Day: October 18, 2008

Picking Some Stocks to Survive the Market

Picking Some Stocks to Survive the Market

I have not done well in the markets for the last six weeks.? Here is why:

  • Overweight in Life Insurers.? Yes, they are in better shape than the banks, but that only means they got hit later, not that they would not get hit.
  • Too much economic sensitivity.? I felt that global demand would hold up better than US demand, but that only means they got hit later, not that they would not get hit.
  • I suspect that hedge funds have been blowing out my positions.

I’ve ben talking about stock survivability lately.? What does that mean?

  • Low levels of short-term debt.? Few major debt maturities coming in the next three years.
  • Low levels of total debt relative to tangible capital.
  • Still earning money and producing free cash flow, even in a tough environment.
  • If a company is cyclical, it has slack assets, particularly cash equivalents.? High current and quick ratios.
  • If not a financial, trading at a historically low price to sales ratio.? If a financial, trading at a historically low price to book ratio.
  • Good accounting quality and corporate governance.
  • A leader in their industry.? It would be difficult to lose them.

With a little work on my side, I came up with 80+ names to consider, that I think fit the above criteria, mainly:

AAPL ABX ADBE ADP AFG AHL ALL APA AXS BBOX BHE BHI BHP BWA CAS CB CF CHV CINF CLF CMI CRH CSL CTSH EBAY ENH FCX FDS FSR GD GPC GWW HANS HAR HCC HMN HON IBM ITW LNT LOW MHP MMM MRO MSFT MTW NKE NOC NOV NUE NVDA ODP OKE ORCL OXY PC PEP PL PRE PTP RE RHHBY RIO ROC ROCK RTN SHLM SIGI SYK T TEX TMO TRV TYC UTR VCLK WAG WBC WDC WRB Y ZMH

This is a portfolio that I think will do well even in tough environments.? I will be buying some of them on Monday, and let you know what I did.

Blame Game III

Blame Game III

I went on a shopping trip today to buy a desk for my two youngest children (10, 6), both girls.? As I drove, I listened to radio C-Span, because it is “guilt week” for the NPR stations in the area.? In hindsight, I would have rather listened to the begging from the NPR affiliates than what I heard on C-Span.

The program that I heard was hearings on the financial crisis.? All of the testimony fell into the bucket of “not me, there are evil people who tricked us.”? My daughters must have found my negative commentary to be funny.

We have the government that we deserve.? Congress listens to self-interested loonies, rather than seek out those with intelligence that don’t have an axe to grind.? When I wrote the pieces, Blame Game, and Blame Game, Redux, what I tried to express is that there are a lot of parties to blame in our current crisis, and that everyone should ‘fess up their culpability.

With that, I want to add on a few more responsible parties:

29) FICO srcoring enabled loan underwriting to decouple from the local bank investigating the character of the borrower.? There is something lost when the underwriter does not explore the qualitative aspects of the borrower.

30) The fools who wrote that said that it is easy to make money in stocks or real estate.? They always show up near the end of the cycle.

31) Dojo suggests the Prime Brokers — How about the Prime Brokerage business model followed by most banks and investment banks which allowed their speculative clients to go ?nuclear? in any marketplace as long as they had a credit facility and a cell phone. A $10 million hedge fund run out of a basement in Westchester County NY or Orange County CA could control $1 Billion worth of goodies in many cases. Yikes!! A bit severe, but there is some validity there.

32) dlr suggests the FDIC — The bank regulators at the FDIC. It was their JOB to maintain oversight of the banking industry. Every regulator who allowed the banks they were monitoring to giving liar loans, or pick a rate loans, or zero down payment loans, and didn?t call a halt, should be fired for malfeasance. The regulators who had oversight of Washington Mutual and Indy Mac should be fired. And their BOSSES should be fired. Right up to Shiela [sic] Blair. I think that all of the banking regulators deserve blame here, plus the Bush administration, who encouraged malign neglect.

My main point is this: if you are defending your core constituency in this crisis, you are at least partially wrong.? There are so many culpable parties, that few are blameless.

Final note: in many ways, this is a proper comeuppance to US policy that encourages home ownership.? Policy was trying to push home ownership to 70%+, when reality should have said “be happy with a stable 60%.”? Home ownership is not an unmitigated good.? Many cannot truly afford it, and the government tricks them into buying what they cannot afford with reasonable probability.

Theme: Overlay by Kaira