Investing in All Things Naughty

By The Sizemore Letter

It’s so good to be bad—at least when it comes to investing.

Vice stocks are a corner of the market where many investors—and particularly professionals—are afraid to venture.  But this reluctance by many investors to embrace vice stocks is precisely what makes them such profitable investments (seeThe Price of Sin).  Because professional investors like to avoid being associated with merchants of death and peddlers of peccadillo, these companies tend to trade at discounts to the broader market and often pay substantial dividends.

Some areas of the vice world—in particular tobacco and firearms—have moats around their businesses that mafia dons or drug lords would envy.  Government regulation and a hostile legal regime make it almost impossible for new company to set up shop in these businesses.  The compliance costs would prevent them from ever getting off the ground…and the first lawsuit would bury them.

Today, we’re going to take a look at five high-profile vice stocks and evaluate their investment merits.

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Charting My Three Worst Recommendations of the Last Year

By WallStreetDaily.com

It’s Friday in the Wall Street Daily Nation. That means it’s time for some charts.

And it’s also time for “just a bit of a break from the norm / just a little somethin’ to break the monotony,” as D.J. Jazzy Jeff and The Fresh Prince famously put it.

Let me explain…

A New Kind of Bragging Right

Most analysts in the blogosphere and newsletter industry happily (and all too frequently) tout their winners. And only their winners.

Their marketing departments love to engage in the same chest-thumping exercise, too. It’s what sells subscriptions, after all.

Don’t act shocked. The average investor (i.e. – you) is exactly the same way. Do you ever go to dinner parties and share the worst investment you ever made? My point exactly. It’s just the winners that get acknowledged.

Well, last night I received my July issue of Mossberg’s Investor Digest. And right there on pg. 2 were all the goods. It broke down the performance of every single investment idea that Editor Dave Mossberg shared over the past 12 months or so. The good, the bad and the ugly. (FYI – There’s only one ugly pick on his list, which is why I’m a loyal subscriber.)

It got me thinking, too.

Yesterday, I bragged a little too much about being one of the first to bet on Europe. I’ve done the same thing with my calls on Japan and U.S. real estate, too. Collectively, the bragging paints a picture that I think I’m so smart.

But I’m not.

To prove it, I want to share three charts that demonstrate my lack of brilliance, what I’ve learned from the mistakes – and, most importantly, what you need to do to protect yourself from my occasional bouts of suckiness…

Print is Dead! Or Not

Back in February, I boldly proclaimed that print media was on its deathbed. Since then, the evidence in support of my viewpoint continues to pile up. Like when PC World magazine decided in July to join the likes of Newsweek and go all-digital.

Despite the obvious signs of a terminal decline, shares of the two print media dinosaurs that I told you to bet against – The New York Times Company (NYT) and Gannett Co., Inc. (GCI) – keep defying gravity.

Each stock is up about 40% year-to-date, more than doubling the return of the S&P 500 Index. Death never looked so good. Especially when you consider that “death” actually occurred all the way back in 2002, when NYT shares topped at $51.

Let’s give the CEO major props for resurrecting the company.

 

Lesson: When we sell a stock short based on the impending obsolescence of the company’s products, we need to be committed. I’m taking about “until death do us part” commitment. Or we shouldn’t bother. Because no matter how sickly the company, it could take a while before share prices finally kick the bucket.

The Wrong Way to Play the Natural Gas Boom

Last February, I teased you with a killer “pick and shovel” company in the fracking services space that I had just recommended to WSD Insider subscribers. It was a company that was growing sales and earnings at an insanely fast clip. And it paid about a 10% dividend, too.

How could you resist? Be glad that you did.

In August 2012, I finally caved and shared the identity of the company with you: Poseidon Corp. (PSN.TO). And it ended up being a killer idea, all right. A wealth killer, that is.

After reporting an unexpected 45% drop in profits, shares plummeted 62% in a single day. Now the company is defunct, after a special committee found egregious accounting errors (i.e. – fraud).

Lesson: When the growth appears too good to be true – and management keeps making boasts like “our addressable market keeps getting larger [and we’re a rare], growth-oriented, yield investment” – run for cover. Because it is too good to be true.

The Sun Will Come Out Tomorrow

After correctly panning Zynga (ZNGA), Groupon (GRPN) and Facebook (FB) before their historic IPO flops, I tried my hand at predicting the ultimate fate of SolarCity’s (SCTY) IPO.

