Frontline - Closed Out

As mentioned earlier today, I anticipate a drop in the stock tomorrow of approximately $2-3 per share in Frontline. As a result I closed out my trade today at $46.80 for a small profit. Please see below p and l chart:


This was a small profit and I am not sure if it was worth the risk experienced. The tanker stocks are extremely volatile and I have lost my share of money in them before. If the stock is down less than $2.00 tomorrow and follows through to the upside in the following day I will have been proved wrong and this was one to stay in. I think I will be able to purchase it the day after tomorrow for below $43 - maybe at that time I will reconsider at a better value.

Here is the entry and exit chart:

-BG

Explanation of Dividends and Dates

Record date: The record date is the date by which an investor must be registered as a shareholder to be entitled to a dividend.

Ex-dividend: To receive a declared dividend the shares must be purchased before the ex-dividend date. If you buy on or after ex-dividend date you are not entitled to receive the current dividend.

Payment date: The date of which the dividend is paid out.

Important Update

I have just put in a limit order for (FRO) Frontline to sell the stock at $47.10. I was mistaken regarding the ex-dividend date which is actually tomorrow! I expect the stock to fall a minimum of $2.00 tomorrow once the dividend pay-out is priced into the stock.

I guess if you are bullish on the tanker market you could hold longer to pocket the dividend, however my experience with this stock is that the payout of the dividend pulls the stock down much farther than the dividend amount over a period of days. I don't know if that will be the case, but I plan on pocketing my pennies here and running. If limit order isn't executed by lunch, I will sell at market.

Regards,

-BG

Finally

Well, that was a hell of a shake out yesterday, but it looks like we are finally getting the sought after move in the tankers as the market adjusts its expectations regarding Katrina and realizes that much more oil and refined products will need to be shipped in order to compensate for all of the lost production.

I am now up $2.00 per share on this one although as we know this could change at any time. The exit strategy becomes more important at this point. FRO is a huge dividend payer and it will go ex-dividend on September 6. I think it is crucial to be out of the stock before then because it is paying a $2 dividend! In the meantime I will watch the stock - but could very likely be out of this one by the end of this week or early next week at the latest.

I continue to get nailed in the NEM trade and am down anothe 20% this morning. I am trying to be patient, but I don't like losing this much money. I have heard strong arguments on both sides by now re: the gold price movement over coming weeks including many conspiracy theories. My gut tells me that prices are going up, so I have to stay long.

Regards,

BG

Late Night Update

Today was exhausting. I was in a class to become a notary public from 8 AM to 5PM, then I had class from 5PM-8:30 PM. When I got home I had chores and only now at - 10:30 PM - two hours later am I unwinding a bit.

The good news is that both of my trades stabilized a bit from their apocalyptic levels earlier this morning. Truthfully, I do not understand the current developments in either trade. I cannot tell if the indicators are telling me that I am totally wrong in my thinking here - or if I am just being shaken out before a significant move in either one. A brief commentary on the state of things:

1) FRO - this is extremely puzzling. The disaster in Louisianna has been horrible. Oil has skyrocketed along with gasoline prices. Just today a block from my house it finally hit $3.07 per gallon for 87 octane at the cheapest store!!! But the effect on tanker rates has been zilch and they have actually decreased. So either - a) I am a total amater who has no idea how these things work (very possible) or b) I need to wait a few more days.

The stock is up about $.50 from where I purchased it at, but it opened up today way down and only recovered later in the day. The effect on the energy stocks from this rise in the price of crude and gasoline also appears to be extremely limited. The direct refinery plays are skyrocketing (re: VLO), but many of the majors are stagnating to up mildly over the past few days. I guess we will have to wait and see - I think I have the balls to hold out at least until the end of the week in this one - assuming no crash in price. And believe me these tanker stocks are volatile.

