Now, picking some Pharmaceutical companies has been a bit harder than previous picks. Why? Well, the sector is actually outperforming the S&P 500 during this slump, so its harder to throw some out as junk or find some that are super discounted.
Now, what companies am I looking at?
BVF- 16.57% no increases but solid yield ANALYSTS:2.67 PE 30.77 PB 4.6 (1.26)
JNJ ***** (3.18) ANALYSTS:2? 1.83 PE 13 PB 3.48 (9.26)
PFE ***** (hi) 7.7 ANALYSTS: 2 PE 10.89 PB 4.22 (1.7)
GSK 5.9% pharma growth slight cut ANALYSTS:3.13? 2.71 PE 13.81 PB 79?? (8.22)
BMY 5.51 pharma slow growth ANALYSTS: 2.19? 2.43 1 underpreform of 16 PE 24.61
PB 6.45 (3.43)
SNY 5.4 growth pharma ANALYSTS:3.2 1 underpreform of 5 PE 11.73 PB?
LLY ***** 5.32 growth pharma ANALYSTS:2.64? 2.94 2 sell 3 underpreform of 18
PE 16.51 PB 3.61 (3.01)
MRK 5.7 slow growth pharma ANALYSTS: 2.36 PE 12.86 PB 3.25 (2.92)
Stars indicate dividend achiever ranking, while the PB in ()'s is the PB listed on Reuters, as opposed to tangible PB which I prefer (intangibles are hard to value!).
When I look at the charts, a few things stand out.
Over the last three months, the sector has outperformed the S&P, and BMY is even up. PFE is second, with the rest down in a group.
SNY and GSK look okay on the 2 yr chart, but aren't outperforming the S&P.
However, we note that JNJ has been outperforming, pretty much forever. Looking at the 30+ yr chart is entertaining, you see some 3000-6000% increases. Wouldn't that be nice, to make 30x-60x your money.
Well, even though the dividend is low, I'm going to add JNJ to the list right now, for the 5 star rating, constant performance, and sane PE ratio. Well, maybe not quite so fast, I'll check the financial statements later...
Now, right off the bat I am going to eliminate some stocks, as I have too many to look at more in depth. GSK had bad ratings and a crazy PB ratio, although maybe that was bad data. The slight dividend cut is enough to push it off the list however. BVF just has too high a yield and PE ratio- I think something is off there, although maybe I should check the balance sheet. SNY on the other hand, has very attractive looking ratios and bad analyst ratings, so I suspect it may be a bit broken.
That leaves me LLY,MRK,PFE, and BMY to think about. Two of those (LLY & PFE) are 5 star dividend payers, and I suspect they will pass muster. Over the long run, these stocks have been under preforming, but they are at a discount currently.
LLY:nothing major i noticed.
PFE:income was down quite a bit last year due to increased expenses.
MRK: similar increase in expenses... I wish I knew why... -? large deferred income tax.. odd
BMY:didn't show the increased expenses trend- noting jumped out at my untrained eye.
I think I will drop BMY because it's dividend growth has been rather slow. I like LLY and PFE for the five stars, and PFE has a very high yield which to me discounts the increased expenses. MRK seems okay, and as it is rather a big name I don't think its too speculative. I might as well just pick these four and throw 10k at them to make up the first half of the pharmaceuticals in the fund. If I can't find more good companies, I may weight them more- I need to keep some cash from the 8% as a pharma hedge as well- I don't know what that would be, as yet. Or if I really need one...its not like a commodity really... well I'll consider that later.
So: I'll take 10k positions in JNJ, PFE, LLY, MRK in the fictitious fund.
Disclosure: NONE, as allways, I don't know anything about investing so please ignore me.
Monday, December 15, 2008
Sunday, December 14, 2008
Utilities 2: Speculative High Yeilds
VE yield 12
CPL yield 13
CIG yield ?10-14
BIP yield 8.7
Where to start? Ratios and analyst rankings I guess.
VE
PE 9.52 PB ?1.22 Analyst recommendations: 2 buys 1 underperform... kinda inconclusive
CPL
PE 12 PB 3 Analyst recommendations: 2 underpreforms of 5.. not so hot
CIG
PE ?? PB 2.22 Analyst: 4 buys 1 no opinion... suprising
BIP
PE ?? PB ?.55 cheap? Analyst: 2.75 no sells... not too bad considering
So far I am a bit biased towards CIG and BIP, but I think I should investigate the balance sheets a bit more closely for these ones. Also, maybe I can find out what the payout ratios are for these companies, as I didn't do that earlier. I think I can pretty much drop CPL off my list at this point.
So, balance sheets- anything notable that I can understand?
Not much info on Reuters about BIP. Maybe I should try another site.
