Stocks can be a lot like aluminum cans

When things are this topsy-turvy, it sometimes helps to have a sense of humor.

Fortunately a colleague gave me something to laugh about.

This was circulating by e-mail. I can't attest to its accuracy or the date which it was written. My apologies to anyone who might have owned any of these stocks:

"Retirement Plan Investment Tip: If you had purchased $1,000 of Nortel stock one year ago, it would now be worth $49. With Enron, you would have $16.50 left of the original $1,000. With WorldCom, you would have less than $5 left. If you had purchased $1,000 of Delta Air Lines stock you would have $49 left. If you had purchased United Airlines, you would have nothing left.

"But, if you had purchased $1000 worth of beer one year ago, drank all the beer, then turned in the cans for the aluminum recycling refund you would have $214.00. Based on the above, the best current investment advice is to drink heavily and recycle. This is called the 401-Keg Plan."

The action lately might drive you to drinking, but hang on, it's going to get better — or worse.

I recently blogged that I entered small equal shares in four ETFs: State Street Global Investors Financial Select Sector SPDR (XLF), SPDR S&P MidCap 400 (MDY), SPDR S&P 500 (SPY) and Dow Diamonds Trust (DIA).

Though I was feeling good during the first part of the week, by Thursday the gains the market saw were wiped out with a hefty 280-point plunge in the Dow. What the market giveth, it taketh away.

I'm still holding on though. And according to a MarketWatch story last week, I'm really smart, or there are a lot of dummies along for the ride with me.

The five daily all-time trading volume records for Financial Select SPDR Fund were set in the last two weeks, suggesting investors are hoping that a bottom is near for financials, MarketWatch reported.

"The trading activity in the ETF has been "crazy" recently," Dan Dolan, director of wealth-management strategies at the Sector SPDRs, told MarketWatch. He said several times during the past two weeks, the financial ETF has seen the highest trading volume for any U.S.-listed security.

So I raise six aluminum cans to us, the smart investors. At least we'll have something to fall back on when it all comes crashing down.

Signs of optimism lured me back

I re-entered the market Monday, taking small, equal positions in several ETFs that would give me a broad exposure to the market.

I'm not suggesting we're out of the woods yet by any stretch of the imagination, but some things seem to be encouraging.

The rally that took place during most of last week, whether a bear market rally or not, seems to be holding up. Today's close that pushed the Dow up more than 100 points in the last hour of trading was a nice surprise as well.

A lot of people have said that the current rally in financials is fake, and will not hold up. But I think the fact that Wachovia (WB) and Regions (RF) both announced they were cutting dividends to help shore up capital is a welcome sign. Wachovia also said it would not sell additional stock to raise capital, but would instead work through the credit crisis without an infusion from shareholders.

Yes, non-financial businesses are missing their earnings marks, but they were widely expected to do so. I've heard many a financial expert say that the beginning stages of the recovery from a market bottom happen when the bad news is still flowing. Don't know if that stage has begun, but don't want to miss it if it has.

The ETFs I entered were State Street Global Investors Financial Select Sector SPDR (XLF), SPDR S&P MidCap 400 (MDY), SPDR S&P 500 (SPY) and Dow Diamonds Trust (DIA). We'll see how it goes.

Brian

I have a touch of buy and hold too

I just finished reading a book called “Simple Wealth, Inevitable Wealth,” by Nick Murray, an investing expert who received the 2007 Malcolm S. Forbes Public Awareness Award for Excellence in Advancing Financial Understanding.

That’s a mouthful, but Murray’s book is fairly straightforward in its approach and message, which is basically this: You cannot afford to not be in stocks. If you’re not in stocks and don’t continue to stay in stocks, you most likely won’t have enough money for retirement.

And this: Despite all the turmoil the world has seen, and regardless of whether Democrats or Republicans have been in office, over time, as in 10, 20, 30 years or more, the stock market as a whole has only gone one way — up.

By regularly contributing to a balanced set of mutual funds whether they be up or down at the moment — an approach called dollar cost averaging — one can slowly, but steadily, make his or her way to wealth.

The book was loaned to me by Fred Forbes, a local financial planner who is president of Financial Factors Inc. in Palmetto.

Forbes and I trade e-mails from time to time, and he’s often discouraged, and even concerned, by my approach of trying to catch upside momentum in the market and sitting on the sidelines when the markets are down.

He, like Murray, is a buy-and-hold investor who believes that time and proper diversification are the keys to making your money grow in the stock market.

The thing I think took Forbes a little by surprise is that I agree with him and what Murray had to say in his book.

But I also believe in my way, which is to limit losses and buy stocks only when they're moving upward.

Truth be told, however, I do own a trio of Vanguard index funds rolled over from a previous job. I don't fiddle too much with them and make contributions to them when I can.

