3/14 Kelly Letter Topics
Weekly market review
Fed oversees banks
EU bails out Greece
China likes Treasurys
Consumers still down
CT suing Moody's, S&P
US AAA rating at risk
Strong retail sales
Topping oil prices
Index chart patterns
Households suffering
Market at 1150
What range top means
FMD shooting higher
Bluefin tuna ban
2010 EDITION
Much has changed; good investing has not
The Neatest Little Guide to Stock Market Investing, 2010 Edition
What do you think is the best way to benefit from this recession? I've heard that buying stocks in a recession is a great idea.
One of the themes we've explored in The Kelly Letter is the tendency of small cap stocks to outperform large caps in a recovery from recession.
If you don't feel comfortable sorting through the many small company stocks available, why not try an ETF or mutual fund?
In ETFs, IWM is the Russell 2000 index and IJR is the S&P Smallcap 600 index.
For a more aggressive approach, try ProShares ETFs, which return 200% of the indexes. The Russell 2000 version is UWM and the S&P Smallcap 600 version is SAA.
If you'd like an actively managed mutual fund instead, consider:
Keeley Small Cap Value (KSCVX) +23% avg annual 5-yr
Pacific Advisors Small Cap (PGSCX) +31% avg annual 5-yr
Yesterday's article showing nine cheap momentum stocks proved popular. A slew of requests came in for the cheapest stocks rated 5 stars by Morningstar.
Cheap can be defined in different ways, so I'll go through various filters on Morningstar's 5-star stocks.
Here are the five cheapest by share price:
Entorian Tech (ENTN) ... $1.20
Replidyne (RDYN) ... $1.49
Sanmina (SANM) ... $1.64
Golfsmith (GOLF) ... $1.78
Leadis Tech (LDIS) ... $1.80
Here are the five most below their 52-week high:
MannKind Corp. (MNKD) ... 85% below 52-week high
Vanda Pharma (VNDA) ... 83% below 52-week high
USEC Inc. (USU) ... 80% below 52-week high
Replidyne (RDYN) ... 80% below 52-week high
VeriFone (PAY) ... 78% below 52-week high
Here are the five cheapest by price/sales ratio:
Rite Aid (RAD) ... 0.0 P/S
Asbury Automotive (ABG) ... 0.1 P/S
Group 1 Automotive (GPI) ... 0.1 P/S
Ingram Micro (IM) ... 0.1 P/S
Lithia Motors (LAD) ... 0.1 P/S
Here are the five cheapest by forward price/earnings ratio:
Golfsmith (GOLF) ... 4.0 forward P/E
Horizon Lines (HRZ) ... 4.4 forward P/E
NightHawk Radiology (NHWK) ... 5.8 forward P/E
Tesoro (TSO) ... 5.9 forward P/E
Lithia Motors (LAD) ... 6.0 forward P/E
Here are the five cheapest by price/earnings to growth ratio:
Golfsmith (GOLF) ... 0.26 PEG ratio
Tesoro (TSO) ... 0.28 PEG ratio
NightHawk Radiology (NHWK) ... 0.29 PEG ratio
Allied Irish Banks (AIB) ... 0.36 PEG ratio
Tessera Tech (TSRA) ... 0.36 PEG ratio
Let's look a little more closely at the five stocks appearing on more than one of the valuation screens above, indicating their being cheap by multiple measures.
Golfsmith retails golf and tennis equipment via the internet, a catalog, and 70 stores across the United States. The good news is that the aging population in the U.S. should continue to make golf popular, and the company can probably add another 40 stores. The bad news is that the slow economy and high energy and food costs leaves people with less to spend on golf. The bad news won't last forever, though, making this look like a nice recovery candidate.
Lithia Motors retails new and used vehicles. The new ones, all 28 brands, are sold at 107 L1 stores mostly in the western U.S. The used ones are sold at three used car dealerships called L2. The good news is that the company's no-haggle approach and other customer-friendly mandates should create growing popularity. The bad news is that more than a third of its vehicle revenue is from Chrysler, Ford, and GM models, brands that, sadly, will probably continue losing market share to Asian competitors. Still, maybe the American companies will get their acts together some day and, besides, Lithia could always change its brand mix.
NightHawk Radiology provides radiology interpretation services to health-care providers. It has operations in Australia, Switzerland, and the U.S. In the U.S., its direct clients include more than 700 radiology groups covering over a quarter of all hospitals. The good news is that NightHawk's cost-saving structure brings subspecialist knowledge to clients that wouldn't otherwise be able to afford it, and that the U.S. suffers from a shortage of radiologists. The bad news is that the competition with Virtual Radiologic has resulted in price cuts that look set to stay.
Replidyne is a biotech company focused on anti-infective drugs. Its lead candidate is Orapem, a Phase III oral antibiotic, and it's also working on a Phase I topical antibiotic that will treat staph infections in hospitals. The good news is that growing bacterial resistance has created a demand for stronger anti-infective drugs, and that if Orapem is approved it will be the first U.S. beta-lactam stronger than penicillin, and that beta-lactams comprise 70% of the pediatric antibiotic market. The bad news is that Orapem hasn't been approved and that's cost Replidyne its partner, Forest Labs, which was planning to provide both development and marketing for the drug. As with so many biotechs, this one looks like a crapshoot on FDA approval.
Tesoro owns six oil refineries in the western United States, with a total capacity of 560,000 barrels per day, and it sells fuel at more than 500 West Coast retail outlets under the Tesoro and Mirastar brands. The good news is that oil ain't goin' away and Tesoro is one of the bigger independent refiners in the U.S., plus its focus on the western part of the country puts it close to the booming California market. The bad news is that refining is super competitive and Tesoro's operation can't hold an oil-soaked candle to even Valero Energy's capabilities, much less Exxon's.
With some additional research, you might find that one of these stocks has a place in your portfolio.
Several readers asked if I could find any reasonably priced momentum stocks, always a challenge. That goal is a common one, because who doesn't want the best of both worlds? A momentum bargain is like a train that's pulling away from the station but still has an open door at the back through which a nimble passenger can jump on board.
What I looked for is:
A rising earnings-per-share estimate over the past three months
More than two analysts covering the stock
Earnings estimates beaten in the last four quarters
A stock price relative strength over the past month greater than that of the S&P 500
Both the price/sales and price/earnings ratios less than the 5-year average
That got me down to less than 100 stocks. From there, I looked at my own stocks-to-watch database to see which ones appeared. That cut the list down to fewer than 30. I then extracted the ones from there with 5-star ratings from Morningstar.
