The Big Picture for the Week of May 1, 2005

Did you see Cashin’ In this week? I was very confused by Wayne’s ordeal with a company called Diamond Cluster (DTPI). According to the Fox News site Wayne bought the stock in January at $17.10. DTPI had some bad news that caused the stock to open Thursday at $13.29 after closing at $14.30 the day before. A big deal was made on the show about a miscommunication between Wayne and the producers that fouled up his intentions for a stop order for the challenge. The Fox site shows he sold at $11.90 on Thursday but for his own account his stop order allowed him to sell much higher but no specific numbers were given. My confusion is over how Wayne places stop orders. He said on the show, for his account, he was stopped out on Thursday. That probably means he was taken out at the open, $13.29, when the stock gapped down at the open. According to Yahoo finance the lowest the stock ever got before Thursday was $14.09 on April 21 so we know his stop price was below that level but we don’t know where so for the sake of discussion lets say it was $14.08, one penny below the low since he bought it. That is $3.02 below where he bought it or 17.6%. I don’t place a lot of stop orders but does placing one 17% below where you bought a stock make sense? Is that something people do? I am not being a wise guy. I usually only use stops after a stock has run up and I want to preserve a gain...

Whippy Action

The rally today begets all sorts of questions as to whether today really had any legs and staying power. I think a compelling argument, for a short term trade, could be made in either direction. Obviously my concerns are longer term. While I have been saying all along that a big rally with no fundamental basis could come at any time I admit I’m not sure if that is what is next or not. I have only made a few defensive changes so I will capture most of a monster rally if it comes. That is the point, I’m not sure what’s immediately next. I don’t think things have changed much but I don’t have everything riding on only one...

Busy Morning

I had to take our dog Kramer to the vet for, ahem, acupuncture and manipulation. We are also adopting a new dog that we are bringing home this afternoon. On the way back I stopped at Costco and spent $100 on HP ink cartridges. We all have to have ink cartridges. HP can charge whatever they want, and I think they do, so why has the stock been such a dog (forgive the pun) for so long? Obviously tech has been the wrong sector for a long time. I don’t know how much it costs to make an ink cartridge but if it is more than $5 something’s gotta be wrong. And yet the company seems, to me as a person that follows that market but does not know the company inside and out, to be totally lost. Maybe this is yet another flaw in the Peter Lynch...

Personal Finance Issue?

I don’t write very often about personal finance, I differentiate between investing concepts and personal finance issues as I am no CFP. I am very interested in the subject as you might imagine. I enjoyed this article by Robert Powell that addressed whether or not to pay off your mortgage as you move into retirement. While I am no guru I am not illiterate either, I’d like to think. I tend to think it is good to pay down the mortgage with extra payments from the beginning. This is what my wife and I did so now the mortgage on our cabin is paid off, homes in rural Arizona were quite cheap when we bought up here in 1998. For someone that has not been aggressive in paying down the mortgage I don’t think taking a big chunk of your savings and paying off is the best idea. Clearly every aspect of this issue is subjective so maybe the article can be...

Muy Interasante

That is Spanish for muy interesting (humor attempt). On March 29 I posted an article about the changes Tim Middleton was making to his all ETF portfolio. My conclusion was that he was making a huge bet on energy (huge relative to energy’s weight in the SPX) and that he would either lag or beat the market by a lot. His proxy for energy was the iShares Goldman Sachs Natural Resource (IGE). In the month since that article IGE is down 6% and the SPX is down 2% (I know, I can’t believe it is only 2% either but that is according to Bigcharts.com) He also had a heavy weighting in EFA which is down about 3% in the same time period so I imagine his portfolio has lagged a little in this too short of a time frame but I have not calculated. It is clear to me (from the stand point of not limiting yourself to only one product) that having a few low beta, high yielding, foreign stocks instead (sound familiar?) would have helped. EFA only yields 1.51%. This is stuff I have been trying to convey for a long time. In looking at the big picture a month ago or two months ago or whenever, I think the current environment was predictable, I’ve been predicting it all along and I assure you I am not gifted. If you are ETFs only you have a tougher time capturing yield. I’m sure my regular readers who are ETF proponents will post later, intelligently refuting this so you can get both...