A Model Beginner’s Portfolio

If you leave your cash in the bank, this post is for you.
Ever wonder how banks make such exorbitant amounts of money? By BORROWING and LENDING with ridiculously high profit margins. When you deposit your check, you’re lending money to the bank. They are borrowing that money while paying you a set annual interest for every dollar you deposit into an account (national average: .03%). A third of a percentage is a pretty lousy rate of return when you consider two main bullet points:

3 Ways to Invest In Gold

Want to invest in gold? Great idea!
Gold holds its value for a few reasons. Firstly, it’s scarce, and difficult to mine. Secondly, it’s a tangible block of material that you can hold, therefore it’s valuable. So just exactly HOW is gold valued?
The value of gold is based simply on the confidence the owners, investors, and miners have in it. It’s considered a safe haven away from the volatility associated with stocks, commodities, and even some bonds. In 2008, gold was tested as investors sold off nearly 40% of stocks worldwide, and gold prices help up triumphantly.

A little about company earnings, why they’re important, and the global footprint of Google, Inc.

This Week: Drowning In Earnings Data

It’s important for the first time investor and financially savvy individual to understand, or at least be aware of, the plethora of news, economic data, and market wide company press releases that serve as the basis for trader decisions. The amount of investor news that is available thanks to the internet is so overwhelming that, at times as I do my daily research, my laptops begin to overheat and hum. I don’t know whether to stop and take a break, or risk my Dell exploding into a thousand shards of plastic and metal while I’m mid-sentence typing.
Let’s talk in relative terms and take it back to 1998, when the Chicago Bulls clenched a title over Utah Jazz during Michael Jordan’s last game; when Osama Bin Laden made worldwide headlines by bombing US Embassies (sadly, this was one of the public’s first introduction to the terrorist leader); and the iconic year that two Stanford computer science students founded Google, Inc., which went on to revolutionize the way we use the internet and become one of the most profitable investment opportunities in history for a very lucky few (Google’s stock price has multiplied itself by many times over since it’s initial offering price of $85/share; while today it sits at $524/share. Further, consider this: the initial round of private investment, when Google was incorporated in a California garage, was only $1.1 million. Those original investors have likely seen their investment multiple itself by a thousand times in just over 10 years, assuming they’ve held those investments up to today).
Google is an amazing story, but it’s fit for another time. In fact, take a minute and read the story from wikipedia.org after you’re finished here. The point I want to drive home is this: 1998 was a very special year, because it brought together technology (the internet) and innovation (Google) to deliver to you, the consumer, vast potentials for locating detailed information on just about anything. In this case, I’m talking about information that is important and sensitive to investors that wasn’t always available. Up until the explosion of dot-com, if you wanted investor information, even the easy to use calculations to determine values of public companies, you had to go through either a library, the company itself, or your stock broker, all of which would either cost you time or money, both equally precious. But now that the internet is here, information is available at your fingertips, 24 hours a day, 7 days a week. And it’s great because it has put you, the small fish in a big pond (the first time investor) in the driver’s seat. No need to be dependent on Wall Street’s investment firms and high-commission bankers to relay to you, what probably in most cases was biased anyway, information. You can do it yourself, and cut out the middleman.
Of course there’s a trade-off, because nothing in life is free, especially in the investment game. The problem is information overload. There is so much information, it’s nearly impossible to tell what is trustworthy and what isn’t; what’s current and what’s outdated; which publications tends to spin or bend the truth and which straight out life.

When should you take profits from your stocks?

So we’re going to briefly post about taking profits. Let’s say you’ve bought a stock and it’s gained some decent percentage points, translating into a $200 profit. What should you do?

