My stop limit order to sell Maxtor at $5.01 filled. That was the final 25% of my original position bought on Oct. 21 for $3.25. I am now entirely out of Maxtor.
I sold half at $5.30 on Feb. 11. I sold a quarter at $5.80 on Mar. 7. With yesterday's sale at $5.01, the final average selling price for the entire position was $5.35 for a gain of 65%. You can see it recorded on my Strategies page.
My expectations for an oversold bounce last week were satisfied about as much as a half-glass of O'Doul's satisfies an alcoholic. Most of our positions gained a smidge, but that's all.
The one-quarter of my original position left in Maxtor lost a little ground, but is still up some 62%. Pfizer gained ground and, oddly enough, disappointed me. Why? Because I'm looking to buy more at around $25. It's a classic Dow recovery situation and I continue to think that most of the bad news is out. Of course, I'm not the only one to realize that, hence the recent trend upward. I'm a patient man, though, and will wait for the $25 opportunity that may never come. I was pleased with Ultra Semicon's performance for the week, if not dazzled. With all the bad talk about semiconductor companies, seeing Ultra Semi down a mere 2.5% from our buy price is fairly encouraging. If and when this market finally perks up before crashing through summer, we should see some healthy gains.
The Dow is getting beat up again. Double The Dow is now down 6.3% so far this year. Not worried a bit. This is how it always goes with that investment approach and these downward fluctuations are what help you dollar-cost averagers get ahead in the long run. Remember, money you send now will fetch you more shares than money you sent back in December.
In my ongoing quest for good news to report, let's look at Sun. Regular readers here sold two weeks ago at $4.41 for a 5% profit. It's recorded here. Since then, the stock has dropped 8.6% to $4.03. Feels like getting under a thick tree just before the cloudburst, doesn't it?
"What's next," emailed several readers. Itchy fingers are everywhere...except here. I don't make many moves, but when I do something in the market, I generally do it big and it generally works. I'm not a fan of the frenetic ten-trades-a-month approach to the market. There are many, many sites that offer that and they usually post histories like this: +3%, -2%, -6%, +1%, -4%, +5%, and so on. In the end, after taxes, transaction costs, and stress, you'd have been better off sitting on the couch with that half-glass of O'Doul's I mentioned earlier. So, to the itchy finger crowd, I say to relax and be patient. We still have positions that will benefit should the bounce finally arrive, and we are sufficiently protected should the bottom fall out.
All in all, the market seems to be enjoying Easter season with a stroll through the Garden of Unchanged. The professional prognosticators have busied themselves lining up in equal numbers at decidedly different gardens. The Garden of Hell-Is-Upon-Us points out that a market that can't rally from these oversold levels is a weak market indeed. The Garden of Downside-Risk-Doesn't-Exist points out that oversold levels that wait a long time before bouncing upward tend to bounce a lot higher in the end. To me, both sides are reminiscent of somebody in a much more famous garden who had no idea how costly it could be to eat an apple. Which is a pretty roundabout way to say that, as usual, nobody knows what the heck's going to happen.
What to do? Same thing that always works. Pick what companies you want to own and at what price, then wait for that price to become available. As for me, $25 on Pfizer looks good. Sun at much lower levels looks good. After we get rid of that last chunk of Maxtor, buying again below $4 looks good.
Oh, and spending time with your family on Easter looks good. That's the surest bet I can offer. At least call your mother. From Sano, Japan, where the cherry blossoms are just days away from blooming into Spring, Happy Easter, everyone.
As expected, the market continued its slide last week. Enough so that it put all three Dow portfolios back under water after they had recovered nicely from January's slide. Maxtor continued falling, as did semiconductors, Pfizer, and even Microsoft. A crummy week.
However, we can feel good that we locked away substantial gains prior to this slide. We stopped UTStarcom at -9%, grabbed a gain of 5% with Sun, and sold three-quarters of Maxtor at an average gain of 68%. Maxtor closed last week right at our average selling price, so we might be able to get a little boost on that performance this week if the stock rebounds a little.
The one disappointment I feel is not taking profits in Ultra Semi when I had them last month. We were up some 8%. Just two Fridays ago the position was up 2.5%, but after last week is now down 2.6%.
