How to make Money in the Stock Market.This blog looks at how you can make money trading and investing in Forex, Stocks Options and Futures.


Tuesday, 8 May 2007

Clapham House (CHP-L) added to Portfolio

The market today looks like it might be having one of its(recently) rare down days.The early part of this week is likely to be a non event whiel everyone waits for the FED and the Bank of England announcment.I added Clapham House (CPH-L) to my Sipp today-even with the FTSE down around 50 points today Clapham House still managed a small rise.

Clapham House is in the travel and Leisure sector of the London AIM market but it is being run by David Paige ex Pizza Express(one of the successes of the 90's).

Clapham House consists of two strong brands-Gourmet Burger Kitchen and Bombay Bicycle Club, both these franchises are well known and set for rapid growth, they are also not in the high end so less likely to be hit by any downturn in the economy.

The potential for Clapham House is huge and there are plans to grow the business into sizeable restaurant chains,currently there is little in the way of dircet competition for Clapham, although that could change, financials are strong and over the next 18 months or so we should see some strong growth.

I bought the shares at 418p and have a 25% stop loss in place.

I am also watching closely my LEAPs in Valero Energy (VLO) and Cameco (CCJ) both still have a lot of time left in them but are up over 100% each,I will be ready to take profits on any sign of a mkt downturn.

Best Wishes


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Sunday, 29 April 2007

Dow at all time highs-what next !!

I am just back from a well earned break and the mkts have reached all time highs, with the Dow Jones above 13,000 for the first time in its history.We need to be ever vigilant here as it is quite possible for the marlets to continue higher from here and for a good while.

However if we retrace we could find a lot of profit taking and overshoot on the downside. I am still holding my protective puts from earlier in this year-they are underwater but they are insurance not a means to make money. I will continue to hold them and may even look to add a few more for further out months such as Aug-October.

I am also going to look to prune some of my positions and take the opportunity to protect some profits and indeed possibly take some money off the table and increase my cash holdings.The old adage of "Sell in May and Go away" is nearly upon us and it has been right more often than not, indeed last year I saw drops of around 10-12% in my portfolio around this time.

Menatime I am looking to add one or two new stocks with the potential for some big upside.These are more speculative and I would be careful re position sizing, I am not going to risk more than 1% of my equity on these.

The first one is American Drug Store retailer Rite Aid Corp (NYSE : RAD)

This stock has languished for years after reaching $50 a share in the 90's, I think they may be starting to get things right and we could see some swift gains if other agree. I am buying at current levels and am placing a stop at $4.95.

For those of you that trade UK shares I am looking at another couple of companies I am not ready to buy yet but they are :

Clapham House (LSE : CPH)

Finsbury Foods (LSE : FIF)

Charter (LSE (CHTR)

I will let you know when I am going to place some trades but it could be as early as tomorrow .

I will post an updated portoflio equity curve sometime this week.

Best Wishes


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Friday, 30 March 2007

Iran and the Stock Market

The current situation in Iran is captivating the markets currently and will likely do until the British Military personnel are released.It seems to have been a blatant negotiation tactic on the part of Iran , with the news today that they have sent a letter to the British Government telling them to withdraw their troops from Iraq.

Since the likelihood of this is less than zero we will no doubt see some more posturing over the coming days on both sides .Ultimately I believe that Iran will release the hostages,but they may hold on a lot longer than people are currently speculating.

The impact of this is that Crude Oil has shot up in the last few days and in fact yesterday when there was a rumour of some confrontation it shot up $5 in seven minutes.The likelihood is that Crude could hit over $70 again in the near term if this standoff continues.If it only lasts a short time then it is unlikely to have a major impact on any economies, however what is more important is the perception that may be created of increased risk in the markets.

I personally am still nervous about taking any major positions one way or another until the mid term direction becomes a bit clearer.If I was pressed I would probably favour another pullback but to be honest it could go either way, hence my reluctance to make any major moves.

I am still looking for opportunities to take profits where I can and lighten up my exposure.I am also still holding my protective puts in QQQQ and SPY.I would hold these for another month or so unless we get a major move , then I may look to roll them further out.

Quite often the smart move is to do nothing and wait and see-I feel that this is one of those times.

Best Wishes


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Wednesday, 14 March 2007

More Downside to come and longer term ETF for the Energy Sector

Well the market broke below support today around lunchtime on the back of more bad news coming out of the US sub prime mortgage sector.This prompted a big move down in the Yen crosses as people scrambled to reduce risk.As I have been saying for a while(-

I have been nervous about this market and have been taking profits where I can and buying PUTS or ETF's that protect my portfolio from downside movements. Tomorrow will be important to see whether we have any follow through on today's sell off.If we do then it could be a case of "Look out below".

I urge you to consider some protection for your portfolio either by hedging or by taking money off the table until we get a better handle on the direction of the market over the next month or so.

I am still bullish on energy in the medium to long term and came across a very interesting ETF recently released by Wisdom

It is the Wisdom Tree International Energy Sector ETF (DKA-NYSE) this ETF holds a broad spectrum of the worlds leading Oil companies such as Total, BP Amoco,Royal Dutch Shell, and Statoil, it looks like a great way to play the energy sector with a good amount of diversification. I am looking to add this to my portfolio, but am going to wait a few days until we see which way the market goes.

I would be a buyer up to $30 and would use a stop loss of 15-20% and expect to keep it for a few years.

