Online Stock Trading

I never consider buying into banks. They’re always just too safe. They’re always just so “been there done that.” Perhaps were I older, or more risk averse, or retired or something, would I consider them. But I’m none of these. The problem for me has always been that banks just really don’t do that much. In short they’re too easy. The advantage they have over other stocks I do consider is that they are generally very safe as far as equities go. But that safety comes at a cost. It’s a cost I don’t want to pay, and besides, I have an iron stomach; the risk just doesn’t gnaw at me. The only reason I would ever buy a bank would be if that low risk assumption was followed by greater potential for reward. In other words, if the stock market was being irrational. Remember, low risk is supposed to be rewarded in tandem. When things go backwards, I start to get excited. The only problem is that in order for these things to happen, someone has to be naughty. Some banker out there has to make some serious mistakes. Whether or not those mistakes are valued correctly will be the crutch upon which a decision to snap up some shares is founded.

So who’s been caught with their pants down? Who’s been naughty? Citigroup (C) of course. Naughty yes. That naughty? I have my doubts. If we look back to the days prior to all these credit concerns, say, early June, this stock was trading at over $54 a share, had a trailing P/E ratio of 13, and was still expecting quarterly revenue growth to exceed 10% year-over-year. 177 days later and almost 44% lower, their P/E ratio has actually improved (in that it fell by only 36%) but damned near every other metric looks pretty bad. Or do they? If this were anything other than a Citigroup, I would say things don’t look so hot. But I think we need to be realistic here. Buying great companies at gunpoint prices almost always happens when you can’t know with certainty that they’re great companies. We always find out later. Once they’re expensive.

Keeping in mind the degree to which a Citigroup has long since proved itself a master at its game makes its current share price almost laughable. Or better, rather buyable. For the curious readers, I’m going to add something I haven’t done before: an outright prediction. I predict that this individual stock will significantly outperform the market by at least a factor of 3 to 1, for at least the next year. In the next few days I’ll add a graph to this post that will update to the stock’s new daily price so we can come back to check up on it.

Ok, I’ve added it now (it should update daily to reflect new prices–if it does not, try refreshing the page):

I like the stock market because it’s unlike a traditional job. For the time being, for me, I still very much have to work. So, while my investing activities happen to run parallel to my employment activities, I get, instead of some longing to discontinue the job I am not so perfectly suited for, a chance to constantly compare the one to the other. I get to make them foes while I sit back and watch. And when I do this sitting and watching I often discover that the polarity that defines any comparison I try to make between them reinforces the belief that the track that I think I am on is the correct, or better track. In other words, I like what I see.

In a traditional job, one typically has a system. You start with some function that is your set of responsibilities and you manage your activities, orchestrate your energies to accomplish those things you are tasked with. Any dynamism enters only when the responsibilities themselves change or when (from my experience) you try new directions to old destinations. You try to spice things up a bit. Besides that, so long as the responsibilities do not change by large degrees, any newness you might experience will come, at first, from your “getting good at your game.” Once you’ve done that though, things start to stiffen up. Normally, this wouldn’t be a significant problem. This should indicate that you are ready to take on those bigger responsibilities. The problem for me though, now as it has always been, is that this procedure never wants to move as fast as I do.

After that initial spasm, you’re back off to the plains. None of this is true with the stock market though. That’s why I like her so much, I do believe. It is this activity that offers me a constant exercise of the limitations of all prior acts. It is the traditional job equivalent of an endless supply of new responsibilities. Now we’re talking. And what makes things even better is that the compensation is perfectly commensurate with that escalation. You get rewarded directly and proportionately with your ability to perform. But unlike “performing” being defined strictly by a different set of responsibilities, i.e., getting rewarded for trying your hand at a new system, “performing” now becomes quite literal. Performing switches places with what we have known it to be. Now you can be part prophet. You get paid for exhibiting foresight.

And when it’s all said and done, you can enjoy appropriate pay and constant challenge. That has to be close to about the best possible outcome.

Two announcements:

1. “What I’m reading right now” sidebar section

You had to know, right? You did know right? Of course you knew. You knew I was a reader. You knew I craved books. You knew I satisfied that craving. Constantly. Books and I are like water and fish. And if you’ve ever wondered what it was I was reading at any given instant, now you can find out. At the very bottom on the left I’ve added a section where I will list the book I am reading and will add to that section new ones as I start them. I may even write a short post about some of the books and will use that section to link to those posts.

