Best buys now

Happy New Year!
I wish you all had a great profitable 2014 and will have a prosperous new year in 2015. I hope my blogs have brought you and will continue to bring you useful ideas for you to make some money. I will try my best to do so in the time ahead.

Due to the busy schedule towards the year end, I don't have much time to write but I have 2 top ideas for you to consider.
- One is Muni. If you don't know what it is, please refer to this blog. The best buy now if NIO, which has a 8% discount and paying a 9-10% dividend (tax-equivalent) or 6% dividend tax-free.
- The other is preferred stocks vis JPS. You can refer to this blog to get an idea about preferred stocks. JPS has a 10% discount and paying a 7% dividend.

If you hold them for long-run, I'm sure you will be happy down the road that you buy them now with a huge discount.

End of world trade

As I said, the energy sector is on a free fall at the moment and there seems no end to be seen, at least for the very vast majority of everything related to energy. If any attempt to step in, it is just like trying to catch a falling knife. It could be very hurtful. Well, the contrarian me just cannot help but be wondering around to look for opportunities. I'm pretty sure there will be great money to be made from this brutal crash in oil and related stocks. I largely missed the last opportunity in 2008/2009 when oil dropped from $147 to low $30s. I don't want to miss this time again. I have started to accumulate some shares of big oil companies such as COP and XOM, which I will keep forever with dividends reinvested. I'm also looking for more speculative opportunities, which may, if I'm right, bring me 5 or 10 times the money I put in. Well, I think I found one that is worth trying.

Triangle Petroleum (TPLM) is a very small integrated oil company, meaning it is not just producing oil, but is also involved in other oil-related business. According to its CEO, they are hedging their oil at the price $85, meaning the falling oil price is not really hurting them and they can still make money even if oil keeps falling. At a price around $5, it is trading below its book value with enough cash available to buy out itself. To me, this is kind of gem I'm looking for when there is a lot of turmoil and blood in this sector. The real kicker for me is its technical setup, though. When for almost all the other oil stocks there is no sign of any turning around, TPLM is behaving as though it is attempting to make a bottom right now. In the past week or 2, TPLM has stopped declining and has started moving up. A higher high and higher low price movement is the first sign that it may have reached its bottom and started to turn around. With a price as low as $5, it is almost like a call option with no expiring date. As a safety net, watch for its recent low around $4. If it drops below this level, then this is a fake attempt of turning around and it will continue to decline. Sell if it happens. Otherwise, simply keep it to catch and ride a potentially fantastic bull run.

Once in decades chance!

Natural resource stocks have got absolutely killed. They include precious metals, nuclear energy, natural gas, oil, coal and other minerals. None of them is not lying in the blood in the streets. The brutal crash of the crude oil price plus the so-called year end tax-loss selling has added more salt on the wound. But the thing is, natural resources have always followed a predictable cyclicality. No exception! When the demand outpaces the supply, everyone becomes euphoric and starts to invest huge amount of money to try to catch the bull train. Eventually after several years of investment  and exploration, the supply becomes too much, outpacing the demand. Then the brutal correction starts. It will last until those weak hands cannot survive anymore and get killed. Initially this will lead to a balanced demand and supply ratio but eventually the demand will outpace the supply again and the cycle starts again. So the best time to buy natural resource stocks is the time when everyone got killed and no one is interested in it anymore. This is the exact bottom feeling like when the supply has come down to the minimal level. The only direction it can go next is up. Based on all my reading, I think now is the time at the bottom of this cycle for natural resources. Friends, this is likely a chance of once in one or two decades that is typical in the resource sector. Once a trend starts, it will last for 10 or 20 years before turning around.   If you have the gut and can handle the volatility (it is always very volatile), starting to get some exposure to this sector will make you a lot of money. I’m talking about a potential of 5 or even 10 bagger profits down the road. I will talk more about this sector in the next few months with some specific suggestions when appropriate. Stay tuned!

End of 3D printing?

3D printing was the darling of the Wall Street a year ago. Everyone was talking about it and the share prices of 3D printing companies shot to the moon as a result. It was way ahead of themselves. As with any stocks, if their valuation could not be supported by the fundamentals, sooner or later they have to come down to face the reality. This is what has happened to this industry and related stocks. Take 3D Systems (DDD), one of the biggest 3D printing companies as an example. The euphoria at that time pushed it to the peak close to $100, a very crazy valuation level. Then it got burst and crashed by 2/3 of its values to about $30 at the moment. What kind of the blood in the streets! Even at this level, its PE is still at 160 but the overall market PE is just around 17. You judge if it is still too expensive.

Having said that, 3D printing still has a great future in general and I don't think it is already ended. It just needs time to consolidate and eventually will come out strongly again. I'm especially interested in the biomedical 3D printing as it has a huge unmet need in front of it. I talked about Organovo (ONVO) before when it was traded at around $8. I cautioned that it could jump up crazily but could also easily nose dive. In other words, it would be very volatile. Along with the overall correction of this sector, ONVO is not immune to it. It is currently traded around $7. But as you can see below, it fairs much better (red) than DDD (blue) during this downturn. It appears it has a strong support as the level of $5-6. To speculate on this kind of new technology, the safest thing to do is to only put in a small amount of money when they are at the level with a strong support. As long as this support level holds, you should also hold and you should take some profit off the table if it goes up too much too fast. If you play this rationally, you may end up with several times your initial investment. I still have a great faith on biomedical 3D printing!

Oh, boy!

The best day since 2008, WOW! Dow Johns jumped over 400 points in one day that has not been seen for over 6 years. As I said, it is a Santa Claus rally that is knocking on your door now. I cannot resist it. In the past few days, I have started to make orders for quite a few quality stocks, especially those which have been beat down badly. IBM is one of them. One of them is especially impressive percentage-wise. In the evening of Dec 16, I placed an order for Microsoft MSFT) call options, trying to catch up some fire if the overall market gets on fire. MSFT is one of the best companies for long-term investment, which I have talked about here many times. Lately MSFT was under pressure after a persistent bull run this year. Usually quality stocks that got "crashed" short term may shoot up most if the overall market is on fire. Fortunately my order got filled the next day, i.e. yesterday. Today, MSFT jumped almost 4% with the market and my call options? Almost double in one day! See below. This is kind of short term extreme trade purely based on technical analysis. I believe there is more to go!


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The Santa Claus Rally has likely started today

Following my calling of a major bottom a few days ago, the market has been chopping around in the past 3 days with a lot of volatility. But I think finally and starting today, we are entering the Santa Claus Rally, sort of speaking. The recent sell-off has set up a perfect platform for the market to jump high towards the year end and may be more into early next year. We will see. If you believe me, buying SSO at any weakness is a good choice.

Buy IBM!

