Archive for November, 2008


First Insurance Suggestion – AIG

Filed Under: Stock Pick of the Day by Bill — 2 Comments
November 30, 2008

I hope everyone is happily stuffed from Thanksgiving so you’ll be to subdued to argue with me over today’s suggestion.

I like AIG for a short term speculative play.  The Fed’s paid approximately $8 per share for their ownership in American International Group.  While I do know the Federal Government has no problem over paying for things they certainly don’t want to spend money on the bailout just to watch AIG go bankrupt anyways.  I’m not smart enough to determine if the credit derivative swaps are going to bring AIG down one way or another, or if it’d be better for the economy to just let AIG fall or not, but I do know the Democrats will not want the economy to unravel further on their watch.

Obviously, both AIG and the Feds had a good understanding of the true worth of AIG, it’s not the first insurance company they’ve owned, if it was to survive.  So even if the government was willing to pay a 100% premium from their believed value – that places AIG at $4 per share or a 100% increase from today’s $2 per share.

I don’t believe any type of dividend is safe, nor do I believe the analyst expectations of AIG being profitable of next year, but I wouldn’t intend on holding AIG for a year, I just trust they won’t let it be the big first insurance failure that triggers more questions on the stability of American investments.

Here’s the 3 month chart of American International Group:

You can see the price has crossed the 50 day SMA with lots of room above to the 200 day.  Also the RSI has just crossed the 50 and the MACD is nearly positive.  These are all positive signs for a momentum play with a strong price base built for share price resistance.  I feel this is a relatively low risk play.  If the MACD flips positive Monday morning I’d put a buy in with a stop loss around $1.75.

First Insurance Probably Financials Next… I’m out of control.  I hope it’s just the turkey talking.

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Trading Software Stock

Filed Under: Investment Strategy by Bill — Comments Off
November 29, 2008

I was talking to a friend the other day and he told me “I don’t know why you pay attention to all those different investment concepts, trading software stock is where it’s at!”  I believe I understand the appeal in focusing on one sector.  One can become an expert, learn the patterns, and feel comfortable after a few big hits.  However, my concern is the over simplification and not understanding how another market may totally change your “normal” routine in your area of expertise.

First of all most of you probably think trading software stock means young up and coming companies.  However, Microsoft is still a software stock and it is a blue chip DOW stock with dividends and large piles of cash.  Do you trade these the same?  Do they influence each other?

The other problem I mentioned was the impact of other areas.  Currency changes could make companies from other countries more attractive, commodity price increases could take extra cash from consumers which may have been spent on software, etc.

I know I push on this point in a lot of my post, but I feel it’s really important.  You must have a more rounded knowledge base to be successful for the long term.  You don’t want it to just be luck because every one’s luck runs out eventually.  Don’t just be trading software stock, trade software stocks because the growth is being underestimated and Microsoft has too much cash and is likely looking for a bailout, and your other sectors of interest aren’t hitting any of your key trigger points, while you’re flush with cash.

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Sale on Shares!

Filed Under: Fundamental by Bill — 1 Comment
November 28, 2008

Have you ever had your significant other tell you it’s not how much he/she spent it’s how much they save, save, save!  Well I’m not going to tell you that you can’t afford not to buy.  However, if a share goes on sale, and you happen to have some cash a share sale can be a good boost to your nest egg.

How do you know when there is a great stock sale versus the “Hey this sweater is half off of way over priced” kind of sale?

One tool you can use is the Price to Earnings (PE) or Price to Earnings Growth (PEG)  for stable mature companies I tend to like a PE less than 8, and for nearly all companies I prefer a PEG less than 1.0.

Another tool I use is comparing the current long term CAGRagainst historical growth rates.  Large mature companies tend not to make any changes that are so drastic that the long term growth rate should change significantly.  Sort of a hybrid between fundamentals and reversion to the mean technical analysis. 

A third method is to estimate the return of capital on the investment in the stock and discount it back to a present value using your form of a guaranteed risk free return.

When determining if there is a sale, shares need to be identified using multiple methods to avoid fake outs, accounting voodoo, or various other investing mishaps that can pop up. 

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Forex Pairs

Filed Under: Forex, Glossary by Bill — 6 Comments
November 27, 2008

In trading currencies you don’t just buy the yen.  You buy the yen with US dollars.  Or you sell the euro for US dollars.  Or maybe you sell the yen for euros.  This trading of one currency for another is the Forex pair you choose.  That’s why you never just see a chart for one currency or another, it’s always versus another currency.

Even if you’re not interested in trading currencies (though adding another option to your portfolio could reduce risk but reducing the number of related investments) you should have a basic understanding that different currencies are influenced more by different events, just like how different stocks will react to a major storm or interest rate change differently.  Also important is to know how your investments react to a currency change.  If the US dollar falls does that actually hurt your investments?  It may if it buys a lot of raw materials from oversea, though if it does a lot of exporting it may be a good thing.  Following the currency markets may help your timing on that stock you’ve been following.

Here are some Forex pairs with some real general trends associated with them:

International trade currencies: These currencies are influenced by changes in demand for commodities and finished goods. A few of them (CAD, AUD, NZD) are often referred to as the “commodity currencies.”

GBP/USD
AUD/USD
NZD/USD
USD/CAD
USD/JPY

Capital flow currencies: These currencies are swayed by changes in demand for investments including equities, bonds and interest bearing investments. You will notice that there are some currencies are in both categories.  It is impossible to strictly say that one forex pair falls only in one category and no other category. 

EUR/USD
GBP/USD
USD/CHF
USD/JPY

I know, it’s more charts to consider, but if it just adds 1% to your personal CAGR, imagine how much sooner you’ll be retiring.  Or don’t imagine calculate it.

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