JeffreyLipsey.com

Sure, I lost some, but no where near as much as I could have or as much as my other investing account (which I haven’t updated the post on here because of how bad it got). However, I guess I can feel proud from my IRA when it only dropped 16.67% through the entire fall of the market, compared to the drop of 11,400 to 8400 in the Dow (26.4%).


Part of this came from the fact that I don’t actually have much in my IRA, given I’m only like 25 and I’ve just started to fund it for year 2008 (although I still plan to max it out by April, 2009). The other part came from a lack of diversification, which is due to the lack of funds. Through the majority of this downturn I had my money in 2 funds:


-IShares 7-10 Year Treasury Bond, currently yielding 4.01% (Symbol: IEF)
-IShares iBoxx $ High Yield Corporate Bond Fun, currently yielding 11.0% (Symbol: HYG)


I figured the best way to get through the market was to just buy bonds right now, as they do go up in value as the interest rate falls. Granted, “High Yield” is just another term for Junk Bond, and having the ETFs are another way for diversification.


Of these two, the only one that went down was HYG, and that lost about 1/3 of the value, but the treasury stock went up. And this was before the .5% in dividend payments I receive per month. So, in actuality, I’m down ~10% in this dowturn, a full 15% less than the Dow.


I recently purchased the Gold ETF (GLD) which i talk about trades a lot in my normal portfolio but at $70/share that is an easy long term investment surrounded by several near term trades (since there is no yield).

The market is volatile, so it seems like anything you do in the market today is gambling. So why would I purchase options? GAMBOOL!


Maybe, but I’d like to argue against it. First off, to finance some of these trades I sold my MMM, a blue chip stock not likely to do anything but go up and down with the market the next few weeks and months. I took that money and put it into 3 areas:


1st, I doubled down on my February 2009 Call Option on FRO. I originally bought 4 at .55/option and it has since gone down to .20/option. I had my chance to sell them at .90/option and then at .75/option but I got greedy and now look where that got me! So I bought 4 more options at .20/option to make my average cost down to .375/option for 8 options. Now if I get that price back above the .55 marker I’ll sell it and take the gain.


2nd, I doubled down on my Citigroup option. I bought 2 January 2009 Call Options a bit ago at 1.31/option and they were down to .80/option and then jumped back up to 1.47/option on Tuesday. I didn’t do anything during that stretch, when I could have averaged down then sold higher, but again I was both fearful and greedy all in the same trade. Now they’re back down to .60/option and I won’t be fearful this time; I bought 2 more for .60/option and makes my average price of .955/option. If I get my original price of 1.31 again I can now sell and take a nice profit.


Finally, I’m entering one single new position: 1 GLD March 2009 Call Option with Strike Price of $84 for $5.90/option. This is a trade I’ve been wanting to do for a while, and I attempted to do it a month or two ago but my entry price was too high on the original GLD stock, almost 10% higher than it is now. Since that time the price of gold has ranged from $780 up to $910 or more, while very rarely going much lower or higher above those markers. The price of Gold dropped to $780 today which is pretty close to my buy point, and I’ll sell my option when the price of gold gets back above $900. I believe that in the next 4-5 months the chances of that happening are very good. The downside risk to this is *maybe* a drop of 5% in the price of gold, with an upside of 15% or so. These returns are magnified in the option market, which allow me to (hopefully) rack in a nice gain with little risk.


In case you aren’t familiar with how options work, you pay a premium for the ‘right to buy’ a stock at the given stock price. Take my GLD for example, I paid a $5.90 premium for the right to buy the GLD stock at $84/share (the strike price) between now and March 21, 2009. Doesn’t sound like that great of a deal, given GLD is currently trading at $77/share. However, the same call option for the $77 strike price is $12.58/option, that’s a 113% premium to what I bought the option at. I have no intentions of exercising the option all the way at expiration date, but I do plan on trading it if and when the stock price reaches my planned level.


Now, there are certainly some down side risks and the big risk in this case is time. As the closer we get to the expiration date the value of each option decreases, and does so substantially. The March $77 option was trading at $12.58/option, but what’s the price of the $77 option in January? $7/option. December: $6.36/option, and November: $5.10. Now, its hard to define how the exact value drops per month, but given the examples I’ve given it looks like a 10% drop in time value alone. What happens in March if I don’t trade it? The value goes to $0 and that’s it.


It’s complicated, it’s risky but I think I can manage a profit on these. I’m most confident in my GLD option and I’m just hoping I can sell the others for a profit, especially since I already missed an opportunity.

Man, talking about taking a nose dive. These two companies have gone down so much I have nothing to do but hold on and wait.


The crazy thing about both Manitowac and Frontline is that they both have pretty solid financials, they’re just in real poor financials. Since I’ve purchased them, they are down 57.5 % and 36 % respectively in my portfolio. The last two weeks have not been nice to either of them as it seems that Hedge Funds want nothing to do with either of these stocks.