I know I sound crazy and losing my mind to suggest to buy IBM at the moment when it is like a falling knife. I totally understand it is a lot of pain for those holding the IBM shares. If you are buying just hoping for a short-term profit, you should not buy at all. If you are in for long-term investment with dividend reinvestment, then you should be happy to see the falling of IBM stock prices. This will only be doing great to you over a long run as the lower its price goes, the more shares your IBM dividends can buy, which will bring you more dividends and more shares and so on. If you are nervous, just think about what Buffett is doing as I told you last week. He is buying more of IBM. You should do the same, period! I hope you can understand, for great companies like IBM with sound business in place, the lower its price goes, the less risk you will get when you buy and eventually it will bring you a lot more wealth down the road.

In this uncertain time when there is still a possibility that IBM may further go down, the best strategy is to buy IBM with dollar averaging, i.e. you buy a bit now and buy more if it falls further. This way, your average cost will come down as well. This is what I'm doing now.

We are getting to a major bottom

I heard from CNBC yesterday that the market had the worst week since 2002. Yes, anyone who watches the market closely is certainly feeling the pain about the relentless decline of stocks day after day. As I said, the market is a bipolar animal, meaning its mood can change quickly just like a teenage girl. Just a few weeks ago, everyone seems supper bullish and the market just kept going up and up. Then all the sudden, it has become extremely depressed and keep going down and down. But everything has an end. I think we are getting very close to the bottom for this time but it may still take a few sessions with some volatility. How could I be so confident to call a bottom? Well, you have heard me talking a lot of volatility index, VIX. When it is up over 20, it is usually suggesting some panic in the market and very depressed mood for investors. This is often the contrarian indicator for a turn of the market. In the past 2 years as shown below, when the VIX average (green line) is high with a +2 standard deviation (SD) from its mean (red cycle), each time it lined up perfectly with the bottom of the market (S&P 500 in black). The VIX is over 20 now with a +2 SD. Next week starts the a very bullish season for the market as well. I think there is a good chance that you may see a jump of stocks soon. If you want to enjoy the overall market increase, you may buy SSO. I'm confident, SSO will be a lot higher toward the end of the year.

Buffett bought more shares of IBM

Now the information has been disclosed, which is consistent with what I had expected: In the third quarter, Buffett's Berkshire Hathaway holding company bought 304,034 additional shares of IBM.  That brings the company's total stake to about 70.5 million shares… worth approximately $13 billion, or 7% of IBM. This is Berkshire's fourth-largest position. Remember what I said just a few weeks ago? Here it is: Do you think Buffett would be really sad for a minute about this "huge paper loss"? Not a chance! On the contrary, Buffett would be very happy for 2 reasons: I won't be surprised to see his increase of his holdings for IBM and/or KO in his next investment disclosure as it is typical Buffett that he loves lower stock prices and will buy more when others run away. Also he will be happy to see more shares that his dividends from IBM and KO could buy, which in the long run will substantially increase more of his wealth than if the stock prices simply go up.

 Buffett definitely keeps his words. In his 2014 annual letter, he made a wish that IBM’s stock will not go up for years: “If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon.”

 20 years ago, IBM successfully transformed itself from the world largest hardware company to a specialized software & IT service company. Since then its profit margin has consistently increased year over year and along with that, its annual dividend has increased more than 600% in the past 10 years from $0.7 to $4.4 today. So let me ask you, if you save your money in the bank, can you expect to earn your interest with an annual increase of 60%? Not a tiny bit of chance! On the contrary, you must know that your money buying power in the past 10 years has actually significantly reduced, thanks to inflation. That’s why to me, buying and holding IBM stocks is much better than saving in the bank. Your money will definitely beat inflation!!

Why is the Chinese stock market so bullish?

I have been pounding the table a few times in the past few months to buy Chinese stocks. Sure as expected, the Chinese market has been on fire now. The Shanghai stock index has been up 37% this year, the brightest stock market in the world now. I have put my money into more conservative FXI but recently also more aggressive ASHR, which is the ETF directly tracking the performance of the Shanghai stock market. Thanks to the recent extremely bullish move, my ASHR has already doubled in just 2-3 weeks. It is too much too fast to me. So I cashed in half of my positions to take my original investment capital off the table. The remaining is just my house money.

So is the Chinese stock market a bubble now? In a short term, it smells like that and I’m afraid it will get some sort of mini-crash soon. But in the long run, it is far from over. As I said, if the history is any guide, the Chinese market may go up by 100% to 500% before it is done. The driving force is becoming more clear that this is the government engineered bull market. You see, the Chinese government has recently taken a couple of major steps to encourage people to invest in the stock market. Last month, they launched a program called Stock Connect that links the Shanghai and Hong Kong stock exchanges. This has created a platform to allow foreigners to buy Chinese stocks on the Shanghai Exchange and Chinese citizens to buy foreign stocks by trading shares in Hong Kong. Then a few weeks ago, the People's Bank of China (the Central Bank), reduced one-year lending rates 0.4% and one-year deposit rates 0.25%. It is also reported that the Chinese authorities has cut fees for trading and opening investment accounts to lure more small investors to get back into stocks. All these efforts have obviously been effective as only in November over 1 million brokerage accounts were opened in China, which was almost triple from a year ago. This has been translated into an explosive increase of the trading volume on the Shanghai Composite Index, rising 85% over its 30-day averages according to Bloomberg.

Putting all together, I’m more confident than ever that there is powerful force behind the Chinese stock market to skyrocket for at least a few years. Don’t miss it! Any weakness will be a great buying opportunity!!

What sectors to benefit from declining cheaper oil?

Further to the topic on the crashing oil, one certainly will be interested to know which sectors will usually benefit from it. The most obvious one is the airline business. That's why you will notice that the stocks for airliners are generally reacting very positively to the declining oil. The problem for airliner stocks is that it is very cyclic and sensitive to the oil. In the past 1-2 years, the sector overall has advanced so much that the remaining momentum for them is likely limited. If you are purely a trader, you may make some money with quick short-term trading but the risk is quite high. A much better sector is probably the retail business, especially those big ones which have to consume huge amounts of gas for transportation. I have talked a lot about Target (TGT) lately. Warmart (WMT) is another big beneficiary. Both of them are good ones for long-term investment, especially TGT valuation-wise. There is another one that I have never talked about but a great stock to own: Sysco Corporation (SYY).

Sysco is the largest US company for transporting food-related products, not only in the US, but also in a few countries like Bahamas, Canada, Republic of Ireland, and Northern Ireland. It is definitely dominating in this industry and it is very friendly to shareholders by consistently paying increasing dividends for over 30 years or via buy-back of stocks. Its current dividend yield is 3%. Looks like SYY is just breaking out its all time high now. This is a good sign that SYY may start its next leg of moving up. In any case, SYY is a stock you can buy and forget and sleep well at night.

Capitulation for oil sector

It feels like the end of the world for the oil sector! Two days ago, OPEC announced that they would not cut their oil production. This was widely expected but people were acting like it was totally a surprise. They simply ran and dumped anything close to oil. Oil itself dropped like a rocket by 10% on Friday and the extremely panic and depressed sentiment also spread to the whole sector quickly. Any stocks that smell like oil would be thrown out and abandoned. What a bloodshed!

