would you advise someone to invest in stocks?"

The Apple loses it's Shine

Boy! When the market turns on a stock it really turns.

Do you remember just less than a year ago analysts at this price for Apple stock (aapl) were crying buy, buy, buy. 

The current levels of less than $500 per share are actually still attractive. I personally sold all but a rump of Apple stock after New Year. That followed a sale in October as the stock fell from its high.

I had some leeway as to when to sell as I had average price levels of $350 per share so I still made some money.

At the moment I will hold back my few remaining shares are held at an average price of $290, if Apple get below thatI would be in for a buy anyway, unless there is some major calamity to make me step away.

Last year analysts saw prices for Apple at $1,000 per share, today they are selling off like yrsterdays french fries.

The last few weeks has been a perfect example as to why an investor should diversify. If you had all your money in Apple and had bought higher than the mid $400 level you would be hurting badly.  No one will call this a bubble, but it was and the bubble on the stock has definitely burst.

Apple as a company still appears to have great prospects, if management doesn't panic and begin to chase the stock.

Keep the brand as an aspirational brand, don't go down market.

Keep a pipeline of genuinely new goods coming forward. Don't re-hash old ideas as improvements.

Don't play a blame game at the top. Firing board members and wailing a long lament.

If Apple does ANY of these things, I would be out of the stock at all costs. If they keep a cool head there will be talk again of the $1,000 stock price in a year or two, though  this shock may weaken investor confidence for quite a time.