Selling all of the stocks and pocketing the profit would probably be your first knee jerk reaction, and there’s nothing wrong with that. But what if the stock price goes higher after you sold out? How do you know whether you should sell everything, sell a little, or not sell at all?
The answer lies in how confident you are about the stock. If the price shoots up and you make $200 in a day on no particular news, earnings, or press released by the company, you may want to get out. There are 100 reasons why a stock price spikes with no rhyme or reason – play it safe and keep your distance from these situations when you can. On the flip side, perhaps you’re sure that a stock price jump is warranted (for example, the company releases a great earnings report stating that net income rose 12%); stick with that stock and you’ll likely see it go higher.
Dollar Cost-Averaging is a strategy many use, including us. The basic idea is that you either buy into or sell out of a stock position in small increments. Maybe you want 100 shares of Apple Inc. (AAPL) but don’t have all the money right now. You can DCA into the stock, maybe buying 20 shares a month for 5 months. The advantage of DCA is that you’ll minimize your exposure in case the stock price drops. The trade off is that you’ll pay commission fees with each order you place, and those add up (100 shares ordered at once would cost $2.95 in commission from OptionsHouse; 5 orders would cost $14.75).

TARP (otherwise known as a bailout): could it stand for “To Accompany Recovery’s Potential?”

CITI group announced today they will be returning about $20 billion in TARP funds, the unpopular government spending bill that bailed out the largest and most complex financial, insurance, and manufacturing companies in the US. CITI owes another $27 billion over the course of the next 2 years.

TARP is an acronym for Troubled Asset Relief Program, a $700 billion fund established by Congress earmarked for injecting into these companies to shore up their destructive balance sheets. Remember that American Insurance Group (AIG), Bank of America (BAC), and General Motors (GM) for example, were eligible for these bailout funds because they met a few criteria that at the time was of dire concern:  
   – They we’re negative cash flow and had been without cash for quite some time. 
   - Their liabilities, brought on by years of borrowing money to build up assets, we’re overwhelming and crushing them. These liabilities caused lenders to become nervous, dropping their credit ratings.
   – These companies relied on credit ratings to obtain commercial paper loans; very short-term loans, typically 2-3 days, used to finance day-to-day operations at large, billion-dollar companies.
   – Without cash or accessibility to commercial paper markets, these companies we’re literally teetering on the brink of bankruptcy. If these companies couldn’t get money quickly (in the case of the financial companies, within days) they would undoubtedly implode upon themselves.

Let them burn, the common American would say, who’s driven by emotion and self-indulgence. Here’s what I mean: at the time, people were losing their jobs, companies we’re shutting down everyday, and the stock market was collapsing. Everyone was looking for answers, essentially, their own personal “bail-out”. And as TARP came on the scene, first with the billion-dollar bailout of AIG, an American insurance company who sunk themselves with risky investments, and then again with the bailout of Bank of America and Fannie Mae/Freddie Mac, two huge mortgage companies. Americans went in an uproar – with good reason! Why should these jerk offs on Wall Street get to not only keep their jobs at now government-owned firms, but also pay themselves bonuses?

Company Profile: IMAX, Corporation (IMAX)

Saturday, December 19th, 2009

IMAX Corporation (NASDAQ: IMAX)

That’s right, IMAX! The motion picture technology company that brings consumers a highly specialized, highly immersive and realistic theater experience  is also providing us investors with decent returns. That’s because IMAX has added significantly to it’s cash position recently and has projected future earnings that would impress any investor. We’re going to write a brief synopsis of IMAX, their operations, and why we’ll be coming back to this theater again and again.

IMAX operates in a blue ocean – that is, there’s no competition among them. That’s any business persons ultimate fantasy: to be the only company filling a consumer demand. IMAX builds, operates, and leases their over-sized digital screens and equipment and converts Hollywood’s blockbusters into  a 3-D format for moviegoers seeking a new, original experience. The company owns and operates over 400 theatres so far with plans for another 100 in 2010.  IMAX has more than doubled it’s revenue from 2008 to 2009 and turned a small profit this past year (while the rest of the world lost trillions). Best of all, there is no other company that competes directly with IMAX’s services and products. Their closest competitor: theater bohemouth Regal Entertainment Group (compared by market capitolization, a measure investors use to determine how large a company is, Regal is almost 3 times as big…but they’re losing money and the stock price is less than a dollar more than IMAX).

