Tough market these days...

Ok, time for a portfolio and market update.

It has been a turbulent few weeks -- up $5000/day, down $8000/day, up $3000/day. Apply, rinse, repeat. I hung in there -- until Thursday.

I have started taking profits in a few areas (only a few) this week, and thankfully I was selling into the strength of the market on Thursday. I took my CLWR gains (up about 30% on a deal announcement with Sprint), and I also sold off AEDAX, a Euro growth mutual fund because I couldn't justify the expenses I was paying vs the EZU EFT. They were basically performing the same, so why pay the expense premium, even for such a consistent fund manager? I may re-evaluate paying those manager expenses when this wicked bull market slows down and finding good returns becomes more difficult. Since Europe is doing so well, I did move some of the proceeds directly over to EZU, but not all of them.

I was also pretty lucky on my CAT investment -- the run up over the past 5 months has been incredible. When it missed estimates and was downgraded, it fell over 8%, which was a ridiculous overreaction. What did I do? I bought more! The luck part of the story came when CAT closed only down 4% for the day, so I MADE 4% on CAT yesterday. Sometimes you just get lucky.

Those were some of the bright spots, but on the other hand, I have had some pretty challenging days with both GOOG and SHLD. In an earnings miss from GOOG and a 50 pt down day for them, I lost my 10% gain in the stock. Thankfully, it wound up closing only 30 pts down, so I'm even on the stock from where I bought it. I'm holding strong and expect good things from the stock going forward.

On the SHLD front, I firmly believe in the investing and asset mgmt talents of Eddie Lampert and I expect good things to happen over the next few months. Wall Street is rightfully becoming more interested in the retail side of Sears, which I (somewhat boldly) think is the least attractive asset that the company owns -- time will tell. I have added to my position on the slide down and hope to see a turnaround in the stock in the back-to-school time frame (when retail picks up again) or when Lampert announces another investment stake or an all around buyout of some company.

One other recent sore spot for me is with GS. The financials are getting killed right now, but I'm hanging in there. I may even buy more as GS nears the 200 level, which would be one heck of a fire sale.

Other than that, the rest of the portfolio is doing incredibly well -- at one point last week, my entire portfolio was up nearly 7% for the month of July alone! Of course, as you'd expect, I have given up some of those gains over the past week, but I'm ok with that given that it was a broad market sell-off.

How is this market treating you? Are you buying, selling or hanging tough?

Easy come, easy go.

Lottery winner sues a investment adviser and accounting firm over bad advice. It's partially another dot-com bust story, but it's also a story about the need to really understand what is happening with your money. Trust and money don't go together.

He won about $5.5M and decided to take an "immediate lump sum - in his case, about $2 million - that he could roll into investments. He'd just live off the earnings and interest." This is where the real trouble started:

He alleges that within a few months, the Smith-Barney advisers had 98 percent of his money invested in individual stocks, substantially technology companies.

The year was 2000, which would prove a spectacularly bad time to sink one's entire fortune into tech stocks. Cicero's lawyer has alleged the advisers were "breathtakingly irresponsible" to put a lottery winner's windfall wholly into individual stocks.

"Fifty to 80 percent of their income ought to be in bonds and other fixed-income investments," Stoltmann said.

The court and financial-arbitration filings tell the story in flat terms, claiming Cicero lost $600,000 or more in bad investments. And he ended up paying $240,000 more to the IRS for penalties and interest after he learned the hard way that a lump-sum lottery buyout doesn't count as capital-gains income. There was also a divorce.

"You want to talk about a sob story, he's it," Stoltmann said.

So, not only did he get screwed by Smith-Barney and an incompetent tax accountant, but he also wound up in divorce court? I really do feel sorry for this guy because my guess is that he thought he was trusting real professionals that knew what they were doing.

The lesson? Even so-called professionals need to be scrutinized and double-checked.

(Photo courtesy of: Lazy_Lightning)

Watching like a hawk

As you all know, I've been spending a lot of time watching the markets and waiting patiently to deploy some of my cash on the sidelines. I've also been very busy at my day job and with my moonlighting effort (more on that in another post). Finally, home projects have sopped up every last remaining bit of time. I just quite simply haven't had a lot of time to capture my thoughts here, until now. Here is a a little update:

As I've mentioned several times, I'm watching the markets even closer than before (and I watch they a LOT!) I do believe we are still only at the beginning of a an overall downturn, but I do expect it to round out at the bottom over the next 4-6 weeks with a significantly higher finish to the year. We do have a lot of wicked volatility right now with up and down days alternating like waves hitting the beach (tsunami waves, at that.) Trading in a market like this is definitely not for the faint of heart and you have to have some pretty well defined goals. My goal? Create or add to long positions at rock bottom prices.