So I guess I have a bit of the buy-and-hold in me.

I still remain out of the market at the moment, despite the nice move we had this week. I was tempted a few times, but I want to see what this week brings.

Oil prices fell $16 over the week, which brought some relief to stocks.

But as one analyst on CNBC said Friday morning, that could change with a whisper of trouble in the Middle East or threatening weather conditions.

Of course, reading Murray's book, it would seem that it doesn't matter what happens with oil prices, or the Middle East for that matter. Events will run their course and the stock market as a whole will again begin its steady pace upward.

In fact, given last week's action, with financials for once gaining some upward momentum, it may already have begun its upward march anew. Hope Forbes and Murray won't begrudge me too much though for waiting a bit longer to see.

Brian

Is this blood in the streets, yet?

Wow, it's been really gloomy and doomy the past couple of weeks.

We can't hear enough about how the financials are going to continue to tank and the economy will continue to have a tough time even just puttering along.

Then all of the sudden, I wake from my financial news inundation stupor to realize that the Dow just tacked on 400 or so points in the last week and banks and financials had two pretty good days of upside as crude oil retreated.

I'm looking toward next week for a follow-through, but I am starting to think it might be time to nibble a bit on stocks.

They say the time to buy is when there's blood in the streets. And it sure looks that way right now. Then again, I thought that a couple of months ago, too, and it proved not to be the case.

But something Paul Elliot of The Motley Fool wrote Thursday struck me as poignant:

"If, like me, you like the idea of loading up on proven cash generators like American Express (AXP) and Starbucks (SBUX), or any of the two dozen other market leaders trading at bargain-basement prices, you want to do it when some clown on CNBC is shouting, 'There's a 10 percent chance we'll have a Depression! ... Kooks aside, this is the ugliest mood I've seen on Wall Street in 20 years of following the markets ... Does this mean we've hit bottom, and it's smooth sailing from here? No. But it does tell me that now is the time to buy stocks."

Brian

Nice moves, but can you do it again?

It's pretty encouraging to see two nice 200-plus point moves in a row in the Dow.

Financials were some of the biggest movers, and this time it was up and not down for a change.

Could this mean that they've been fist-pounded into the dirt so much that they, and the market as a whole, have notched a bottom? Maybe.

I want to believe that's the case anyway, but after the market's close Thursday, Merrill Lynch & Co. reported a quarterly net loss of $4.65 billion, most of it from exposure to mortgage-related investments.

The Dow gained 484 points since Tuesday, a healthy move to say the least. But I need more convincing before I dive back in.

On his weekly market update podcast on his Web site, local trader James "Rev Shark" DePorre advises caution, despite the strong moves of the last couple of days. He notes that most bear markets will have that occasional rally that gives one hope. But often, the rallies aren't sustainable. He noted that the market is still precarious and people should take more time before taking long positions.

That sounds like good advice to me.

Brian.

Call the fire department, the building burned down

 Imagine that. After markets have been roiled by manipulating short-sellers and traders during our recent 20 percent decline, and two of the nation's largest home lenders, Freddie Mac and Fannie Mae, were on the verge of collapse, the SEC decided that maybe something should be done.

 The SEC is moving to bar "naked" short selling of bank and brokerage stocks for at least 30 days, and maybe longer.

 Short-selling involves borrowing stock from a brokerage and agreeing to buy it later, hopefully at a lower price. The investor pockets the difference between the borrowed and purchased price if the stock does, indeed, fall. But the furor in the markets have given way to massive waves of shorting, often involving shares being "borrowed" by more than one trader, without any type of contract in place.

 This, SEC officials maintain, exacerbated downward momentum in the market. The SEC, according to the Wall Street Journal, is investigating whether Bear Stearn's collapse had much to do with short sellers spreading false rumors and driving down shares.

Critics of the SEC's move accuse the regulator of interfering with the free market system. Others argue that the short-selling action should apply to other publicly traded companies than just financial firms and banks.

"For heaven's sakes, they're the very ones we believe have been doing this ... to thousands of public companies," a lawyer who represents companies that have filed lawsuits pertaining to short-selling told the Journal.

Regardless, coming to the market's rescue now, seems like the fire department showing up at a house that burned down hours ago.

Brian.

How to back out of market's abyss

We peered into the abyss Friday, dipping below the 11,000 level in the Dow. That's a 3,000-point drop from the Dow's high in October, in case anyone's keeping track. 

It's pretty ugly, to say the least. Those who advocate a buy-and-hold approach to investing say that these are the best times to buy. Stocks are on sale, essentially. 

My problem is, I don't know which ones are going to be marked clearance or be discontinued a year from now. 

