I unloaded too quickly

July 30th, 2011

Like every other husband, I hate it when my wife recommends a trade, I screw it up, and had I not screwed it up it would have been unusually profitable.  So it was last week when she told me the world was coming to an end and I should

buy puts.  On Monday morning I did buy puts but the market seemed strong, so I sold them later in the day for a $400 loss.  For the rest of the week the market tanked.  ”You ejaculated to quickly” she taunted.  But she was right.

So now I’m trying to make it up to her.  I bought, into 6 different portfolios, 300 shares in each of WHR (Whirlpool appliances) for just over $69 in each account, and sold the Sep $72.50 calls taking in about $1.67.  This is a very traditional

“buy-write” done on what I think is a good price for a solid stock, which pays over 2% in dividends.  My hope is that it is called away at $72.50 either in September or a later date after I write more calls against it and collect in more

dividends from it.  My bullishness on the stock has to do with the increase in their Asian business.  Billy will enter this into “merv’s trades” and we will track it together.    mlh


July 26th, 2011

Some of my friends are buying gold.  They have various reasons: the world is coming to an end, inflation is about to begin with a vengeance, the dollar is no good, etc.  One person has suggested gold coins which are selling for $2,600 an oz while gold itself is $1,600 an oz.

My theory of investing is that the best investment is one where you get added value.  If you can buy an old house and fix it up yourself, you add value from your labor and almost always make a handsome profit.  If you can’t do that yourself, look for a company that does it and allows you to participate in the added value.

Apple comes to mind.  They seem to know how to create great value, and they let me benefit from their creation by passing the value to shareholders.

There are a lot of companies like that, and investing in the stock of these companies is what I believe in.  Just in case they don’t pass enough of the value to me as a shareholder, I sell options to increase my yields, and live better.

The value of gold, on the other hand, strikes me as an investment in the “bigger fool theory.”  Gold has some intrinsic value, for its use in electronic equipment and other fields where a soft, non-tarnishable metal is needed.  But by and large the value of gold is based on a purely subjective process dominated by group fear.

And that’s what the gold sellers stress—fear.  But gold has a lot of drawbacks as an investment, even though it has done extremely well recently.  For one thing, in a world disaster who would redeem your gold?  Would you have to give someone a $1,000 gold coin to get a gallon of water, because he or she can’t make change?  Can I pay my check at the local Italian restaurant with it?  And the oft-made suggestion that gold always goes up is clearly false, since a look at the price history of gold shows a lot of variation up and down over the past 20 years—even if mostly up.

Then there is the storage problem: you need to keep it in a bank vault, which is not so convenient, or take the risk of theft.

If I were to invest in gold, which on occasion I have done, I would buy the GLD ETF, not take possession.  And I certainly wouldn’t buy coins from a gold dealer.  Just looking at the cost of the glossy brochures and knowing the commissions paid to the sales people lets you know you are not paying a good price for it.

Here is a quote from a recent issue of the Economist:  ”gold (is) an asset that delivers no yield at all, is very difficult to value, has risen sixfold from its 2001 low and which attracts the kind of public enthusiasm that has marked bubbles in other assets.”



July 26th, 2011

As an option writer I always try to avoid predicting the direction the market will go.  The most I feel capable of doing is anticipating with some statistical probability the range it will be in during some period of time.

My wife does not always agree with me.  This past weekend she was certain that as a result of the political impasse on the debt ceiling, the market would crash on Monday morning.  So at her insistence I placed an order to buy a put on the SPY (the ETF on the S&P 500) at the market at the opening of the market on Monday.

Monday morning the market opened up higher than the close on Friday, and during the day while it declined slightly, it never went below my cost.  In the end, I closed out the position because the market looked strong, not weak, and took a $400 loss.

But it was worth it to teach my wife a lesson.

Market Update For Week Ending 7/22/2011

July 23rd, 2011
Index Close Net Change % Change YTD YTD %
DJIA 12,681.16         +201.43         1.61         +1,103.65         9.53        
NASDAQ 2,858.83         +69.03         2.47         +205.96         7.76        
S&P500 1,345.02         +28.88         2.19         +87.38         6.95        
Russell 2000 841.82         +13.04         1.57         +58.17         7.42        
International 1,717.06         +55.92         3.37         +58.76         3.54        
10-year bond 2.96%        +0.06%          -0.33%          
30-year T-bond 4.26%        +0.01%          -0.07%          
International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.
More market data

Market Wrap
Global stock markets edged higher this week thanks to progress in both U.S. budget talks and the European Union’s efforts to shield its weakest members from another credit crunch. The Nasdaq led the way among U.S. benchmarks, up 2.47%, while the broad S&P 500 gained 2.19%. The blue-chip Dow industrials and small-cap Russell 2000 rebounded 1.61% and 1.57%, respectively. Foreign shares surged as Europe took relatively decisive action on behalf of Greece, ending the week up 3.37% in dollar terms. Bond prices sank as investors became more sanguine about the health of the world economy, pushing long-term yields upward. For more on recent trading activity, please read:

Investors Watch The Calendar As Debt Ceiling Talks Continue
Another week of intense negotiation in Washington brought new concessions from both sides, but by Friday night, a final resolution to the U.S. budget dispute remained tantalizingly out of reach. At stake is a potential failure to provide funding to various government programs and possibly endanger the U.S. Treasury’s world-class credit rating. With barely two weeks left to go, the rhetoric is heating up. For more, please read:

Greece Gets Its Bailout, But Rating Agencies Downgrade It Anyway
Freeing up 109 billion euros ($150 million) for Greece helped the European Union keep Athens from an outright default and gave the euro a lift. Nonetheless, credit rating agency Fitch was quick to consider the deal a technical failure and now holds Greece to be in default. What does this mean for the debt-weary euro zone and the rest of the world? For more on the latest developments, please read: