Offbeat Trading

Blog, Part Deux

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The performance of my fund has been right about in the middle of the pack. That is not too bad at this stage of the competition. Due to my choices of solid stocks, over the long run, I expect to move up into the top 25% or so. Last time I wrote about my best performing stocks, and they are still doing well. FCX, FDG, BRK.B and VLO are still my top four holdings. TIE has dropped down a bit, behind Fastenal (FAST) a seller of industrial and construction supplies that has been a solid stock over the years, up about 300% in the last four years and around 30% since January. One of the company directors just bought 3,000 shares. I do own some FAST in real life as well. However, there is one caveat; the company has a higher P/E ratio than I like, around 34.5.

Another stock that has moved ahead of TIE is Chesapeake Energy (CHK), one of the largest natural gas producers in the country, with a P/E of just above 10 and a recent 25,000 share stock purchase by the company chairman. Another middle-of-the-road performer in my fund is Global Santa Fe (GSF) an oil drilling stock, supposedly favored by oil baron T. Boone Pickens. It has a P/E of 13.5.

A recent purchase in my portfolio is Blackstone (BX) a holding company owned by people who know a lot more about investing than I do. Because of its high volatility, I am using a dollar cost averaging approach towards buying BX. So far I have made two purchases, investing about $25,000 each time.. Last year earnings were $10.61 per share and may be higher this year. Since the stock trades below $30 a share, the P/E is phenomenal (currently 2.0), although the forward P/E is projected to be 16.9 once things settle down.

Another recent purchase is Telecom Corp New Zealand (NZT) which pays a 20% dividend. I bought it partly for the dividend and partly to diversify a bit more into foreign stocks. It is questionable as to whether the dividend can be sustained considering the earnings. So far, I am slightly behind on this stock, but it was purchased very recently, on October 3. I am also slightly behind on Archer Daniels Midland, which I bought primarily as an inflation hedge, and so far is just below break even.

I jettisoned two stocks that I bought early on, but were behaving like dogs. Wendy's (WEN) was supposed to be a takeover target and Nautilus (NLS) was experiencing significant insider buying. Neither stock has done much since I unloaded it; in fact NLS has gone down quite a bit more.

As I suggested last time, the Fed's move has ignited the market. It has already moved quite a bit higher, to new record highs on the S&P 500 and on the Dow. Recently the NASDAQ has been showning strength as well. Stocks should continue to be a good investment for the next few months and that is, after all, the time frame of this competition.

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Blog the Third: A biomedical scientist looks at the Fastenal Fiasco

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One of the stocks in my fund is Fastenal (FAST). Last Thursday, the earnings for the third quarter came in at $0.41 versus the $0.42 that was expected. The stock immediately plunged around 10% and continued down to around a 15% drop. This over-reaction makes no sense! The earnings disappointment was only about 2.5% so a drop of that magnitude might be expected. In reality, however, I do not consider that there is any significance at all to the difference between $0.41 and $0.42 per share. If I do an experiment and expect to get a value of 42, but the results come out to 41, I do not consider that the experiment is a failure. Quite the contrary; it is close to expected. In fact, it is likely that no matter how many times I repeat the experiment, taking into account limitations such as time and money, the difference between 41 and 42 will never be statistically significant!

I cannot understand why there is such an over-reaction, but I can take advantage of it. I have already added to my position in Fastenal at a reduced price and I plan to add more if the price declines some more. In my experience, Wall Street tends to overdo both runups and corrections and cashing in on these is one of the best ways to make money on stocks.

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