Sunday, July 27th, 2008 Update

I haven't been able to post anything in over two weeks. I was on vacation for awhile and then I was really busy after getting back home. The last two weeks in the market have been really volatile. Unfortunately, my portfolio has not fared as well as I would like. I have always said that I don't mind for my portfolio to be up less than the overall market on the up days, as long as it's not down more than the overall market on the down days. Lately, that's exactly what I've seen all too often. It has pointed out to me that I've got too much risk in my portfolio and it's time to step back and not only look at the individual stocks that I own, but my overall investing philosophy. Fortunately, I've had a lot of time to think since my last post. I've come to the conclusion, that I need to do three things 1) reduce the number of stocks in the portfolio 2) make the Warren Buffet stocks a greater percentage of the portfolio 3) be more aggressive in writing covered calls and naked puts to generate current income. Right now, I own sixteen stocks with six of them in the Buffet portfolio and ten in the Cramer portfolio. I will start to liquidate most of the stocks in the Cramer portfolio as I feel the timing is right and use this money to invest in the Buffet stocks. New purchases of Buffet stocks will be done in combination with the sale of covered calls. Since these stocks are not nearly as volatile as the overall market, the idea is that I'll be able to bring in some cash by using the new shares as collateral. This upside is that I lower my cost basis on shares of stocks that I like and the downside is that I get called out and don't realize all of the gains that I could have. Since I will not sell covered calls against my entire position of any one stock, I will always have some shares available to participate in any rally. I will also use naked puts as a way to either generate income (put finishes out of the money) or allow myself to buy into a stock at a good price. I think this new strategy will help cut down on the volatility in the portfolio as well as help me achieve the goal of my investing philosophy: To build a portfolio that 1) generates long-term capital appreciation and current income 2) outperforms in a down market even though it may lag in an up market.

Friday, July 11th, 2008 Update

I've been getting ready for vacation this week, so I haven't had a lot of time to post messages. The short update on my portfolio is that I lost ground to both the DOW and the S&P on Tuesday, then beat both of them on Wednesday and Thursday. Lately, I've been looking at the stocks I have sold this year to see where they traded after I sold them. Let's just say I'm very happy I sold most of them. One of the things I have said for a long time is that the toughest thing you'll ever learn related to investing is when to sell. Sometimes, this means taking a loss before it turns into a bigger loss. I'll talk about this more when I have time. I'll be on vacation the next week and will probably not be able to post much if at all.

Monday, July 7th, 2008 Recap

It was another down day for the major averages as the DOW dropped .5% and the S&P 500 dropped .9%. My portfolio managed to outperform both indexes with a .49% loss. Frankly, I'm getting tired of beating the averages in this manner. Unfortunately, I don't see an end to the poor market action just yet. The only real news of the day was the drop in oil prices and how the market failed to rally on that. Crude finished down about $4 per barrel on the day. Tomorrow Alcoa (AA) will kick off the earnings season with their second quarter earnings report. The company is sure to disappoint as they always do.

New Specific to my portfolio:
Altria (MO) was the biggest winner today trading up 2%. Since I can find no news to attribute the move to, I'm assuming this was probably just a bounce from last week's selloff which was puzzling. The biggest loser in the portfolio was Teva Pharmaceuticals which lost 8.5% on the back of a report that revealed a 40 mg dose of Copaxone, one of the few drugs the company has developed on its own, is no more effective against Multiple Sclerosis than the already approved 20 mg dose. I still like this stock, but in this environment, I will wait to see if the stock goes lower before adding to my position. I made two moves today. First, I sold some July 125 calls against my position in Freeport McMoran when the stock was trading around $109 per share this morning. The calls have only nine more trading days to rise about 14% or they will finish out of the money. Since my cost basis is well below $125 per share, I like the risk/reward here. My second move was to unload the shares of US Steel (X) that I bought last Wednesday when the stock dropped over $22 in one day. I decided to take the quick gain and lighten up on my position since the market is trading so poorly lately. I know the company will report great second quarter earnings in just a few weeks, but I am being very cautious at the moment and wanted to raise some cash in case buying opportunities present themselves in the meantime.

