Buying Spree!

Since my last post, I have basically become obsessed with the market. I feel like I am a financial advisor all over again. It's a good feeling, but I'm undoubtedly spending too much time looking at this stuff.

I transferred the proceeds of the sale of my Dallas home into my Scottrade account, which explains the difference in the balance. Anticipating this, I had already been researching several funds. My strategy is to safegaurd myself from too much risk (investments in single stocks and options) by putting most of my money into mutual funds, which I will hold for hopefully a considerable period of time.

Before I get into the funds, I should explain what happened to my shares of CBOT. CBOT was acquired by CME (Chicago Mercantile Exchange) as of Friday of last week. Under the agreement, each share of CBOT turned into 0.375 shares of CME. Since I had only 5 shares, I received 1 share of CME and will recieve cash for the remainder. In retrospect if I had just bought 6 shares instead of 5, I could have 2 shares of CME now instead of having the lump of cash out. Just before that transition, I also received a $9 dividend from CBOT; $45.

As a rule of thumb, all of these funds are no-load funds. Some carry a 1% or so redemption fee. Most 1% or less in annual fees. This way I'm not commited for several years to get a low annual cost average such as the case with A, B, or sometimes C shares.

The first fund I decided to go with is the Dodge and Cox International Stock (DODFX) fund. It is rated as a 5-star fund by Morningstar. I just like Dodge and Cox funds, in general. It is ranked as a top returning fund with medium risk. This is hard to find in international funds, which are usually high risk. It steadily outperforms the sector year after year, ranking in the top quartile for 1, 3, and 5 year annual returns. Minimum investment is $2500, which is how much I put in.

Second is the Alpine International Real Estate fund (EGLRX). Once again, this is rated 5 stars by Morningstar. While real estate in the US is tanking, international real estate is booming. All you have to do is go to Hong Kong or Dubai and look at the countless building going up to know it's a place to make some dough. It is ranked high return with medium-high risk. More than that, it has been in the top 2% for 1, 3, 5, and 10 year annual returns! That's just crazy to me. Congrats to manager Sam Lieber. I hope he keeps it up now that I have money with him. :) Minimum investment is $1000. I put in $2000.

Third is the Janus Contrarian fund (JSVAX). Yet again, Morningstar ranks this one a 5-star (notice a trend?). After the first two international funds and already having other funds and stocks in international, I figured I'd better do a domestic one for a change to diversify a bit. More of these to come. Janus seems to be out of the stigma they carried with the scandals a few years back. This fund has great returns - top 1% for 1, 3 and 5 year annually. That's remarkable. Medium-High risk with high returns. Low fees. I like it. Minimum investment of $2500 is exactly what they got from me.

At this point I was feeling very responsible for all the mutual funds I bought. So, it seemed time to make a stock speculation purchase.

I chose Goldman Sachs (GS). It has totally sucked since I bought it three days ago, going from $221 to $211 while the rest of the market is doing great. That being said, I really like this one. Even at $211/share, it is discreetly undervalued. Current P/E is just 9.9 and forward P/E is 9.6. That's pretty good to me. Add to that a PEG ratio of 0.7 and a Strong Buy rating by S&P, and it just looks great as a buy. Not to mention the fact that I just like Goldman Sachs and am always envious of the ridiculous bonuses they give to employees. I'm in for just 9 shares.

Now let's just hope that the market continues to rise. The continuing boom kind of scares me, which is why the stocks I buy are all based on value, not just growth. You won't see me buying any stocks with P/Es of 40+ anytime soon (unless their forward P/E is half that... see BlackRock (BLK)).

Options - buys and sells

My IBM option turned out to be a good speculation, even though I've learned that it was very risky to purchase such a short-term option. So, the experiment continues...

Yesterday I sold my IBM option as the stock price seems to be hovering around 109 for now. It expires next Friday, two days after the earnings announcement. Even though there could be some upside after the earnings, if the street doesn't like what the CFO says, I could lose all my gains in a day. I got out while the gettin' was good.