For those speculating on oil stocks for quick profit it must be extremely painful. But for long-term investors, this is a great opportunity not coming so often. As the living master investor Warren Buffett said:  Be fearful when others are greedy and greedy only when others are fearful. This is the time you should be greedy, not fearful if you really want to be rich. No, I don't in any way suggest that you can be rich quickly by buying oil stocks now. Rather, this is the time you should start to look for quality oil stocks and buy them for long term. One such a stock I have been watching for years is Exxon Mobile (XOM), the biggest integrated oil company with the best management team who knows how best to allocate their assets. I once owned XOM years ago but I impatiently sold it because it was such a slow moving stocks at that time. Like many general "investors", I wanted to see big profits quickly. It was really one of may stupid things I had done before. I immensely regretted later when I started to realize how great XOM is as a business. XOM can easily still make money even if the oil price drops to $10. This is how good it is!! I have been watching to re-enter XOM. I think the time is coming now. XOM has declined by 10% in the past few weeks. It is rather cheap with a P/E around 10 and paying near 3% dividends. You can simply buy XOM and forget about it. More it goes down, more you should buy! Of course, don't forget to reinvest your dividends!!

Quick gain from Boeing is very likely

Almost 2 years ago I recommended to buy Boeing (BA), again when it was experiencing rather difficult time period. Talking about the contrarian idea! It was below $80 at that time and since then it has moved up quite a lot, close to double. After it topped around $150, it has been just bumping around side way in the past year. As you can see, it has got 3 well defined bottoms during the year. In the past few days, BA has just broken out to upside. Fundamentally BA is relatively cheap and a year long side way moving is likely an energy accumulation for it to launch a big move. I think this is likely the time for it. Seasonally this is also a great time for stocks with a year-end rally ongoing. I bet BA could easily move up at least 10% in the next few months to kiss its previous high around $150.

Final result of the gambling for Alibaba

Nov 22, the third week Friday when options expire. As we discussed 2 weeks ago, the chance for losing money was high for the guy who bet huge on Alibaba (BABA) with options. Unfortunately this guy indeed would lose big money if he/she still held the options till expiration. BABA closed at $111 on Friday. Per my calculation, each dollar would mean a $300,000 loss. So this guy could have lost $2.7 million in a short few weeks. This guy went in for a max $2.4 million gain but ended up with $2.7 million loss. Ouch!

Again, don't play fire with options if you don't know how to control your risks! It can bankrupt you!!!

Target: a painful short squeeze!

If you are tired of hearing me talking about Target (TGT), bear with me one more time. There is something to learn if you have closely followed the pathway of TGT in the past year or so. When Target got crashed, I was among the few who was against the herd and advocated to buy, not sell. TGT bottomed around $55 and since then it was largely trading in the side way fluctuating between $55-65 in the past year (the red lines). For those who wanted to make quick money with TGT, they would certainly have been very disappointed but for the long-term investors like me, I have just been very happy to buy and hold to enjoy good dividends. Even more, TGT has been an ATM machine for me over the past year because I have literally extracted thousands of dollars from it, taking advantage of its low valuation and good prices. Since May of this year, TGT started to shown a bullish uptrend: higher highs and higher lows (green). This was an early sign that TGT had recovered and was gaining energy to jump. Then 2 days ago, it finally fiercely broke out beyond its resistance. It jumped 8% in one day to as high as $72 due to an unexpectedly strong earning report. But be aware, this kind of price action with such a forceful move within hours (yellow) is a text-book short squeeze. It is often the case that when a stock is out of favor and hated by the Street, the herd investors will brainlessly just follow each other to short the stock. They have been brain-washed to think that such a stock has no way to go but down.Unfortunately things are not always go as they would expect, especially for quality stocks. When the trend suddenly changes, those who short heavily get caught up and often are forced to buy back the stock to close their short positions to avoid even larger losses. The cumulative effect of such forced buying will push the stock price to go up unbelievably fast. That's called short squeeze! Short squeeze for a moving up stock often creates a short-term "bubble", i.e. an extremely overbought condition, which is usually followed by a mini crash. Therefore, for quick traders, this is an opportunity to short the stock at this level to make some quick money. But this is only for very experienced traders and for a super short-term.

So what's the learning?

• Herd behavior is often the contrary indicator: when everyone wants to buy, you should avoid or sell; when everyone wants to dump, you should consider to buy
• Buying good quality stocks with track record of paying increasing dividends is the safest wealth-building strategy. The trick is to buy at good prices. Hope my blog can help to identify such stocks and timing. You can sleep well at night by buying such stocks when the herd is dumping. Soon or later, the share price will come back to normal and more.

For now, I guess you know what I'm going to say: don't immediately buy TGT as I expect it will "crash" before moving further up. But buying IBM at its current level is great to me. The sentiment for IBM is extremely low and the herd is dumping.

If she can be a millionnaire, you certainly can be as well

Barrons, the famous investment magazine, recently featured Mrs Stephanie Mucha who donated $6 million. You may ask what’s special for her as there are so many philanthropists in the US who have donated billions of dollars. Six millions may not sound a lot for rich people, it is not a small amount for the majority of people who earn their income pay check by pay check. It is even unthinkable for this lady when you know how much money she earned during her life: she had never earned more than $23K per year during her entire life! What’s your reaction now? Unbelievable  to me when I first heard this but when I learnt how she made this much of money, everything became very reasonable and made a lot of sense. So what’s her money-making magic? Very simply. Just buy good quality dividend paying stocks and hold them forever! This is a sure stress-free way to make you very rich. The time will make the magic to work for you. The only thing you need is to be patient. One example for this lady was that she bought Medtronic (MDT) in 1964 with an initial cost of mere $255. In 2007, 43 years later, it has grown to $459K. You see, as soon as Mrs Mucha and her husband bought a stock, they did not care about what was happening in the world. Think about it, during their life time, they had experienced several earth-shaking events that could make people feel like end of world:

-          Oil shock in 1970s

-          Black Monday in 1987

-          Asian financial crisis in 1990s

-          Tech bubble in 2001/2002

-          Financial crisis in 2008/2009

 

I’m pretty sure that for majority of so-called investors, they would sell and run when such events occurred. But Mrs Mucha never bothered to care and they simply kept all the stocks and let the dividends reinvested. That’s why they ended up with so much money even though they had very little money to invest.

I hope this article can inspire you and change to some extent your approach how to invest your money!

This stupid policy will crash the country but can make you a lot of money

If you follow the world economic news, you probably have heard "Abenomics". It is about the Japanese fiscal and monetary policy spearheaded by the Japanese Prime Minister Shinzo Abe since 2 years ago that they would print as much money as possible to bring up their inflation levels. This is a Japanese version of QE but in a much large scale, considering the size of their economy. I firmly believe this is a futile effort and the start of the end of their hopeless economy! In the long run, it is a suicidal attempt!

