Stockcoach's Corner

Up about $3,600 today. I was considering taking some profits on ACSEF after the stock zoomed 20 percent after reporting its quarterly results this morning. In the end, I decided not to: the company's guidance for the next quarter was just too good. I'll stick around for now and perhaps sell a few shares in the high fives or low sixes.

For October, my portfolio managed to gain $1,784 to finish at $566,619 (up 0.3 percent), outperforming the NASDAQ for the fifth month in a row (down 1.5 percent) and outperforming the S&P 500 for the fourteenth month in a row (down 1.8 percent).

A footnote: when I was reconciling the balances in my two accounts (Ameritrade and Scottrade) I discovered that I made an error in my spreadsheet when I recorded the balance in my Ameritrade account in the first week of October. Ameritrade temporarily reported the value of one of my holdings as zero after the company announced a cash for shares exchange for all small shareholders. When the cash was credited to my account, I didn't record it. The impact was that I underreported my account balance for that week and every week for the remainder of October by about $3,000. The results on the lefthand side of the blog have been revised to correct this error, as has the weekly chart of my track record in 2005.

The roller coaster ride continues. The market continues to oscillate between manic depressive (yesterday) and blissfully euphoric (today). When will this schizophrenia end? I don't know, but hopefully soon. Anyhow, the week turned out reasonably okay for my portfolio. Although the market left me in the dust today, I finished the week up $8,084 (1.5 percent), slightly worse than the S&P 500 (up 1.6 percent), but better than the NASDAQ and Russell 2000 (both up 0.4 percent). Nevertheless, despite the modest rebound this week, I am still down by nearly one percent for October, and with only one trading day remaining, I am hoping Halloween brings more treats than tricks.

Down $2,800 today. I'm no technical analyst, but one would have to think that this yo-yo action that we've been seeing over the last month is very worrisome for the bulls. Every up day seems to be followed by a down day. If the market were already up for the year, today's action could be construed as a healthy pull back and part of an overall pattern of consolidation. But of course, that's not the case: the market is down for the year. And so days like today just make the bulls more frustrated. Eventually, I fear, they will throw in the towel and then things could get really ugly. I'm hoping that won't happen, but when I see days like today, I become less and less inclined to regard them as buying opportunities.

Up $3,200 today. Cobra reported another solid quarter before the bell this morning. The stock moved nicely higher, but rolled over somewhat with the rest of the market towards the end of the day. Cobra remains my biggest holding after TRT. Though the stock has had a habit of falling on its face after every run-up, I am cautiously optimistic that this time, it will be able to hold and add to today's modest gain.

I also sold GMR during regular trading hours. The company had missed the Street's estimates in the past two quarters and I was afraid they would miss this quarter too. True to form, it did, and by a wide margin. This is one turkey that I am happy to part with.

Up about $1100 today. VTEK, one of my favorite holdings, reported another solid quarter. The stock didn't do much in afterhours. Predicting how a microcap stock will react to an earnings report is never easy. Sometimes the company will announce stellar results and the stock will do nothing. Other times, the company will release good but not great results and the stock will surge 40 percent.

My philosophy is that you can't predict how traders will react. However, that doesn't mean that your reaction to their reaction should be arbitrary. As most of you have noticed, I am a firm believer that one should sell into strength and buy into weakness. In the case of microcaps, that is a particularly profitable strategy because you're actually performing a valuable social function: you're providing liquidity when people are desperate to sell and you're absorbing liquidity when people are desperate to buy. In essence, you're doing what market markers are supposed to do and hence, it stands to reason that you should be compensated for your efforts in the form of higher expected returns.

Up about $4,500 today. I started a new position in APN this morning. Applica had been on my watch list for several months, ever since Cramer dissed the company on his show. The company released some very good news after the closing bell on Friday, which confirmed that bankruptcy is not on the horizon. In fact, the company now expects to generate $7 million in net earnings in 2006. I'm in for 6,100 shares at $1.64 per share (I had a limit order to buy 9000 shares but it was only partially filled).

My portfolio continues to tread water. After a good start to the week, I lost $7,000 over the course of Thursday and Friday, and finished up $1,787 (0.3 percent) for the week. Although this was somewhat better than the S&P 500 and Russell 2000 (down 0.6 percent and 0.1 percent, respectively), I underperformed the NASDAQ for the second week in a row (up 0.8 percent).

Even though I have a very healthy gain for the year to date, it seems like 2005 has unfolded rather differently than 2004 as far as my investments are concerned. Although I will be hard-pressed this year to beat the 57 percent gain that I achieved last year, in some sense I am more satisfied with the way by portfolio has behaved this year.