Company Profile: A-Power Energy Generation Systems (APWR)

Friday, December 18th 2009
A-Power Energy Generation Systems (NASDAQ:  APWR)
A-Power is a company we’ve been buying and pitching since August of 2009. At the time, the companies stock was trading at just over $10/share. This week, APWR broke 2 new 52-week highs, the highest prices they’ve been in a year – topping out at $20.15/share.
Our positions schedule with APWR for 2009 was as follows:

Date	Trade	Price	Gain/Loss
6/30/2009	buy	$8.00	40%
8/25/2009	buy	$9.70	15%
9/15/2009	sell	$11.20	55%
10/1/2009	buy	$10.15
11/24/2009	sell	$14.67	44%
12/3/2009	buy	$15.98

We bought this stock low and sold it high twice. Our last entrance was on December 3rd, 2009 at $15.96 a share. Today APWR close at $18.75, a 17% gain. We’re not selling yet; we think a $22 price target is possible in the next 6 months, and here’s our main arguments behind it.

A-Power is making deals left and right. At a time when other alternative energy companies (and really, the whole alternative energy industry) are struggling with high costs and low market share, APWR just landed the rights to build Texas’ largest wind energy farm in the US. APWR is partnering up with (and buying out) smaller wind and energy power providers, builders, and sellers. And as the world’s largest wind turbine producer, APWR is still aggressively expanding. And although APWR is building wind farms and energy grids all over the world as part of its global strategy, they still find time to land some deals in their own neighborhood: China.

Company Profile: Harry Winston Diamond, Corporation (HWD)

No doubt you may have heard of Harry Winston Diamond. Considering their diamond mining and retail market share, you may even be wearing a piece of their jewelry right now. HWD is a Canadian based exploration, mining, and retail outfit that produces and designs diamonds for rings, watches, and various other pieces of fine jewelry across the globe. Certainly diamonds are not recession proof, but they are resilient. This past year, HWD watched its earnings take a nosedive just like everyone else. But something peculiar happened; they’re coming back up just as fast, and may emerge from economic volatility stronger than they ever were before. After all, people will always be getting married, right?
HWD is expecting Earnings per Share this year of -1.48. Earnings per Share is a measure of a company’s profitability, and -1.48 certainly hurts. But next year, EPS as an estimate will be -.12, an unbelievable accomplishment if they are on target, or better, they beat that estimate. Arguably, it can be easy for a company to lose earnings per share; it’s improving earnings per share that’s the challenge for most. HWD is certainly set to prove they can overcome, according to these estimates.
Let’s dig a little deeper into the EPS measure. If EPS is a measure that will tell you how much the company earned for each share outstanding (owned by investors), then a high EPS with a low stock price is a very good thing. Last year, HWD had an EPS of $1.15 and an EPS the prior year of $1.89. The prices of the stock at those times, respectively, were $5 and $33. The current EPS estimate of -1.49 (meaning the company will lose 1.49 for every share) can be compared to its current share price of $8.62. So why such a drastic drop? Was it warranted that the stock price should go from $33 to $5 based on a lousy 75 cents? The answer is no, and we only need one word to explain it: recession.

The Bad Rap Bankers

 

Wednesday, the heads of the U.S.’s top banks came under pressure by a 10 member commission created by a law President Barack Obama signed early in his term. It’s called the Financial Crisis Inquiry Commission (FCIC) and their main goal is to determine who’s responsible for the financial and credit crisis of 2008 that led to the near complete collapse of America’s economy.

They touched on a few things: executive bonus disbursements among bailed-out banks, who should take the brunt of the blame for the crisis, and what we can do in the future to prevent a repeat of these economically catastrophic events. What does it all mean for a first-time investor?