I dedicated two entire columns (see here and here) to tearing apart its business model, too. Boy, do I wish I spent my time doing something else.

The stock is up 250% (and counting).

Lesson: When it comes to evaluating renewable energy investments, I can’t underestimate consumers’ unwavering commitment to “go green.” It’s a powerful force, sometimes more powerful than economics.

The Best Defense Against Bad Advice

Full disclosure is always the best policy. And with that in mind, please know that I get it way wrong sometimes.

Let that be a friendly reminder, though, that we need to put safeguards in place to protect against my bad calls blowing us all up. Specifically, trailing-stop and position-sizing disciplines.

Now, if you choose to ignore that advice – and blindly follow my lead – well, you get to share in the blame for the impact of any bad recommendations. Trust me, it’s much more therapeutic when you get to blame me for everything.

Speaking of which, feel free to sound off on any of my bad calls – or any of our work here at Wall Street Daily – by dropping us an email here.

That’s it for this week. On Monday, I’m back to uncovering profitable recommendations for you. Count on it.

Louis Basenese

The post Charting My Three Worst Recommendations of the Last Year appeared first on  | Wall Street Daily.

Article By WallStreetDaily.com

Original Article: Charting My Three Worst Recommendations of the Last Year

Europe Shares open green ahead of US payrolls report

By HY Markets Forex Blog

Stock in the European market started the day in green as investors focus on the US non-farm payrolls report, which is expected to be released later during the day as it may show when the Federal Reserve (Fed) may begin to scale back on its bond-buying program.

The European Euro Stoxx 50 advanced 0.29% to 2,816.66 at the market open, while the German DAX rose 0.24% to 8,430.51. The French CAC 40 jumped 0.25% higher at 4,052.69, while the UK’s FTSE 100 gained 0.23% to 6,697.53.

The expected US non-farm payrolls report is expected to show an addition of 185,000 jobs to the US employers in the month of July, while the unemployment rate is expected to show a slight fall from previous record of 7.6% to 7.5%.

Earlier this week the central bank said that it would begin to scale back on its monthly bond-buying program if the US economy have boosted.

The Federal Open Market Committee has said it wants to see its target met before proceeding with scaling back with the quantitative easing, with targets 6.5% for unemployment rate and inflation rate at 2.5%.

Spain’s unemployment figures for July showed that unemployment fell by 64,900, compared to previous figures for the month of June with a fall of 127,200, according to reports from Spain’s employment ministry.

Eurozone producer prices are expected to gain up to 0.1% in the month June on a monthly basis, after previous fall of 0.3% in May.

The post Europe Shares open green ahead of US payrolls report appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

Facebook share price tops $38 flotation

By HY Markets Forex Blog

Shares for the world’s largest social network Facebook has surpassed the initial estimated price of $38 and has advanced as high as $38.31, first time since May 18, 2012.

Ever since the social network company reported the better-than-expected earnings report on July 24th, Facebook shares have been boosted.

Facebook shares moved back from its high $38.31, to $36.80 at market close in New York.

The company has been supported by the innovations and fast growth of Facebook’s mobile advertising revenue, as it currently earns 41% of its total revenue from mobile advertising.

In May 2012, the social network floatation started with a disappointing start, as investors and shareholders worried over the company’s slow revenue growth.

The company share price dropped drastically to $18, with approximately $48bn cleared off from Facebook’s stock market value.

The founder of Facebook Mark Zuckerberg is now benefiting from the high demand in ads targeting smart phone users and tablet users.

Last week Facebook said that the figures for tablet and smart phone users rose to 819 million during the second quarter. The company’s revenue rose by 53% to $1.81 billion, exceeding analysts’ sales forecast of $1.62 million.

The world’s largest social-networking site intends to expand and create an additional source of advertising revenue by selling TV commercials on sites for up to $2.5 million a day.

The post Facebook share price tops $38 flotation appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

EURUSD breaks below channel support

EURUSD breaks below the support of the lower line of the price channel on 4-hour chart, suggesting that consolidation of the uptrend from 1.2756 is underway. Range trading between 1.3100 and 1.3344 would likely be seen over the next several days. Key support is at 1.3100, as long as this level holds, the uptrend could be expected to resume, and one more rise towards 1.3600 is still possible after consolidation.

eurusd

Provided by ForexCycle.com

Should You Invest With Them or Against Them?