Cost: $283 (includes Scottrade fees)
Proceeds: $462 (includes Scottrade fees)
Holding period: roughly one month
ROI: 63%!

While a 63% return for one month is fantastic, I contribute this almost entirely to the level of risk involved. While I did have a good feeling about IBM, I could've just as easily lost most of my investment.

The lesson learned was that I was very limited on when I could sell because the holding period was so short. I also know that I will have to pay short-term gains tax (32% I believe) on this, which turns my ROI into 42% or so. Still, good, but that's a lot of tax. To fight both of these drawbacks simultaneously, I have purchased two new options, both for January 2009 expiration. This will allow me a far great window of opportunity to sell. It also gives me the option to hold more than 12 months which would put me in the long-term gain tax category (15%, currently). Both are appealling and both came at a cost. The farther off the expiration date, the pricier the option. A lot can happen in 18 months, so it's understandable.

Both base stocks I picked are grossly undervalued, in my opinion. They are also both uncommon stocks. This is something like the Buffett approach to investing (I'm trying it on for size) , but a little riskier because of the options.

First new stock option: Coeur D Alene Mines Corp (CDE) Price - $4.11
Purchased: Jan 09 Call Option @ $5
Cost: $80
P/E: 16.2
F P/E: 12.5
PEG: 0.8

CDE is a global gold and silver mining company. Market cap is just over $1 billion. The fairly low P/E combined with the VERY low PEG shows this company is undervalued. That caused me to dig deeper, where I found they missed their last earnings estimates substantially, causing a major selloff. As usual, it was oversold. To justify the current price, the company would need to make zero profit. For $80 it was an easy buy.

Second new stock option: BankUnited Financial Corporation (BKUNA) Price - $19.42
Purchased: Jan 09 Call Option @ $17.5
Cost: $600
P/E: 7.5
F P/E: 6.7
PEG: 0.6

BKUNA has over 80 bank branches throughout Florida, where they are headquartered. I can only guess that I am not seeing something here. I have been looking at this for days as one that is too good to be true. 7.5 current P/E with growth prospects? Several analysts have just initiated "Buy" ratings on this stock. They have not missed earnings estimates, but surpassed them many times. It seems that for no reason the stock plunged. I don't understand it. To justify the current price, the bank would need to report quarterly LOSSES of $0.20/share. The estimate about to be released is for PROFITS of $0.67/share. Something's not right! I estimate that this stock should be valued around $30/share, if not higher. Having a Jan 09 expire should give me plenty of time to realize that change.

Other than that, the stock market has been doing great. Including the IBM option, I am up around 10% in just a month. In no way do I expect that kind of return on a regular basis, but am clearly happy thus far.

In a few days I'm going to transfer more real estate proceeds into my Scottrade account in the amount of $10,000. I am going to try and be less risky and put most of it into mutual funds for the long term. I'll keep $1-2k to play with, though - I need to continue my stock option research! :)

Scottrade update...

I am still getting situated into my Scottrade account. Since my last post I have made two new investments. The first is one which I also have in my 401k account:

Fidelity Latin America Fund (FLATX)

I purchased the minimum $2500 at the end of last week and it is already up 2%! It has a fair amount of (relative) risk, but the returns are fantastic. It also focuses on the great economic growth of Latin America, which will only continue in my opinion.

The second purchase I made was 5 shares of the Chicago Board of Trade (BOT) at around $203/share. It was already highly priced with high p/e - 56! - but it has huge growth prospects (thus the high p/e) and is about to be bought out. There is a bidding war between Chicago Mercantile Exchange (CME) and Intercontinental Exchange (ICE). I'd prefer the CME to win because their stock has better long-term potential at this point, but we shall see. In general, the exchanges are good investments right now because they are gaining a lot of business via hedge funds and other users of derivatives products.