Here are the resulting nine winners sorted in descending order by the percentage the stock closed last Friday below its 52-week high:
Del Monte (DLM) ... 32% below its 52-week high
P.F. Chang's (PFCB) ... 27% below its 52-week high
Walgreen (WAG) ... 26% below its 52-week high
Panera Bread (PNRA) ... 23% below its 52-week high
Int'l Speedway (ISCA) ... 22% below its 52-week high
Zimmer Holdings (ZMH) ... 21% below its 52-week high
3M (MMM) ... 20% below its 52-week high
Accenture (ACN) ... 12% below its 52-week high
Johnson & Johnson (JNJ) ... 2% below its 52-week high
Do any of these look good? You bet. In fact, The Kelly Letter owns one of them. We bought Panera Bread when everybody said high food prices would forever depress earnings at the popular bakery.
If you've been to one you know it offers free wireless internet in a cozy atmosphere that includes a fireplace in many locations. The menu has an assortment of addictive sandwiches, good soups, and fresh made pastries.
I spoke with former Panera president Neal Yanofsky last fall about the company's prospects, and shared the highlights with subscribers. From that conversation, it became clear that the high food cost issue would go away eventually because either (A) food prices would drop back down to where they were a couple of years ago, or, (B) they would remain high and the higher cost would be reflected in higher prices on the menu as all restaurants raised prices, thus protecting profit margins.
It looked like a short-term issue providing a cheap stock price for a business that was on roll, so to speak. Indeed, we've gained 18% since investing, and expect a lot more from here.
Legg Mason's Bill Miller released his first quarter investment commentary on Wednesday, and it was optimistic. Some highlights:
I think we will do better from here on, and that by far the worst is behind us. I think the credit panic ended with the collapse of Bear Stearns, and credit spreads are already much improved since then. If spreads continue to come in, the write-offs at the big financials will end, and we may even have some write-ups in the second half instead of write-downs.
Valuations are attractive, and valuation spreads are now about one standard deviation above normal, a point at which valuation-based strategies usually begin to work again, and momentum begins to fade (there is no evidence of the latter yet, as the old leaders continue to lead).
Most housing stocks are up double digits this year despite dismal headlines, a sign the market had already priced in the current malaise. I think likewise we have seen the bottom in financials and consumer stocks, but not necessarily the bottom in headlines about the woes in those sectors. Although the economy is likely to struggle as it did in the early 1990s, the market can move higher, as it did back then.
The wild card is commodities. If commodities break, or even just stop their relentless rise, equity markets should do well. If they continue to move steadily higher, they have the potential to destabilize the global economy. We are already seeing unrest in many countries due to the soaring prices of rice and other grains. Oil has rallied $30 per barrel in the past 8 weeks on no fundamental news, save only the same stories about fears of supply disruptions. The typical fundamental drivers at the margin, such as global economic growth, miles driven, and seasonality, would all suggest prices similar to those that prevailed in early February.
But none of that has mattered. I agree with George Soros that commodities are in a bubble, but it also appears he is right when he describes it as one that is still inflating, and we still have the summer driving and hurricane season with which to contend.
The weak dollar is another culprit in the commodity cycle. Oil began to rise in earnest when the dollar index broke down sharply in February. The Fed could help a lot by halting its interest rate cuts. Real short rates are now negative. It is not the price of credit that is the problem, it is its availability. If the Fed stopped cutting rates, that would help the dollar, which in turn ought to stall the commodity price rises, and thus also help the inflation picture. More technically, the Fed, in my opinion, needs to focus on the value of collateral and not on the price of credit. It appears they are beginning to do this, which is a very healthy sign.
Despite moving higher over the past month, the U.S. market and most others around the world are down for the year, and fear and risk aversion still predominate. Yet valuations in general are not demanding, interest rates are low, and corporate balance sheets, especially in the U.S., are in excellent shape.
That sets the stage for what should be an improving environment for investors in stocks and in spread credit products, if not in government bonds where risks are high and opportunities low, in my opinion. With most investors being fearful, I think it makes sense to allocate some capital to the greedy side of that pendulum, and that means putting cash to work in equities.
The Kelly Letter agrees, which is why we've made nine stock purchases so far this year.
The Kelly Letter owns shares of Apple, and we were very pleased with the company's results last night.
I sent the following to subscribers last weekend:
We have two reasons for owning Apple:
The iPhone has the potential to be the world's first device that keeps people connected at all times, and third party software development will help it become the de-facto standard as the network effect cements it on top.
With more work moving from the hard drive to the internet, fewer people will care what operating system they're using, which will provide many customers the freedom to choose Macs over PCs for the first time ever. Most will conclude that Mac is the better experience.
Last week served up evidence that the second reason is playing out well. Macs continue to gain market share against PCs, accounting for 6.5% of unit shipments in the first quarter compared with 5.2% in the year-earlier period, according to Gartner.
Amazingly, Macs even worked their way inside IBM. In the first quarter, 24 IBM researchers tested Macs and 18 concluded that the experience was better than that provided by PCs. IBM is now expanding the Mac testing to 100 of its researchers.
If IBM is slowly switching to Mac, can the rest of the world be far behind? Watch Mac market share keep growing.
We are watching it grow every quarter, as we did last night.
In its fiscal 2Q, Apple was expected to ship 2.1 million Macs. It shipped 2.3 million. It was expected to ship 10 million iPods. It shipped 10.6 million.
In its fiscal 2Q a year prior, Apple reported net income of $770 million or 87 cents per share. Last night, it reported net income of $1,050 million or $1.16 per share. One-year net income growth of 36% is fantastic, and so is unit growth of 51%.
Chief Financial Officer Peter Oppenheimer said: "We are very pleased with iPhone momentum and customer feedback continues to be outstanding. We remain confident in achieving our goal of selling 10 million iPhones in calendar 2008."
No wonder earlier this week Lehman Brothers initiated coverage of Apple with an Overweight rating and $195 price target. Analyst Ben Reitzes wrote: "Despite the economic environment, we do not believe that Apple's momentum has waned in Macs. In fact, Macs may have reached a tipping point with share on its way toward doubling over the next 3-5 years."
For an excellent summary of Apple's resurgence under Steve Jobs, see Robin Bloor's article Will Apple Keep On Keeping On? The short answer is: Yes.
Yesterday's article on overpopulation as the root cause behind the rising price of everything, global warming, the disappearance of wildlife, and rising casualty counts from natural disasters led a few readers to express their desire that the world have one less human on it by removing me.