By MoneyMorning.com.au

You know their interests aren’t really in line with your interests.

And yet you also know these are some of the most powerful folks in investing.

So, should you follow them or bet against them?

It’s a tough question to answer.

That’s why we prefer to ignore it altogether…

Who are we talking about? We’re talking about the big investment banks – in particular, Goldman Sachs.

If you trust that Goldman’s has the average investor in mind when it makes the big strategic calls, then you’d follow their advice.

And what does the banking giant suggest investors do today?

These two reports will give you an idea. First, Goldman’s suggests you sell India, as reported by Bloomberg:

India’s capital outflows deepened in July, spurring Goldman Sachs Group Inc. to recommend reducing stock holdings as central bank efforts to support the rupee threaten to worsen the nation’s economic slump.

What should you do with your money after you sell India? Easy, the Financial Times tells you what Goldman’s says to buy:

Goldman Sachs Asset Management has significantly increased its exposure to European equities in anticipation of an end to the recession in Europe.

The US investment house had been overweight European equities by 4 per cent compared with the MSCI All Country World Index, but it recently doubled its overweight position to over 8 per cent.

Trouble is: can you trust the advice?

Don’t be at the Mercy of the Market Manipulators

It will take a long time before Goldman Sachs wins back its reputation. After all, the trial has just ended in New York of Fabrice Tourre, an ex-Goldman Sachs trader.

The US Securities & Exchange Commission (SEC) has charged him with misleading investors.

The prosecution presented a whole bunch of evidence that suggests Tourre knew the investments he sold clients weren’t very good (and that’s putting it kindly).

Overnight, the jury found him guilty.

It’s no wonder the big investment banks have gotten a bad press. If even their biggest customers can’t trust them, why should the average investor believe what they say?

To our mind that’s one of the biggest issues with big-picture macro investing. By that, we don’t mean ‘top down’ investing of the kind we mentioned yesterday, that’s different.

By big picture macro investing we mean buying and selling an asset based on political or central bank policy decisions.

As we see it, investing at the macro level puts you at the mercy of politicians, central bankers, and perhaps most of all, the huge investment banks like Goldman Sachs.

Now, that’s not to say it’s impossible. We just prefer focussing on things at the micro level – entrepreneurs and businesses. That’s why we generally stick to individual stocks.

We’ll Stick with Micro-Economic Investing

Of course, big macro-economic events can still impact individual stocks. You see that all the time. After all, stock market indices comprise tens or hundreds (sometimes thousands) of individual stocks.

But the benefit of targeting a stock or a number of stocks is that you have many more chances to pick a winning trade.

Furthermore, backing one big macro-economic event is just like backing an index. It means you end up over-diversifying your exposure. Take the US market and the iShares NASDAQ Biotechnology Index ETF [NASDAQ: IBB].

The main stock indices have caught all the headlines for hitting an all-time high this year. Over the past two years the S&P 500 index has gained 30.4%. That’s pretty good.

But it’s not that great compared to something like the Biotech ETF. It has gained 90.4% during the same time. Some individual stocks in that ETF have done even better.

The biotech sector is a typical sector that doesn’t always move in line with the broader economy’s fortunes. Although when it does, and if the market is in the mood for it, it can outperform the broader indices many times over.

Look, investing is like anything else, you should always know which battles to fight and from which to walk away. If you’ve got the resolve to do it, you could pit your wits against Goldman Sachs and the other investment banks in the world of macro investing. If you do, good luck. We’ll cheer for you.

Or, you could play at micro investing instead. That way you could make much bigger returns without worrying about the big bankers influencing the market one way or the other.

We know which type of investing we prefer. How about you?S

Cheers,
Kris
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From the Port Phillip Publishing Library

Special Report: The Sixth Revolution

Daily Reckoning: The Global Trend Towards Wealth Protection

Money Morning: Two Approaches to Investing…

Pursuit of Happiness: Learning to Avoid the Governments ‘Noble Wealth Trap’

Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks

That Squeeze You Feel is The Great Credit Contraction (Part II)

By MoneyMorning.com.au

Every single secular bear market (dating back to 1870) has started with a high price to earnings (PE) ratio (into the mid-20′s) and finished a decade or two later with a single digit PE.

