Catching falling knives and other painful lessons

This last couple of weeks taught me a couple of lessons that left a scars to remember – though small.  Three retail stocks that i have watched and wanted to purchase, IF the prices dropped considerably to my targets.  TJX, DSW  and TSCO.

My initial target for TJX was $72.50 (it is currently $75.53 and my cost basis is $75.33), but i relaxed my target within 5% as i worried that the stock would not fall to my target.  However, it did fall to just below $74.  Key learning to watch the knife fall and hit ground before picking it up.  My position is 5% within my target, but i could have had a better entry point.  Position created in 2 purchases, and a third purchase is possible but ONLY at the target.

For TSCO, the target initially was $63, and the current price is $54.88 and my cost basis is $57, much below current price.  TSCO was bouncing in large percentages during the time period, and my position covered 3 purchases.  Again, the knife did not hit the ground, but hit my target price … after 30 day wash rule expiration, i may sell the most expensive position for loss and reposition.  Same lesson as TJX to wait for the knife in ground.

DSW was purchased in two different accounts (one much longer term that will be ignored here).  DSW dropped like a rock on a host of potential rationalizations, but i purchased a block at $16.20 thinking i would ride a bounce.  It bounced to $16.40 immediately and i put in a stop at $16.10 thinking that the bounce would continue up.  It sank again and my stop was executed.  It did not go too much below $16.05 and now it is at $16.73.  The value and yield is interesting and below $16.50 i will pick it up after 30 day wash rule.  Lesson learned … stop loss orders are a bane, but would i go without them for dead cat bounces?   … probably not.

Sunday Reads May 28, 2017

  • a sizable group of indicators, and a short summary:  “The nowcast for the economy remains positive, as does the near term view, with both stocks and jobless claims leading the way.  The longer term forecast remains neutral to positive, shading a little closer to neutral based on the tightening yield curve, less robust growth in real money supply, and the miss in corporate profits.”  Source
  • Two things here (Factset):  a) Europe growing and b) positive forecasts coming out of S&P Q1 earnings.  One can rationalize pollitically and economically why growth is moving away from US.  Aggregate indicators like this can be misinterpreted and misused … i see these like tail / head winds that need to be considered when looking at specific companies.  The industry data sets are important, however.   Source
  • Jeff Miller’s posted weekly snapshot 
  • A great overview of BMO, my fourth largest stock holding with cost basis of $53.19 / 5.19% yield – https://seekingalpha.com/article/4077038-schedule-canadian-banks-part-1-6-bank-montreal 
  • Not sure i agree w/ this perspective on Convertibles, but was worth the internal dialogue.  Source – i looked at ETF, ICVT, for a quick reference:  low yield, low analyst ratings, and a steep positive price slope (where’s the value?).
  • A good fist-full of data – http://brooklyninvestor.blogspot.com/

Will come back w/ a post on last week’s catching falling knives.

Language choices matter

The language news sources choice matters … significantly in my opinion.  Here are the framing assumptions:

  • Many people (investors too) read headlines and snippets and few take the time (or have the time) to read the full text and try to comprehend the nuance
  • All stories, investment stories too, have nuance
  • The language used in headlines creates and demonstrates the bias of the writer and perhaps “the street” for investments

Here is a good example from Briefing.com … “…worse than expected earnings and a 3.0% decrease in comparable store sales” … this just feeds the negative bias for retailers.  When actually, the earnings were $0.01 from consensus, and revenue (which i find most important) was about 1.0% ($6.2m) above estimates.  But that was not mentioned.  So income missed, revenue exceeded, but the headlines completely avoided the positive (revenue).

For the headline readers, continue selling the retailer.  For those of us who actually read the details and try to understand the nuance, we will do our best to take advantage of your headline only ignorance / actions.

Thank you!

Sunday Reads – May 21, 2017

This week’s review is going to be a bit different as i try to wrap my actions / thoughts around different articles i found useful … this may be a bit longer than my typical posts.

