Stop Losses

I want to point out 3 charts that I've monitored/been monitoring. Each chart points out a separate staple of technical analysis. Yet, at the same time, they all illustrate the use of a stop loss and how you can identify where to place your stop on your holdings.

1.) Support/Resistance. These are areas on the chart that you can visibly see a stock either having trouble breaking through at, or finding support at. These are visual representations of the price action in the underlying stock. In this specific example, I want to focus on how you can use support/resistance to your advantage in terms of either placing stop losses or price targets. In this case, US Bank (USB) was considered to be a conservative bank. But, since they are still a bank, they are still a good house in a bad neighborhood. The dividend is nice and all, but the chart gave me a clear signal after it could not find support at a level of past support. I thus placed my stoploss right below this area of support. So, if the support failed to hold, I knew the stock would be headed lower and I would need to get out. And, that's exactly how it played out. On the chart, you can see a strong area of past support around $28. So, I placed my stop below that and got stopped out accordingly once it broke down past support. This stop loss saved me from the ensuing 25% drop USB experienced. This is the perfect example as to why you should have a stoploss on all your holdings. (Oh, and for those curious, I was only in USB to begin with because I was employing a buy-write strategy. They have a solid dividend, so I was pocketing the dividend (5%+) and then writing covered calls on the name every month to pocket more money since the stock essentially traded sideways for a long time).

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2. Trendline. Mastercard (MA) is sitting on a longer term support line right now. Once again, the quote of the week has been "The trend is your friend." Once the trend ends, get the hell out. So, take all the lows of the trend and connect the dots making your trend line. If the stock breaks below the trendline, it is most likely going lower and you need to get out. Place your stop loss accordingly. So, for instance, in MA, I would be buying this dip as it is on longer term support from the trendline. Secondly, it has filled the gap (but that's a whole nother topic). Then, place your stop just below the trend line. If it breaks, its going lower. For the graph below, focus on the green trendline I've drawn in.

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3. Head and Shoulders Pattern. This pattern pops up all over charts all the time. And, if you can spot it, you can benefit from it as this pattern is typically bearish. For this example, I want to focus on Suncor (SU). I'm actually very bullish on this name for the long term. But, for now, I'm using the technical analysis to my advantage. I've spotted a head and shoulders in this name and it could potentially trade much lower (especially if oil prices continue their decline). I've highlighted the two shoulders and the head with green circles. As you can see, the head is the peak of the formation and the shoulders are on either side, at the same price level. Then, the bottom of the formation is accompanied by a 'neckline' where the two shoulders form their bases. For SU, this neckline is at $55 and is the make of break point. This level represents support as the stock has previously bounced twice at that level. So, if it breaks the level to the downside, the stock could trade much lower. Now, for all intensive purposes, this stock could just continue to trade higher and not complete the H+S pattern. But, the point is that once you identify the neckline, you've identified your stop loss. For SU, you'd place a stop loss below $55 and call it good. You can get short anywhere below that level. Or, if SU holds that level, then you can get long. For now, the pattern is an *anticipatory* head and shoulders. It hasn't actually completed the pattern so I am technically jumping the gun here. If it trades down to $55 and then breaks the neckline, then it will be complete. Again, for all I know, this name could continue to march higher. But, its just something good to consider when managing your holdings. Also note that this chart makes uses of support/resistance as well (the neckline).

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Odds & Ends

I've got a couple random/unrelated topics to cover so I just decided to mash them all up into one post.

1. Capitulation. Everyone and their dog is looking for it, and frankly, that makes me think we won't get it for some time. If everyone is waiting for everyone else to panic and sell, then who is actually going to be selling? It used to be that not many people paid attention to the Volatility Index (aka the VIX), but as the year has gone by, you see more and more people referencing it. It now appears that literally everyone is watching it. And, apparently there is a disconnect between the VIX and this market tumble (more on that later). At any rate, the VIX did spike on this morning's sour open. It spiked to 31 but then quickly retreated back down, laying down a nasty inverted hammer on the chart. We'll see how the rest of the day/week plays out.

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2. Mosaic (MOS) has sold its nitrogen business (Saskferco) to Yara International for $1.6 Billion (courtesy of Bloomberg here). I suggested in one of my previous posts that MOS was essentially 'top-ticking' or selling the top in the nitrogen trade, as they wanted to focus more on potash and phosphate. Although the stock is down on the news, this is a very buyable dip, as it will further their bottom line down the road. Nitrogen, although a strong part of their business, is not seeing the ideal pricing power conditions as their potash segment is. Again, my thesis on these fertilizer plays all along has been to play them due to their potash exposure; nitrogen and phosphate were only added bonuses. The potash segment has very limited supply and strong demand worldwide. And, add in the fact that new supply cannot be brought to market for years, and you've got the ideal combination for $$$.

3. Google (GOOG). On the chart, many of you know that this thing has a nasty gap to fill all the way down around $480. Yesterday, GOOG broke down past $520 and gave me the signal to short. However, they do have earnings coming up and that could obviously be a catalyst in either direction. So, for the mean time, instead of straight up shorting GOOG, I've put an option strangle to work. (If you're unfamiliar with a strangle, it's essentially an options position that makes money only if the underlying stock makes a big move in either direction. You can read more about it via Investopedia here). I was going to play a straddle on this name, but GOOG options are ridiculously expensive and so even playing a strangle (typically cheaper since you're using out of the money options) is still expensive. So, yesterday, I entered into the strangle of GOOG 480 Puts and 560 Calls. Obviously, with GOOG trading down again today, the put side of the trade is making money, while the call side is not. If GOOG continues to trend downward, I may just take profits before earnings altogether. But, we'll just have to see how that plays out. I had drawn up this chart last week and intended to post it as a short, but I completely forgot. This first chart is the GOOG chart I drew last week. The second chart will show where GOOG sits currently. Since marking on that first chart, GOOG has fallen from $560 to $505, a pretty strong move to the downside. Here's the chart I drew a little while back.

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And, here's what GOOG looks like now.

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So, as you can see, GOOG has fallen pretty hard and could very well continue down and fill the gap at $480, as that is our final goal. Keep in mind though that earnings are coming up and could provide a massive catalyst for this stock to swing violently in either direction. That's why instead of just shorting it, that I have put on the strangle, to hedge myself.

4. The trend (is still) your friend. Seeing as how that phrase was the Quote of the Week for this week, I found it very appropriate to post yet another great up-trending chart in this shitty market. Central European Distribution Company (CEDC) came up while I was researching new plays in Central Europe/Eastern Europe/Russia. Taken from Google Finance:

"Central European Distribution Corporation (CEDC) is an integrated spirit beverages business. The Company produces vodka at two distilleries in Poland and is a distributor of alcoholic beverages. The Company is also an importer of spirits, wine and beer in Poland. Its products are also exported out of Poland. CEDC offers a portfolio of alcoholic beverages with over 700 brands."

I'll be doing more research on this name, but you simply cannot ignore a great chart. Pull up any time frame: 1 month, 3 month, 6 months, 1 year.... they all look the same:

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That wraps up the odds & ends for now.

Quote of the Week 7/14/08

The Quote of the Week this time around is an oldie but goodie. Simply put,

"The trend is your friend."