2) NEM - This trade has been horrendous so far. I woke up this morning to see my investment almost cut in half as all the gold price was down $5+ dollars and all the miners were down between 2-7%. Newmont was down about 3.5% and I was hurting big time. It ended the day a little up from there - but I still took a major hit and am down almost 45% on the investment in one day. I knew that things would be volatile but not this much! I guess it goes to show that you need to know just how leveraged you are with the options.

I plan on waiting things out here a few more days as I have three more weeks till expiration, but at the current rate my options will be worth $0 by Friday. In terms of the developments in both Gold and the miners - I can't figure it out. My theory is based on the following:

A) Huge government stimulus package coming in the form of dollars to bail out the South due to the disaster. This has got to prop up the equity markets and put a lot of dollars out there. This should increase supply of dollars and dollar should depreciate more against hard assets and other currencies. This is certainly true of Oil - although that story appears to be more one of speculative demand, but nothing has happened in Gold.

B) The fear of a slowdown due to the disaster combined with weak economic numbers appearing in the reports so far - should create a fear by the Fed that they need to slow their tightening and may in fact only raise one or two more times. As consensus is for them to be at 4.25 by the end of the year - this would be negative for the dollar and bullish for gold.

C) The oil price spike is inflationary and the fed hikes may not be at a pace to keep up with the rapid rise in the price of energy. We could be paying $3.50 - $4 per gallon of gas by the end of September but nobody thinks this is bullish for gold. Isn't this what happened in 1970s?

Anyways - as everyone can see I clearly have a far too one-sided view of the developments. I am trying to find reasons to be bullish when my speculation has clearly gone against me. Well.....lets give it till the end of the week and see what is going on, I don't know if I can handle another open though like today was.

Regards,

-BG

Bad Start

At the open the gold stocks are way down (re: NEM) and tanker rates are falling (re: FRO) - double ouch. I will be gone all day at a continuing education class - so we will evaluate again today after market close. Hopefully on a brighter note - but it does not appear that way at present.

-BG

Newmont Mines - A Love/Hate Relationship

Today, I sold the 100 shares position of common stock that I had owned in Newmont Mines (NEM) for the past 5+ months. I expected a bullish move in Newmont and the rest of the gold stocks - and it did materialize - but not before a severe sell-off during early spring/summer that almost had me exiting early and at a substantial loss.

All in all - I lost about $300 in this one (it is not discernible from this p/l statement, but my original cost-basis in the company was $42.10 per share. This did not transfer into the records of my new broker when I switched brokers back in May.):

Needless to say - I hope, prayed, and tried to avoid the results of this trade, but to no avail. I thought it had solid prospects based on a declining dollar, trade deficit, low interest rates, etc. and so on. Instead what happened - was the dollar actually strengthened over the mid-term as the Fed raised interest rates. The gold price stagnated and did not make the major move into the $500 area that I was anticipating.

Here is the chart of the entry and exit points:


With the proceeds from the sale I purchased two positions. One of which was call options in Newmont Mines with a shorter time horizon and higher leverage. I may be forced to liquidate these at a loss - but I plan to watch them for the next week - absent a big break in the stock - in which case that position would be totally wiped out.

My whole thesis has modified a bit - as I expect a rally in gold prices now short term - based on the Government flooding the financial system with liquidity in the wake of the huge hurricane today. I have heard almost no discussion of this on the news or radio - so it is either still under the radar - or it is not going to happen. Neither of which do me any good - so we will see how things end up.

Tough day,

BG

Deck Is Stacked

Ok - received the order fill in NEM that I was looking for and portfolio is probably positioned now for at least the next week. I kept $1700 in cash and am expecting another 3-4K of cash by the end of this week, but I intend to be more selective with that capital.

As of now - this is the snapshot of the portfolio and positions:


It will be interesting to see how these positions play out. I do not plan on adding any major holdings soon and will keep any remaining funds in cash. The NEM follow up should come out later tonight - but other than that - good luck out there.

-BG

Well What Happened?

Market has been extremely volatile so far this morning........and I think it is actually up now! lol..... You never know what to expect. As far as yesterday's predictions:

1/2) Gold is up slightly along with natural gas and oil.