Lets see what tomorrow brings, I still feel we are starting a downward leg -whether it continues tomorrow or not I don't know , if we get a bounce it may be a good opportunity to consider taking some profits and sitting on the sidelines a bit until things become clearer.

Best Wishes and Good trading


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Wednesday, 7 March 2007

How to protect your profits and Portfolio in a downturn.

Well the last week has been interesting.....If you have been following this blog then you will know over the last month or so I have been becoming increasingly nervous about a downturn and we have seen some of the markets teeth in the last week or so.

I dont think it is over and I believe we have more downside to come-increasingly people's appetite for risk is diminishing and we are seeing the Yen Carry trade possibly starting to unwind as people get nervous and start to liquidate their Yen positions.If this happens then it will have ramifications across the globe.

One of the more challenging things to be able to do in a downtrend is trade it-either as a speculator looking for profit or to hedge your longer term holdings.This can be more difficult in certain types of accounts as there may be restrictions in selling short or using options.

If you are in this situation then I urge you to look at some of the Pro Shares at

They have a number of Short Proshares which you buy like a stock but they move in the opposite direction i.e. as the index they are related to goes down the Proshare price increases.It allows you to profit from a down market or use them as a hedge to protect your existing positions.

Two of the Proshares I like are the Short Dow 30 (DOG) and the Short S&P 500 (SH), you can also get Ultra Short funds which are double the downside .In this market I urge you all to look at doing one or both of the follwing :

1/ Take Profits off the table and lighten up your exposure

2/ Hedge what is left in your portfolio to reduce your downside

If you cannot or dont want to do either of these then consider going in to cash until the dust settles.

As ever good trading


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Wednesday, 28 February 2007

Lightening up on Some positions-Think there is increased possibility of Downside

Firstly apologies that I have not been able to post for a week or so I had some computer problems and I was travelling so was not able to get any posts out.Well yesterday was a real shake out.Today there seems to be some buying on weakness, I am glad I bought some SPY Puts a little while back as they softened some of the downside-I still was down around 3.5 % yesterday though.

I am not convinced we have seen the last of the selling and yesterday was a timely reminder of what can happen when everyone rushes for the exits at once.I am waiting to see where the Market closes and also what the voulume is like today, if we are up but volume is weak then I think we are in for some more selling sooner rather than later.

Some selling was long overdue, it would have been nice if it had not all happened at once though !! I took the opportunity to lighten up on some positions today so that I have some cash to take advantage of any opportunties but also to take profits or to reduce my exposure to some of the more High Beta stocks which will move a lot if the market sells off again.

I sold the following from my Pension Portfolio and My ISA

Linear Technology- LLTC sold for an annualised 6.38% Loss

Realty Ome Exchange -O sold for an annualised 24% Gain

Level 3 Comms LVLT-Sold for an annualised 26.5% Gain.

I would be extremely cautious about adding any positions at the moment I think we need to take some time to see what transpires in the next couple of weeks before we decide our next moves.

Sometimes the smart trade is to do nothing !!

For those of you old enough to remember the TV series Hill Street Blues -

" Lets be careful out there "

Best Wishes


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Friday, 16 February 2007

LEAP in to Caterpillar(NYSE:CAT)

As I have said before I am increasingly looking at using longer term option plays to get myself in to stock. I have been looking at Caterpillar( NYSE: CAT) for a while as it has come off its highs steadily since May last year. It is currently not in favour as most people think it is a play on the state of the US housing Market.As I have outlined in this blog on previous occasions the big money is to be made going against what your psyche is telling you.

We tend to not want to buy something that is out of favour but want to pile in with the crowd-remember the halcyon days of ?? The issue with Caterpillar is that it is not solely reliant on the US housing mkt in fact a large proportion of its revenue comes from the heavy mining and construction side of things.Therefore these two old chestnuts of Natural resources and China come to the fore again.

If you look through this blog, it is unmistakable that I am a commodities bull, as our needs for raw materials and commodities such as copper, coal, iron ore etc etc increase-China and rest of world demand, then the machinery necessary to excavate, transport and deliver these commodities is bound to be in increasing demand.Caterpillar is a major player in this market so increased demand for these commodities is likely to drive increased demand for their equipment.

This is not a story that has been really picked up by the general investing public hence the shares are languishing. I believe though that eventually this will sink in and people will start to pile in.

To further enhance the potential upside Caterpillar today announced a 5 year plan to buy back $7.5 Billion in stock, that is about 17% of the outstanding shares.On its own that would be enough to give them a boost.Coupled with a likely increased demand for the shares then I think Caterpillar is a good mid term play.

The shares were up today closing at $67.62, there are a couple of ways to place this, you could buy the stock outright, or as I favour you could look at a LEAP option, if you have read my previous post on Delta then you will know we want to go for an ITM (in the money option).I favour the Jan 2008 60 Call, it shot up a bit today closing around the $11-50 mark this means you would pay $1150 for the right to buy 100 shares of CAT for $60 any time up to Jan 2008.The break even is $71.50 at today's close, the delta is around 80 which means you will get approx 80c movement in the option for each $1 movement in the stock -but you are paying a lot less to control 100 shares worth of stock than you would buying them outright.

I am going to buy the LEAP and will pay up to $12 with a view to holding it for 6-9 mths unless we get a short sharp increase in the stock when I may consider selling it early.

