November Holdings Update

At the end of every month I will look at how my investments posted on this blog have done.


Stock Name                                     Cost Basis                                     Closing Price

Alcoa                                                 $10.03                                            $10.76                    

General Electric                                 $15.15                                            $17.17

Ingersoll Rand                                   $16.34                                            $15.68

Intel                                                  $13.80                                            $13.80


As of November 30, 2008 I have a gain on Alcoa and General Electric. I have a loss on Ingersoll Rand and would break even on Intel. 

Started a position in Bank of America, JP Morgan and Wells Fargo.

Credit card companies are putting the squeeze on loyal customers

At a time when banks are losing money due to toxic assets, they are dropping the hammer on the already pressured consumer. The credit card divisions of the major banks in the US are trying to make up for loan losses by increasing credit card interest rates. Banks are raising rates on customers regardless of payment history. Customers that pay on time have seen their credit card rates go up as much as 5% annually.

I find this behavior totally unjust. They should not be punishing customers who pay their bill to cover losses from customers who do not. This is a terrible business practice. So what can you do about it? 

1. Stop using the card immediately. You don’t want to have future charges at the higher interest rate.

2. Write a letter. State your displeasure with the higher rate and request a lower rate. I used to call but calling can be a hassle. I found myself transferred to different customer service reps each time who knew nothing about my case. I write a letter when I have a complaint so that there is written documentation on file. I have gotten better results by writing a letter.

3. Be prepared to leave. A lot of people threaten to leave their credit card company but do not follow through on it. If your credit card company refuses to lower your interest rate, it may be best to leave. They obviously do not value your business and you would do better to go elsewhere. Most credible companies hate to lose a loyal paying customer.

4. Transfer your outstanding balance. If you have a solid payment history and decent credit score you will find a better rate. Check out websites such as They offer lists of credit card companies nationwide and their current interest rates.

4 Sleep Easy Stocks







There are some stocks that I have never sold and don’t plan on selling. I have owned these stocks for years and will probably always own at least a share of these companies. I call these stocks my sleep easy portfolio because these are companies that I do not worry about. They are relatively boring companies that should remain profitable 5, 10 or 20 years from now. I think they are solid companies with major competitive advantages. In my opinion these are safe stable companies that all pay a dividend and can grow at reasonable rates going forward.

Nike – Dominates the athletic shoe and apparel market, From Jordan to Tiger Woods nobody sells more tennis shoes than Nike, Great financial position

McDonald’s – King of fast food industry, Great earnings power, Excellent marketing and good management. Plus, how often do you see a McDonald’s go out of business?

Hershey’s – Great brand name, Top 3 in chocolate industry, Unless people stop eating Reese’s Peanut Butter Cups, Kit Kats, Hershey’s Kisses, Almond Joys, Twizzlers, etc. Hershey’s should do just fine.

Kraft – Tons of brand names: From A1 steak sauce, Chips Ahoy cookies, Koolaid, Oscar Mayer, Nabisco, Oreo, Planters to Stove Top this consumer staple sells it.

Bright Spots in Retail this Holiday Season

I know we are in the midst of an economic recession and analysts are expecting a terrible holiday season for retailers. But I think that some retailers actually do okay. Will people shop as much as in years past? Obviously not. But I think the drop off will not be as bad as expected. The industries hardest hit by the downturn will be luxury items and electronics. Retailers such as Saks 5th Avenue and Nordstrom will find this holiday season particularly rough. Electronics retailers like Best Buy and Circuit City have so much inventory on hand that they are being forced to slash prices as never before. Even with the price cuts, big ticket items such as flat screen televisions, laptops and appliances will probably have the greatest drop off in purchases.

But I think there could be some bright spots in retail. My opinion is that lower prices and new programs will encourage some consumers to shop places they have shunned in the past. I think that retailers like Sears and Kmart may actually benefit this holiday season due to bold programs.  Struggling retailers Sears and Kmart have brought back layaway programs, extended business hours and are offering major price discounts. I think this a smart move. Any increase in sales no matter how small could be the difference between surviving this Christmas season and going out of business. Layaway programs may entice credit weary borrowers to purchase items that they otherwise would not have purchased this year.