Bank bailouts are an unnecessary evil that we all need to recognize as just that. “Bailout” here refers to congress passing the Troubled Asset Relief Program in 2008, or TARP, to prop up cash strapped and quickly sinking financial institutions throughout the county. The program was designed in response to sub-prime mortgage failure to strengthen the overwhelming balance sheets of banks that lent to the tune of $700 billion dollars. Half was released; the other $350 billion sits as a cash reserve for deployment. The controversy, of course, is that the money came from the government, which actually comes from us. Its taxpayer’s money that was used to save the world’s richest, most successful investment banks, savings and loan institutions and commercial banks. Bank bailouts are not unique just to the U.S.; government sponsored aid was distributed across Chinese and European countries too.

When we talk about “banks” that received TARP funds, understand that we are actually talking about the world’s most complex, most enormous financial institutions that sell some mind-numbing and confusing products. These banks are headed by the smartest men available for work. US banks are world-leading powerhouses that sell anything from future contracts on soy bean prices (called Futures) to insurance on corporate debt (called Credit Default Swaps), to buying out life insurance contracts on your 91 year-old grandma. These people make money in every way, shape, and form – and they do it all over the world, in all kinds of markets, in every little pocket of the globe. A global financial institution, like Morgan Stanley or AIG, will make hundreds of billions over their years; and you can also bet that they compensate their officers handsomely. But we’ll get into that at the end of the article.

The Week In Review

Welcome to the weeks of January 12th to January 22nd, 2010. We’ll be serving a Supreme Court ruling that’s shaking corporate America, huge financial arrests by President Obama on the world’s top bankers, and a deflating confidence in Chinese trust and trade. Oh, and Haiti was hit by another quake.

It seems like the whole world just fell apart in front of our eyes. It’s Friday afternoon and as I reflect on the world’s news and events this past week, I find myself wondering, “What happened?” Let’s recap. We watched with sympathy as Haiti suffered a massive earthquake, killing almost 200,000 people and leaving nearly 2 million homeless. To add insult to injury, the country was hit again with a nasty aftershock, leveling the buildings, schools, and homes that miraculously had survived the first shake. The devastation in Haiti does not concern me as a first-time investor; but as a human, I’m saddened and dismayed. I’ve given donations, in Bullworthy’s name and mine, and I hope you will take a minute and give too. Click here to give as little as $25 to a Haitian Relief fund.

Monday, January 18^th – Republican Scott Brown is elected in a Massachusetts upset race against a Democrat, which in a very Democratic state shocked the nation. The race was for the late Ted Kennedy’s Senate seat, who has served very passionately and successfully for over 40 years. Here’s the kicker though: in the Senate (the branch of legislation that is currently handling healthcare reform), there is always a majority party who has special tools at their disposal. If you’re a majority, you can pass your party’s legislation with little hassle. The Democrats (including Ted Kennedy) held the majority by one seat – the seat Republican Scott Brown won Monday night.

Healthcare reform is a democratic issue, so Brown’s unexpected win has tilted the tables in the Republican’s favor. They now have the power to delay or kill legislation brought by the Democrats. So, if you’re an investor, and you’re interested in not losing your money, stay away from healthcare stocks for right now – the future is anyone’s guess. I’m now staying away from healthcare stocks and industries.

 Tuesday, January 12^th – President Obama officially proposes new restrictions on the largest US banks including, among other things, restructuring their entire business operations. Banks have for many years profited off stock market trading for not just their clients, but their own money as well. It’s called “proprietary trading”, and it means they use their own cash to invest and trade securities, options, stocks, and other complex financial instruments on open markets. The widespread practice of proprietary trading exists in stark contrast to any bank’s core business – borrowing money from depositors, and lending it out to consumers at a profit. Nostalgically, banks should be focused on their customers, providing lending services, economic liquidity (ensuring the availability for cash), capital structure (investing in small businesses through loans), and keeping the US dollar strong. Instead, they’ve been spending their time creating lucrative and risky investment practices that eventually, as we saw in 2008, caused panic and a credit collapse in the US.  President Obama has long been expected to announce proposed regulations (whatever he announces still has to pass through Congress), but he’s really stepped up the game here. If passed, the law would break up the most profitable operations of some of America’s top banks – American Insurance Group (AIG), JP Morgan Chase, Citibank, Bank of America, and Wells Fargo, who have all watched their stock price plummet this week. I’m now staying away from financial stocks and credit service industries.