Until the trend breaks, ride it. Once it breaks, get the hell out. And, Kevin's Market Blog has a great chart which illustrates exactly that point. What chart might it be? Oh that's right... crude oil.

(click to enlarge)

Qualcomm (QCOM) and Jacobs Engineering (JEC) Added to Goldman Sachs Conviction Buy List

Today I'm seeing interesting news that both Qualcomm (QCOM) and Jacobs Engineering (JEC) have been added to Goldman's Conviction Buy List. Now, typically I don't pay particularly close attention to analyst upgrades/downgrades and the like. I'll check out their price target and see if they're saying anything new or completey outlandish that separates them from the crowd. But, one list I do like to pay attention to is the Goldman Sachs Conviction Buy List. This list carries weight for me simply because Goldman are one of the few firms truly surviving in this credit crisis. And, they are doing so by doing extremely well in their trading group. So, checking out their "A-list" for buys is a smart move simply because they have been killing it in the equities markets.

Reason I point out these two specific names (JEC + QCOM) is because I'm actively interested in these names. Qualcomm being added is a positive sign for me as I've recently added to my position on the touch of the 50 day moving average. They are one of my biggest tech holdings and will continue to be in the future. They are a big player in the mobile buildout space and also have a large hedge fund presence.

Jacobs Engineering (JEC) operates in the world of global infrastructure and has interested me for a while. I've been in and out of Foster Wheeler (FWLT), Fluor (FLR), and McDermott (MDR) for my exposure to this sector. Currently, I only hold FLR and am cautiously stalking other names to add to my infrastructure basket. Most of these companies have true global exposure and massive contract backlogs, which is reassuring. I'm still in the midst of my infrastructure research, but I'm most likely going to be adding FWLT (again) in addition to my FLR position. However, JEC keeps popping up on my radar, so I'll definitely be researching it more.

Infineon (IFX) to Benefit from 3G iPhone Sales

Let me preface this by saying I have absolutely no idea how much this will affect Infineon's (IFX) bottom line, but I would imagine it would have a solid impact. Everyone is expecting the 3G iPhone to be a big hit worldwide, which obviously benefits Apple (AAPL). But, there might be some other ways to play it if you're interested. With a little bit of digging today, I was able to find someone who had already disassembled the 3g iPhone (in New Zealand no less... since it's already out there). The people over at ifixit have literally taken apart the entire new iPhone to find all its components. Now, while there are still a few unidentified pieces in there, they have managed to identify the vast majority of components. And, I immediately noticed something: the 3g iPhone has numerous Infineon components. Again, let me reiterate that I am not sure exactly how much this will impact Infineon's bottom line, but it is obviously a positive for them.

The Infineon components can be found on the iPhone's logic board. As of right now, the team at ifixit have identified 3 chips as Infineon chips. And, there are rumors that 2 additional unidentified as of yet chips are from Infineon as well. They write that the identified Infineon chips include:

- "The largest chip in the top left corner is an Infineon 337S3394 WEDGE baseband."

- "Small chip to the right of the NOR: Infineon BGA736 (Tri-Band HSDPA LNA)"

- "The chip in the top middle is SMP 3i 6820, Infineon SM-Power3i. From Infineon: the part is 'optimized to support modem and data card applications based upon X-GOLD208 and X-GOLD 608, with features ranging from EDGE up to 3G and HSDPA.' "

Then, the 2 unidentified chips are believed to be the following Infineon components:

- "SP836175 G0822 337S3394 (rumored to be an Infineon baseband)"

- "338S03532Z 60814 (rumored to be an Infineon RF transceiver)"

(click to enlarge)

So, there are for sure 3 Infineon chips in the 3g iPhone, and possibly as many as 5. Obviously this should boost Infineon's revenue (and their stock as well). And, I noticed something interesting today. Infineon stock (IFX) saw very heavy buying on weakness today. I've talked about buying on weakness before and basically its a metric tracked by the Wall Street Journal which shows stocks that are down for the day but have seen the largest inflow of cash. IFX was #3 on that list today. Hmmmm, I wonder why? /End sarcasm. Not to mention, the stock is up around 2% after hours. I really don't think this news is mainstream yet. And, I really think that the buying today was by those people really paying close attention to the fact that the iPhone is technically released 'early' in the eastern half of the world and has already been disassembled. Seen below is a screenshot of the top half of today's buying on weakness list. You can check out the Wall Street Journal daily updated Buying on Weakness list here.

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The iPhone does not come out in the USA until tomorrow (the 11th), but the phone has already been released in the eastern half of the world. And, the guys down in New Zealand wasted no time disassembling the iPhone to find out what's inside. Clearly some people have noticed what I have: Infineon parts are all over the iPhone. You would think that IFX trades higher once this information hits the mainstream. Beforehand, the 3g iPhone components were a mystery. You could make logical guesses, but there was no way of knowing for sure. But, now that the information is public, there are a few stocks poised to benefit. And, Infineon (IFX) clearly leads the pack.

If I buy this name at all it will simply be for a trade and nothing more. I don't consider this news to be mainstream yet, but you never know. This information could already by completely priced into the stock. Although their component presence in the iPhone is obviously bullish for the company, they still operate in the very competitive chip space, where I don't necessarily want to invest. So, the fact that they have numerous chips in the iPhone is alone not enough reason for me to invest in this name. For now, its simply a trading vehicle.

You can check out ifixit's entire iPhone disassembly here.

Hedge Fund Manager Interviews

Alpha is out with their Hedge Fund Hall of Fame. In it, they have listed the first 14 inductees who have had substantial impact on the creation and rise of the hedge fund industry. The inductees include pioneers from all backgrounds and investment styles. Taken from Alpha,

"The first 14 inductees have all had an outsize impact on the hedge fund industry, enjoyed spectacular long-term success and displayed tremendous originality, starting with Alfred Winslow Jones, the inventor of the modern hedge fund. James Simons is on a 20-year roll of 40 percent returns. Bruce Kovner made commodities trading a hot pursuit. George Soros’ larger-than-life adventures put hedge funds on the map, and Kenneth Griffin intends to ensure they stay there. Michael Steinhardt and Steven Cohen brought credibility to short-term trading. Paul Tudor Jones II is the macro trader writ large, Seth Klarman is the premier value sleuth, Leon Levy and Jack Nash pioneered the modern multistrategy fund, and Louis Bacon is the risk manager’s risk manager. Where they blazed trails, others followed — not least the “cubs” sent skittering into the investment world by Tiger Management Corp.’s Julian Robertson Jr. Some of the most influential figures aren’t managers at all, like Yale University’s David Swensen, who made the road less traveled acceptable."

Here are the links to all the individual interviews (Or, in the case of Levy and A.W. Jones, interviews with their families and former colleagues). I highly recommend reading all of them, as they all bring different perspectives to the table. If anything, I recommend at least reading them for the background they give on each legendary investor. These are names that I will frequently reference on the blog and this is a quick way to get to know legendary investors/fund managers whom you might have been unfamiliar with before.

In particular, I enjoyed reading Bruce Kovner's, Julian Robertson's, Louis Bacon's, and Paul Tudor Jones' simply because I have been following them for a long time and would like to believe that my hybrid investment style combines aspects from each of their individual styles. Here are some excerpts from their interviews.