First, and most obviously, the market has performed worse this year than last, so in terms of relative performance, I'm still doing very well. Second, last year's performance was very uneven. My portfolio was almost completely decimated by a very large and very stupid position that I took in one particular stock (NENG), which at one point accounted for a third of my portfolio. In fact, even this monthly chart of my portfolio's performance masks the true extent of the damage since it only shows end of month numbers, and at one point last August, my portfolio was down over 25 percent (nearly $100,000) from its all time high. Luckily, I was able to bounce back, but even then, lady luck gave me a helping hand, as I was able to benefit from a couple of massive pump and dumps (in MAHI and TAYD).

This year, in contrast, has been very steady. I was able to avoid doing anything rash when I went through by far the worst personal crisis in my life this spring. I attribute this at least in part to the fact that my portfolio is now extremely diversified (I've been trying to limit individual positions to no more than 5 percent of my portfolio, though if truth be told, COBR and TRT are now slightly above that level). This has allowed me to relax a lot more and when needed, turn my eye completely away from the stock market without worrying that I may lose the bulk of my savings.

Down $3,200 today. It looks like my suspicion that yesterday's big rally was nothing more than a short-inspired dead cat bounce turned out to be accurate. However, tomorrow is another day, and who knows what that will bring.

I noticed that Google was up 10 percent after the market closed on better than expected earnings. Ahh.. what can I say? Investors continue to value Google as though there were virtually no chance that their technology will be superseded by that of a rival within our lifetimes.

Once upon a time, investors actually believed that tech stocks deserved a lower P/E precisely because the earnings of tech companies could easily disappear if a better technology came along. Yeah I know, but Google's technology has no rivals, right? Well, as a matter of fact, numerous tests have shown that Google's search queries yield results that are not much better (if at all) compared to Yahoo, MSN, etc.

But more to the point, isn't this the sort of rhetoric that investors once heard about Polaroid, Cray, and Wang in the 70's; Commodore, Atari, and Compaq in the 80's; and Iomega, Netscape, and Altavista in the 90's. And where are these companies now? Perhaps with the exception of Intel, I can't think of a single tech company that has been dominant in three consecutive decades. Why should Google be any different, especially when it's not a natural monopoly like Microsoft or Ebay? As St. Augustine might have said, "Oh Lord let me short Google, but not yet".

Up $5,300 today thanks to healthy moves in TRT and GV (the latter due to anticipation among traders that the company's electrical repair business will see a boost in demand for its services after Wilma strikes Florida this weekend). On the whole, however, I am skeptical about today's broad market rally. The stocks that went up the most are the same stocks that have gone down the most in the past few weeks. That suggests that a lot of today's action was due to short-covering. Not a healthy basis for sustained rally.

I have managed to stay above water so far this week, with my portfolio picking up $2,700 yesterday and $100 today. There is a lot of fear out there. On net, I regard that as a good thing. I'd be much more concerned if investors were complacent. Nevertheless, even though I think the balance of probabilities favors a rally in the remainder of the year, I want to stay defensive.

With that in mind, I am trying to sell some of my less favorite holdings. Case in point: WSCI. I sold all my shares when the stock jumped 10 percent today on anticipation of a good quarterly report. It may turn out that it was a mistake to sell here. The stock, after all, has jumped after every quarterly report since I started following it at about this time last year. Still, I don't want to take my chances with this one. I already own a bunch of contract manufacturers, and quite frankly, WSCI is the least attractive of the lot.

The 17 week winning streak that I enjoyed against the S&P 500 ended in a whimper and not a bang today. While my portfolio managed to gain a couple thousand today, I underperformed the major markets both for the day and for the week. For the week, my portfolio lost $10,889 (1.9 percent), underperforming the S&P 500 (down 0.8 percent) and the NASDAQ (down 1.2 percent). Let's hope that next week is more profitable than this one has been!

Another day, another dismal performance: down about $5,000. I am now down more than $17,000 from my all time high. Nothing in my portfolio seems to be working. Even trusty TRT had a down day today. Nevertheless, I continue to plug away. I bought back all the shares I sold in TAYD on Monday. The company should be reporting earnings tomorrow or next week and I am hoping for a pop on the news.

I'd say welcome to my house of pain, but chances are you're already there. Down about $5,100 today.

When it comes to reading the current state of the market, there is good news and bad news. The good news is that, in my opinion, this is a simple panic, nothing more. Since the beginning of October, the small cap Russell 2000 is down more than 7 percent, and we are not even half way through the month! In contrast, the big cap S&P 500 is down only about 4 percent, and the mega cap Dow 30 is down even less. Since small capitalization stocks tend to have a large fraction of their shares held by individual investors, this means that the current downdraft in the market is led by people who, more often than not, let their emotions and not their intellect determine how they act. If the institutions like mutual funds were doing the bulk of the selling, I'd be more concerned. But this is not the case. The bad news is that for small cap stocks, the decline in prices will only stop when prices stop declining. If that sounds circular to you, it is.

