1st Year Stock Portfolio

September 28, 2007

It has been just over a year since I’ve been investing seriously in stocks; and I’d like to recap how the market has treated me and what I’ve learned over the last year.

1) Know When to Take a Loss
Every informed investor should be aware of the overwhelming problem in the subprime mortgage market that has tumbled over into the prime mortgage sector, homebuilders, and consumer spending. For a little over 2-months, I owned Accredited Home Lenders Holding Company (LEND). LEND melted down to a low around $6/share but is currently still far from their 52-week high of $36.95. Luckily I saw the negative signs early and took a minor 10% loss. If I had held until today, I would have realized a 60% loss. Some people will not want to write down a loss, but sometimes you have to figure out why a stock is down and understand if it has the fundamentals to rebound or not. In the case of Accredited Home Lenders, I didn’t see any kind of foreseeable stabilization in the housing market and I got out.

2) Ride Momentum For Big Gains
In my Las Vegas Sands investment, I got a 72% gain in just under three months and I rode the stock to new yearly highs. Instead of pulling out with a 10-20% gain, I saw the positive signs of their Venetian Macau opening, Singapore hotel casino in the works, and other investment options. Of course, I would have been up 90% if I had held it, but another thing you have to do to be a good investor is be happy with your gains, and don’t let it affect other investments. Even when LVS dropped 20 points in mid August, I knew they had good fundamentals and global growth opportunities and I wasn’t in any rush to sell.

3) It’s Hard to go Wrong With Oil/Energy
I made a lot of trades with oil and coal companies, and those companies would have provided me with even better overall gains if I had held them longer. With oil at an all time high and staying in the $80/barrel range, it is only time that is standing in the way of $100/barrel oil. Unlike technology that can get outdated, oil is not being replaced soon by any other commodity.

4) Diversity is Difficult
I truly believe that it’s extremely difficult to have a completely diversified portfolio of stocks unless you have at least $30,000 to invest. That way, you can invest in $3,000 blocks and have no more than 10% of your portfolio in any one stock. If you only have $2,000, that can buy you 2 shares of Google and 7 shares of Apple. On top of that, each stock represents 50% of your investments. Never put all your eggs in one basket so even if you have less than $30,000, at least try to invest in different sectors. As you can see in my stock investments below, I had investments in oil, coal, retail, housing, casinos, ethanol, and technology.

5) Just Make Money
For young investors, go ahead and take those short-term capital gains. Don’t worry about saving taxes by holding your stocks for more than a year because who knows if you’ll even have a positive return later. If you make a 10-20% gain in a few months, I would take those gains so you have a cushion before dipping into another investment. It is also a very good psychological boost to know that you are making profit.

My investments dating back to as far as September 2006 are shown below. I have provided information on the short term capital gain or loss that I incurred. I also included the current gain or loss I would have if I had held the stock until today.

Company Ticker Symbol Actual Gain/Loss Current Gain/Loss
Hot Topic HOTT 04.23% -25.15%
Sandisk SNDK 02.10% -07.17%
Peabody Energy Corporation BTU 03.93% 35.80%
Peabody Energy Corporation BTU 09.05% 42.48%
Statoil STO 08.34% 41.66%
Statoil STO 14.75% 50.05%
Peabody Energy Corporation BTU 09.19% 38.91%
Qualcomm QCOM 00.89% 13.61%
SAIC SAI 03.20% 02.77%
Halliburton HAL 08.37% 32.91%
BJ Services Company BJS 00.55% -10.48%
Qualcomm QCOM 00.89% 13.61%
Finisar FNSR 06.27% -22.89%
Accredited Home Lenders LEND -10.17% -60.34%
BJ Services Company BJS 12.13% 00.90%
Las Vegas Sands LVS 71.81% 90.07%
Archer Daniel Midlands ADM 03.79% 03.79%

Drill for Opportunities with Natural Gas

August 28, 2007

As of August 27, 2007, oil has been trading at a relatively high price of about $72/barrel for reasons explained in my last energy article, but natural gas was only trading for $5.59/mmbtu. To read about how the natural gas industry works here in the US along with charts/graphs about the supply and demand of natural gas over the years, click here for an article entitled “Understanding Natural Gas Markets”. As you can see from this graph from Charles Augustine’s Understanding Gas Market’s article, natural gas spot prices have declined from high of $12/mmbtu at the end of 2005 to their current level in the mid $5 range. Seems like quite a reversal is such a short amount of time, and probably a good time to look for stocks oversold in the natural gas industry.

Historic Natural Gas Prices
If you want to play the natural gas ticket while prices are relatively low, pay attention to Nabors Industries (NBR), the largest land based natural gas driller. Nabors was highlighted in an August 20 Barron’s article saying that there are many opportunities that exist from this highly profitable company with a forward PE of 7. Robert Marcin, the head of Defiance Asset Management in Conshohocken, Pa. states that “Nabors doesn’t need to hit the current 2008 consensus estimate of $4 a share for investors to do well. If Nabors makes $4, it’s a home-run stock. It could trade in the 50s. Even with $3 a share in earnings, Nabors could be a $40-to-$45 stock.” Nabors has over 600 land drilling rigs and has operations in the US, South America, Africa, the Middle East, Central America, and Canada. The natural gas industry will seek some short-term catalysts to help natural gas related companies and an improvement in the currently weak North American market, especially in Canada when in July it was reported that Canadian operations had its first major quarterly loss since the early ’90s.

If you’re looking for a producer of natural gas, Nabors would be the stock to look at, but if you believe in the pipeline business of petroleum and natural gas, then BJ Services Company (BJS) would be the stock to check out. BJ Services is near their two-year low and provide pressure pumping services for oil and natural gas companies. They help enhance the production of natural gas on land and offshore as well as maintain services to existing natural gas wells. BJS has a stimulation service that accounts for 69% of their 2006 pressure pumping revenue which uses different methods to deter any pipeline hindrances of the pathway of oil and natural gas.

Also if you look at the ratio of oil to natural gas over the last decade, it seems that oil trades at around a six times premium where the current commodity prices ($72 oil to $5.50 natural gas) stand at a 13:1 ratio. For the sake of Nabors and its competitors, hopefully natural gas prices should rebound to get closer to the six to seven times premium.

Historic Oil Prices