July 2008 Archives (Van Meerten's picks)

July 2008 Archives

BarChart Charting misunderstanding

Rating: 2.00 (4 votes) Vote:

InvestorPlace Blogs is powered by Marketocracy. Marketocracy has authorized Investor Place Blogs as an official registrar for voting through Marketocracy's Investment Research Rating service. Registered members of InvestorPlace Blogs are linked with a Marketocracy account to establish voting power based on their performance of trading and posting on stocks.

BarChart charting misunderstanding - Remember as you draw a custom chart, when you pick 20, 50 & 100 moving average that it is controlled by the frequency period you choose. If you choose DAILY frequency then it's the 20, 50 & 100 DAY moving average. If you choose the 60 minute frequency then it is the 20, 50 & 100 HOUR moving average. If you choose the frequency WEEKLY then it is the 20, 50 & 100 WEEK moving average. Think of it as the PERIOD moving average and you should be right on.

I've gotten a lot of questions about this and I hope that makes it clearer.

Where to invest

Rating: 1.33 (3 votes) Vote:

We have a real puzzle going on. The economy seems to be contracting and major companies are laying off but at the same time all the things that drive the economy, like oil, steel, coal, commodities of all types are on a tear. We have to realize that the emerging economies are consuming more and more products.

But look at those economies. FXI (China), INP (India) and ILF (Latin America) are all down. We have to realize that although these economies are consuming they may not be profitable.

Maybe it might be a time to shift your investing from the companies that should be making a profit to the commodities and producers of those commodities.

Look at mining companies and the underling commodities themselves for near term opportunities

Arch Coal (ACI) - You may have come to the dance too late

Rating: 2.14 (7 votes) Vote:

Arch Coal (ACI) is a stock with a GREAT following, but is that a plus or a minus? At the present time institutional shareholders have tied up almost 98% of the stock. An individual investor should always look for a stock that has institutional following but I normally like to keep that at around 50%. When 98% of the stock is tied up by just a handful of institutions a few deciding to dump their stock could hurt you in the short run. Are you smarter than all the big boys?

Most of Arch's mines are in the US - that's a plus for stability of supply chain. Oil prices keep rising and coal is an energy alternative - that's another plus. Coal is a primary energy source for the metal refining industry - a third plus. India, China, US & Russia all will be long term consumers of coal.

Arch has been around for a while, has had stable earnings, margins and earning so the fundamentals look good. If coal prices go up faster than Arch's energy costs to get it out of the ground and to market everything will be fine. Arch is a stable, long term play but can you add it to your portfolio at the right price?

Arch has had a great run up. It's 5 year total return has been 564%. In 2006 you could have gotten in most of the year around 40 and the recent high has been up to over 77. If you are looking at Arch as a long term play I think you may have come to the dance too late, the big money seems to already have been made and all the big players got here way ahead of you.

Short term some of you traders might make a little money if you could put in some limit orders below 60 and make a few points on the up swing but don't expect this stock to double in the next year. Opportunity seems to be elsewhere.

To sum up, if you've got it congratulations you made a good decision but don't overstay your welcome, traders might make a few bucks if they time the price swing right but if you want to get in now and expect to double your money you have come to the dance too late.

--------------------------------------------------------------------------------

The Lake Wobegon effect on your stocks

Rating: 3.00 (5 votes) Vote:

Everyone is trying to be number one. Who will bring back the most gold metals in the next Olympics, who will win the Super Bowl or the World Series. You hardly ever hear anyone predict who will win silver or bronze. Those athletes will be among the best in the world, probably only a nanosecond off the times of the best but never be interviewed and never be on a Wheaties box.

Garrison Keillor invented a town called Lake Wobegon where all the children are slightly above average and it would be a wonderful place to live. What lessons can we learn about being just slightly above average?