Best Wishes


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Sunday, 11 February 2007

Performance Curve Updates

Posted above are the latest Performance Curves for my Pension Plans.The top graph is the GBP Portfolio and the lower one is the US$ Portfolio, pleasingly both have shown improvements this month particularly the GBP portfolio with a 4% gain on the month bringing the overall performance from the start to 40% return. The US Portfolio was also up but only slightly up about 0.5% for the month.The US portfolio is showing a 15% increase since inception.The US portfolio suffered a bit this month as the LEAP options on Microsoft (MSFT) gave back some of their gains.I am expecting that the US portfolio will shine when the Commodity and Natural Resource stocks do well as it is fairly heavily weighted in that direction. If we continue to see gains in Crude Oil and Precious Metals then the holdings in companies such as Goldcorp (NYSE:GG), Silver Wheaton (SLW-T) and the Oil and Equipment Services ETF (NYSE : IEZ) will generate some good returns. Silver and Gold seem to be looking to go higher here , although we could see some consolidation or even a pullback before we see Gold over $700 and Silver over $14.

Oil has been flirting with $60 all week and it is still uncertain which way it will go, weather and increasing Geopolitical tensions are playing their part and if these ease then we may see another pull back to the $55 area or below.However I firmly believe that Oil at those prices is a good buying opportunity as I do not believe these low levels will be sustainable.

It is interesting to note that once they got used to the revenue with oil at $60+ a barrel the OPEC Cartel seem very reluctant to see oil back down at the $50 mark.I imagine every time we see any pullbacks to those levels we will hear the jawboning from the Oil rich countries about production cuts etc, which will serve to put a floor under the price.

In my next article I am going to look at the part Dividends and High Yielding Assets can and should play in your Portfolio.

Best Wishes


Tuesday, 6 February 2007

New Purchases FXS & FXE

Just a quick note to say that I am adding two of the Currency ETF's to my ISA. I am buying the FXS( Swedish Krona ETF) and the FXE (Euro Currency ETF).

Sweden is performing very well and its economy is strong, I expect that the Swedish Krona will strengthen further as we move into 2007.It will also give me some hedge against the potential of a falling Dollar(which doesnt seem to have happened yet !!-but I think it will).The dollar may confound its critics for the next while as (if you buy in to the conspiracy theories) the Presidential elections may mean that certain factions within the US government do not want their currency falling out of bed and impacting on the economy, in the run up to the Presidential elections.

I am looking at this holding being a longer term one anyway-assuming we do not hit our stop loss.I do not believe however that Krona strength will be dependent on Dollar Weakness anyway.

The second ETF was the FXE-Euro Currency Trust, the euro has pulled back here and we should find support in the mid 128 range if not before, from there I see that as a good launching pad for the euro to hit 133-136 sometime later in the year.

I have placed a stop loss of 5% on each of these as a 5% swing in the currency would be a fairly substantial move.

Best Wishes


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Sunday, 4 February 2007

Options Trading-Mind Your Delta Part2

Following on from my last post let's look at how to use Delta to ensure we get the best possible opportunity for options to move nearly dollar for dollar with the underlying asset.

In order to do this it will be necessary to look at the Delta of the option this will tell us how the option will move in relation to the stock or asset, the higher the Delta the more it will move in relation to the underlying stock. A Delta of 100 means that the option will move more or less identically to the underlying asset.

What we want to do then is to find options with a Delta of at least 85 this will ensure that we get good movement of the option in relation to the asset. If you trade options frequently then it may be worthwhile investigating some of the options software available on the market today. Alternatively lot of modern brokers platforms will provide the relevant information for options, assuming they allow you to trade them.

An excellent site is this site will allow you to find out the Delta of the option that you are considering using, it will also provide you with a number of other statistics such as implied volatility and the rest of the Greeks such as Theta.

Another advantage of trading options rather than the stock is they allow you to utilise a lot less in terms of your accountfunds than buying say one hundred shares of the stock, this means that you can either buy more positions thus increasing the diversification of your account or utilise the funds that would otherwise have been used to buy the stock in another fashion such as an interest bearing account or T Bill.

It is therefore a very important that we start to think of options not as cheap or expensive(in terms of dollars to buy) but whether are not we have the necessary Delta to ensure the upside or downside that you are looking for based on the movement of the stock or other asset.

Certainly looking for options with a Delta of 85 or greater will cost a bit morer than it would do to buy out of the money options but your chances of success are greatly increased, no longer will you watch the stock move in the direction you want it to but find that your option stays the same or goes backwards.There are other factors at play that will determine the value of your option such as volatility levels but if you have historically been purchasing out of the money options then this one change to your approach will radically improve the success that you have.

If you want to learn more about options I can highly recommend any or all of the following Books :

High performance Options Trading by Len Yates

Trade Options Online by George A Fontanills

How I trade Options by Jon Najarian

Best wishes


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Friday, 2 February 2007

Options Trading-Mind Your Delta Part 1

I wanted to look a bit at Options trading-increasingly I am trading more and more options.They are extremely versatile and the more you use them and learn about them the more you will start to appreciate what they can do for your portfolio.

I like most options traders when they first started out made the classic mistake of focusing on price.I perceived that cheap meant they only cost 5 cents !!! and that an option costing $6 must be expensive. So like most people I watched as I bought a call or a put and .............YES fantastic the stock moved in the right direction AND my option-stayed the same or worse-went backwards.

I had made the classic mistake of buying "cheap" out of the money options.