Louis Bacon, Founder of $20 billion Moore Capital Management, talks about globalization:

What’s the most pressing issue facing the world?

"A Malthusian population explosion intersecting with globalization. We have encouraged all 7 billion of the world’s inhabitants to live like Westerners, and now that they have taken the bait, we are realizing it is impossible on this small Earth. The first big hit has been to the environment; the next, which we are witnessing, is to energy prices, and it is leading to food shortages and eventually more famines. Governments are only starting to address the problem, and the planet’s most inventive and powerful economy, America’s, is leading only from the rear, if at all, given our present administration."

Paul Tudor Jones, founder of Tudor Investment Corp, who has never suffered a losing year, talks about why you also have to focus on the tape/technicals:

What’s so special about macro hedge fund managers?

"I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it."

Here are the links to all the interviews in their entirety; click on each name to see their interview.

Bruce Kovner, James Simons, Julian Robertson, George Soros, Michael Steinhardt, Kenneth Griffin, Seth Klarman, David Swensen, Steven Cohen, Leon Levy, Jack Nash, Louis Bacon, Alfred Winslow Jones, Paul Tudor Jones

Enjoy.

Re: Natural Gas

Just browsing through some reading yesterday and I stumbled upon 2 articles in the Wall Street Journal that had some pretty powerful quotes about natural gas. I intend to do a larger post on natgas in the near future, so for now I'll leave you with some quotes.

Taken from the following article is this quote:

"But one thing seems certain at least—the U.S. is going to need more, not less, natural gas in coming decades, and the rest of the world is, too. That’s bound to make fresh U.S. gas finds all the more attractive."

That quote then linked me to this next article where I found comments regarding world demand for natural gas:

"Prices in the U.S. have risen 93% since late August as power-hungry nations like South Korea and Japan compete in a global natural-gas market that scarcely existed a half-decade ago. Still, U.S. prices are as low as half the level of some overseas markets, suggesting they have much further to rise."

Powerful stuff to say the least. And, it continues to play right into my theses all along: 1. demand for electricity is rising and will continue to rise, and 2. natgas will become a larger component of the energy supply picture.

Wind Update

Today I'm seeing a lot of interesting bits about wind power. The main bit I'm seeing is Boone Pickens' alternative energy plan found on the new website: http://www.pickensplan.com/. Longer term readers will know I keep tabs on Pickens simply because he's an energy maverick, has made a lot of money in the industry, and now runs BP Capital, an energy centric hedge fund. I've posted his thoughts numerous times. (I tracked his hedge fund portfolio holdings here, and I linked his thoughts on energy here). Now, although he's made the bulk of his money from oil, he's turning his focus to wind and natural gas; and rightly so. I've been bullish on alternative energy for some time now, saying that you need to play energy for the future. I've been assembling baskets of names in the wind, natural gas, solar, and nuclear spaces. But, that's not to say that Boone isn't still going to be invested in oil and other current energy plays. Besides playing energy for the future, you've got to play it for the intermediate term as I posted about here. Oil, coal, and natgas aren't going anywhere anytime soon, so you've got invest in those as well. And, if you think about it, natgas is the only type of energy overlapping in both the current energy picture and numerous people's plans for the future. So, I like to take a basket approach and pick a few names in each class and then have a dedicated percentage weighting to each type of energy.

But, back to wind. The main problem with investing in wind power is the lack of tangible options for the retail investor. There are a few companies who trade on the main exchanges, but wind is only a small sliver of their business. GE is the perfect example of this. They have wind exposure which is great, but a lot of people don't want the other stuff that comes with that company; they only want the wind exposure. The majority of wind-centric companies trade on the OTC and pink sheets (such as VWDRY.pk, BWEN.ob, CRPWF.pk, etc). And, the majority of investors either aren't comfortable investing over the counter, or simply don't know how to. So, its good to see wind getting more media exposure and 'hype' if you will. And, as investors, we've got to be playing it. I've said all along to spread your bets across all alternative energy classes, to cover your bases. Because in the end, there's no real way to know which ones will be prominent 20 to 30 years from now. If you're looking for a route 1 way to play wind, you could simply go through the new etf FAN. And, for your convenience, Jeffrey McLarty has sorted through the ETF holdings here. And, TraderMark highlights a new Wind IPO (Noble Environmental Power) here.

Lastly, I'm starting to see some wind names really breakout with heavy buying. Stewie highlighted Aerovironment (AVAV) over on his blog as a great technical setup. Some of you might remember me writing up a piece on AVAV here, after I learned they were the makers of architectural wind products (basically wind turbines on tall buildings). But, disappointingly, they are primarily a defense company and the wind segment of their business is tiny (although growing). If you want a trading vehicle, AVAV looks to be breaking out right now as Stewie pointed out. The overhead resistance in the high 26's has been taken out and should now act as support, and I'd be a buyer on the re-test of that support if you want to trade it. But, that's the main emphasis here, its a trading vehicle, not an investment (yet). I've got to monitor their wind segment growth over the next few quarters to really see if its a viable wind investment. Because, like many other 'wind' investments, the company is primarily NOT a wind company. They just have a wind segment of their business. At any rate, AVAV is breaking out and you can trade it if you like.



Whether it be through natgas, wind, nuclear, solar, you-name-it, you've got to be thinking ahead and playing energy for the future. Boone Pickens is a great person to follow in this regard as he is taking proactive steps to make Wind power a viable alternative through his wind farms in Texas. But, wind isn't the only option and he discusses that in the following video. Enjoy.

Energy Transitions

I'm going to be in and out today so instead of writing something up I thought I'd direct readers to a must-read piece over on TheOilDrum. This piece deals with energy transitions and I thought everyone even remotely interested in energy should take a gander. Check it out here.

(By the way, TheOilDrum is easily becoming one of my favorite energy resources on the web, so make sure to poke around the site for other great reads)

Quote of the Week 7/7/08

Hope everyone had a good extended weekend! Now it's time to get back down to business. This Quote of the Week is one of my personal favorites, and I think it is very applicable here in this current market. Over the coming days, weeks, maybe even months, there will be bountiful opportunities presented before us. But, many times, these opportunities slip past us, leaving us looking at them in the rear-view mirror. Without further ado...

"The opportunities that are clear in retrospect are rarely visible in prospect."

Be patient, yet keep your eyes peeled for some great buying opportunities. And, if you don't have a shopping list, you better get busy.

Copper Disconnect

Today, we saw a disconnect between the price of Copper and one of the world's leading copper producers Freeport McMoran (FCX). Copper futures have been rising steadily the past few days and are approaching overhead resistance, looking to breakout. Yet, during this rise in copper prices, you will notice that the copper producer FCX got beat down in the market. So, we seem to have a disconnect here. Take a look at copper futures and you'll notice an area of strong overhead resistance. If it breaks this to the upside, copper could really take off. We're talking about a multi-year ascending triangle building here.Then, compare this with FCX and you see a tale of two charts. FCX is now bordering on its 200 day moving average and I like it down here. Technically, the stock has been in a long uptrend and are a direct beneficiary of high copper prices and growing copper demand. And, to top it off, FCX has the added bonus of exposure to molybdenum, a metal hardly anyone knows about. Also, I would be remiss if I didn't mention that Atticus Capital has a large stake in FCX. Atticus is the 13th largest hedge fund in the world based on assets as recently catalogued by Alpha, which I posted about here. And, you can read more about Atticus Capital's portfolio holdings in the 13F analysis I did here.