During my lifetime I've had two Lake Wobegon happenings I'd like to share with you. The first involves sports. The younger guys at my firm wanted to start up a softball team and compete in a Financial Services League. As a joke they asked me to join. Being over 50 at the time, it was a joke but I decided to join anyway. Besides, I knew that all the teams went out for beer after the games and that would be a good opportunity to socialize with people from other firms.

Most of the guys on the teams were under 30 and had played baseball in college, many on full scholarships so I didn't think I'd get any playing time, I was really just there for the beer. Some of the guys could really knock the cover off the ball. There were some utility lines behind center field and we had one guy that often hit the ball over not only over the center field fence but sometimes over the utility lines as well. What competition!

The team was young and they made sure the old man got to play at least one inning a game and often some of the guys felt more responsibility to a date or a popular happy hour so they had to put me in just to have enough bodies to play. Everyone else hit for the fence. I knew I couldn't do that, so I just wanted to get on base. I knew I could put a soft pitch over the shortstop's head and into the grass so that's what I did. Always I'd settle for a single and the only doubles I got was when they over threw first base and the ball went into the parking lot so I got an automatic double. No one noticed me, they watched the guys hitting over the utility line. Somewhere mid-session I saw the guys all gathered about the wife who kept the score pad and they were all laughing. When I asked what was so funny I was told that I was the only guy in the league with a 1000 batting average; mostly singles, a few doubles on errors and no triples or home runs. I didn't have to buy beer that night. Superior performance but only slightly above average.

So what has that got to do with stocks? When I opened my first portfolio on Marketocracy I didn't know a lot about portfolio management. I had put most of my clients into managed money or recommended 5 star funds. I let the research department find stock picks for me. I ran across the S&P 500 club, guys that invested only in S&P stocks but trying to beat the S&P 500 average. That seemed a pretty tall goal since it's commonly been said that 85% of all the professionally managed mutual funds haven't done that.

The guys often blogged that none of them ever had a S&P 500 fund in the M100 and never would. I joined and decided that I'd look for stocks that where beating the Average and each week cull off the ones that lost money. Now 4 1/2 years later I'm still #25 in the club with pretty average performance compared to the other 81,000 Marketocracy portfolios. I'm not in the 50 percentile for any period but what are my overall stats?

VMFIV has beaten the S&P 500 average for every measurable period and had a 38.38 percent return for the 4 1/2 years, only an 8.38% annual rate of return. The S&P 500 has had a 20.16 percent return over the same period. 38.38 divided by 20.16 = 1.903. I've beaten the S&P 500 average by over 90% by being "just slightly above average".

Lesson - Quite hitting for the fence and weed out the losers. Be satisfied by having a portfolio that is "just slightly above average" all the time and you will be the winner in the end.

Lesson Learned from SLO2 - Always be open to new ideas

Rating: 2.50 (6 votes) Vote:

My overall strategy was not to hit for the fence, just try to beat the S&P 500, have positive returns and conserve principal if all else fails. I always learn from my own mistakes but from now on I'm going to also learn from others successes.

My long stock screener worked pretty well. I thought since this was to be a stock picking contest I'd go for broke, stay long and if things got bad transition back to cash. I didn't intend to go to cash, I thought that my only choice was to go to cash if my sell signs triggered and I couldn't find something to buy. I guess that was a good strategy but I made two major errors: 1 - I ignored several sell signs and 2- I failed to profit from what was working for others.

Several times during the competition I had sell signals. For me the sell signal is when a stock starts trading below it's 50 day moving average. In several blogs I said I seldom see a reason to hold a stock when it trades below it's 50 day moving average. My own words come back to bite me - big time! I listened to others. When my coal stocks dropped 20% I read to find out why and found it was because of a drop in the spot price of 10%. I Googled my coal holdings and found lots of bad advice to hang on and wait for a rebound in those stocks. I even convinced myself there would be a dead cat bounce. All the big guys and many of the part-time bloggers like me said coal was the best long range alternative energy play - I forgot this was a short term contest. I held them and lost some of the profits I made. They are all up over the purchase price but far off their highs.