Options can be one of three things :

  1. Out of the Money (OTM)

  2. At the Money (ATM)

  3. In the Money (ITM)

For example Stock XYZ is trading at $25

If you want to buy an option then

  • a $25 option is at the money(same price as the stock),

  • a $20 option is in the Money(less than the price of the stock)

  • a $30 option is out of the money(More than the price of the stock)

Options that are out of the money do not move in line with the movement of the underlying stock, options that are at the money will move at approximately half the pace of the stock(i.e. for every $1 movement of the stock up or down then the option will move approx 50 cents).

For options that are in the money then the more they are in the money the closer they will move dollar for dollar with the stock.

There are other factors that affect the price like time to expiry etc-but we will cover that in another post.

Therefore the reason I was not getting any movement in my option even when the stock move din the direction I wanted it to was because I was buying "cheap" out of the money options-ahhhhh I eventually realised...there is a reason they are "Cheap"

In fact they were not cheap at all and in some instances they were a lot more expensive than options at 10 or 20 times the price.

In the next part of this article I will look in a bit more depth at why this is the case and what you can do and what you should look at to give yourself more of a chance .

Best Wishes


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Monday, 29 January 2007

Water Water everywhere..............or is there ? How to invest in Water or Blue Gold

Some of you may have heard of T. Boone Pickens, for those of you that have not he is one of the worlds most famous Oil and Gas Billionaires. He founded a company called Mesa Petroleum with $2,500 and turned it into a billion-dollar company.So with oil reportedly running out and prices still way higher than they have been for years( we are currently thinking oil has become incredibly cheap at $50 a barrel-it was only in Oct 2004 that oil hit $50 for the first time and that was a record high!!!) then you would think that this 78 yr old billionaire would be very happy to sit back and enjoy the wealth brought on by one of the worlds most important Natural resources getting more and more scarce.It may surprise you then to know that he has been very busy buying up as many rights as he can to an even scarcer resource that we all tend to take for granted.........WATER.

He has set up a new company.Mesa Water and is investing heavily in water rights in Texas, he plans to pump the water to other areas in Texas such as San Antonio, Dallas-Fort Worth to name but a few.........for a price of course.

What this tells us is that the BIGGEST natural resource issue we will face in the coming years is access to fresh water.Our planet is awash with water, unfortunately a lot of it is salt water and with the increasing industrialization taking place in countries like India and China, the water resources they have(which were already fairly scarce) are becoming polluted and unusable not only for drinking but for use on crops and farmland.

This means that companies who own large amounts of water or those who are involved in desalination or water infrastructure could do very well in the years to come.Currently we are starting to see water and water related stocks hitting the mainstream press but I think we are still likely to be in ahead of the crowd if we move quickly.

I have had a holding in VEOLIA ENVIRONNEMENT -ADR, (VE) which provides environmental services to municipalities and corporations worldwide. for the past 6 months or so and in that time it has risen 32% or 60% annualised.I think in the mid term there is still plenty of upside for VE as it is I believe extremely undervalued given its prospects.

Another possibility is PICO HOLDINGS INC, (PICO) operates in five industry segments: property and casualty insurance; surface, water, geothermal and mineral rights; medical malpractice liability insurance; portfolio investing; and other.

PICO is slightly more diversified but nonetheless is well positioned to take advantage of the worlds increasing need for water.

As ever do your research, these stocks should not be too volatile so I would be comfortable placing a 15-20% stop loss on any purchase and be prepared to hold them for a few years.

Best Wishes


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Friday, 26 January 2007

Buying SPY Puts for Some Insurance

The stock Market dropped sharply today as Bonds sold off and the existing Home Sales Numbers came out weaker than expected.At the close the Dow Jones Industrial Average (DJIA – 12,502.6) had lost 119 points, or 0.94 percent, and is now resting on its 20-day moving average. The S&P 500 Index (SPX – 1,423.9) is also on its 20-day trendline after losing more than 1.1 percent. The Nasdaq Composite (COMP – 2,434.2) dropped 1.3 percent, falling back below its 10-day and 20-day trendlines.

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The Market is making me nervous at the moment, I have learned over the years that when I feel like this I should be proactive in protecting my capital and gains and taking out some insurance to protect the downside.

Now let me be clear I am not calling a top or saying that the market is going to decline from here-I think it is extremely brave (or stupid) to try to call market tops and bottoms,but I do feel that the market is behaving as if it is running a bit out of steam and it would not take much for it to roll over from here.

I cashed in a few postions today that have done well for me over the last little while, I closed out positions in the following :

Telecom Holders (NYSE TTH) 33% Gain

Madison Claymore(NYSE: MCN) 3% Gain

Vietnam Opportunities Fund ( LSE: VOF) 86% Gain

Drax Group (LSE : DRAX) 16.5% Gain

So I have lightened up on a few positions and realised some cash so I can take advantage of any opportunities that may present themselves in the next little while.

The Feb 43 QQQQ Puts that I bought a week or so ago came rocketing back today up around 80% to be back at break even. Depending on what happens tomorrrow I may roll these puts to the March contract as time decay will start to be a factor here.

I am also going to look at some "at the money" or "in the money" SPY Puts as I feel that the S&P 500 may be vulnerable to a further breakdown here as well.

It is important where we are trading for the mid to long term that we look at smoothing out the ups and downs and volatility as much as possible, if only for sanities sake.

If you cannot trade Options in your account or are not comfortable doing so, have a look at your portfolio and look for any opportunites to prune back your exposure.

You can do this by taking profits in stocks that may have run up but have been trading sideways for a while or ridding yourself of positions that have not really performed as per expectations.

