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Invest in Dow Chemical?
Johnson and Johnson?
Boring.
What, Dow chemical pays a 7% dividend?
It's P/E ratio is what? 8?
Are you kidding me?
That's amazing but it's still a boring stock, it never moves very much. Wait a minute. Right now that's not really a bad thing. Besides it has moved quite a bit. Moved down.
Hey I get it now!
It's on sale!
But it's still trending down.
That's right and if there is any hint that it is basing or even breaking that down trend line, I'm jumping in with both feet. In the mean time I am going to be developing a list of blue chips that are deeply discounted.
I have never seen myself as someone who would trade Blue Chips but somewhere in my brain is the thought that I would love to have a portfolio with Blue Chips as core holdings. So if I don't add these positions at a deeply discounted price, when will I have another opportunity like this? Maybe never.
But when should I buy them?
The trick is in knowing when the bottom is in. Since my crystal ball is currently at the shop being repaired from the last time I threw it at the wall, I'm going to be buying with insurance.
Protective puts;
Puts are option contracts that bet on a downward move in a stocks price. Why would you make a bet that a stock that you own is going to drop? The same reason that you buy auto insurance. You are not wishing for an auto accident, but IF it happens, you are covered.
The same applies with protective Puts. If the stock drops, your option contract gains value, thus off setting the loss in stock value.
At that point you can then decide to sell your stock and the option contract, just the option contract or just the stock. you can also sell the option at a profit and buy one dated further out for continued protection. If the stock rises or stays the same your contract will expire worthless and you may or may not decide to buy another(renew your policy).
This is one of the intended purposes of options, it is a strategy that most serious traders employ and it will serve you well when you can't see the bottom through your busted crystal ball.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Monday, October 27, 2008
Saturday, October 25, 2008
Re-evaluate
It looks like it is decision time again.
For the silver;
Silver is still taking it on the chin, on paper. Physical silver, however is traded at a premium that has never before been seen. The spot price is quoted around 9-10 bucks. If you wanted to buy physical bullion, you would be paying as much as 50% over that price for most forms, ie. Silver Eagles, 100 oz bars, 10oz bars and even 90% halves, quarters and dimes. That is, if you can find any.
Physical silver is near sold out levels everywhere throughout the world, with the exception of 1000 oz bars and jewelry items. There is some supply of Eagles and Maples, intermittently, but they don't stay on the shelves very long. Indeed one of the scenarios that I subscribe to is that once the shortage gets serious enough, people will resort to purchasing the 1000oz bars because that is all that is left. And it looks as if this is happening.
Once that comes to pass, there is the fear that the COMEX could default. It is a fact that there is a significant gap between the physical(1000oz COMEX deliverable bars) silver that is actually in the COMEX warehouses, and the amount of silver paper contracts that are traded on the futures markets.
What this means is that, when the industrial users buy silver, this is often the form and method they choose to obtain it. 1000oz bars are big, ugly and unwieldy and in order to sell them the average investor would have to have them assayed. In other words they are not as liquid as the easily recognized and universally accepted Silver Eagles. So, they are naturally the last choice for most investors. But when you can't get what you want, you'll get what you can. Once investors take the supply away from the industrial users, look out ABOVE, the price will soar because the quantities used by industry is so small per unit, that they will buy silver at any price.
At least that's the theory, but I believe it has merit
I still believe that silver will rally and break out to new highs. I think this will happen soon but there is no way I can know for sure. The price activity has shocked every expert that I have researched and everyone including myself is scratching their heads. With the whole financial world turned on it's head, The US printing money like never before, the physical demand sky rocketing, the cost of production exceeding the spot price and the worst supply shortage ever seen, the prices should be going through the roof. Go figure.
But my recommendation is to hang on and enjoy having the insurance against the worst case scenario. And if you have the stomach for it, Buy more.
SLV, because it follows the spot price, is by far the cheapest and easiest way to own silver. And since we are exploring theories lets look at one that I don't necessarily subscribe to. This one goes as follows.
There is the fear that unless you hold it in your hand, "you aint' got no silver"
Why is this view so widely accepted? Because it is pretty much the truth.