One reader called me "elitist" and another wrote, "You smug Wall Street types make me sick. You sit there on your pile of money and look down on all the struggling, DYING poor around the world and say everything is their fault when any idiot can see that it's the fault of global corporations, which you support with your investment capital."
Martin wrote:
I just want to write my objection to what you wrote about overpopulation being the main source of a number of problems we see currently in the headlines.
This is a very dangerous line of thought and contradicts what you wrote about last week about how you survived cancer and about your mother's challenge to recover from her accident.
Life is precious, is a gift, and cannot ever be judged as a "problem." I'm sure all your readers were overjoyed and inspired by your cancer survival story and were moved to hear about your mother's terrible accident. Yet, if overpopulation is the problem, then in that line of thinking, the argument can be made that it would be better for people to die off and not hang around, as they only add to the problems we see in the headlines.
You must include yourself as part of the "overpopulation problems," not just some people struggling in some far off, Third World country. This is, of course, an absolutely wrong and an intolerable way to think. Sadly, we have had many examples of recent 20th Century History to show what happens when we think and act this way.
I'll start with the charges that it's elitist to note that overpopulation is the crux of our problems. I did not write yesterday that I'm sitting separate from my fellow man. In fact, I wrote just the opposite: "All of us are part of the problem even though nobody did anything wrong on an individual level."
I cited U.N. data showing that the population of developed countries is on the decline while developing nations are producing all of the 80 million net population gain each year that will see 10.4 billion people on Earth by 2050.
It must be the fact that world population growth is coming from developing nations that makes anybody pointing it out from a developed nation appear to be elitist.
But, what's elitist about it?
I didn't say I'm better because I don't have a house full of kids, or because I eat three meals a day, or because I'm American. I haven't produced a house full of kids, but I grew up in one. My family went beyond its replacement level, though to my mother's great credit, two of my brothers were adopted as infants from undesirable situations, an act that greatly improves society. Still, my mother gave birth to five children of her own, thereby contributing to the problem of overpopulation.
I know that, and I love my mother, and I don't think she did anything wrong. That's why I wrote yesterday that "nobody did anything wrong on an individual level."
So let's not paint a cliche picture of where I'm coming from. I'm not an indifferent, arrogant, rich white guy wishing for famine to wipe out the poor, or plotting a nuclear war to clear some space.
However, just as it's not the fault of those born into awful conditions that they're in them, it's not my fault that I was born into a good family with plenty of food and went on to study investing. That's who I am, and from that vantage point I'm looking at the raft of problems facing the world and I keep coming back to the fact that there are too many people. That I'm one of them does not change the data, and my sharing the data with you does not make me an elitist.
Martin wrote that life is precious and can't ever be judged as a "problem." I agree with the spirit of that statement, and would save the life of somebody in trouble the same as anybody else. I don't think there's one person, regardless of how familiar they are with overpopulation, who would see a mother and child in a burning car crying for help and think, "Oh, good, soon there will be two fewer mouths to feed." Of course not.
One life is a gift. A family of ten people is a gift. Even 7 billion people on our planet can be a gift if we figure out how to feed everybody. But can we agree that at some point, we'll have too many people? We don't need to name and point, but collectively there must be a limit.
Some might say that limit is 10 billion people, others 20 billion, maybe somebody out there thinks the Earth can support 50 billion people. Optimists have even suggested 1,000 billion.
It's an old question. Two hundred years ago, Thomas Malthus said population would race ahead of food supply, but he wasn't the first. The early Christian writer Tertullian said (around AD 200, in De Anima): "We are burdensome to the world, the resources are scarcely adequate for us... Truly, pestilence and hunger and war and flood must be considered as a remedy for nations, like a pruning of the human race becoming excessive in numbers."
That was when the population of the whole planet was maybe 100 million or so. We reached the first billion mark by about 1850. By 1950, it was about 2.5 billion. In less than one short lifetime, this figure doubled. It passed six billion in the late 1990s. Note that: humans took 150,000 years to get to the first billion. The most recent billion arrived in just 12 years.
Nobody knows how many people the planet could hold.
What we do know right now is that there are enough already here so that if everybody lived at American standards, we'd need another four Earths. Does writing that make me elitist, too? Selfish, at least?
It's a real issue at the very center of the environmental debate. China and India argue, rightfully, that the U.S. and Europe and others at the top got where they are by burning fossil fuels for the last 150 years, thereby packing the atmosphere with carbon close to the limit of what the Earth can support. Now that those nations are rich and happy, they want to limit the amount of carbon that other nations on their way up can emit.
China, for one, already flipped the bird westward on that topic. It said it has the right to grow its economy, and that doing so remains its priority.
Which would not be a problem if China wasn't home to 1.3 billion people. There it is again: overpopulation. We may never get to find out how many people the Earth can feed because the existing base of people will burn enough fossil fuels to end this whole experiment long before that.
So, China has a point, but are you willing to stop driving your car and tell your children to not have children so that Chinese families can live like Americans used to? Of course not. Which means that Americans will keep driving, Chinese will start driving, and the world will get a whole lot worse because there will be too many people driving. That's one reason I'm such a proponent of electric cars.
I wrote yesterday that there is no easy way to stop overpopulation. Martin is right that some awful things have come from the desire to control population growth. To state the obvious, I'm not advocating sterilization or genocide. I don't hope for a disease to somehow contain itself within the borders of developing countries until people there are gone while the developed world goes on undaunted.
However, I do think we need to look carefully at the role birth control should play in shaping the planet we want in our future. I also doubt that it will work. We can't even prevent unplanned pregnancies in the developed world despite years of education and the availability of cheap birth control. Do we really expect developing populations to (A) agree with the idea and, even if they do, (B) implement it effectively? No.
Which is why I concluded yesterday that we should expect more fences. The developed population is not growing; the undeveloped population is growing wildly. Some will conclude that letting the poor overrun the rich will just make everybody poor, but they keep coming, so a sturdy fence will be the answer. Why that's hard to grasp is beyond me. We see it already within developed countries. Ever been to a gated community?
Optimists say technology is the answer. Maybe by 2050, Earth's 10.4 billion people will all be well-fed and peaceful thanks to abundant clean energy and efficient agricultural methods. We all hope so.
But, what are the chances?
We've had electric motor technology for 100 years, but you're still burning gas on the way to the grocery store. We've had nuclear power capabilities for 60 years, but you're still likely burning coal every time you flip the light switch. Biofuels are a great way to, oops, wait a second, they're the reason for the food shortage, never mind.
You get the point. Expect more fences -- and don't shoot me, I'm just the messenger.