3) Insurers are hardly down at all and I would not be a buyer here.

4) BBY is down, but I have not entered trade on that one.

So far this morning I have done the following:

1) Sold NEM mines position as 39.50 for loss of $3 per share. I will comment on this later tonight or tomorrow.

2) Purchased 41 shares of Frontline (FRO) at $43.72.

3) Have limit order for Purchase NEM mines September $37.50 call options at $2.20 for 10 contracts.

We will see how this turns out - I am thinking gold will rally more just on the expectation that the Fed might lower rates or stop raising due to the disaster. Frontline is a buy based on the havoc that Ivan did to Florida and the Gulf last year and the effect on shipping rates. Will have to keep a close eye on this one.

-BG

Katrina Is Coming

First a prayer for anyone living in or near the Gulf of Mexico. Now.......what are possible sectors which may be affected by this tomorrow and over coming weeks / months. Several possible issues are on my mind:

1) This disaster could cause the Fed to stop tightening and even possibly loosen. This has very bullish implications for gold, equities, commodities.......and even.....gulp.....home prices.

2) Oil prices / gasoline prices are headed higher - so there will probably be a multi-week trade of 10-20% upside in energy ETF over next 3-4 weeks.

3) The Insurers who have large exposure in the Gulf are likely to start trading down. The past has shown that most insurers have been hedged excellently via reinsurance products. It is unclear if that will be the case this time and I don't know how to tell without digging through the 10-K filings. Could be a buy the dip type thing - but I think we will have to watch this play out over a longer time period.

4) A disaster of this size is likely to slow economy so I like again Puts on anything related to non-essential retail. Re: (Walmart might actually do well as they sell food and water.) However the last thing anyone is going to want to do is go to Best Buy to get a new big screen. (Could be wrong once insurance money comes in but that is months away - and I think first reactionary trade is for Best Buy type picks to sell off.)

Now, I am contemplating a major reallocation of the portfolio tomorrow morning depending on the price movements -as confirmed with my above expectations. These are my picks:

1) Frontline (FRO) - Major oil tanker company. Tanker rates will soar as the refinery capacity is cut off in the gulf and more oil from the rest of the world - has to be shipped.

2) Newmone Mines (NEM) - I already own the common, but at this point would consider selling common in to strength tomorrow and picking up the September Call Options - Probable strike price - $40 - generating approximately 30-1 leverage but we will have to see what stuff is trading at tomorrow.

3) Best Buy (BBY) - I want to see what this thing is doing tomorrow and am thinking about picking up some Puts - with small portion maybe 10% of capital.

4) Pick your financial - I think first reactionary trade in the financials will be to sell off, however this might be dangerous to short / buy puts, as if/when Fed decides to flood system with liquidity they will rally hard.

5) Homebuilders (PHM, etc.) - This is dangerous as we talked about the potential flood of liquidity to the system.......will probably stay away.

I had no idea that something would develop so quickly - but things are changing and as we all know..........time waits for no man.....or woman for that matter.

-BG

Follow Up Re: Housing Bubble

Just yesterday in this week's Barron's, I read an advertisement from Freddie Mac, that both disturbed and shocked me. It scared me first - that I might not really be in tune with the way that things work this day in age, or that maybe - it is everyone else - I don't know. Here is a copy of the advertisement:



The sentence that really got to me was: "It's the most important investment millions of Americans make, money they can count on for education, healthcare or retirement." You know it's funny, but I thought that Americans paid for their healthcare through their jobs or Medicare - not by taking out additional debt on their home. Furthermore, I thought that Americans paid for school by taking out student loans, applying for scholarships, or working an extra job, but apparently not - they do so by taking out another home loan. Finally, I thought that American paid for retirement by SAVING for retirement through a 401(k), pension plan, or investments. Apparently, I am severely mistaken, as Americans are being encouraged, even congratulated in this advertisement from the Federal Government (give me a break - Freddie Mac is basically a Government agency) - for taking on additional debt in order to tap their equity.

