Written on June 8, 2010
G’day,
Something interesting is going on in the Yuan (Chinese Currency), it is actually moving. I have long thought that the Chinese would stay linked to the dollar until such time as it no longer served their purposes (higher trade on weaker currency). The recent strength in the dollar may give the Chinese reasons to de-link with the dollar. They may also see an opening and be angling toward making the Yuan a major world currency as the EURO evaporates into thin air, stay tuned, should be very interesting. While the Chinese re-jigger the Renmibi, stocks continue to open higher and find no buyer. That is not the stuff of a bull market. So, put your trader/raider hat on and plan on doing some hunting.
I once blew up, framed and hung a large picture of Jesse Livermore (taken at the Breakers in Palm Beach back in the late 20’s) in the entry way of my office. Though his life proved terminal-like the rest of ours will- and he ended up shooting himself in the end, Jesse Livermore was a great trader and an astute student of the markets. He pulled down $100 mln trading in 1929. He had an investing rule worth mentioning- …and he was no natty dresser.
Don’t lose money….de ja vue…Jesse’s twist on it…don’t buy everything all at once.
When searching out what price to pay for in an investment…do your research, check out the charts and once you have picked a price, dip a toe in, try a little, buy a small amount with a tight stop and don’t be afraid to trade. It is very difficult to get the timing right, it is usually harmful to get it wrong.
Livermore would buy 1000 shares of a stock by first probing (buying) 200 shares. If the stock rose, he would buy another 200. Should it keep rising, he would buy another 200. If it carried even higher or had a small correction and rallied again, he purchase the final 400 shares. Remembering rule #1.
We all have a garage sale mentality. We want to buy lower to get “a better deal.” This will not work in stocks. If you keep buying the same thing cheaper you get….BROKE. Do not forget this very simple money management technique…never add to a loser, ditch it, the faster the better.
With no intended mendacity, I need to apologize, add a caveat or explain something to my friend Amit in Dubai. I told him I was not trading Asian equities…that was true when you asked… but you have to check out the China Mobile ADR’s (CHL).
Stock is trading at 47ish.
The ADR’s (American Depositary Receipt) started trading in JAN, 2008. It touched its low at 34.33 in 2008 and rallied to a high of 59.22 in AUG,2009 and then did a 60% retracement down to 44.36 on flash crash day. As the options trade “by appointment only,” seems you will have to play this straight.
· Dividend yield 4%
· Low debt levels
· P/E 11
· Sep 37.50 puts at 0.45 –illiquid
· Sep 40 puts at 0.70 – illiquid
I am guessing that even though Beijing residential property sales are down 80% form DEC, 2009 and down 50% from last month!…they may still sell a couple of cell phones in China.
Finally on ditching losers…for index funds and the market in general - the SP and the DJIA hit my hasta luego, vaya con Dios levels yesterday. BP is not far away from being stopped out either. This market as a whole is not trending strongly higher just yet and it may be a picking and probing situation for a long time. PICK-shop amongst the beleaguered, the out of favor and the loudly lambasted to find some deals and PROBE-trade it until you find the right price.
BP- the low on 1-JUN was at 36.20. Stop longs on a close under 36, which ain’t far.
S&P use close under 1056 (Feb lows) stop was triggered
DJIA use a close under 9908 stop was also triggered.
The market is actually still expensive over the long run…which means pick cheap stocks and don’t expect an easy ride.
Dr. Robert Shiller, at the Yale Dept. of Economics, thinks the SP500 is trading at a P/E of 19 and estimates the dividend yield at 2.1% as of 7-JUN. Threw in some graphs I made for you fellow statistical nerds.
PE at 19 not cheap
In comparison those specific stocks we have looked at are both cheaper than average and higher yielding:
· GS has a P/E of 6 and div of 5.8%
· BP has a P/E of 6 and a dividend yield of 9.0%
· CHL has a P/E of 11 and a dividend yield of 4.0%
Collectively that threesome pays a dividend yield of 6.3% and trades at a P/E of 7.7…tough to be injured terribly if you have to jump out of a first floor window. But, when the alarm sounds, you have to jump.
Pick and probe, pick and probe. Feed the winners, ditch the losers.
Be nimble, Jack, don’t let ‘em getcha!
Leon
P.s. Brian, who plies his trade in US Real Estate, asked me about deflation. I will read, research and ruminate to rapidly run off some run-of-the-mill reasoning attempting to write something reasonable (though likely) regular in its rationale.
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