Now that oil is at $117, gas is at $3.50, and rice is up from $100 per ton in 2003 to $1000 per ton now, people are paying attention. However, few have caught on to what's really the core problem.
Some say biofuels have taken food out of the mouths of the poor. Some say speculators are driving prices to the moon. Some say growing economies in China and India are to blame. Some say global warming is the culprit.
Typical is Paul Krugman's article in yesterday's New York Times:
...concerns about what happens when an ever-growing world economy pushes up against the limits of a finite planet ring truer now than they did in the 1970s.
For one thing, I don't expect growth in China to slow sharply anytime soon. . . . Meanwhile, resources are getting harder to find. Big oil discoveries, in particular, have become few and far between, and in the last few years oil production from new sources has been barely enough to offset declining production from established sources.
And the bad weather hitting agricultural production this time is starting to look more fundamental and permanent than El Niño and La Niña, which disrupted crops 35 years ago. Australia, in particular, is now in the 10th year of a drought that looks more and more like a long-term manifestation of climate change.
Right on all points, but what's driving each of them? Why is the growth of China so problematic? Why are resources depleted across the board? Why is the climate changing?
In a word: Overpopulation.
China's growth would not matter if it had only 100 million people. More Indians driving cars would not matter if just 80 million people lived there. The world liking to eat fish wouldn't matter if there were one billion people on Earth.
But there are 1.3 billion people in China, 1.1 billion people in India, and 6.7 billion people on Earth. Get the global population to 10 billion, a 50% increase, and we'll see our resource and climate troubles grow by 50% as well.
I mentioned this to Kelly Letter subscribers last weekend, and the rest of this article is adapted from that report.
Stand back from the headlines of expensive oil, expensive food, and many other modern issues and you'll see that all trails lead back to overpopulation. There are just too many people, which has led to:
Disappearing fish and other wildlife. From Overfishing.com: "Worldwide, about 90% of large predatory fish stocks are already gone. There are two serious problems: (1) We are losing species as well as entire ecosystems. Our oceans are at risk of collapse. (2) We are at risk of losing a valuable food source."
Increased pollution levels and the changing climate
Resource depletion across the board
Higher casualty counts from natural disasters
We'll see an endless flow of headlines reporting shortages of oil, food, and other commodities because there is no reasonable way to stop the population problem. Population growth is coming from developing parts of the world where birth control is either unknown or resisted. Much of the developed world is in a population decline.
It's hard for anybody to look at their own children and see them as the reason for food shortages in Haiti, but all of us are part of the problem even though nobody did anything wrong on an individual level.
The "go forth and multiply" drive will not recede easily, if it will recede at all.
According to the United Nations Population Division, world population reached six billion in October 1999. Since then, it has grown by some 700 million people. That's 2.5 times bigger than the population of Chicago, 1.8 times bigger than Los Angeles, and 84% the size of New York City. Each year, global population grows by 80 million people and all of the increase is happening in developing countries.
U.N. medium variant projections show that between now and 2050, the population of developed nations will decline by 10 million people while the population of developing countries will increase by 3.7 billion people.
I've written many times about the ineffectiveness of the Stock Trader's Almanac's "Best Six Months" strategy. From the Almanac:
Our Best Six Months Switching Strategy consistently delivers. Investing in the Dow Jones Industrial Average between November 1st and April 30th each year and then switching into fixed income for the other six months has produced reliable returns with reduced risk since 1950.
It then improved the basic strategy by adding a timing indicator, Gerald Appel's Moving Average Convergence Divergence (MACD), to better time the entries and exits. The addition of MACD timing "nearly triples the results."
Sy Harding's Riding The Bear called the Best Six Months with MACD timing the "best mechanical system ever." Apparently, Mr. Harding has never read my Neatest Little Guide to Stock Market Investing. Its Maximum Midcap strategy puts the Best Six Months with timing to shame.
Just on the face of it, do you really think the market is as simple as rising in the winter and falling in the summer? The first time I encountered the seasonal strategy I thought it suspect. The data were there to back it up, but it all stunk of a big coincidence to me.
Recently, the strategy has been a bomb. MACD is open to interpretation, so I can't say for sure when the Almanac got into and out of the market in the past few years because I don't pay for a subscription to its newsletter. However, I'll give it the benefit of the doubt and assume the best possible entries and exits around Nov. 1 and Apr. 30 starting in Autumn 2006.
Buying the Dow at its Oct. 2006 low of 11,608 and selling at its May 2007 high of 13,719 produced a gain of 18%. During that same time, my Maximum Midcap strategy gained 46%.
Staying out of the market until November spared the Best Six Months strategy a 7% loss, and Maximum Midcap posted a 9% loss.
From buying at the November low of 12,707 to last Friday's close, the Best Six Months strategy has gained 1%. Maximum Midcap has lost 0.7%.
That's just recently. How about a few years earlier?
Here's how the Best Six Months with MACD timing did:
Now that the Federal Reserve has dramatically cut interest rates, the fiscal stimulus package is about to kick in, and earnings are coming in stronger than expected, the Best Six Months strategy is looking for the right time to get out of the market.
Why this strategy continues being highly regarded is a mystery to me.
Here at The Kelly Letter, we've been taking advantage of low stock prices while they last. I wrote to subscribers that the time GOOG spent under $500 was a great chance to build a position in one of the best online companies.
Looks like that sale is over, and I'm glad we already have our shares.
Last night, Google proved the hand-wringers wrong by reporting Q1 earnings and revenue growth above expectations. It was the 12th time in 15 quarters as a public company that Google beat estimates.
Data from comScore showing Google's ad clicks to be slowing missed a key reason why. Google deliberately limited the volume of commercial links so it could serve up more compelling messages creating actual sales. Google gambled that advertisers would be willing to pay more for each ad link if doing so created more revenue with fewer clicks.
According to the first quarter's results, that gamble is paying off. ComScore should adjust the way it delivers its findings. It claims to have never passed judgment but just reported a slowdown in clicks, but reporting a slowdown without providing context made Google's situation look bad when it was actually good. If the purpose of reporting clicks is not to understand the health of the business, then what's it for? Understanding that the quality of clicks is as important as the sheer number of clicks seems like a key part of comScore's job, and one it messed up. Little surprise, then, that its stock fell 8% on Google's strong report.
Meanwhile, GOOG shares rose 17% in after-hours trading last night. Hats off to everybody who had the courage to buy when the news was bad -- and wrong.
