Two new IPOs for real estate recovery

All the signs so far are suggesting that the housing market in general is recovering, of course varying from region to region in terms of pace. Usually in this kind of circumstances, you will see more IPOs coming up for this sector. Just saw the news that 2 new IPOs are scheduled on Jan 31, just 3 days away.

One is Tri Pointe Homes (NYSE: TPH), a Canadian home builder currently building homes in California and will be expanding to other regions as the opportunities arise. TPH was created in 2009 and therefore was not impacted by the housing crisis.

The other company is Gladstone Land Corp. (Nasdaq: LAND). I'm personally more interested in this one as this is a company specialized in acquiring farmland for leasing to food and vegetable companies. While this is not the typical housing company, it is a good diversification in the real estate portfolio. With fast increasing of the world population, shortage of arable land, upcoming inflation, and natural disasters, etc, the demand for food will only increase at a fast pace.

Will see how these 2 companies will be doing at IPO and hopefully at some point they can be bought at a reasonable price.

Take advantage of the Boeing snafu

You probably have heard no-stop news regarding problems associated Boeing, the grounding of the problem-plagued 787 Dreamliner - the most technically advanced new model of commercial airplane manufactured by Boeing. Of course, when such kind of snafu occurs to any company, investors will always react with panic, leading to overreaction. This reminds me just recently what happened to BP, the UK largest oil company when they got a heavy bang due to its oil spill in the Mexico gulf 2 years ago. Investors simply gave up BP's stocks and ran away, cutting its share price over half.  Those who dare enough to get in at that time got a great reward. I was one of them.

Yes, Boeing is facing a huge headwind which may last for some time. I'm also not sure if its bottom has already set in. But there are a few reasons to make me think Boeing is a good long term investment: There is not too much competition in this airplane industry, basically only 2 companies,  Boeing and Airbus. I don't think Airbus is much superior to Boeing and it is hard for Airbus to replace Boeing's market share. Boeing is fundamentally a strong company, having survived over 100 years and gone through many difficult time periods. This time is no difference. Boeing has a huge financial muscle to ride it out as it used to. Actually based on the 2012 year end results, Boeing's commercial airplane business is quite healthy, to say the least. Boeing received 1,203 net orders last year and its capacity has run out, leading to its cumulative backlog of commercial jets rising to 4373. In other words, Boeing will be busy to simply deliver the existing orders. Boeing is also a company engaged in a lot of military business in the US. It is virtually impossible for Airbus to step in for this business sector.  Boeing is an investor friendly company in paying good dividends (currently with a yield of 2.6%) and actively buying back stocks. I think such a temporary setback for Boeing is a good buying opportunity. Of course, due to the upcoming inevitable correction of the overall market that I firmly believe, majority of stocks will be impacted on. Also, no one knows if all the bad news has already come out for Boeing. So there may be still room for Boeing's share price to slide down. What is the best strategy to buy good stocks for long term investment? Dollar-averaging! If you say want to buy 500 shares of Boeing in total, maybe you can start with 100 or 200 for now and buy more if its price continues to go down. This way, you won't miss the boat if it unexpectedly runs away to start to quickly move up, although I highly doubt it will. If it goes down further, in average you can reduce your cost. In the long run, I think this is a good time to buy Boeing with dividend reinvestment.

If you dare, short Amazon

S&P 500 has gone over 1500 first time in 5 years. The volatility index, VIX,  has been historically low at below 13. The overall market is ridiculously overbought but bulls are simply marching forward. They are definitely the winner at the moment but I'm not sure how long they can last. I'm largely sitting on my hands at the sideline, patiently waiting for the right moment to come.

Along with the very bullish sentiment, Amazon (AMZN) is just the opposite of Apple and quite overbought. As shown below, it is just breaking out its upper Bollinger Band. Its RSI is approaching 80, a cutoff for the overbought level. Then its P/E ratio is unbelievably high at 164. I don't know how this can sustain and continue. If you are itching to buy stocks, don't buy AMZN at this level. If you have enough gut, then shorting AMZN may be quick money to make. While directly shorting AMZN stock is one way, buying put options is much better with low and defined risk. Even better, buying put spread can substantially increase the odds of winning.

Trading opportunity for Apple?

Apple is being killed today. Due to its poorest earning since 2008, those once Apple lovers simply gave up and dumped Apple share en masse. What a brutal day for Apple. Technically speaking Apple has a good chance to further slide down to probably low $400 in the next few weeks or months. But if you are a risk taker and nimble trader, maybe you can make some quick money. Why? Today's sharp decline has forced the stock to go way out of its Bollinger Bands (the channel between the grayish lines). You may notice that it has rarely gone out of the BB boundary either side. When it does, usually it is stretched too much to one side and it has the tendency to go back, so-called return to mean. RSI as shown at the bottom panel is another technical indicator whether a stock is oversold (below 20) or overbought (above 80). Right now, Apple's RSI is right at 20, meaning it is oversold at the moment. It has touched or been below 20 a few times in the past year and almost each time it was followed by a rebound. I bet there will be a rebound in the next few days. But remember, if you trade with this idea, you must be a quick profit taker as Apple may resume its downtrend soon. But ultimately I think Apple will be a good buy at around $400 if it indeed reaches that level. When there is extreme pessimism, a good opportunity is always around the corner.