VE shows revenue growth and not too huge a percent of cash flow as dividends. No strange 2007 drop like I saw in the earlier utilities.
CIG shows revenue growth but income decreases. A hell of a lot of its cash flow goes to dividends.
It seems BIP hasn't been around long, hence the lack of data. I think I will stay away from it for now, although the yield is tempting. I'll keep it on the radar and check back after a few years maybe. Then again, if it grows hugely, I will be sad.
CIG looks good from the analysts, but I don't like the cash flow all going to dividends. I'm going to have to pass.
VE seems to still be in the running however. Time to look at the charts.
Over the last few months, CIG and CPL have fared better than the S&P, unlike VE and BIP. Hmmm, thats seems to contradict my thoughts... but Mr. Market isn't so logical.
On the 2 and 5 yr charts, CIG and CPL also look better than VE. However, at the moment VE has a PB of 1.22, suggesting it dosen't have much more downside perhaps.
To be honest, this hasn't presented me a clear solution. I'm going to go back and check CPL's books too. Seem they have revenue and income up, but also pay a good chunk of cashflow in dividends, not as crazy much as CIG however.
So, time to sum up:
BIP: too small, too new- not going to touch
CIG: analysts say buy, but it is paying alot of cashflow in dividends
CPL: analysts say sell, and it is paying alot of cashflow in dividends
VE: inconclusive analyst rankings, low PB, beaten down- but previous history isn't so great.
Today, I think I will ignore history, and add VE. Why? The balance sheet looked okay to my untrained eye, and the PB ratio is low, suggesting a lowish price. It is near its years low. And, while the dividend yield is high, its not a huge chunk of cash flow. My theory is that past performance does not determine future performance, and so I am going to buy in (a little).
Adding a 10k position of VE to the portfolio for now. It seems a bit speculative, but I think I justified it a bit.
Oh, and as always,
disclosure: I'm a poor college kid who doesn't own stock and doesn't have a clue don't take my advice sheesh!
CPL yield 13
CIG yield ?10-14
BIP yield 8.7
Where to start? Ratios and analyst rankings I guess.
VE
PE 9.52 PB ?1.22 Analyst recommendations: 2 buys 1 underperform... kinda inconclusive
CPL
PE 12 PB 3 Analyst recommendations: 2 underpreforms of 5.. not so hot
CIG
PE ?? PB 2.22 Analyst: 4 buys 1 no opinion... suprising
BIP
PE ?? PB ?.55 cheap? Analyst: 2.75 no sells... not too bad considering
So far I am a bit biased towards CIG and BIP, but I think I should investigate the balance sheets a bit more closely for these ones. Also, maybe I can find out what the payout ratios are for these companies, as I didn't do that earlier. I think I can pretty much drop CPL off my list at this point.
So, balance sheets- anything notable that I can understand?
Not much info on Reuters about BIP. Maybe I should try another site.
VE shows revenue growth and not too huge a percent of cash flow as dividends. No strange 2007 drop like I saw in the earlier utilities.
CIG shows revenue growth but income decreases. A hell of a lot of its cash flow goes to dividends.
It seems BIP hasn't been around long, hence the lack of data. I think I will stay away from it for now, although the yield is tempting. I'll keep it on the radar and check back after a few years maybe. Then again, if it grows hugely, I will be sad.
CIG looks good from the analysts, but I don't like the cash flow all going to dividends. I'm going to have to pass.
VE seems to still be in the running however. Time to look at the charts.
Over the last few months, CIG and CPL have fared better than the S&P, unlike VE and BIP. Hmmm, thats seems to contradict my thoughts... but Mr. Market isn't so logical.
On the 2 and 5 yr charts, CIG and CPL also look better than VE. However, at the moment VE has a PB of 1.22, suggesting it dosen't have much more downside perhaps.
To be honest, this hasn't presented me a clear solution. I'm going to go back and check CPL's books too. Seem they have revenue and income up, but also pay a good chunk of cashflow in dividends, not as crazy much as CIG however.
So, time to sum up:
BIP: too small, too new- not going to touch
CIG: analysts say buy, but it is paying alot of cashflow in dividends
CPL: analysts say sell, and it is paying alot of cashflow in dividends
VE: inconclusive analyst rankings, low PB, beaten down- but previous history isn't so great.
Today, I think I will ignore history, and add VE. Why? The balance sheet looked okay to my untrained eye, and the PB ratio is low, suggesting a lowish price. It is near its years low. And, while the dividend yield is high, its not a huge chunk of cash flow. My theory is that past performance does not determine future performance, and so I am going to buy in (a little).
Adding a 10k position of VE to the portfolio for now. It seems a bit speculative, but I think I justified it a bit.