Here are highlights from Google's conference call:
Eric Schmidt: It's clear to us that we're well-positioned for 2008 and beyond, regardless of the business environment that we find ourselves surrounded by....paid clicks growth is much higher than has been speculated by third parties.
We're putting more and more flexibility and control in the hands of advertisers so they can decide exactly where their ad should go and measure it in the way using Analytics that they could not do before. It's also important to note that DoubleClick has been added now to the portfolio and DoubleClick is hugely strategic for us. It allows us to offer a much more comprehensive solution for advertisers and publishers. This has been asked for long time and now we are able to do it.
We are working to build out a whole new online web experience and we're beginning to have all of the pieces now in place. For example, the recently announced Salesforce.com partnership allows us to integrate for an enterprise customer with the Salesforce.com products as well as all of the Google application services and sold through their direct sales operation.
By doing these partnerships and by investing heavily in new applications models we think people will spend more and more time online and they will able to do things like sharing documents, sharing calendars, dealing with photos and all those kinds of things in a way that had not been possible before.
On the Yahoo question, we are very excited to be participating in this test, at the beginning of the second week on the test. I don't think it's really appropriate to speculate beyond that but it's nice to be working with Yahoo and we like them very much.
Let me give you a sense on the China situation. We are seeing market share growth and good revenue growth as we have learned to operate in that environment. Although the advertising business is nascent in China, the fact of the matter is that the Chinese internet is so large that even on a small basis the numbers add up to be quite significant with a good growth rate. We believe that China will continue to be a good market for us.
Sergey Brin: You'll notice that you can now search within a site directly from the Google Search results. So, you'll get a top level site in your search results, but if you want to further search within that site there is a box right on the search results page and you can quickly do a query. If you search for something like NASA or IMDB you'll see examples of this.
Finally, let me just tell you a little bit of our progress on Mobile, because more and more people are accessing our Search and other services through mobile devices. We've now launched a much faster Search experience and it's now available in Mobile in 40 languages. Our Mobile Search traffic, as a result, and just due to market growth, is growing very rapidly. That's for Search, but actually across other properties also, we've now launched a new version of our YouTube mobile site and mobile users now can access the entire library of videos. If you remember in the past it was a subset because there was little bit of delay in transcoding, but now all the videos are available. We've had mobile playbacks increase tremendously.
Larry Page: Now switching gears to AdWords, one of the things we launched was a tool that gives customer's better control and more data and those things are the Conversion Optimizer which we first launched in 3Q07. We are now seeing really rapid adoption across our advertiser base. What that Conversion Optimizer does is let the customers bid per customer conversion rather than per click. You can pay basically when someone buys something rather than when someone clicks something.
As you can imagine, that really lets people optimize a lot better and we're really excited about getting wider and wider adoption of that and it has really been taking off like we had hoped.
YouTube obviously we are very excited about. It keeps growing extremely fast. We are up to about ten hours of video uploaded every minute on YouTube. So you can imagine just the rate of that is incredible.
We have in-video ads, which have great adoption on YouTube and customers are increasing the size of their campaigns. We've now launched AdSense for videos, so now these in-video ads can run on sites besides YouTube and they may perform very well; we are seeing much better click-through ads than banner ads and that's a really big deal and we're really excited about that.
Even with GOOG up 17% after hours, it still needs another 42% gain to reach its November high of $747.
I wrote on Taxing Tuesday about how three of four Americans pay taxes for debt interest and wars while receiving none of the health insurance benefits that the other one-in-four receive.
From AngryRenter.com comes this fine way to reallocate wealth from those able to manage money to those unable:
Google Docs is fully functional and operating right now as a way to get your work done. I've been using it for more than a year, with mostly positive results.
My chief complaints have been:
A lack of features
Internet load times slowing down the work a tad
But the features keep trickling in and the load times are short these days. Moreover, the convenience of having my work online and ready for use anywhere I go easily compensates for the temporarily limited feature set and the load times.
Microsoft is not unaware of Google Docs, of course, nor of the talk about it crushing Microsoft's Office franchise. Here at The Kelly Letter, we make no silly claim that Microsoft will disappear soon because of an online word processor from Google. We do, however, think there's a lot at stake and that the application shootout between the two hints at the character of a bigger operating system battle to come.
In this article, I want to focus on software as a service, or SaaS, because that's the battle heating up before our eyes as the larger OS clash looms in the distance.
I sent to subscribers last weekend this mini-overview:
Microsoft Online Services has been around since late last year and was talked about more than a year ago when Steve Ballmer said that there would be an online version of every application made by Microsoft.
Currently, it has three versions:
Office Live Meeting 2007 - An application that runs meetings over the internet with audio, video, and rich media.
Exchange Hosted Services - An email management system.
Microsoft Exchange Online - A more deluxe email management system that "helps give your business the protection it demands, the anywhere access..." blah, blah, blah.
I don't see anything that remotely threatens Google Docs. Live Meeting 2007 looks to be Skype 2001, and the two email systems are just email. Far as I recollect, email has always been an online application and has been pretty well done for more than a decade now.
That's not the whole story from Microsoft, though. It also offers Microsoft Office Live Workspace where you can store and share files with others, including Word, Excel, and PowerPoint files.
I signed up for Office Live and found it to be well done up to a critical point, which I'll get to in a sec. The basic process is simple. Sign up, verify in an email, then get a piece of software that goes into your Microsft Office applications and lets you open from and save to the Office Live web server instead of your local hard drive. On the web server, you can share files just as you can with Google Docs.
Once I uploaded some Word documents to run through some online editing sessions, I ran into that critical point I mentioned. You can't edit and work on the documents online. Huh? You can open them on your computer using the installed Microsoft Office applications and then re-save them to the web server, but you can't actually work on them with the familiar toolbars in online form, as I expected.
That being the case, Office Live is really just a file storage and sharing area online with some additional integration with MS Office. As soon as I'm at an airport or a friend's computer without MS Office, all I can do is look at my list of files on the web server. I can't open them and work on them.
With Google Docs, there is no local hard drive based component. The entire ball of wax is the GDocs website. You can create, edit, collaborate and all the rest right on the website. Rumor has it that Google is working on some locally installed components to enable users to work offline, but the heart of the system is its ability to work online.
To me, this shows what Microsoft will keep running into as it battles Google. Microsoft's foundation is installed software. It keeps hooking its online endeavors back to that base of locally installed software and, in this case, decided to skip the online functionality entirely.
I won't belittle Microsoft, as many do. Office Live is a fine first effort, and I'm attracted to the idea of being able to use fully featured MS Office software to edit my documents in that familiar environment. I just wish that familiar environment was available to me at the website. I have a feeling it will be someday, but it isn't now.
