Research in Motion (RIMM) missed the earnings estimated by the Street. Its shares fell instantly over 10% after hours on Thu when it made the announcement. But Fri RIMM not only recouped all the decline overnight but ended up jumping over 7%. Why? Because its CEO said they are considering strategic options. This is the Wall Street jargon, meaning it is considering selling itself. Investors liked the idea and pushed its shares up. While it is too early to be sure about anything, I'm not surprised about this news as I had talked about this possibility months ago. I think sooner or later RIMM will have to go this way.
I think there is a cheap way to speculate on this. Let's say we give them 10 months to materialize this idea and let's also bet that if this really happens, its price is likely at least worth between $20-25. If you think this is reasonable, you can set up a call spread: e.g. buy Jan 2013 $20 call options and sell Jan 2013 $25 call options at the same time. Your total cost will be only about $0.80 per share. So one contract (=100 shares) will only cost you $80 or $800 for 10 contracts (1000 shares). That is your maximal loss if nothing happens by Jan 2013. If RIMM really get sold and its shares jump to $25, you can earn up to $4200 (minus small commission fees) if you bet for 10 contracts. This is 5:1 benefit/risk ratio. I like the idea and will consider to make it.
Saturday, March 31, 2012
Friday, March 30, 2012
I'm short Apple!
I cannot help but short Apple. It looks like it is approaching some extreme bullishness, a capitulation type of price action. I think it is at its top at least in the very near term. So I did it but cautiously.
As I said, shorting stocks is very difficult in general and it is more so for stocks like Apple when the underlying euphoria for it is so strong that may push it up further. Therefore I did it with a small position and will exit if it looks like I'm wrong. Also via selling call options, I gave myself a quite large margin, that I will lose money only if Apple jumps up beyond $655 (around $600 at the moment) in the next 7 weeks.
If Apple indeed declines over the next few weeks, which I do expect, I will consider to do the opposite trading that I will sell put options to get in for long positions.
As I said, shorting stocks is very difficult in general and it is more so for stocks like Apple when the underlying euphoria for it is so strong that may push it up further. Therefore I did it with a small position and will exit if it looks like I'm wrong. Also via selling call options, I gave myself a quite large margin, that I will lose money only if Apple jumps up beyond $655 (around $600 at the moment) in the next 7 weeks.
If Apple indeed declines over the next few weeks, which I do expect, I will consider to do the opposite trading that I will sell put options to get in for long positions.
Friday, March 23, 2012
Astonishing gain from dividend reinvestiment
I have talked many times about how to get rich via investing in good dividend paying stocks. Actually you can get very rich with this simple strategy, far more than you can imagine as long as you are patient and persistent enough. I just saw a very vivid description of the astonishing effect of dividend investment.
In 1977 President Nixon took the United States off the international gold standard. Since that time, gold has increased from $35 to well over $1,600 an ounce nowdays.
That's about a 4,500% return. Not bad at all. But let's say you bought 100 shares of the tobacco company Philip Morris around $67/share that same month and reinvested your dividends over time. Your total investment would have been $6,700. And what you would have got today? Don't close your eyes: that small investment would be worth $6.1 million! That's more than a 90,000% gain. In fact, your dividends alone would be more than $380,000 just this year!
Actually any good compaies good dividends will just do that. Consider Johnson & Johnson and Procter & Gamble. These two companies have each returned about 11,000% over the same period. Remember, these are not high-flying companies. They are stable dividend machines that return a growing stream of cash to their shareholders. And that's where the biggest returns come from over time.
If you still have 15 or more years to invest, I would strongly recommend you to put at least some money into such great dividend stocks. Even better, teach your kids to start investing for long-term. A few thousands of dollars today could be millions of dollars for them in the future.
In 1977 President Nixon took the United States off the international gold standard. Since that time, gold has increased from $35 to well over $1,600 an ounce nowdays.
That's about a 4,500% return. Not bad at all. But let's say you bought 100 shares of the tobacco company Philip Morris around $67/share that same month and reinvested your dividends over time. Your total investment would have been $6,700. And what you would have got today? Don't close your eyes: that small investment would be worth $6.1 million! That's more than a 90,000% gain. In fact, your dividends alone would be more than $380,000 just this year!
Actually any good compaies good dividends will just do that. Consider Johnson & Johnson and Procter & Gamble. These two companies have each returned about 11,000% over the same period. Remember, these are not high-flying companies. They are stable dividend machines that return a growing stream of cash to their shareholders. And that's where the biggest returns come from over time.
Sunday, March 18, 2012
Shorting Apple?
