Monday, July 28, 2008

Long portfolio continues downward

Another tough day on Wall Street. I continue to kick myself for two reasons: first, I’ve been terribly negative on the market and have raised a huge amount of cash and placed a number of anti-market bets. Second, I didn’t divest myself of a long portfolio that has taken a hit and I have been swimming against the tide with Tesoro. If i was better than Carnac at devining the future I should have sold all my stocks and not bought any bottom fishing positions. I’m not worthy of a turban.

Over the last year I’ve sold a lot of stock as i worried about the market values and economy, plus a decision to take capital gains under Bush rather than Obama. Much of that I redeployed in the ‘fat pitch Wrigley and that has worked wonderfully earning me much, much more than any short term return. Other funds have been put into gold ETFs, inverse 10 year treasuries, inverse QQQs, and various short/put positions on financials, plus I’ve written coverd calls on the long portfolio names. These have all worked nicely.

i’ve written about NCC and TSO lately and I should have waited on TSO. I’, nicely ahead of the game on NCC, but TSO has eaten my lunch. Today I took losses on a portion of the TSO and bought another stand alone refiner, Valero [VLO] as I still believe in my ability to devine the future even though I suck at refiners.

But the point of this post is to talk about the future. I will list the remaining long portfolio that I have stuck with through the downturn. Mostly beccause I have large gains in all of these companies and I haven’t been ready to pay the taxes yet. I shouldn’t have worried about that consideration.

Here’s what I stayed with;
ADM, the huge agricultural processor
COST, the best discount retailer, maybe best retailer
BRK, Uncle Warren’s outfit although i have lightned up by 1/2
CVS, the largest drug store and pharmacy benefits manager
INTU, the QuickBooks and Quiken people
PEP, the large snack and soda leader
TMO, ThermoElectron, a leader in testing equipment
WMI, the largest garbage hauler that also generates a lot of electricity

These great companies have all been taken to the woodshed and paddled like bad companies. Thsi must be a bear market.

I think it is likely to stay a bear market and I’m ready to pay my taxes as soon as the calls I wrote expire over the next month or so. I’m going to stay with NCC and TSO/VLO as I believe they have seen very close to a bottom. The others, even though they are wonderful leading companies, will probably go down another 10-15% if the market does.

We face the following and while the market looks forward, I don’t think it has looked past all of this:
1. Earnings projections are coming down and will come down further.
2. Energy and Commodity companies, as well as International companies, will decline as American weakness affects the rest of the world, including the BRIC nations.
3. A likely Obama win will accelerat selling before an anticipated tax increase.
4. Less credit availability, both consumer and business, will hamper any recovery and GDP numbers in the 3rd and 4th quarters will be putrid.
5. Consumers are scared and spending will be curtailed, even if gas prices recede.

While all of the above should be known by investors I don’t think it is baked in thereby setting us up for a recovery in equities. If home prices suddenly stop going down, new home sales get strong, and banks stop adding non-accrual loans we may neutralize the five items above, but I don’t think we are there yet.

If I didn’t need a few rallies to unload my long positions, I’d almost cheer for a quick dive to 10,000 DOW so we could start picking the stocks that have over-corrected and the money making could begin again.

Time to put on my turban, get a scotch, and jump in the pool.

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