Friday, June 12, 2009

Talking Stocks

Disclaimer first: Let’s be clear about this. When I talk specific stocks on this blog you can bet that I own the stocks, ready to buy the stocks or I’m ready to sell them. I’ll try to put this disclaimer at the top of each article I write here, so you can take whatever I say with a grain of salt or you can look into my methods and see value in what I say. My gain since February 2009: 70.21%.

Are you in for a little gambling? If you are, then there is no better place to do it than in the stock market. I don’t do Options, Futures or Commodities. I don’t really understand them, so I do my gambling on the stock market. And, if you feel that the stock market is not gambling or shouldn’t be approached as gambling; then you’ve either got a screw lose or you’ve been sold the bill of goods spouted on CNBC. It is gambling.

But, it can be gambling with a lot less risk than taking the next card off the deck at Tahoe, or thinking that the next throw of the dice is going to turn to your numbers and with much higher returns. The real question is when to buy and when to sell and what stock to do that with. If you’re waiting on the so-called “Analysts” to put a buy rating on a stock, you’re about 30 to 180 days too late. The analysts are always late. By the time you buy it, the same analysts are drafting up their reasons to put a hold or sell rating on it. You buy, and then find the stock going down and you’re stuck holding the stock until it comes back up to your buy price. Then you hold some more hoping the stock goes higher so you can sell it for a profit.

A good example of analysts-head-in-their-ass (AHITA) disease is GE, General Electric. Eight of eleven analysts say “hold” while only two indicate a “strong buy.” It’s been that way since July 2008. Are you kidding? I agree with the two. GE, even after its stock price has risen by $5.00 since March 2009, is still a bargain at $13.42 (just a second ago). Its P/E (Price to Earnings ratio) is 8.34, very low. Furthermore, it is poised to be a major “green” company. It makes wind turbines and smart electronic appliances and everything in between. It is a good buy and long-term keeper for dividends, 9.21%, and it is being depressed by the AHITA disease. Buy it.

Some stocks were severely beaten down since last July. ARM, ArvinMeritor Inc, is a good example of a beaten stocks that analyst rate as “moderate sell;” only one of six analysts indicates a moderate buy. Today ARM is selling for $3.81. Well, it has had big revenue hits since July 2008 because it makes parts for trucks and light vehicles, but, it is a global company and parts demand for existing trucks is going to increase since truck owners are resorting to repairs rather than new trucks. ARM is also entering the green, environmental zone. It is joining others in testing hybrid trucks and that’s a coming thing. ARM has no place to go but up. I may take advantage of this stock several times while it’s on its way up. Analysts are way behind on this one.

So, if you find yourself with a few extra bucks for a long-term investment; buy GE and hold it. If you have several thousand dollars, watch ARM on a chart with Bollinger Bands and a separate Fast Stochastic chart to give you Overbought and Oversold conditions. When a 30 or 60 day chart of ARM indicates it’s oversold, buy 1,000 shares. When the chart indicates it’s overbought, sell it. Keep in mind how much commission you’re paying. (If you’re paying over $10.00, you’ve got the wrong brokerage.) If in the overbought condition you’re only going to make $20.00 and your commission is $10.00, then hold on a little longer until you can make $100.00. If the general market is in a good mood, indicated by good news, then keep holding until it goes up more. But, don’t get too greedy and don’t let fear be your guide. If you’re making 20% on it and your chart indicates an overbought condition, sell it then forget it or watch it for the next down period.

All stocks have short term cyclic behavior, down-up-down-up, even when the longer trend is up or down (use more caution or take up short selling in a downward trend – I don’t short sell). Take advantage of the down periods by buying and the up periods by selling. Watch your charts daily.

Other considerations: Buy stocks that have high average transaction volumes, i.e., over 1 million per day. That way they won’t be hard to sell. Read the latest news on the company; judge “seriously bad” (don’t touch it) from just temporary bad news (will be forgotten soon, so buy). Keep track of your tax liability. Short term gains pay more taxes… but, you get to keep the rest.

More to come…

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