When in doubt, do nothing
Steve Cook on Disciplined Investing


Have You Seen This?


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Have You Seen This?

The Market

    Both indices (DJIA 10434, S&P 1116) were up a bit yesterday, putting them above the down trend off the April 2010 high and the 10210, 1084 support level for the third day.  Volume remains weak and breadth hasn’t been much better.  The VIX declined and closed below the up trend off the April low for the seventh day and below immediate support for the third day.  The Averages remain in a trading range with the boundaries of 9830-11257, 1042-1220.

    Bottom line:  the longer stocks hold their recent gains, the stronger the technical position of the Market and the less likely that prices will successfully challenge the 9830, 1042 level.

    For the bears (medium):


    Tony Hayward: he took a seven hour plus beating (not that he didn’t deserve it) although about the only thing that our elected representatives accomplished was good theater and reassuring us that they are all morons.

    However, we got some disappointing economic news (weekly jobless claims [see yesterday’s Morning Call] and the Philly Fed index [see below]).  I have to say that  I was surprised by the complacency with which stocks reacted to the news.  Maybe investors were totally mesmerized by the brutalization of Mr. Hayward; maybe the Market will once again react to news with a 24 hour lag as it has done several times recently; maybe a slowdown in the rate of economic growth is in the price of stocks; or maybe investors are just so conflicted that the only possible result is an erratic Market.  I wish that I had an answer; but I don’t.

    Bottom line: when in doubt do nothing.     
    Thoughts on Investing--Five Rules for Investing from Jim Cramer

     His first rule for investors is to not dig in your heels when you're wrong. Quoting the great economist John Maynard Keynes, Cramer said "when the facts change, I change my mind."

Digging in your heels and refusing to acknowledge that your investment thesis is wrong is a sure fire way to lose money, said Cramer. It's natural to be angry, but when the market's turned against you, investors need to adapt.

Cramer said he's been repeatedly been chastised by critics and the media for changing his mind. In March 2009, Cramer called a bottom in the market at Dow 6,500 and came under intense scrutiny for his bullish call. But he said the facts were that unless most of the stocks in the Dow went to zero, the average just couldn't go much lower.

The facts changed, he said, and so did his outlook. A month later, the Dow was 1,500 points higher.

Cramer said investors must swallow their pride, admit when they're wrong, and move on if they ever expect to be successful.

Cramer’s next rule for investors is that price matters. He said even the companies you don't like at all can be bought, if the price gets low enough.

Cramer said he never advocates buying a stock where the fundamentals are deteriorating, but in between the best of breed companies and the worst of breed companies, there is a lot of room for opportunity if the price drops far enough.

Cramer said knowing the right price to buy a stock should be a sliding scale, based on how good the company is. The better the company, the more investors should be willing to pay for it.

That means that anyone who felt bankruptcy wasn't going to happen was able to get these companies at tremendous prices and has been rewarded handsomely.

Investors should also look for companies trying to raise capital through secondary offerings of stock, he said. Often these secondaries are priced below the true value of the company, allowing investors to buy in between 5% and 10% less than the previous day's closing price.

Cramer said price forces investors to make new judgments about bad merchandise, and investors need to be ready.
When it comes to investing, don't assume everything you hear or read is the truth, said Cramer. Stocks themselves aren't misleading, he said, but the companies behind them can be.

Cramer told investors that there are strong and weak players in every sector. He said the weaker ones will almost always blame their problems on the entire industry. He also be skeptical when a weaker player said their shortcomings are due to an industry wide slowdown.

Cramer said investors can't assume every company in an industry is the same. He said some companies are better run than others, some sell overseas, others don't, the possibilities are endless. Cramer said investors need to look out for excuses.
Cramer's next rule for investors is also about misdirection, only this time to the upside. He said that not all upside surprises are worth getting excited about. Cramer said that often what the media reports as "better-than-expected" results are not what the professionals on Wall Street were hoping for.

It can be confusing and frustrating for investors to see a company report what the media claims as an upside surprise, only to have shares plummet immediately after.

According to Cramer, there are two types of upside surprises: organic and manufactured. Organic surprises are ones stemming from higher-than-expected sales and improving fundamentals, while the latter comes from just a better bottom line, with no top-line growth.

In the case of a manufactured surprise, Cramer said many factors could be coming into play, such as cost cuts, changing tax rates, or stock buyback programs.

It's not a surprise if a company's "better" earnings come from fewer shares being on the market, he said. A true surprise, said Cramer, comes from better-than- expected sales and nothing else.

Cramer's final rule for investors focused on TV pundits who criticize the market and tell you to avoid stocks at all costs.

Cramer said investors should never assume these "experts" are any more honest than those hyping up stocks. Having a negative outlook, he said, does not equal credibility.

Cramer said those who criticize the markets may not be trying to help you. While it may be hard to believe, he said mutual and hedge fund managers may actually want the markets down to short stocks or buy in at better prices.

    News on Stocks in Our Portfolios

    FactSet Research (Aggressive Growth Portfolio) reported third fiscal quarter earnings per share of $.81 versus expectations of $.77 and $.79 recorded in the comparable quarter last year.


   This Week’s Data

    The May leading economic indicators rose 0.4% versus expectations of a 0.6% increase.

    The June Philadelphia Fed index of general business conditions came in at 8.0 versus estimates of 20.0.


    There has been lots of positive rhetoric on the repayment of TARP funds by the banks; however, there is another side (short):

    LA port traffic continues to strengthen (chart):

    As does rail traffic (short):

    Credit card delinquencies improved in May (short):

    And household debt burdens are declining (short):

    A look at PPI and CPI (short):


My favorite liberal blogger on Obama domestic policy (medium):

  International War Against Radical Islam

    Victor Hansen on His foreign policy (long):

Posted 06-18-2010 8:03 AM by Steve Cook