Oh, and as always,
disclosure: I'm a poor college kid who doesn't own stock and doesn't have a clue don't take my advice sheesh!
Next up: Utilities
So, I'd like to add some Utilities to the mix. I have stumbled across alot of ticker symbols as I read financial blogs, etc lately. However, a few have caught my attention, either due to high yields or due to consistent dividend growth for several years.
In the consistent growth category:
CEG yield 7% w/ moderate growth of dividend for 6 years
EMR yield of 4% but consecutive increases for 50+ years!
PGN yield 6% with slow increases for 20 yrs
OTTR yield 5 with slow increases for 6 yrs
HNP yield 6 with reasonable increases for 5 yrs
All of the above stocks have analyst ratings in the low to mid 2's, somewhere between buy and hold.
and in the high yield category:
VE yield 12 with increases for 4 years, big ones in the last two
CPL yield 13 - increases in last two years but not much data to go on
CIG ?10-14 payments are erratic to say the least, but overall yield each year has increased
BIP yield 8.7 only 1 year of history i could find
These are rated from 2.5 (VE) up to 1 strong buy (CIG)
I'm going to look at each group separately and choose the two I like most, unless the high yields turn out to all be junk. First lets look at the steady dividend growth utilities. I will talk about the high yielders in another post, as this one has become enormous.
CEG PE 14 PB ~1 # of under preform/sell ratings 1 under preform of 9 ratings
EMR PE 10.7 PB ~14 # low ratings: 0 of 16
PGN PE 13.5 PB ~2 # low ratings: 0 of 18 (but mostly holds)
OTTR PE 18.9 PB ~1.4 # low ratings: 1 of 2 ... not a great sign
HNP PE ? PB ~2.7 # low ratings: 1 of 2 ... again not so great
Note that CEG is sort of a merger arbitrage as it may be bought at a higher price then it is currently trading at. (Hence the low PB makes sense) However, the company, EDF, that may buy it doesn't pay a dividend.
Based on this, I would say I am favoring CEG and EMR, for the merger arbitrage side and the stability of 50 yrs of dividend growth. Time to check the charts however.
Over the last three months, PGN beat the pants off the S&P, and EMR tracked a bit above the S&P. HNP dropped, but has recovered a lot of ground. OTTR and CEG dropped like rocks, but CEG did so before the general market mayhem for its own reasons. Looking at the two year, PGN and EMR stayed the closest to the S&P, while the others underperformed, except OTTR which was doing good, until the recent crash beat the stuffing out of it.
The five year chart shows CEG doing great until its fall from glory, HNP see-sawing, and only EMR seems to outperform consistently on the long term.
Based upon what I have seen so far, I think that only EMR and PGN merit further balance sheet study as long term dividend investments. CEG may be a good merger arbitrage play, but I am not sure it's dividend is safe- I will look at its books too just for kicks.
CEG: consistent revenue growth, not so constant income growth, recent drop in total current assets, and in cash. I don't really know much of what this implies, but nothing jumps out at me. I still haven't found exactly what made this stock tank in September, so I guess I just won't touch what I don't understand, as Buffet advises. Except, Buffet wants to buy this company.... that makes me feel a bit conflicted... heh.
EMR: All I see is an increase in revenue and a recent decrease in assets and cash on hand, as with CEG. Debt went down? I really don't know what kind of data to expect, so I am just looking for things that jump out and scare me.
PGN: Same story, drop in assets in the last year or two, general growth. Why is this a trend- besides perhaps the obvious crisis of lending? Anyone want to fill me in?
Anyhow, I didn't see anything too scary so I am going to put up some buy orders and start cost averaging into 10k positions in EMR and PGN. I will talk about the high yielding utilities later, as this post is huge.
In the consistent growth category:
CEG yield 7% w/ moderate growth of dividend for 6 years
EMR yield of 4% but consecutive increases for 50+ years!
PGN yield 6% with slow increases for 20 yrs
OTTR yield 5 with slow increases for 6 yrs
HNP yield 6 with reasonable increases for 5 yrs
All of the above stocks have analyst ratings in the low to mid 2's, somewhere between buy and hold.
and in the high yield category:
VE yield 12 with increases for 4 years, big ones in the last two
CPL yield 13 - increases in last two years but not much data to go on
CIG ?10-14 payments are erratic to say the least, but overall yield each year has increased
BIP yield 8.7 only 1 year of history i could find
These are rated from 2.5 (VE) up to 1 strong buy (CIG)
I'm going to look at each group separately and choose the two I like most, unless the high yields turn out to all be junk. First lets look at the steady dividend growth utilities. I will talk about the high yielders in another post, as this one has become enormous.