Walmart, the nation’s number one retailer, will continue to thrive. Discount retailers like Family Dollar, 99 cents store and Dollar tree will continue to profit as consumers downsize. Clothing retailers like TJ Maxx and Burlington Coat Factory have also implemented layaway programs that should help sales. I also expect that niche items will perform well. Small ticket electronic items such cell phones, video games and mp3 players(ipods) will continue to sell. I think that video game demand will remain high as parents shop for children this holiday season. I expect Apple and Gamestop to do well despite low expectations.

Happy Thanksgiving!

In honor of Thanksgiving I will list the 5 biggest turkeys of the year: 

1. Predatory Lenders – Lending companies and individuals that gave high fee, high interest loans to borrowers that they knew could not afford the loans. Many of these lenders have gone out of business. (Ameriquest, New Century Financial)

2. Greedy Executives – As mentioned in a previous post, executives were excessively compensated for their inability to manage risk.

3. Credit Card Companies – How are credit card companies helping during these difficult economic times? By burying the already leveraged consumer with even more debt. They are raising rates on existing customers.

4. Regulatory and ratings agencies – Organizations like the SEC, Office of Thrift Supervision that inadequately monitored the systemic risk in the financial markets. Ratings agencies like Moody’s, Standard and Poor’s that fraudulently gave high ratings to low grade debt.

5. Minnesota Timberwolves – This isn’t finance related but how could you trade Kevin Garnett?

10 Simple Changes To Your Daily Routine That Can Save You Money

1. Skip the winter warm up. Letting your engine idle is unnecessary for modern cars. It puts excess wear on your engine and wastes gas.  Just drive off slowly and don’t mash the gas pedal.

2. Pack your lunch. Eating out will eat a hole in your budget. $5 here, $10 there…..It adds up.

3. Cancel any newspaper and magazine subscriptions. You can find the same information online for free. 

4. Skip the bottled water. Switch to tap water. Not only are you saving the environment, you are saving money.

5. Skip the convenience store. Convenience stores grossly overcharge you for the so called “convenience”.

6. Sell your fad collectible. Remember when beanie babies were fetching ridiculous amounts of money. Not so today. If you have a valuable collectible sell it while it has some value.

7. Turn your thermostat down 5 degrees. This will save you roughly 15% off your heating bill.

8. Buy generic products when possible. Forget brand names. Store brand food items taste just as good as the name brand items but at a fraction of the cost.

9. Do your Christmas shopping at troubled retailers. Retailers like Circuit City and Mervyn’s have to liquidate their inventory. You can find some great deals at these stores facing tough times.

10. Cancel your home telephone service. Eliminate an unnecessary bill. Take advantage of the free nights and weekend plans for your cell phone.

Financial Stocks: Danger or Opportunity?

I am trying out a rather risky investment thesis by investing in financial stocks. I have begun to start building a position in the major financial stocks. I believe that the last few weeks have presented some good buying opportunities for financials. The three financial stocks that I have invested in are Wells Fargo, JP Morgan and Bank of America. 

Wells Fargo is probably the best capitalized of the major banks. The recent addition of Wachovia has given Wells Fargo about 800 billion in deposits. Wells Fargo size is a major competitive advantage. They have a Tier 1 capital ratio and a solid balance sheet. Wells is currently the 2nd largest bank in the US in terms of market cap. Wells also has excellent management. Wells Fargo management have already accounted for a 74 billion dollar writedown of Wachovia’s total loan portfolio. This should reduce Wells exposure going forward. Wells stock has held up pretty well over the last few months compared to its peers. Wells has historically had a 22% profit margin and solid ROE of 18% over the last five years. It doesn’t hurt that Warren Buffett loves Wells Fargo and has owned it for years.

JP Morgan Chase should emerge from the financial crisis as the dominant player in the banking industry. JP Morgan got a steal with the acquisitions of Washington Mutual and Bear Stearns for well below their true value.  JP Morgan has the largest deposit base of any bank in the country which gives it a strong capital base. JPM has solid management that has delivered an 18% profit margin over the past 5 years. The return on equity averaged 10.5%.  I think this will increase in the future as Jamie Dimon and company realize the synergies of the Washington Mutual acquisition. JP Morgan currently sells well below its book value and pays a healthy dividend.