Just the other day, I overheard someone discussing home equity and how you know - when you start out you have nothing - but you have to get in that home right away to start building equity. You see according to this individual - equity was something that you earned - but you could only have access to that extra money by buying and living in the home. It resulted directly from your home price increasing. I mean shit - everyone knows that home prices in California only go up. You can't get hurt with dirt, etc. and so on. It's strange because I always thought that home equity resulted from paying down your mortgage.....

I think that far few people today understand the fundamental difference between home equity and savings. I think the real distinction is liquidity and perhaps most importantly risk. Savings is hard earned cash dollars that have been stashed away. The only risk that those dollars are not worth something is inflation - the idea that your dollars might buy less tomorrow than they do today. Savers are typically compensated for this risk though if they put their money in the bank by receiving interest on those funds.

Now lets contrast that with home equity, which is an amount that is impliedly tied to the price of an asset - your home. Now this home price is in fact a commodity which may fluctuate wildly in price, contingent on the amount of credit available in the country and the strength of the economy. Granted we have seen home prices in many areas of California triple over the past 5 years. The problem is that many buyers are not those who started in 2000 - many are buyers who obtained 100% financing and purchased within the last two years. These are individuals and families who are new to the game and may not fully comprehend what happens when your home is worth less than the amount you have borrowed. At that point you have what is called negative equity. This is not a fun concept.

As a nice follow up - check out this article at EuroPacific Capital from Peter Schiff who makes some great points on this very subject. This is a great wake up call. (www.europac.net) - read the 8/25/2005 post.

I guess the best retort to everything that I have posted here is that I am 25 years old and still live with my parents. My hopes of home ownership are slim to none in the current environment as my income could justify the purchase of a $150,000 home - not a $750,000 one. Unfortunately condos in San Diego go for $450,000 - so go figure.

-BG

Pulte Homes and The Housing Bubble

People are in different stages of denial about the unsustainable rise in the price of homes in the United States and the unhealthy extension of credit to many highly leveraged buyers during the past three years.

Pulte was a play on this theme and I believe the trade was successful for two main reasons:

1) Correct interpretation of the negative price movement and momentum in the chart.
2) No positive news announcements either from the company specifically or the government generally (re: housing starts, home prices, etc.)

The reasonably timed entry and exit points produced a reasonable gain, although substantial risk was endured - mainly from the result of near term put option expiration and high leverage (12-1 approximately.)

Below are the charts with more detail:



I hope to chime in with another rant later tonight or tomorrow - this time focused on the real estate market and the government- then we will be ready to delve into my approach for the remainder of the year and we will finally get to live by the sword and potentially die by the sword.

I have an additional $4K of capital coming into the account in next few weeks, so things promise to be extremely exciting. As a brief preview - the probable capital allocation will be 15-25% in put options on sectors which I consider bearish, 30-50% capital allocation in sectors which I consider bullish and 25-55% capital allocation in cash - to be liquid in case of extreme bargains becoming available on the long side.

Regards,

BG

Additional Commments On Allied Trade

Just as a quick follow-up and to keep all comments within the framework I am looking to develop for analyzing most trades or investment themes on this sight. Allied is an example of a situation where I:

1) Anticipated an upward move in the stock price due to a positive earnings report to be released the following day.

2) An upward movement of approximately 10% occurred the following day and I think it is safe to say that it was due to a positive earnings report.

3) My investment results did not take advantage of the entirety of this move because I sold my options the following day before the entire move was completed.

So it is a good example of a situation where a certain reality was correctly predicted but the time element was not correctly taken into consideration and thus the full profit potential was not realized. Better luck next time. We will look at Pulte Homes Trade tonight and hopefully enjoy a follow up post regarding this falls' plans.

-BG

Allied Waste - A Market Making Lesson

There is not much to talk about in terms of fundamentals. The company is heavily indebted and their accounting is basically smoke and mirrors. I became attracted to the company because of the industry (gotta have trash collectors) and that they were our local operator.