A guide to stock turmoil for the first-time investor

So you’re interested in buying some stocks, and I’m happy to help. Whether you’re buying stocks low and then selling them high for quick profits, or you’re in it for the long run – a strategy loosely known as “buy and hold” – you’re bound to feel the burn of a stock price drop at some point. Stock prices move up and down every day, and you cannot control or manipulate them to your advantage. Price fluctuations and exposure to loss is certainly not exclusive to first-time investors or the inexperienced – top money managers lose cash with bad investments and downward price movements too. In fact, the only man in the history of finance to ever not lose client money in stocks and other financial products: Bernard Madoff, because he wasn’t actually investing it – he was simply stealing it (click here for more info on ponzi schemes and hot to avoid them).

So you’ll just need to accept the fact that you won’t always be right. But if you take the time to study, understand, and respect stock markets and their powerful abilities to give and take money, you’ll do just fine in the long run. The goal is not to be right every time – just be right more often than not. And the likelihood that you will achieve success in the stock market over the next 30-40 years (or however long you have until retirement) is almost guaranteed. You only need to look at the history of stock markets: consider that, at one point, the Dow Jones Industrial Average was worth only 1 point. Today, the DOW sits at 10,200 points.

Here’s a few lesson you should follow as a first-time investor when you have a company in mind that you want to buy, but aren’t sure if you should. After all, no one wants to lose money.

   First lesson: know your company. This is a simple concept that is not always followed by first-time investors. A lot of investors and traders (people who buy and sell stocks everyday for a living) use strategies that do not consider “knowing your company” to be very important. But if you’re considering buying a company, consider this: wouldn’t it be easier to understand what’s going on in a company’s market, their industry, or with their competitors than one you don’t know? Here’s an example. You’ve heard Microsoft is a great stock to buy, but you don’t know anything about technology or software. You know nothing of the company, who they are, or what they do – much less about Oracle Corp. or Apple Inc, their major competitors. You see their stock price – $28 a share – but you don’t know if that overprices, underpriced, or the right price. But you do know about retailing because you’re a manager in a clothing store. Maybe you already own stock in the company you work for because it was given to you, which is great. But it is the best retail stock to own? There are 5000 other retail industry company stocks in the markets to choose from – where do you start? Knowing your company is important in the event that the stock price plummet’s  because you’ll know if it’s worth holding or not. Consider that during the market crash of 2008, companies lost 40-80% of their stock value, and I mean almost ALL companies. Maybe financial stocks we’re deserving of their devaluation, but what about movie theatre stocks? Movie theatre stocks posted enormous profits because as investors saw last year, in a recession, people don’t stop going to see movies. It’s all about valuation.

   Second lesson: put a value on your company.  Attaching a value to the company whose stock you’re thinking of buying isn’t easy, and there isn’t one way of doing it. In fact, there are hundreds of different ratios, facts, figures, statistics, quarterly and annual financial reports and accounting practices that creditors and professional investors use to get very specific in their valuations. But as a first-time investor, you needn’t any of that confusion – keep it simple.

(The following valuations can be found easily on yahoofinance.com – keep an eye out for a video I’ll post that will accompany this post showing you how to find these figures for any company you’re considering buying).

For all these valuations, you’ll need to determine whether they are in an uptrend, a downtrend, or neutral. Click on the link to see an example of a company who demonstrates desirable uptrends/downtrends for each value.

Income – Find out how much income your company is pulling in. Find out what the revenues are (money before expenses). And while you’re at it, consider their expenses too. It’s found on the income statement of any company, and you’ll want to see an uptrend in revenues and a downtrend or neutrality of expenses.

Debt- Is your company swimming in debt? Forget the stock. Long-term debt is essential to a company’s growth, as long as assets outweigh the debt. Short-term debt, however, pilling up way beyond assets could be a red flag, especially if it’s been getting worse over the last few quarters. Look for an uptrend in assets, a downtrend in debt, or neutrality in debt.