Even if the selloff in FCX continues, I'm buying here because 1.) copper prices are high and look to go even higher, 2.) FCX is one of the best copper producers out there and benefits from higher prices, 3.) they have exposure to molybdenum, 4.) it is cheap on valuation as it trades at only 13.1 times trailing and 8.6 times forward earnings, 5.) they still are cranking out operating margins of 42% and a return on equity of 20.4%, AND 6.) each time the stochastics have reached oversold levels, FCX has presented us with a buying opportunity. And, that's exactly what is about to take place. If you look at the chart of FCX below, you will see the green circles on the main chart highlight the buyable dips. On the bottom of the chart, you will notice those buying opportunities coinciding with oversold stochastic levels.So, the action we saw today was very puzzling to say the least. There was a clear disconnect between the price of copper and the copper producer FCX. I believe this is due to the fact that we have reached the stage in the market sell-off when even the market leaders get taken behind the woodshed and beaten. All the weaker sectors have already sold off and now it is time for the strong sectors to be taken down. After all, we're in bear territory. We saw this same scenario play out a few months ago when energy, commodities and the like all saw massive selling. And, after massive run-ups, we're back to the rinsing cycle of the rinse and repeat strategy. Watch FCX as it should provide a solid entry for a longer term investment. We may see continued selling due to the fact that hedge funds and the like are seeing redemptions and have to scrounge up cash to give back to their investors who want out. And, when you're short on cash, you have to sell your winners, which is exactly what they're doing.

Copper prices are rising and are close to really breaking out. Although Freeport McMoran Copper & Gold Inc has the word 'gold' in it, don't let that fool you. Copper is their game. Toss in the fact that they have exposure to molybdenum (think steel alloys) and this miner truly has exposure to some booming industries. Take advantage of the disconnect here between FCX and copper prices. FCX benefits from these higher prices and yet hedge funds and the like are forced to sell their winners due to redemptions. Their loss is our gain.

Monthly Performance: June 08

Paul Kedrosky posted up this lovely breakdown of the worst "June" returns on the Dow in History. And, although the month indeed was bad, it didn't necessarily feel that way. We never saw true panic, we never saw capitulation. Instead, we saw stocks slowly bleed it out. And, that led us to a month where the S&P500 was -8.60%. And, halfway through the year, the S&P sits at -12.5% YTD. But, for those of us with some sense and a solid gameplan, the month wasn't so bad. Why, might you ask? Well, because we saw this coming a mile away. We know the U.S. is still in a recession, we know the housing sector is accelerating to the downside, we know oil is setting record highs, and we know that the financials are still sorting through the rubble of the credit crisis. We are by no means out of the woods yet and my portfolio has been based on that for quite some time. I figured I would start posting up my monthly performance here, to stick with my theme of complete transparency. (Well that and the fact that I had a pretty damn good month and this seemed like an ideal time to brag, er I mean start logging my results on the blog haha). For the month of June, MarketFolly's portfolio was up 5.56%. And, year to date, the portfolio is up 10.5%.

Since I've now turned to focusing on absolute return rather than relative return, I'll leave you to do the math in terms of outperformance. And, as a matter of fact, after having some discussions with numerous absolute return portfolio managers, I've come to the conclusion that people still pay attention to the indexes no matter what. Even if absolute return technically has no metric for comparison, you still want to be outperforming the next best alternative (ie: stocks, bonds, cash, or other alternatives). And, the next best alternative could very well be the indexes on certain months, you never know. In the end, its all about semantics and just depends on the portfolio managers absolute return goals. There will always be people who will want to compare results to the indexes just because that is what has been ingrained in everyone's mind to begin with. As long as I know my goals in running an absolute return portfolio, then relevant return is meaningless and is just a moot talking point. I'm very happy with my results thus far, but I can merely attribute it to creating a gameplan and sticking with it. I didn't panic and I stayed disciplined. That is one of the most valuable lessons you can learn when dealing with financial markets.

The macro themes we've seen have continued to play out. Housing sucks, financials suck, the dollar sucks, the economy sucks, and commodities are roaring. Many of the gains for me this month are attributed to taking a strong round of profits in my Natural Gas (UNG, CHK) and Coal (ACI, MEE) names. Additionally, I locked in profits in the fertilizer plays at the new highs (POT, MOS) and then am starting to buy them back here down at these levels. Additionally, I have been shorting the market itself through SDS, which is the etf for Ultrashorting the S&P500. It seeks twice the inverse performance of the S&P. So, if the index goes down 1%, SDS should theoretically go up 2%. I usually use this (and a few other etf's) as a 'hedge' in my portfolio, layering in and out when the market makes drastic moves one way or the other. For instance, in the bear market rally we saw leading up to this recent decline, I was adding heavily to the SDS, seeing as I knew we were still in a bear markets and the charts showed this clear as daylight. And, I posted this chart a few weeks back reminding everyone we were still in a downtrend here :
And, if we pulled up that same chart now, you would see we have fallen another 50 points on the S&P. The green circle below shows what happened to the S&P in the few weeks after I posted the original chart above. Here's what things look like currently:
In the end, everything played out like we anticipated and locked in some nice gains. I have now been taking profits in SDS as I feel we are due for an oversold bounce (and apparently everyone else feels this way too, which is concerning.... but that's a whole different conversation).

The rest of the gains this month were due to some shorter term moves I had made, most notably with Capital One (COF). I have been in and out of this name on the short side, as I feel they truly have the most exposure to the 'next leg' of problems in the financials: increasing credit card receivables/rising delinquincies & bad auto loans. COF has exposure to both and is having problems. This name has been a major component of the short side of my portfolio, to ensure I'm truly hedged. And, what better way to reap the gains than to short a financial, right? My thoughts exactly. (Note: I've covered the last of my position last week and I am no longer short this name, but I will be looking to re-short on any major pops). I didn't actually blog post about this name in my portfolio, but I did 'tweet' about it numerous times on twitter (here's an example and here's another). So, this just goes to show why you should be following me on twitter! Or at the very least, reading the twitter posts that stream as I post them on the upper right hand corner of my blog. Here's a chart outlining my entry and exit from this name:So, as you can see, all I did was stick to the gameplan and watch the charts for excellent entry/exit points in terms of risk/reward. I realize that these plays could have easily gone against me and continued to rally. But, if they did, I would have been stopped out right above the moving averages, and no harm done. It's all about knowing your risk/reward before even entering a position. For me, this month can be summed up by patience. The whole rally in the indexes from the middle of March until May was simply a rally in the midst of a bear market. I waited patiently until it found resistance, and then entered some short positions in financials (COF) and the market in general (through SDS). I continued to hold my fertilizer, coal, natural gas, and resource plays as they continued to benefit while the overall market struggled. Now, having taken profits in these names, I'll be waiting for pullbacks to re-enter the strong sectors of the market.

