kwl1763 (68.59)

My first blog on a dismal day

January 12, 2009 – Comments (1) | RELATED TICKERS: FXY , COF , RYL

It's with mixed feelings I write this blog. 

 Recently "reorganized" out of a job I find myself on the job market involuntarily for the first time in my fairly short 12 year professional career.  This comes with the challenge of finding a new one that in this environment is proving very difficult.  Given that though the last couple weeks I have really starting researching stocks heavily again which is a passion of mine so it has brought some joy in a dismal time.

 I will say that I I'm fairly young (33) but have been investing directly in stocks since I was 16 in 1991.  This is by far the best time I have ever experienced to invest in stocks period.  I don't know when it will turn and no one does despite what the say but I do know that I'm putting as much as I can scrounge up into this market.  I have never seen valuations at the point they are today.

 I have no doubts that 10 years from now stocks will be substantially higher then they are today.  That gives me much comfort.

 The economy is quite different.  I am fairly sure we are seeing the worst economy since the depression.  I think we are much better at dealing with economic issues then 80 years ago but we cannot prevent cycles.  This one is bad.  By far the worst of anyone short of geriatric has seen or will likely see in their lifetimes.

The only thing I'm fairly certain of looking at simply economics are simple.

 1)  Deflation is a real possibility in the short term but the massive deficits and the massive ramping up the printing presses to the tune in the trillions of dollars will cause inflation.  Now the hope is that we short circuit this recession and return to growth in 2010 and we'll worry about inflation when we get there.  I have no issues with that but logic says we will have to deal with it and I expect that by 2012 for certain and probably 2011 we'll be raising rates and trying to tame some inflation.  I have very few doubts that the USD will weaken substantially vs. the Yen and the Euro.  I'm not saying tanking 50% or anything goofy but I could easily see a fairly large devalution.  As such I have a pretty big position in Yen.  Japan is certainly not immune from this global crises but they are country of savers and will not have to fund trillion dollar deficits which alone should keep them in better shape as far as currency purchasing power.

2)  Oil will eventually go back up.   I don't care how much talk about alternatives and money we throw at alternatives the reality is for at least the next 25-30 years demand for oil will only increase.  I believe based on everything I've read the proper number for oil is somewhere in between $50 and $70 for now and it will likely increase over the coming years.  I'm a huge proponent of becoming energy independant and we should use alternatives especially nuclear in my opinion but there is simply no sense of urgency to switch with oil below $40.  The massive outcry in the summer of 2008 was almost the exact same outcry that happened with the oil embargos of the 70s.  30 years and very little progress.  I think there will be more progress over the next 30 years but certainly nothing that will keep oil demand from rising.

What does all this mean to my investing style?  I'm dollar cost averaging in but am excited.  I am being a bit cautious.  Balance sheets are key.  A company can have it's earnings cut in half and if it has no debt that is not that big of an issue as far as being a going concern.  Leverage up though and companies can go poof pretty quickly.

 I have started using CAPS like crazy.  I almost refuse to buy less then a 5 star stocks.  it has proven to be a useful tool.

So what am I doing?

 I really like KCI and picked up a bunch at 18.50

As I mentioned I have a large yen position and it is mainly a hedge against the market.  Given that I have made over 20% in less then 6 months I may lighten the position a bit as it's just a huge run for a currency.  Fundamentally though this is a long term holding.

I'm nibbling on big oil.  Specifically XOM and COP.  These have decent yields and will benefit when oil does move back up and it will.

I've increased my stakes in Intel and Microsoft over the last month or so.  Sales will really stink in 09 but there will be serious pent up demand that will send these companies with pristine balance sheets skyward.

I took some Netflix profit off the table when it doubled my cost basis recently.  Essentially I sold 1/2 so I'm playing with free money on it now.  It has a good chance of being a huge player in streaming but there is to much uncertainty to make me feel very comfortable there and at close to a 30 P/E so that's some pretty big shoes to fill!

 An interesting small cap I'm looking at is ITI.  Could benefit form the infrastructure play and looks well run with  a very nice balance sheet.  I haven't added any yet but I'm watching closely and want to see the December results and comments before doing anything.

 I'm hoping that Dolby comes back a bit so i can pick some more up.  It's a business that has an unbeatable brand that will be valuable for decades in my opinion but I want it cheaper.  I'm hoping the market will bid it down to the mid 20s.  I hope it has a really bad earnings report so i can pick more up!

I picked up some more Berkshire Hathaway in December when it was trading for less then book value.  I will never sell my Berkshire until well after Buffett dies.  I can truly say he is a hero and remote mentor of mine.  If others would simply adopt his honesty the world would be much better off.

That's all my ramblings for now.  I'll try to write fairly often!

 The other thing I have been doing is taking advantage of the volitility and writing covered calls on companies like Intel and bank of America, etc.

 Just after a few months it has lowered my cost basis equvelent to under $10 for intel and under $8 for Bof A.  I will continue to do this.  I am getting equivelent to 100% annualized returns on these and as long as they don't go to zero I will be profitable on these. 

I am also shorting a few companies.  I always like to have a few shorts for balance and now my biggest is Capital One (COF)  Credit card defaults are the next shoe to drop and these guys are one of the most exposed to this.  I'm also shorting companies that will probably not make it through the mess of housing.  My main short there is RYL.   If you value the inventories at realistic levels then this guy is basically insolvent.  The pop recently gave me a great opportunity and I took it.  I'm riding this one to under $10.