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Sunday, July 18, 2004
Good evening Friends,
Market Recap
The market looks more bearish each day, and Friday's close was more bad news in this already sluggish market. The S&P 500 closed Friday below its 200 SMA. This was the last of the three big indices to do so. The NASDAQ and Dow had already closed below their respective 200 SMAs, and all three of these indices closed at their lows of the day Friday.
This makes it very tough to be long this market my friends. Our short watch list is growing, and it seems the only way to make money is to be short. The one bright spot are energy stocks; energy is the market leader right now and will do well for you if you own some. Technology is lagging, and it is pulling the rest of the market down with it.
There are only a few selective stocks that I would be long in right now. I know many of you want to hear me say “load up on long positions”, but we cannot do that in this market. It is a losing proposition at this point and financial suicide if we do. There will be a time when we will load up and ride the bull forward, but believe me, now is not the time. The short side is the way to play the market now until the trend changes.
Support to Watch
1865 is now the critical support for the NASDAQ. The market is deeply over sold and the Bulls need to step up and start buying next week. Otherwise, the nice Bull run since Oct 2002 will be over. It will prove that the great bear market is still alive, and this was a mini bull within a greater bear. I would like to remain optimistic, but I will have no choice but to join the bear camp if the buying does not start soon. For the last six months cash has been king, but let's face it, we cannot make money if we stay in cash. I am shifting from “Cash is King” to “Trade Smart”.
Earnings
Earnings reports have been coming in fast, and next week we have some big results that could affect the markets:
Tuesday - EMC, MCHP, MOT, SUNW and TASR
Wednesday - EBAY and QCOM
Thursday - AMZN, BRCM and MSFT
This is just a partial list, there are many more companies reporting. Know when your companies are releasing earnings. I would not want to be holding stocks just before earnings announcements in this market, especially with what has taken place recently.
How Long is Long?
I have received many emails asking my opinion on the performance of certain stocks over the long term. These emails are for the most part from newer subscribers. Although we do have a long term portfolio, in general, I do not recommend stocks for the long term. Our long term portfolio is based on one or two years maximum hold time, and the goal of the portfolio is 1000% in a two year time frame. This is not easy to do, but that is our goal and we will try and meet or exceed that goal. Long term may mean longer than this two year time frame for some, in fact, most people's idea of long term is much longer than mine, for some it is 30 years.
TWPD is a short term swing trading service and I do not make it a habit of recommending stocks for the long term. But since there seems to be a demand for this information, I have listed some companies that I would invest in if I were to put my money away for 30 years.
Mamas: Let Your Babies Grow Up To Be Stock Traders
This brings up a story I would like to share with you. I consider myself a professional trader, because I make my living trading stocks. I have told my mother many times that I could make her much more money than she is making now with her conservative buy and hold approach. Still, she will not let me trade for her. I love her to death, but her head is about as hard as my coffee table. She is set in her ways and will not change (you know how moms are).
Nevertheless, in 1998 she told me to just put her in some stocks that she can buy and hold forever. I sat down, did some research, and came up with a list of companies for her. After reviewing my list with her broker she told her broker to purchase all of the stocks for her. She owns a few like IBM, COMS, and GE that I recommended at that time but would not recommend now. I also recommended WCOM to her (I got sent to my room for a month for that one). Oops, who knew they would go bankrupt? I also recommended CPN, DYN, WBR, and EP in the energy sector back then but I would not recommend them now either. These stocks have been big flops in her portfolio. Other technology companies I recommended to her that she bought were AOL, SUNW, EMC, and NT. I am not recommending them at this point either. All of the stocks were great picks in my opinion at the time I recommended them, but that was six years ago. Things can change in six years and did they ever.
From 27 to 15
I have revised the list I had originally picked for her and kicked out the 12 stocks listed above. What are left are the best 15 companies I could find from the original recommendations. I would recommend all of her stocks to you with the exception of the stocks mentioned above (which by the way, she still holds all of them with the exception of WCOM and AOL). Other than these mentioned above, she has some very good companies and I have listed them for you tonight.