Next up: July. Will we see an oversold bounce? Will we continue to bleed it out slowly? Who knows. All I know is I'll be monitoring things closely, waiting patiently to set up my next move based on what happens at this test of support/the March lows on the indexes.

John McCain's Energy Plan

TheOilDrum has a post about John McCain's energy plan found here. Reason I point this out is because its a smart move to position your investments accordingly come the election in November. Both candidates have various implications for numerous sectors based on their proposed policies. And, I'd recommend figuring out how you want to position yourself should McCain be elected versus positioning yourself should Obama be elected, as both have different outcomes in a few sectors (namely energy and healthcare).

"Arithmetic, Population, and Energy"

Couresy of vruz, I have stumbled upon a very thought provoking series of videos. These videos chronicle a presentation by Prof. Emeritus Dr. Albert A. Bartlett on “Arithmetic, Population, and Energy." The series is 8 segments long and they are all very insightful. I have to mention that the series starts off slow in the first segment as it is laid out like a class lecture. But, it picks up a lot in the second segment. If you sit down and take an active interest in the videos and follow his presentation, you will find the series fascinating. I realize many people these days are so busy they don't have the time to sit down and watch an 8 part video, so I'll embed arguably the most important segment (the 4th one) and then link the rest of the segments below for those who are interested.

Segment 1: http://www.youtube.com/watch?v=F-QA2rkpBSY
Segment 2: http://www.youtube.com/watch?v=Pb3JI8F9LQQ
Segment 3: http://www.youtube.com/watch?v=CFyOw9IgtjY

Segment 4:


Segment 5: http://www.youtube.com/watch?v=qHuwgxrTKPo
Segment 6: http://www.youtube.com/watch?v=-3y7UlHdhAU
Segment 7: http://www.youtube.com/watch?v=RyseLQVpJEI
Segment 8: http://www.youtube.com/watch?v=VoiiVnQadwE

Quote of the Week

I'm going to start a new 'tradition' here per se. Each Monday morning, I'm going to start off with a 'Quote of the Week.' These quotes will come from a collection I've assembled over the years from great investors/traders/books/etc. Whenever I've felt confused or overwhelmed, these quotes bring me back down to earth, preventing me from doing something stupid.

So, without further ado, the Quote of the week, a favorite of Eric Bolling's (highly successful energy trader/conoisseur):

"Trade with your head, not over it."

Hedge Fund Rankings

Alpha is out with the rankings of the top 100 largest hedge funds in the world for 2008. I'll list them by their 2008 ranking and will also show where they were this time last year so you can see who has moved where on the list. Here is the top 5 by their 2008 ranking:

1. JP Morgan Asset Management (ranked #1 in 2007 as well)
2. Bridgewater Associates (ranked #3 in 2007)
3. Farallon Capital Management (ranked #5 in 2007)
4. Renaissance Technologies (ranked #6 in 2007)
5. Och-Ziff Capital Management (ranked #7 in 2007)

And, I wanted to highlight some of the funds that I track in terms of where they fall on the list of largest hedge funds in the world for 2008:

#6 D.E. Shaw (#4 in 2007)
#13. Atticus Capital (#16 in 2007)
#17. Lone Pine Capital (#47 in 2007)
#18. George Soros (#25 in 2007)
#23 Tudor Investment Corp (#12 in 2007)
#24 SAC Capital (#28 in 2007)
#27 Moore Capital (#20 in 2007)
#38 Caxton Associates (#16 in 2007)
#50 Maverick Capital (#40 in 2007)
#53 Eton Park Capital (#70 in 2007)
#70 Viking Global Investors (#74 in 2007)
#79 Jana Partners (#80 in 2007)
#83 Icahn Partners ( not in the top 100 back in 2007)
#93 Blue Ridge Partners (not in the top 100 back in 2007)

Its very evident that three of the ex-Tiger management funds had great years. Lone Pine leapfrogged a ton of funds from 47th in 2007 all the way up to 17th in 2008. Blue Ridge was not even in the top 100 but now sit at 93rd. Viking moved up slightly from 74th last year to 70th now. But, in the end, you have to keep in mind that all the firms on this list could have either gained capital from new investors or they could have grown their capital through successful investments, or a combination of both.

None the less, interesting information. You can read through the whole list here.

Dow Jones Lingering Around 5 Year Trend Line

Over on his site, Stewie has a great 5 year chart of the Dow Jones up. As he illustrates, we're right on the cusp of breaking convincingly through a major long-term trendline. Stochastics and various other signals are pointing to oversold so we should see some sort of a bounce here. But, still, scary stuff. I'll let the chart do the rest of the talking:


Then, combine that with the fact that we are seeing the largest net short position in the s&p in some time. This chart, courtesy of Bespoke Investment Group, illustrates that:


Fun times in the markets!

"The Age of Scarcity" by Jeff Rubin (CIBC World Markets)

This one ought to get TraderMark over at Fundmymutualfund.com all riled up. He has been over there pounding the table with his coined phrase "world of shortages" as an investment thesis for some time now. Then, Jeff Rubin over at CIBC World Markets comes out with a slideshow entitled "The Age of Scarcity." Hat tip to Paul Kedrosky, author of Infectious Greed who originally posted the link to the slideshow.

There's 31 slides in all, but I wanted to post up a select few of slides that really illustrate some macro themes we are seeing.



First, we'll look at Global GDP Growth. As you can see from the chart above, Emerging Markets are clearly the leader as an overall % of global GDP growth. And, this comes as no surprise, as pretty much everyone not living in a cave already knew that. What I am more interested in is the percentage that Central & Eastern Europe is accruing. If they are truly benefitting from Russia's emergence, then you would expect their share of global GDP to increase in the coming years as well. After all, they have already surpassed Japan (but I guess that's not much to brag about is it?). For my money I really think Russia has the best risk/reward setup in terms of Emerging Markets.



Next, let's look at the slide above depicting other regions' dependency on the US Market. And, surprisingly enough, Europe, Latin America, and Asia are all less dependent on America than they were back in 2000. Obviously, the world has become a true global economy and nations have diversified their dependency, which is a good thing. Although I do not want to get into a coupling/de-coupling argument here, I do think it is worth noting that the overall trend the past seven years has been that other markets are less dependent on exporting to the US market. But, at the same time, it must be noted that Emerging Asia easily is the most dependent on the US out of the 3 regions. There has been increasing chatter about how the US slowdown could be affecting China, and that chatter is warranted. The US market represents 16% of their exports and we will have to carefully monitor this situation as numerous investment theses hinge on China's continued growth.



Thirdly, I want to stick with the China theme and glance at the Resource Demand Growth slide pictured above. As you can see, China consumes MANY more resources than we do, and they are seeing average annual resource demand growth of 30% for aluminum and 28% for nickel. This just goes to show that a) China is a hungry monster and b) they are a huge piece of the "age of scarcity" puzzle. Also, I just want to point out that this slide further reiterates my bullish stance on aluminum/Alcoa, as I mentioned here. Demand for these resources is unreal.