High PE’s reflect the elevated social mood that accompanies a long period of prosperity. Low PE’s are the end result of markets grinding investor confidence to dust over a sustained period of time.

The current US Secular Bear Market began with the bursting of the Tech Bubble in 2000. At the peak, the S&P 500 index registered a nosebleed PE of 45-times. After 13 years of ‘zigging and zagging’ the S&P 500 index is barely above the high it reached in 2000. The current PE sits around 20x.

Firstly the current average is 25% above the long term average of 16x and well above the single digit PE’s recorded at the bottom of previous secular bear markets.

Whether it’s the mathematical law of ‘reversion to the mean’ or gravity’s law of ‘what goes up must come down’, the US share market has a lot more hard yards left in it yet.

Another question to consider is, ‘Do you think the global share markets would have recovered to present levels if central banks hadn’t intervened to the extent they have over the past four years?’

Based on the recent volatility caused by Bernanke’s thought bubble on ‘tapering’, the answer to the above is, ‘NO.’

Sir Isaac Newton’s Lesson

Bernanke and co are waiting on some magic employment, CPI and GDP numbers to register before they slow down the printing presses.

But what happens if, as per the argument above, the drivers of natural global growth have abated and those magic numbers don’t appear? Surely there’s a point where central bankers also hit the wall of economic reality?

This brings me to the final of Newton’s lessons – smart people doing dumb things.

Central bankers have impressive CV’s and more letters than the alphabet after their names. No question these folks have the academic smarts – however they aren’t in Newton’s league.

So if someone of Newton’s genius succumbed to the lure of the market, it’s not crazy to think Bernanke et al can also be too smart for their own good.

Bernanke’s 100% confidence (as stated to CBS’s 60 minutes) in his ability to fine-tune the economy should be the Macquarie Dictionary’s new definition of ‘hubris’.

Although the current definition will suffice for now:

an excess of ambition, pride, etc, ultimately causing the transgressor’s ruin.

In central banker world the central bankers have busily been ‘painting away’. The mainstream commentators glowingly compliment the central bankers on their brushstrokes and their wonderful work.

But none of them are looking at the totality of the project. Sometime in the near future the central bankers will realise they’ve painted themselves into a corner. This will be the ‘oh shoot’ moment as they realise what they’ve done.

Once the market loses confidence in the central bankers’ ability to manage the economy, it’s all over.

If or when we have GFC MkII (probably sovereign default) what other policies do central bankers have up their sleeve?

Negative interest rates, perhaps. But what would that do for confidence?

They could print even more money. Even though the first few trillion dollars didn’t work.

They got nothing folks.

Chaos reigns.

The pent up corrective activity that should have occurred after the GFC will be unleashed and it won’t be pretty.

Want a Glimpse at What Possibly Awaits Us?

Here’s a look at what happened to poor (and I mean that in the financial sense) Sir Isaac and the other shareholders in the South Sea Company in 1720-21:

The Great Credit Contraction has been slowly exerting its grip on the economy. The pushback from central bankers has temporarily obstructed its equal and opposite forces.

The point to remember is the Great Credit Contraction (together with low growth dynamics) can continue exerting their influences for far longer than central bankers can retain the confidence of markets.

We’re transitioning to a new ‘normal’. For the foreseeable future there will be lower growth, people living within their means, baby boomer retirees growing in number each year and indebted governments wrestling with how to meet increasing welfare entitlements and healthcare costs.

This is a vastly different set of circumstances to what existed at the start of the credit boom in 1980.

Now, I appreciate the above is all rather gloomy, but there’s no point putting lipstick on a pig.

However opportunity does present itself out of adversity.

The impending market upheaval will present patient and cashed up investors with the opportunity to capitalise on the greatest asset sale in their lifetime.

Buying assets at a fraction of their true value is the foundation on which to build your family wealth. Passing on the lessons learnt from this tumultuous period ensures the next generation is equipped to handle the wealth they inherit.