Down $1,700 today. On yesterday's Mad Money, Cramer recommended GMR (an oil tanker stock). Unlike most people, my biggest beef with Cramer is not that he seems to change his mind all the time (I think that's a good thing.. in the stock market, you need to be dynamic and be willing to change your mind if circumstances warrant). Nor do I have a beef with him because he is often wrong. Again, in the stock market, if you are wrong only 40 percent of the time, that is already an impressive accomplishment.

Rather, my beef with Cramer is that he typically recommends stocks that have already baked in much of the 'good news' that he describes on his show. I know he denies this, but the fact of the matter is that most of the stocks he recommends are up significantly from where they were one year earlier. Not my cup of tea.

GMR, however, is different. The stock is still close to its 52 week low, and the good news that Cramer described (shipping rates for the particular class of tankers that GMR owns are up significantly) does not appear to be baked into the stock price yet. I got a bit lucky with my limit order to buy 700 shares. It filled this morning at $36.12, not far from the day's low. Like RICK, I regard GMR as a trade and not an investment, so I'll be looking to exit this position reasonably soon.

If I had to sum up this week for my portfolio in one phrase, it would be "could have been worse". Although I finished down $3,531 (0.6 percent), this was not nearly as bad as the S&P 500 (down 2.7 percent), the NASDAQ (down 2.8 percent), and the Russell 2000 (down 3.4 percent). If this week is any guide to what the rest of the year has in store, then the operative word is "volatility". Even the wild swings in the indices this week don't reveal the whole story: there was even wilder sector rotations. In the space of 5 days, the market went from loving oil and gas, hating it, and loving it again today.

I picked up some shares of RICK today. The company released some positive news before the bell today, and I decided put in an order to buy 2,500 shares at the open. While RICK is a microcap, I don't like the company's fundamentals well enough to warrant keeping it as a long-term investment. Thus, this will be short-term trade only. No matter what, I will sell the shares by the end of next week. In fact, from now on, I am going to be more vigilant in distinguishing between trades and investments. Like many investors, I have a bad habit of mentally reclassifying a trade into an investment when the stock in question goes down instead of up after I have bought it. That's one bad habit I am keen on kicking.

Well, I can dream, can't I? Another dismal day. Down about $4,000. For what it's worth, I think energy stocks are now oversold. However, for the time being, I'm hiding under my desk, too afraid to add to any of my positions.

Despite a nice 10 percent move in TRT, my portfolio finished down $3,600 for the day. I suppose I ought to be happy that the damage wasn't worse. Today was one of the worst days for the stock market this year. Even the headline numbers disguise the true damage. While the S&P 500 was down 1.5 percent, the small cap Russell 2000, whose stocks often dominate the portfolios of small investors, sank nearly 3 percent. Momentum players fared even worse, with the IDB 100 stocks on average falling nearly 4 percent.

What to do in times like this? I used today's weakness to buy three energy plays: EPL, CHK, and TMR. You may be thinking to yourself why would a value investor like me want to own energy stocks after the massive gains they've seen over the past few years. The truth is that I don't think energy stocks are attractive at these prices. But that's not the reason why I bought them. The reason is because I am concerned that rising oil and gas prices will hurt the other stocks in my portfolio. So energy stocks are a hedge against that risk. It's like buying an insurance policy. You don't expect to use. In fact, you expect to lose the premium that you paid to buy the policy. But you buy the insurance anyway, because if something bad happens, you want to be protected.

In addition to the aforementioned energy stocks, I picked up shares in another company that was pointed out to me by a reader of this blog: PAM. It's a logistics company that caters to the Chinese market. This morning the company announced that it was initiating a small buy back program and more importantly, that insiders will not be selling any more shares this year. I regard that as bullish for the stock. I'm in for 10,000 shares at 74 cents each.

Up about $3,200 today thanks largely to a nice move in TRT. The company announced that they sold a building and land in Ireland for what appears to be a huge profit. As a result of today's move, TRT is now my biggest holding (followed by COBR and AE).

I also picked up some more shares of DECT. It's been a whole week since the last pump and dump, an eternity in DECT time. Hopefully the stock will make a move back towards $6 within the next few days.

Remember that part in Terminator 3 when Arnie repeatedly piledrives the Termantrix into a row of ceramic toilets? Well, I feel a bit like her. What a heinous day. Down $5,400. I must admit I hate days like these (who doesn't?). Despite my record, every time a day like today occurs, I begin to question everything (Maybe I've just been lucky? Plain stupid luck all this time? Could it really be?). Fortunately, I'm smart enough to know that it's impossible to make big returns in the stock market without taking risks, and by the very nature of risk, sometimes you will lose. Hopefully tomorrow will be a better day!