musings

I have dumped PNSN after a nice gain. I almost and should have deployed that capital into San gold resources, which i told a friend i would buy below $1.5 if the opportunity rose. Well i am a liar. I watched it touch $1.35 and did nothing. Now its $1.6 ish.

I have also added Aldila to my watch list. It is a unique company which i have used their products and like. I stumbled upon it using some new screens available on google finance. Has good cash flow and a pretty balance sheet. Company has a product with some moatish properties, but this US economy could hurt earnings.

CLCT is almost break even for me after my average down and latest dividend payment. CGS and BVF not so lucky.

As the market volatility continues so does my lack of buying options. Too much volatility premiums for me... but not enough for me to write covered calls and justify the risk involved. While i pondered it with PNSN i am still toying with the idea of writing calls on bvf. I wonder how long they will pay the dividend with their new strategy of growth? I suspect '08 will be the last full year they payout nice dividends if any? Dividend policy is too big a cash burn.

A friend is buying MGM and LEH. While i continue to look for balance sheets and business's i can grasp he continues to speculate. He has more money available to lose than i (he has no mortgage, wife or kids). We both owned shares of CGS (last we talked a few weeks ago) which is my spec asset play.

Some article i read said Canadian western bank was the best of Canadian banks to own now. I don't agree and seeing house price's slide in Alberta adds to my pessimism. Now that i have recently bought a newer house and dramatically increased my mortgage i take notice of these headlines more.

While i have no illusions that my house can't fall in price i was heading into this purchase half expecting it. I was already in the housing market so i was destined to lose anyways. I am not planning to flip and i have 50% equity, at current levels, in my house. Amortized at 15 years its comfortable, but i still dislike debt all the same. I wish my wife had this same disdain for debt?

One last company i am looking at is liquidation world. Its very thinly traded and in a sector which stands to suffer if downturn gets worse. But another value investor i follow, see CKI-T, bought and seems to like the story? I continue to watch with interest.

Seth Klarman is another investor i have been reading about. Interesting stuff.

I have done less market watching than normal since my daughter was born last week and likely will continue this trend for a few more months.

markets

Well its been a rough month in the markets thus far. I watched many banks melt and then come back some after falling. BAC, BMO, and WFC were the ones i watched closest.

If i had a few more dollars to spare i may of bought calls on some last week, but it is now too late. I have some spare cash, but that should be put to work shortly by my wife and her furniture shopping for our new house.

What little cash i did have i used to average down on t.CGS and N.CLCT ($2.50 and $7.50 respectively) which was prematurely early as both fell further.

I had to laugh when Citi group 'beat expectations' by only losing 2.5 BILLION! this quarter. Wow how many businesses can say we had a good quarter cause we only lost a couple billion?

I am contemplating on selling out some of BVF if it gets up over $12. I could also write covered calls on the remaining shares. I fear that after the next vote for the new board it will still be the old board. The market is telling us this isn't good because last vote shares fell after it was announced who won.

I personally like Eugene's board better than the current slave proposed. Seems to have less risk in the new alternative.

Two other companies have come to my attention from reading the many blogs, articles and sedar/edgar reports. WLP-N seems to be popular with the larger Value guys (Buffett, Klarman). UNH-N is in the same sector and equally beatin up.

Refiners VLO-N and SUN-N have fallin 50% in a short period and oil is now dropping. Refiners can't lose money for too long. Eventually prices will catch up and these might be good picks.

CUS.UN-T got below $4 briefly and still has a good yield. GCI-N has a similar chart to CGS-T and appears to be going bankrupt (according to the chart). This sector is getting hit bad with all the recession fears flying around.

I hate to break the bad news, but we've been in a recession (in US) for a year now and possilbly longer. Canada appears to be heading that way, but likely not as bad (hopefully).

I watch all sectors in order to try and bottom fish for some 'cheap companies'. LUN-T ($5.09) and BWR-T ($0.35) seem to be two that are distressed right now. For different reasons. LUN has aquired many companies and is trying to swallow them still. BWR is just not getting its costs in order and needs to improve margins.

Besides health care companies which continue to drag lower some consumer goods companies are feeling the pinch. One bright spot is K-N which seems to be on an uptrend? SBUX-N has been on a nice slide, and oil companies like TLM-T have pulled back far more and faster than the price of crude.

For a longer term play one might look at CCO-T in the mid $30's or PWF-T below $30 and write covered calls. Both are attractive for differing reasons, but may provide some good yields in a poor market (yield= dividend + call premiums).

DH

dismal performance

Sometimes it is better to do nothing than to do when it comes to investing. Many an article are written on us 'traders' who seem to think we can beat indexes and try to find a formula for it. Most lose to the index. I am 1 for 5 for beating the TSX (last yr i was up 20%+). Every other year i would of been better just to ignore the market. I have only been trading options for the past 2 years however.

Well by now you've figured while i don't have the formula i am not short on ideas and ways to try and find it. Biovail continues to dissappoint. The latest downgrade came yesterday and sent the stock tumbling down more than it went up the previous day.