Technically the story and logic was extremely simple. After following the stock for several months I thought that expectations had reached a relative low point. A new CEO had been found two months before earnings and I expected that he would try to put the best face on things for a good start. He managed to pull off some pretty crafty accounting changes that really did not change the prospects of the company but made the earnings report look a lot better.

I was pleased in afterhours after reading the earnings report and listening to the conference call and I was eagerly anticipating an open up 10 percent the next morning (earnings came out afterhours on 7/26/2005.)

The next morning on 7/27/2005 I was up with the market open around 6:40 AM and watching the stock. The market looked weak as did the stock. My gut told me that before the end of the day this thing would close down for the day. MY GUT WAS WRONG.....LOL. See charts below:


Anyways - the only reasonable lesson I can think from this - is don't trade during the first two hours of market open where possible, or maybe better phrased - do not rely on those first two hours as reliable prices in more illiquid issues as this one is - with often less than 1 million shares traded per day.

In the charts above you can see in excruciating detail that I sold the stock at 6:52 AM, took my shower and literally at 7:30 AM (PST) after I got out of the shower and was leaving for work the stock was up 5% from where I had sold it and the options that I had owned minutes before were now up more than 70% from where I sold mine!!! In 30 minutes!!!

All of my previous experience had told me that the expectations regarding the stock should have been priced in already and if the stock was to open up - it would gap up with the open as most stocks do after a good earnings result.

Bottom line - before this turns into an unbelievable rant (sorry I think it already is) - is that you you cannot read the mind of the market. You have to make the best decision possible under the information available to you at the time and maybe the dice roll your way and maybe they don't. If anyone else thinks that I am missing something here, or wants to talk about some conspiracy theory (damn market makers) discussion - that is fine with me - also criticism is welcome. :)

Equities on Sale

Equities are on sale again this morning, but I'm not buying anything new. I am still waiting for the 20% mark down sale coming later this fall.

-B

Reviewing Sandisk

Of the three recent trades, Sandisk was the first and most profitable. It is an excellent example of being right in theory (re: the reasoning and logic behind the trade) and in concrete result in reality (re: actual stock price movement.) However, in the case of Sandisk, the maximum profit was not captured due to trade execution.......wait let me rephrase that - operator error. The operator (myself) - sold too early in order to lock in profit and did not wait to capture full profit. This was due to several things (lack of confidence, fear, and greed).

In the case of Sandisk, I did not purchase the stock outright, instead I purchased the August 2005, $25 strike price call option. At the time of purchase the stock was trading about 28 and I purchased the option at $3.30 generating leverage of approximately 8-10 times. The day after puchase the stock traded in the $31-32 range and the option was sold for $6.70. So a 100% profit was made in one day on an approximately 10-15% move in the underlying stock. Obviously the reverse holds true and if the stock had fallen to 24 - the options would have been basically worthless. The below graphic documents the actual trade amounts and execution:



The below chart illustrates the purchase and sales points. I picked a decent move and there was high risk entailed in my choice as I was speculating entirely on an earnings report that could have gone either way in the short term (later below I will discuss why I like Sandisk and more about my trading/investing/speculating philosophy). Anyways.....here is chart:


The actual entry and exit points are clearly labelled as well as the max profit potential. Obviously there was a more ideal purchase point. I watched the stock trade extensively in early July and thought that I could pick up the August $25 calls for as little as $.50, however they never got that low. The low point was around $0.95-$1.00 reached in early July. After I missed that day the stock went up like a rocket and I was only able to get in by pure dumb luck on the last day as I decided that it was worth the gamble even though the price point that I desired earlier was missed. The result was excellent, but not very disciplined.