Secondly, Ron Prichard was telling us how Vad was making some money shorting stocks, Jamie Dlugosch kept us informed that some of the most popular stocks were the ProShare Ultra Short ETFs and more than 25% of the stocks were trading below their 20 & 50 day moving averages. All the signs were there to short the market but I failed to explore how to short the market in a long portfolio and my pride for stock picking wouldn't let me explore Short ETFs other than my LONG positions in Oil.

So today I screened the top ETFs for the performance over the last month. Boy was I stupid! Out of the top 25 performing ETFs 24 are either Ultra Short, Short or Inverse ETFs and they have made from a low of plus 22% all the way up to a whopping gain of 67%. I may not have lost money but I sure missed some great opportunity cost plays.

Have I learned or will I still past up golden opportunities to make even more? I don't have a new strategy, let's just call it a refined new and improved strategy. (kind of like new and improved Tide)

NEW & IMPROVED STRATEGY:
Overall: Still don't try to hit for the fence, beat the S&P 500, look for positive returns, conserve principal but be open to short opportunities:
1 - Continue to use present screener to find long stock plays.
2 - Strictly adhere to my sell signal signs RELIGIOUSLY!
3 - Always be aware of what's happening on the short side of the market.
4 - On new purchases and replacements of stocks sold by individual sell triggers; if 55% of the market is trading above its 20 & 50 day moving averages go long; when 55% of the market is trading below its 20 & 50 day moving averages look for short opportunites and when the market is in the middle 10% wait till the market commits itself to replace anything.

Don't scrap what has worked for you but always be open to ways to improve on your performance. Let's all get rich together, buy wireless broadband access laptops, meet at a Tiki bar in the Keys and swap trading stories while sipping a cold one.

The Deer in the Headlight Prepares to Cover His Shorts

Rating: 3.00 (2 votes) Vote:

I am the deer in the headlight. I don't know what to do. My overall market chart is the Value Line Index. Three times I've watched it fall waiting for it to cross 1900 and it bounced back. The dates were 1/21, 3/17 and right now.

Each time, I watched others make a killing on the ultra short ETF's and each time I watched them lose ground as it bounced back off of 1900.

Watch the market closely and be prepared to cover your shorts. Accumulate some cash. Wait till a trend develops.

Tell Your Ole Lady You're Buying Harley (HOG)

Rating: 3.00 (4 votes) Vote:

When I was about 12 there was a crane operator across the street that rented a room from one of our neighbors. Wayne, I still remember his name, was a rough dude but he had a really pimped out DuoGlide. He rode with a motorcycle club and some nights when all his buddies came over to see him the street resonated with the sound of rollin' thunder. Most of them had lights in the spokes and the patterns of the lights and the sound that those big V-Twins made as they all rode down the street was unforgettable. I knew right then I had to have one.

I've read a lot about Hogs. I know they are expensive, undependable, not very economical and the Jap Crap is cheaper, runs better, longer but even when they try to duplicate it they can't sound like a Harley. I NEEEED a Hog.

All around the country there are guys like me that are reading articles that with gas prices on the rise thousands of grown commuters are looking for economical transportation alternative to their SUV and looking at Vespas, Tomos and all sorts of DUI scooters but do you really want to be seen on a pastel minibike? Real dudes stride HOGS. We will convince our wives that a Hog is a good, economical and dependable alternative to our SUV's. You can't ride your Ole Lady on the back of a kiddie scooter!

That's the mystic the bike has going for it and that's the mystic the stock has too.

Harley has a following for both the bike and accessories. It will be around. They have a marketing genius and there always will be a demand not only for the bikes but also for the gear and endorsement items. This is a company with stable sales, stable margins, stable earnings. The company isn't as exciting as the bike, so why buy it?

It's on sale for 50 cents on the dollar. In November of 2006 the prices was around $75 now it's on sale at less than $35.

If you've always wanted a Harley, they are as good as ever and tell your wife; I mean Ole Lady it's on sale.