Lastly, I want to turn to the housing sector in the US. This slide above shows what we already know: the housing market sucks and prices are falling. What's interesting though is that so many people out there are calling for a '2nd half recovery,' yet they don't seem to realize that the housing market will STILL be in turmoil. In fact, it could very well be even worse by then considering that this summer another major wave of ARMs (Adjustable Rate Mortgages) are resetting back from their low teaser rates to sky-high interest rates. This reset window will obviously take a few months to truly affect the homeowner, as they soon discover their mortgage payments will increase substantially. And, as this plays out months down the road, these homeowners will face forclosure, guaranteeing the next leg down in the housing market. And, it will slap all those '2nd half recovery' pundits right in the face. Interestingly enough though, CIBC here predicts that housing prices and subprime mortgage delinquencies will in essence stabilize towards the beginning of '09. So, they seem to be calling for a early-mid '09 housing recovery cycle. What you cannot see from this chart though is prime mortgage delinquencies, which I anticipate will also see rising delinquencies as people who might have good credit were still baited into taking the teaser rate ARMs which will be resetting. So, while CIBC could theoretically be right in calling a stabilization of subprime delinquencies, you still have to take into account the various other types of mortgages (like prime) which will also undoubtedly see rising delinquencies due to the crazy mortgages people with various credit grades and people from all walks of life were signing up for.

Those are the main slides I wanted to highlight, as I felt they clearly depicted some macro themes we have been seeing and will continue to see. You can check out the entire CIBC World Markets "The Age of Scarcity" slideshow by Jeff Rubin and Avery Shenfeld here.

Peter Thiel / Clarium Capital

Peter Thiel is the co-founder and former CEO of PayPal. Now, besides this endeavor, you might not know that he now runs a hedge fund, Clarium Capital. They are a macro based fund and have been doing quite well for themselves. 1440WallStreet had a great post about him the other day, including a video with some of his macro thoughts. The video is older, but is a must watch if you employ any sort of macro approach to investing. He's a smart guy and has been making tons of money by simply identifying trends.

Make sure you check out 1440WallStreet's write-up on Clarium and the vid of Thiel here.

Possible Snag for Wind & Solar Plays

Taken directly from tradethenews.com,

"

6/17/2008 02:50pm

US Senate vote blocks extending wind and solar energy tax breaks

- in a 52-44 procedural vote that blocked closure of debate on the bill, Republicans blocked the tax break extension for the second time this week. 60 votes are needed to end debate and move it toward a formal up or down vote."

Will be interesting to see how this plays out and how it might affect Wind & especially Solar stocks. Can they really survive without tax breaks and subsidies?

Adding to Walmart (WMT)

I like the looks of Walmart (WMT) here on this pullback. I added my initial position on the pullback to around $55 on the 50 day moving average just a few weeks back. It's run up and then now its back down testing the 50day ma support again, so I'm adding. I cannot stress enough how this is literally the only consumer name I'm playing (could make an argument for MA & V though). When times get rough, people flock to the cheapest of the cheap, and that's WMT. In my first post regarding WMT i mentioned that their stores are PACKED even at 11pm on a friday night when my friends and I stopped in to pick up some drinks.

If you're going to be long the consumer in any way shape or form, this is the play. The chart is perfectly uptrending, using the 50 day moving average as support; it really speaks for itself, just have a look. Buy WMT on the dips as the tight consumer only gets tighter. This can give your portfolio some good diversification away from energy, tech, and commodities (ie: the things that have been working in this market).

Long WMT (have half my position now & will add more on future dips)

3g iPhone = Huge Margins?

Let me start out by saying: don't worry, this is not yet another 3g iPhone hype post that you can find all over the internet. Instead, this is a post about meaningful implications for AAPL as a stock based on some recent information. Ok, so we all know the 1st iPhone was a semi-success, but now that AAPL will be releasing an even better version, expectations are much higher. The initial hype surrounding the 1st iPhone was about growth. "Oh this will be a huge growth product for Apple..." blah blah. The point is that apparently now not only will the iPhone be a growth story for Apple, but it could also be a huge margins story. Portelligent (through EETimes) are out with research stating that they think the new iPhone will cost as little as $100 to produce. This when the 1st gen iPhone cost around $170 to produce. Note: They haven't actually gotten their hands on a new iPhone and disassembled it. Instead, they've done some channel checks in terms of components to gauge pricing and come up with this sum. Although this can be an accurate ballpark figure, I just want to throw that caveat in there. But, even if that figure is just slightly off, the point is that AAPL will still be seeing huge margins and here's why.

AAPL is Billy Badass when it comes to component pricing. If you're familiar with their tactics, then you know they aggressively buy components to ensure their competitive market advantage. Carl Howe over at The Yankee Group gives a timeline of AAPL's business savvy:

"Apple paid $1.25 billion in 2005 to guarantee flash memory for iPods through 2008; that purchase made it nearly impossible for other flash music players to have competitive supplies and profit margins. Apple reportedly negotiated another similar deal in 2007."

And, Howe made this powerful statement as well:

"In fact, if these numbers are true and the carriers are subsidizing the phone, the iPhone 3G could end up being the most profitable product Apple makes. But more likely, this means that Apple has a lot more pricing flexibility than analysts have given them credit for."

The point is that AAPL will be paying much less for components this time around due to technological/engineering advancements and the bullying approach they take in the component space. The display will most likely cost them half as much this time around. Additionally, AAPL will be getting memory for the phone on the cheap and in turn can sell it to consumers for nearly 5x as much as they got it for. The point is that AAPL has significantly reduced their input costs this time around; even with more/newer components in the phone.

In terms of pricing, the phone will most likely sell for $399 straight up no-contract or $199 with the At&t subsidy for a 2 year contract. These figures already show the huge margins AAPL will be seeing with this product. The At&t subsidy is actually a great thing for AAPL because they will be selling the phones to At&t at full price ($399 or so) and then At&t will take the hit in terms of the subsidy to guarantee they get customers in the door buying the phone and signing up for 2 years of service. Zero risk for AAPL there, they don't take a hit.

So, why is this all important? Well, we all know the iPhone is a growth story for AAPL. What I don't think most people realize is the huge margins AAPL will be seeing with this product. With all the high-tech gadgetry inside this phone, people assumed it would cost a pretty penny to produce so AAPL's margins wouldn't be all that high. Au contraire; it sounds though as if those revenue figures would be massively understated. The Mac computer has been the driving force behind AAPL's success all along as they continue to steal market share and crank out sales of macbooks and mac computers. This is the perfect silhouette for what the iPhone very well could be. Mac computers = high growth + high margins. If the new iPhone follows this same formula, then AAPL could see a meaningful boost to their bottom line come September/October. And, the best part is, At&t will be taking the hit by providing users with the subsidy. This gives the iPhone a very competitive price point and many of the features the first gen iPhone lacked. In the end, all you have to ask is: What is AAPL best at? They create high margin products that people HAVE to have. End of.

Some Good Online Resources for Research

Just wanted to take a quick second to point out some great online research resources for those who might not know about them.
First, I want to point out The Wall Street Journal's Money Flow pages. These pages monitor "Buying on Weakness" in which they list the stocks that are down for the day but have seen the largest inflow of money. They also monitor "Selling on Strength" which shows stocks that are up for the day but have seen the largest outflow of money. Buying on Weakness can be found here. Selling on Strength can be found here.