All is not lost. The market has been going down pretty steadily and it appears due for a short-term relief rally, probably this week. That should lift our positions enough to give us good exit points. It's not summer yet, although oil is already at what appear to be summer prices. Just imagine what those prices will be when summer is actually upon us. High, I would guess, and that should lead stocks to their usual summer levels: low.
Between now and June, though, we have two weeks of March followed by April and May. That's a lot of wiggle time. Markets don't move in straight lines as recent months have reminded us. Two down weeks against a backdrop of an improving economy is probably enough. Most technicians see the S&P 500 as still being above support. While I expect to see markets generally dropping, I think we'll get some lift before that.
Technology specifically looks ripe for a bounce. Piper Jaffray says that internet stocks are a buy. CSFB suggests that $35 is a strong price support for eBay.
My predictions last weekend about the market entering a down phase were on target. We hit my stop order to sell 25% of my original Maxtor position at $5.80, and to sell all of my Sun Microsystems position at $4.41.
The gain on Sun was 5%. That's from a $4.20 buy price on Feb. 17 to a $4.41 sell price on Mar. 9.
The gain on Maxtor is a little tougher to figure. I originally bought a large position on Oct. 21 at $3.25. I then sold half on Feb. 11 for $5.30. Last Monday, Mar. 7, I sold half of my remaining position (one-quarter of my original position) at $5.80. That leaves me with an average sale price of $5.47 so far, representing a 68% gain. The performance will change when I sell the final quarter of my original position.
Both of these sales are shown along with all of my trades and investments on my strategies page.
While it's good to see us exiting gradually from what has been a profitable winter, I'm a little disappointed that I haven't grabbed more profits from the semiconductor sector. Ultra Semi dropped 4% on Friday, and that brings us down to just 2.5% above our Nov. 11 buy price. It beats a loss, but isn't much to crow about after four months. Still, I'll take small gains over losses any day. Also, we'll see what happens from here. We might get a little more out of it before selling. I know the semiconductor sector is going to explode from its doldrums someday and I want to be onboard for that, but I can't seem to get a handle on the timing. I thought it would have happened by now.
For example, Intel reported on Friday that its March quarter revenues would be in the $9.2 to $9.4 billion range. They had earlier said it would fall in the $8.80 to $9.4 billion range, and Wall Street's average forecast was for $9.14 billion. That sounded good. Higher is better, right? "Yes, but..." say the analysts. From Briefing.com's Friday morning update:
The semiconductor analyst at Morgan Stanley is commenting this morning that the strength in revenue may not be sustainable. The analyst at Merrill Lynch is saying that Intel has beaten low expectations for this quarter, but will have trouble with the full year, and doesn't find the stock attractive from a risk/reward standpoint.
Where goes Intel, so goes the semiconductor index. I'm not eager to ride that volatile index at Ultra Semi's double impact through the slow summer months. Stay tuned.
Even old Disney and Pfizer had a rough week. Disney closed at $27.59, which is still a respectable 84% gain from our buy price, but two bucks lower than it fetched a couple of weeks ago. Pfizer, the ugly duckling medicine company that got even uglier after we bought, closed at $26.36, 6% below our buy price of $28. These two don't worry me a bit, though. Disney is as solid as a company comes and one of these days I'm going to get that 100% gain I've been aiming for. As for Pfizer, well, is there anybody left out there who doesn't hate the company? I didn't think so, and that generally signals a rough bottom in the stock price.
Speaking of seeking price bottoms, how about that UTStarcom? We sold on Feb. 11 for $15.10, a 9% loss. We all hate selling at a loss, but one way to smile about it is to watch the stock drop far beyond our exit price. That's just what's been happening. UTStarcom closed the week at $12.70, a full 16% lower than our exit price. So in an attempt to feel good in this sinking market, let's call that a 16% gain with no need to pay taxes.
Finally, the Dow portfolios. After poking their heads into positive territory last week, they've ducked back under. Double The Dow doesn't do well in such a narrow range, sawtoothed pattern, so it's down 0.1% while the Dow itself is up 0.3%. Neither is worth saying much about at this point, so I'll stop there.