Buyer Beware
Now for the bad news. As I mentioned, my mother's investment style is to buy and hold, she never sells a stock. This means that she has held through the three year bear market. She made a ton of money in the first two years, and I looked like a genius to her. However, when the market started to go down, I began shorting stocks. I told her to sell her stocks, but she said, “I asked my broker about selling and he said not to. He said that market will always come back”. He was right, the market does always come back, but how many years will it take?
As you may have guessed, she lost most of her gains during the three year bear market. She is still ahead over all, even holding some of the dogs listed above, because she is lucky enough to hold some phenomenal stocks from 1998 to 2000. Her gains are still decent but not as much as you would think after six years of holding stocks.
After the bear market, I went from genius to goat in a course of three years. I am the goat for the dog picks, but to me, the real goat is her broker who kept her in the stocks. She can not grasp the concept of trading stocks. According to her, “Stocks are meant to be held.” I have made over 1000% trading stocks both long and short using my trading systems over the same time frame that she has held her stocks. Her gains pale in comparison. This is just an example why I do not like “buy and hold forever” investing. Markets have cycles of Bull and Bear, so why hold through the bear cycle? To me, it does not make any sense.
My Brother and GT
The example of my mother's situation is just one example in a million out there of buy and hold investors that are just treading water over the last six years. Another example is my brother's GT stock. He has worked for the company over 20 years and has his whole retirement in GT. After the Enron scandal, you would think some would learn not to do this. Check the chart of GT over the last ten years and you will see what shape his retirement account is in. He does not have to tell me, I know by looking at the chart.
My mother worked for Sears for her whole life, starting in her 20's and retiring in 1998. Her whole life savings was in Sears's stock. Luckily for her, Sears was near its all time highs of $60.00 per share when she retired and cashed out. If she had waited another two years, she would have lost over half her retirement, because Sears dropped to $25.00 by the year 2000. I could tell you of many more examples of people I know who lost a lot of money holding their stocks but there are too many to list here tonight.
The “Mother” of All Portfolios
I keep trying to drive home the point that many short quick gains will far out pace holding stocks forever. Nevertheless, if I have a change of heart and I want to buy some stocks that I will hold for many years, I would buy the companies I have listed below.
This list of 15 stocks is a diversified list of solid companies that will be around long after our life time. This list is similar to buying a diversified mutual fund, so expect to get about the same conservative return as buying a mutual fund.
All my mother wanted was a core list of solid companies. She is satisfied with a solid 8% return a year on average compounded. That is about the estimated return with this group of stocks. I offer it to you tonight for your long term portfolio if you are the buy and hold type investor. I believe these companies are good enough to recommend for my mother. Please remember that charts have NOT been considered as part of the criteria for entry.
The List
The list is sorted by industry and also by precedence. I wanted her portfolio to be diversified so I selected what I thought were the best companies she could buy within each sector. Keep in mind I am a big technology fan so I will always be a little over weight in technology. If you find you do not have enough money to purchase all the stocks, you can prioritize and accumulate as you acquire additional funds. The # 1 and very best company in the world in my opinion is MSFT. If I only had enough money to buy one stock and hold it for life, this would be my # 1 choice.
The List (by Industry)
Technology
- MSFT (software)
- INTC (semi conductors)
- CSCO (networking)
- ORCL (software)
- QCOM (telecom)
Retail
- WMT
Transportation
- FDX
Financial
- C
- AXP
Defense
- BA
- GD
Healthcare
- PFE
- MRK
Biotech
- AMGN
Consumer goods
- PG
The List (by Precedence)
1. MSFT
2. WMT
3. C
4. INTC
5. CSCO
6. BA
7. QCOM
8. ORCL
9. PFE
10. AMGN
11. GD
12. PG
13. FDX
14. MRK
15. AXP
OTC BB stocks
- RIMI
If you are a racing fan here are a couple of stocks moving up in this flat market:
- ISCA
- DAR
Please tell a friend about our service. We would like to become a referral service only, and with your help, we can be. As always, thank-you for your support past, present and future! Have a great night everyone; we will see you tomorrow evening.
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