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Sunday, November 22, 2009

The Stock Market -- November 14, 2009

I spend a considerable amount of my time studying the stock market. I read several financial magazines and newspapers, including The Wall Street Journal and Smart Money. I also read numerous annual and quarterly reports of various companies and mutual funds. As I write this journal entry, I have almost 10 corporate reports to read. Furthermore, I collect enormous data on hundreds of stocks, and key economic reports. I compare this information to evaluate individual corporations, and attempt to predict their future performance.

My obsession with the stock market did not come overnight, but was probably sparked while taking a business course at Joliet Correctional Center. I took several economic and business classes, and in one of these, our professor from Lewis University gave us basic lessons on how to understand economic data, how financial markets work, and how to buy and sell stocks. I was very intrigued with the subject, and drilled the teacher with numerous questions. I also read a number of books on my own, other than our textbook. Although the teacher had intended for this to be only an introductory course, I would not allow this to happen, and by the end of the course, the teacher was allowing me to give lectures to the class, and debate him on different issues.

My first lecture was on the different fiscal policies of Bill Clinton, Herbert Walker Bush, and Ross Perot, whose policy I supported the most. The second lecture was about free trade and economic mercantilism. I concluded that I saw free trade as a destructive policy that will lead to America's fall as an economic superpower, and spoke of the superiority of economic nationalism and protectionism. My professor did not agree with my views, and in the last lecture, we debated investment strategies. My professor had made a lot of money in technology stocks, and told the class that people should invest heavily in the stock market, particularly in Cisco Systems. Contrarily, I told the class the market was enormously overvalued, and to buy bonds, CDs, and gold. The market continued to soar in 1999 with Cisco Systems posting new and newer highs. While my professor may have gloated that year, he was certainly not so smug when the Internet bubble burst in 2000. By then, however, the college program was terminated, and I was transferred to Stateville, never to see the professor again.

In 2001, New York city's Twin Towers were crudely plowed into by hijacked airplanes. Instead of sending in special Ops to destroy the small group of Al Qaida, our president declared war on Afghanistan and soon thereafter, U.S. troops were invading Iraq. I knew this was a perfect time to invest in oil, and other related energy companies. The prices were still low from the 2000 stock market crash, and instability in the Middle East would lead to higher prices. Demand from not only the military, but the world, was growing for natural resources. Not having any money, I told family members to buy stocks in these areas. No one would listen to me. I told my mother just to buy one mutual fund for me: Vanguard Energy. No, she would not oblige me. From that time to the 2007 October highs, my parents could have increased their investment almost 500%. My parents would not dismiss my investment advice again.

As the market peaked in 2007, and I could foresee the cliff approaching, I told my family to move out of U.S. stocks and funds. I advised a move into cash, gold, and foreign markets. Some of my family took my advice, but not as much as I would have liked. Furthermore, instead of buying real gold, they bought gold mutual funds which went down with the market. I did not foresee European markets, Canada, or Australia doing as poorly, but apparently we are all connected now, and the NYSE brought the world markets down with it.

At this juncture is when I began to obsessively read about, and analyze, stocks. For hours every day, and continuing for weeks, and then months, I would spend studying and making charts. It is an incredibly tedious and time consuming process when you do not have ready access to information at a touch of a button on a computer, and must go through a huge pile of newspapers until your fingers turn black from the ink. It is also extremely time consuming to make my "homemade" charts that compare various information, and are color coded, using dull colored pencils that I must sharpen with a nail clipper. (Pencil sharpeners are not allowed in maximum security prisons.)

Inmates and guards alike find my preoccupation unusual. I sit at a steel desk next to the bars for hours every day. Several lieutenants have come over to me and inquired about my interest. A couple have even asked me for investment advice. It is odd that some people have stock investments, but know very little about the companies or funds they own. They also do not have much knowledge about economic principles. The inmates are much worse, and are completely ignorant of the subject. A past cellmate of mine asked me to explain a little, but the most basic information would be lost on him. Not that I want to, but I catch the interest of a number of prisoners, at least briefly. Criminals are excited about the prospects of making quick and easy money. However, it requires work, study, and, of course, capital, and a person outside the prison--all things that most prisoners do not want to do, cannot do, or do not have.

I do not have any capital myself. All the money and belongings I had before my arrest have been given to my parents or to relatives. My father continues to say that I am in deep debt to him for legal fees, and even if he was not serious, the victim's mother was awarded a $5 million dollar judgement against me. In most states, you can demand a civil trial for a wrongful death lawsuit, but in Illinois, if you are found guilty criminally, even under the accountability law, you are automatically found guilty civilly. Thus, I do not profit from the stock market. All the work I do is only to advise the members of my family and relatives. I am motivated solely to help them, and make my empty life have some purpose and productivity.

Each time the Dow Jones has fallen from its high of 14,000, I have advised my family to buy more and more stock and mutual funds. The market fell more than I had anticipated, and unfortunately, a lot of stocks were purchased at 12,000, 10,000, and 8,000, before reaching the true bottom of 6,500. At 6,500, I was the most adamant about buying, but by then, people were looking at me like the boy who cried wolf too many times. Very little stock was consequently bought at the bottom. In my defense, I cannot predict the bottom, and I don't think many can. I can only give reasonable advice to investors. The best rule of thumb is to buy low and sell high.