It was also discouraging to read the "Ahead of the Tape" column in the Wall Street Journal on Friday. In addition to discussing General Electric's (GE) dismal performance, it also discussed the overall performance of the market's S&P 500 benchmark over the last 10 years. 

"Investors who put their money into the S&P 500 a decade ago have ended up with nothing, after adjusted for inflation and dividends, according to Merrill Lynch investment strategist Richard Bernstein." 

Being in my 40s, I consider 10 years to be somewhat long-term from an investing standpoint. To think that an investment I made today would yield me nothing, and that I would only have 10 years or so left before retirement, is pretty scary. 

As I've already written, I'm out of stocks for the time being. But certainly not forever. In fact, I have a couple of ideas bouncing around for safety and yield. 

One of them is Southern Company (SO), which owns electric utilities in Georgia, Florida, Alabama and Mississippi. 

The stock has a healthy quarterly dividend of 42 cents a share and its chart shows strong price stability over the past decade. It trades at 15 times earnings. Morningstar gives Southern Company 4 out of 5 stars and a fair value estimate of $41 a share, about five points above where it currently trades. 

Another idea — and don't laugh — is a financial. It's US Bancorp (USB), a Delaware financial holding company that is a favorite of billionaire investor Warren Buffet. 

US Bancorp trades at 10 times earnings and analysts say it was far less exposed to risky subprime loans that are currently weighing on many of its competitors. Morningstar gives it a 5-star rating and a fair value estimate of $41 a share, quite a bit higher than its current $25 range. 

But remember, if price targets were a certainty, we'd all be millionaires. 

Like Southern Company, US Bancorp also sports a handsome quarterly dividend of 42 cents a share. It's 10-year chart has been a bit more choppy than Southern Company's, however. Its 52-week range has been from $25.92 to $35.25. 

Brian

Up and down we go

Another up day today after Wednesday's ugly sell-off.

The new Apple (AAPL) iPhone with faster 3G wireless technology goes on sale Friday morning. As with the first iPhone, there's been a lot of hype and varied reviews on its performance and worth.

But Farnoosh Torabi of TheStreet.com took an interesting look Thursday at what the real cost of the iPhone is to a person's potential retirement fund. It's humorous and insightful.

I kind of want an iPhone, but I think I can wait.

Brian.

Market gets big bear hug

 If Tuesday had me second-guessing whether I should be sitting in cash, today took away all doubt.

 

 Today erased the 152-point jump in the Dow on Tuesday, and took away a bit more for good measure. 

 Iran was shooting off missles, Cisco (CSCO) fell to near its 52-week low on a dismal outlook for next quarter and government-backed mortgage buyer Freddie Mac (FRE) fell nearly 24 percent on concerns that the company may need a capital infusion.

 All this delivered 2 percent drops in the Dow, Nasdaq and S&P 500.

 News Corp. Chairman Rupert Murdoch said today that he expects that it will take at least another year to get through the mess we're in, according to the Associated Press.

 

 "I'm a bit of a bear," Murdoch said at an annual media conference in Sun Valley, Idaho hosted by investment bank Allen & Co. "I think there's more (bad news) to come and it'll take a year to shake out."

 Bank of America CEO Ken Lewis echoed that year timeframe to MarketWatch, saying that the U.S. economy should start a gradual recovery in mid-2009, but that it "may feel like a recession" until then.

Nope, I feel good doing nothing right now. Hope everyone one else is doing OK, whether they're bailing or hanging tough.

Brian.

Nice rally Tuesday, but is there more left?

I definitely felt a little left out sitting on the sidelines of Tuesday's rally. A friend of mine who has held onto Apple (AAPL) ribbed me a bit after it tacked on about 16 points in the past week.

But I still feel I'm doing the right thing sitting in cash at the moment. Wednesday morning's market was struggling to make it into the positive.

Oil's drop, coupled with Ben Bernanke talk about more shoring up of the financial markets, helped raise stocks Tuesday.

The jury's still out, however, as to whether oil's fall was just an overdue pullback or the beginning of a new trend. Many feel the financial news is still going to get worse.

I watch and wait.

Brian

Be wary of alternative energy stocks

A poster to my blog asked the question of whether it was time to get out of oil stocks and start focusing on companies that are involved in alternative energy.

My short answer is, I don’t know.

But here are my thoughts: Oil stocks have been on a tear lately and crude prices have shown no signs of slowing down. Something tells me that’s got to end sometime. If it doesn't, then I'd better get my bicycle tire fixed.

With Congress investigating oil speculators and auto-makers being crippled by the behemoth SUVs and pickups they invested in so heavily and now can’t unload, I’ve got to think oil’s run is limited.

But there’s an abundance of investment professionals out there saying just the opposite.

