In Search of the Perfect Investment

First lesson from yesterday’s DSL Internet crash:

+ You can’t rely on the Internet when you really need it. Local file backup is critical.

+ Verizon’s $50 a month MiFi service is a good backup Internet — but it doesn’t work everywhere and drops occasionally (for reasons I can’t figure).

Arch Coal is continuing its inexorable descent.

Merill Lynch/Bank of America (or whatever it’s called this week) dropped its target on RadioShack to $3.50.

RIMM is also falling.

Don’t touch the banks. Too risky. Too many unknowns. Too many scandals. Too many crooked traders. Too much hubris among the CEOs. Too cosy with the government. AGNC has announced a big secondary. That’s knocked the stock a little. That makes it an even better deal.

A little update on yesterday’s How to pick stocks. – My simplistic theories.

First, buying stocks is a gamble you have only one control over – you can sell when things go awry. That is  unless you’re away and not paying attention. Which often means selling before you leave.

“Buy and hold” no longer exists.  Index funds spread the risk, but not when everything goes awry, as it has with increasing frequency in recent years. In short, assess each company you own at least once a week. Sell when your feelings change.

Buying stocks is gambling. Nobody has ever done consistently well picking stocks long-term. There are exceptions, of course, but everyone screws up at some time. And usually screws up big-time.

Note to file: Warren Buffett is a great stock picker, but a much better company picker and manager. He has control over his investments And that makes a huge difference. If I buy shares in Verizon, I can email its boss, but he will never do anything, despite my brilliant suggestions on his telecom business (which I actually know something about).

All that said, it is reasonable to buy stocks on several conditions:

+ First, never listen to anyone without thoroughly researching yourself. Most times, don’t bother with the research. Their recommendation will be garbage. Are you listening, Mark? RIMM isn’t the $18 to $20 you thought it would be when some moron stepped up to buy  the company. It closed last night at $6.92.

+ Second, don’t put the bulk of your money in stocks – no matter what Warren Buffett says. As you get older you need income and security. Bonds provide that. As interest rates have fallen in recent years, bonds have done spectacularly well — much better than stocks. Interest rates are still falling. One day they will rise but ot while Geithner and his mob in Wshington think the economy is weak.

+ Third, never borrow money to buy (or sell) stocks. (Or for that matter, never borrow any money.)

+ Fourth, if you buy stocks long or sell them short, buy them (or sell them) as you see opportunities. Don’t buy a bundle all at once. That’s stupid. Don’t ignore declining industries. They’re often easier to pick.

+ Fifth, watch them every day. Sign up for Google Alerts (it’s free) on each of your stocks. If any one is going awry, sell instantly, if not sooner. Google Alerts gives you a quick snapshot on what people and analysts are thinking.

+ Sixth, as Todd says, “If in doubt, stay out.” Out is cash. Cash is as good as money. Maybe better. There are good places to park your money. See that list of Vanguard funds I published n Monday.

+ Seventh you can beat the market, but only if you work at managing your emotions. Which means not falling in love with stocks, listening to your rich friends, or going crazy when a stock or two turn against you.

Stock investing is a game. Learn it. You can have fun. That said, there are five types of stocks:

1. Stocks whose products you love. Apple, Panera, Lulullemon, Nike. Good to buy them before the world figures it out. Ride them up. But get out as they turn.

2. Stocks whose products you love and whose products are getting huge amount of favorable press, in the financial press, on the blogs, in the technical trade press, wherever. Apple, LuluLemon and Crocs are examples of these.

3. Stocks whose products are influenced heavily by forces you can’t predict — government decisions. For example biotech stocks which await approval from the FDA. Coal stocks that just got told by the EPA that they must reduce their emissions. Which means, in simple language, use less coal.

4. Stocks which are huge, unwieldy companies and will never move up fast. Microsoft, Intel, Cisco. Old favorites whose growth has gone. They’re now too big and too bureaucratic. You’ll analyze these companies and find they often have bundles of cash sitting around. Wall Street analysts say piles of cash is good. But these companies accumulate cash faster than they can invest it — especially if they could figure out what to invest in.

5.  Stocks whose products and prospects you hate. Nokia is on the skids. Go into a RadioShack store. There’s nothing to buy. Reach yesterday on Goldman Sachs.

Dinner at Junoon last night. Neat restaurant in Chelsea serving probably the best Indian food in New York City. The fare was excellent. I liked the decor. The decorative feature is 50 feet long, and features eight stone sculptures carved in India and brought to the U.S.

Photo by my new Canon S100 at 6400 ISO. Remarkably little grain.

Old men may walk slow.
An elderly farmer in (pick your place) had owned a large property for several years. He had a dam in one of the lower paddocks where he had planted mango and avocado trees. The dam had been fixed up for swimming when it was built and he also had some picnic tables placed there in the shade of the fruit trees.

One evening the old farmer decided to go down to the dam to look it over, as he hadn’t been there for a while. He grabbed a ten litre bucket to bring back some fruit. As he neared the dam, he heard voices shouting and laughing with glee As he came closer he saw it was a bunch of young women skinny-dipping in his dam. He made the women aware of his presence and they all went to the deep end.

One of the women shouted to him, ‘We’re not coming out until you leave!’

The old man frowned, ‘I didn’t come down here to watch you ladies swim naked or make you get out naked.’

Holding the bucket up he said, ‘I’m here to feed the crocodile.’

Harry Newton who relishes the sights on the New York subway. Here’s a couple dressed for our present hot weather.

They were ecstatic that I asked to take their photo. In fact, we took several, until we got it “right.”