GoldCorp (GG) was the very first investment of mine for gold I have touched in my life. I believe it was around 2003 or 04. I didn't know gold investment much but just thought to buy something of it. I think GG was around $12 or so when I bought it. It doubled in 1-2 years and I cashed out half of my shares. It continued to go up and I eventually sold all my holdings, way too early from its top. GG is a great gold mining company (I believe the 2nd largest one in the world) with an excellent management team and very profitable. It is even paying about 1.5% dividends. I have been thinking to get back to it for years but it was simply jumping up and up without giving me much chance. Now a good opportunity may be coming up.
The overall gold mining sector has been terrible in the past year, way lagging behind gold itself. GG is no exception. Adding to its pain is that GG missed its earnings in the first quarter of this year. Expectedly, people dumped its share en mass. GG has come down over 30% from its top, trading hands below $40 now. I read a report of an analyst claiming that GG was a great buy below $50. Now it is below $40, it must be a supper buy. I agree. I have 2 plans for it: one is to buy some GG stocks for my retirement portfolio with dividend reinvestment, a kind of thing I will just leave it there without looking & touching. The other part is to speculate with options. I'm thinking to do some complicated option setup (3 legs) so that I can get in at low $30s to bet for significant capital gains in 2 years. The idea is that if I'm wrong, I won't lose much but if I'm right, I can gain a lot, a ratio of 1:5 at least.
Sunday, April 29, 2012
Friday, April 27, 2012
Good price action for Vertex following a bad earning report
Vertex today reported earnings and revenue, both missed estimates. Its adjusted net income was 55 cents per share, short of mean estimate of 58 cents per share. It fell short of the average revenue estimate as well of $456.1 million. Usually this kind of missed earnings would lead to a big plunge of the stock price. But it didn't happen to Vertex. Rather, it jumped almost 3% today. See below today's chart of VRTX. This is a very bullish price action for a stock advancing significantly in facing bad news. This may likely mean the bottoming of a stock. I have talked VRTX before and I like the company as a long term investment. Maybe now is the time to buy the stock. The only think holding me back a bit is that I'm still expecting one more heavy leg down for the whole market. If this indeed occurs, most of the stocks, if not all, will come down with it. That's will be the best time to buy your darling stocks.
Sunday, April 22, 2012
Coal becomes attractive again
Coal has been killed in the past year or so. Its price has been hair-cute by half. It is just brutal. If you compared the S&P 500, the coal sector has been underperformed by about 40% over the past year. Why? The major reason is because the price for natural gas (NG) has also collapsed in the same time period from over $4 BTU to under $2 now. Now, natural gas is an alternative fuel to coal and energy companies are saving big money by switching from coal to natural gas as fuel. After all, NG is also relatively a clean fuel compared to the dirty coal.
Does that mean coal has no position now in the energy sector? Not at all. Coal is still a major source of fuel and in the US, coal is the number fuel used for generating electricity. The world just does not have enough alternatives to replace coal. When its price becomes cheap enough, the demand for it will pick up again as more companies will use it. Actually in the past month or so, coal’s price seems to be bottomed and is showing signs of recovering. I think we are very close to, if not yet at, the bottom for the bear trend of coal.
If you are interested in investing in coal, the easiest way is to buy an ETF for coal stocks, the Market Vectors Coal Fund (KOL). Of course, please check whether it is structured as a partnership. If so, I’d avoid buying it directly. Maybe do so via its options. Alternatively I like an Australian coal mining company, BTU, Peabody Energy. This company has been beaten up with a 50% hair-cut in the past 12 months. If coal is indeed bottoming up here, I think BTU will significantly benefit and catch up with its share price.
Does that mean coal has no position now in the energy sector? Not at all. Coal is still a major source of fuel and in the US, coal is the number fuel used for generating electricity. The world just does not have enough alternatives to replace coal. When its price becomes cheap enough, the demand for it will pick up again as more companies will use it. Actually in the past month or so, coal’s price seems to be bottomed and is showing signs of recovering. I think we are very close to, if not yet at, the bottom for the bear trend of coal.
If you are interested in investing in coal, the easiest way is to buy an ETF for coal stocks, the Market Vectors Coal Fund (KOL). Of course, please check whether it is structured as a partnership. If so, I’d avoid buying it directly. Maybe do so via its options. Alternatively I like an Australian coal mining company, BTU, Peabody Energy. This company has been beaten up with a 50% hair-cut in the past 12 months. If coal is indeed bottoming up here, I think BTU will significantly benefit and catch up with its share price.
