Adding to my Wachovia position

As I wrote recently I purchased 35 shares of Wachovia. Since that purchase at $44.50 the shares have dipped as low as $38.05 on continued panic regarding the mortgage market deterioration. I decided to add 20 more shares to my position, and have reduced my cost basis now to $42.33.

As I noted before I am in some respects trying to pick the bottom of this hurtin' that has been put on financial stocks. The pundits on TV have said to stay away from bank stocks, as you could be "catching a falling knife".

So if I purchase while the stocks are on their way down am I catching a falling knife, am I early, or am I wrong? Early means there will be a bottom somewhere followed by a rebound, but I got in before the bottom. If you're two years early, are you one and a half years wrong?

I am 90% confident (though somewhat unqualified to make the judgment) that Wachovia will rebound at some point in the future when the mortgage scare is over. And based on my usual means of stock valuation (price / earnings, price / growth rate, profit margin) Wachovia is a cheap stock.

So the only question is how early am I?

Sirius down

Sirius Satellite Radio released earnings this morning (Remember, until last week I owned some Sirius).
They announced that losses had reduced from 12 cents per share in the 3rd quarter last year to 8 cents per share this year. Also, subscribers increased 50% over the same quarter last year.

To me, this sounded like good news, yet the stock was down 9% to $3.29 today. It made me feel great that I sold at $3.65 less than a week ago. However, it pointed out two things to me.

1) I've always found that it's difficult to predict the market's reaction to earnings simply based on headlines. When a press release is titled "Company X increases earnings 25% year over year" or something like that, it makes you think the news was good! But of course, the expectations of the investing community may have been much greater... I know this, yet every time I seem to be tricked by the semantics.

2) I got lucky with Sirius on this move. I knew I couldn't pat myself on the back for a smart move by selling last week. I got into Sirius with very little research, and got out of the position the same way. This time I got somewhat lucky. I could have just as easily been holding the stock for today's drop (which I couldn't see coming), or have sold it and had a big run-up today. I suppose my point is, I was reminded that investing without doing the homework leaves you completely vulnerable.

Information is the ammunition of the investor, and without doing my homework, I am un-armed in battle!

No more Softy, no more Coach - Into the WB

Wow, can you believe I haven't posted here in more than a year? I can - I haven't been actively investing, as I've been adjusting to my new life as a working stiff (I know, lame excuse).

Anyhow, I thought I would drop by with an update of my holdings.
First of all, I sold Microsoft months ago for an 8% profit overall including commissions (nothing to brag about considering I held it for a whole year). I also sold Coach for a 30% profit, holding it from $31.88 up to ~$41.77.

Once those were out of the picture, I relaxed a bit as I didn't need to worry about what to do with them. Then I bought Sirius Satellite for $3.64 / share (this went against everything I've learned about investing, but I followed a tip of a successful investor I work with). I held Sirius waaaay too long, and eventually sold for $3.65, effectively losing my commissions! But I decided I didn't want to gamble on the merger passing, and with the merger situation being what it is, I wouldn't re-make the decision to buy that stock today - so I sold!

So Wednesday I made another move, purchasing Wachovia (WB) for $44.50. I have a sort of Contrarian idea that it's a good idea to purchase stocks in beat-down sectors. Banks are way down, for good reason, with this lending fiasco costing them tons of money. Wachovia is down 10% in the past month. But the idea of my theory is that when entire sectors drop, it's not due to the faults of the individual company, and a good company should remain good and hopefully pay off when (if) the sector rebounds. So WB has a 5.5% dividend, a P/E of 10, and a target price at least $10 greater than its current price according to most analysts.

So there's a lot of upside to this one, but of course things could keep getting worse in the mortgage market. I'm almost trying to pick the bottom.

Seeking Alpha had a good article about WB that made me feel even better about my choice.

Been a while...

Obviously I have completely neglected my blog for a looong time. The fact is I haven't had time to focus on my investing, and thus I haven't had any new thoughts to contribute. I have happily watched visitors continue to come here, so I hope people are still enjoying some of my older posts.

Unfortunately as I've passively sat back and watched my investments, I've had to watch some of them drop hard, and haven't had the guts to pull the trigger and sell. I'm still holding Microsoft and as you may know the stock had its largest 1 day drop in 5 years recently. Likewise Coach fell hard after the newest earnings release (which I felt was good actually). I don't know what I'm going to do about those yet. I still feel they're good companies to hold but I have lost money on them so far, while I've made around 10% returns on my diverse mutual fund portfolio. Maybe I should listen to Burton Malkiel and stop trying to pick winners.

Anyways I hope you enjoy this blog and keep checking out the old posts.

Thanks!

Investments Update

Well, it's been a mixed couple of weeks. The gains that were making me feel good in both my stock holdings are pretty much gone, but all my mutual funds are into positive gains.