I by now should have been placing more bets on different ideas. Two quick examples were rumours of BUD-N takeover by Inbev should have prompted me to buy a few calls or atleast sold some puts? Next I don't know what i was thinking in not buying BCE calls. The risk reward should of made for a nice trade. I saw Friday on NY exchange after the close BCE shares up almost 10% or $3.+ .

Now i don't mean to beat a dead horse here (especially at the sake of losing money) but pharma companies for the most part have been destroyed this year. All the big names are down, some more than others, yet they keep falling and the dividend yield keep rising. I need to start buying shares and writing calls on these. PFE, SNY, GSK.

Going forward in my Registered accounts i have continued to invest on dips (money goes in monthly to a money market fund) and have been upping my contributions to US and Overseas funds (much to my own demise).

Some US banks like BAC-N and maybe our own BMO look like possible call writing candidates right now? Attractive yields and suppossed 'ok' balance sheets.

Well little has changed for me. Options expired yesterday and lost another $500 or so on BVF calls. No new buys, but watchlist continues to grow. Trying to find good entry points right now is tough, because the market continues to falter (US) and it feels like good money is just being thrown after bad. I guess thats why investing should have long term objectives with disciplined entry points.

Next update when something exciting happens...

DH

New Post?

Well its about time.

My trading has pretty much been as my blog. Watch and do nothing. Well not exactly, but close.

First off updates regarding trades. My watchlist of CGS, TDG, and AKT.a has done well. The 2 have gone up nicely, both paying dividends along the way. CGS has continued down into the abyss however. I finally got around to buying when i saw other insiders picking up shares around $5. My cost is $4.05. I only bought a few so i can average down if it falls below $3.

I also bought CLCT for $9.75 and PNSN for $12.

I now have a Questrade account set up and its fees are ultra low. So i started buying when i completed that and closing my CIBC edge account.

I still hold BVF and collect the dividend. My average cost after dividends and protective puts is $14.40. I have some outstanding calls (is this a reocurring theme or what?) which expire in June. I hope the new share buy back will help the price up. The board is up for nomination 2 days after my options expire so if they like their jobs they should use the buy back to get the price up some!

MTE-N is a new addition among others to my watch list. Indian telco thats really cheap! The ADR has been hit by falling rupee relative to the US $.

My option trades:

DML: ended at $7.53 when its April option expired. I showed a profit for that of $0.45 which works out to be 5% in 3 months. Also noted was the large volatility and with this written call my max loss at any time in the 3 months was only 3.7%. Seems like this trade went ok.

TLM: very different trade result here. Stock wasn't taken, which turns out to be a good thing. You had downside protection so when the call expired in March the trade was only down just over 1%. BUT right after that the shares have jumped so this trade worked out ok too.

I am really kicking myself right now because i should have been writing calls on BVF for the past few months!

I still see pharmaceuticals cheaper compared to many sectors. KG in the US may now be showing progress.

If only i had bought TCK.b calls in Jan. Wow did that company go on a ride for the past 6 months. Too bad so sad.


One final note: If the wife would let me i would love to load up on CGS shares below $3. I will buy more, but not with the house equity of almost 100k that i was jokingly threatening to use.

DH

Time for an updated post?

Wow i almost forgot about posting. As my trading has been less than profitable during the last quarter i felt it was time for a break. I still watched the market but pretty much sat on my holdings.

My Tck.b calls expired worthless and it has drifted down yet further as evidenced today. So my goal of using calls to manage my downside and get used as swing trades is working.

I will note one thing. As markets increase in volatility the short term moves become larger up or down. If one buys calls or puts on the correct day (key word correct) you could be rewarded handsomely.

I did remind myself that after counting my current poor quarter of 5 or 6 steady trade losses my 07' return was 25%. All driven by one correct 'call' pardon the pun on Sobey's.

I also noted that more than half my calls could have been sold for 50% or more profit instead of a loss and the rest at break even (even Tck.b recently). Only one i would have lost on DML and it would have been less than 1%.

So i will stick to this strategy of using options, but be more prudent in my buying. I will note that at summers end i said buying puts was maybe a good idea? Well i never took my advice and where i wrote that is somewhere in cyber space?

So here i am with only BVF shares. I have BVF calls too, which are set to expire for $0 come Friday. I bought back my BVF puts, which i was grateful to have since it kept my loss to single digits as it fell from my initial buy of $18ish to current $13ish.

Looking at DML and TLM gave me some interesting ideas today. One could buy these shares at closing prices and sell calls for closing bid prices (on Montreal exchange website) and do ok.

DML $8.05 close
April call $7 strike is @ $1.5, which gives you 6% (in 3 months) and downside protection of roughly 18%, which is close to $6 support.

TLM $17.8 close
March call $17 strike @ $1.5, giving you 4% (in 2 months) and downside protection of over 8% which means you start to lose money past $16.3 ($17.8 cost - $1.5 premium collected). Charts also show good support here.

Non option related trades i am looking at include akt.a, tdg.un, & cgs.

I have been watching HD, PFE, C, SSW, KG, WM, WAG, BAC, for possible US option plays.