Who's winning? That's a tough call because the two services differ on the critical point of where the work gets done. They both offer online file storage and sharing, but that's available everywhere on the web and has been for years. The new area we're trying to push into here is how to get work done, not how to share files.
On that point, Google is online and Microsoft is still on the hard drive. Each has advantages, but to me this category is about getting work done online and Google is the clear winner on that point.
Practically speaking, however, most people are not doing the bulk of their work from a remote terminal without applications installed. I don't write my books in spare moments in airport lounges, and I suspect most people get the bulk of their work done at their usual computer, sitting in their usual chair, firing up their usual applications. For the great majority of people, those usual applications are from Microsoft and were paid for. Thus, a lot of folks will be happy to be able to finally back up their documents online and get to them with the same software they've been using all along, the same interface, and benefitting from the same purchase.
Going forward, however, I see this as further evidence of Google's strength against Microsoft. Google will keep innovating free of the burden of backward compatibility, while Microsoft needs to make all of its new initiatives work with its old products, and that will slow it down.
This comparison will go Coke/Pepsi when Microsoft offers online work capabilities and Google offers an offline software pack. That, too, is a Google victory because it's the first company that's ever had a shot at reducing Microsoft to being just one of two equally valid choices.
Today's the big day. Along with the rest of us, you've either sent in your pound of flesh, will do so today, or did so all of last year and are now supposed to be happy to get some back -- without interest.
Paying taxes is never fun, but it would be a lot better if you felt that you received something for your money. If you had a health care card in your wallet, wouldn't you feel better as you sent in your taxes? If you could pull out a report listing your taxpayer education credits redeemable at any university, wouldn't you feel better as you sent in your taxes?
You have neither of those. What do you have instead?
I found on this morning's SnapSheet (now under new editorial direction and looking sharp) the following:
The United States Department of the Treasury expects to fill its coffers with an estimated $2.5 trillion in tax revenue in 2008. According to information released by the IRS, the average American household paid $22,100 in federal taxes in 2007.
The rest of the story is from the Hoover Institution, and it refers to a piece that two of its members wrote for the Wall Street Journal in which they note that "the increased government spending and tax increases proposed by some of the presidential candidates will 'drive the personal income tax burden up by 25% -- to its highest point relative to GDP in history.'"
So, you're paying a lot in taxes and you're probably going to end up paying a lot more. Where does it all go?
The U.S. is $9,400,000,000,000 ($9.4 trillion) in debt. The interest on that debt costs us more than the war in Iraq. The war in Iraq costs us more than every single government agency and department except Health and Human Services and the Department of Defense.
HHS represents almost a quarter of all federal outlays, and it administers more grant dollars than all other federal agencies combined. HHS' Medicare program is the nation's largest health insurer, handling more than 1 billion claims per year. Medicare and Medicaid together provide health care insurance for one in four Americans.
That's interesting. Four out of four Americans pay the taxes, and one out of four Americans receive health care insurance for them. What happens to the money that could be used to buy health care insurance for the other three out of four Americans?
That's where we run smack dab into the interest on the debt and the Department of Defense. That's basically the whole story in the U.S. We all pay taxes through the nose, a quarter of us get health care insurance, the rest of us pay for debt interest and wars.
The Iraq war costs $341 million per day and has brought to American taxpayers (minus the 4,000-plus who paid with their lives) the following results:
Record high oil and gas prices.
If I missed any, let me know.
The situation led Rep. John Yarmuth of Kentucky to say over the weekend: "Across America, our roads and bridges are crumbling and are in desperate need of repair, yet taxpayer dollars are being squandered on an Iraqi government that is riddled with waste, fraud and corruption. The cost of one month in Iraq could extend the Children's Health Insurance Program, which the president vetoed, to 10 million children of working families for a full year."
John Broder wrote yesterday in the New York Times:
Even if the country can afford the wars in Iraq and Afghanistan or, as Mr. Bush and Mr. McCain assert, cannot afford not to fight them, the amounts being spent on the conflict are of a scale that war critics say would allow the country to address what they see as more compelling problems.
At the low end of estimates of the cost of the war -- $120 billion a year -- the money would cover the projected cost of Mrs. Clinton's universal health care plan. It could pay for Mr. Obama's less inclusive health care plan and his proposal to bail out homeowners with troubled mortgages. Or for development of new renewable energy sources and a nationwide public works program. Or pay toward a long-term fix for Social Security. Or the unpaid part of the Medicare drug benefit.
We should all just take a deep breath as we sign our checks to the Treasury. We knew this was coming, after all. President Eisenhower warned us in his farewell speech on January 17, 1961:
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals so that security and liberty may prosper together.
Since nobody reads history anymore, that "alert and knowledgeable citizenry" is about as helpful as the tooth fairy.
So the wars with no purpose will continue, military contractors will get rich, and you will get poor paying more taxes next year than this.
I was delighted to receive this from Anthoney Grigsby:
Since I began gaining a stronger hold of my finances two years ago, I have made significant changes in my life that will only positively benefit me in the long run.
Your book The Neatest Little Guide To Stock Market Investing was the very first personal finance/investing book I purchased. I gained a lot of useful information from your teachings and since wanted to spread my own message and strategies through blogs and other means. I began my first blog, but I realized that I'm not yet ready to speak about only investments, so I created a blog where I can continuously talk about various personal finance topics as well as investments.
This brought about HelpMyCashGrow.com. Now instead of just blog posts, I create video & audio podcasts, provide downloadables, and now I am running my first contest. Since it was you and your book that gave me my first starting point, I wanted to let you know that my very first contest prize is your book.
Anthoney's story is inspiring. He decided a couple of years ago to re-shape his financial situation. He was deeply in debt with no clear goals of what he wanted or when he wanted it.
He mapped out a path from the bleak field of debt to a life of prosperity where he decides his own future, instead of reacting to the next crisis. What's interesting about Anthoney is that he's doing all of this publicly. His website shows him to be still in the process of attaining wealth.
I like that, because that's where most people are. Too often in this business, we read what Donald Trump is doing to expand his real estate empire, or how Jamie Dimon is steering JPMorgan through the credit minefield to emerge even wealthier than before. Meanwhile, most people can barely keep the lights on in their homes, and that's in the world's richest country. Pick up a copy of National Geographic to see what real struggles look like in, for example, Darfur.