Sunday, July 6th, 2008 Weekly Roundup

It was another down week in the market and for my portfolio. The week finished a day earlier than usual as there was no trading on Friday, July 4th. Thursday was a slightly positive day for the market with the DOW and S&P ending the day both in positive territory. My portfolio was also slightly positive, but slightly less positive than the DOW and S&P. That makes my record against the DOW 6-3 and my record against the S&P 2-2. The big news of the week was the European Central Bank's move to raise short term interest rates by .25% and the seemingly never ending string of record-breaking oil prices. I began to raise more cash in my portfolio as it now appears we're headed for certain recession and I just can't see any improvement in the economic outlook or for consumers until we get lower prices at the pump. Hopefully, we will see lower gas prices this Fall. I've read reports of China building up their oil supply because they don't want there to be any shortages while their country is on display during the Olympics. The Olympics don't end until about August, 25th so I don't expect any relief until at least then. Meanwhile, fuel prices have risen so far so fast this year that it has really put a strain on businesses. Many companies have put fuel surcharges in place to offset the higher costs, but this has resulted in slower business. So, I want to sell the stocks in my Jim Cramer portfolio that I think will be hurt by this scenario and look for new stocks that are either unaffected or actually benefit from the current environment.

Warren Buffet Portfolio

Eaton Vance Tax Advantaged Dividend Income Fund (EVT) $23.01 - This closed end fund tends to track the market and it did so this week going lower. The two biggest sectors owned by the fund, energy and financials, are somewhat offsetting each other at the moment, but the remainder of the portfolio has been hurt by the downward direction of the market. The fund yields almost 8% so if it continues much lower, I will have to step in and add to my position.

General Electric (GE) $26.91 - The company will announce second quarter earnings on Friday. I'm expecting a decent report, but nothing that will cause investors to come flooding back into the stock. Lately, the company has been focusing on cutting costs and selling off their slower growth businesses such as their appliances division. I wish the company would change their name from General Electric to "Green Energy" as they are making a real push into green technologies. They are also using their NBC affiliates to push the idea to the general public and it's now somewhat "hip" to be green. GE also announced today that it would byuy "The eather Channel" and the weather.com website. "The Weather Channel" has also started made a push towards green programming. so I can see where this is going. For now, I'm happy to be getting a chance to buy at historically low prices. I'm not sure how long the sale will last, but as the stock goes lower I will add to my position. I will add to my position if the stock trades down to $25.

Coca Cola (KO) $51.48 - Hopefully, the stock is finding a bottom here in the low 50's. It's been drifting lower for several weeks and has been hurt recently by announcements of slowing growth from international bottlers. I believe the weaker dollar will offset the slowing growth and the company will be able to make earnings projections for this quarter. KO has long been seen as a safe haven among stocks when the economy slowed so I think the stock will start to hold up better even if the market continues to weaken.

McDonald's (MCD) $57.19 - The company is benefiting from consumers trading down and the weaker dollar is also helping. They have announced good same store sales growth for each of the first two months in the second quarter, so I expect a good report when second quarter earnings are announced soon.

Altria (MO) $20.12 - The stock suffered this week after a report came out that the government may outlaw sales of menthol cigarettes. I've read that MO doesn't have any exposure in this area, but the stock got hit anyway. Whether the company sells menthol cigarettes or not, I don't think this will hurt earnings because I can't see people switching from menthols to nothing. I want to buy more shares if the stock drops to $19.75.

US Bancorp (USB) $27.67 - The stock has been hurt lately by other banks' woes. To me, this looks bullish for USB. I'm not sure why this best-of-breed regional bank has gotten sold off as much as it has, but it's giving me a chance to add to my position while the stock is yielding over 6%. If the stock falls to $27, I will add to my position.

I will be back later to finish the rest of my report.

Wednesday, July 2nd, 2008 Recap

It was an ugly day in the market with the DOW being down 1.46% to 11,215.51 and the S&P 500 trading down 1.82% to 1261.52. Several of the commodity related stocks were hurt today although the commodities themselves did well. Oil & copper were both up today but the stocks related to those commodities didn't fare as well. This is very confusing to me because commodity stocks should rally when the commodities they sell go higher. Also, the near term news is expected to be bullish for commodities as the ECB is expected to raise interest rates tomorrow. This should weaken the dollar further and provide more support to already strong commodity prices. I don't understand how this could be bearish for these stocks, but it definitely was today. Tomorrow was already setting up to be a bad day in the market, but now I really have to wonder how bad it will be if the stocks that should be rallying can't rally.