 

Is Platinum finally coming back?

Back in Sep 2012, I said Platinum was very attractive because it had never been so cheap in the past 20 years when compared to the gold price. Not sure if you have noticed, platinum is quietly managing to try to retake its leadership role in previous metals. For the first time in the past one year or so, platinum has been trading for a price higher than gold in the past few days. The major reason for this fast move was that the largest producer of the metal, Ango American, said it would halt operations at several mines in South Africa.  Am I sure this means platinum has finally come back to lead? No I'm not sure. But at least it means it is moving towards this direction and I have no doubt it will finally be the precious metal king again sooner or later.

By the way, do you want to get free gold like the one below? You can if you are lucky enough. See the interesting report here. Maybe we should all take the hobby to do metal detection in our free time?!

Gold is accumulating energy for an explosive move

Gold has spent the past 18 months for consolidation since it reached its peak at $1900 in Aug 2011. While it must be very frustrating for many people to see gold has gone nowhere for months and months, I must say I'm very impressed by how gold has been doing in consolidating. I was expecting much worse that I thought gold could go below $1500, although I was mentally prepared to back up my truck to buy buy buy if gold did drop to such low levels. But it didn't. Right now, it has come more and more to a narrow trading range, which technically speaking is leading towards the point of a massive move, up or down. My gut feeling is that it is ready soon for an explosive upward move to challenge its old peak. Using GLD as an proxy, the current gold price movement is eerily similar to what it did back in 2008: after temporarily peaking at $1000, it spent also around 18 months or so sliding down to as low as below $700 and then all the sudden forcefully started to climb back. As I said before, it is actually healthy for any bull to take a rest before marching forward again with lasing strength. I think gold is just doing that this time as well. I cannot tell when but I think the time is close for its next move when it has accumulated enough energy. I have a hunch that gold will start to jump up quickly in the second half of this year. There is one clear technical indicator to tell when this is really occurring: $1790! Why this figure? Because in the past one and a half year, gold has challenged this level 3 times without success. When this level is broken out, then gold is really ready to jump high, much much higher than its last top of $1900. I won't be surprised to see gold to reach $2500 as its next temporary resting area. Fasten your seat belt if you are already on board with gold.

If you want to be a true investor, learn to love lower prices of good companies stocks

You may laugh at me and think I must have lost my mind. You may ask who in the world loves to see lower prices of any stocks they own. But this is exactly where an investor differs from a trader. For traders, they need to constantly take actions in and out of stocks. For them, of course the only thing they care about is higher prices of stocks, nothing else. I can understand. But for investors, I mean true investors with a long-term horizon (e.g. 5-10 years or longer), what they are focusing on is the fundamentals of a business, or in other words, whether the intrinsic value (IV) of a stock has increased or improved. If a stock's IV has improved due to good business execution, a low price of its stock would only mean a good bargain for it. And usually such good companies would pay good dividends that tend to keep increasing over time. If you reinvest the dividends for compounding, then you'd really benefit from low stocks price as your dividends will buy more shares of the stock when it is low and in return you get more dividends, which will buy more shares if the stock stays low. This kind of positive cycle will continue with cumulative momentum and over time you will be really handsomely rewarded. This is how Buffet becomes so rich. For example, he bought Coca-cola (KO) 40 years ago and he has been reinvested KO's dividends since then. Over years, not only the dividends have already been many times more than his original cost for his initial investment, they have also tremendously enlarged his KO position so much that he is now collecting hundreds of millions of dollars each year from KO's dividends. And this income will only become bigger and bigger as long as KO exists and is doing well. That's why when Buffet recently invested in IBM, he said he hoped IBM stock price would not appreciate too much and just stay low.

This is what I'm currently doing to establish and enrich my retirement portfolio with good companies stocks when they are cheap in valuation. With this kind of investor's mentality, I actually get more excited when I see the plunge of a stock of my interest. Today's is one of those days when I see Intel (INTC) got crashed due to its disappointed earning report. As you may already know, I like Intel and have already got shares of it. It got a hair cut for a 6% drop today. For long-term investors, this should be a great buying opportunity and with naked puts, I can further juice up and reduce my cost of investment.

Make money by watching trees to grow

About one year ago, I talked about how to grow your money on trees. The timber stock I liked was PCL, which was at $39. Now it is at about $46, a nice 17% gain with an additional 3.9% dividend. Compared with the overall market, it has beaten S&P500 by a wide margin.



As I said, timber is, over a long period of time, a very stable commodity with a solid uptrend. In the past 20 years, the timberland index has been up annually almost 15%. In other words, this kind of growth will double your money every 5 years. If you put your money in S&P500, your annualized gain would only be less than 10%. Timber could also cushion you during the tough economic time. For example, timber gained over 2 times when stocks plunged over 90% during the Great Depression. More recently, timber gained almost 10% in 2008 when S&P500 lost nearly 40%.