Anyway, It's clear where people are putting their money -- some sectors and equities have had shallower dips than others and have started to rebound nicely and consistently. They're easy to miss if you're not watching like a hawk. It'll be interesting to see if this continues or not, but for a handful of names in defensive sectors, I think we are in ok shape right now. To that end, over the last few days, I have cherry picked what I consider to be GREAT entry points on two great, great names. They are considered defensive, staple stocks, and I think they have a lot of upside even in an expanding economy. Here is what I bought with the associated entry point:

1. Altria @ $82.77 -- I got really lucky on this one. I was adding to a long term position on 3/5 and I'm lucky to see it up over $85 today. The ex-div date and Kraft spin off (both in the next 2-3 weeks) make Altria especially attractive.
   
2. Costco @ $55.25 -- The stock has been testing the $54.70 level and has held well. Today, they missed earnings, but only because of a few one-time charges. The downtrend after the miss provided a great entry point for the position.

Btw, I know my blog has taken on an investing tone lately and I hope that is ok. I promise to sprinkle in more retirement-focused content. Investing well is just one way to help get you there.

UPDATE: It looks like COST broke through it's support in the mid-$54 range today, but the good news is that there is another great support level around $52. I'm not sure if it'll head down there for a test or not, but my guess is that it'll hold if it does. Excluding the one time charges, they were in line with earnings expectations, so I'm not overly concerned about it. If we break the $52 level, I may become more concerned.

Patience...

This is the word I keep repeating in my head. Over and over. Patience, patience, patience....

I hate seeing such great stocks at such low valuations, but I cannot buy yet... If you saw the open today, you know that there is much more downside to come... Repeat after me: Patience...

In a word...

Ouch.

Like most people, I took a hit yesterday, but the hit was much softer than it would have been, had I not been steadily building a cash buffer over the last month (pigs get slaughtered, you know). At the start of the day yesterday, I was holding about 22% of my portfolio in cash.

That said, when I did look at my investment accounts, most of my holdings were down over 3% each yesterday -- a scary moment for sure. The only notable exceptions were ERTS and BSD, a municipal bond offering. The key is: I did not buy or sell anything yesterday, and it certainly would have been a mistake given the fact that the entire market was selling off in tandem. Anyway, after all the dust cleared, I was down around 2.5% of my portfolio. Again, given the Pacific rim sell off in the 7%-9% range and the US sell-off in the 3.5% range, I fared ok.

So what's next? This is exactly the correction I mentioned I was waiting for, and I'm particularly interested in doing some bargain hunting when the time is right. The time is not right yet and I'll be looking for more conviction before committing funds into the market.

Owning individual stocks

I own individual stocks, how about you? A lot of the PF blogs I read have authors who appear to primarily align themselves with mutual fund investing. While I agree that mutual funds have their place (primarily for indexing, IMHO), I believe that it's very possible to beat (if only slightly) the market with some well-researched, value-based individual stock picks. In the long term, how can you go wrong with buying undervalued assets??

Whether you agree with me or not, you're certainly entitled to your opinion. As I was thinking through this last night, I wondered how many of my readers do actually own individual stocks, and whether or not it is an interesting topic for me to post on. I have been spending a lot of my time lately thinking through how I am going to play the correction that I continue to believe is imminent. So there you have it. Lets call it "Fin_indie's Tuesday morning question" -- leave a comment and let me know if you own individuals or not. And if you're feeling adventurous, let me know why or why not.

REITs on a tear!

REITs have moved up nearly 20% over the past month in a largely flat market, and it's definitely time to consider taking profits. This is one of the great benefits of owning non-correlated assets -- some make huge moves up while others languish with the rest of the market. With the clarity on the EOP deal and information about SPG's offer to buy MLS, there is a lot of optimism in the sector and I personally believe it's time to take money off the table.

I'm not trying to show my investing brilliance here, but I wanted to raise the flag for others who may own REITs as well. The fact is, they've REALLY outperformed and if you own them, you should at least evaluate your position. (Again, do not consider this investment advice, but just some insight into my actions as a REIT owner myself.)

Check out this chart vs. the S&P for the period after Jan 5th:

That is a gigantic move! Moves like that just aren't sustainable and I'll be closing my positions when the market opens today. If they pull back over the next few months, I will probably buy back in, but I can't see owning them any longer given the risk in the market and this huge move. For what it's worth, REITs make up 6.3% of my portfolio, primarily invested in ICF.

"Stealth Correction"

I saw an analyst on CNBC yesterday that suggested that the market was undergoing a "stealth correction". I wish I remembered who said it, but does anyone have any idea what market symptoms might lead someone to believe that there is a "stealth correction" going on? ...or for that matter, even what a "stealth correction" is, as opposed to a consolidation? :)

mOOm, any ideas?