Money on the sidelines (ETF version)

A co-worker of mine was telling me that he still has his 401k contributions (new money) going into cash. The comment was that he did not know when to jump back in. He also felt like he missed out big time on the run up, and was there going to be a correction...

Obviously it would be nice to have a crystal ball to be able to answer those questions.

When your dealing with a retirement account (IRA, 401k, etc...) the most important thing to focus on is the duration you will be holding for. In my case that is quite a while longer. So do I care if the fund went down 5% from my buy price (yes, but fundamentally no). If I bought in at a price that was a historically good price then I'll deal with the short term 5% decline. If the market as a whole goes even lower, then I'll be tempted to buy more. If nothing has changed in the fund, and its a total market/economy issue, then why get out if your in for the long haul?

Some examples / picks in the ETF area:
As recently as yesterday I have been buying ETF's... The market is up, and many of my picks as you'll see below have had great runs. From a historical perspective, I think they are still cheap even after their runs.

IXC - Global Energy Sector
I firmly believe that the energy sector will roar back to where it was before the recession. I do not think that was a bubble. I'm not saying oil prices will go back to $120, or even $100 for that matter. But the need for energy was not a bubble. IXC's top holdings are ExxonMobile, BP, Chevron, Total, Shell, Schlumberger, and ConocoPhillips. BP, Shell, and Total (all European oil companies) pay very high dividend yeilds. I already own BP & Shell stock. Schlumberger is the undisputed leader in oil field services. ConocoPhillips was one of the first integrated oil co's to make huge plays on Nat-Gas. All this adds up to a very solid blend of Energy companies that are poised to profit from a global recovery, and the continued growth in global demand for energy. IXC is +16% YTD, -9% 1yr, and off its peak in mid-2008 by nearly 50%. To some degree the price of oil factors in to all the stocks that make up this fund. While I'm not thinking oil prices will climb that quickly, Nat-Gas is oversold. Also drilling continues for all these companies, most of whom operate on a $40-$50 per barrel break even (Oil has stayed above $70 for the most part).

VNQ - Vanguard REIT
I'll be the first to admit, this is a bit of a long-shot. I would keep this play at no more than 10% of total portfolio. If you look at a chart dating back to Oct2004, almost 5yrs ago when this ETF started, you'll find a -19% return (excluding distributions). This makes its 13% YTD run-up look less impressive. Also keep in mind the S&P has done better YTD (+17%). Look back at 2007/2008 and you'll see a healthy distribution (north of 3%) and a fund that traded as high as $85.50 in the bubble years. Lets ignore the bubble years and look at the $50-$60 growth '04-'05, then the bubble sets in and you go from $60-$85 in a matter of 6-months. My hope is that this fund gets back to the $50 range and caries out its +3% distribution. I will allow 2yrs for this to happen.

MOO - Agribusiness
Sticking with my "not a bubble" theme used in IXC... I do not think the global rise in food prices was a bubble. The recession has obviously helped ease some of that demand, but I believe its still there in the long run. MOO has had a 38% run YTD. I do expect there could be a pullback, and if there is I will add to my position to lower my cost basis. Even on a 1yr chart you see 4% growth. If you pull back to mid-2008 you can see it was sitting at ~$62. This makes today's $39 look pretty good. Top holdings include Monsanto & Potash, the two main players in the fertilizer market. Also Equipment makers Deere & Komatsu, who should see a boost early in the recovery as farms look to expand and add capacity.

GDX - Gold Miners
If your looking for a dollar hedge "Why not GLD?" you might ask. Ignoring the fundamental flaw with GLD (how could they possibly store that much gold if they really had it), I think its smarter to own the companies who pull the gold out of the ground. As the price of Gold goes up, so do their profits. This ETF is up +30% YTD (well ahead of the market), so why on earth would I buy this now? Well if you go back to the beginning of 2008 when gold was booming, you'll find that its 17% lower today. If you believe that gold will set new highs, then you should be able to get all 17% of that and then some. Gold is a classic hedge, and I would not consider more than 5% - 10% of a portfolio to be in gold.

Dynegy (DYN)

So why would I really want a blog...
Some of my good friends have seen my feeble attempts at trying to have message boards, and web-forums to get investing ideas out. This was great in theory, because we could all share research... What it ended up being was me posting my research... If that's what happens, I may as well blog.

First Stock Market Blog:

Last week on Friday we noticed an unusually large premium on Jan calls for DYN. I noticed this because I already own shares of Dynegy, and I have already sold (covered) calls for Jan.

When I sold my Jan@2.5 DYN calls they were going for .20/.25 (which is about a 10% premium. Thus my attraction to the stock, very nice premium. On Friday, it was noteworthy that at some point in the day (without any real movement in the stock price) those very same options jumped to .50/.55 (a +20% premium).

Given that only the options had this huge jump, and the stock stayed flat, one can only assume buyout rumors... People were not willing to gamble large amounts of money to buy the stock, but were more than willing to buy a few options (the right to buy 100 shares per option). Taking a bet that the $2.50 strike price would be far exceeded buy the buyout offer.

Naturally I bought more (since the stock price was basically unchanged) and cashed in on the new +20% premium.

First Blog

I have never blogged before, but recently several events have peaked my interest in blogging.
1) I notice that a lot more relevant information is showing up in blogs.
2) The speed by which a blog can get information out is outstandingly fast.
3) I like the idea of being able to "brain dump" my thoughts out to all my friends.

We'll see how well this one goes... Initially I was fairly active on MySpace when it was new, but over the past 2 years, not so much.... I have tired to keep up with facebook, and think its a decent tool. Twitter makes no sense to me... Thus we are left with blogs....