I mean, maybe I should just get rid of one of these guys. But which one? MTW has a PE ratio of 4.2!! You know how insanely low that is? I can’t even describe it lol. On top of that, it exceeds the growth forecasts for the sector and the S+P 500 as well as excellent liquidity ratios. Seriously, the only problems MTW faces are the lack of high dividend yield and being part of the industrials sector: two things key in recessionary defensive stocks.


Frontline, on the other hand, has an excellent dividend. It yields nearly 25%; yeah, its rediculous, but it was yielding 13% or something when I first bought it, which just shows how much it has decreased the past few months. FRO has great liquidity, but its only problem is that it is related on the price of oil.


Like I said, both of these have dropped so much that I can only hang on for the long term.

Of all my holdings, I’m holding onto my Google like its my last meal. I feel the most comfortable with my position in the stock, even though it has dropped 20% in my averaged-down portfolio, (lowest to MMM).


I still plan on buying a share here and there as it continues to go lower. I think at under $390 Google is just too cheap to pass up. The other Tech play losing a lot of value recently is Apple (Trading at $97/share). September was a poor month for Tech stocks as a whole, which is unusual as historically September is a bull month for Tech stocks.


I don’t think Google or Apple can go down much more than they already have; I plan on watching both’s earnings reports. Truthfully, if one does poor I expect the other to do so as well, although Google’s results won’t depend nearly as much on consumer purchases.

I’ve been getting into chartology some in the stock market to hopefully pick up trends and give me more intuitive buying points. Something I was looking at today was the chart of 3M Technologies:





You’ll notice the line in the middle, that is the 200 day moving average of the stock. From mid-March to November of 2007, MMM was trading above that 200 day moving average; since the beginning of 2008 though it has almost exclusively traded below that trend line.


From Investopedia.com:

An indicator frequently used in technical analysis showing the average value of a security’s price over a set period. Moving averages are generally used to measure momentum and define areas of possible support and resistance.

Moving averages are used to emphasize the direction of a trend and to smooth out price and volume fluctuations, or “noise”, that can confuse interpretation. Typically, upward momentum is confirmed when a short-term average (e.g.15-day) crosses above a longer-term average (e.g. 50-day). Downward momentum is confirmed when a short-term average crosses below a long-term average.

I circled where the two trendlines cross, the first signalling upward momentum and the second downward momentum. Ideally, you would buy on the first signal and sell on the second; unfortunately I purchased the MMM back in June, where the trendlines are running nearly parallel.


Of all the stocks in my portfolio, 3M has lost me the least over the past few months as the market has tanked. I don’t believe MMM has any momentum right now and no where to go but continue to go down. So even the financials are sound with a decent yield, I’ll be looking to sell MMM here on its next rally.


I like the long term prospects of it but I believe I can buy it back later at a discount when the market starts to come out of its recession. I think I can use the cash in my portfolio for better purchases during what will possibly be more of a downswing in the future.

I watch a lot of television during the day, and most of it is CNBC. The last week or so they’ve covered the Congress hearings pretty exclusively and I’ve had the chance to hear what some of the talking-heads feel.


So the first thing you have to ask is: Is this program fair? Hell no. Why should the taxpayers on ‘Main Street’ bail out Wall Street? One reason: Because everyone is fucked if we don’t.


I won’t be screwed, I’m pretty diversified and I doubt my stocks can go that much lower (lol??) and I’ve got a decent amount of cash. Its not like myself or Marlyn will get ‘laid-off’ if we go into a severe depression. If anything it will give me a chance to buy stocks at a severe discount. So for me it wouldn’t be that bad. It’s you that I’m worried about.


Well, maybe not you exactly. But those that have a significant portion invested in their retirement account that cant handle another 20% decrease in the market. Those that live paycheck to paycheck or are on a fixed income that cant stand to see inflation rise to extreme amounts.


Banks will write off more foreclosures and will inevitably fail. Consumer confidence will fall so much that people will start to horde their cash in their mattresses than in the bank. We will likely go into a depression.


We will eventually come out of it, maybe in 2-3 years when home prices stabilize and a new administration comes into office. But we don’t need to wait.


People don’t realize that the $700 billion ‘Bailout’ isn’t an expense, its a liability. The government is going to purchase a $700 billion mortgage, basically, that is going to be at 30% off. Obviously you can never ‘guarantee’ a profit, but if all the government does is sit on these mortgages for a few years then they’ll get the money back. Money will not be wasted, as the houses will act as collateral for the loans.


After listening to the congressmen ask questions, I realized they must not know the difference between a liability and an expense, assets and risk.


I hope in the end they do pass the bailout, which was incorrectly named. Jim Cramer said it best: It shouldn’t have been named a ‘Bailout’ but instead an Invest in America plan.

