I opened position in FIAT (OTC:FIATY) today. There are a lot of reasons.
First of all, I like the cars. 500 (Cinquecento) is a great small car. Fun to drive, surprisingly comfortable and shamelessly cute. On my vacation in Italy last April I drove Alfa Romeo Giulietta. Another great small car, all bells and whistles, fun to drive, beautiful and roomy. In US you can buy a version of Ala under badge of Dodge Dart. It was made longer, wider, but some of design edge was lost, unfortunately.
Yes, FIAT owns most of Chrysler. And I think that collaboration promises to create more great vehicles and more profits for shareholders.
But main reason is expected pickup of vehicle sales in Europe. Europe is coming out of crisis. The process is slow, uneven, messed up by politics, but it's going on. I expect vehicle sales to recover quite soon, because people drive cars in Europe. It might sound surprising, everybody "knows" that public transportation is so good in Europe, you don't need a car. Yeah, right. Almost every family in Western Europe has at least one vehicle, most have one for each adult member of a family. Public transportation can't beat convenience personal transportation provides.
I thought about two companies: FIAT, which is in the best financial health among European auto companies, and Peugeot (OTC:PEUGY), which is the worst. But since spring, Peugeot is up a lot, and financially doesn't look any better than before. FIAT, on other hand, is down about 10% from it's top about a month ago. So FIAT it is.
Make no mistake, no investment is sacred. I'm not sure I'll keep FIAT above 8.50. But at 7.70 (buying price) it looks great.
No, it's not about October Revolution (1917) in Russia. It's about stock market in 2013. I spent half of the month on vacation, so I rested while my portfolio worked. I should say, it worked quite good.
What now? Who knows? I still think that we are going to have rally straight into year end. But there are problems (aren't they always?). Stocks are somewhat overvalued. GOP in Congress is determined to kill economy in order to save it. Commodity prices are still high (with exception of corn, which fell off a cliff this year). As always, market climbs a wall of worry, confusion and resistance.
So far, I didn't trade much lately. Missed most of shutdown/debt ceiling debacle, which was very tradeable, and happy about it. Picked up Restoration Hardware (RH) and DSW Warehouse (DSW) on dips.
In the couple months remaining in the year, I'm planning to do the same. Pick up whatever I can on drops. Maybe buy something I'm pretty sure about. Maybe take some profits. This market is scary and exciting, my goal is not to be scared much and keep my excitement in check.
I am back after some R&R. Jamaica was great, and I intentionally didn't watch or listen to any news, except weather reports. Government shutdown and threat of the default aren't good for your mental well being.
Now, this crisis was totally tradeable. Starting with beginning of October (shutdown) you could buy SPY or QQQ calls on Thursday, sell them on Friday and buy puts, selling those puts on Monday. Because market believed that deal would be made on the weekend. Yeah, right. The last trade would be to buy calls on Oct 15 and sell them on Oct 18. Because the reality of the default is so awful, people with money would not allow it to happen. Sometimes the fact that congressmen are mostly wealthy is a blessing.
The bad side of it: default is a very destructive weapon. It's a weapon of mass financial destruction, including self-destruction. As any person familiar with weapons knows, you don't play with guns. You never point a gun at something you don't want to shoot. Even if you know for sure that gun is not loaded. The fact that we have enough idiots ready to play with a weapon of mass financial destruction, is scary.
The ugly side of it. Tea Party, which supposedly started as a protest against bailouts, in reality represents ultra conservative, socially reactionary part of society. They are closely related to Heritage Foundation, which was proud of the fact that they managed to sponsor anti-gay law in Uganda. That law included long prison terms and even capital punishment for "sodomy". Now, they might be fit enough to govern Uganda, but they are not any close to US mainstream. They are losing positions every day (today's signing of gay marriage law in NJ is a good sign). The problem, as with any fundamentalists, is that they are ready for extreme measures. And if it was Tea Party choice, we would have a default.
Well, possibility of default was (and is) still remote. Life is good. I expect market to go up for the rest of the year (of course, I might be wrong). So I added to my DSW Warehouse (DSW) position today.
Took some profit in Banco Santander (SAN) today. Price shot up more than 5% after Uncle Ben (Bernanke) declared that there is no "taper" so far. Well, I like this bank, hold a significant position in it, but you don't make money if you don't take some profit once in a while. That's what I did today. This is a stock with high volatility, so I would buy more at lower prices (maybe below 7.60) and might sell even more at higher ones.
Added today to Restoration Hardware (RH) position. The only reason I see for a significant drop in price today is a publication of 10-Q report. As far as I know, most of data in the report is a public knowledge already. And, to the best of my knowledge, Wall Street got the quarterly earnings report completely wrong. Either fund managers expected something spectacular, or they didn't like that company reinvests all profits into company growth. If latter, that's exactly what I want. Company is on a roll, rich people (and not that rich) are redecorating their houses and looking for "It!". And I don't see any other company which can provide that "It!'.
I closed my long term Indian Fund (IFN) position last week. Main reason: I don't like outlook of Indian economy for now. Country is in a squeeze: if Central Bank raises rates, economic growth will get even more slow, even recession is possible. If rates are not raised, rupee might dive even lower. Indian economy really needs end of oil subsidies, which will reduce imports and might even spoor some internal drilling. But it's a political suicide for any party at power. They can reduce gold import by imposing duties (and I applaud them for that), but it's not enough.
Thank you, IFN. It paid for itself with dividends, last couple of years I really played with house money. Maybe I'll return to it when situation in India improves.
Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.
Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.
Strategy. As I already mentioned in my blog before, political environment doesn't look good for the economy. Strategy changes: increased cash cushion, reduced long positions, more trading around positions.
Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.
Company provides and supports Red Hat Linux, the most popular Linux distribution in enterprise world. Recently this OS became the most popular OS in clouds. But, as with VmWare (VMW), I'm not sure that internal clouds are winning.
No changes since last review.
Risk: high valuation requires high growth. Any slowdown can crash the stock.
Creamer's recommendation. As a part of research, I visited a local store. And liked it a lot. Company sells various home improvement stuff, mostly restored old furniture and other decorations. There is no real competitor in US, because unlike others, this company got style.
Risk: as any retailer, RH is a high risk company.
Sold since last review: VmWare (VMW), Qualcomm (QCOM), Intuitive Surgical (ISRG).
Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles. This is also can be placed in International part of the review.
Added to position since last review. Also sold some options (both puts and calls)
Risk: Currency fluctuations, more problems in Eurozone.
Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.
When Cramer recommended to by Diana Shipping (DSX), I did some analysis. I think material intensive growth in China is over, country is trying to change growth model to less material intensive. Which means less demand for general cargo shipping in the world (i.e. raw materials). Which, in turn, means that DSX is dead money. Not only China demand for raw materiel is not growing, but also a lot of general cargo ships have been built in the last 10 years. Less demand, more supply, no profit. I decided to go with DCIX, because it owns container ships, which should do good when trade is growing. So far, stock didn't live to expectations and I am not sure it's not a mistake.
Risk: multiple risks related to supply/demand in container ship business.
I wanted to buy cosmetics company for a while. Most of cosmetics are produced by diversified companies, which is not exactly what I wanted. I don't care about toothpaste, razors and cotton swabs. l'Oreal is a pure cosmetics company, located in France, fits the bill.
I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on stocktalk of Seeking Alpha.