Coach has continuously dipped since it peaked at a new 52-week high about 20 days ago. From a profit of 9.93% back then, I now sit to make 1.65%. I am still feeling good about Coach though (the company and the stock), and I think this is just a downswing, and it shouldn't be permanent. The P/E ratio is high as I've said before, so it's hard to say how high it should go... But it's below the value I predicted with my spreadsheet, and earnings are always growing with this company. So, frankly I don't see this stock slowing down in the next year (optimism is good!).

As for Microsoft, it has dropped back into negative territory for me. But as with Coach, I'll just chalk it up to the markets behavior in the past 20 days. I am still in Microsoft for the long run.

And finally, for my Mutual Funds. All of them have gains, including my newest pick, TD US Index, which has earned me profit of 0.08%. My overall mutual fund gains are at a little over 5% right now. I purchased the first of them on July 29th, so my returns stand a little on the high side of where you should expect for a broad portfolio.

Overall I feel good about my investments situation, but I would love to scrape some money together to purchase a new stock. The truth is I purchased a new (used) car 4 weeks ago, and that's what has been eating up my money and time, so... I hope to post again soon.

New Mutual Fund Purchase & Portfolio Update

Today I purchased TD US Index mutual fund with the capital and profit from my former holding, CIBC Energy. TD US Index is an index fund which tracks the S&P 500. As stated before I wanted to stay away from sector-specific funds (like the Energy funds), to remain more diverse and not risk devastation at the hands of fluctuating commodity prices.

When I looked around for a good diverse Canadian equity fund, I couldn't find any that didn't include a portion of energy. It's obvious of course, the oil company's are the biggest most successful component of Canada's economy as of late, thus every Canadian equity or index fund worth its salt seems to be full of energy.
Thus I only searched for US funds. It's not a problem to hold them in your RSP, now that the foreign content limit on RSP's has been lifted. So I've settled on this fund which will emulate the returns of the S&P 500; thus I am basically banking on the strength of the US economy, rather than Canada's.

As for the remainder of my mutual fund portfolio, here are my updated holding values (previous full update can be found here):

Discretionary Account:


RSP Account:

Coach Continues to Rise

Coach [my new favourite stock ;)] continued building on Wednesday's gains today, climbing another 1.95% today in shortened trading hours. My profit (including commissions) now stands at 9.93%, after holding the stock for 2 1/2 months.

Profit = (($36.64/share*40 shares)/($31.88/share*40 shares + $58 commission)-1)*100=9.93

Now I guess I need to think about when to sell it. Because it was debatably highly valued even at the time I purchased it, I need to reevaluate my opinion of it's proper value. Using my stock valuation spreadsheet I originally found a target price of $35.63. I see no reason to think Coach will dissapoint in the upcoming holiday months, but dilligence calls for continued value analysis. I will keep you posted in that respect, but I don't plan on selling it on Monday or anything.

Coach is Up

Coach is up over 3% so far today, after Standard & Poor's featured the company in their Outlook newsletter as one of the top 10 stock picks for the remainder of 2005.

I purchased my 40 shares of Coach at 31.88/share, thus my profit if I sold now (including $58 comission for buy and sell) would be around 8%. That makes me feel great.

Now I need to get back to finding a mutual fund to replace my CIBC Energy fund I sold... no more sector-specific funds for me. I want something diverse this time.

Sold My Oil Today

Well I finally sold my CIBC Energy Mutual Fund today, and made off with 14.3% profit. I purchased on July 26th at $31.792 per unit, and sold today at yesterday's closing price of $36.331 per unit.

One nice thing about mutual funds is that the price is not updated throughout the day. I built a Yahoo portfolio with the top ten holdings of this mutual fund, so I can watch it during the day. The fund has been up the last two days, but watching my portfolio this morning it seems poised for a down day. Thus by selling this morning, I sell at yesterday's price, and miss out on today's losses.

On the flip side, this aspect of mutual funds can also be a big negative. If I waited until this afternoon to put in the sell order, I would be forced to sell at the 'end-of-today' price. So if you are watching your mutual fund tank in the afternoon, and rush to sell it, you still have to suffer whatever happens all afternoon. That is why Echange Traded Funds (ETFs) are attractive; you can buy and sell at any time as if they were stocks.

Look at P/E Trend When Considering Growth Prospects

"Microsoft's stock has been treading water for years". I've heard that more than a few times. Basically MSFT has traded between $30 and $24 for a couple years. But that doesn't really mean that the price of Microsoft has not changed for years. As I discussed before, the true price investors are willing to pay for a stock is the Price/Earnings ratio. This consideration applies to any stock, of course, I'm just using Microsoft as an example.

Microsoft's stock price has hardly changed in the past year, yet their earnings have continually grown. Thus the P/E ratio has been decreasing:


Observing those plots, you see that as earnings have grown, the price investors have been willing to pay per dollar of earnings (P/E) has decreased, resulting in what looks like a stock price treading water. [I generated this chart at www.BigCharts.com, under interactive charting].

