It's Not What You Know
It's what you know about what you know. A little confusing? Here is a little test. I will give you three recent headlines and you tell me are they buy or sell headlines.
AAPL CEO Job Retires! BUY or SELL?
Warren Buffet (BRK-A) invests 5 Billion in B of A! BUY or SELL?
BA Boeing Sell 100 Aircraft to Delta Airlines! BUY or SELL?
The recent news about AAPL and its CEO Steve Jobs stepping down triggered a couple of calls and e-mails and on the community boards of Motley Fool, Morningstar, WSJ, etc thousands of people were concerned and looking for direction and were unaware of Jobs illness and even a few who did not know the key role he played in the company.
OK Boys and Girls, basic, basic, homework demands that you look at the tenure and experience of the C suite of your core holdings. If you own or want to own AMZN, you need to know the bio of Jeff Bezos. What does he bring to the table? How long has be been there? Where was he before? Who has he hired to the C Suite to join them? If you don't know that DON'T Buy The Equity. Many investments have a hard fast rule (Cramer, Graham, Dodd and O'Neil) dump the stock when a company lose the CEO and think about dumping the stock when they lose a CFO. If you owned AAPL and did not know Jobs involvement and recent medical health issues you are one of those blind folded monkeys in the casino.
So BUY or SELL AAPL? Who is the news CEO? What is his tenure? What is his backround? Do the homework? We sold all of our AAPL at the $370.00 range and are waiting for a cooling off period. The share hit a low of $352 after hours and a lot of buyers got in at that price. Cook is a good man and has the full endorsement of the Board and Jobs. *SEE NOTE BELOW Cramer is not selling, but he can't buy or sell right now because of restrictions on his Alert portfolio. Cramer is breaking his own rule because this announce has been expected for 6 months.
Now should you buy BAC B of A? Buffet does not make too many mistakes and BAC was up over 20% on the news this morning. Before you get all excited, look at the deal. Here are the details:
"Buffett said in a statement Thursday he called Bank of America's CEO Moynihan to ask about investing because he considered the bank a strong, well-led company.
Berkshire will receive a dividend of 6 percent on his investment in Bank of America. Berkshire will get 50,000 preferred shares and warrants to purchase 700 million shares of common stock at $7.14 per share. Buffett can exercise the warrants at any time in the next 10 years. If he does, it would make him the banks largest shareholder with a stake of 7 percent."
Now if you can strike that kind of deal, go for it. Pick up the phone call the CEO and tell him you want 5 preferred shares and warrant for 95 more and 6% interest on the preferreds. Is BAC a good deal at this level ($8.00)? The stock is half its high water mark. It does not need the BRK cash and this was a vote a confidence by Buffet. If you have a long timeline (12-24 months, this is probably a good deal. There are 13-14 dollar target prices, although this deal will dilute any future earnings per share, (that's what adding 700 million shares to the outstanding number of shares will do. Remember the multiple equation. Profit per share divided by the stock price. If you add more shares, your profit per share goes down and the multiple goes up.)
About this point is where Dave Hanna suggested I out something clever and cute to keep everyones interest. Here it be!
In 1977ish I was living at my dad's house on the lake in Lake Forest California. It was about the time he was enjoying his first taste of upper middle class. He had a canoe which I would occasionally take out on the lake. One Saturday morning after he and I had jogged around the lake (I'll wait here for those that know me can stop laughing at the picture of me running around the lake. . . ) he started whistling the tune to Hi Ho, Hi Ho from Snow White and the Seven Dwarfs. After about 3 or minutes of him whistling he started singing the annoying song. Don't get me wrong my day was good tenor so his voice was OK it was the song that was annoying. He kept singing louder and louder. I finally asked what the hell he was doing. He asked if I had used the canoe last night and I said yes. (He kept the canoe locked up on his deck, as there were others who wanted to be middle class without all that work associated with it.) He kept singing and I said why are you singing that song. He explained the scene in the movie where the dwarfs were singing that song. They sang it as they left the diamond mine. I said, I kinda remember. He asked if I remember which dwarf was the last to leave the diamond mind. I said I do not remember. He reminded me it was Dopey. He then explained that Dopey would lock the diamond mine every day and hang the key OUTSIDE the door of the diamond mine. I asked him what the hell that had to do with the song he was singing so loud. He asked me to join him of the deck that fine Saturday morning. He pointed to the canoe and then to the lock. I had locked the canoe and left the key in the lock. Hi Ho Hi Ho! For weeks he called me Dopey! I hope that what Dave had in mind!
So do you buy BA Boeing because of the 100 aircraft deal? I don't know. Here is the homework you would want to do if you are not currently long in BA. Do all the homework we recommend, the fundamentals, the value analysis, THE C SUITE homework (Mchenry is a good guy but do the homework), and the recent SEC filings. Then look at the deal. Over how many years? How is it financed? Does the buy have the wherewithal to pull it off? (Yes that means you have to do homework on Delta.) How much margin is generated by the 737? (hint it is in older sec filings). After that decide where to get it the stock, know what price you want to get out and how long you want hold it.
Remember that 75+% of investors do not do as well as the overall market. They lose money. There are many reasons, but most of all they react to headlines and do not do the homework. With the same amount of time you would spend reading about you local football team, or movie review or silly post on Facebook, you could learn how to make some "Mad Money".
In the old adage of buy on the rumor sell on the news, there was a little blip of Bloomberg at about 12:11 PM PST. "Apple to consider a dividend." Ok now let's stop and think about this. There are major shareholder's or representatives on the board of AAPL. They have all been politely screaming for a dividend. They had 76 billion in cash (More than the US government a few weeks ago.). Jobs has highly recommended Tim Cook as the next CEO. Some members of the board are verbally endorsing Cook, but eventually we will see a board vote and our guess is the board will approve cook in return for at least a one time special dividend. (remember MSFT's special $3.00 dividend last year!). Anyway after spending the rest of my lunch looking at the prospects of the iPhone 5 and their signing up China Mobile (400 million cell users) to be the next carrier in China, and the iCloud potential, and now the rumor of a dividend, we have moved people back in to AAPL. (I hope I get a nice Christmas card from Chuckie Schwab.) We got most in at the 373 level so we lost 3-5 on the upside swing today.
More pin action in the Salve Lucrum portfolio we overstayed our welcome in GLD and got completely out this morning with a 16% gains for 4 months. (funny I got everybody else out yesterday and forgot to get me out?) it did give a bit more on the PUT we held for GLD (87% gain).
Thinking there is going to be some severe disappointment when Bernanke speaks tomorrow, and some resulting vacillations in the market, we bough some short term VXX calls. They are the September $35.00 call option at $7.20 for each contract. They were up 7.19% today. We will be looking for a 20% gain tomorrow and then we are out. Remember this is piggy backed on the SPY PUTs we bought yesterday. With the 1.5% drop in the market today, we don't think the drop will be as drastic as we did a few days ago. Maybe another 2% down. Assuming that is what happens, our VXX should trigger with a naturally double, the SPY puts will be sold, and the short term VXX will be sold.
Assuming all of that happens we will pay some bills with the newly found cash and go bargain hunting next week and re-establish our position in Gold. This has been one of the most vacillating fascinating weeks on record and should put The Salve Lucrum Portfolio in the black for the year. 1.7% Quite an accomplishement. (Even better after I calculate out big win on the VXX).
No pictures tonight. You can have stories or pictures, but not both. Blame Dave.
Salve Lucrum