Second, for those who are not necessarily actively trading in the commodities markets, but still want to know what's going on with oil and natural gas, here's your quick solution. It can be found at Bloomberg on their self-updating Energy prices page found here.

Thirdly, I want to link up Goldman Sachs' Conviction Buy List. Goldman is undoubtedly one of the best i-banks/hedge funds on the street right now, having navigated successfully through the credit crunch and recession (so far). Therefore, you should at least keep tabs on the info they release. Not to mention, the stocks that get added to/subtracted from this list will definitely move based on that news. StreetInsider tracks the list here.

Next, I want to link up MSN Money's Insider Buying/Selling tracker. This page monitors the top 10 largest insider purchases and top 10 largest insider sales in the last 30 days, The list is updated weekly on Friday and is based on Form 4 SEC filings. You can find that here.

In terms of news, you need to keep an eye on certain Economic developments and this calendar sets you up with all the action that will take place during the upcoming week on Wall Street. Its a great resource to have so you know what kind of catalysts are coming that will move the markets. Check it out here.

Lastly, just wanted to post up an Options guide for those who might be newer to Stock Options. They're a powerful and useful tool for investors, but you've got to know how they work and the various strategies you can use. TheOptionsGuide has a very good breakdown of all the various strategies here.

Alright, that's just a few for now, I'll add more as the days go on. Please feel free to add any other worthwhile sites in the comments section!

FundMyMutualFund.com - Check it out

Hey everyone, just wanted to take a minute to point out TraderMark's site: http://www.fundmymutualfund.com/. Many of you reading now undoubtedly came here through Mark's site, so you already know what he's up to over there. If you're unfamiliar with his site, he's on a quest to start his own mutual fund and has been cranking out pledges from readers, with this past month being his highest month ever in terms of pledges. This past month, he raised $901k and that brings his total pledges up to $2.5 million. He runs a virtual fund right now via marketocracy and has a solid track record based on his macro investment platform. If you're familiar with mutual fund managers, then think Ken Heebner (CGM Funds) with just a slight twist. He's very transparent, outlining his thought process and investment rationale through the blog. His investment style is very similar to mine and that's how I found him in the first place. Macro investors ftw!

At any rate, just wanted to give him a mention as he's doing a great job and deserves to be running a fund for his track record and the amount of time/hard work he puts into his passion of investing (all while maintaining a normal job as well!). You can pledge by dropping him an e-mail on his page or by posting a comment on one of his posts. If you're not interested in pledging, at least stop by to check out his economic commentary and market thoughts (well worth the read).

You can find his most recent reader pledge update here.

Housing Market Still Sucks... What Else is New?

In the spirit of my post below reminding everyone that we're still in a downtrend, I wanted to point out a post at The Big Picture by Barry Ritholtz. He posts up some staggering statistics taken from RealtyTrac, an aggregator of foreclosure data. In the month of May:

one in every 483 U.S. households received a foreclosure filing during the month of May. This is the highest monthly foreclosure rate since they began tracking foreclosures in January 2005.

And then accompany that info with the following chart. Obviously California, Nevada, Arizona, Colorado, and Florida continue to feel the pain. What's interesting to see is that the problems in Michigan seem to be slowly oozing into neighboring states Indiana and Ohio as well.



To everyone trying to call bottoms: give it a rest. The housing sector is accelerating to the downside. All you have to do is look at the data.

Just a Friendly Reminder: We Are Still in a Downtrend

While we may be due for an oversold bounce near-term, it's always good to take a step back and look at the big picture. Focus on the green trend lines I've drawn in. Until we get a full break to the upside of that trendline on some strong volume, we are still in a downtrend.

Chart: 1 year S&P500 daily


Chart: 1 year S&P500 weekly


Just your friendly neighborhood reminder.

Investing in Tottenham Hotspur Football Club TTNM.L / TTTHF

(Note: This write-up is prefaced by a post on investing in publicly traded professional sports teams found here, right below this post).

If someone gave you the opportunity to buy a stake in the Chicago Cubs, would you do it? How about the San Antonio Spurs? Or, *insert popular and/or successful team here*. The point is, I think everyone out there, regardless of what team they are a fan of, knows a successful franchise when they see it. And, as investors, we wouldn't turn down the opportunity to invest in such a thing. Now, Tottenham Hotspur aren't quite as dominant as the New England Patriots or New York Yankees, but they're generally the 5th or 6th best team in their league. So, think of a team that is generally 5th best overall in any given American league, and ask yourself if you would buy a stake in them if you had the opportunity. My point is: to most investors, investing in professional sports teams is usually off limits because they are private entities (not publicly traded) and you don't have the millions on hand to buy these teams. However, in England, this is not the case. Some of their teams are still publicly traded companies and you can buy as little as 1 share.

I'm an avid football/soccer fan and a regular follower of the English Premier League. So, my homework is already done, as I've been following the league for years and I know many teams inside and out. So, teams that can be bought on the London Stock Exchange are limited to: Sheffield United (SUT.L), Tottenham Hotspur (TTNM.L), Birmingham City (BMC.L), and Watford (WFC.L). Now, right off the bat we're limited in our options because we want to be buying teams who compete in England's top division, the Barclays Premier League. Sheffield United and Watford compete in the second division, so we don't want them. And, we don't want Birmingham City either because they've just been relegated down into the 2nd division this past season after a horrible performance in the Premier League. So, that leaves us with one option: Tottenham Hotspur. And, surprisingly, having only 1 option to invest in is not a bad thing at all, considering how well positioned Tottenham actually is. And, here's why:

1. Tottenham continually finish in the top half of the league and usually finish anywhere from 4th-8th place, just outside what is known as the "Big 4": Manchester United, Arsenal, Liverpool, & Chelsea. And, since all the above teams are already private, Tottenham are actually our best choice based on team performance should an outside buyer want to purchase them. On paper, they are the best available option in terms of available publicly traded buyout candidates. This past season was full of turmoil for them due to mid-season coaching changes and player transfers. But, now that they are building up their squad, they are ready to compete again.

2. They have a strong fan base & thus a strong revenue stream. Tottenham finished 3rd overall in terms of "Best supported Premier League Teams," behind only Arsenal and Manchester United. Tottenham Hotspur's White Hart Lane (their stadium), saw the total amount of people that attended matches last season: 683,370, an average attendance of 35,967 in a stadium with a capacity of 36,247. This means that their stadium was 99.23% full throughout the season. Again, I want to emphasize that Tottenham are 3rd in the entire Premier League (20 teams) in terms of best supported clubs. They definitely have strong revenue streams.

3. They've made some great acquisitions as of late. First, they brought in their new coach this season: Juande Ramos. He has previously won numerous UEFA Cup titles with his old club Sevilla, provides new hope. Secondly (and more importantly), they've signed Luca Modric from Croatia and Giovanni Dos Santos from Mexico, two promising young stars who've already proven they have talent. Basically, they've signed two very good attacking players who can only get better in order to complement the core of players they already have.

4. The stock itself is up 15% over the past year, and 664% over the past 5 years. Yes, that's correct, 664%. This reflects the growth of the Premier League itself as well as Tottenham's emergence as '5th or 6th best.' I say that mockingly because breaking into the Top 4 of English football is quite hard to do, as those teams are immensely talented. However, with Tottenham's recent signings, they are definitely sending signals that they are here to compete and are here to break into the top echelon of teams in the league.