Apple had briefly topped at $600 per share last week. If you have bought Apple in the past at a much lower price, you should pat yourself at the back for congratulations. You must have seen a great profit by investing in Apple. But if I were you, I'd seriously consider to take some money off the table. The price action for Apple in the past few weeks was just something parabolic, a dangerous sign for a swift plunge. People are simply forgetting about any risks and only thinking that Apple will always keep going up a straight line, which will never be true for anything. At some point, the straight line will be broken and likely severely. I think we are at this point of time now.
I'm even thinking to short Apple, although I know it is also very dangerous to short such a high profile stock everyone loves. The timing of shorting a stock is extremely important and no one knows for sure when is the best time point. Probably the best thing to do is to wait for its plunge and buy it at a lower price. I hope it can drop to somewhere around $450 to get in. Maybe a wishful thinking but I will keep a close eye on it.
I'm even thinking to short Apple, although I know it is also very dangerous to short such a high profile stock everyone loves. The timing of shorting a stock is extremely important and no one knows for sure when is the best time point. Probably the best thing to do is to wait for its plunge and buy it at a lower price. I hope it can drop to somewhere around $450 to get in. Maybe a wishful thinking but I will keep a close eye on it.
Saturday, March 17, 2012
20% gain virtually guaranteed for investing in BTF
Boulder Total Return Fund (BTF) is a closed-end fund. Basically there are types of mutual funds, open-end & closed-end. "Open-end" means the fund can issue as many shares as investors are willing to buy. So its "net asset value," or NAV, it always equivalent to the actual liquidated value of the underlying stocks in the fund. In other words, if you pay $10 per share for an open-end fund, you get what you should get for the value of the fund, no more & no less.
Closed-end funds work differently. The number of shares of such funds issued is limited. If you want to buy these shares, you must go into the stock market where they trade like a normal stock. In other words, to buy a closed-end fund, someone else must sell their shares. Because of this the value of a closed-end fund can fluctuate significantly, and does not necessarily reflect its NAV. Sometimes its share price is higher than the NAV of a closed-end fund, called premium (i.e. overpaid) or is lower than the NAV, called discount (i.e. underpaid). Generally speaking, the share price of a closed-end fund will always go back to its NAV sooner or later.
Right now, BTF is traded at around $17 per share, which is roughly 20% discounted from its NAV. While I don't know the exact timing, it is almost guaranteed that you will at least get a 20% gain at some point when BTF simply goes back to its NAV. If people like BTF, its share price often goes much beyond its NAV, i.e. you may get more gain than 20%.
I like BTF also because of the stocks invested by the fund. About 50% of its shares are invested in the Bufett's company, Berkshire Hathaway. Additionally adding up its other top companies invested, Yum Brands, Wal-Mart, & Johnson & Johnson, 75% of the fund is tied up with the world best companies. I don't know how one can go wrong with such best class companies in the world.
Closed-end funds work differently. The number of shares of such funds issued is limited. If you want to buy these shares, you must go into the stock market where they trade like a normal stock. In other words, to buy a closed-end fund, someone else must sell their shares. Because of this the value of a closed-end fund can fluctuate significantly, and does not necessarily reflect its NAV. Sometimes its share price is higher than the NAV of a closed-end fund, called premium (i.e. overpaid) or is lower than the NAV, called discount (i.e. underpaid). Generally speaking, the share price of a closed-end fund will always go back to its NAV sooner or later.
Right now, BTF is traded at around $17 per share, which is roughly 20% discounted from its NAV. While I don't know the exact timing, it is almost guaranteed that you will at least get a 20% gain at some point when BTF simply goes back to its NAV. If people like BTF, its share price often goes much beyond its NAV, i.e. you may get more gain than 20%.
I like BTF also because of the stocks invested by the fund. About 50% of its shares are invested in the Bufett's company, Berkshire Hathaway. Additionally adding up its other top companies invested, Yum Brands, Wal-Mart, & Johnson & Johnson, 75% of the fund is tied up with the world best companies. I don't know how one can go wrong with such best class companies in the world.
Monday, March 12, 2012
More bearish signs for the US dollar
For over a year I have been talking about the dire fate of fiat paper money, especially the US$ and Euro. I called both as toilet papers. I hope you have got the taste of what I mean when you see how Euro has been beaten up in the past year. Although in the past 2 months or so, I have bet that Euro would appreciate against US$ in short-term, which has been the right call, the ultimate fate of Euro will be its death. I said I don't expect Euro will survive another 5 years. I still maintain my position. For the US$, although I don't think it will disappear within the next few years, I also have a very depressed outlook. I'm seeing 2 concrete signs which are consistent with this outlook.
- China, the largest holder of the US government debt (bonds), has taken drastic steps to diversify away from the US$ assets. She has set up many bilateral agreements with other trading partner countries (e.g. Japan, Russia, Latin America countries etc) to do trading business with their own currencies, instead of using the US$ that used to be the only acceptable international trading currency.
