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Thursday, July 15, 2004
Good evening friends,
Market Recap
There is absolutely no excitement in the markets these days. Good earnings are coming out daily yet the market goes nowhere. Today was no exception as the indices traded flat for most of the day. In the last hour, the Dow suddenly sold off, losing 45 points, closing at its LOD and more importantly, below its 200 SMA. The Dow has moved from being above both of its 50/200 SMA to being below both SMAs in just two trading days. The Dow is getting close to a possible crossover. If the 200 SMA crosses above the 50, it will be very negative going forward, and it will be in the same position the NASDAQ is in now.
The NASDAQ had absolutely no movement to speak of, losing 2 points with a range of only 15 points. The SOX lost another 2 points today as well. The SOX and the NASDAQ are moving together.
Energy at All Time Highs
Late last year I had predicted that energy stocks would be one of the places to be invested in 2004 for steady gains. I was correct on the sector, but wrong on two of the stocks I picked. I picked HEC and IVAN to run up big in 2004. They did run up a lot in the short term which we made good trading profits from, but I have to admit they are not good investments. Energy stocks move too slowly for a trader like me, but as it turns out, an investor would have made a killing in this sector this year had they loaded up when I made that prediction. I wish I had over weighted in the sector myself. In this flat market, slow steady gains are looking good. We have a few small cap energy stocks on our list like MSSN, PQUE, RRC, and RRI. The charts of these stocks this year show how they have been steady climbers. Also, the energy index is at an all time high tonight (see charts).
Let's Talk Long Term
I discussed in yesterday's commentary that Intel is one of the top 15 stocks to own and pass on to your children/grandchildren. I also said that I would to put together a list of stocks that I felt were great companies to hold as investments for many years. In my opinion, these stocks are the trendsetters, innovators, and leaders in their respective fields. They are the heart and soul of their industry. This commentary is coming up Sunday night.
I would like to present a portfolio of 15 stocks that have what appears to be the potential to be the next Intel, Microsoft, or IBM. Unfortunately, I do not have psychic powers. In essence, our long term portfolio on the website is attempting to do this, but please realize that the next MSFT will probably not be found until it is already the next MSFT.
In other words, those power houses do not start off as power houses so we will not know how good they really are until well into the stocks advance. TPPP may be the next MSFT for all we know, but will we still own it 10 years from now if it is? I do not think you will find too many original investors in the MSFT IPO that still own the stock. They probably sold years too early and did not realize its true potential until after the stock soared. I am sure even if they did hold for a while, they did not make anywhere near what they could have if they had just held until the year 2000.
Predicting the future is not easy; there is just no way to know until the company evolves. The stocks in our long term portfolio on the website will mostly likely not be the next tech bellwethers. It would be nice to be positive they will be, but that cannot be predicted. However, I do feel there is enough potential for long term gains to warrant their inclusion in the long portfolio.
The Gift to Pass On
Stocks make perfect gifts for future generations. It is a great way to teach children about the value of investing and economics. If you buy the right stocks, it should pay off generously over time. If you pass on these stocks as an inheritance, the cost basis is based on the stock price at the time you transfer it to them. For example, if you set aside 100 shares of Intel today, the value of that investment would be about $2,350. If the value of those shares grows over the next 20 years into $25,000 or more, that is the cost basis that would be transferred as an inheritance. The person receiving the inheritance would only pay taxes on money over and above the cost basis of the shares. That's a gift of $25,000 with an investment of about 10% of that value. This only works if you pass it on as an inheritance. If you set up a trust or some other financial vehicle, there are tax consequences and the cost basis would be the same as the day you invest. (This is something you need to check with a qualified tax advisor on. Please note: I am not a tax expert. If you buy a stock as a trustee for someone, check with a qualified tax advisor to ensure everything is handled correctly.)
The stocks that I will list in Sunday's commentary will not be part of the TWPD long term portfolio. They are stocks that are the bellwethers of their respective industries, many of these names will be familiar. Sure, they have been growing for years and most of the growth has already happened. Are they still growing? You bet they are, just not at the rapid pace they once had. Many have seen gains since their inception that are in excess of 1,000%, 10,000%, 50,000% or more. Obviously they can not grow at that pace anymore, but that is not the point here. These are companies that perform year after year. They grow, they continue to produce quality returns, and the stocks continue to move upwards as the market moves up.
When the market goes down, it is a different story. Sunday's commentary will include why there are times you should be out of the market all together. These stocks may not turn in a 10,000% gain in the next 15 years but they will present a solid return over 20 to 30 years from now. That is what we should be looking for when investing for an inheritance.
Remember, you are investing in for the future in these stocks. That means not checking the stock on a daily, weekly, or even monthly basis. If you are looking at the stocks daily, you may as well set up a brokerage account and trade your inheritance. That is what you are essentially doing if you look at these stocks on a frequent basis. These are stocks for your IRA's and 401K's or other accounts totally separate from your trading accounts. The key point is that this is money earmarked as an inheritance. This is money that you have extra over and above anything you need to spend to enjoy life. These stocks deserve a look once a year, maybe twice, but any more than that is not serving your purpose. These 15 stocks are for an inheritance to your children, grandchildren, etc.
Investing vs. Trading
I am trader, not an investor. That is, I do not buy and hold stocks. However, some investors would like to invest some of their money, and it is a good plan if you have money set aside for your long term investment goals. Please understand the difference between trading and investing and the needs for separate accounts.
I will have the list for you Sunday along with a story of some people very close to me who have invested long term and have suffered through the last three years. I am not a big fan of this type of investing and you will understand why when you read Sunday's commentary.
OTC BB Watch List
- VTSI
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