CEG PE 14 PB ~1 # of under preform/sell ratings 1 under preform of 9 ratings
EMR PE 10.7 PB ~14 # low ratings: 0 of 16
PGN PE 13.5 PB ~2 # low ratings: 0 of 18 (but mostly holds)
OTTR PE 18.9 PB ~1.4 # low ratings: 1 of 2 ... not a great sign
HNP PE ? PB ~2.7 # low ratings: 1 of 2 ... again not so great
Note that CEG is sort of a merger arbitrage as it may be bought at a higher price then it is currently trading at. (Hence the low PB makes sense) However, the company, EDF, that may buy it doesn't pay a dividend.
Based on this, I would say I am favoring CEG and EMR, for the merger arbitrage side and the stability of 50 yrs of dividend growth. Time to check the charts however.
Over the last three months, PGN beat the pants off the S&P, and EMR tracked a bit above the S&P. HNP dropped, but has recovered a lot of ground. OTTR and CEG dropped like rocks, but CEG did so before the general market mayhem for its own reasons. Looking at the two year, PGN and EMR stayed the closest to the S&P, while the others underperformed, except OTTR which was doing good, until the recent crash beat the stuffing out of it.
The five year chart shows CEG doing great until its fall from glory, HNP see-sawing, and only EMR seems to outperform consistently on the long term.
Based upon what I have seen so far, I think that only EMR and PGN merit further balance sheet study as long term dividend investments. CEG may be a good merger arbitrage play, but I am not sure it's dividend is safe- I will look at its books too just for kicks.
CEG: consistent revenue growth, not so constant income growth, recent drop in total current assets, and in cash. I don't really know much of what this implies, but nothing jumps out at me. I still haven't found exactly what made this stock tank in September, so I guess I just won't touch what I don't understand, as Buffet advises. Except, Buffet wants to buy this company.... that makes me feel a bit conflicted... heh.
EMR: All I see is an increase in revenue and a recent decrease in assets and cash on hand, as with CEG. Debt went down? I really don't know what kind of data to expect, so I am just looking for things that jump out and scare me.
PGN: Same story, drop in assets in the last year or two, general growth. Why is this a trend- besides perhaps the obvious crisis of lending? Anyone want to fill me in?
Anyhow, I didn't see anything too scary so I am going to put up some buy orders and start cost averaging into 10k positions in EMR and PGN. I will talk about the high yielding utilities later, as this post is huge.
Saturday, December 13, 2008
First Picks
Well, I figure I might as well dive in feet first, since this is fake money after all. My first few picks may be lacking in research, but hopefully I will figure things out and people will tell me why I am silly and give me advice. Feel free to comment and tell me why my picks are horrible, and feel very free not to ever ever take my picks as good investing advice.
Now, to business. I am going to start this off by saying that I think the economy will recover, and so i may invest in less stable sectors like real estate, shipping, oil, and financial in hopes they will go back up. Today, I have in mind oil and metals.
My first pick for the fund is a stock I have been eying for a while, and that I have heard mostly good about. That is Kinder Morgan Energy Partners, a gas pipeline company. Now, they get their money from volume of fuel pumped, not from selling it, so hopefully they are somewhat insulated from the price crash in oil. Furthermore, KMP has a high dividend yield that has been rising for some 11 years, at a reasonable rate, at least that is what dividendinvestor.com tells me.
As for the ratios, it has a rather high Price/Earnings of 30ish, and a Price/Book of 3ish, so it isn't exactly a steal. However, If you look at the chart, it hasn't taken nearly as much of a beating as the S&P 500 of late. I am going to chalk the fact that is price hasn't fallen to dirt cheap levels as a good thing. Like I said, I'm not much of a value investor, I'm after dividends.
Now, to make sure I'm not being a total retard, I checked analyst buy/sell/hold ratings and saw that it has a mix of strong buy, buy, and holds. Overall, seems to be a buy, so say the mighty analysts. While I wouldn't expect everything analysts say to buy to actually be worth buying, it is comforting that there aren't any sell ratings.
Now, I should probably find some sort of hedge for this, but I want the fund to be mostly long. After I add a few more energy/oil positions I will figure out some sort of oil hedge, either an ultrashort fund or just plain short selling some oil company that I think is garbage.
Next up, commodities, in specific, steel. If you are some sort of day trader, you might look at MTL, or if you have great faith in the Russian economy recovering. However, I am not going to touch that thing with a nine foot pole. So, what do I have to look at?