Bank of America is definitely the riskiest of the 3 banks. From its purchase of Countrywide just before the subprime crisis to its pending merger with Merrill Lynch, Bank of America has made some questionable moves. The Countrywide and Merrill Lynch deals that appeared cheap before now look severely overvalued. Bank of America’s shares have plummeted and this may provide an opportunity. The stock was selling for $10 recently which is well below its book value. Bank of America has historically averaged a 16% ROE and a 27% profit margin. I think that the Bank of America name is a major competitive advantage. Bank of America has a huge deposit base and the BOA name has significant goodwill. I think the Merrill Lynch acquisition will be a valuable brand for Bank of America long term. But I am not so sure about the Countrywide acquisition. Countrywide has a damaged brand name due to its heavy association with the subprime crisis. However, I do think with their ability to access capital and their strong brand name Bank of America will remain a viable entity.

These 3 stocks will probably continue to face difficult circumstances in 2009. I do think that over the long term these banks will benefit from the financial crisis and emerge with even greater market share and a stronger financial structure.

What if Citi Had Gotten Wachovia

I was thinking recently about the failed Citigroup Wachovia deal. As a Wells Fargo stockholder, I was in favor of the Wachovia deal because of the large deposit base that Wells is picking up. The merger will give Wells Fargo a major presence on the East Coast and should increase earnings in the future. But I can’t help thinking, what would have happened if Citigroup had gotten Wachovia? 

Citigroup’s merger with Wachovia would have given Citi a deposit base of 600 billion dollars. Citigroup would have only had to assume the first 42 billion dollars in losses with the government backstopping any additional losses. But I still am not sure if this would have been enough for Citi to stand alone without additional capital injections. Citigroup still has over 1 trillion dollars in off balance sheet assets that have not yet been written down.  I think that the government would have had to pay substantially more to backstop the losses of a Cit Wachovia deal.

Wells probably has the strongest balance sheet of all of the major banks. Their balance sheet should be strong enough to absorb additional losses from Wachovia’s Golden West mortgage portfolio. I am not sure that Citigroup could have handled any losses related to Wachovia’s shaky mortgage portfolio.  I think that this is only the beginning of Citi going to the government for fresh capital. This will only further dilute shareholders. I can only wonder if a merger with Wachovia would have kept Citi from its freefall or accelerated the process.

My first stock

I remember buying my first stock after I had graduated from college. I had bought my first mutual fund at 19 and was now ready to dabble in stock. I had just gotten my degree in finance and was sure that I knew everything about investing. So I sat down and picked my first investment. 

The first stock that I ever bought was Krispy Kreme Doughnuts. I just knew that Krispy Kreme Doughnuts was a great investment. I was sure of it. Krispy Kreme was rapidly opening new stores and was making tons of money. Why was I so sure? Because of their financial statements? Nope, never even looked at them. Because of their competitive advantage? Nope, no clue what that was. I bought $2,000 worth of Krispy Kreme stock because of the long lines that I would see whenever the “Hot Doughnuts Now” sign lit up. My investment thesis was lots of people equals lots of money.

Little did I know but I was wrong. Krispy Kreme was crushed by a poor business model and the low carb diet craze. Krispy Kreme was only making money by constantly opening new stores. Their same store stores sales were terrible. The excitement for hot doughnuts quickly went away once a Krispy Kreme store was open for awhile. People shunned its fattening products for low carb alternatives.  Their parking lots were soon empty and a lot of the stores have closed up. My “wise” analysis quickly turned my $2,000 into $1,400.

So, what can you learn from my story. Always do your homework. Never invest in something just because you see a lot of people there. Have you ever had someone tell you,” Invest in ABC company because you know they are making money.” The assumption is that crowded stores mean massive profits. Never invest based on random assumptions. Invest based on the fundamentals. If not, then you just may end up owning the next Krispy Kreme Doughnuts.

Build your savings on lower gas prices

Each week I will offer a savings tip to help you save some extra cash. This week’s tip: Use the extra money that you are saving on gas and place those savings in a high yield savings account. Gas prices have dropped sharply from their highs of this past summer. The average price for gas in my state has dropped from over $4.00 a gallon to $1.89. Just 6 months ago I was paying $75 to fill my gas tank up. Today $35 will give me a full tank of gas. I am taking the difference between what I used to pay for gas and what I am paying now and using it to build up my savings account. This tip can be used by anyone with a car. Pretend as if fuel prices are still $4.00 per gallon and deposit the extra money in your savings. This is a quick way to save some cash. So far I have been able to save $160 a month. Try it out. It works!