Phil Town

Phil Town on Stockpiling vs. Trading

Today I got this email from Jon:

Phil Town,

Will you be continuing to post on the current market and accumulation? With a ~20%+ move in market from the lows in such a short time and many stocks well above the 30MA how well is accumulation going to work in this case? It looks like you will talk more about FACs for entry's, or just back to trade vs consume?...

Can you comment on if you think the market will likely be rangebound or just start the climb back to the highs we've seen twice in the last 8 yrs or so. If your new book isn't out until Sept, I suspect you're not expecting it start getting overpriced between now and then?

thanks

The market price is just a general guideline to whether we can expect to find Rule #1 businesses on sale.  Right now the answer is yes. 

As the market climbs there will still be "load up the truck" deals that we can accumulate (I'm starting to call it "stockpile").  The higher it gets, the more I want to trade it. 

Stockpiling is a great strategy for everyone when the great businesses are really cheap.  Trading is hot when the market is moving up aggressively.  We're not back to that by a long shot.  Stockpiling is still the way to go unless you are very careful as a trader.  This thing can drop the bottom out on any major bad news, but the upside is very limited.  NOT a great time to be trading long on the trend.

Now go play.

Phil Town

New PAYBACK TIME Cover

NOTE: This post will stay at the top of the page for a few days. Scroll down for new posts.

 

Click the photo to see a larger pop-up.

Thanks for your responses to the first cover - I really appreciate your input.  I don't have time to respond to everyone who wrote in an opinion about the new book cover, but this new cover is my best response anyway.  The tie is gone.  The arms are still folded.  Sorry.  Don't love that either but it's still not so bad a shot.  Changed the colors.  Let's see what you think about this.  Let me know.

Now go play.

Phil Town

P.S. For those of you just now stopping by --

PAYBACK TIME is about how to get it back if you've lost it.  If you've been following my advice you should be in pretty good shape and now starting to get back into the market.  But millions are not.

Most of these people are not people who are interested in investing, nor do they want to trade. They are buy and hold mutual fund investors.  And they've been killed financially.  Now all they are doing is praying the market will go back up. 

PAYBACK TIME is about how to profit from a down market by consuming stocks and using FACs - Floors and Ceilings - as a guideline of when to buy. 

Now go play!

Phil Town

GE CEO Buys Stock... So Buy GE, Right?

The other day, Mike left a comment here on the blog about GE. Here's a quote from his comment (taken from Bloomberg):

Last year was “a tough year, and we expect 2009 to be even tougher,” Immelt wrote.

The CEO, while accepting responsibility, made it clear he intends to see GE through the crisis. Today, as GE shares dropped to the lowest price since May 1993, he bought 50,000 shares in a show of confidence.

“The current crisis offers the challenge of our lifetime,” Immelt said. “I’ve told our leaders at GE that if they are frightened by this concept, they shouldn’t be here. But if they’re energized, and desire to play a part in transforming the company for the future, then this is going to be a thrilling time to be a part of GE.” [By Rachel Layne, Bloomberg]

Hey, you gotta like it when a multi-millionaire puts up his own money to buy 50,000 shares.  Now if he mortgaged his house and bought 5,000,000 shares I'd get excited.  And check out the financials on GE, right?  Notice the debt has doubled twice in the last ten years while earnings and sales and book value have doubled once or less.  And it would take about 35 years to pay it off out of cash flow.  Red flag there.  Not to mention a 3% ROIC. 

And what were they doing with the debt?  Over 60% of it went to pay dividends or buy stock.  WHAT???

They were borrowing money to prop up their stock price?  You gotta be kidding!  And worse, like GM, they were borrowing to pay dividends.  That is almost criminal. 

No CEO should pay dividends because investors expect one.  They should pay a dividend because they have cash they can't invest with a high enough return.  Period.  Anything else is semi-fraudulent and certainly misleading.

In other words, GE was either being run into the ground by incompetence or by traitors who were acquiring businesses that didn't pay off.  So traitors or incompetents.  Either way, unless they change management, how is this going to improve?

It's cheap, but it also has almost no equity at all right now.  Debt is 5 times the equity.

Phil Town says, "Now go play".

Apple Excerpt from Phil Town's PAYBACK TIME

In answer to the Apple valuation questions, an excerpt from my new book, PAYBACK TIME:

Leadership is about vision and values. All public businesses have management. Fewer have leadership.

As I’m writing this, Steve Jobs is stepping down from Apple for health reasons. I’ve worked with Steve and can tell you from personal experience that he can be a total son-of-a-bitch about what he thinks is right. He’s like Simon on “American Idol.” He has absolutely no concern for your personal feelings. What you are doing is either “cool” or “bullshit”. But it’s that laser-like focus on what he sees as “cool” that allows his company to connect technology with consumers better than any company in the world.