5. Takeover rumors have begun to swirl over the past few years. The number being tossed around in one of the other rumored takeovers was £400 million, while the club currently has a market cap of £121 million. Believe it or not, there were rumors at one point that Phoenix Suns' guard Steve Nash wanted to buy the team (it's his favorite football club). After all, they are now the only publicly traded team left in the Premier League. If the trend continues, that won't last for long and they'll be bought out. And, the main part of this investment thesis was based on the identification of this buyout trend.

6. Two groups already have somewhat prominent stakes in the club, so they might want to takeover the club themselves, and a foreign buyer might not even be necessary. The current chairman's group, Enic, is the club's largest shareholder with 32% of shares. Secondly, Sir Alan Sugar, the former chairman, owns 14.6% of the shares. So, in addition to possible foreign buyers, you've got some large stakeholders who could possibly launch a bid as well.


At the same time, there are some barriers to entry & some possible downsides to this investment which need to be detailed.

1. Liquidity. It is only available on the London Stock Exchange or the Over the Counter (OTC) markets. And, unfortunately, if you're in America, this presents you with a problem. Even if you have an E-trade account with global trading, you still can't purchase TTNM because it does not trade directly on the London Stock Exchange, it trades on a secondary exchange (think ARCA for NYSE). E-Trade only lets you trade on the main exchange so this option does not exist for American investors. Secondly, even if it was available, this thing is not very liquid at all. Today, it traded just barely over 2000 shares. So, the only option American Investors are left with is to go with the OTC version: TTTHF. This trades just like the TTNM stock. But, you won't be able to track it easily since its OTC. For instance, if you pull a quote up for this, it shows that there is no volume, weird bid/asks, etc. Additionally, numerous brokerages won't let you buy OTC foreign ordinaries, so make sure you check with your brokerage.

2. Stock coverage. Over here in the states, you won't get the daily updates surrounding this name seeing as it trades in England. So, you'll have to take a proactive approach if you want to monitor the possible takeover situation. Not to mention, you'll want to keep an eye on the League Table/Standings, to see how well the team is performing (seeing as the stock will trade slightly based on how well they play). So, if you're not a soccer fan, this could become a burden. Not to mention, you can't even really track the equity you're technically invested in, TTTHF. You'll have to keep track of TTNM, the one that trades in London.

So, wrapping up. This is definitely not an investment for everyone considering the barriers to entry and the task of tracking developments. We have to evaluate this name by a different set of metrics simply because it trades differently than most equities. The closest comparison I can think of is biotech/biopharma stocks. Often times, biotech stocks trade on future pipeline and FDA approval, so you have to evaluate those equities in a slightly different manner. Tottenham is even more odd in that it trades on performance of the team, player signings/transfers, & possible takeover rumors/bids. Although the finances do of course matter, they play second fiddle to all the things just mentioned. I'm confident in this name because I'm an avid football/soccer fan and I have followed the league for years now. I am not biased because I'm not a fan of Tottenham. In fact, I'm actually a fan of a completely different team. So, favoritism obviously played zero role in my decision. I tried to look at things objectively from an outside , neutral perspective. Tottenham are easily the best available publicly traded football club left. And, even if there were more options for us in terms of publicly traded teams, I'd still choose TTNM.L/TTTHF simply because they're consistently in the top 33% in the league, they have a very strong fan/revenue base, and are the best possible option right now. Not to mention, reatil investors will never have a realistic chance of investing in the top 4 teams in the league (ManUtd, Arsenal, Chelsea, Liverpool).

This thesis is mainly based on a rising secular trend. We've seen increasing foreign ownership in Premier League clubs as new ownership groups take these clubs private. While this trend is gradually rising, we have to highlight that this is an event driven play and the timeframe for a catalyst is obviously unknown. While Tottenham has a lot of potential as a buyout target, there are other factors to consider. As always, do your due diligence before investing and see our disclaimer at the bottom of the site.

Investing in an Alternative Sector: Publicly Traded Professional Sports Teams

As investors, we're always looking to diversify across various industries and markets, especially internationally. And, this post is a result of combining two of my passions: investing and sports. In particular, I'm talking about investing in publicly traded football (soccer) teams. Now, I've probably lost my audience already haha, seeing how soccer is not exactly the most popular sport in America. But bear with me! Its the most popular sport practically everywhere else in the world. And, especially in the UK. So, we can capitalize on that.

First, let me address the rising secular trend in this segment that I have noticed over the years: increasing foreign ownership. Specifically, in the Barclays English Premier League (England's top football/soccer division), numerous American and various other foreign owners have taken clubs private. Previously, many of these teams were actually traded on public exchanges. Today, there are only a handful left that trade on exchanges. Football clubs that have been taken private by American owners include: Manchester United by Malcolm Glazer (he also owns the Tampa Bay Buccaneers), Aston Villa by Randy Lerner (he also owns the Cleveland Browns), Liverpool by Tom Hicks & George Gillett (Hicks is the American and he owns the Texas Rangers and Dallas Stars). Additionally, you've got Stan Kroenke who has slowly but surely been building up a stake in already privately held Arsenal (he also owns the Denver Nuggets, Colorado Avalanche, and US soccer team Colorado Rapids, among other things). And, this is just covering the American owners side of things. Recent developments have seen numerous other nations trying to get involved, including Dubai International Capital (DIC), who are trying to acquire Liverpool from either Hicks or Gillett. And, a few years back, billionaire Roman Abramovich bought out Chelsea and took them private. There are even more, but those are the major ones I wanted to touch on. The point is that there are only 20 teams allowed to compete in this prestigious league, and I'm fairly confident all the rest of them will be bought out over the years.

Basically, the trend here is increasing foreign ownership of English Premier League teams. And, with only a few publicly traded teams left, now is the time to act. The main investment thesis here would be to buy a stake in a successful Premier League team on public exchanges and hope it receives a bid to be taken private, thus allowing your shares to appreciate in anticipation of this bid, or outright selling your shares to the new hopeful private owners. Now, this presents a problem in that you don't want to be investing in something *solely* with the hope of a buyout. So, there's got to be another reason to own the stock. And, luckily we've found one: team performance. These club's shares typically trade on team performance and club happenings (signings, player transfers, etc). While financials obviously still matter, these stocks trade differently than typical equities. So, the investment thesis here is more macro in nature as you seek to capitalize on increasing interest in the Barclays Premier League by investors wishing to take sole ownership of the club. But, at the same time, you will need to invest in a team who realistically has a shot of performing well in the league. And, this is where my sports passion/knowledge comes in.

By following the Premier League for years now, I've been able to really get a feel for the league in terms of successful clubs vs unsuccessful clubs. I've used this knowledge as my research in order to highlight potential investing opportunities. Again, this is mainly an event driven pick based on a rising secular trend. The caveat here is that you could be waiting a long while for the catalyst to occur. However, the trend seems to be slowly building up as investors realize the investment potential in the English Premier League. Tune in tomorrow morning for the follow-up post presenting an investment idea. Click here for the follow up post.