The Results Are In

So Spock do you think I am winning that Cronin Stock Contest?

July turned out to be a good month for the Salve Lucrum Portfolio, ending 1.43% ahead in realized gains. Our top win was a very shortly held call option on AMZN which netted a 39.42% gain for a couple of days. We also netted about 30% on some call option contracts we held for about a week on CHRW, C.H. Robinson World Wide. Dragging us down were a few options that expired worthless (SLV, ARMH, and WM).

Doing a quick forensic on those options, our mistake was buying the contracts too far out time wise and buying "out of the money" too much. In other words the companies (WM and ARMH) had to really out perform in order to create a value increase in the contracts. That did not happen.

So year to date, the Salve Lucrum portfolio improved from a minus 1.42% to a minus 1.18%. That makes it the worst performing portfolio I manage. Of the 16 accounts I directly help with, the average is 3.2% as of the end of July. The overall market for the year is 2.7%, so we are beating the market. I am still way off our goal of 6% (2 times the 10 Year Yield at the beginning of the year.).

The best performing portfolio is my son's graduation account which is enjoying a nice 8.49% gain. In looking at his holdings, the only thing I can say is I do not trade as often in that account. He also has about 20% in Gold and Silver and I took some profits at certain peaks and got him out of silver when the margin call was announced. I have managed his risk a little better than in my account.

My prognosis for the balance of the year for our accounts, we are not as optimistic as we were a month ago. We expected a debt ceiling agreement that addressed the debt crisis and we expected it sooner. We got neither. Companies will be more cautious in capital expenditures and in hiring until this is truly resolved. The current agreement is filled with uncertainty. This could and probably will trigger a double dip recession for the balance of the year and into Q1 2012. Look for a lower year market than we saw at the end of business on Friday. Earnings for companies will continue to impress, but it will not be enough until the housing market stabilizes and we see something resembling job growth.  

Now enough about me, our Salve Lucrum Charity Stock picking contest still has our leader as our leader. 17.9% (That is not a typo. It is the same increase as last month to the 10^th of a percent. WEIRD) as of this morning, is the target. Her closet competitor is at 9.39%. If you think my numbers are off, let me know.

Round And Round She Goes

Today's action was like a wild and crazy roller coaster ride. As we suggested last night, the market opened nicely because we had a debt ceiling deal, then the ISM Manufacturing index number was released and it was pitiful. The market dropped about 180 points. It languished there most of the day as people actually tried to understand "the deal".

It sucks.

All it does is provide some immediate cuts to some military and entitlement cuts and promises a balanced budget imitative and more cuts by November. With that said, we should see our AAA rating for the bonds we issue get knocked down a notch to AA rating, unemployment should remain high and major corporation will not be taking huge risks with the estimated 2.6 trillion in corporate coffers. That is why we are changing our out look for the next 6-12 months.

So how do you play the next 12 months? Be conservative. If you have some core holdings, ad to them on dips like to day. Take little chunks. First figure out your core holdings. These are stocks you have done your homework on and feel comfortable with the business model for the next few years. Here are some CORE holdings in our portfolios. AAPL, AMZN, CMG (Chipolte Grill), XOM, CVX, HON, PNC, SMTC, UN, UNP, WY, and ZION.

Now today we had a reader ask about AAPL. They want to buy it but its is expensive. (They are not the only one. I have heard that comment about NFLX, AMZN and CMG). PLEASE do not confuse the price of a stock to whether it is fair valued or not. You will miss huge opportunities if you say I only buy stocks under $50.00 a share. That makes as much sense as saying I will only own cars that are blue. The color of the car has nothing to do with the attributes of that car. The price of a stock alone has nothing to do with the value of a stock. We can show you some really expensive stocks selling for 1.46 a share. We can also show you an incredible

Look at general Steel Holdins at 1.46 a share. It P/E ratio is 146 and it is in debt up to its girders and not earning potential, has no innovative products, but heck its only 1.46 a year. Then there is a little company called Berkshire Hathaway, Warren Buffet's company. Its P/E ratio is inline with the market at 14.2, it has manageable debt, tons of cash and an amazing history of performance. Share price today is $112,250 a share, about 23,000 a share below most target prices. PLEASE don't confuse share price with value.

OK back to what you should do. Be nimble and do your homework. Once you have your core stocks, read about them once a week. Look at their recent SEC Filings. The link is right here on this e-mail. Buy on weakness. Today was a great example. If you wanted buy AAPL, you had a chance to buy it a $393 a share, which is 2.5% off its recent high. That is not a bad entry point for this stock. Currently the value of AAPL is about 440-460 a share. 12-24 month values are about 665-700 a share.

Also, you want to be defensive in your portfolio to be prepared for the worst. If you own gold, add to it. This deal has done nothing to make the dollar or US stocks a safe haven investment so buy one. If you are in gold get more. I am guessing we could see $1700 by years end. If you have 5% in gold make it ten if 10, consider more. We are about 18%. (A few accounts are at 40%) Get some inflation insurance by buying grain based ETFs like DBA and JJG. (We still own JJG and took a nice profit on DBA.)

The next few months will not be pretty. It is not time to own questionable stocks. Get rid of the junk, buy quality, be nimble, and use stops very carefully.

We hope this helps.

Salve Lucrum