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TheDumbMoney (44.25)

Sales and Purchases -- Week of 5/27/2011

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May 27, 2011 – Comments (5) | RELATED TICKERS: PFE , GOOGL , DIS

So I often like to talk about how I buy stocks I don't sell.  I had an exchange here a few weeks ago with a few other players, and one of the comments was that maybe I had too many holdings.  Additionally, I still worry about the long term returns of many stocks, even ones I have owned for some time.  The last time I made major sales was May of last year (home purchase, wanted cash margin of safety), and I followed up on that this week.  Most of these are judgment calls, one is an admission of error.

DIS.  I love Disney.  I did not however buy it on 8/30/2010 because of a detailed analysis of its intrinsic worth, even as improperly estimated.  I bought it as more of a thematic pick, as more fully detailed in my pitch.  I purchased it in my IRA.  Since that time it has appreciated about 25%, just a tad more than the S&P has in that time.  Given that I had not calculated its intrinsic worth, I decided to book my gains.  I think Disney has amazing assets, but ABC is at a high-point right now, and Disney's business, while good, is not predictable.  As a long-term holding, I do not believe I can have sufficient confidence, at least at this time.  I might revisit at some future date.  I might not have been so quick to sell, except that it's in my IRA, so I don't have to pay taxes now on my profits, at least that's my understanding.  The money is now sitting in cash in my IRA.  After commission (only on the sale, no commission on the purchase), and without paying taxes, I slightly beat the S&P.

 GSH.  I made the mistake of purchasing this in my IRA on late February 28, 2011.  You don't put foreign dividend-payers in an IRA (tax reasons).  So that's part of the reason for my sale.  Also, I booked a +9% gain during a time when the S&P has been flat-to-down.  I think I also got one dividend payment.  I am increasingly worried about China's economy in the short-term.  I continue to think GSH is probably a long-term buy, but I want to buy it again not in my IRA if I do buy again.  I also have developed somewhat of an increasing distate for China.  Why do we put up with a country that won't let Marlboros be sold there?  Why does the WTO put up with that?  Why do we put up with a country that won't let us show most movies there?  Why do we put up with a country that encourages its companies to steal the intellectual property of our companies, which many of our companies stupidly allow just so they can market to Chinese consumers?  Why do we put up with a country where Microsoft gets peanuts revenue compared to what Microsoft gets in India, not because of fewer users, but because of rampant piracy?  Why do we put up with a country that puts up trumped-up tax charges against famous artists who criticise the government?  That annexes Tibet and tries to eradicate Tibetan culture and force-moves Chinese citizens there to do so?  Why do we invest in a country that is essentially engaged in a neocolonialist enterprise in Africa that is going to mess that country up even more than it already is?  Why do we put up with a country that puts BHP Billiton executives in jail for trying to negotiate better terms for their company?  Why do we put up with a country that continues to keep a wildly insane regime in North Korea in power on its puppet leash?  Why do we put up with this?  Money.  The Chinese Consumer.  Well you know what?  It's not worth it.   By countenancing it, we are encouraging other countries, now Russia, and soon others, to follow that model.  The country makes a mockery of the WTO, of international law, of human rights, or morality, and of intellectual property.  I have no problem investing in XOM or MO or PM, and I think anyone who does, but who will invest in China, is morally laughable.  I'll take India, which is the world's largest democracy, where people pay for their Windows operating systems, and which to boot does not appear to have entire cities in which nobody lives.

WM.  Great company.  It has had a nice run.  I bought in 2/22/2010 and I have made about a 20% gain, just a bit better than the S&P, with dividends.  I think at a 1.9 PEG and with all the debt it has, I can do better right now.  I will have to pay long-term holding period taxes, so I'm a bit negative on this.

