Shesa's MARCH 2014 Investment Blog
8
March 2014
MARCH 2014 Investment Blog
Shesa Nayak
Market
Commentary
Welcome to my MARCH
investment blog. Let’s take a quick glance to the current market phenomena and
what we can expect going forward.
This week the
DOW Jones Industrial Average closed this Friday at 16452.72, S&P 500 closed at 1878.04 and NASDAQ
closed at 4336.22. Most of these indexes have gained in last one month after the
February 3rd low. NASDAQ is trying to inch ahead towards its all
time high in January 2000 but I still think it will take some more time before
we could see a new all time high. Last Monday, stocks on Wall Street tumbled
amid a global sell-off and rising geopolitical risk due to the escalating
conflict between Russia and Ukraine. The investors started buying US Treasury
bonds and commodities to mitigate risk. On Tuesday, the market bounced back
heavily and there was a big gain all across the indexes. On Friday, the labor department reported that
the economy added 175,000 jobs
last month, surprisingly stronger than 150,000 economists were expecting. The
unemployment rate went up to 6.7% in February from 6.6% in January. I am sure we are enjoying the market ride but please be prepared to
take a moment to think about downside and position ourselves accordingly.
Investment
Strategies
Earlier in my January Blog I wrote about a few
investment strategies as indicated below:
·
Not to Lose money on Investment
·
Criteria of a successful investor
·
Diversification of portfolio
Note:
If you missed January blog then please look to the blog archive. Now let’s continue and discuss some more
strategies to continue our earlier discussion.
·
Remain
Invested with a discipline
It’s expected that market will keep fluctuating
in 2014. Probably 2013 was an exceptional year where stock market went up
without any major correction. Whatever happens to the market is beyond
anybody’s control. Nobody knows the top and bottom of a stock or the stock market
itself. Market always takes its own course irrespective of what we think. If anybody tells us that he knows the top and
bottom of the stock market or a stock then it’s better he buys his own Hawaii
Island and live in peace without bothering about anything!! So timing the
market is simply a dangerous idea. However, what we can do is, analyze the
market with our past experience, take some market indicators/chart, look at
some micro and macro indicators and make some judicious decision on our
investment. That decision could be right or it could be wrong. However, we must
follow certain investment strategy and a disciplined approach to become a
successful investor and work within that framework. As we say, it’s important
how much you earn but it’s critical how much you keep. So we should never
forget the cardinal principle “Not to lose money”. That’s the key. It’s not
that we will win every time; we may fail but learn some lessons from that
failure and go ahead. The stock market has returned 8-10% over last several
decades. As a matter of fact, as long as we have a reasonable expectation we
should be fine. Since we can’t pick the top and bottom it’s better to be
invested most of the time irrespective of whether we are in a bull market or in
a bear market. But remain invested does not mean we should put 100% of our
money in stock market. According to me, remain invested meaning, allocate major
portion of your available capital in equity (Stock, Bond, Mutual Fund, ETF,
Real Estate etc.). So how much cash should we have? These depend upon age,
income, risk taking capability and so on. But preferably anywhere from 15-40%
cash depending on the market cycle. These
un-invested capitals can be made to use if and where there is a correction or market down turn. We must have an
exit strategy to get out of an equity or stock market, if required. We will
discuss this some other time.
·
Control your Greed and Fear
Now let’s discuss another critical factor that
governs the stock market and us. So let’s take a closer look why this is so
critical and how it impacts us. Let’s first analyze greed side of the story. Many a times, we buy a stock and it
shoots up and never take a profit. We think it will sky rocket and no need to
take profit. I could recall some burning examples during the .com boom/bubble
in 1999. There was a software company
“Commerce One” whose stock went up to $999 in a span of few days/weeks from around
$300. Some folks thought they should not sell as it kept shooting sky high in
days of time. But finally what was the end result? It declared bankruptcy and
the share value became ZERO. Remember ENRON, Exodus Communications, Lucent
technologies, Nortel Network and so on… All of these companies, once the
darling of Wall Street probably do not exist any more. I know friends who
played with call options whose portfolio had gone up more than 1000% in a span
of few weeks and ultimately they lost so much that they may keep taking capital
loss for another couple of decades and still may not be finished. So should you
stop buying Stock or call options? No, certainly not. A word of caution: those
who are new to stock market I strongly suggest not to get into buying stock
options. It could be extremely risky. There are many horror stories that I have
heard from folks where they lost almost their entire saving. As an investor we
must be very mind-full of what we do. We should not be emotional with any
stock, no mater how great the company is or how amazing return the stock has
given. Our objective is to get a good return on our investment.