Through this J-QE, the Bank of Japan would buy up to $610 billion in bonds a year. But they just announced last month that they will add more to the purchase up to almost $700 billion. I feel sorry for the Japanese people as eventually the country will crash under the ever increasing debt load. But in the short and intermittent terms in the next few years, 2 things will happen. The immediate impact is the weakening J-Yen. I suggested to short Yen in Apr 2013 via YCS when it was around $40. Now YCS is over $80, almost doubled. In other words, in the past 2 years, Yen has significantly weakened due to this QE policy. On the contrary, a weakening Yen and flooding cheap money will boost the stock market in a big way. To ride this trend, one good means is via Wisdom Tree Japan Hedged Equity ETF (DXJ). The beauty of this ETF, as its name implies, is that it is actively hedging against the fluctuation of Yen. In other words, you can enjoy the booming stock market in Japan while the risk of depreciation of Yen is minimized. I think this is a good deal for those who want to diversify their portfolio with more exposure to international stocks.

How can risky option trading wipe you out

A couple of weeks ago, a friend forwarded me this CNBC posting regarding an option trade for Alibaba (BABA) that was claimed to guarantee to make $2 million within 6 weeks by some followers. Here is what I said: This to me is just a gambling that if the trading goes through as expected, he/she can make max $2 million but it dose not, the total lose is unlimited.

This option strategy is so-called strangle that will make money if the underlying stock is only trading within a set boundary of prices prior to the option expiration. It may be a good way to make some quick money for slow-moving stocks but it is extremely risky for high-flying stocks for which their share prices can jump around significantly.  It can easily wipe out one's account if no pre-defined exist strategy is set up. In this case, the guy is betting with really big money, 3000 contracts (equal to 300,000 shares). As I'm writing now, BABA is trading at $114. It means for each dollar beyond $102, the trader is loosing $300,000. At this moment of my writing, the paper loss for this guy is over $3 million already. Of course, it is hard to say this guy will definitely lose money as there are still 2 weeks to go before the option expiration on Nov 21. However, I think the odds are definitely against him/her. Since BABA has only started being traded for a few weeks, it is very difficult to do technical analysis. However, given how much euphoria around the stock lately and its price is above the Bollinger Bands with RSI over 80 (an overbought indicator), there is a good chance that BABA may decline a bit in the next 2 weeks. How much will it come down? No one knows for sure but I'd bet it is likely coming down towards its 10 day moving average around $104. If it happens, I'd think people who have not bought BABA yet will likely jump in to bid up its price again. It now all depends how lucky this guy will be in the next 2 weeks. I'm sure this guy will have many sleepless nights in the next 10 trading days.

The lesson? Do not play fire with options without sound exist strategy and pre-defining how much max money you can lose with a trade. It is exciting to make some quick money if everything goes well as expected but it can also easily wipe you out if you are not knowing what you are doing and the option trade goes against you.

Is Apple still cheap?

Not many people believe in Apple (APPL) as a stock because when I mention Apple as a cheap stock, I always get a suspicious stare as if I was out of mind. This is good sign that Apple has a lot more room to go up. Last year, when Apple dropped like a stone to low $400s, I made a bold call that Apple was likely at the bottom. It did. Since then I also made several technical calls regarding its good entry points. If you acted as I recommended, you should be really happy. Apple would have been way over $700 if not split (it is trading $108 after 7:1 split). I become more confident that Apple will march up beyond $200 (or over $1000 pre-split) in 1-2 years time. Fundamentally Apple is just very cheap and can go a lot higher, period!

The Chinese stock market is quite bullish

Just a quick note that my gut feeling is quite bullish for the Chinese market in terms of the long term, given what I have been seeing how it is behaving at the moment. FXI is still my favorable means to ride for the Chinese market bull run in the next few years.

Christmas gifts coming earlier

We are at the last count-down moment for an important FDA advisory meeting next week for the drug I'm involved in. So super busy at the moment, including evenings and weekends. Just a quick note on something I think you should think about.

Right now anything related to energy is on huge sale. People just dumped whatever they have blindly. This has created a huge opportunity for good oil stocks. I consider them as Christmas gifts for those who know how to invest. One of them is my loved oil company, ConocoPhillips (COP). Briefly, below is the 10 year chart for COP from 2005. It has experienced 4 times of such similar panic selling in the past 10 years but each time it simply comes back. At the moment, it is actually sitting on the 5 year support line. It is paying growing dividends (4% yield as of now), which has increased 400% since 2005 from $0.19 to $0.73 (quarterly). Is this the bottom for COP now? I don't know but do I care? I'm simply buying more when someone is sending me an earlier Christmas gift like that.

"Warren Buffett loses $2.5 billion in three days on Coca-Cola and IBM"

This is the title of an article and it went on: "It's not been a good week for billionaire investor Warren Buffett. His bet on Coca-Cola (KO) and American tech giant IBM have cost him more than $2 billion in just three days." I couldn't help but laughed! Apparently this guy didn't really understand who is Buffett and what is his investment style.

Do you think Buffett would be really sad for a minute about this "huge paper loss"? Not a chance! On the contrary, Buffett would be very happy for 2 reasons: I won't be surprised to see his increase of his holdings for IBM and/or KO in his next investment disclosure as it is typical Buffett that he loves lower stock prices and will buy more when others run away. Also he will be happy to see more shares that his dividends from IBM and KO could buy, which in the long run will substantially increase more of his wealth than if the stock prices simply go up. Don't believe? See an example here.

I'm anxiously waiting for another leg down of the overall stock market, which could further bring down the prices of IBM or KO. I will be the buyer at that time. Maybe the opportunity is just a few days away.

I'd like to get more money from smokers

I like tobacco stocks and have talked a few times here, especially the dominating company, Altria (MO). As I said, I hate smoking as a physician but I love such stocks as investment since they can bring me very reliable income for my retirement. One tobacco stock I’m holding is Phillips Morris (PM) which has done great for me since I got it. To be clear, I did not buy PM myself but got it for free from MO since it was spun off from MO in 2008. When I got it, it was around $50 and has since then appreciated to $80-90 in the past 6 years. Similar to its parent company MO that has paid increasing dividends for half a century, PM has done exactly the same thing to reward investors with increasing dividends with an annual dividend growth rate of 12%. So the dividend I’m getting now has been increased from the initial .45 per share to $1.0 per share. You can count that it will continue to hike the dividends for long long time!

As I said, I was busy buying in the past couple of weeks and PM was actually one of them. When there is panic, everything may come down regardless how good a stock is. This has created a great bargain for those long-term investors. Yes, PM is also on sale at the moment from its peak over $90 to low $80s lately. I’m happy to see this as I’m getting more shares via dividend reinvestment but at the same time I bought more PM stocks myself. I’m pretty sure those who are selling now will regret greatly when they look back in a few years. We have gone through this in 2008/2009 when I bought MO and at that time no one seemed to be interested in it. I wish we would see this kind of opportunity again but I won’t bet on it any time soon. The mini correction right now is probably the best opportunity for us for the foreseeable future.