PFE.  Pfizer, Pfizer, Pfizer.  What can I say.  I bought first in early 2010 at just over $19/share.  I more than doubled at $17.35/share in March 2010.  I upped again by another 60% or so (of that doubled amount, so about similar to my original purchase) at under $16/share, in early May 2010.  I sold this week at just a hair under $21/share.  I made bank on this stock, even after paying long-term taxes, and even though on CAPS it only shows me as having a 2.53 beat of the S&P dividend index.  Let that be a lesson about the accuracy of CAPS.  All of my purchases are noted in real time in the comments to my pitch.  I am basically taking advantage of the pop derived from talk of splitting things off.  It may be that things will pop further after a split-off, but do be it.  I have plenty of drug company exposure through ABT, and JNJ, both of which I prefer to this company, and also through the VHT ETF that I own some of.  I took advantage of the low valuation, but the reality is I don't think of Pfizer as a company for the long-term the way JNJ and ABT more-likely are.  While I like to hold long-term, I think it was a mistake to think that PFE was such a long-term holding, and I would rather admit the mistake and keep my gains.  I would strongly consider investing in the non-pharmaceutical divisions that PFE spins off, if they don't immediately pop so much as to make them uneconomical.  It may be that PFE will put out some major new drug that replaces Lipitor, Prevnar may get licensed to be given to every age group and in utero and to the dead, but I just don't know.  Too many big deals.  Too much wasted money.  New CEO, great, but I'd still rather have my money in ABT, which among other things has great exposure to the Indian generics market.

Artificial Life.  So here's the big mistake.  You can go back and look at either my blog or at my pitch and see I put a massive amount of research into this.  I noted all kinds of major worries.  I even titled my blog post something like "Artificial Life -- Real Worries"  And then I bought the d@mn thing anyway.  Do you know what the lesson here is?   Lots of research can sometimes be nothing more than a self-delusional veil to justify one's speculative greed.  I say this not because the stock price dropped to $0.33/share from the $0.85/share at which I bought.  I say this because the reasons it dropped are some of the precise reasons that I was so worried about.  I ended up selling some a couple of weeks ago at about 0.60/share, and some this week at around $0.54/share after it came back up.  I realize that the new auditors are supposed to come out with an annual report, finally, in mid-June.  But do you know what?  Not for me.  This is and was always a speculative purchase.  I justified it, and then I bought it anyway.  Boooooooooooo.

Upshot:  The ALIF position was very small, but the extent of the loss destroyed my Pfizer gains.  Because WM, DIS and GSH all beat the market to varying degrees (mostly GSH), and because on GSH and DIS I do not have to pay taxes on the sales, the upshot of all of these sold stocks is a modest profit that is in no way justifies the amount of time and effort I put in.  But it was fun.

One Purchase:

As also noted in the comments to my GOOG pitch, I doubled up on GOOG today at about $520/share.  Initial purchase was about a year ago at around $467/share.  I continue to think GOOG is undervalued, and my holding is still less than half of what my MSFT and XOM holdings are.

Final thoughts:

I continue to maintain a significant cash position.  I am considering further purchases of MSFT, INTC, and CSCO, among other companies.  Right now, big-tech value and healthcare are the only areas of the market I find myself terribly excited about.  I am not terribly worried about the end of QEII though I think the market may take a tumble (indeed we may already have been seeing it in the last few weeks) because of fears.  In the short-term, it's probably a buying opportunity.  In terms of long-term returns for holding stocks for a long time, I am much more pessimistic about most aspects of the market, and indeed about virtually anything except for cash.  One thing people forget (among many) is that even if we see a spike in inflation to 4 or 5% next year, due either to an economy that improves more than I think it will, and/or to the Fed being unable to drain excess reserves quickly enough, people are probably going to freak out about it so much that stocks will be more than a 4 or 5% better deal than they are today, making cash relatively attractive at this time!  I'm not saying I look fifty steps ahead on the chess-board, but sheesh, I do try to look at least two or three steps ahead (though maybe even there I am wrong).  That is another part of the reason why I sold some stocks and went more to cash in my portfolio.  I may also prune my portfolio further....for example, KMGB is hanging on by a thread.  :-)

Happy Memorial Day weekend.