There is always a danger that you may miss some further upside but my experience has taught me that missing out occasionally on some of the upside does not make up for the angst and "If only I had" regrets that taking big and swift losses brings.

As ever best wishes and Good trading


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Tuesday, 23 January 2007

How to Make Money in Agricultural Commodities

The above are weekly graphs of Corn, Wheat and Soybeans,as you can see since the last quarter of 2006 these have been making new highs and in fact corn has hit over $4 a bushel, this is the first time since 1996 that this has happened.

Jim Rogers one of the most succesful commodity bulls of the last 30 years has been quoted on many occasions stating that the so called "Soft" Commodites are where he sees the big growth in the next 5-10 years.Everyone is familiar with the energy and precious metal stories , but agricultural commodities are not really something that many people outside of the CBOT(Chicago Board of Trade) have much to do with.This plays in to our hands, the big money is to be made buying in to these areas before we start hearing about it on CNBC and the Wall Street Journal.Jim was telling anyone who would listen about Oil and Gold around two or three years before they really took off and became big news.We want to be in these for the next few yeasr then be selling to the masses when everyone is talking about them.

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One of the major challenges surrounding these assets was unless you were willing or able to trade Commodity Futures there was little or no opportunity to play these markets directly.I personally do trade Commodity Futures ..and they are not for the faint hearted,but they were the only direct way to play these markets up till now.

On Friday the 12th of January for the first time ever investors could buy Agricultural Products through the stock market...Powershares launched an agricultural ETF (NYSE: DBA).

This new fund tracks an index which is divided equally among wheat , corn, sugar and soybeans it is run by Deutsche Bank. There are many reasons why these commodities will I believe go much higher the main ones are :

  1. Agriculture has been in a bear market for many is now showing signs of breaking out.

  2. A lot of the rationale for this can be placed at the door of higher energy costs, these commodities are used in the manufacture of alternative sources of fuel such as Ethanol-(it is rumoured that Ethanol will be given a big push by President Bush in the State of The Union address tomorrow night.)

  3. China is importing more and more of these products and they are soaking up the supplies faster than ever before.

  4. Lastly the USDA revised downwards its estimates on these commodities so there is likely to be less around than previously envisaged.

I like the agricultural commodity story and will be taking a position in the Powershares Agriculture Fund (NYSE:DBA) .I would be looking to hold this for a good few years and will look for opportunities to add to it on pullbacks.

My recommendation would be to scale in to it so if you are looking to own say 500 shares then buy 300 now and look for opportunites to add another 100 and then another 100 when we get some price weakness.

I will place a 25% trailing stop loss against my position.

The website for the DBA is

Best Wishes and Good Trading


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Monday, 22 January 2007

Portfolio Performance Curves

 Well at last I have sorted out some problems I was having with some of my software and can now post my equity curves for my US and GBP Pension Fund Holding showing performance since May 2005 when I started.
The GBP portfolio(Lower Graph) is showing the best returns compared to the US holdings.The GBP portfolio is solely made up of stocks which I have been holding for 6-18 mths  as long as they do not hit my StopLoss.I think if you click on the charts they will open larger in your browser(well they do in mine)

The US portfolio is a bit more aggresive and uses Options as well as having a trading apporach.It will be interesting to see how they perform and whether one method consistently beats the other.For now I am happy that they are both showing returns that would outstrip what you would get from having them managed by the "Professionals" which was the whole reason for me doing this.

The performance is down from where it was last May-when the bottom fell out of the Commodities market, since I am a Commodities Bull my portfolio was (and still is) more weighted to the commodity and resource stocks so has suffered a bit for that.
I will post these graphs on an approximately Monthly basis to show how I am doing.

Best Wishes


Thursday, 18 January 2007

Update on China Opportunities

You will have seen a previous post regarding opportunities in China,I have been looking at another stock recently and am likely to buy some at the market open on Thursday, that company is Aluminium Corp of China (NYSE: ACH).

ACH is the second biggest Aluminium company behind Alcoa and it seems to be very favourably priced on a P/E basis(price Earnings Ratio) compared to its competition, it is trading at less than 8 times earnings compared to nearly twice that at its rivals, it also is on track to pay a dividend of 10%.

The fact that Aluminium has corrected in price recently is an added bonus. I will be looking to add ACH to my portoflio and place a stop loss of 20%.

Best Wishes


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Wednesday, 17 January 2007

Outlook for Gold and Oil-Should we buy or bail ?

Sorry there has not been a post for a few days I have been away most of the week and was not able to access my PC. I wanted to have a quick look at Oil and also Gold.Both of these are some of the most well known commodities and if played correctly can give some real long term upsides to a portfolio. Those of you who have visited before will know that I am a commodity bull and am heavily invested in Natural Resources and the Precious Metals.Oil and Gold however have not had the most auspicious starts to 2007 with Gold bobbing up and down in a fairly narrow range and Oil being hammered, down 13% in January.Is this the end of the commodities bull run ? Absolutely not, in my view. I think we are seeing some tremendous bargains and opportunities for those of you looking for some medium term 2-3 yrs investment for your portfolio's.

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Let's look at Oil-there are a no of reasons I am still bullish on oil namely :

  1. Growth in economies such as India and China-economic growth in these countries will drive the need for oil for a great many years.When you factor in we are not really discovering much more and the developed countries such as the US and in Europe are using more not less then that can only mean one thing. Increased demand and limited supply= higher prices

  2. Institutional Investors, the big hedge funds particularly have been dumping oil contracts all of this month. These guys are trend and momentum traders and they all rush for the exits at once-this exacerbates any movement up or down and we have to factor this in to the big moves we see these days.