2. New component to the main performance chart

The chart, as it is now, serves several very useful purposes but it is lacking in several other even more important respects. The main useful purpose it serves is its accuracy in regards to the assignment of yield, over time, given an unfixed initial investment. In other words, until when any feasible addition of cash would make no reasonable difference in future gains, the calculation it uses to evaluate performance given regular additional resources is far more useful. To see an example of what I mean, pretend I had $100 invested. If I worked some overtime and came up with an additional $100 it could feasibly double my gains, however, if I had a million dollars invested, $100 would essentially mean nil in comparison to what was already invested. And if you’re wondering, I don’t have a million.

Its drawbacks though have been plentiful. For starters its boring. It would be more ideal of a chart if I were a day trader, closing my positions constantly. It would even be more suitable if I were simply more active of a trader. Because I am neither of these, the chart will not exhibit movement unless I change my positions. What I’ve been wanting was something more like an index monitor. Doing this though, has been far more complicated. I’ve just about got it finished though and will add it to the chart soon. Essentially, it will be reflecting the value of my portfolio on a daily basis. Even though, over time, the stocks I’ve sold so far have all been for gains, that doesn’t mean they didn’t get beat up between the time I bought and sold. The way it is now, it essentially assumes the value of the portfolio remains at least as though the stocks I own are at the prices I paid for them. This method would work fine as long as every stock I buy appreciates and I sell at a gain, but until that selling point, the chart dismisses all the action. Now what fun is that? This new addition to the chart should take care of that. It will include much greater detail, and the next time the Dow falls 350 points you can all come here and watch me get my butt kicked .

As the plausibility of a bear market continues to grow, I thought it would be useful to consider ways that we could react, should the market take a turn for the worst. Even better, let’s let Warren Buffett do it. Here are some quotes of things he’s said over the years that I think can give any of us at least a few reasons to rest easy.

1. “If a business does well, the stock eventually follows”
In other words, regardless of the circumstances of the market at large, you can still look for good companies.

2. “If past history was all there was to the game, the richest people would be librarians”
So don’t rely too heavily on the past. If we do enter a bear market, it may not be anything like other bear markets. Creative thinking and prudent planning going forward is what could reward you more than what relying on history will.

3. “In the business world, the rearview mirror is always clearer than the windshield”
This goes well with #2. What lies ahead is by no means clear. Even so, you shouldn’t let the clarity of that rearview mirror discourage you from moving forward anyways.

4. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”
If this is so, then all we have to do is find wonderful companies. The pricing right now might do half the work for us.

5. “Let blockheads read what blockheads wrote”
If you find that you’re reading the same garbage day in and day out, read something else. Like this blog .

6. “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”
If we do in fact see some serious slides in the market, and they are indeed folly, don’t slide with them. Profit by using these times as a rare buying opportunity of the first magnitude.

7. “Only when the tide goes out do you discover who’s been swimming naked”
In other words, don’t be naked. The tide just might be going out. Also, don’t buy companies that are naked. If they are naked, and the economy does start to slide, guess what we’re going to see?

8. “Risk comes from not knowing what you’re doing”
If you feel like there is lots of risk right now, try something new. Look for different kinds of companies than you would otherwise.

9. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”
In other words, do it the Berkshire Hathaway way. If everyone around starts looking fearful, go get your greed on.

10. “Wide diversification is only required when investors do not understand what they are doing”
Don’t be scared away from stocks. If you feel like you need incredible breadth in your portfolio to “weather the storm,” try weathering it another way: look for what you know. Look for companies being sold at discounts. There is bound to be many.

I recently submitted some articles to some blog carnivals and inadvertently had not noticed that the articles were in fact mentioned on the sites hosting the carnivals. I wanted to take a moment and point out those submissions and present the sites:

KCLau’s Money Tips hosted Personal Finance Money Tips - November 3, 2007

Prior to the carnival, I had never heard of this site. Turns out, it’s a very good one. Check out this quote from his profile: “I believe that in order to be financial independent, prudent wealth management and proper financial planning is an essential part in our life planning.” Well, KCLau, I couldn’t agree more.

E3 Success Blog hosted E-3 Carnival of Success Principles - October 29, 2007

This site looks to be primarily for blog carnivals, so if you’re looking for a quantity of reading, you can certainly find plenty here.

Financial Alchemist hosted Festival of Stocks- October 29th Edition

I didn’t have a long time to browse this site in depth, but I knew right away that it was worth a closer look. I immediately saw that there is an abundance of high quality commentary there.

Originally, I was going to title this something-about-the-benefits-of-holding-cash but damn, this really is, just amazing. After posting better than expected results (better even than my most optimistic version) and after earning the first serious gain in a long while, Headwaters got annihilated today, with much of the market, and broke down to an even lower 52-week low after shedding almost a full tenth of its value.

I’m going to save all of the specifics and my interpretation of those specifics about their results for a separate post, but wanted to point out now the fact that we now have a seriously undervalued company (even more undervalued if all the long-term prospects are taken fully into account—long term prospects greatly illuminated by these recent results) getting its very legs hacked off at the knees. Good lord.