Another change from my last post is that my shares of Petroleo Brasileiro split Monday, July 2(only a few days after I purchased), then they quickly gained 2%. So, I now have 28 shares, which I will reflect in the chart on the right of this page.

The last change is that my IBM option declined by $100. Not what I want at all, but it doesn't expire until late August, so still plenty of time to get what I want out of it.

Scottrade Account Open and Active!!!

Finally! After taking a long hiatus from the financial investments due to some interesting experiences in investment real estate, I am slowly getting back into the market. While I was waiting for my last home to sell, I opened up an account with Scottrade. This Tuesday I transferred the first small chunk ($2000) which showed up in the account today. Suffice it to say I wasted no time and quickly invested all of it and requested the transfer of another $4000 into the account :) Here are my first couple investments just to get my feet wet:

1) 1 contract for and August IBM Call option with a $105 strike price. Cost - $283 ($275 for the contract and about $8 for the trade). Current price of IBM is $105.40

This is something I've been wanted to do for quite some time. I've been reading a book on options trading and how to better leverage your capital. I'm not going to try spreads and puts and all this craziness until I better understand what the heck it all means. So this is kind of an experiment. I'm pretty confident in IBM, so buying barely in-the-money gives me a higher probability of actually exercising the option and very high leverage. Not to mention it was under $300.

2) 14 shares of Petroleo Brasileiro S.A. (PBR) - Current price - $121. Cost - about $1700

This stock was listed by Fortune Magazine as one their "Fortune 40" portfolio stocks. PBR falls into their Foreign Value category. It is up almost 100% in the past year with no major hints of declining. It has a low P/E of 11 and a future P/E of 9, suggesting around 20% EPS growth. Not to mention it simultaneously allows me to invest in oil and international. I like both.

As I mentioned, these were just to get my feet wet. As the money comes in from real estate closings, I'll be investing in various other stocks, funds and options. I will probably largely mimick my 401k fund choices.

I will post every time I make a change in my investments.

401k Plan Adjustments

This week I spent a considerable amount of time analyzing my 401k plan. I hadn't made any changes in 2007 and it was time to review. This was previous and somewhat generic 401k set up - none of the funds are publicly traded...

20% - Large-Cap Value Index
15% - REIT Index
25% - Small-Cap Growth Index
40% - Total Int'l Stock Market Index

YTD Return - 7.9% (almost 6 months)

I realize this is a very simple set up, but that was the idea. I wanted to take on a fair amount of risk because my balance is not that high (around $15k) and being 27 years old, am far from retiring!

Several of my coworkers and I regularly compare YTD returns to see who is in the lead. It also keeps us on our toes to take full advantage of the market. I usually am either in the lead or close to it, but this year one of my old teammates is kicking my butt with around 13% YTD returns. I knew he had enrolled in the "*Mutual Fund Window" a while back, giving him access to almost 200 top-quality, publicly traded funds. We had done about the same until this year, though and I am a sore loser for sure, which resulted in my enrollment into the "*Mutual Fund Window" and redistribution of investments.

*This is part of my company's 401k plan which is managed by Fidelity.

So, as of 6/20/07, this is my new investment mix, with group %s based off the original model (yes, I am a big fan of international investments like most people):

10% - Fidelity Export & Multinational Fund - Large-Cap Blend
15% - Dodge & Cox Stock - Large Value
20% - Fidelity Leveraged Company Stock - Mid-Cap Blend
15% - American Funds Small Cap World - Small-Cap Growth
10% - Fidelity Intl. Real Estate - Specialty RE
8% - Vangaurd Intl. Explorer
7% - Vangaurd Global Equity
8% - Fidelity Latin America
7% - Dodge & Cox Intl. Stock - Foreign Blend

These are slightly different proportions than my original mix:

25% - Large-Cap
20% - Mid-Cap
15% - Small-Cap
40% - Intl. (unless you include that 50% of the AF Small Cap World is intl, in which case I am 47% intl.)

I am noting that I am 7.9% YTD as the starting point on 6/20/2007. We'll see how it goes!