Sell XIV but buy SDS now

This is a typical market bipolar mood swing often seen at the extreme situation. As I said a week ago when there was kind of extreme depression that buying XIV would likely make you some quick money, it shot up 20% within days. Now XIV has moved up substantially along with a fast decline of VIX that is now at about 16, the easy money with XIV is gone. I have already cashed out my XIV for about a 20% short-term profit. As it stands now, the market has suddenly become too much euphoric. It is simply too much overbought! Yes, I believe the market will move up further in the next few months with a strong year end rally but the normal course of moving up from the bottom should not be a straight line up. Given how fast the market has moved up within days, very likely it will come down again to test its recent low before finally finishing its bottoming process. This is just how the market works.

Now it is the time to sell XIV but buy SDS if you want to trade for extremes.  SDS is a leveraged inverse ETF for the S&P 500 index. As you can see below, SDS (red line) is inverse to XIV (blue line). When the market goes up, XIV goes up (due to declining VIX) but SDS goes down. If I'm correct that in the next 1-2 weeks the stock market will "crash" again to test its recent low, SDS will shoot up quickly. Of course this is purely speculative and let's see how it plays out.

What to do at the market panic?

The markets have been truly at a panic state in the past few weeks and I'm pretty sure it is of a lot of pain for most of the investors going through this. For the majority it is no fun to see the markets declining day after day and their stocks depreciating in value. Of course, it you are truly a long-term investor, managing a portfolio of high quality of dividend paying stocks, then a market correction like this should be welcome and make you happy. I'm definitely so, knowing that my dividends are buying more shares of stocks I want and I can also increase my positions with lower investment costs. So I was busy in the past few weeks to buy, not run. One particular stock I have been closely watching is Intel (INTC).

You may recall that exactly 3 months ago, I talked about Intel and my option positions. At that time, Intel was on fire and I thought it should come down first before moving further higher. Here is what I said: "So are you starting to become interested in Intel now? I hope you did so much earlier. While I think Intel is a great stock to buy and hold for long-term, I don’t like the euphoria about it at the moment. Suddenly all the analysts seem to wake up as if they are much cleverer than others to see the potential of Intel and are busy to upgrade it for buy. I don’t like it for the short-term. If you want to buy, likely you may get a better chance in a few months from now when the euphoria sets down. I think it is short-term overbought at the moment. It would be a much better buy if it can decline towards $30 or so." Well, as expected, Intel did come down substantially in the past few days, almost touching $30, the level I was waiting for. Intel at this price is a great value. It has just reported great earnings but the market was too pessimistic that they basically dumped everything regardless. So I took the advantage and did two things:

• As I said, I was stupid to set up a cover call too early to cap my long call profit potential up to about $30. I think Intel has a greater potential to go up much higher from here. I was definitely not happy about it. So this mini crash of Intel declining to about $30 gave me a great opportunity to unwind this portion of my options. I closed my Intel covered calls and my remaining long calls have no limit now regarding how high it can go. No need to say how happy I am with this chance!!
• The panic mood has enlarged the premium of options significantly. In other words, it is a great time to earn higher income from options. I sold more short term put options of Intel and expect to earn 3.3% from it with 2 weeks, which is equivalent to an annualized return of 85%!

If you haven't bought Intel, this is clearly a great time to buy! I don't know if Intel may go down further in the near future but I don't care as I know it is already very cheap at around $30.

Almost a sure way to make money at panic

The stock markets are crashing and everyone is running away, which makes a moonshot for VIX, the Volatility Index and so-called the market's "Fear Gauge". VIX shot up 20% today and briefly touched 30, a level not seen in almost 3 years. So can you make money when the market is in the panic mood? Definitely yes! As you can see below, VIX has rarely gone over 30 (the higher it goes, usually the lower the market goes, indicating investors are more nervous and dumping stocks). Since 2008 when VIX went all the way up to over 80 during the peak of the financial crisis, VIX has only been over 30 two times. It is even rarely above 20 in the past 2 years, a clear very complacent market! You may notice, regardless how high VIX goes, it always comes down when the market calms down from panic. There is no such thing that the market will be at the panic state all the time. So you can bet safely that sooner or later, the market will calm down again and VIX will decline as well. I bet VIX won't stay above 20 for long and may come below that pretty soon in a few weeks or even sooner.

 

So how can you trade for a declining VIX? Buy XIV, an inverse ETF for VIX. XIV will go up along with VIX coming down. While I expect VIX may start to decline pretty soon, you will still not likely lose money from XIV even if I'm wrong and VIX stays high or even continues to go up for a while. Why? As I said, it is just a matter of time when VIX will come down. As long as you can hold XIV, you will eventually make money. In investment, I don't want to say 100% for anything, but this one is close to a sure thing to make money, if you have enough patience and nerve.

 

Below is just what occurred today for XIV when it was bought at the time VIX was close to 30. Within a few hours when the market closed, XIV was already up by 10%. This is how fast it can move. If VIX is still above 25 in the next few days, buying XIV is a good trade. 

 

 

 

Should you run now?

It cannot be more scary than this: the Dow tumbled 335 points, the much broader S&P 500 got shellacked 41 points, and the tech-laden Nasdaq lost 90 points, and all occurred on the same day last week! This was a worst day of stocks which we hadn't seen for at least over 2 years. The plunge has erased the whole gain of the stock market in this year. If you feel shattered, frustrated or depressed, I can understand. So should you consider to run? Yes and No!

If you have many risky stocks in your portfolio that you are only speculating for short-term trading profits, then definitely you should be worried. Such kind of stocks are usually the first ones to crash and the last ones to recover, if they even can recover. You should always have some exit strategy to run quickly if the trend starts to turn against you.

On the other hands, if you have a portfolio with high quality dividend paying stocks, you should feel lucky that their stock prices are declining. You can benefit in 2 ways: 1) you can sleep very well at night knowing that your next dividends from such stocks will buy you more shares. This in the long run will bring you much more wealth than from the stock price appreciation. Don't believe it? See here. 2) You can buy more of such great stocks with lower prices to increase your positions.

One thing I still believe in is that this is the bull market and nothing fundamentally has changed to justify a reversal of this big trend. To me this is just a needed breath and rest for the market during its bull run. Therefore this plunge should be short-lived and I think it has created a great trading opportunity at moment. I think the oil market is specially interesting as it has been beaten down so badly that a strong rebound is very likely with any slight better or even no-so-bad news. USO is one way to bet for the oil market. I'm also expecting to see some general bouncing back from the overall market very soon. SSO is an effective way to do so.

Buy more trees for your retirment

A friend was asking me about PCL that I talked about almost 2 years ago. At that time it was around $39. It went up to almost $50 but it is now coming down to $39 again. I was asked whether it is still a good buy? Definitely so. Nothing I liked about PCL has really changed except that after many years of great run, it needs some rest. I still think it is one of great way to invest for retirement. Trees will grow regardless of what happens in the world, good or bad. They will beat inflation over the long run. PCL is now paying you 4.5% dividend. To me it is still a great buy at this price. Go for it and hold for long term with dividend reinvestment!