What's ahead for the market? Probably lower prices. If memory serves -- and keep in mind that it very often does NOT when it comes to the stock market -- these conditions spell a short-term drop, followed by a lukewarm recovery in late spring, then a significant drop over summer, to be followed by a solid recovery into year-end. Can't say for sure, as you must know by now, which is why the best approach remains to watch for value and grab it when it appears.
I would like to mention that the famous Warren Buffett recently released his annual letter to shareholders. Buffett is the most successful investor of our lifetime and known for his preference to hold forever. That's quite a time frame, and serious Buffett-watchers have always looked at that point with a narrowed eye. After all, what's the point of investing if one never sells? To give Uncle Sam a lot of money upon one's death? No thanks.
Sure enough, the Oracle of Omaha, Mr. Buffett, doesn't really believe so strongly in the forever term. He wrote that he wishes he'd sold stocks in the late-1990s bubble. He regrets sitting on so much cash last year and promises to put it to good use in the near future. Best of all, in explaining why most investors suffer disappointing returns, he underscored the market-timer's golden rule of going contrary to the crowd:
[They take] a start-and-stop approach to the market marked by untimely entries (after an advance has been long underway) and exits (after periods of stagnation or decline). Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.
It is this approach to trading that leads me to end up buying in late summer and fall when the news is grimmest, and selling right about now when people are excited about the improving economy.
The economy is doing pretty well, it seems, but I expect oil to continue its rise and the dollar to continue its fall. That headline has a way of surfacing just about the time temperatures rise and -- voila! -- another sinking summer.
I placed a stop order to sell my position in Sun at $4.41, representing a 5% gain from our buy price of $4.20. I hope it does not hit my stop price, but as I wrote over the weekend, the market looks set to go lower. I don't want to ride it there.
Note that my limit order to sell half of my remaining position in Maxtor filled at $5.80. I have just 25% of my original position left.
It's hard to remember the tough times in January these days. What with the economy looking so robust and Greenspan sounding so unworried, it appears that there is no reason for concern. Which has proven reason enough to be concerned at several times in my life.
For now, though, the good times are a rollin'. February nonfarm payrolls rose 262,000 against a consensus forecast of just 225,000. That's a plus. Real GDP growth has averaged 4.5% for the past six quarters. Manufacturing employment is up 20,000. It is all positive enough to prompt the usually reserved Dick Green at Briefing.com to say, "The economy is now in what should be called boom times."
The boom is doing wonders for our portfolio. Sun is now up 4%, Ultra Semi up 6%, Maxtor up 82%, Disney up 93%, and Microsoft up 12%. Only Pfizer is down, at -4%, and even that is better than earlier in the year when it was down almost 10%. The Dow portfolios are cooking along as ever. Double the Dow is up some 3% so far this year and up 64% in the past 26 months.
Yet something feels about to give. We've been here before, in each of the past two years. Winter is going along so well that investors forget how painful the summers have been. People begin talking about year-end forecasts because they are fresh in mind from their inception the previous December and the market is rising at this moment, but somehow they fail to see the slow, hot months between now and year-end.
If the market ends the year higher than now then the forecast was a good one. But what if between now and that higher end point, there is a swoon that sees prices drop 35% before recovering? That's precisely what happened to Sun in 2003 and 2004, and now it's down again. Markets are not guaranteed to repeat, but with so much good news floating about and such outstanding performance lately, it's hard not to expect a disappointment and mid-year sale.
Key to this is oil. Summer is notorious for driving the price of gasoline higher as people hit the road in droves. Starting from a low base, that is usually not a big problem. This year, though, oil is already at $54 and it could see $60, $70, even $80 over the summer. That will dampen this jubilation.
I'm particularly concerned with Maxtor. The stock has a bright future, of that I'm sure. I'm not sure that it's all up from here, though. I want to protect our hard-fought gains. So, I'm placing a stop order at $5.80 for half of my remaining position, which is one-quarter of my original position. That will still leave me with a substantial investment should the stock finally break above $6. I hope it does so before hitting my stop, of course. If so, I'll adjust the stop accordingly.