  3. Warm Weather in the US-particularly in the North East of the Country-the minute we get the first dump of snow and temperatures drop in New York and Boston we should see Oil start to climb

  4. Geopolitical tensions, Iran and North Korea are still at the sabre rattling and other oil hotspots like Venezuelan and Nigeria are anything but stable. I do not think it will be too long before we see some geopolitical confrontations rearing their heads again.

One of the best values in the Oil sector just now are I believe the Oil drilling stocks, this sector is also ripe for take overs or mergers.

Currently it is almost impossible to get a drilling rig in the Gulf of Mexico or anywhere else-and if you can get one then rental fees are sky high.The best way to play the sector is to look at the iShares Dow Jones Oil Equipment and Services ETF (NYSE-IEZ).

This ETF gives you a broad exposure to the major drillers like Baker Hughes (BHI), Schlumberger and Halliburton.If you are looking for a higher risk but potentially higher reward play then cast your eye over the Russian Giant Lukoil (OTC-LUKOY).There may still be some downside in oil and the oil sectors but for me the upside potential far outweighs the downside risk at this stage of the game.

In terms of Gold, the main driver of the precious metals still remains supply and demand, supplies of Gold are tight and with the increased geopolitical tensions it may also have some safe haven status as well.

If you are looking for an individual company Goldcorp (NYSE:GG) is still one of my favorite plays or the iShares Comex Gold Trust (Amex-IAU) will track the gold price.

In the short term expect some volatility in these sectors but the mid to long term outlook for them both is in my opinion very positive indeed.

Best Wishes and Good Trading


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Friday, 12 January 2007

Investing in India-More Potential than China ?

I think we are all pretty familiar with the China Story-however not so many people are up to speed on the potential in the Indian Stock Market.We are constantly made aware of the Chinese markets ,possibly due to the continued shuttling back and forth of various American Senators and the like trying to persuade the Chinese that devaluing their currency a bit more quickly would be a great idea-so far they aren't doing too well in the convincing stakes and I am not certain that they will ever have any impact.I think the Chinese will do what they want when they want.

Less well covered is the India story-lets look at some of the facts -the Internet for example.India has a population of over 1 Billion of that less than 4% are online, in the US that number is closer to 70%.Other Asian markets such as Japan and Hong Kong have similar levels as the USA. It is easy to do the maths 25% of the Indian Population online would be 250 million plus and 50% would be half a billion.

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This is just one area where the massive population means even small shifts in the usage of things we take for granted will mean huge revenue increases for any company that happens to be exposed to India.The increased level of outsourcing of call centres and IT development work-whether we like it or not is only going to continue and India's Pharmaceutical Giants such as Dr Reddy's are more and more moving away from the Generics markets to try to compete as R&D powerhouses along with the likes of Pfizer, Lilly ,AstraZeneca and GlaxoSmithkline.

Think of the potential for motor vehicles we are used to usually two cars per household, cars are still a relative rarity in certain parts of India-the potential for growth here is phenomenal-the list goes on and on but I think you get the picture.

Some of the stocks I like in India include Tata Motors (ADR) (NYSE: TTM) and also for broad exposure to the Indian Market I also have traded in and out of the JP Morgan Fleming Indian Investment Trust (UK:JII) and the India Fund, Inc (IFN).

I believe that India is a fantastic longer term bet for your Retirement Portfolio or IRA -there can be some volatility as you would expect in any Emerging Market but over a 3-5 year period then I think we could see some superb gains.

Best Wishes and Good Trading


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Thursday, 11 January 2007

Australian Jobs Data Shocks to the Upside

Following on from last nights post the latest Australian Jobs data was released tonight and was incredibly strong compared to analysts forecasts.The forecasts were for a median 15k jobs to be added, the number came in at over 44k.I have attached some news commentary below-this further strengthens my view that the Australian economy is posied to continue to do well this year and that should prove good for any position in the iShares Australia Index (NYSE-EWA).

"[AUST DATA REVIEW] Aust employment data shocks with its strength, with growth gaining by a mammoth 44.6k over the mth, on top of an upwardly revised 43.0k (prior 36.2k) gain in Nov, and well outpacing forecasts centered on a 15k rise. The unemployment rate also unexpectedly held steady at its 30yr low of 4.60% (f/c 4.70%), with the participation rate gaining to a fresh record high of 64.9% from 64.8% prior. The overall data was exceedingly healthy; with full time jobs growth rising by 17.7k on top of Novs huge 57.4k bounce; whilst part time jobs gained by 26.9k after falling by 21.2k prior. Decs strong data suggests that Austs labour mkt has remained overwhelmingly tight. With wage fears thus well intact, RBA will be nervously maintaining its tightening bias well into 2007; and risks to see further rate hikes pan out over the n/t"

Tomorrow I will look in more detail at another favoured non US Mkt for the mid term-India.

Until then Best Wishes and Good Trading


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Wednesday, 10 January 2007

Australian Stock Picks-Commodities Power the Aussie ASX

Continuing my theme of looking at the diversified ETF's(Exchange Traded Funds) coupled with my belief that we are in the midst of a secular Bull Market for commodities(who am I to argue with Jim Rogers !!) then I wanted to expand on my recent post around China and Taiwan and take a look at Australia.Since 2001 Australia has benefited from the boom in commodities especially the Metals such as Gold,Silver and Copper mined by companies such as BHP Billiton (NYSE : BHP) and the agricultural commodities-which some would argue are only recently starting to catch up with the rest of the booming Natural Resource Mkts-(witness Corn and Wheat over the last few months.)