Monday, April 16, 2012
Sell EUO for tax purpose
I got a call from a friend the past weekend, who bought EUO as I recommended. While it was comforting to hear that his EUO positions were increasing in value, it was quite disturbing to know that he has to report quite a large amount of "capital gain" that he has not obtained.
I mentioned briefly before that people investing in ETFs should be cautious about the K-1 form for tax reporting. This is the form for reporting tax for companies structured as partnership. For real partnership companies, what I learnt from reading is that this is a tax benefit for investors, although I must say reporting K-1 form is kind of hassle. I never enjoy it, so I generally try my best to avoid such companies' stocks. The real problem is for ETFs. Many ETFs are also structured as partnership and will also issue K-1 for tax reporting. While I don't understand the exact specifics, such funds can generate capital gains and will report them on the K-1 form for you to report, even though you have never got such gains. Apparently EUO is one of them and is causing a big headache for my friend. I'd suggest to simply sell EUO shares to avoid the continuous problem of this kind.
I usually try to use options to trade ETFs to avoid physically owning such funds. That's what I have been doing with EUO. As such I have never known this problem in the past. If I cannot use options, I will try to review their prospectus about the fund's details and search for the word "partnership". Usually one can find this kind of information. If you are not sure, better not to trade ETFs directly.
I mentioned briefly before that people investing in ETFs should be cautious about the K-1 form for tax reporting. This is the form for reporting tax for companies structured as partnership. For real partnership companies, what I learnt from reading is that this is a tax benefit for investors, although I must say reporting K-1 form is kind of hassle. I never enjoy it, so I generally try my best to avoid such companies' stocks. The real problem is for ETFs. Many ETFs are also structured as partnership and will also issue K-1 for tax reporting. While I don't understand the exact specifics, such funds can generate capital gains and will report them on the K-1 form for you to report, even though you have never got such gains. Apparently EUO is one of them and is causing a big headache for my friend. I'd suggest to simply sell EUO shares to avoid the continuous problem of this kind.
I usually try to use options to trade ETFs to avoid physically owning such funds. That's what I have been doing with EUO. As such I have never known this problem in the past. If I cannot use options, I will try to review their prospectus about the fund's details and search for the word "partnership". Usually one can find this kind of information. If you are not sure, better not to trade ETFs directly.
Saturday, April 14, 2012
Richard Russell's ominous warnings
Richard Russell, near 90 years old, is the Goldfather of the financial newsletters, the publisher of the famous Dow Theory Letters. When he speaks, people usually listen. What is he warning now? Crime, chaos, collapse & skyrocketing gold! Pretty damn alarming and depressing, right? Read it yourself here.
Friday, April 13, 2012
Get ready to be bullish for precious metal stocks
The market is breaking down, which is something I have been expecting for months. I know I'm too early to call a correction but finally it has come. The market has broken several important technical supporting levels. I think next week or two will be ugly.
While overall I think I'm very bearish for the immediate future, which may last for a few weeks, the correction may create a great buying opportunity for a bullish trend for the rest of the year and even into next year. There is just too much free cash out there created by Bernanke. Sooner or later, it will be flooding the market to create a huge asset bubble. The momentum underneath is just too strong to be ignored. So be ready with a shopping list for good stocks you want to own and you will have a great opportunity to get them.
I'm especially interested in precious metal stocks. Mining stocks have been killed for too long time and there is just too much bearish sentiment for them. The valuation for them is unbelievable at the moment. Buying them now is similar to buying stocks in Mar 2009, valuation-wise. I think in one or two years, people will look back and kick themselves why they didn't buy a lot of mining stocks then. I'm especially interested in those blue chip mining stocks, the largest ones with good fundamentals and pay a great dividend yield, such as GG, AUY, NEM, RGLD, SLW etc. It is unbelievable that some of them are paying 2-3% dividends. More attractively some even tie their dividends to the gold or silver price, i.e. the higher gold and silver go, more dividends will be paid. If gold hits new high some time in the future, which is almost a certainty, we may see 6% or higher dividend yields. Of course I'm not predicting the absolute bottom here. Mining stocks are still very volatile, but I will start to slowly accumulate their shares, taking advantage of further dips. And reinvest their dividends for long long time!