I pray Steve recovers quickly. America needs every hard-core, iconoclastic, SOB like Steve Jobs it can get. If Steve doesn’t make it back to work, it’s an open question whether anyone else can keep Apple’s products at the cutting edge of brilliant innovation. Last time Steve stepped down, the company was turned over to a sugar-water salesman and Apple nearly went down the tubes. When Steve was brought back, he saved the company. We’ll see if a real leader can step up to keep it saved now.

(To that end, you also need to be careful about buying into a company that’s so reliant on the brains of a single person. If that asset goes away, the entire business as an asset can go away, too.) Also be certain to not invest in businesses that have political climbers at the helm. They are not leaders. They are the polar opposite. They look to where the band wants to go and then get in front of it and wave their baton. The world has enough self-aggrandizing band-standers in politics. Be careful of investing with one.

Now go play.

Phil Town

Related Posts from the Phil Town Archives:

• What About Apple?  (2007)
• Phil Town Archives:  Posts filed under Management

What to Do if You Don't Have the Money

A few days ago Hanno wrote Phil Town to ask how to stockpile or consume good businesses in this  market if you have $1000 or $3000 to invest.  Let's start by reviewing the difference between trading a stock and stockpiling a business for someone with very little money:

Trading a stock using tools requires very little capital.  Read Rule #1 and go to it.  You can certainly do it with $1000, although with that small amount to invest you'll incur trading costs that chew up a lot of your profits. You move in with the Big Guys, you move out with the Big Guys. 

The problem with trading in this market, as some people learned in 2008, is that when you are trading against the trend you keep getting in just as the stock price turns and drops.  An unrelenting down trend will cause you to have many slightly losing trades - I call it "the death of a thousand cuts" in Rule #1. 

Trading in a market like this can be deadly depending on whether you are correctly determining the overall trend of your target stock.  In my next book, PAYBACK TIME (coming out September 2009), I show you how to find the points in time when the trend is changing.  It will help you trade better.

And stockpiling stocks?  PAYBACK TIME teaches  how to stockpile, to consume.  We very rarely get an opportunity to simply load up the truck and forget about it.  No trading required.  We are in one of those opportunities right now.  You can pick McDonalds, GE, Burlington Northern and many more, figure out the payback time for your investment, and buy in for the long term hold. 

But stockpiling takes some kind of cash flow and that's the rub for Hanno.  What to do if you don't have any?

Payback Time

The day after I told Manny (Kiplingers) to get in, the market shot up 500 points. Nice call on the market if I do say so myself.  And pure luck.  I was thinking it would continue down for a while.  But businesses are cheap and that’s what we really care about.  And now it's time to figure out what to buy.   You guys asked me about Apple, (AAPL), Altria (MO),  Verizon (VZ), AT&T (T), Microsoft (MSFT) & ConocoPhillips (COP).  I’ll dig in on these, but only after you tell me what they are worth and why.

As always, I want you to do the homework.  You sent me two opinions of value for AAPL – Charpe197 thinks $286 is retail.  Lynn suggests the right retail value is $151.  Since I didn’t see their work, I can’t say for sure why the difference in value, but I thought I’d add another layer of information for those of you who are looking to buy some businesses right now.

The Bottom

I just sent this email off to Manny Schiffres, the Editor of the Kiplinger Letter and my debate opponent on Closing Bell with Maria Bartiromo (and I copied Maria).  Manny rather sarcastically asked me to call him when we reached "the bottom".  Well, I called him, so to speak.

We're close enough to a bottom to be buyers.  But selectively and only in businesses we want to buy as they continue to go down. 

Keep in mind that we could easily see the Dow at 5000 or 2500, although I think they are going to swap out some of the Dow stocks to shore it up a bit and keep that from happening.  In any case, we buy in now and hope it goes down so we can buy in cheaper down the road. 

Here's the email:

Happy for No Reason

A great old friend of mine, Marci Shimoff, has written a NY Times best seller called Happy For No Reason.  If you haven’t read it, read it. 

I meet Marci just after I retired for the first time in 1985.  I moved to Fairfield, Iowa to sit on my butt and meditate and get enlightened and all that 70s stuff.  Marci and I used to sit around my brother’s house and yak about how we’d like to be authors some day when we got it all figured out. I never did get it all figured out, except that sitting around meditating about it was inferior to actually doing stuff.  Marci figured that out, too, and went on to write a bunch of the Chicken Soup books and now this huge best seller.

While money doesn’t buy happiness, Marci found studies that show that happiness does attract money.  And that’s a good thing.

Happy for No Reason has been reprinted 19 times already in Japan and has been translated to about 30 languages.  Here’s why: “...you’ll learn seven steps to quickly raise your level of happiness and, as a result, more easily manifest your every desire.” 

That might be a little hyper, but being happier is no joke.  Go for it.  She’s going to give you a bunch of stuff for free for ordering now.  She wants it to hit the best seller list as a paperback and get another round of big sales.  Sounds good to me.  So go get it and read it and then let’s go make some more bucks together in this once in a lifetime market.

Now go play!

Phil Town