  • Favorite SA author, Jeff Miller, pointed me here – I was quite focused last week taking advantage of the over-reactions to news rather than solid fundamentals.  Here is a quick list of my actions
    • Sold GIS – i finally cut the cord to processed food and packaged cereals … the growth potential here is neither terrible nor great, but the social impact is not something i can support.  A good social / financial convergence and decision made.
    • Bought TSCO – This was just too cheap and i have a very hard time seeing how AMZN will start selling farm equipment and other essentials for rural survival.  Fundamentally, TSCO is solid for 5+ year investment.  I was interested around $60, but picked up at $58.5 basis
    • Bought more TJX – This is my favorite retail / consumer company.  They too fell from the AMZN will conquer the world.  Read their quarterly update and pay attention to the inventory numbers.  Add that to their customer experience (my wife is a tough tough consumer, but loves TJX)
    • Bought more VZ – This was just too cheap.  I realize they have a buying splurge that may / may not make complete sense and their debt is high.  I see no other players in the 5G space in USA outside of T and VZ.  I will be patient, and the dividends are now >5%.
    • Bought more DSW – This is in my daughter’s account.  10+ years.  Foot locker news drove it even lower and piled on the AMZN killer thesis.  ~3.5% dividend, an aggressive corporate strategy, and … how many people still want or need to try on shoes before buying?
    • So for the week … my cash position across ETF, REIT and Stock portfolios has dropped from >15% to ~10%.  This is my ‘fully invested’ position at this time.  I am an often vulture investor, and keeping 10% cash is comfortable right now.
  • Which is more important, revenue or income?  … my corporate experience tells me … longer term, both need to converge.  short term, revenue trumps income (too many dials can be turned to modify income a couple of pennies) … see this:  http://fundamentalis.com/?p=6940
  • Brazil story has a couple of good nuggets:  a) traders dilemna (sell now to remove risk, hold for greater potential returns – i find that i always follow the first fork in the path … take smaller profits and limit risk); b) ETF exaggerations and c) interplay between politics and financial fundamentals  https://seekingalpha.com/article/4074319-brazil-crashes-lessons-learned
  • This chart is a weekly inclusion from Jeff Miller, but the point to highlight this week is the delta in the 10yr Treasury (while not much change from last month, look at the weekly delta)

Later in the day update

A little shift

I sold my position in GIS, as i just could not get my head around an easy future with processed and packaged food.  I bought it several years ago rode it up, and down, but just got exhausted – did not make much money above the dividend.  I took the money and bought a similar position in TSCO.  TSCO is one of my 2 favorite retail companies with the other being TJX (i will write on that one after earnings call transcript is published).  TSCO is a big bet on rural america; like my new focus on FPI in my non-taxed account.

Sunday Reads May 14, 2017

  • Sometimes good old fashioned common sense can be the best financial analysis one reads.  This one is very solid https://seekingalpha.com/article/4072914-traditional-retail-fall-just-begun.  I quickly reviewed my larger portfolio, and of the retail companies there are only 3:  TJX, KR, and a very small DSW – discounter, shoes and food are probably less impacted by what is described here at a company level, but will certainly be impacted by market value perception.  Very much also like taking on to the logistic thesis in the article, and will include IOT and Security as more and more logistics are digitally monitored end-to-end.
  • Not quite sure how to internalize this one, but certainly food for thought … the ETF liquidity problem is something i need to figure out as i was just about ready to open new position in LQD  https://seekingalpha.com/article/4072985-heisenbergs-pressure-cooker
  • Some thoughts (in a very long article) on India http://brooklyninvestor.blogspot.com …the demographic narrative of age and income growth is consistent with my perspective, but i have not found (yet) the right instrument for investment.
  • Clear view of market segment earnings projections after Q1 releases and analyst updates http://fundamentalis.com/?p=6918 – these 4 industries idenitifed with the least downward revisions fit my top narratives as well – finance, technology, industrial and health

Money Supply and Federal Deficit

Money supply and government deficit / surplus articles have not been too frequent in near past.  Today that changed and two articles surfaced looking at two different data points (some trending) that has some negative overtones to any acceleration of economy, i.e., reflation.  I must admit that do not deeply understand these narratives (homework for me), but i find them a warning of an area to dig more …

article 1 https://seekingalpha.com/article/4072165-bad-news-u-s-government-posts-182-billion-budget-surplus-april-2017

article 2 https://seekingalpha.com/article/4072537-money-supply-growth-fell-8-year-low-march

after i posted, a third article surfaced https://seekingalpha.com/article/4072533-monetary-tightening-headwind-stock-market

Sunday reads & weekly commentary May 7, 2017