While overall I think I'm very bearish for the immediate future, which may last for a few weeks, the correction may create a great buying opportunity for a bullish trend for the rest of the year and even into next year. There is just too much free cash out there created by Bernanke. Sooner or later, it will be flooding the market to create a huge asset bubble. The momentum underneath is just too strong to be ignored. So be ready with a shopping list for good stocks you want to own and you will have a great opportunity to get them.
I'm especially interested in precious metal stocks. Mining stocks have been killed for too long time and there is just too much bearish sentiment for them. The valuation for them is unbelievable at the moment. Buying them now is similar to buying stocks in Mar 2009, valuation-wise. I think in one or two years, people will look back and kick themselves why they didn't buy a lot of mining stocks then. I'm especially interested in those blue chip mining stocks, the largest ones with good fundamentals and pay a great dividend yield, such as GG, AUY, NEM, RGLD, SLW etc. It is unbelievable that some of them are paying 2-3% dividends. More attractively some even tie their dividends to the gold or silver price, i.e. the higher gold and silver go, more dividends will be paid. If gold hits new high some time in the future, which is almost a certainty, we may see 6% or higher dividend yields. Of course I'm not predicting the absolute bottom here. Mining stocks are still very volatile, but I will start to slowly accumulate their shares, taking advantage of further dips. And reinvest their dividends for long long time!
Saturday, April 7, 2012
A real example of dividend compounding
I have talked about dividend compounding quite a few times. Here is a real personal example of mine. Although it is only a short < 6 years old and the amount is not so big, I have personally felt the great impact of the dividend compounding. That’s why I’d like to share with you and hopefully you will also gradually build up your dividend compounding portfolio for your retirement and/or for your kids. I’m certainly totally convinced and am putting more money into it whenever a good time is coming, e.g. when the stock market is crashing.
I bought 100 shares of ConocoPhillips (COP) in Oct 2006 at $60. COP is a gigantic oil company, paying dividends for decades non-stop and being increasing them year after year. I got my first dividends of $47.23 that bought me 0.62672 share of COP. As you can see, it pays out dividends quarterly and my shares of COP are increasing slowly but surely over time. With increasing shares as well as increasing dividend payout, I’m getting more dividend amount over time. The COP share price went up to its top at $92 in Jun 2008 and then was hit by the financial crisis. It plunged all the way down to $36. I wish I was smart and brave enough back then to buy more shares of COP. Unfortunately I did not, but at least I was smart enough not to sell my COP shares during the crisis. In the past few years, slowly COP has come back and now it is exchanging hands at about $77. You may notice that my dividends now are about $80 per quarter, almost double in less than 6 years, during which I have also added 19 shares purely from dividend reinvestment.
You may think what’s a big deal. But don’t forget this is only about 100 shares with a $7500 initial investment. What about if I had invested in 1000 shares? More importantly, the compounding effect will be accelerated more and more as time passes. After 15 years, the effect of compounding will be exponential. I will definitely make the dividend compounding as the biggest portion of my portfolio over time and I expect in 20 years or so, my dividend income may be good enough for our daily life expenses.
I bought 100 shares of ConocoPhillips (COP) in Oct 2006 at $60. COP is a gigantic oil company, paying dividends for decades non-stop and being increasing them year after year. I got my first dividends of $47.23 that bought me 0.62672 share of COP. As you can see, it pays out dividends quarterly and my shares of COP are increasing slowly but surely over time. With increasing shares as well as increasing dividend payout, I’m getting more dividend amount over time. The COP share price went up to its top at $92 in Jun 2008 and then was hit by the financial crisis. It plunged all the way down to $36. I wish I was smart and brave enough back then to buy more shares of COP. Unfortunately I did not, but at least I was smart enough not to sell my COP shares during the crisis. In the past few years, slowly COP has come back and now it is exchanging hands at about $77. You may notice that my dividends now are about $80 per quarter, almost double in less than 6 years, during which I have also added 19 shares purely from dividend reinvestment.
You may think what’s a big deal. But don’t forget this is only about 100 shares with a $7500 initial investment. What about if I had invested in 1000 shares? More importantly, the compounding effect will be accelerated more and more as time passes. After 15 years, the effect of compounding will be exponential. I will definitely make the dividend compounding as the biggest portion of my portfolio over time and I expect in 20 years or so, my dividend income may be good enough for our daily life expenses.
Subscribe to:
Posts (Atom)