- Iceland has recently announced its intention to use the Canadian $ as its currency. What? Wouldn't any country who wants to tie itsself to another currency should always use the world only reserve currency, the US$? It was true in the past, e.g. Ecudor using US$ as its own currency or Hong Kong pegging the HK$ with a fixed exchange rate. So why Iceland does not want to use the US$ as its currency but the CAD$? Lack of confidence of the US$! No other way to explain this.
I know you won't feel the immediate impact of this kind of news on the US$ but more and more we are witnessing the losing purchasing power of the US$. That's why I like gold and silver more and more even though it has been painful to experience the extreme volatility of the precious metals. So far I only see gold and silver as the real money, the eternal money which will keep my purchasing power over time.
- China, the largest holder of the US government debt (bonds), has taken drastic steps to diversify away from the US$ assets. She has set up many bilateral agreements with other trading partner countries (e.g. Japan, Russia, Latin America countries etc) to do trading business with their own currencies, instead of using the US$ that used to be the only acceptable international trading currency.
- Iceland has recently announced its intention to use the Canadian $ as its currency. What? Wouldn't any country who wants to tie itsself to another currency should always use the world only reserve currency, the US$? It was true in the past, e.g. Ecudor using US$ as its own currency or Hong Kong pegging the HK$ with a fixed exchange rate. So why Iceland does not want to use the US$ as its currency but the CAD$? Lack of confidence of the US$! No other way to explain this.
I know you won't feel the immediate impact of this kind of news on the US$ but more and more we are witnessing the losing purchasing power of the US$. That's why I like gold and silver more and more even though it has been painful to experience the extreme volatility of the precious metals. So far I only see gold and silver as the real money, the eternal money which will keep my purchasing power over time.
Friday, March 9, 2012
Boston Scientific, a potential takeover target
As I said before, I traded Boston Scientific (BSX) with a good profit over 2 years ago when it was changed hands at about $7. It is now below $6 but with a much better value. I have seen reports out there speculating that BSX may be a target for takeover. I think this is a good speculation and I won't be surprised if it happens.
Boston Scientific is a medical device company, mainly focusing on cardiovascular disease. It manufactures stents and implantable cardioverter defibrillators (ICD). In this field BSX can be considered one of few dominating companies with a revenue of $7.6B. So why it is so cheap if it is such a good business. Misjudgment of its own capability! Back in 2006, BSX bought a company called Guidant that also made ICDs. For this deal, it took a good deal of debt, which was really beyond its then financial capability. Since then its stocks plunged from over $30 to now below $6. However, in the past few years, thanks to its healthy and profitable business, BSX has already paid off this debt. That's why it has recently announced that it will start to buy back its own stocks, a good sign that it also thinks its stocks are undervalued. Indeed, BSX is very cheap, when compared with its book value, over 30% discount! When a good business with a super discounted valuation out there, it is often a no-brainer takeover target for those companies with abundant cash in hand. If this happens, a few hundreds percent instant jump is not something unthinkable, given such a depressed stock price at the moment. More I think about it, more I believe so and more I become interested in this company. I hope it can drop a bit more before I start to accumulate its shares.
Boston Scientific is a medical device company, mainly focusing on cardiovascular disease. It manufactures stents and implantable cardioverter defibrillators (ICD). In this field BSX can be considered one of few dominating companies with a revenue of $7.6B. So why it is so cheap if it is such a good business. Misjudgment of its own capability! Back in 2006, BSX bought a company called Guidant that also made ICDs. For this deal, it took a good deal of debt, which was really beyond its then financial capability. Since then its stocks plunged from over $30 to now below $6. However, in the past few years, thanks to its healthy and profitable business, BSX has already paid off this debt. That's why it has recently announced that it will start to buy back its own stocks, a good sign that it also thinks its stocks are undervalued. Indeed, BSX is very cheap, when compared with its book value, over 30% discount! When a good business with a super discounted valuation out there, it is often a no-brainer takeover target for those companies with abundant cash in hand. If this happens, a few hundreds percent instant jump is not something unthinkable, given such a depressed stock price at the moment. More I think about it, more I believe so and more I become interested in this company. I hope it can drop a bit more before I start to accumulate its shares.
Tuesday, March 6, 2012
A significant correction is starting
I'm tied up with travel and meetings. So just a quick note on the market status. Today looks like a start of a significant correction, which I have talked about for weeks. There is a good chance that the market will try to bounce back tomorrow, given it was a quite a crash today. It is natural that people are not convinced about the correction and will try to catch up the falling knif, hoping to get in at the bottom. But I think more plummets are coming after initial bouncing back. Likely a 5-10% total drop may ensue before this correction is over. I will be ready to get in by then to ride on a significant rally in the remaining of the year. Hope I'm smart enough to spot the real bottom.
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