Alternative energy stocks have already had somewhat of a run. Look at solar energy firm First Solar (FSLR), which ran from $74 to its current $250 a share in the past year. Lately when I look at First Solar though, it’s up 20 bucks a share or down 20 bucks a share on the day. That’s just too much volatility there for me, not to mention its price-to-earnings ratio is a whopping 101.

Usually investors consider a P/E of around 15 to 20 to be cheap.

John Waggoner, personal finance columnist for USA Today, wrote a piece in May about the "gamble" that investing in alternative energy stocks can be. He had the same concern about First Solar's P/E ratio and the still-emerging nature of most alternative energy stocks.

A major problem with the alternative play is that no one really knows which technology is going to rise to the top in the mix of possibilities. Look at ethanol, which was all the rage the last couple of years, but has lately come under scrutiny for depleting food supplies and consuming massive amounts of water in its production (some of these criticisms have been just as hotly contested and more is being done to create ethanol from non-food stock items like wood scraps).

If you had rushed in and bought Pacific Ethanol (PEIX) in January of 2007 when ethanol interest was peaking, you would have gotten in around $15 or $16 a share. The stock closed at a dollar and change Friday.

If you'd bought Verasun (VSE), another big player, you would have gotten in around $18 during the same period. It closed at $4.21 on Friday.

Waggoner advocated more pedestrian methods of investing in alternative energy, like General Electric (GE), which has a substantial wind turbine division, or Florida Power & Light (FPL), which has wind power operations throughout the country and is also heavily invested in solar power production.

Companies of that size have larger market capitalization and other business lines to fall back on while they're trying to knock an alternative fuel home run out of the park.

Brian

Short trading week ends on positive note

Stocks rose Thursday, albeit on light volume. 

The market closed early and will take a Fourth of July rest, which is exactly what I plan to do.

Hopefully the coming week will bring some good news for a change. Or maybe it should bring some bad news instead.

A lot has been written about the Chicago Board Options Exchange Volatility Index (VIX), which essentially gauges fear in the market based on the amount of options changing hands. Options are bought more heavily in turbulent markets because they can offer insurance against wild price swings. Options give the purchaser the right to buy a stock at a higher or lower price (a call or a put, respectively) at a time in the future.

Without going into specific benchmark numbers for the VIX, which you can explore to your heart's content here,  some market-watchers have expected more of spike in the index given the downward action of late. They argue that we need some more pain before we can begin to solidly head upward.

"I think we need a day where everyone just has the fear of God, so to speak, put into them before we can start to declare this a bottom," Joe Kinahan, chief derivatives strategist at online options firm thinkorswim, told the Wall Street Journal on Thursday. "Until people can't take it anymore and are willing to take any price to sell their stock, or pay any price to buy a put, it's not over."

I went into some short-term CDs Thursday, so you you see where my fear threshold is.

Brian.

Sleeping like a baby

I rested well last night and no doubt will tonight too after exiting the market Tuesday.

It was more of the same this afternoon, with the Dow and the Nasdaq officially declared as entering a bear market — that definition being when an index drops 20 percent from its high.

General Motors (GM), already more than 76 percent off its year high, fell 15 percent more on Wednesday and a Merrill Lynch analyst said bankruptcy for the auto giant was "not impossible."

Oil was on the march again and investors are waiting to see the results of the government's employment report due Thursday morning. I'll be watching it on CNBC with a casual air of non-concern.

Buy, buy buy! Sell, sell, sell!

Viewers of Jim Cramer's "Mad Money" are familiar with those recorded shouts from his panel of buttons every time he pitches or pans a stock.

 

A lot has been said of Cramer's penchant for guiding his viewers to the best stock picks. For all his supporters, Cramer also has plenty of detractors.

One of them posted an interesting video on YouTube that shows Cramer slamming banks and financials right after advocating buying them. After dogging oil stocks, the video shows Cramer touting them shortly afterward.

It's interesting viewing. I have to credit the Seeking Alpha Web site for me finding the link.

Brian.

Fleeing the jaws of the bear

You've heard this from me before, but I am out of this market.

Managed to keep most of my money intact. Things are just too crazy at the moment.

I did have a nice run-up with oil driller Atwood Oceanics (ATW), gaining about 18 percent on it. But it started acting badly today, as did most everything else. It seems time to sit on the sidelines for a while.

Everyone's waiting on "capitulation," the point at which things get so bad that the market turns and heads upward. I'm going to have to see some strong evidence of it once it does come around. Things just can't look much more bleak.

You bet I'll be back, but I need a breather.

Right price, wrong denomination

A reader pointed out to me that quotes I used in a recent blog for the stock Seadrill (SDRL) were in foreign currency, rather than dollars. The stock is currently trading in the $30 range. Sorry about that.

Brian