Cardinal
principle: Never hesitate to take some
profit when an equity goes up beyond certain %age up or never hesitate cut your
loss if it goes down certain %age. Nobody ever go broke by taking profit! Rather, one may go broke if there is too much loss.
Now let’s analyze the fear side of the story. The lower side for a stock is 0
(zero). But what’s the higher limit? There is no higher limit that can be
predicted. The best examples are Master Card, Netflix, Amazon, CELG, Apple
etc.. These stocks have returned more than 1000% and still we do not know how
far will they go! I could recall recommending some of these stocks early days
to friends. Many folks got scared and got out of some of these stocks. It’s healthy
for investors
to maintain some skepticism with their portfolios
but if there is no major fundamental shift then no need to panic and get out.
Cardinal
principle: Take some profit and
then sit tight. Let the winners run as long as there are no serious problems
with the company or it becomes incredibly expensive. In such a situation it’s
better to put a “trailing stop” wherein you can decide to sell after it
drops certain %age or value from the current value of the stock. It
automatically gets adjusted when the stock moves up.
Now let’s look into current month’s recommendation on where
can I potentially put my money.
It would be difficult to imagine if any one of us
is not aware of Coca Cola Company (KO).
This is the world's largest beverage company, serving consumers in more than
200 countries. The company announced its 4th quarter and full-year 2013 results
a couple of weeks ago, and they were a little disappointing. The company's
outlook for 2014 is also likely to be affected by currency fluctuations and
other macroeconomic variables. The company reported an EPS of $0.38 for the 4th
quarter that was below Wall Street's expectations, and the full-year EPS was
$1.90. The quarterly
revenue fell 3.6 percent to $11.04 billion. The performance of the company was badly
affected by the currency headwinds in the emerging markets. The company also
announced its 52nd consecutive annual dividend increase of 10 cents. Many of
you may also be aware that Warren Buffet has a large stake of about $16.5
billion in this company. Coca Cola is trading about at about $38.55, about 12%
discount to its 52 week high. Visualizing its business fundamentals and Return
on Equity, which stands at about 26%, looks attractive to me. But please note
that this company is not for trading rather it’s purely a long-term investment.
It has also 3.2% forward dividend in case the stock does not appreciate too
much you can expect a reasonable dividend. This stock suits better for a conservative
portfolio. If anybody do not want to take high risk and still get a reasonable
Return on Investment (ROI) then it may be time to pick some shares. I could
expect 10-15% annual return on such investment.
Kandi
Technologies is a Chinese car manufacturer. It offers electrical vehicles, all-terrain
vehicles, go-karts, and specialized automobiles; and utility vehicles,
three-wheeled motorcycle, refitted cars, super-mini-cars, and various auto
generators. While Tesla may get all the
attention for its production of sleek, high-end sports cars Kandi is a Chinese
car manufacturer with an everyman model. Particularly this car is notable
because of its unique battery switch-out plan. When a driver's battery charge
goes low, he or she pulls into a special energy station, and the battery is
automatically changed for a fresh one. It
is expected to deliver some 2,800 electric vehicles in the fourth quarter of
2013. That's huge when compared with only 3,915 vehicles the company delivered
the whole of 2012. The stock got a boost when it reported an improvement in EV sales. That announcement gave
the company the likelihood of Kandi's dominance over the Chinese government's
100,000-EV initiative. A
few days ago the company said that it would be expanding its electric car
rental/sharing service in China. It indicated that it would expand operations
into both Shanghai and Beijing though no specific time frame was given. The
stock has been on tear and soared more than 40% after the news in last couple
of weeks. It has a great future potential but it’s also a very aggressive
stock and most of the time there is a big fluctuation (up/down). If one can
digest such volatility and can hold long term without bothering too much then I
suggest getting into this stock. Otherwise, it’s better to stay away. I would
buy this stock in a phased manner whenever there is some correction. At this
point, it’s near its 52 week high. So I suggest not jumping in and buying
every thing at once. The approach should be to buy some now and add on when
there is some correction. I would also strategize to take some profit out of
table when it goes certain %age up. Similar strategy should be followed if it
goes down. I would not put more than 1-2% of my portfolio value in such
aggressive investment. I can buy a little now, may be half, then wait for little more correction and then add in further. Again reminding, having investment discipline is of
immense significance to succeed.