News specific to my portfolio:
My portfolio was down 1.8% today so it outperformed the S&P, but not the DOW. That brings my record against the S&P to 2-1 and against the DOW I'm now 6-2. I had two big losers in the portfolio today. US Steel (X) and Bucyrus International (BUCY). The news that I have been getting about the steel sector says that the steel companies have been raising prices like mad and they are still doing good business. The coal companies have been doing well because of short supplies and rising prices as well. I know both of these companies will announce great earnings for the second quarter, but since the stock market is more of a forward looking vehicle, the perception of what the company will do going forward is always more important than what the company has done in the past. A couple of days ago I was talking about X nearing $200. Today it closed just above $153 per share and is down over $43 in the last week. That seems very excessive to me, but the stock may go down more tomorrow. BUCY has not sold off quite as much as X, but it is still way off of its highs. I still believe in the story for both of these stocks, but I've learned over the years not to get in the way when the market tells you that you're wrong. Swift action may be required to avoid losing even more. Hopefully, the market will turn in our favor.

Tuesday, July 1st, 2008 Recap

I've been away for a few days. I was unable to do my usual weekly roundup and I was not able to make a post yesterday. On Friday, my portfolio outperformed the DOW as it was down only .5% compared to a 1% drop for the DOW. On Monday, my portfolio again outperformed the DOW with a .35% gain versus a fractional gain in the DOW. This ran my record against the DOW to 6-0. On Monday, I began tracking my portfolio against the S&P 500 index. I started with a win for a 1-0 record. Today was a different story as my portfolio was down about .1% against gains in both the DOW and the S&P. This makes my record against these indexes 6-1 and 1-1 respectively. There wasn't a lot of news on the day, but the DOW went for a wild ride. By late morning, the DOW had dropped more than 100 points below yesterday's close twice with a trip into positive territory sandwiched in between. At the closing bell, the DOW was up 32 points.

News specific to my portfolio:
Since I haven't made an entry since last Thursday, I wanted to mention that I sold out of Apple (AAPL) and Raytheon (RTN) on Friday. I like both stocks and I will probably regret selling them, but I just felt it was time to get rid of both given the near-term outlook. First, with AAPL I fear that they will not be able to sell as many new iphones as originally predicted. Gas and food prices have continued to rise and I think we will see more food inflation in the coming months as companies start to pass on price increases to the consumer. There are many factors that have been driving the oil market higher and it's uncertain whether this will continue or not. Either way, gas prices are elevated and iot appears they will stay that way even if prices drop. To me, this all says less spending by consumers on things like the iphone. In RTN's case I'm afraid the upside will be limited until after the Presidential election. The current polls are showing Obama leading McCain and this is perceived to be bad for defense spending in general. I continue to believe that RTN can increase earnings by selling to foreign countries, but the U.S. defense budget is by far the largest in the world and this is what is driving the stock price at the moment. Today, Teva Pharmaceuticals (TEVA) was my biggest gainer tacking on 2.6%. However, we'll have to keep an eye on this one tomorrow as after the bell the company announced they had lost a patent dispute against Astrazenica (AZN). Both Bucyrus International (BUCY) and Chesapeake Energy (CHK) were big winners today advancing more than 2%. Tomorrow will be an interesting day for CHK. After the market closed, they announced a joint venture with Plains Exploration. The deal seems pretty sweet for CHK as they sold 20% of the land they have in the Haynesville Shale to Plains for $1.65 billion and also agreed that Plains would pay money to drill wells for CHK. Apparently, other investors agreed with me as the stock traded up to $70.75 in after hours trading. This represented a $3.39 move beyond the closing price. US Steel (X) was the biggest loser on the day dropping over 5%. Apparently, investors were in the mood to sell steel stocks as the whole group suffered. I want to buy more of this stock if it drops below $170 per share. The steel companies have pricing power right now and I think this will be shown in the next quarter's earnings reports. One concern about the steel sector has been increasing input costs. This is where X has a bit of an advantage as they own most if not all of their supply chain. I look for this stock to go above $200 soon and still higher as we move toward the end of the year.