 

5 Comments – Post Your Own

#1) On May 27, 2011 at 1:28 PM, TheDumbMoney (44.25) wrote:

Note:  yes, I know that Africa is a continent, not a country.  I'm sure there are other typos as well.

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#2) On May 27, 2011 at 2:20 PM, dragonLZ (99.53) wrote:

 dumberthanafool, maybe you should replace that investing book you bought 15-20 years ago with something newer.

You know the one that says MSFT, INTC, CSCO, ABT, JNJ,... are great stocks.

Good luck and have a great Memorial Day weekend, dude. :) 

 

p.s.

I'm quite puzzled how you discovered GOOG if you are living in the past...  :)

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#3) On May 27, 2011 at 3:19 PM, TheDumbMoney (44.25) wrote:

I continue to note your difference of opinion!

I also continue to beat the market, even this year (due mainly to MO and PM and XOM, admittedly), and with relatively less risk. :-)

As far as I know, I have never read an investment book that recommended particular stocks, though pursuant to my methods, I would never have purchased the above tech stocks when I started investing twelve or so years ago, unlike many who derided me at that time for being stuck in the past and for purchasing MO and XOM instead (both of which have thrashed the S&P since then, if one wants to think about it in CAPS terms).  

I discovered GOOG the same way I discovered MSFT and INTC, and ISRG:  I think it is mathematically undervalued because of an imperfectly estimated range of its possible future cash flows, combined with a margin of safety to account for the imperfection of my estimates, and also because of additional mathematical and subjective factors. 

If the market keeps going up, I will likely continue largely to match its returns, or maybe even beat it slightly.  If the market tanks, I will annihilate the market.  And because I rarely buy or sell, I pay few taxes, unlike many who trumpet their pre-tax gains and never post about their losses or their taxes, and whose RL returns are nowhere near as good as their CAPS records.  

As for MSFT, whatever else it has done, the company has grown its earnings by around 15% annualized in the last ten years, which beats the market by a good deal.  I have been posting extensively today about the problems MSFT has and why I think Ballmer should go, but the reality is the stock is simply stupid-undervalued, even after the silly Skype deal, largely because millions of people like you have decided it is uncool and old-fashioned.   Vitaly Katznelson had a post on his blog about MSFT on 5/10 that said everything I could ever hope to say about MSFT, only better.  He owns it, as does Bill Miller of Legg Mason, Oaktree, and many other famous value investors with track records that are vastly longer and more successful that yours (which isn't to say that means they are right).

As for ABT and JNJ, I don't even know why anyone would try to say they weren't great companies (if that is indeed what you mean by calling them not great stocks).

Anyway, have an excellent weekend yourself, bud, I mean that.

-- Yesterday

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#4) On May 27, 2011 at 5:15 PM, dragonLZ (99.53) wrote:

Yesterday, my friend, I was just teasing you a little, but I do think you are old school (nothing wrong with it).

I also never said new school (or myself) is better than old school (but having a nice mix is probably not a bad idea).

If you take a look at my portfolio, you'll see it's full of fallen angels of the past. So I'm not that much different.  OK, there is no MSFT, INTC,..., but there is also no new-age stocks either.

Also, I never said ABT and JNJ are not (or weren't) great companies / stocks.

However, I do think great stocks usually have a shorter shelf life than great companies. There are plenty of great companies whose stocks were rockets 10-20 years ago, but today, even though these companies are still great companies, their stocks are going nowhere.

And before I forget, you know I like you a lot. I mean it. I think you are a great person. I also told you already I wish I were as smart as you are. I'm not kidding.

I enjoy your posts.

Have a great Memorial Day weekend. I hope it gives you many reasons to smile. :)

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#5) On May 31, 2011 at 2:11 PM, TheDumbMoney (44.25) wrote:

Just sold KMGB as well, twenty-plus percent gain, no commission, no tax, sold in my IRA.

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