What I see as far as dividend yielding steel stocks is Nucor (NUE), U.S. Steel (X), and ArcelorMittal (MT). From my cursory reading, NUE and X have about 3% dividend yields and MT is beaten down and yields about 6%. NUE is a mainly North American firm, X has a European side, and MT is global. Nue does mostly recycling rather than ore processing it looks like, and I someone on Seeking Alpha claimed that keeps costs down, but I'd rather not buy something just because I read about it on SA.
First off, dividends. Who has paid them the longest and who's has grown the fastest. NUE has grown its dividend a lot, although it pulled back a bit from 2007 highs. Not a dividend achiever, but the history looks rather solid. X has raised its dividend for three or four years, and had a constant dividend before that- not bad. MT has raised its dividend a lot in the last two years, but hasn't had a high dividend for too long it looks like.
Ratios?
X PE ~2 PB ~1
NUE PE ~6 PB ~2.5
MT PE ~2.5 PB ~.8
If you look at the chart, you see that in the crash NUE came out smelling like a rose compared to X and MT, which explains the difference in ratios. On teh one year chart, X looked good until the crash, while on the 2 & 5 year charts we see that MT has done some serious growing.
So, I don't know what to make of U.S. Steel's low ratios and poor performance relative to NUE and MT during the recent crash. Since I don't, I'm going to chalk that up as Mr. Market voting against it. It might mean its a great value and the dumb money has dumped it, but I don't have any evidence to support that. But before I say anything final, I'll look at what the analysts say.
Analysts Rating: NUE 1.93 no sells X 2.07 one sell MT 1.92 no sells
Now, I am a bit scared of X and MT as they suffered a lot recently, but I'm going to take a risk with MT and add it to the portfolio because of its high yield and no sell ratings. I will also add NUE as I feel it will add some stability that MT lacks. As before, I will get to a hedge later. I don't think X is so bad as to short it for my hedge, although MTL might just be a good candidate for that.
Lastly, how much of each do I want to add? Lets say I want to end up with about 10k each of MT and NUE, and maybe 20k of KMP as I love that solid dividend. With the market how it is, I should probably cost average in over a week or a month. However, UpDown, where I am modeling the portfolio, has a 100$ trade fee, and I don't want to lose too much to fees. I'll start by placing 5k (maybe 10k on KMP) limit buy orders at a few percent below closing price and hope they come to me. If they execute I will note that in the next post, hopefully.
Notes: Most data from a combination of dividendinvestor.com (for dividend info), reuters (for the ratios), and yahoo finance (for the charts), with a bit from google finance (random history, I like to read the comments, etc).
Disclaimer/Disclosure: As always, i am a poor college student with no positions in any stocks, so don't treat this as an advice page for god sakes. Do your own research!
Edit: I just recalled something I heard somewhere, probably from Cramer- the stock is not the company. Next time when I look at company history I will try to look at balance sheets and earnings as well as stock charts, which don't indicate company performance, only company popularity with Mr. Market, who isn't always rational.
Now, to business. I am going to start this off by saying that I think the economy will recover, and so i may invest in less stable sectors like real estate, shipping, oil, and financial in hopes they will go back up. Today, I have in mind oil and metals.
My first pick for the fund is a stock I have been eying for a while, and that I have heard mostly good about. That is Kinder Morgan Energy Partners, a gas pipeline company. Now, they get their money from volume of fuel pumped, not from selling it, so hopefully they are somewhat insulated from the price crash in oil. Furthermore, KMP has a high dividend yield that has been rising for some 11 years, at a reasonable rate, at least that is what dividendinvestor.com tells me.
As for the ratios, it has a rather high Price/Earnings of 30ish, and a Price/Book of 3ish, so it isn't exactly a steal. However, If you look at the chart, it hasn't taken nearly as much of a beating as the S&P 500 of late. I am going to chalk the fact that is price hasn't fallen to dirt cheap levels as a good thing. Like I said, I'm not much of a value investor, I'm after dividends.
Now, to make sure I'm not being a total retard, I checked analyst buy/sell/hold ratings and saw that it has a mix of strong buy, buy, and holds. Overall, seems to be a buy, so say the mighty analysts. While I wouldn't expect everything analysts say to buy to actually be worth buying, it is comforting that there aren't any sell ratings.
Now, I should probably find some sort of hedge for this, but I want the fund to be mostly long. After I add a few more energy/oil positions I will figure out some sort of oil hedge, either an ultrashort fund or just plain short selling some oil company that I think is garbage.
Next up, commodities, in specific, steel. If you are some sort of day trader, you might look at MTL, or if you have great faith in the Russian economy recovering. However, I am not going to touch that thing with a nine foot pole. So, what do I have to look at?