After realizing last week that I was completely not diversified I’ve been actively looking for things to buy. I recently purchased 2 shares of Google today for the first time (GOOG) for a couple of reasons (at a price of $502.50):


1) I feel the downside risk of Google to be extremely small, maybe 10 % maximum from today’s current price.


2) The upside potential though to Google is as high as $750/share, its 52 week high and 50 % increase. Granted, I feel it is more likely to go up to $600-650, a 20-30 % increase in the next few months.


The last time it was down to $480 I wanted to purchase it a few months ago but I missed my window, and I believe I now have that window again. Also, Google allows me to diversify with a Technology stock, and probably one of 2-3 that are any good (the other being Apple).

After a conversation with my friend and fellow intelligent investor Harry, I’ve realized that I am not diversified at all, and it wasn’t even close. Of the 6 stocks I owned: EP, NBR and FRO are correlated as are MTW and CMCO. Why I didn’t realized I had no idea I just must have missed this fact; so when I look at my portfolio and noticed that I have massive downswings compared to the price of Oil, this is the reason why.


The companies that I chose were all good companies, I just wasn’t diversified and it is my own fault for such negligence. So, I’ve been looking for good times to sell 3 of the above 5 stocks in order to diversify myself. I found a good time for CMCO, as it rallied big the other day when the Market had a nice upswing and it took CMCO up over 5% to go with it. I sold it for only a small loss of $40 (2% ish) and enjoyed the extra cash.


I sold EP and NBR today as it looks like oil and natural gas continue to fall. I knew I should have sold these stocks a few weeks ago but for some reason I just continued to think that they wouldn’t fall as much as they did. My once 30 % gains in each turned into losses for each stock; I should have listened to Cramer! But, I live and learn and hopefully don’t make the same mistakes.


I’m going to have to do some more research but I’m going to look into a Healthcare and a Financial, while keeping my FRO, MTW, and MMM positions. I put an order to buy the Gold ETF today symbol GLD, only about 13 shares at a price of $84, as it is trading at near its low for the past few months and I’ve been keeping track of that trend. I plan on selling it when it gets back up to $92 or so as I know that is going to go back up, it always does.

Before I start let me give a background. Jim Cramer recommends that you number your positions from 1 to 4, with 1 being a stock you want to buy right now and 4 being a stock you want to sell right now. 2 is a stock you want to buy more of if it falls 5-7 percent in price and 3 is a stock you want to sell if it increases 5-7 percent in price.


It’s been 6 weeks since I last did one of these and that is definitely too long. I don’t know where the time has gone but now is as good of time as any. I feel like I’ve shunned my portfolio the last 3 weeks as it was tanking with market. I still don’t think the market has bottomed even though it rebounded this last week so I don’t know what is on my buy list right now.


The 4’s


None. Is this a good thing? I don’t know exactly but I don’t really feel like selling anything when my entire portfolio is down. Especially when I have confidence that my stocks will go up.


The 3’s


FRO: Frontline


Of all the stocks that I own, I feel that Frontline is the one that I put more of my faith in Jim Cramer and the shipping industry itself than any of my other stocks. Granted, I have pretty large confidence that this stock will go up another 10-15 %, back up to its 52 week high of $72/share from only a couple weeks ago. Until then I have a fallback because of the dividend that they already paid me so I can wait. I’m going to be selling FRO once it gets back up to $72/share and look for something better, or wait for FRO to go back down.


The 2’s


EP: El Paso Oil and NBR: Nabors Resources


I’m placing EP and NBR in the same boat because I believe they belong together. They effectively share my oil risk and tend to move up and down together. I really don’t want to buy any more of these as I think I have enough exposure to this market as it is, but if I can get more on a steal then I definitely will.


CMCO: Columbus McKinnon


CMCO is one my small cap stock, and in that there is some inherit risk involved; ot has a market cap of under $500 Million. It is trading at its 52 week low and has great growth prospects and a nice balance sheet with PE ratio of under 12. The only thing missing is a dividend, but I don’t expect it to pay one for quite some time as it is small cap. Of all my stocks, CMCO is the one I keep up with the least and haven’t cared much since its been down. This might be a problem but I still like the financials and growth for this company. This stock is definitely one of my longest term holds that I have and I think if it continues to go down it becomes more attractive to buy.


The 1’s


MMM: 3M Technologies


MMM is so down right now that it has no where to go but up. It has a nice dividend yield (close to 3% right now) and its trading at its 52 week low. If only I had the free cash to purchase some more of this stock as I think it is going to go up after it releases earnings July 24th.


MTW: Manitowac


I’ve saved MTW for last for a reason, because I feel this one is going to be my big winner. Maybe not right now but with the massive hit it has taken in the past couple weeks it really is a great buy. If I had extra cash to purchase anything right now, I’d keep buying this stock. I’m going to keep an eye as they release earnings in a week too.




Well, those are my stocks, this next week will be key for me as several of my companies will be releasing earnings. The results of those earnings may affect my decisions above but for now I’m still pretty bullish on several of my stocks.