By the way, I was asked about another stock, WPRT, which is the manufacture for gas engines. I talked about WPRT a few times and made some money in the past. Unfortunately WPRT is not doing so great at the moment and its management cannot effectively monetize its unique technology and its leading position in gas engines. It is punished for their poor performance. While I'm still thinking this company has a great potential in the future given the super mega-trend in the natural gas industry, I think at the moment it is not the right time to continue hold WPRT, not mention to buy more, even though it is very cheap. I will let you know when I think it is safer to buy it again.

A potential blockbuster

Keryx (KERX) has just got a drug approved, called ferric citrate. It treats hyperphosphatemia (or high phosphate levels) in patients with chronic kidney disease who are on dialysis. These are very sick patients, who often end up with bone disease, vascular calcification, cardiovascular disease  that could lead to early death. For dialysis patients alone, it would be in the $250 million to $500 million range, which is big for a biotech as small as Keryx. So you would think KERX should soar following the FDA approval news a few weeks ago. Wrong, the stock got crashed by 11% on that day and continued in the following weeks. On one hand, it is a typical Wall Street behavior to buy the rumors and sell the news. There is another wrinkle in this case. Investors were kind of spooked by the “unexpected” finding that there is a warning in the product label that the iron levels have to be monitored during treatment. Is this really unexpected? Not at all in my book. Almost any drugs on the market will include some sort of warning & precautions since no drug is side effect free. I really don’t think this is a big deal and oftentimes the company can use the label information as the marketing means to approach physicians. In my mind, this is again a typical Wall Street overreaction! There is even another huge potential not many people understand, which may turn Keryx into another very profitable and successful biotech company. KERX is working on to expand its indication into pre-dialysis patients with chronic renal failure. This is really an extremely big market and if successful, this drug may bring in over $1 billion for KERX, a truly blockbuster product.

If you are willing to take some risk and have a long-term horizon, I think the current weakness of KREX is a great opportunity!

The second chance to buy FXI is here

As expected, FXI, the ETF for the Chinese blue chips, has tested its 50 DMV. The left upper chart was posted less than a month ago and the right lower chart is what looks like right now for FXI. So FXI has followed my script in the past month and has reached the target price. I think this is a good second opportunity to invest in the Chinese stock market and FXI is a safer way to do so. As I said, if history is any guide, double or even several times your money from investing in the Chinese market now at this rather low level with quite poor sentiment is not out of reach.

 



Be ready to short US$

Exactly one month ago, I suggested to short Euro via EUO. If you followed my advice, then you should be happy to see that you will have made about 8% in just a few weeks. Believe or not, this is equivalent to an annualized return of 96%! Take it and run. While it may not sound a lot that Euro (FXE) "just" dropped about 4% in a month, this is an enormous move for a major currency in such a short period of time. Now the sentiment is extremely bearish for Euro and conversely extremely bullish for US$. This is also reflected in the price action for EUO, which is clearly overbought. When the sentiment become extreme in anything, you got to take the contrary action. Although I still think Euro has a lot more to drop in the long run, in the near future, Euro will likely bounce back, a dead cat bounce! I'd sell EUO to take the profit and be ready to short US$. It has just too much euphoria on it at the moment and it is never a good thing from a trading perspective. I will tell you when the time is right to short US$ and how to do it. It is close but not just yet.

Macro: The Bottom Line (9/22/14)

Beware of the blue dots

 

In last week's posting ("The ECB and the Fed: the transatlantic tug-of-war"), we discussed how the Fed and ECB were headed in opposite directions, and that markets may enter a period of uncertainty as the two central banks jostle with one another. In terms of dominating headlines, the Fed definitely scored a point in this tug-of-war tournament last week.

 

From the start of the week, markets were anxiously awaiting the results of Tuesday-Wednesday's FOMC meeting. Specifically, they wanted to see whether the Fed would keep its longstanding pledge to keep rates low for a "considerable time." Any qualification to this pledge would have been interpreted as a sign of an imminent rate hike. 

In the event, the FOMC did preserve the "considerable time" phrase word-for-word. But even so, all was not well in the markets, for the Fed still gave markets a rude awakening elsewhere: in its "blue dots." These refer to the interest rate projections of the FOMC's individual members, which are published quarterly in the form of scatterplots. [In case you haven't figured it out yet, the individual members' rate forecasts for the coming three years are shown as blue dots]. 

Back in the money-printing days when a rate hike appeared to be light years away, few paid much attention to these forecasts. But now, with the Fed on the cusp of ending asset purchases and likely less than a year away from raising rates, the dots have assumed paramount importance. And on Wednesday, they showed that FOMC members expect the fed funds rate to be 1.375 pct by the end of 2015. Three months ago, the median projection for end of year 2015 was 1.125 pct. Taking the consensus view that the first Fed hike happens in June 2015, this means that there would be at least 1 full percentage point worth of rate increases within a space of six months. 

In short, even while professing low rates for a "considerable time," the FOMC has in fact turned meaningfully more hawkish. This is surprising, given the dovish credentials of most voting FOMC members, whether it be Chair Yellen, Vice Chair Fischer, or NY Fed President Dudley. But as they say on the Street, never bet against the Fed. 

Draghi, now it's your turn ...

Be cautious about tech stocks

I'm extremely busy with my submission work and have to catch up in evenings and weekends, which will likely last for a few months from now. So really not much time to write but I will still post some short notes for some quick thoughts as often as I can.

I hope those who had bought Yahoo had sold already before the Alibaba IPO on Friday. As predicted, Yahoo would be sold off hard as soon as Alibaba IPO came on board in the market. Actually just within 2 days, Yahoo has already declined by 5%. Likely this will continue for a while.

I'm also concerned about the teck stocks. Without going into details, technically teck stocks are not behavoring well and there is a good chance that they may be significantly under pressure in the next few months. If you hold a lot of teck stocks, then you need to be very cautious and should mind your stop loss. E.g. raise your stop loss and be ready to exist or even proactively lighten up your portfolio with such stocks by selling some of them, especially if you have good paper profits with them. If you know how to play with options, then you can think about buying QQQ put options as hedge against your teck stock portfolio. This can protect you if indeed the overall teck stocks are sold off hard. I think this is likely coming and a 10% correction is not unthinkable. Having said that, any sold off will be a great buying opportunity for longer term. Will let you know if I start to see such opportunities.

Sell Yahoo tomorrow

I started to talk about buying Yahoo (YHOO) 2 years ago when it was traded around $15 and one of the reasons was its big stakes in Alibaba. If you have bought Yahoo, congratulate to and pat yourself at the back but you should sell it tomorrow. Why? Tomorrow is the last day before Alibaba's IPO on Friday, Sep 18. In Wall Street, the famous saying is Buy the rumors and Sell the news. It means people usually become very euphoric prior to the event actually happening but then quickly sell when the event materializes. Yahoo has shot up quite a lot in the past couple of weeks due to the expected Alibaba IPO.  Based on my past experience, there is a good chance that YHOO will be sold hard on the day when Alibaba starts being traded at IPO.

Sell YHOO tomorrow!!

