August Activity - Arena Pharm, COP, PSX and XOM

Arena finally came alive and popped 8% yesterday. The sales numbers are coming in for Belviq and they are average but it is still very early. Patience is the key here. I believe we are looking at a huge upside and only a limited downside. I am holding until at least December but probably for years beyond. Just wait til the ads hit TV and the web..... 

Since COP has divested its refinery operations as PSX, it has now basically become an upstream E&P company and not an integrated oil company. It's share price (and to some xtent its value) is tied more closely to the price of oil and natural gas. This is riskier than before. I have held it as a core holding up to this point but I am now rethinking it. I want my core to contain stocks with safe and growing dividends from companies with huge competitive advantages and large moats. I intend to add an integrated oil major into my core holdings-probably XOM or CVX. I have a put in on XOM at 87.50 in September.

I close with the following excellent statement from SA;

I personally think DGI is a good method for do it yourself investing. The approach is logical, relatively simple, and at SA the interested investor can find sufficient information to do a workmanlike job without going crazy. Read some DVK, get the CCC list, subscribe to Fastgraphs and Morningstar, don't put all your eggs in one basket, listen to Chuck Carnevale about not overpaying, then work, save and invest. It will greatly improve your odds of having money when you need it.

July Activity

Bought 10 shares of AAPL at 419. Sold LINE at a loss due to SEC inquiry into it's accounting practices-prices continue plunging after I sold. Sold some puts and a covered call on BMY.

Here's an interesting quote from 'The Intelligent Investor' followed by a statement by the article author;

Graham writes that the typical investor "would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other person's mistakes of judgment." Zweig expands on this: "If, after checking the value of your stock portfolio at 1:24 pm, you feel compelled to check it all over again at 1:37 PM, ask yourself these questions:
· Did I call a real estate agent to check the market price of my house at 1:24 PM? Did I call back at 1:37 PM?
· If I had, would the price have changed? If it did, would I have rushed to sell my house?
· By not checking, or even knowing, the market price of my house from minute to minute, do I prevent its value from rising over time?"
This is the crux of the "Oh, cool," dogma. Tell me the market is crashing. I really don't care—all it means is that right now, a bunch of people got freaked out and threw away money. It means some lady in line at Chipotle opened up her eTrade App and unloaded a few hundred shares of GM right then and there. That means she lost. And when I get back to the office and buy GM at $24—value investing at its easiest—well, that means I win.

June Activity

The markets went on a wild ride after Bernanke's statements at the FOMC meeting. Today the Dow pulled back 350. Is this an over reaction by the crowd or will there be more? Buying opportunities are starting to appear and this is no time to get emotional. Hold your keepers and buy more if the price gets in the buy range. For your shorter term stocks, use options-in a down market, sell covered calls to get some income as long as you are willing to part with them. Core stocks may approach a buy-JNJ, PG, COP, T, MCD, KO but I'd wait for the return to an upward direction. I am looking at CAT and XOM at the moment and have put options on them.

May Activity - interesting times ahead

Sold and repurchased AAPL, lowered cost basis by $6 a share and collected dividend. I'll continue using trailing stop loss on AAPL as I ride it up and down the range it is in. Covered call expired on ARNA, received premium. Cash secured put expired in LINE, received premium. Opened put on CAT, strike price 82.50 in June.
Watch ARNA, June 7 release of Belviq followed by preliminary sales numbers. ARNA also has off label prescriptions possible for Q for diabetes. Other drugs in pipeline for pain relief and alzheimers. ARNA is a keeper for now and probably for a long time-lots of good things possible there including a buyout from one of the big pharmas.
LINE took a dive after some bad press from Barron's-loaded up on the dip. I will now do some covered calls on LINE after the price recovers. It is an upstream MLP, upstream meaning it does exploration and production of oil and gas. This is different than a midstream which does transportation and storage (like KMP, which we own). Midstreams are more predictable and less prone to commodity price change effects. I plan on selling LINE thru calls and picking up MMP or EDP which are midstreams that also have no general partner so they keep all of their profits. BTW downsteam MLP's exist and they do refining-there are only a few of them. The oil majors are entering this entire space.

What if....? and March/April activity

I was reading my favorite financial web site and going over the commentary that followed an article from a favorite author. A civilized but pessimistic investor asked the doomsday scenario questions that dog all of us from time to time; what if American prosperity is at an end, what if there is a depression and no recovery, what if permanent recession is the new normal? Here is a link to the entire article and comment thread-

http://seekingalpha.com/article/1339941-the-dirty-secret-about-the-1929-stock-market-crash


I just received an options assignment for GE, 200 shares. I'm glad-it looks reasonably valued and they have a projected 10% dividend increase in the immediate future. PE~15, P/B<2, 3.35% dividend, 220B market cap, RSI~35-to me these are good numbers. GE is an industrial that manufactures turbines and jet engines, medical devices and appliances and a conglomerate-they recently acquired Lufkin to increase their oil, energy and drilling services space. GE Capital is their financials which they may spin off. They beat estimates and still took a 4% beating yesterday-ripe for a comeback.

I sold off SPLS and F. I'll re enter on F if it pulls back. Still waiting for ARNA release, using options on ARNA to generate capital. I sold both a call and a put on it-put just expired. Put on XOM expired. CAT looks interesting at ~80.

Charlie Munger and Ben Graham Reveal the Secrets to Getting Rich

http://www.gurufocus.com/news/212440/charlie-munger-reveals-the-secrets-to-getting-rich/affid/81000

http://seekingalpha.com/article/1296131-benjamin-graham-s-4-commandments-of-defensive-dividend-investing

Valuation and earnings estimates

I just read another great article from Chuck Carnevale on Seeking Alpha. I highly recommend investors take the time to read Forecasting Future Earnings. A quick recap is that Chuck states that checking the analyst consensus earnings estimates is a starting point to determine future price action. Msnmoney.com could be used to do this quickly; just enter the ticker and click on Earnings in the left column.
For short term price action, traders use earnings 'misses' to buy on a short term dip. They then wait for the price to recover and then sell. 5% or more can be obtained doing this. Earnings 'surprises' are a short term driver of prices. For longer term buy and monitor investors, the 1,2 and 5 year estimates are a good place to start when looking at a business. This earnings guidance is obtained by the analysts from the management of the company among other places. It is good to keep in mind that 1.) the analysts get paid to do this and want to do their job well and 2.) the management giving the estimate information want people to buy their stock. If they overestimate and there is a subsequent miss on earnings, stock price goes down and people sell. Therefore management often underestimates earnings estimates-something for investors to keep in mind.

There are lots of other drivers of prices-lawsuits, natural events and disasters, politics, etc that have nothing to do with earnings or earnings estimates. Due diligence is performed by paying attention to these and other factors.

The article also states that near term estimates are generally more accurate than longer term estimates and that total accuracy of the estimate is not the point. If the estimate is a few pennies off this should not affect our thinking as long term investors. The main point is that earnings are increasing.

To summarize, this entry is about business results and really not about price volatility. Price and research firm recommendations like Reuters and Value Line are a separate issue. Using earnings growth estimates can be useful in determining which business to choose when investing. Read Chuck's article for more info.