Every quarter, I go into an obsessive mode as quarterly reports are released by the government and by corporations. For the last week, I have been doing very little but trying to absorb every tidbit of information, chart it, and make sense of it. The prison went on lockdown earlier in the week due to an incident in the Round House, and this has given me the opportunity to sit at my desk for hours with only having the maddening loud noises of the cell house, and my cellmate for distractions. And my cellmate was nice enough to put me on "no talk" for part of Thursday and Friday. He was mad at me for putting his things away and organizing his property box. Usually, I am indifferent to his sloppy, disordered box, but when I went to put his property away, I could not stop myself from dumping the contents of the entire box on the floor, and refilling it in an orderly fashion. We had an argument where he called me a "bug" and a "cell dictator." I will not deny it. I am probably a little of both. I am terribly bothered by clutter, lack of space, and disorganization. In any event, he is talking to me again, and with much pent-up socialization, I knew he could not last giving me the silent treatment.

Tomorrow, I will send out my Top 50 List to my family. After all my analysis, I make a chart listing my favorite stocks, numbering them from 1 to 50. The charts are based off of much data, including earnings per share growth, sales growth, price to earnings, dividends, debt levels, cash reserves, and future outlook. The list of 50 comes from over 1,000 stocks that I have individually looked at, although only briefly for companies with terrible numbers. It is this list that I encourage my family to invest in, but because of my belief that the market is now overvalued in respect to fundamentals, I do not advise buying much, or to place sell orders with the purchases.

"Be greedy when others are fearful, and be fearful when others are greedy" -- Warren Buffet. He has not been investing too wisely of late, but I still agree with these sentiments. The Dow Jones has quickly bounced off of March lows, and on Friday was just under 10,300 points. This "V" shaped recovery is not sound, and is based off of government stimulus, near zero interest rates, the flooding of the market with dollars, and business cost cutting. When the government is forced to turn off the spigots, cut spending, raise interest rates, and under an Obama administration, raise taxes, the market will stall and reverse. Again, I cannot predict the timing with certainty, but have told my family they should consider selling before the DOW reaches 11,000.

In this market, my favorite sectors are gold, energy, natural resources, and foreign countries such as Canada, Australia, Europe, and emerging markets in East Europe. These countries will fair better in the long run because they have not spent themselves into oblivion. East Europe relies on financing from the West, and will fall with the U.S., but until then, will perform four times as well. I refuse to encourage investment in China for policial reasons, and Latin America due to its socialist tendencies, corruption, poor work ethic, lack of education, and poor infrastructure. With the dollar falling like a rock, gold is a no brainer, and hungry emerging markets will increase demand for natural resources far into the future. A random mix of stocks from my Top 50 are: Quicksilver Gas, Joy Global, Diamond Offshore, BHP Billiton, Ebix, IBM, Astra Zeneca, and Consol Energy.

I am dismayed by Obama's willingness, albeit eagerness, to pass on enormous debt to future taxpayers. I disagree strongly with his socialist ideology as well. I wonder what the standard of living will be if I am ever released. I also wonder about America's superpower status, and the decline of values. If I am released 20 years from now, what country will America have become?

2 comments:

  1. I know this post is from 2009 but felt like posting anyway in case he receives responses through his Editor. I find you to be pretty astute here. You made the same mistake I did by calling the top too soon. And here you mention DOW 11000 as being a high yet today (12-3-2012) we're at 14000. Irrational Exuberance seems to have been built into our system somehow. I am over 60% cash and a big chunk of a bond fund. I think you do have a talent here, though must qualify I'm not a pro. So anyway I thought I'd pass 2 of my favorites off to you in case you're interested. MRO is my oil play. Small with little coverage. Under the radar. And the other is my true discovery ACAS (American Capital). ACAS is in complete turn around from a near bankruptcy. I think the in depth analysis you'd have to do here would please you. You have to go back to the Lehman meltdown and research the heck out of it. They were paying their bills handily with decent free cash flow but breached their covenants and the big banks tried to take them down. They played chicken with the big banks and the big banks lost. You'll enjoy the whole story I'd think.

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    1. I did receive your comment--thank you. Predicting the stock market when the Federal Reserve and government continue to intervene is difficult. In 2009, I never thought these forces would spend money so recklessly to prop up the economy. Fortunately, I realized the madness to their policies and while my family sold off some investments, they bought others. I am aware of Marathon Oil and American Capital. However, they are not companies I would buy shares in.
      In the energy sector, I currently like PAA Natural Gas Storage (PNG), Sunoco Logistics (SXL), El Paso Pipeline (EPB) and MV Oil Trust (MVO) which has dropped into the low 20's making it a great bargain. In lieu of American Capital, I would advise you to look into the financial companies Triangle, Main Street and Prospect Capital (TCAP) (MAIN) (PSEC). These companies have better business prospects and offer high dividend yields.

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