What I see as far as dividend yielding steel stocks is Nucor (NUE), U.S. Steel (X), and ArcelorMittal (MT). From my cursory reading, NUE and X have about 3% dividend yields and MT is beaten down and yields about 6%. NUE is a mainly North American firm, X has a European side, and MT is global. Nue does mostly recycling rather than ore processing it looks like, and I someone on Seeking Alpha claimed that keeps costs down, but I'd rather not buy something just because I read about it on SA.
First off, dividends. Who has paid them the longest and who's has grown the fastest. NUE has grown its dividend a lot, although it pulled back a bit from 2007 highs. Not a dividend achiever, but the history looks rather solid. X has raised its dividend for three or four years, and had a constant dividend before that- not bad. MT has raised its dividend a lot in the last two years, but hasn't had a high dividend for too long it looks like.
Ratios?
X PE ~2 PB ~1
NUE PE ~6 PB ~2.5
MT PE ~2.5 PB ~.8
If you look at the chart, you see that in the crash NUE came out smelling like a rose compared to X and MT, which explains the difference in ratios. On teh one year chart, X looked good until the crash, while on the 2 & 5 year charts we see that MT has done some serious growing.
So, I don't know what to make of U.S. Steel's low ratios and poor performance relative to NUE and MT during the recent crash. Since I don't, I'm going to chalk that up as Mr. Market voting against it. It might mean its a great value and the dumb money has dumped it, but I don't have any evidence to support that. But before I say anything final, I'll look at what the analysts say.
Analysts Rating: NUE 1.93 no sells X 2.07 one sell MT 1.92 no sells
Now, I am a bit scared of X and MT as they suffered a lot recently, but I'm going to take a risk with MT and add it to the portfolio because of its high yield and no sell ratings. I will also add NUE as I feel it will add some stability that MT lacks. As before, I will get to a hedge later. I don't think X is so bad as to short it for my hedge, although MTL might just be a good candidate for that.
Lastly, how much of each do I want to add? Lets say I want to end up with about 10k each of MT and NUE, and maybe 20k of KMP as I love that solid dividend. With the market how it is, I should probably cost average in over a week or a month. However, UpDown, where I am modeling the portfolio, has a 100$ trade fee, and I don't want to lose too much to fees. I'll start by placing 5k (maybe 10k on KMP) limit buy orders at a few percent below closing price and hope they come to me. If they execute I will note that in the next post, hopefully.
Notes: Most data from a combination of dividendinvestor.com (for dividend info), reuters (for the ratios), and yahoo finance (for the charts), with a bit from google finance (random history, I like to read the comments, etc).
Disclaimer/Disclosure: As always, i am a poor college student with no positions in any stocks, so don't treat this as an advice page for god sakes. Do your own research!
Edit: I just recalled something I heard somewhere, probably from Cramer- the stock is not the company. Next time when I look at company history I will try to look at balance sheets and earnings as well as stock charts, which don't indicate company performance, only company popularity with Mr. Market, who isn't always rational.
Sector Distribution
Now, I want a good diversity of stocks, so that no one sector bubble kills me. I also want to focus in on sectors that took a beating and I think will recover. Out of my butt, essentially, I shall pull the following initial weightings, which will probably be readjusted to something more balanced later.
16% Oil stocks: what can I say, I believe in peak oil...
8% Utilities: these seem solid and stable
8% Conglomerates: seem stable? Sometimes. GE is a bit shaky atm...
12% Real Estate: I think that the housing bubble might have popped a bit too much
14% Financial stocks: lets face it, they had the stuffing beat out of them, but lots will live, and hopeful I can pick them
16% Shipping: when the economy recovers, shipping will, and they pay good dividends (when they don't cut them :( ) I may cut this back if I can't find enough stable companies with good long contracts.
8% Pharma: Seems stable with reasonable yields
8% Raw Materials: Sort of beaten down, but since it doesn't yield much I'll weight it lower
10% Staples: Heavier weighting just because it's stable.
So, we have a million to start, and lets call each stock position about 10k-20k, so one stock per percent or two, hopefully I'll end up with 60 or 80 companies.
Did I miss an important sector? If so yell at me please.
16% Oil stocks: what can I say, I believe in peak oil...
8% Utilities: these seem solid and stable
8% Conglomerates: seem stable? Sometimes. GE is a bit shaky atm...
12% Real Estate: I think that the housing bubble might have popped a bit too much
14% Financial stocks: lets face it, they had the stuffing beat out of them, but lots will live, and hopeful I can pick them
16% Shipping: when the economy recovers, shipping will, and they pay good dividends (when they don't cut them :( ) I may cut this back if I can't find enough stable companies with good long contracts.
8% Pharma: Seems stable with reasonable yields
8% Raw Materials: Sort of beaten down, but since it doesn't yield much I'll weight it lower
10% Staples: Heavier weighting just because it's stable.