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If you believe as I do that we have a good few years to go before the Natural Resource boom tops out then the Australian Mkt should do very well in the next 5 or so years.Even although the ASX 200 broke out from its all time high in the last few weeks I still believe that we will see it higher in the years to come.It climbed 19% in 2006 topping its 2005 performance of just over 17%.

If that was not reason enough to look more closely at the opportunities in Australia the fact that the Australian Dollar has strengthened against the US dollar is another good reason for any American Investors or those who hold substantial amounts of their portfolio in dollars to consider the Australian Markets.

In order to benefit from the boom "down under|" then we could look at individual companies such as BHP Billiton (NYSE: BHP ) or Rio Tinto (NYSE: RTP) up 220% and 150% respectively over the last five years, but I prefer the diversification of a fund-especially when companies can be as volatile as BHP and Rio Tinto.I would therefore take a close look at iShares MSCI Australia Index Fund (AMEX: EWA).This will give you a broad exposure to Australian companies and also will give you the benefits of some protection against the potential of a falling US dollar.This ETF is up 180% since 2001 and put in a performance of nearly 30% last year-that being said I think there is still some more upside particularly if you take a 3-5 year view. I currently hold some of the EWA but would be looking to add some more on any weakness or pullbacks.

As ever do your research , I would be placing a Stop loss of 20% on my average price and be looking to hold,for 3+ years.

Best Wishes


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Saturday, 6 January 2007

A short Guide to Hedging

As promised here is some background and insight around hedging-incidentally as I surmised the markets took a turn down yesterday and the QQQQ Puts I bought have already increased by just under 20% in one day.I cannot say if this is the beginning of a correction but I am glad I have some downside protection.Hedging is a little discussed but very important tool for investors.It may sound like an outdoor activity involving shears and ladders but it can be the difference between poor and great returns

What Is Hedging?
The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn't prevent a negative event from happening, but if it does happen and you're properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see it everyday. For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters.

Portfolio managers, individual investors and corporations use hedging techniques to reduce their exposure to various risks. In financial markets, however, hedging becomes more complicated than simply paying an insurance company a fee every year. Hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements. In other words, investors hedge one investment by making another.

Technically, to hedge you would invest in two securities with negative correlations. Of course, nothing in this world is free, so you still have to pay for this type of insurance in one form or another.

Although some of us may fantasize about a world where profit potentials are limitless but also risk free, hedging can't help us escape that hard reality of the risk-return tradeoff. A reduction in risk will always mean a reduction in potential profits. So, hedging, for the most part, is a technique not by which you will make money but by which you can reduce potential loss. If the investment you are hedging against makes money, you will have typically reduced the profit that you could have made, and if the investment loses money, your hedge, if successful, will reduce that loss.

How Do Investors Hedge?
For the most part, hedging techniques involve using complicated financial instruments known as derivatives, the two most common of which are options and futures. We're not going to get into the nitty-gritty of describing how these instruments work, but for now just keep in mind that with these instruments you can develop trading strategies where a loss in one investment is offset by a gain in a derivative.

How does this work in Practice
Say you have bought shares in Google(Goog) you believe that they are a good long term bet but you want to protect yourself from any potential downside in the short term.You would buy a number of PUT options in Google to protect you should they fall below a certain price-say $450.
Every put option is worth 100 shares so if you owned 200 shares you would need to buy 2 PUT options.If the share price fell below the $450 then your PUT options would increase in value to protect and minimise the losses.(This is a reasonably simplistic explanation as there are a no of other factors at play here but this is the general principle behind using Options to Hedge)
Keep in mind that because there are so many different types of options and futures contracts an investor can hedge against nearly anything, whether a stock, commodity price, interest rate, or currency.

The Downside
Every hedge has a cost, so before you decide to use hedging, you must ask yourself if the benefits received from it justify the expense. Remember, the goal of hedging isn't to make money but to protect from losses. The cost of the hedge - whether it is the cost of an option or lost profits from being on the wrong side of a futures contract - cannot be avoided. This is the price you have to pay to avoid uncertainty.

We've been comparing hedging versus insurance, but we should emphasize that insurance is far more precise than hedging. With insurance, you are completely compensated for your loss (usually minus a deductible). Hedging a portfolio isn't a perfect science and things can go wrong. Although risk managers are always aiming for the perfect hedge, it is difficult to achieve in practice.

What Hedging Means to You
The majority of investors will never trade a derivative contract in their life. In fact most buy-and-hold investors ignore short-term fluctuation altogether. For these investors there is little point in engaging in hedging because they let their investments grow with the overall market.

So why learn about hedging?

Even if you never hedge for your own portfolio you should understand how it works because many big companies and investment funds will hedge in some form. Oil companies, for example, might hedge against the price of oil while an international mutual fund might hedge against fluctuations in foreign exchange rates. An understanding of hedging will help you to comprehend and analyze these investments.

Because risk is an essential yet precarious element of investing, you should, regardless of what kind of investor you are, gain a fairly good awareness of how investors and companies work to protect themselves. Whether or not you decide to start practicing these intricate uses of derivatives, learning about how hedging works will help advance your understanding the market, which will always help you be a better investor.