I think timber stocks will continue to appreciate and be doing well for years. In the US, housing is definitely recovering and starts to pick up. It is no-brainer that timber will be demanded more if the housing market is doing well. China is also recovering in general and their demand will be enhanced substantially as well.

I will use any weakness of the market to either initiate or add to the existing positions of PCL or other timber stocks and hold them for long term, also enjoying their high dividends.

Be careful now!

VIX, the index for volatility, is also called the fear index. It is a gauge of how calm or fearful general investors are in the markets by measuring the ratio of call vs put options. VIX is generally inversely related to the market direction, i.e. when it is high, the market tends to decline and vise verse. In the last 2 weeks of 2012, VIX jumped to 22 due to the fear of the fiscal cliff. However, as soon as Washington miraculously reached the tax deal on the first day of this year, VIX almost plunged overnight. Within days, it had come down to as low as 13, a 40% decline. As you can see below, VIX is currently at the lowest level not seen in the past 5 years. But each time when VIX reached such a low level, it always jumped back up sooner or later. No exception. February is a seasonally bearish time for stocks, coupled by the coming debt ceiling fight in Washington, I'm afraid it won't bode well with the markets in general. A 10-15% correction of the stock market in the next few weeks is not unthinkable. Such kind of stock plummet often comes without prior warning and often occurs when everyone is happy and bullish. I will be extra careful at the moment. At 1470, S&P 500 may continue to go up a bit but I doubt it will be able to go beyond 1500 without first going down. I would rather miss a few points of upward moment than being caught up in a downturn that could be severe and painful.

Buy steel now

About 2 months ago, I said HongKong stocks and coals were becoming more attractive. Well both EWH (ETF for HK stocks) and KOL (ETF for coals) have reached their 52 weeks high. EWH has especially been soaring in the past 2 months.  The story behind this strong trend is because China has shown solid sign of economic recovering. I think this trend will continue. If you also believe this, then it is a good time to consider steel stocks as well. The rationale is the same: better economy in China, more demand for steel. The ETF for steel is SLX. As you can see, it has gone beyond its trading range recently, which suggests the trend is going up.

NLY is a good buy below $15

Two months ago I talked about NLY and AGNC again, the two major mortgage REITs I like most. I don't want to repeat the rationale again here as you may check my previous blogs for details as you like. The main point I think NLY is a good buy below $15 is that it is significantly discounted below its book value at such a price. Well, NLY has been bouncing back and forth in a tight range between $14-15 since my last talk. At around $14 it is a screaming buy to me. Below are my two real naked put positions for NLY. The upper one I entered about 2 years ago, which will mature fully by Jan 18. As you can see, I have a paper profit close to 90% as of today. If NLY jumps above $15 on Jan 18, I will get a 100% profit of $23,000. The other one below is what I recently got into. I was a bit early but as of now my paper profit is about 4% in less than 2 months. I'm targeting for a $35,000 profit by Jan 2015, 2 years from now, if I'm lucky enough.

I must say I'm a bit aggressive here for such kind of positions. While I'm confident about the risk I'm taking based on my understanding of NLY, I won't recommend this to others as it could be volatile when people are panic in selling. However, if you simply buy NLY at this price for its high yield above 10% with a reasonable position size, I really think you will be happy down the road. Not only you will get a high yield income, you will likely also get a good capital gain when NLY returns to its normal share prices.  

NLY Jan 19 '13
$15 Put                        0.27              $2,600.00       -100           $2.30        +$20,220.26      +87.61%        -$2,700.00

NLY Jan 17 '15
$15 Put                       3.50              $4,500.00       -100            $3.65        +$1,412.51          +3.86%       -$35,000.00

To be a better investor in 2013 by listening to what a guru has said

Richard Russell is the godfather of the investment newsletter industry and he has full of wisdom on investment. On the new year's day of 2013, I'd like to share with you about what he has said about the little guy who constantly loses money in trying to make money. I personally have learnt a lot from his wisdom and will continue to do so by following such wiseness: save more, be patient, buy valued stocks, and let compounding work for me. So here it is: But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested… And because the little guy is trying to force the market to do something for him, he's a guaranteed loser. The little guy doesn't understand values so he constantly overpays. He doesn't comprehend the power of compounding, and he doesn't understand money. He's never heard the adage, "He who understands interest – earns it. He who doesn't understand interest – pays it." The little guy is the typical American, and he's deeply in debt. The little guy is in hock up to his ears. As a result, he's always sweating – sweating to make payments on his house, his refrigerator, his car or his lawnmower. He's impatient, and he feels perpetually put upon. He tells himself that he has to make money – fast. And he dreams of those "big, juicy mega-bucks."

In the end, the little guy wastes his money in the market, or he loses his money gambling, or he dribbles it away on senseless schemes. In short, this "money-nerd" spends his life dashing up the financial down-escalator. But here's the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.