Thanks for all the fair play competition

Rating: 3.00 (1 votes) Vote:

The competition is now over and Aardvark definitely whipped us all by thinking outside of the box. Although I had some Ultra Short ETF's in my personal portfolio I didn't think to use them in the competition.

I really appreciate all the wonderful comments and suggestions you've given me and hope we all have become better investors from our open exchange of ideas.

Let's all meet here again for Strategy Lab Open 3. I look forward to the renewed competition.

Jim Van Meerten

What are taxes for?

Rating: not yet rated Vote:

I want to see if I've got this right and I know you guys will tell me if I don't.

Obama's & Hillary's plan to energize the economy is through taxes that take away from the people who make money and don't spend it and give it to the people who don't make money and want to spend it.

Dr Stanley's book "The Millionaire Next door" claims that most American millionaires are plain old folks who just have accumulated assets by investing in the market or their businesses with the funds they managed to save. The old live well within your means plan. Sounds like folks like you and me.

The people who the Democrat's say are the "true" Americans are the ones who are consumer driven and spend more than they make by using credit for consumer goods and mortgages on houses they really can't afford, have children that can't afford to raise, shelter, educate and medicate, and have spending habits that their incomes can't support.

Somewhere maybe in Civics class in 5th grade I heard that taxes were necessary to pay for the governmental goods and services that the people have decided should be provided by governments and not businesses because governments could do it cheaper and more efficiently,

When did the US constitution get amended and change the powers to "tax and spend" to the power to control the economy and redistribute wealth? I think I missed that vote.

Make money in bank stocks

Rating: 1.00 (1 votes) Vote:

This week the editors asked for comments on the financial industry, the banking sector in particular and I have to admit I'm very afraid of individual banking stocks. I don't think there is any analyst in the industry who can honestly analyze the numbers. I have an accounting and a law degree and have passed the GA CPA, Certified Internal Auditor and Georgia Bar Exams and I wouldn't even to attempt to read and tear apart any bank's 10Q. I can't trust the numbers. It's not that the bank are dishonest, they just honestly don't know what their assets are worth. Many of the loans were either "No Doc" loans and not underwritten at all or were badly underwritten with highly suspect and incomplete information.

These loans have been sold and resold, packaged and repackaged to the point that no one knows what the pay-off of the loans will ultimately be or if any of the banks have adequately reserved for their bad debts.

But there is a way for the common investor to make a good bit of money in this market. Don't buy individual banks, buy the whole sector.

Proshares has some new ETFs that are leveraged on both the up and downside. The Proshare Ultra Financial (UYG) tracks 2 times to the upside and the Proshare Ultra Short Financial (SKF) tracks 2 times to the downside of the banking sector.

Do I have a crystal ball to tell you which to buy? Not exactly, I have a tool to help you decide. Most of you have access to charting packages ( I use BarChart, but AOL and most of your on-line brokerage packages have it) that will let you chart one stock against another. Go to your favorite package and plot UYG against SFK. You will easily see which on is now out performing the other. Plot them every day and you will be able to get a feel of the industry. Which ever one you choose put in a stop loss at the 50 day moving average and be prepared to switch horses in mid-stream.

Don't expect to be 100% right but is you can catch 80 % of the upside or downside you should make out fine. Plot your stocks against each other and tell me what you think.

Learn fron Ken Kam

Rating: 3.00 (1 votes) Vote:

I've gotten lots of emails and comments asking for some clarification on my stock selection method so I'll make another attempt to simplify my explanation.

I've been a participant in Marketocracy for about 3 years and learned how to pick stocks like Ken Kam picks portfolio managers. I'd never say I'm doing as good a job as he does but I'm TRYING to duplicate his methodology.

Ken has given us a great competition tool and convinced us to all compete against each other. He gives us general guidelines on Compliance but as far as giving us guidance on how to pick stocks he's totally hands off and let's the best stock pickers win. Over 81,000 of us are trying to beat each other. And he just sits back and watches the fray!