As a voice of regular folks who budget their income against expenses because there will be no Federal Reserve bailout of their "writedowns" and irresponsibility, Anthoney is tough to beat. He shows on his site that he has:
An investment portfolio worth $11,117 (Goal: $20,000)
Assets worth $18,306 (Goal: $30,000)
An emergency fund worth $768 (Goal: $2,000)
Collection accounts totaling $2,317
Student loans totaling $10,064
On April 7, he released his March 2008 financial report in which his family "significantly increased our assets and significantly decreased our liabilities" and achieved a positive net worth. It was a notable accomplishment, with assets growing 31% and liabilities shrinking 13%. The Grigsby family's net worth at the end of March was $5,925 -- roughly what Bear Stearns is currently worth -- and the Grigsbys did it without help from Ben Bernanke and Jamie Dimon.
I applaud Anthoney's efforts and his willingness to share his financial journey with others. He wrote to inform me of his web site's first contest, where he will be awarding a copy of my stock book to the winner. I will sign it to the lucky person who best answers Anthoney's question:
"Since money has no intrinsic value, why did we develop a system that evolves around money? Was our government worried we would run out of gold as a resource? How important is the control our government has over the money supply?"
Anthoney will select a winner based on the thoughtfulness of their response, and announce that person's name on May 14. To learn more about the contest, see Anthoney's post.
Richard Russell said in a casual interview last Friday:
Consider the following -- pessimism has now enveloped almost the entire nation. Estimates of home foreclosures are running into the millions of units. The American consumer is buried in debt and stranded with little or no savings. Manufacturing is slowing down in the US. Leading analysts are competing with each other with bearish forecasts. People are calling the Fed impotent or even helpless in the face of the enormity of the problems we face. On top of everything else, the unfunded liabilities in Medicare and Social Security are running into the multi-trillions of dollars. The presidential candidates do not even want to talk about the nation's potential liabilities. And on top of everything else, we're mired in one of the longest and most expensive wars in US history.
Yet slowly, almost imperceptibly, the major stock averages have been building huge bases. Since January 22, the majority of stocks have stopped going down -- in fact, they've been rising.
Dan Dorfman at The New York Sunwrote last Friday as well:
I rang up TrimTabs Investment Research, a well-regarded West Coast-based liquidity tracker with a substantial hedge fund following in which Goldman Sachs holds a minority interest.
Why TrimTabs? Because last October, its CEO, Charles Biderman, a former Barron's reporter who has been a bull since early 2004, threw in the towel and turned bearish. It was perfect market timing, as it coincided with the recent market high, and averages since then have skidded about 13%.
He has just switched gears once again, taking a sunny view of the market based on record bearish sentiment (usually a good contrary indicator), tremendous cash on the sidelines, and signs the economy is beginning to pull out of its six-month slump.
To Mr. Biderman, it all suggests "we'll see an explosive rally in the next couple of weeks."
Starbucks may be getting some good ideas from its idea website, but input from the masses is apparently not helping the taste of its coffee.
As I find myself doing more and more, I turned to Newsflashr to dig up the latest, not just about Starbucks, but anything. If you haven't tried Newsflashr yet, don't fret. I hear that founder Gal Arav is still accepting new visitors.
Now, back to the taste of Starbucks coffee. Newsflashr turned up an April 9 story by James Poniewozik at Time. Mr. Poniewozik drinks coffee all day, so he jumped at Time's request to try Starbucks' new Pike Place Roast.
Unfortunately, he wasn't thrilled. He found it to be "a cup of coffee that tastes less like a cup of coffee" and more "like the American statistical coffee median." What's more:
Starbucks says it took input from about 1,000 customers in designing Pike Place, and I could taste every one of them in there. This was a cup of coffee brewed by committee.
All in all, not a bad cup -- nothing too objectionable, a perfectly fine if not completely fresh-tasting cup of coffee that I might expect to get at Dunkin, or, on a good day, Mickey D's. Which is the problem: Starbucks is staking its future on making a cup of coffee for people who don't like Starbucks -- a McDLT in a cup.
Here we run into the classic big business dilemma.
Let's face it, most folks don't care all that much about the bean background of their cuppa joe in the morning. They just want some coffee. Coming up with a cheaper blend that appeals to the highest percentage of mouths is good business sense, even if it doesn't appeal to the critics.
It's the same with hamburgers and cars.
I don't know a single hamburger lover who says the Big Mac is America's best tasting, but I promise that it's America's (and the world's) best selling.
I don't know one editor of a car magazine that says the Toyota Camry is the most inspired, pleasant drive ever designed, but it's the most frequently bought passenger car in America.
Critics look for products at the outlying edge of taste, presumably the higher end. Companies create products for the fat part of the bell curve, the "seven out of ten people prefer" kind of result.
Observant people learn quickly in life that the crowd is usually wrong. Maybe, but selling it what it wants is usually right. If the crowd asked for Pike Place Roast and Starbucks brewed it, then that's going to be good for business.
What's good for business will be good for the stock, and a rising share price will leave a better taste than any cup of coffee ever could.
I think returning Starbucks CEO Howard Schultz is doing a good job so far. He's the one that put the coffee chain on the map and, as with Steve Jobs at Apple, was exactly the right guy to come back and get the business back on track.
One of his best ideas so far has been seeking your ideas for how to improve Starbucks. The company has a website called My Starbucks Idea where you can throw out your ideas, see what other customers think, and even watch as the company puts various ones under review, shows which ones are already in development, and otherwise reveals status.
Some of my favorite suggestions from among the most popular are:
Finally, offer free wi-fi access.
Offer a free birthday drink.
Create a punch card where frequent sippers get every 6th or 11th drink free.
Sell a healthy breakfast.
Make a swipe card so regular customers can scan or swipe it inside the door, pay directly with the card, and have the order go straight to the barista so the card holder can skip the register line.
This gathering of ideas from customers is a great, free way to see how to make Starbucks exciting again.
We're long SBUX because I don't see any reason it won't recover. Two years ago, the stock was almost $40. Today, it's under $18. Sure, there are reasons for the decline, chief among them a weak consumer in the midst of recession and higher food costs, but the business is a winner. Look at the revenue history in millions of dollars:
You wrote about First Marblehead (FMD) a while back. The stock got killed yesterday by the TERI bankruptcy and I'm wondering if you think it's worth picking up shares.
Yes, it did get killed yesterday, and that wasn't the first time, either. It's down to less than $5 from more than $40 a year ago. I sent a report to Kelly Letter subscribers last night, from which the following is adapted:
It's too late to sell. The time for selling this stock was a year ago. That narrows the options to initiating a position, holding a current position, or adding to a current position.