This is important, because you might buy Microsoft based on the fact that there are still growth prospects; they are still growing earnings. But unfortunately the trend has been to pay less and less for their earnings. Thus there is a chance that the stock price will continue to 'tread water', and never reflect the earnings growth. I hope it's not true in this case, as I own Microsoft stock. But my point is that it's important to look at the P/E trend along with the earnings trend and price / share trend, when considering a stock purchase.

Stocks Behaving Nicely

I haven't posted in a while, as I've just been letting my stocks do their thing without observing too closely, and I've been investigating the possibility of purchasing a used car. It's a big investment, which is probably not an 'investment' at all. I'll just need a car anyways to get to work when I graduate.

As for my two stocks (Microsoft and Coach), they've both been climbing since their earnings announcements last week. Although Coach, which announced awesome numbers, is moving a lot slower than Microsoft, whose numbers and guidance were subject to mixed interpretations last week.

Anyways I hope to be back to a bigger focus on investing and finance in the next week or two.

Bad Day on the Market / Microsoft Earnings: Good or bad?

The rough market we've seen so far in October continued yesterday and today. Although Coach posted earnings better than expectations on Tuesday, it closed today around the same level as Monday.

Today Microsoft posted earnings for their fiscal first quarter after the market closed. Read more here. Including a one-time charge of 2 cents per share related to the settlement with Real, the earnings were $0.29/share, compared with average analyst expectation of $0.30/share. After the earnings came out the shares have been down as much as 2.5% in after hours trading. This compounds a 1% drop during normal trading today. I'm not sure if the sell-off is justified yet. The numbers don't seem bad. From the conference call (paraphrasing): "revenue from MSN search has not been as high as hoped". Hmm...


Bad, bad month.

Coach First-Quarter Profit Rises: Financial News - Yahoo! Finance

What a nice way to start my morning... unless I'm missing something, this should give the share price a boost.

Coach First-Quarter Profit Rises: Financial News - Yahoo! Finance: "NEW YORK (AP) -- Coach Inc., the high-end handbag and accessories maker, on Tuesday reported its fiscal first-quarter profit surged 54 percent, lifted by robust sales and improved operating margin. The company also forecast earnings for the current quarter and full year above analysts' target."

Coach Diving

I'm watching Coach (NYSE-COH) closely today (and pulling my hair out), as Merryl Lynch downgraded it from Buy to Neutral this morning. It has already dropped more than 5% on the news, but recovered to around $31/share presently, down 4%.

This is not what I wanted to see after a good week of gains last week, and awaiting tomorrow's earnings announcement. I have my fingers crossed for a good earnings announcement, to say the least.

Rookie Earnings Season Fears

I am anxiously awaiting earnings announcements from Coach(NYSE-COH) next Tuesday, and Microsoft(NASDAQ-MSFT) next Thursday. As I mentioned before, this is the first round of earnings announcements since I have owned these stocks (since I have owned any stocks in fact), so it's definitely got me nervous.

Both stocks are not in a great position for me. Coach has rebounded nicely this week, and sits only 0.3% below where I purchased it, but Microsoft has actually lost 7.7% since I purchased my first shares. I have no idea which way the earnings will swing the stocks. With the current prices, bad news for either will immediately leave me with losses. If that's the case, I don't know how I would decide whether or not to ditch the stock.

I believe in the value of Microsoft, thus regardless of what happens I think I have the guts to hang onto it. With Coach, it may have been a more speculative move. They have had an amazing growth run in the past several years, and the price/earnings multiple shows expectations of more of the same. Coach hasn't released any forecasts since before the hurricanes, so there is a slight concern they could disappoint. I'm optimistic the opposite will be true though, and good numbers could mean good things for my stock.

I guess this is what stock investing is made of, and if I intend on holding my stocks for years rather than months (as was the plan), I should get used to earnings announcements. But for this inaugural earnings season, I am definitely paying very close attention.

Trying Some New Formatting

... I'm trying out some new blog formatting, so far on the main page only. I wanted to make it a little more unique, and a little less dark, but I'm not sure I've got a color combination that works yet...

Ok I like this one I have right now, I think we'll go with this for a while. I liked yesterday's until I saw it on my laptop, so who knows I might hate this one later too... maybe I'll just go back to a pre-fab template.

Well, That Just Doesn't Make Sense

I've learned a lot about the stock market this year, but I think I have more to learn about analyst's estimates.

For instance, Google reports 3rd quarter earnings tomorrow after the market closes. I read the earnings preview, and it contains some interesting statements that had me questioning the logic of analyst predictions:

ANALYST TAKE: "We believe Google will report (third-quarter) results better than our expectations," JPMorgan said in a client note last week.
The firm, which has estimated Google's quarterly revenue at $917 million, said it expects Google to beat that by $35 million.

Uhh, what? They estimate how incorrect their own estimates are going to be? That's fantastic.