Ken then takes the best 100 and makes them the M100. Occasionally some of the M100 fail to keep up their returns, need to be replaced and a few slots come open. We all think he then looks to who has all those purple stars for being in the top 100 for various time periods and then selects from those to fill his slots.

For instance - if there were a slot open now Ken might notice that in June of 2008 VMALP - Van Meerten's Alpha fund got a purple star for being #82 for the 2 year period. But Ken wants a consistent picker not just a one time flash in the pan so he notices that the same Van Meerten fund also received a December 2007 purple star for #70 for the 6 month period and another purple star in September of 2007 for #72 for the 3 month period. The fund has also accumulated 16 green stars for various periods in the last 3 years. Looks like consistent performance.

As a last test, did the fund beat the M100 fund? Why would he want to add a fund that was below the M100 average and pull down the future return of the fund. A look at the chart shows the fund's gold line beats the M100 purple line in most time periods so it should come into consideration to replace a fund that faltered.

How does that parallel my stock picking methodology? Let's see.

Value line has a box in the bottom left hand corner of the tear sheet that grades a stock's earnings and prices. They look for Price Stability, Price Growth Persistency and Earnings Predictability. I've never figured out how to get that box to work for me but since I've learned how to use stock screeners I can do that for myself. That's what I'm looking for a stock who's price has Persistent Growth, Predictability and Stability. The 3 values Ken looks for in a Portfolio Manager.

First Growth - I look for the stock that has grown in price by at least 10% during the last quarter. 10% per quarter would be 40% per year.

Second - Persistent Growth - How many times during the last quarter has this stock hit new highs? Ideally at least a new high in each week or at least 13 new highs spread across the quarter.

Third - Predictability - I look at the weekly quotes and see if the prices were all over the board or nice increases each week.

Lastly I graph each stock and compare the price to the 20, 50 & 100 day moving average. I'd like to see a price line that starts in the bottom left hand corner and climbs at a 45 degree angle to the upper right hand corner. I'd like to see the moving average line have a nice steady trends. If all 4 lines go up and down and criss cross each other like a Jackson Ploock painting this stock isn't for me.

There you have how I search for those 3 attributes I think Ken looks for: 1 Persistent Growth, 2 Predictability and Stability. Stocks that fail to keep it up are replaced.

If about a dozen of you think this is attainable and use this methodology in the next SLO3 I don't know if we'd win but we'd have a nice tight grouping.

Reminder on Banking stocks

Rating: 2.67 (3 votes) Vote:

I know it's not proper to recycle recent articles but I really think everyone of you should go through the exercise I recommended. If you do this and dont't act then there may be no hope for you. Let me know what you think!!! I recently wrote:

But there is a way for the common investor to make a good bit of money in this market. Don't buy individual banks, buy the whole sector.

Proshares has some new ETFs that are leveraged on both the up and downside. The Proshare Ultra Financial (UYG) tracks 2 times to the upside and the Proshare Ultra Short Financial (SKF) tracks 2 times to the downside of the banking sector.

Do I have a crystal ball to tell you which to buy? Not exactly, I have a tool to help you decide. Most of you have access to charting packages ( I use BarChart, but AOL and most of your on-line brokerage packages have it) that will let you chart one stock against another. Go to your favorite package and plot UYG against SFK. You will easily see which on is now out performing the other. Plot them every day and you will be able to get a feel of the industry. Which ever one you choose put in a stop loss at the 50 day moving average and be prepared to switch horses in mid-stream.

Please even if you don't act, do this exercise!!!!

Chicago Bridge (CBI) Watch but be ready to buy at 35

Rating: not yet rated Vote:

I really think this stock has been overly pounded. It's now at 33. It has a resistance level at 34.86 so I'd buy if it could get to 35.

Right now this stock would be on my watch list. Although today all the technical indicators are negative; many of them are weakening and most of the holds are rising. At 35 it will be trading at it's 20 day moving average and that could be a buy signal.

Van Meerten's picks

Jim Van Meerten

Recent Posts

Monthly Archive