That’ll teach me to try to pick bottoms . But back now to what this article is really about—the importance of holding cash. I’ve been hoarding cash for a while now expecting the very possible significant downturn in the market that we may in the very midst of now. I don’t know if we’re heading into a decidedly bear market or not, but things certainly don’t look so good. If you don’t have a significant cash pile, I would suggest starting to build one: you might end up needing it.

If we all do need that cash pile, it’s not going to be for paying bills or softening private interests impacted by the economy, in other words I don’t anticipate a recession (just the possibility of a market downturn), what I anticipate is a wonderful shopping bonanza.

Now things are starting to look a little interesting in the world of Headwaters (HW). From it’s 52-week low (intraday) on October 25th at $13.16, it has risen a shade over 9% at the close of the market today ending at $14.35. Several things are interesting to me now (instigated because I currently have an embarrassingly large percentage of my portfolio invested in it ):

1) I think the bottom may have passed

After hitting that ugly low, it has risen for five straight sessions while the S & P 500 has risen on only three. Of course, it does this periodically, so I am interested to see if this one sticks. Also, every morning for the last several days, it has softened, then has come back strong to finish higher than the previous close. See next point.

2) A possibly remarkable changing of hands might be occurring

Why could it be behaving like this? Two things of particular note are the most likely factors. For one, it has a ridiculously high institutional ownership (almost all), and it has a relatively high short interest (better than 28%). So why the morning doldrums? If the shorts are covering, then someone has to be selling. So it must be the institutions, or, there are more people shorting the stock, which would be very risky so near it’s 52-week low. But then again, if either the institutions are selling or the shorts are covering, then who’s buying in the afternoons? Are the institutions selling while the shorts are covering? Talk about a battle. But keep in mind, “smart money” is called that for a reason. Surely there isn’t enough covering going on to outperform institutional liquidating. Of course, another option is still possible: some institutions want out while others want in. All in all, it’s seems too early to tell. I’m just going to have to keep watching.

3) Earnings are out this coming Tuesday

This will be the most remarkable event. Until now, everyone has the same data. Everyone with an interest in this stock knows the risks, knows the whole story. Here is what I look forward to this coming Tuesday: a glimpse of just how well they have diversified away from the revenue stream only available to them previously, that was only available to them through a federal subsidy. I’m not sure if this last quarter will be the decisive one, but I think it will be better than most have been thinking it will. Check back on Tuesday.

Here is the 5-day chart for Headwaters (click to enlarge):

Just wanted to make a quick note today that The Best Stock Trading In The World was in fact featured on The StartUp Blog at PartnerUp. You can see the latest edition of the Carnival of the Capitalists here. I encourage everyone to go check out both that blog and the articles in the carnival. I’ve read several of them and found them to be noteworthy. There are articles for Sales and Marketing, Technology and Innovation, Leadership and Management, Finance and Investing (which is where my article was mentioned), and the Economy, Law, Government and Policy. Plenty of good material here.

Don’t worry, as far as treatises go, this will be both the shortest and least treatise-like treatise you will ever read. So, you might be wondering then, “why call it a treatise?” Not a bad question, but, it proves a very subtle point. That subtle point is that the performance of this site is straddled by its somewhat narrow focus; its performance is dictated by the illusory tastes and relative rarity of its ideal readers. Not very many people like treatises, and those who do often stay in shadows.

But anyone who does peruse from time to time the things I have to say knows that I don’t really write treatises. I write to a fairly exclusive audience. To those who can keep still for a few minutes, read something designed to exercise their cognitive skill set, then wrap all that up with a brief stare out a window or into a fire, or even with eyes shut focusing on the chaotic sound of the rain.

Unfortunately for this website, those who do such things seem after all to be enough of a rare sort so as to retard the amount of traffic that does come here. Ultimately, all this doesn’t really bother me, but I have had hopes from the beginning that word would spread at least a little farther, faster than it has.

One thing (slightly disappointing) that I do notice is that the traffic increases somewhat dramatically after I get a good pop from the market. The source of this traffic often originates from e-mails. Someone notices, then tells someone else they think would like to notice too. This is mostly a good thing, but if someone only takes notice right after hefty gains alone, then I am doomed to the task of overseeing frenetic readers satisfied only by spurts of excitement who bore easily and quickly right after; in other words, not my intended readers.