Macro: The Bottom Line (9/15/14)

The ECB and the Fed: the transatlantic tug-of-war

 

Just a week after the ECB pulled out the Big Bertha (see last week's post), market attention shifted abruptly back to the Fed. If Draghi's big guns were enough to push bond yields to absurdly low levels, the past week's recoil was no less powerful. In fact, the 10-year U.S. Treasury yield, which just last month was testing the 2.30 pct level, closed north of 2.60 pct on Friday.

 

The main cause of the abrupt about-face was - believe it or not - an academic study. That's right, researchers at the San Francisco Fed released a study suggesting that market participants were underestimating the speed at which the Fed would raise rates. The recent market calm - so the researchers - was deceptive and symptomatic of complacency about how long easy-money would last.

 

Coming directly after the ECB's announcement, the SF Fed report had the effect (intentional or not) of placing the Fed in direct opposition to its counterpart in Frankfurt. On the one hand, there's Draghi and his Governing Council, preparing to blast open the liquidity floodgates and take on unprecedented risk onto the ECB balance sheet (remember, Draghi and company are planning to buy asset-backed securities, some without government guarantees). On the other hand, you have a Fed ending its buying spree and readying itself for its first rate hike since 2006. A transatlantic tug-of-war, between two powerful central banks, is shaping up.

 

So who will "win" this tug-of-war. Or to frame the question more accurately, who will end up ultimately influencing markets more? Will the ECB prevail, leading to a cross-asset rally, with bond yields setting new record lows and equity prices setting new record highs? Or will it be the Fed, touching off another cross-asset selloff similar to the taper madness of summer 2013? It's hard to argue entirely for one or the other. At the very least, both sides will create noise, periodically pulling the markets one way or another. But our inclination is that renewed 2013-style mayhem is unlikely. For all the flashiness of the SF Fed's study, the "conclusions" reflect the findings of its researchers, not necessarily the views of Janet Yellen or of other FOMC members. Not to mention that a 2nd half 2015 rate hike has already been largely priced in. And for all the rosiness in the U.S. labor market, the issues that we have repeated over and over again - weak wage growth and lackluster productivity increases - will not disappear overnight. 

 

Bottom line: don't expect a violent price correction across financial-market assets. But do fasten your seat belt for bouts of volatility ahead, as Mr. Draghi and Ms. Yellen dig in for an extended round of tug-of-war.

Macro: The Bottom Line (9/8/2014)

The ECB and the euro: make way for the Big Bertha 

 

The euro has gone full circle within 12 months. After rising to nearly 1.40 versus the USD from last summer through May, the currency has since gone practically only one direction: south. Last week, it crossed a psychological barrier, dropping below the 1.30 handle for the first time in 2014.

The reasons for the summer slide should be no surprise to Red Bull readers. Early this year, we argued that, with the Euro region experiencing a rocky recovery and facing deflationary threats, the ECB would have no choice but to pull out the Big Bertha - i.e. flood the system with liquidity. For a while, ECB President tried to tiptoe around pulling out the big guns: starting with some jawboning in the spring, he then cut deposit rates to negative in June (along with unveiling some conditional liquidity measures). But even that didn't solve the issue - instead, inflation continued to trend lower (YoY Eurozone inflation now stands at a mere 0.3 pct), and GDP growth remained stagnant (with Germany contracting in the 2nd quarter).

So last week, Draghi finally did the inevitable and rolled out the Big Bertha. He announced that the central bank would start purchasing securitized assets outright in October. Remember, these are the dicey securities - backed by consumer loans, auto loans, mortgages etc. - that wreaked so much havoc on the financial system back in 2007-2008. The thought is, by underwriting the risks of such securities via the ECB's balance sheet, commercial banks in Europe would have fewer qualms about extending credit. This, in turn, would help jump-start the moribund economy. Or at least so the theory goes.

There are certain unknowns though about going this route. Key details - such as the size of the program - remain unclear. Reuters reported that the purchases could total at least 500 billion euros. But there's an important impediment to reaching this size: lack of liquidity of the European securitized market. You see, the total stock of securitized assets outstanding as of 1st quarter 2014 is little more than 1 trillion euros (according to HSBC calculations). In contrast, the U.S. Federal Reserve focused its quantitative easing on the Agency MBS market (whose outstanding stock was over $7 trillion in 1st quarter 2014). So the ECB will have to weigh - to a much greater extent than the Fed - whether the potential market dislocations from its actions represent a risk worth taking. After all, the more realistic option for the ECB to achieve the necessary scale would be to purchase government bonds. But it has already faced stiff German opposition to doing so, and will likely continue to do so.

For these reasons, the Big Bertha's effects on the Eurozone's real economy are unlikely to be immediate. However, the impact will be felt in risky financial assets - be it higher-yielding government bonds, emerging-market assets, or equities. These assets already reacted positively to the news, and will likely remain well-supported for some time. At least until the Fed diverges from the ECB and starts hiking rates (likely in the second half of 2015).

"Save" money in emerging markets

As the US stocks goes up non-stop for 5 years, it is rather difficult to find good valuation stocks nowadays. But you cannot simply save your money in cash in the bank as it pays you near nothing. So where you need to put money then?  Emerging market (EM)! The emerging market is poised for substantial growth in the next few years as I’m expecting. In addition to put some money in the EM stock market, which I think will be performing much better than in the US, you may also “save” your money in the EM bond market, enjoying a high yield. I find one bond fund, Templeton Global Income (GIM), with a current yield of 5.2%. This fund holds bonds from the Emerging Market Countries with the asset allocation of 31% in Asia, 40% in Europe and 17% in Latin America. I expect GIM will be also doing great along with booming EM in years ahead. Two things I’m particularly interested in:

·         It pays a monthly dividend, which is more efficient in terms of compounding with dividend reinvestment

·         Its price action presents a bullish technical setup: a reverse head and shoulders, which often leads to an upward price movement.

I think it is a good buy at this price.

 

Apple is poised for a big move

Apple (AAPL) is set up for a big move on Tuesday next week, one way or the other.  Why so? Well Apple will debut on its new line of iDevices, which may include bigger-screen iPhones and iPads, iWatch, iWallet etc. I can tell you, the expectation is extremely high for Apple. If it cannot meet the expectation, it will drop like a stone. But somehow I bet Apple will live up to the high expectation. In that case, Apple can also shoot up to the moon. This may very well be your last chance to get this price for Apple if my bet is correct. Of course this is purely speculative. Personally I’m ready for both: enjoy the moonshot or buy more if it experiences a mini-crash.