So, we have a million to start, and lets call each stock position about 10k-20k, so one stock per percent or two, hopefully I'll end up with 60 or 80 companies.
Did I miss an important sector? If so yell at me please.
Thursday, December 11, 2008
Investing Thesis
So, what will this fictitious hedge fund invest in?
Well, how about stocks for starters. And how about it actually hedges, but mostly goes long. Say, maybe it will have a hedge for each sector that it invests in, like a double down ETF. Maybe one day I will learn about bonds and add them as well.
Now, what kind of stocks. Now, I don't know much about value investing, and when I try short term trading (with fake money, of course) I generally lose as much as I gain, or more. However, I don't really understand buy and hold investing. The stock just sits there, and magically rises in value? I don't really buy it. I much prefer dividend paying stocks, as they provide an income that can be reinvested, possibly in other stocks if I so choose. Also, the word is that they are more stable, although in the current market I haven't seen that to really be the case.
Now, a large number of dividend stocks are financial companies, which have recently had, well, a bit of a shake up. However, I think I will invest in some of the more promising looking ones, as their share prices have taken a massive beating and they offer reasonable dividend yields now. Also, RIET funds (real estate investment), shipping companies, and some oil/utility companies seem to pay reasonable dividends. These are also not exactly stable right now, as real estate, shipping, and oil prices have all taken a beating. However, I will be ever the optimist and buy into some of these while they are cheap as well.
However, everything I read tells me that diversification is good. So, I will look at dividend stocks in other areas as well, such as consumer goods, telecom, commodities, medical companies, the whole nine yards. Some of these may not pay stelar dividends, but they will give me a good wide base of investments, so that when I sink I will at least have sank with a whole ship instead of just a risky plank.
Finally, how will I limit losses? I allready said I will hedge, but when will I sell the hedge? How will I rebalance if the market crashes and my hedge is suddenly a large portion of my portfolio?
Well, I think I will limit my long losses with trailing stop loss orders, but as the market is preposterously volitile I will probably set them rather low. As for the hedge- I think if it increases in value significantly (say 15%), I will sell 25% of it and reinvest that in long stocks. Depending on if I think the market is going to keep going down or go back up, what I do next may vary, but the idea is to get out of my hedge slowly as the market drops and still have some left to sell at the bottom, so that I can buy back in long. Of course, I will certainly miss the bottom but if I cost average in over the trough, it will hopefully turn out better than I would have done with no hedge. Then, ideally I will buy back a new hedge after the market gets a little healthier and the double down funds are cheaper.
Okay, so that is the extent of the Ficticious Hedge Fund's strategy thus far. More will be posted as it percilates into my brain. Expect the first few stocks to be added to the fund in the next few days.
Well, how about stocks for starters. And how about it actually hedges, but mostly goes long. Say, maybe it will have a hedge for each sector that it invests in, like a double down ETF. Maybe one day I will learn about bonds and add them as well.
Now, what kind of stocks. Now, I don't know much about value investing, and when I try short term trading (with fake money, of course) I generally lose as much as I gain, or more. However, I don't really understand buy and hold investing. The stock just sits there, and magically rises in value? I don't really buy it. I much prefer dividend paying stocks, as they provide an income that can be reinvested, possibly in other stocks if I so choose. Also, the word is that they are more stable, although in the current market I haven't seen that to really be the case.
Now, a large number of dividend stocks are financial companies, which have recently had, well, a bit of a shake up. However, I think I will invest in some of the more promising looking ones, as their share prices have taken a massive beating and they offer reasonable dividend yields now. Also, RIET funds (real estate investment), shipping companies, and some oil/utility companies seem to pay reasonable dividends. These are also not exactly stable right now, as real estate, shipping, and oil prices have all taken a beating. However, I will be ever the optimist and buy into some of these while they are cheap as well.
However, everything I read tells me that diversification is good. So, I will look at dividend stocks in other areas as well, such as consumer goods, telecom, commodities, medical companies, the whole nine yards. Some of these may not pay stelar dividends, but they will give me a good wide base of investments, so that when I sink I will at least have sank with a whole ship instead of just a risky plank.
Finally, how will I limit losses? I allready said I will hedge, but when will I sell the hedge? How will I rebalance if the market crashes and my hedge is suddenly a large portion of my portfolio?
Well, I think I will limit my long losses with trailing stop loss orders, but as the market is preposterously volitile I will probably set them rather low. As for the hedge- I think if it increases in value significantly (say 15%), I will sell 25% of it and reinvest that in long stocks. Depending on if I think the market is going to keep going down or go back up, what I do next may vary, but the idea is to get out of my hedge slowly as the market drops and still have some left to sell at the bottom, so that I can buy back in long. Of course, I will certainly miss the bottom but if I cost average in over the trough, it will hopefully turn out better than I would have done with no hedge. Then, ideally I will buy back a new hedge after the market gets a little healthier and the double down funds are cheaper.