I never said I would annihilate Warren Buffet’s fifty-one years of investing in 180 days, but I do intend to consistently outperform his average yield only so I can reap some other rewards in life long before fifty-one years is over. Nor do I intend to outperform Warren Buffet because I dislike him and think he’s ever, for even a day in his life, done anything remotely wrong, to the contrary: I view my aspiration to Warren Buffet as player does to coach, or student does to teacher. One can use an idol as a measuring stick only because it makes a damned good and useful one. Ultimately, it’s how I prove just how much I admire him.

Nevertheless, two site performance issues are rather bizarre. Even while getting only an average of 30-50 visitors a day (for anyone not familiar with how much this is, think “pail of sand on 10-mile beach”), for some reason, I have an Alexa traffic rank of 780,192, and after having only twenty or so sites linking to me, I have a Google Page Rank of 3. Both of these seem very unusual. I’ve gone to many websites who have hundreds of FeedBurner subscribers, and otherwise seemingly very high traffic who have an Alexa rank of over a million or even two. And too, I’ve been to many sites with hundreds of links to and from other sites who have a Google Page Rank of not much more than mine.

These two peculiarities aside, I hope to continue to reach an ever growing audience. I’ve recently begun submitting some articles to blog carnivals in the investing niche, so we’ll see how that does.

Anyone who is keeping tabs on my open positions has the potential to have the somewhat justified right to wonder how I feel now, after my large stake in Headwaters (HW) has softened so much. While others in my position might have bailed by now, I’m still more than convinced that the decision to buy as much of it as I thought I could was the best possible decision I could have made at the time I made it. Hindsight shows me that it would have been nice to have waited until say yesterday or even today, but there is nothing in hindsight today that was available to me then. The golden opportunity, from my view of things, was foresight. Here’s why:

Have you ever watched a stock like Google (GOOG) and really wished you could have bought it in say, even September of 2006? Some people did, many did not. At $400 per share at the time, most people felt it was the most ridiculously overpriced speculative play they had ever seen. Even so, for those who had that blessed foresight back then, though they have been rewarded, have been rewarded a mere 67% or so. A mere 67%? (I invite anyone who thinks me completely mad at this point to navigate their way halfway down or so on the right sidebar and take pleasure by indicating such in the new poll).

Almost everyone I knew at the time considered it to be a grossly exaggerated speculation at best. I did too back then, and I still do today. That’ll teach us value investors once and for all. With a Google though, we have a stock that never was a value investor’s dream come true. Do I like the company? Hell yeah, I use tons of their services. Nevertheless, from a strictly investing perspective, it was always speculation, always overpriced, never a value stock by any fundamental measure.

What would a company of today look like if it were a Google of 2006? No, not Headwaters. But Headwaters has at least one thing in common with Google. Hindsight will make people wish that they once had the foresight that only that hindsight will confirm. Besides that commonality, the differences between the two are actually the very things that made me want buy Headwaters when I didn’t want to buy Google. With Google, the hope was that it would keep going up, while the fear was that it was completely overvalued and could come crashing down. However, with Headwaters, all this has become inverted. Now the hope is to get it while it’s still cheap because I fear that it will go up too soon. How’s that for contrarian?

The stock is completely backwards. When the stock, within the last two years, was trading at $40 it should have been trading at what it is today: it’s nearly singular revenue source was set to expire. Now it’s trading so low, but one very important event has occurred: it has done, in my opinion, a very competent job of poising itself to be able to completely diversify its business away from that single source. In all honesty, now is when it should be trading high again. Lucky me.

When I search for articles on such matters like this stock and others, I consistently encounter five to six versions of the same Internet. Complete lack of originality. As a consequence of this, because no one can seem to muster the creativity to write anything uniquely unique, I don’t plan on offering a survey of the company or its recent history. But, because I think that history is of vital importance, I’ll leave it to those who said things first to say what, were I just that bored, I could have essentially copied over here.

Here are some readings and brief thoughts on those readings about the day to day matters regarding Headwaters:

Chasing Value: Headwaters Inc. (HW) an under water opportunity from Bloggingstocks
While I don’t share the author’s apprehensions about the departure of CFO Scott Sorensen in August, I didn’t endure Enron either. I think the article is otherwise well written, informative and offers a commentary unequaled in many respects because of its originality and focus on value related perspectives.

Take It On Faith: Who’s Buying What in This Market from College Analysts
A late addition to the reading list, I found this last minute and have added it because I was surprised to find it on their site. I hadn’t noticed it before (what? I missed something?), but hope too, that Steven Stewart does in fact give shorts reason to cover (and there are still many many shorts).

Headwaters Will Reverse Course from The Motley Fool
Probably my overall favorite because of its length and depth. And of course, also because I like people who agree with me. At the bottom of this article, there are links to other past articles they have written on Headwaters, many of which are very informative. I also recommend this interview with Kirk Benson, CEO of Headwaters: Headwaters Weighs Anchor.