Canadian banks like CM and BMO with the larger yields may be worth looking after the next crappy earnings report (my guess as i am just following the current banking trend in earnings). Buying and writing calls may make you some money.

I again chickened out to buy puts on AAPL. Maybe time to buy some calls on that stock, but the options are price since its a $160 dollar stock.

One other play on the US banks and other large companies in the US maybe the index JKF.

AC.a and PJC.a look cheap on the Canadian side, but who knows if they can go lower. For a nice picture of a stock NOT to bottom fish (although i did think about it once or twice) is WM in the US (check out the 3 month chart).

One final note: Gold seems to be popular. I am not in it and don't plan too in the near future. I can't seem to grasp why it moves up when the economy tanks. It has little ties to anything except emotion and senitmental value? In a serious economic recession what good is a gold bar on your mantel while you starve (extreme example).

I like pharmaceuticals, everyday product sellers and banks for the near to mid term. Why banks? Well according to my latest reading they lead into a recession and out of it. FIFO accounting method i guess.

D

current market Nov 7th

As i scan over the market i notice financials, particulary WM-N, IIC-T and other large financials getting smoked. Is it value time and should i be picking up calls? Nope.

The options for these will have huge time values because of the large price movements. Also i can see no near term catalyst propelling them higher? I will keep them on my watchlist, but as Buffett says you want your long term holdings to have a 'moat' besides just strong fundamentals. By 'moat' i am speaking of some sort of competative advantage. As i see it WAMU or WM-N has neither mentioned. Its a smaller financial with recent accounting fraud accusations and large outstanding residential home loans.

Enough of the bad lets see some good in this market? Well i am happy to report my account only has 2 holdings. IMG-t and BVF-t. Both have suffered slow and steady flat lines and are eroding my purchased calls time value. BUT>

BVF will hopefully paint a pretty picture with earnings out 8:30 am Nov. 8 and IMG reports next Tuesday. I may pick up some calls for IMG with NOV expiry just to play possible earnings upswing. This will consist of only a few hundred dollars capital as the risk is high due to lack of time value.

I sold out of my WAG-N calls. Time was eroding them and i should have sold when it spiked quickly above $40. Could have turned a $600+ profit on $2200 risk in less than a month, but will settle on $100 loss.. mostly due to the lovely rise in CDN $$.

Did i mention that CDN $$$? It is killing me with BVF. I would be up on that nicely but i am slightly down because the US dollar is in free fall mode. I promised myself i would transfer more of my long term RRSP holdings from CDN funds to NON US or CDN funds ie Oversea's.

I have several Oversea's funds and i am happy to report that they have all sucked this year! Why? Because all their loss and then some is because of the CDN $$. So the underlying stocks are performing ok and have little US subprime risk.

Well back to current trade ideas. I have looked at UUU. After its recent smackdown it may be a good one to try a short term (1-2 months) call write. Until today it had $10 support. Now who knows? It has a juicy time value for DEC calls with 10% downside protection on shares held.

Loblaws L-t is another beatin down dog. I may try a credit spread on this one, which would be a sold put $44 perhaps and a purchaed protective put around $40. I have to play with this one some more to see how it's risk/reward is. Until then it continues to slid and allow me a lower entry. The company has good sales but poor margins.

TDG.un and PD.un may be some other plays for covered call writing or using in the money protective puts to preserve capital. Both are drillers than are trading @ or below 2x book value and have rigs in US still working although CDN $$ is hurting them there.

Hopefully my next post will have some positive news to report.
DH

Starting new blog

Hello to any and all readers,

First off i am a Canadian who enjoys reading and writing about investing. So i figured i would start this blog. I have several reasons why i wanted to start but, first and foremost was to journal my thoughts, trades and ideas regarding investing.

I figure my background in how or why i started investing is a good idea so here it is:

I started investing seriously in the past 4-5 years. I figured it was important since my pension plan is self directed. I jumped around with different investing techniques from daytrading, value investing and options (all this with non-registered funds). Most of my funds continue to be left in a few 'choice' mutual funds. While i like ETF's in theory i have not had much use for them yet. I will explain my disdain for Canadian ETF's in another entry.

While i have tried many different investing ideas (some more foolish than others) one staple remains. I have continued to add monthly contributions to my current low MER mutual funds. This dollar cost averaging is almost fool proof for younger investors such as myself because it takes the market psychology away from investing. One of the first investing books i read was 'The Wealthy Barber' which outlines principles for 'easy' investing that are still with me.

Currently i do little to no daytrading as this is stressful, time consuming and doesn't make sense for me. I have shifted my focus to a Ben Graham value type approach. In Graham's book 'The Intelligent Investor' he highlights principles for sound investing. He also states that one may allocate 'funds' (lets say 10% of a portfolio) for speculative or gambling type endeavours.

This is where my blog is headed. I currently 'play' with about 10% of my investment capital using mostly options trading. I have yet to incorporate options into the bulk of my investments, but can see this happening in the future.

One final note i have never been or will claim to be an English major so if you see any grammar or spelling mistakes please ignore.

Please stay tuned to my different thoughts and ideas, most of which will surround the world of Canadian options trading.