Stock Profile (updated
3/9/2014)
|
||||
Equity
|
Suggested Price (USD)
|
Current Price (USD)
|
Suggested Date
|
My Opinion (see disclaimer)
|
AAPL
|
400, 443
|
530.44
|
1/25/13
|
BUY
|
FBIOX
|
128
|
217.43
|
3/1/13
|
Accumulate
|
BIDU
|
86.43
|
156.5
|
4/18/13
|
BUY on dips (See Update
Section)
|
PONDX
|
12.5
|
12.45
|
4/15/13
|
SELL (See Update Section)
|
GDX
|
27
|
26.18
|
4/1/13
|
BUY
|
GG
|
27
|
27.04
|
4/1/13
|
BUY
|
EDC
|
25, 25.45
|
23.6
|
7/1/13, 1/2/14
|
BUY
|
GOGO
|
14
|
24.8
|
9/1/13
|
HOLD
|
SLW
|
22
|
25.18
|
10/1/13
|
BUY
|
FB
|
47
|
69.8
|
11/13/13
|
BUY
|
TSLA
|
135
|
246.21
|
11/13/13
|
HOLD/Buy on Dip
|
AGNC
|
$25.3, $20
|
22
|
6/1/13,
12/14/13
|
BUY
|
MA
|
78.7
|
77.94
|
12/12/13
|
Buy on further dip
|
EXEL
|
5.82
|
6.79
|
12/12/13
|
HOLD. may Sell on strrength (updated on 3/26)
|
NLY
|
10.77
|
10.96
|
2/2/14
|
BUY
|
PRHSX
|
60
|
64.54
|
2/2/14
|
Accumulate
|
KO
|
38.55
|
38.55
|
3/9/14
|
BUY - New
|
KNDI
|
19.4
|
19.4
|
3/9/14
|
BUY (New - See Update
Section)
|
Watch
List:
Fidelity Select Chemicals (FSCHX): This is another best
mutual fund that I could see with solid potential for investment. I am keeping
this in watch list at this moment since it’s at its pick. With some correction,
I will write more about it and put on my recommendation list. Till then we may
have to keep a close watch. If required, I may send an alert.
STOCK
Updates:
TESLA Motors (TSLA): Tesla motor reported strong earning a few weeks ago and the stock has
soared more than 20% since than. I provided an update after the earnings on
TSLA. Since the stock has gone up more than 20% or after the earning I would
take some profit and hold on to the rest at this point. You can find my update
here: http://shesanayak.blogspot.com/2014/02/tesla-motors-update-tsla.html
BIDU is termed as Google
of China. The company reported its fourth-quarter revenue of $1.53
billion, 50% above the same quarter last year. It reported earnings of about
$454 million; almost flat comparing to last year. However, it provided a strong
guidance for first quarter of 2014 where Baidu expects
total revenue in the range $1.526 billion to $1.573 billion, representing a
year-over-year increase of 54.8–59.5%. Analysts expect revenues of about $1.306
billion. It’s increasing its mobile revenue, acquiring new companies and
growing stronger and stronger. I believe that there could be further 20-25%
appreciation on the stock though it may not straight go up. So I would buy or keep
accumulating or buy on dips.
It was recommend in April
2013. Since the bond market has been on downward momentum and I do not see a
major catalyst going forward as interest rate has been rising I would get
out of this PIMCO income fund. It’s better to utilize the money in a better
place.
Economy Report to expect next week
Thursday
we will have 3 important reports.
·
Initial Claims for Unemployment: The Labor Department produces this report
that details initial jobless applications.
·
Retail Sales: The Commerce Department will release this
monthly report that measures the total receipts of retail stores.
·
Business Inventories: The Commerce Department releases its
business inventories report for January that includes sales and inventory
statistics of the manufacturing process (manufacturing, wholesale and retail).
Friday:
Producer
Price Index (PPI): The
Labor Department will release this monthly index that measures the price of
goods at the wholesale level for February.
Folks, that’s all for today. Hope you are enjoying
the market ride but please be prepared to take a moment to think about downside
and position ourselves. Thanks for your time in reading my blog. Please note
that, sometime I send ALERT messages exclusively to my Google group. If you are
interested, send me an email and I will add you there. Please feel free to send
me your comments and suggestions to shesa.nayak@gmail.com
Disclaimer: This blog is meant to provide my personal opinion
rather than professional recommendation to buy/sell any stock, ETF, mutual fund
or any other security(s). As an investor, it’s your hard earned money and you
decide what is best for you. The above are merely my own recommendation(s) and
please contact a professional money manager to buy/sell any security. I do not earn
any money by writing such blog. I have position on whatever security I write on
the blog and avoid recommending any security that I do not follow.
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