If you haven’t got into Chinese market, you are getting another chance

3 months ago, I suggested that a bull run for the Chinese market might be just starting and you should consider to buy if you were bold enough. The safest way to bet the Chinese stocks would be via FXI, the ETF for the 25 biggest companies in China. As you can see below, Both the Shanghai stock index (SSEC) and FXI have gone almost straight-line up in the past few weeks. This is way too fast too soon.  Just like any long distance runners, they cannot keep running without rest and from time to time, they may even stop to accumulate energy. As can be expected, the Chinese stock market needs to take a rest and come down a bit before regaining enough energy to move further up. Same for FXI.  This is exactly what is happening now. Technically speaking, the SSEC was actually just hitting its strong resistance line around 2260. It is usually too much to ask for the initial try to break through a strong resistance level. The most logic area for it to rest is its 50 day moving average (DMA, the blue line). Usually for a stock with an uptrend, it will not go straight up but chopping around its increasing 50-DMA. I bet FXI will follow the same path, coming back toward its 50-DMA around $39.50 or when SSEC declines to 2135. When it tests this level, you should really consider to buy if you also want to ride this bull run. While no guarantee, I think this is likely the start of a multi-year bull market. If history is any guide, I won’t be surprised to see a gain in the range of 100-500% in the next few years.

Emerging markets are very bullish

I made some predictions at the year end of 2013. One of them was emerging markets, which I predicted would be doing well in 2014. It did not immediately show its strength during the first half of the year but it is catching up right now. Actually it is showing its rather bullish trend at the moment. EEM is an ETF for emerging market. As you can see below, EEM is breaking out its important 2 years' resistance (the red) line and is at the same time approaching and in the process to break out its long-term (6 years) trend line (green line). While nothing is guaranteed in investment, this technical setup is extremely bullish, indicative of the start of a long-term bull run for EEM. Fundamentally, emerging markets are also much cheaper than the US market and are poised to do the catch up work. I bet in the next 5 years or so, S&P 500 may not be doing well but EEM will be to a great extent outperforming. Don't ignore it!

Following Buffett’s footstep to build up wealth

I bet not many people knows how much the Buffett’s flagship company, Berkshire Hathaway (BRK.A), is trading now. Without much attention and seemingly silently, BRK A shares are crossing the $200,000/share level. Yes, over $200,000 per share if you want to buy BRK A shares today. BRK is certainly not sexy and not chased by people like other high-flying stocks such as Google, Apple, or Tesla. But believe or not, Buffett’s way is the only sure way to build up your wealth without taking much risk.

 I started my trading/investing about 20 years ago in Switzerland. Around 2000 when I just moved to Canada, I first heard about Buffett via a free investment newsletter. I clearly remember the story that author was telling in the letter: his friend bought a luxury watch worth about $50000. He said he would never buy such an expensive item which would only lose value over time. He would rather buy one share of Buffett’s company, which was about $50000 at that time. I also clearly remember what I was thinking then: could anyone really make money from such an expensive stock? What was the chance to have my money double with it? You can guess, I passed this idea and continued with my style that, I can bet most, if not all, of you are doing: more interested in ideas or tips of high-flying stocks, especially penny stocks. The conventional “wisdom” is that low priced stocks are easier to double than high priced ones. I was busy with trading in and out with no interest in long-term investment in the following years. What a stupid me at the hindsight!! Now in about 15 years time going through 2 very devastating stock market crashes in 2000 and 2008, BRK has quietly moved up 4 times in values, while during the same period of time, my style of trading had made me lose a bundle in my earlier years of investing. It would have made me much richer to simply buy BRK and sit there doing nothing for 15 years. Finally I got that in a very hard way!!

Investment is not gambling and you got to have patience and let the time work for you. Just like gambling, while there may be some supper lucky guys who can win and become rich overnight, the vast majority won’t become rich that way. You have to patiently build up your long-term portfolio with good dividend paying stocks and buying them at the right price and keeping them forever. Let dividends reinvest, which will bring you magic over time. You can become very rich, much more than you can imagine simply by dividend reinvestment due to the supper compounding power. See one example here I wrote last year how your small investment with $32000 could make you millionaire some day. If I were that smart 20 years ago, I could have already retired multiple times by now. But it is still not too late for us. Many of us will still have 20-30 years from now for investing, even if you start from scratch today. My goal is to build up a retirement portfolio that can generate monthly income of tens of thousands automatically for me, when I don’t want to do anything. Such a day will come inevitably when you get old: you need money to support your daily life but you cannot physically work anymore to make money. This is exactly what I have been doing since about 6-7 years ago. Looking for great dividend paying stocks and buying them when their price come down to a good level and then simply keeping them with dividend reinvested. You don’t need to worry about what the market is doing short-term. Actually borrowing Buffett’s words: 'Down days always make me feel good' , because you can buy great stocks at bargain. Initially you may likely not feel anything great as such stocks tend not to rise in a fast pace but keep steady. However, after observing them for 6-7 years, it becomes more and more evident that this is truly an effective wealth building machine: your number of shares becomes bigger and bigger every quarter and accordingly the dividend amount you get becomes bigger and bigger. All is working automatically without any of your further effort. As a matter of fact, a declining stock price will become beneficial for this type of investment as your same dividend amount can buy more shares, which in turn will bring you more dividend (see the example link here for MSFT). What a truly worry-free investment!!

This has become a cornerstone of my retirement portfolio. But I’m doing something more: I use option techniques to effectively boost income and dividends from such stocks and therefore to accelerate the pace of inflating my portfolio value. I have never felt so good nowadays in managing my portfolios. I’m also helping my son to build up his long-term investment. I’m sure in 20 years from now when he is in his 40s, he will likely be already financially free simply from his investment.

If you like what I’m saying and would like to start, take actions. At the moment, MCD, WAG and TGT are all at good valuation and are worth buying. Currently I’m discussing with a few good friends to think about pooling money together to set up a partnership company and invest using this philosophy and my well established trading techniques. I’m pretty sure this will be a very successful wealth building business.

Time to short Euro again

Long time readers certainly know that I have been bearish for Euro for years (see here and here). I even made a bold prediction that Euro would not survive in 5 years. Of course Euro would have already clasped if purely based the economic terms. It can rather survive for so long simply because of the political will. Following the financial crisis in 2008, the Eurozone countries have tried very hard to get back on foot. Yes, their situations are not as abysmal as 5 years ago, but have they really come out of the woods? No way! The Eurozone is still in a mess, a bit mess economically, period! Our recent bottom line blog was touching some key structural problem in the Eurozone.  While they are still struggling to survive, they are pulled into the confrontation with Russia due to the Ukraine crisis. Put geopolitics aside, sanctions against Russia are also hurting EU themselves very much economically. This has become more than evident when German’s GDP data showed that they were going into recession last quarter. You have to understand Germany is the only economic engine in EU that keeps the whole Eurozone floating. If they cannot keep their head above the water, the whole Eurozone has nowhere to go but sink. So what is the prescription from the EU Central Bank to save their economy? You can guess: printing money and flooding the market with Euro as much as needed! In other words, Quantitative easing in EU is escalating on four cylinders. The net result of QE? A weakening Euro. As I have said before, the EU Central Bank will not allow Euro to strengthen too much as they don’t have the economic power to support that. This is exactly what has happened in the past few months: Euro strengthened to $1.40 or so but could not stay that strong and has plunged to $1.33 just in the last couple of weeks. This is just the beginning. Euro has much more to drop and I won’t be surprised to see it go down to $1.20 or even lower. I think it is a safe bet to short Euro now. The easiest way to do so is to buy EUO, a leveraged inverse ETF against Euro.