If the proverbial crap hits the oscillating wind generator, how will you get your money? if you can, will your money be worth anything?
I don't know the answer, but the real question is, do you think things will get "that bad"?
While I believe that the price of Silver will explode I don't think that the end of the world as we know it, will have to be part of that scenario. My speculation is purely fundamentally driven and I have faith that this country can and will deal with any problems that we are faced with.
Has our government done the right things up to this point?
Not even remotely, in fact I believe that the Government is what caused the mess that we are in. And I mean all the Government! Both parties, both houses and the administrations past and present. I also believe that things will have to get worse before they get better, but they will eventually get better.
Here is a major key to investing and it is crucial to your financial success; Don't be Dogmatic, don't listen to hype. Develop reasons behind your investment decisions and stick with them but stay flexible.
I learned that statement years ago and I regret that I can't remember who to credit it to, but I have lamented that I have forgotten it at certain times in my investing career.
Next time; new strategies.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
For the silver;
Silver is still taking it on the chin, on paper. Physical silver, however is traded at a premium that has never before been seen. The spot price is quoted around 9-10 bucks. If you wanted to buy physical bullion, you would be paying as much as 50% over that price for most forms, ie. Silver Eagles, 100 oz bars, 10oz bars and even 90% halves, quarters and dimes. That is, if you can find any.
Physical silver is near sold out levels everywhere throughout the world, with the exception of 1000 oz bars and jewelry items. There is some supply of Eagles and Maples, intermittently, but they don't stay on the shelves very long. Indeed one of the scenarios that I subscribe to is that once the shortage gets serious enough, people will resort to purchasing the 1000oz bars because that is all that is left. And it looks as if this is happening.
Once that comes to pass, there is the fear that the COMEX could default. It is a fact that there is a significant gap between the physical(1000oz COMEX deliverable bars) silver that is actually in the COMEX warehouses, and the amount of silver paper contracts that are traded on the futures markets.
What this means is that, when the industrial users buy silver, this is often the form and method they choose to obtain it. 1000oz bars are big, ugly and unwieldy and in order to sell them the average investor would have to have them assayed. In other words they are not as liquid as the easily recognized and universally accepted Silver Eagles. So, they are naturally the last choice for most investors. But when you can't get what you want, you'll get what you can. Once investors take the supply away from the industrial users, look out ABOVE, the price will soar because the quantities used by industry is so small per unit, that they will buy silver at any price.
At least that's the theory, but I believe it has merit
I still believe that silver will rally and break out to new highs. I think this will happen soon but there is no way I can know for sure. The price activity has shocked every expert that I have researched and everyone including myself is scratching their heads. With the whole financial world turned on it's head, The US printing money like never before, the physical demand sky rocketing, the cost of production exceeding the spot price and the worst supply shortage ever seen, the prices should be going through the roof. Go figure.
But my recommendation is to hang on and enjoy having the insurance against the worst case scenario. And if you have the stomach for it, Buy more.
SLV, because it follows the spot price, is by far the cheapest and easiest way to own silver. And since we are exploring theories lets look at one that I don't necessarily subscribe to. This one goes as follows.
There is the fear that unless you hold it in your hand, "you aint' got no silver"
Why is this view so widely accepted? Because it is pretty much the truth.
If the proverbial crap hits the oscillating wind generator, how will you get your money? if you can, will your money be worth anything?
I don't know the answer, but the real question is, do you think things will get "that bad"?
While I believe that the price of Silver will explode I don't think that the end of the world as we know it, will have to be part of that scenario. My speculation is purely fundamentally driven and I have faith that this country can and will deal with any problems that we are faced with.
Has our government done the right things up to this point?
Not even remotely, in fact I believe that the Government is what caused the mess that we are in. And I mean all the Government! Both parties, both houses and the administrations past and present. I also believe that things will have to get worse before they get better, but they will eventually get better.
Here is a major key to investing and it is crucial to your financial success; Don't be Dogmatic, don't listen to hype. Develop reasons behind your investment decisions and stick with them but stay flexible.
I learned that statement years ago and I regret that I can't remember who to credit it to, but I have lamented that I have forgotten it at certain times in my investing career.
Next time; new strategies.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
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