Daily Gains Letter

Warren Buffett


How to Navigate the Ridiculous World of Social Media Stocks

By for Daily Gains Letter | Apr 10, 2014

investment strategyThe tension in the stock market is clearly evident, especially with the NASDAQ and Russell 2000 breaching their respective 50-day moving average (MA).

What we have seen in the stock market is a shift away from higher-beta growth and small-cap stocks to the perceived safety of blue chips and large-cap stocks, which I recently wrote about.

Driving much of the current malaise in the stock market has been the selling in the technology groups, specifically the high-momentum stocks that attracted major buying euphoria in 2013, in spite of what were high valuations and overdone optimism.

While I continue to like technology for growth investors in the stock market, I have also been quite vocal in not chasing some of the outrageous valuations that were assigned to these stocks by the stock market. With some of the brand-name momentum plays trading at more than 100 times (X) earnings, you have to step back, pause, and consider these metrics are ridiculous and undeserved.

There are some analysts in the stock market coming out and advising to buy on this dip, but I’m not as convinced, especially toward the high-beta and high-valuation momentum plays in the stock market.

The extreme valuation in the stock market is most evident in the social media space, which saw some impressive gains over the past few years even though many were not even making any money. These stocks are definitely not the kind that investment guru Warren Buffett would buy.

Take a look at Twitter, Inc. (NASDAQ/TWTR). This has to be one of the most overvalued stocks in the stock market at this time. The company has … Read More


Why I Wouldn’t Give Up on This Stock Market Yet

By for Daily Gains Letter | Feb 6, 2014

Stock MarketAnother day and another 300-point decline in the Dow Jones Industrial Average—that seems to be the norm right now. But despite my assurances that things will inevitably get better, I continue to see extreme nervousness out there.

Now it’s probably time for more hand-holding as we move along during this mini crisis in the markets.

Look, the world isn’t going to blow apart. We are simply hoping through a stock market correction that should have occurred in 2013 but didn’t, largely due to the Federal Reserve’s easy money policy. That’s coming to an end as the tapering continues, but so what?

Based on the morning trading activity on Tuesday, the stock market, while edging higher, wasn’t exactly showing that it was firmly behind the buying; hence, it will likely be prone to more downside moves. My thinking is that we could receive another five-percent hit and then slowly rally.

The concern is that we could see more selling capitulation emerging on higher volume, so investors should be very careful.

The failure of the Dow to hold at its 200-day moving average (MA) is concerning.

Small-cap stocks were down nearly 10% at the close of Monday, nearing what would be an official stock market correction. Just watch how the Russell 2000 behaves going forward, focusing on whether it can hold and rally from here.

My assessment is that the stock market could likely move lower prior to staging a rally.

Of course, the release of a softer-than-expected ISM Index hurt and suggested the economy may not be as strong as the gross domestic product (GDP) growth would indicate.

The thing is … Read More


Profiting from the Record Bakken Oil Haul

By for Daily Gains Letter | Oct 18, 2013

Bakken Oil HaulThere’s more to the Bakken in North Dakota and Montana and the tar sands in Alberta than oil. Oil may be the primary opportunity for most investors, but there are a number of interesting secondary and tertiary investing platforms to consider. And when it comes to oil and petroleum products, one of the biggest growth areas has to be North American railroad stocks.

Despite the fact that a new pipeline in the booming Bakken fields in North Dakota was recently completed, more ways to transfer oil are needed to keep up with production. That’s because North American production is outpacing pipeline capacity.

On top of that, continued resistance to pipeline infrastructure expansion in North America is putting pressure on rail systems to pick up the slack. And two of North America’s biggest railway companies have only been more than willing to do so.

In fact, the amount of oil and petroleum products being shipped by rail has soared. In 2008, just 9,500 carloads of crude oil and 220,000 carloads of ethanol moved throughout the United States by rail; in 2012, the combined figure for crude oil and petroleum products was 600,000 cars. (Source: “Moving Crude Petroleum by Rail,” Association of American Railroads web site, December 2012.)

Roughly 70% of North Dakota’s oil and 70% of America’s ethanol is transported by rail. Why does so much Bakken oil rely on railroads? Whereas oil sand development can be in production for several decades, wells in the Bakken are in production for a much shorter time span—around 10 to 12 years—meaning that it’s not always economical to connect Bakken oil fields to existing … Read More


The Best Insurance Policy for Speculative Trades

By for Daily Gains Letter | Mar 28, 2013

280313_DL_zulfiqarSometimes, investors try to look for stocks to score a “home run”—speculate on them to double, triple, or even increase 10-fold in prices. Unfortunately, in hindsight, they forget the amount of risk they are taking.

At the very core, speculation is about taking higher risk in the hope that the gains will be exponential.

As I have been saying in these pages, the goal of investing is to grow savings over time by minimizing risk—to focus on long-term growth over short-term gains.

When a person speculates, he or she leaves their portfolio vulnerable to a significant drawdown. Mark Twain said it best: “There are two times in a man’s life when he should not speculate: when he can’t afford it and when he can.” (Source: ThinkExist.com, last accessed March 26, 2013.)

Speculation isn’t easy, and not every investor should try it; but if an investor does go ahead and tries to speculate, then they must make sure their capital—as much capital as possible— is protected in case things turn against them.

Consider this scenario: say you bought 1,000 shares of pharmaceutical company XYZ Inc. for $10.00 each, hoping that the stock will go to $50.00 on the approval of the company’s drug by the government. Sadly, a few weeks later, you find that the drug was not approved, and the stock now trades at $5.00, 50% lower. Your loss on this trade is $5,000 (calculated using the starting value of $10,000 minus the current value of the stock).

To protect their losses, investors can use an option strategy called the “protective put.” In essence, a protective put is like buying … Read More