Ok - now into the two parts that made up this speculation experiment. I have done extensive fundamental analysis on Sandisk which I belive still has an attractive valuation (although I do not own it at present.) It will trend closely with the Nasdaq 100 and the semi-conductors, but on a Micro level the company has enormous possibilities ahead of it as it owns a great IP portfolio and stands to gain from one of the most beneficial product cycles of the next 5 years. As mobile phones are used increasingly for video, television, and mp3s - they will need to store that data. Some of the highest end mobile phones will have built in hard drives. However the mass market model will use flash memory which is Sandisk's forte.

At present they produce basically every type of format and own the IP on many of them. The format that they developed exclusively for mobile phones - Transflash (now Micro-SD) - recently received the SD card association approval. You can bet that Sandisk owns substantial IP on this one and any other semi-manufacturer who wants to be involved in the production of this and many other types of flash memory will be paying Sandisk royalties to do so. The potential size of the mobile phone market that will use these types of products is enormous and does not need to be discussed - as people have already seen the strength that the Ipod product cycle has demonstrated and the good it has done for Apple. I think we will see a similar cycle in the mobile phones - not to mention the PSP and other devices which rely heavily on flash memory.

So that's plenty of fundamental.......it is clear that a little understanding of their business was present - but what the hell does that have to do with this trade? Well basically the fundamental helps me as a reassurance. I am primarily deep down a fundamentals type guy - but I hate waiting around like most value investors as I have no patience. My goal is to combine both fundamental and technical analysis in order to increase my own confidence in the plan. When I combined that with the positive feedback that the stock was experiencing, I anticipated a positive move in the stock and I figured that I need to be in on this one. I went ahead and got in late and at higher than my desired price point - but it is clear that once the momentum guys get their hands on one of these it can really move.

Now for the reality of it? Does any of the above even really matter? Probably not - the most likely and plausible reasoning for this run (as the earnings report was actually mixed - as evidence of this - the stock was actually down in afterhours) is that the morning after earnings release, the SSB analyst who had been at Sell recommendation for several years - raised to a Buy rating - up two full notches. Other key point - Jim Cramer pumped the stock on his show in the two consecutive days.

I feel it is extremely important to distinguish the technical and fundamental analysis from this last point - because first - the fundamental analysis is just an example of numbers that I interpret and may or may not be correct or even significant - they certainly aren't for causing an actual movement in price. In contrast the technical analysis is a manifestation of the actions of others in actual and verifiable price movements - as witnessed by the rise and fall of stock prices and the size of the players behind the moves (volume indicators). Now the last point about the analysts and Cramer - as being most important.

They are part of the machine that actually moves the prices. They can help to adjust the expectations of not just myself - but also Wall Street and the Herd (retail investors). If we did not have the latter part I don't believe this move would have been what it was. I will leave everyone tonight with that insight for what it is worth. If I am repeating stuff that is too obvious to discuss - please comment and I will limit the discussion.

Best regards,

-B

Welcome

Just getting started here with the first real substantive post. The goal of this blog is to document in real time my activities in the stock market. My focus is not on creating a diversified portfolio at this point. The maxmium positions held at any one time will be three.

I will trade stocks, etfs, options, etc. There may be a possibility of bond trading in the future, but at present my portfolio size makes the commissions too high.

A brief bit about my history in the stock market. Between 1999-2002 I lost $9,500 of my hard-earned funds out of a total of $10,000 for a 95% loss. Since 2003, I have turned $3,500 into about $5.800. I don't know if that performance even beats the market over a comparable period.

My goal with this blog is to promote a full disclosure and transparent environment where I lay out the premise behind each trade and document when my ideas change, I have been wrong, or maybe a small pat on the back when something goes right.

My immediate short-term success (re: LUCK) is what prompted this entire endeavor, as I have had 3 successful trades in a row. Although the maximum profit was not eeked out on each one they successively netted me about 100%, 3%, and 30% on my money in a row. We will examine each trade hopefully over the coming weeks and we will also make a foray into what I anticipate happening over the coming 6 months and how I plan to position my small amount of capital during that time.

Best regards and Welcome!

-BG

Testing out the blog