Vern Gowdie
Editor, Gowdie Family Wealth

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From the Archives…

Is This the Spark to Send Australian Property Crashing?
26-07-2013 – Kris Sayce

Why it’s Deflation…Not Inflation, that’s Heading Our Way
25-07-2013 – Vern Gowdie

Why You Must Avoid This Big Investing Mistake…
24-07-2013 – Kris Sayce

The Dark Side of Technology: Part 2
23-07-2013 – Sam Volkering

The Dark Side of Technology: Part 1
22-07-2013 – Sam Volkering

10 World Changing Technologies That Could Change Your Life (Part II)

By MoneyMorning.com.au

  1. In the Future Your Mind Will be the Most Powerful Computer You Own
  2. The future of computing doesn’t exist in your phone, as a watch, or even as a pair of glasses.

    Computing will transcend the devices we have today and are getting in the next year.

    Computing will be immersed in your everyday life. Not as something you flip out of your pocket. Your entire world will become interactive. The way you see and what you see with will merely be the conduit for what is actually going on.

    Your display might be glasses, or a contact lens. Bionic eyes might be better than having real ones. Either way everything you come in contact with will have embedded microchips and wireless communication built in.

    It will allow for a completely augmented reality (AR). The information of the world will be available to you everywhere you look and think. Computing power will be embedded in your biology to enable you to fully interact with your physical world and your digital world through your 5 senses, and a 6th, your mind.

    At first you may think that sounds a bit creepy. But think of the applications…

    You will simply need to think about a question you want an answer to, to find the information.

    People with a disability could use this technology to control bionics and robotic aides. The world of AR will slowly and comfortably enhance your world and provide you with a seamless interaction between physical and digital worlds.

  1. Safe and Waste-Free Nuclear Power?
  2. Nuclear Fission is process by which the power is made in nuclear power plants today.

    But the future of power lies in Thermonuclear Fusion.

    The detailed physics of how it all works is far too complicated to explain briefly. But the key things you need to know are it’s safer than Nuclear Fission, as it doesn’t produce radioactive waste.

    This means in the event of an accident there wouldn’t be a repeat of Chernobyl or Fukushima.

    Not only that, but thermonuclear fusion can generate about four times as much energy as current fission. Advances in the science mean that it could be the best source of energy the world has within the next 10 years.

    Right now in southern France the International Thermonuclear Experimental Reactor (ITER) in being constructed. This has the potential to be the first Fusion reactor to break the plasma energy breakeven point, and produce more energy output than energy input.

  1. Liver Failure? Don’t Panic, Here’s Another Made to Order…
  2. Stem Cells, your own little cellular ‘Mr Fix-its’.

    The advances in medical technology are astounding. But none are as potentially revolutionary as the benefit stem cells can provide us.

    Poised to revolutionise the way the world practices medicine, Stem Cells have the ability to find their way to broken parts of the body – a bone, the liver, the heart – and to repair an otherwise unrepairable organ.

    It means living longer, staying healthier, and perhaps evading death.

    The current work on stem cells revolves around the potential for growing of fully functional human organs. It could be a future where as you age and parts of you wear away, you can simply replace them. The most important mechanic you might have will be the one that gives your body new parts…not your automated car.

  1. Safer Roads Without Passing a Driving Test
  2. Ever considered how misleading the word Automobile is? It obviously refers to a car, but I can tell you one thing, there’s nothing auto about it…yet.

    You may as well stop using the term car now. In fact if you have young children, put away all the story books about people driving cars. When your newborn is of ‘driving’ age, he/she will ask you this simple question. ‘Why did you ever drive cars in the olden days? That’s soooo 2013.’

    Cars themselves are the pinnacle of safety and technology, but last year in Australia 1,309 people died from road accidents. The road toll creeps down every year. But soon there could be a dramatic shift towards a zero fatality year.

    And it will be because of a fully automated car. Jump in, input destination, and let the car take you there. This technology is already available, but laws and regulations are holding it back. If we take human error out of the equation, traffic flows better, cars travel at safer speeds, and getting everyone where they want to be more efficiently.

    It’s a future world not of flying cars. But fully automated, self-driving, autopilot cars.

Sam Volkering
Technology Analyst, Revolutionary Tech Investor

From the Archives…

Is This the Spark to Send Australian Property Crashing?
26-07-2013 – Kris Sayce

Why it’s Deflation…Not Inflation, that’s Heading Our Way
25-07-2013 – Vern Gowdie

Why You Must Avoid This Big Investing Mistake…
24-07-2013 – Kris Sayce

The Dark Side of Technology: Part 2
23-07-2013 – Sam Volkering

The Dark Side of Technology: Part 1
22-07-2013 – Sam Volkering