Okay, so that is the extent of the Ficticious Hedge Fund's strategy thus far. More will be posted as it percilates into my brain. Expect the first few stocks to be added to the fund in the next few days.
The Idea
So, I was reading Seeking-Alpha, as I started doing around about the time of the recent market crash, when I stumbled along an article which amused me.
http://seekingalpha.com/article/109979-how-to-start-your-own-hedge-fund
Its topic was just how easy it is to start up a hedge fund. Now, it occurred to me that starting a hedge fund would be an interesting thing to do, but that I, being financially not so literate, were to do so it would of course result in horrible failure and lawsuits and the like. So, rather than creating a hedge fund and being sued, I decided to do the next best thing: blog about finance AS IF I were running a hedge fund, and in the result hopefully learn a thing or two about finance.
I should note, that I recently started playing an investing game called 'Up-Down' and this is where I shall keep track of the fictitious hedge fund. I should also note that most of my financial knowledge comes from the internet: bloomberg, seeking-alpha, MSN money, etc. I have taken a fancy to dividend stocks after reading some posts on DIV-NET, so that is where I shall start.
My objective is this: find interesting looking stocks and add them to the fictitious hedge fund each week, hopefully with some sort of analysis to explain why I chose it. Now, at first my picks may be rather uneducated, but I hope after losing a large amount of fake money I will begin to understand things like PE,PS,PB, various ratios, value investing, and general stock screening processes. After a while I will have built up a fund from what was originally a million fake dollars on Up-Down, although by the time I have added the last stock the value will surely have changed.
Once the fund is up and running, I will manage it on a monthly or weekly basis and make posts about what I add, get rid of, get horribly hosed on, and maybe even what pans out.
This should be an adventure, and hopefully I will learn something.
If I wasn't explicit enough above: I HAVE NO FINANCIAL EXPERIENCE AND NOTHING ON THIS BLOG SHOULD BE USED TO MAKE YOUR OWN FINANCIAL CHOICES AND IF YOU LOSE A BUCH OF MONEY, ITS NOT MY FAULT DON'T SUE ME: ITS A FICTICIOUS FUND! DO YOUR OWN RESEARCH BEFORE INVESTING!
P.S. if you are interested in Up-Down, above is a referral link- if you play the game and do good I get a penny sometimes! Or you can just Google it if you don't want to give me a penny- you meany.
That site is kinda neat too.
http://seekingalpha.com/article/109979-how-to-start-your-own-hedge-fund
Its topic was just how easy it is to start up a hedge fund. Now, it occurred to me that starting a hedge fund would be an interesting thing to do, but that I, being financially not so literate, were to do so it would of course result in horrible failure and lawsuits and the like. So, rather than creating a hedge fund and being sued, I decided to do the next best thing: blog about finance AS IF I were running a hedge fund, and in the result hopefully learn a thing or two about finance.
I should note, that I recently started playing an investing game called 'Up-Down' and this is where I shall keep track of the fictitious hedge fund. I should also note that most of my financial knowledge comes from the internet: bloomberg, seeking-alpha, MSN money, etc. I have taken a fancy to dividend stocks after reading some posts on DIV-NET, so that is where I shall start.
My objective is this: find interesting looking stocks and add them to the fictitious hedge fund each week, hopefully with some sort of analysis to explain why I chose it. Now, at first my picks may be rather uneducated, but I hope after losing a large amount of fake money I will begin to understand things like PE,PS,PB, various ratios, value investing, and general stock screening processes. After a while I will have built up a fund from what was originally a million fake dollars on Up-Down, although by the time I have added the last stock the value will surely have changed.
Once the fund is up and running, I will manage it on a monthly or weekly basis and make posts about what I add, get rid of, get horribly hosed on, and maybe even what pans out.
This should be an adventure, and hopefully I will learn something.
If I wasn't explicit enough above: I HAVE NO FINANCIAL EXPERIENCE AND NOTHING ON THIS BLOG SHOULD BE USED TO MAKE YOUR OWN FINANCIAL CHOICES AND IF YOU LOSE A BUCH OF MONEY, ITS NOT MY FAULT DON'T SUE ME: ITS A FICTICIOUS FUND! DO YOUR OWN RESEARCH BEFORE INVESTING!
P.S. if you are interested in Up-Down, above is a referral link- if you play the game and do good I get a penny sometimes! Or you can just Google it if you don't want to give me a penny- you meany.
That site is kinda neat too.
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