Best Wishes


Friday, 5 January 2007

Market Update and QQQQ Hedge

The Dow Jones Industrial Average (DJIA – 12,480.7) added 0.05 percent on the day, edging into positive territory.The S&P 500 Index (SPX – 1,418.34) tacked on 0.12 percent, but was capped by its 10-day moving average. Finally, the Nasdaq Composite (COMP – 2,453.4) saw the largest percentage gain on the day, logging an increase of 1.25 percent.
In terms of news today orders for U.S.-made factory goods increased by 0.9 percent during November. The strongest demand was for computers, transportation equipment, and defense goods. Excluding transportation, orders for U.S. goods dropped by 0.5 percent for the month, which suggests an overall weakening of the manufacturing sector.

The Markets are making me slightly nervous at the moment I feel something is in the offing.There does seem to be a bit of a struggle going on with the last couple of days swinging to and fro.It is always difficult at this time of year to ascertain whether we are seeing the results of thin markets and people window dressing, but I bought some QQQQ Feb 43 Puts today to give some downside protection to my Portfolio.
They will not be enough to completely hedge my positions but will cushion the blow a bit if we lurch downwards over the next month.

Increasingly I am using Options as a Hedge in my Portfolio to protect the downside.I am firm in my beliefs for the mid Term and the Macro Economic picture supports this, however we cannot force the market and we have to be patient, using options to hedge your portfolio and allow you to stay in the game longer to give your strategies time to unfold is good sense.It is extremely difficult (if not impossible) to pick Market tops and bottoms-but learning to use options as a hedge is a great way to allow you to ride out the daily and intra day noise that can be emotionally difficult to trade through when you are investing for the longer term.

I will post some insight into hedging tomorrow for those of you who are interested in a bit more detail-meanwhile if anyone has any questions on this or any other topic then please feel free to ask.

Best Wishes


Thursday, 4 January 2007

The China Syndrome-Part 2

Following on from my previous post where we looked at Taiwan as a good potential mid term investment I want to touch on China.China is still one of the fastest growing economies in the World and although growth is not as high as it has been there is no real sign yet of it slowing dramatically.I believe that we will see good growth in China at least till post the 2008 Olympics and possibly beyond.The sheer size of China makes it a formidable market and one where if you pick the right stocks could generate some excellent returns over the next few years.It can be volatile so if investing I would be looking to hold the shares for 2+years with a 25% stop loss.

Some of the shares I like to capitalise on China are below :

China Medical Technologies (CMED)
Hong Kong Shanghai Bank (HBC 4% Yield)
Templeton Dragon Fund (TDF 4.5% Yield)

I also like iShares FTSE/Xinhua China 25 Index Fund (NYSE: FXI) it is up 102% in the last 18 months and 65% since June.

However you look at it China is going to become an increasingly large player on the Global Economic Stage and we really need to have some exposure to these markets.The fund route is a good option as it allows some measure of diversification-but may not deliver the opportunity for some stellar gains with indiviudal stocks such as CMED.

All for now I will report back later today hopefully on the US markets.

Best Wishes


Wednesday, 3 January 2007

Trade Confirmation

B half position at 14.80 in Taiwan Fund EWT-will wait to see what happens and whether I will buy more-if it moves up quickly will not likely and will just sit with what I have.If it moves down towards 14 in next couple fo weeks will buy second half.

Best Wishes


Trade at Open-iShares MSCI Taiwan Fund EWT-NYSE

Hi just a quick note to confirm that I am going to open a position in the Taiwan Fund at the Mkt open, as this is a long term position I will probably scale in to it buying half my desired no of shares and then waiting to see if there is any pullback and I will buy the rest.So just to confirm I will be buying at the open the iShares MSCI Taiwan Fund EWT-NYSE at the open for my Pension fund.I will be back later on with the second part of the post from yesterday.

Best Wishes


Tuesday, 2 January 2007

Go East Young Man-Made in Taiwan and the China Syndrome Part 1

The US Markets are closed today so I thought this might be an opportunity to look beyond the US shores to another favourite market of mine-the Far East.For many years the Asian Markets have lagged far behind the US and Europe.I think we may be seeing the tentative shoots of recovery in certain markets.Japan is still a wildcard but I believe that 2007 may prove to be a good year for Taiwan. In 2006 a number of emerging mkts including some in Asia have hit all time highs but Taiwan still lags and is over 43% below its high from Feb 1990.Taiwan is home to some of the largest Tech and Electronics companies in the World. Companies that produce I-Pods and the Mini Mac as well as supply major IT companies such as Dell and Hewlett Packard-the link therefore to PC and Semi-conductors is inextricable-when these markets boom so does the Taiwanese economy.If you believe that these sectors are likely to start to move in 2007-(think Vista and PC's) then Taiwan is a good place to invest.For me the best way to play this is via the iShares MSCI Taiwan Index Fund(EWT-NYSE).This fund is broadly based and diversified but heavily weighted to Technology Companies. Another boost for Taiwan is that it is one of the major trading partners of China. The Chinese economy is still one of the fastest growing economies in the world and as the mass Chinese become more affluent then they will increase their expenditure on goods such as PC's and Technology-this can only be good for the Taiwanese economy and for the iShares MSCI Taiwan Index Fund(EWT-NYSE).I will be opening a position in this fund at the mkt tomorrow.I will also post Part 2 of this communication looking in a bit more detail at opportunities to gain some exposure to China such as Hong Kong Shanghai Bank (HBC) , Templeton Dragon Fund (TDF-NYSE) and China Medical Technologies (CMED-NYSE).

Best wishes for the New Year and Good Trading