This is a maddening situation of seeing a great company smacked down for having done nothing wrong. There are no accounting irregularities, no failure to find new business, no product delays, no lack of due diligence as we saw with sub-prime lenders. All was going swimmingly for Marblehead until the credit market closed. Through no fault of its own, the doors to its store are locked shut.
The loans that it packaged and sold as bonds are performing well, according to Marblehead. It hasn't needed to rely on TERI. Of course, just when things are dicey enough that it would be nice to have a strong backer, Marblehead's backer fled the scene. I suggest turning to Warren Buffett's Berkshire Hathaway for future financial backup.
We could analyze the situation a hundred different ways but what it all really comes down to is this: First Marblehead is hostage to the credit market.
If that market gets going soon, Marblehead will be fine and the shares should rocket higher. They could erase recent losses in a single week.
If that market remains closed for too long, Marblehead is doomed. It could go the way of Bear Stearns, acquired by a bigger company for a buck or two and then seeing that company go gangbusters with FMD's profits when the credit market wakes up.
Now, lest you think all is lost, remember that a lot is going on behind the scenes in financial markets these days. Just as those investing in Bear Stearns saw their $2 stock become a $10 stock with one announcement from JPMorgan, so could we see good things come to FMD out of the blue.
Remember that Goldman Sachs invested $261 million in Marblehead last December. Some $60 million bought FMD at $11.24, and the remaining $201 million is slated to buy at $15. That deal puts Goldman Sachs down pretty far at the moment, and I have a feeling Goldman isn't happy about that. It's good to have Goldman on your side.
If you're looking for somewhere to take some risk, I think buying Marblehead at these prices will work. Don't use your lunch money, of course. Use the money you set aside for just such moments when you think it could really pay, or really disappear -- but not ruin your life by doing so.
I know earnings season kicks off today, but I'm going to take a little break from the stock market to celebrate being alive, and to show you a way to help somebody else celebrate being alive. It's not a small thing.
When I was 12 years old, I was diagnosed with cancer of the spinal cord. I could barely walk from the pressure on my nerves. Doctor Robert Hendee at Denver Children's Hospital saved my life in a 12-hour surgery during which he was able to remove 80% of the tumor. He later told my parents that his heart sank when he saw the tumor, because he knew immediately that it was malignant and that the odds were against me. He'd believed prior to the surgery that the tumor was benign.
I was not expected to live. If I did live, I was not expected to walk.
Thanks to Dr. Hendee and the oncology team that took over after the surgery to administer chemotherapy and radiation treatments, I'm alive and walking today. Two-and-a-half decades have passed since my personal saga, but I can still describe for you the smell of the radiation room, the feel of my lower back being shaved for a myelogram, and the sound of instruments clinking on a metal tray before a procedure. If I think about it long enough, the memories can still make me very quiet.
I walked away from the hospital, but many of the children who were there with me did not. Kids I played games with and talked with and watched go bald, never had the same future that I was granted. I know their names well. Few others ever will.
To save children like those I met at Children's Hospital, the St. Baldrick's Foundation raises money each year through a fun strategy that helps kids feel less ashamed of going bald during cancer treatment. From the site:
St. Baldrick's is the world's largest volunteer-driven fundraising event for childhood cancer research. Thousands of volunteers shave their heads in solidarity of children with cancer, while requesting donations of support from friends and family.
At a St. Baldrick's event, something amazing happens. People who normally shy away from the very thought of childhood cancer find themselves compelled to support this cause after looking into the face of these brave children who are smiling broadly as their friends and family members proudly display their newly shorn heads.
Volunteers and donors see it can be fun to support a serious cause. Young cancer patients and survivors see how many people care. And researchers see St. Baldrick's funds helping to find cures!
Now, there's another part of the story I'd like to share.
My mother barely survived a horseback riding accident about 18 months ago. Our community in the Rocky Mountains rallied around our family during the time that she was in a coma, just as they rallied around us when I nearly died from childhood cancer, and when one of my sisters nearly died when she was born three months premature. If ever you're unhappy in your family, just be glad you're not a Kelly!
As a way to give back to her community for its many years of supporting our family, my mother -- who is still recovering from her accident -- has signed up as a St. Baldrick's "shavee" with a goal of raising $2,000.
There are plenty of people in my circle who could take care of that whole $2k in one fell swoop, including Yours Truly, but that's not the point. It's a more meaningful campaign if many people make small contributions to become a larger team focused on curing childhood cancer, which takes more children's lives in America than any other ailment.
So, if you're doing well after last week's rise in the market, or for any other reason, and you:
can spare a few bucks, and
would like to save a little baldy just like the ones I knew at Children's Hospital, and
want to see what my mother looks like with a shaved head, then...
please go to the St. Baldrick's Foundation website where you can help my mother achieve her goal. Here's the link:
More impressive, however, has been the predictable performance of the letter's permanent portfolios, which readers of my stock book read about in Chapter Four. From page 126:
What I am pointing out here is that extreme volatility coupled with assured recovery is a potent combination. It's why I continue believing in these strategies through good times and bad, but especially during bad. When most of what you hear is complaining about the stock market, get out your check book. Eventual recovery is on sale.
Fitting words for this year's first quarter. Maximum Midcap gained 11% last week. You can keep tabs on both Double The Dow and Maximum Midcap for free here.
I won't be writing much on my free site this week, so I'll leave you with a recap of my recent writings.
The market has been making a bottom of sorts. It's too soon to say whether it's the final low before a massive recovery, or an intermediate-term low that'll hold for a few months. Either way, this is a time for building positions, adding money to the market, setting yourself up to benefit from higher prices to come.
The Kelly Letter made seven stock purchases and added money to its permanent portfolios in the first quarter. It did so at the low in January and the test of that low in March, both times to howling ridicule from commentators. We sport a thick skin for such criticism and, in fact, see it as confirmation that we're doing the right thing. It looks to be the case this time, too, though it's a little early to say.
Keep this in mind: you should get more aggressive with your buying as the market moves lower, not more aggressive with your selling. Makes sense, right? Yet, most people reverse the order and sell as the market moves lower and buy as it nears its apex.
Cases in point:
Everybody loved Advanced Micro Devices at $40 two years ago, and hates it today at $6.
Everybody loved Dell at $40 three years ago, and hates it today at $20.
Everybody loved Starbucks at $40 two years ago, and hates it today at $18.
To paraphrase Warren Buffett, hate when others love and love when others hate. It's a hateful crowd these days, so start loving some stocks.
