We had a great time at our meeting! I want to send out a heartfelt thanks to all the attendees who came and contributed to a very lively discussion, for which, I, for one, have ended up more knowledgeable than before. We had 5 attendees: (from left to right) VJ Arjan, Kevin Day, Larry Rosenfield, Kay Olds, and Jeff Harrington.
Jeff’s Trade in Genworth Financial
Jeff Harrington was explaining to us, with mild regret, of his loss in Genworth Financial. We were all very grateful to hear this story as it bodes as a lesson to be learned for the rest of us, who may learn without making such a mistake. In short, here is what happened. Jeff bought a large number of shares of Genworth Financial (GNW) at $11.00 a share in his father’s investment account. Due to a very rapid decline in share value to $8.50, he decided to sell out the entire position. The stock has subsequently rebounded to $10.57. He admitted, at his own account, that this was clearly an emotional decision and looking back at it, he may have perhaps even held on knowing of the long-term potential of the stock. Moreover, it was emotional due to the fact that it was his father’s equity that was at stake. It was remarkable for the rest of us listening to his story to hear such an account and it was noteworthy to remember the influence that one’s emotions can have on one’s trades, which may have begun under cool and rational pretexts.
Larry’s Trade in First Solar
Larry Rosenfield was telling us of his loss in First Solar (FSLR). He sold a covered call (selling an option to buy the stock, while holding the underlying equity) and decided to convert the option into shares when the price went to $136 a share. He retained, in consequence, the $6,000 premium that was collected on 4 contracts (400 shares). He subsequently saw his long position dwindle to $120 a share and decided to liquidate at his price, amounting a net loss on the position. Although he had stuck to his plan, it shows how sometimes no matter how much planning, the markets will move against oneself. There is no magic spell that can save a trader or investor from a rainy day. The best that we can do is to prepare ourselves to react well towards them.
CIT
On Monday, CIT declared bankruptcy protection after several weeks of lobbying for last-minute lending. Kevin Day had proclaimed in previous meetings that he could not foresee that CIT would indeed go bankrupt due to its deep reach into the retailing industry. (CIT provides short-term lending for retailers.) He admitted at the meeting, however, that it seems that this company is going into bankruptcy and that he has given up upon its survival.
Investment-grade Oil and Utility Stocks
Kevin Day was telling us of some of the stocks that he has picked up in his investment portfolio. British Petroleum (BP) is a very solid, well-run company that currently pays close to a 6% dividend yield. Kevin also believes that despite Exxon Mobil’s (XOM) decline in earnings, that this stock has much more to run. It would be a great way, in his opinion, to ride the wave of oil prices while receiving a handsome return, that nowadays can scarcely be gotten in any CDs or fixed-income securities. He has also picked up Duke Energy (DUK) which is a utility stock that is also currently yielding 6%.
Master Limited Partnerships
Larry Rosenfield explained how he recently bought Linn Energy LLC (LINN). It turns out that Linn Energy pays a very handsome dividend yield of 9% and primarily derives its revenues from crude oil production. Jeff Harrington remarked that the advantage of buying into an master limited partnership (MLP) is that 80% of the firm’s profits much flow out to the investors and, in this way, the investor does not incur double taxation as it would in a traditional dividend-yielding firm.
Socialized vs. Privatized Healthcare
Being a doctor himself, Dr. Rosenfield had a good deal to say about the current healthcare reform debate. While it seems that to provide healthcare for all citizens may lower the level of care that many Americans receive, by dis-incentivizing medical professionals with pay caps etc., he feels that there must be a change from the ‘pay-or-go-home’ system currently in place. Kevin Day, however, objected strongly referring to the oversights of socialized healthcare. He related how in Australia, where he is originally from, he personally knew 5 individuals from the very town he grew up who died literally from lack of proper medical attention. Either there weren’t enough doctors or there weren’t enough beds. Both arguments were very convincing, but it remains to be seen how this policy debate will unfold further.
Pepsi Bottled-Water Lawsuit
Kay Olds and Jeff Harrington were relating of a strange case that has occued with Pepsi Co. Recently, Pepsi was taken to court by Charles Joyce and James Voigt for a trade secret misappropriation for bottled water. It may well be known that today, Aquafina is made by Pepsi. Mr. Joyce and Mr. Voigt wanted their share of this market and introduced Pepsi Co. to the idea when the industry had just started to gain footing. When these gentlemen went to court, the representatives of Pepsi Co. did not show up as the lawsuit letter had been put aside. Due to their absence of defense, they were fined $1.26 billion by default judgment. I’m not sure if the legal attendant responsible for this affair is still going to keep her job after this fiasco.
The New Tripartite
Jeff Harrington remarked how the new world order is shaping up to be just like the one that persisted in the early half of the previous century. In the previous century the 3 countries that ruled were Great Britain, France, and Russia. It seems as these powers have waned, we have new emergents: The United States, China and India. These three will be the contenders for world super power status especially given the incredible growth coming from China and India. China, it seems, is trying to weaken India by strengthening the Pakistanis military might by selling them arms and training. At the same time, India is trying to strike its blow to China by being better allies with the U.S. It is all speculation at this point, as to what will occur in the future. But as the old adage goes, time will tell.
Kevin Day’s Market Prediction
Although he stated to me that this prediction is by no means ‘scientific’, it is well to be advised that Kevin’s predictions about the market and about many other things have repeatedly been right on the money. Here is what he see until the latter half of 2010.
Earnings and economic data will continue to exceed expectations until mid-2010 due to being based off of extremely poor performance for the previous year.
The stimulus package has a likelihood of only temporarily stimulating the economy by inducing forced spending by consumers. When the stimulus runs out, the spending will come to a stand still again.
There is another storm looming in the horizon and that is the bubble in commercial real estate which is still yet to come. He predicts that this will occur in the latter half of 2010.
The Philosopher’s Table
Larry Rosenfield, Jeff Harrington and VJ Arjan had a long and fruitful discussion on some very philosophical matters. We reflected on the complexities and amazing mechanisms of the universe about us. We reflected how the matter that composes our bodies is millions of years old, as old as the age of the universe itself. We remarked on how the miracle of understanding and reaction occurs due to the electrical impulses of atoms. In a sense, it could be said that even now as the reader is reading these words, atoms are being read and understood by other atoms. All this philosophizing led us to ask, whether all of this symmetry and complexity of reality is designed or created by natural selection. Jeff Harrington remarked that a question as perennial as this is like looking for the mouth of a dog and finding its tail, it is a never-ending circle of questioning.
The next meeting will be held on Sunday, December 6th, 2009. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com