Earnings – look for an uptrend in earnings over the last few quarters and the last few years. Neutrality is OK, but don’t necessarily expect a jump in the stock price based on shareholder equity (earnings) if the company isn’t growing in that regard.

That’s a solid start in determining the value of the company you’re thinking of buying. But it doesn’t stop there – even if your company has satisfied all these conditions, there’s still much more to consider. Contact us for more information on how to value a company beyond these three simple figures.

    Third lesson: don’t panic! You’ve done your homework. You’ve followed our recommendations every step of the way (or maybe you didn’t and still ended up with a great companies stock). Congratulations! But the stock price just dropped, and so did your stomach. You’ve watched your stock lose 5, 10, or maybe even 20% of what you paid for over the course of 5 days. Your mind is racing and your heart is pounding; when will it end? Could it drop more?

Again (unfortunately) there is no single answer. But here’s a start: don’t panic. Not all stock drops are deserved! Remember, stock prices drop because investors who hold the stock are selling them in large volumes. Sometimes, a stock can get “oversold” on hype or news. But here’s an important point: know how valued your company is – not just by your expectations, but by the market’s expectations, too. Will the stock price come back up? In the long-run, certainly (with a few historical exceptions such as the fall of GM due to overwhelming debt and a gradual loss of American car-maker market share, or the fall of Lehman Brothers due to extreme financial risk-taking). You’ll find yourself asking, “But what about now? Will the stock price come back or should I sell and cut my losses”? In most cases, cutting your losses is a bad idea. Once you actually sell your stock, the loss is permanent – as opposed to just holding a losing stock, which could come back eventually. Consider the 6-month stock market free-fall between September 2008 and March of 2009. Investors who sold their stocks after 5 long painful months of seemingly never-ending losses at the market’s bottom in March 2009 made their losses permanent. But March 2009 to November 2009 saw the world’s largest and most aggressive bull rally – stocks as an average gained between 40-50% in less than a year! In fact, a quick look at a chart of the DOW reveals a few interesting things – including the fact that if you got into the stock market in 2000 and stayed until today, you would have actually just went up, down, up, down, and then even. You would have lost only -1% over ten years!

So be a diligent and committed first-time investor and follow these tips. And of course, contact me with questions, comments, or concerns!

-Tom, Bullworthy.com.

tom@bullworthy.com

Current Bullworthy Stock Portfolio Snapshot

 I’ve been asked for a list of my current stock holdings and I’m happy to post them for all first-time investors to see. I’ll even take it one step further – I’ve also posted my number one (although certainly not only) reason why I’m holding that particular stock. Sure, I expect them the price to go up – but here I’ll answer the question of why I expect that upside.

 A-Power Energy Generation Systems (APWR) – APWR is a Chinese company that provides power grids to metropolitan areas and is the world’s largest producer (by size of contract) of wind turbine systems. Certainly clean energy is the future, and APWR seems to be landing contracts left and right since it broke into the wind market only 2 years ago. And even if I’m wrong, well, China is a big country – there are a lot of rural areas that will always need electricity, their core business.

 Activision Blizzard (ATVI) – The video software engineers and owners of the widely popular World of Warcraft franchise is boosting earnings, sales, and cash flow year in and year out. The company did report a loss last month for the fourth quarter of 2009, but analysts forecast positive earnings growth for the next few years. The reason is thanks to market share. ATVI produces most of the last few years’ most popular games that came out of America (the Guitar Hero franchise is among its biggest hits). The company is also headed up by Robert Kotick, a legendary video game entrepreneur and business man.

 CEVA, Inc. (CEVA) – This semiconductor technology company designs and licenses many of the components and software that makes everyday devices hum (think Bluetooth, mobile TV’s, MP3/MP4 players, etc.). CEVA offers my portfolio the unique opportunity to add the potential upside to technological advances, popularity, and sales; but also minimizing the risk that traditional merchandising companies experience including sluggish sales or changing tastes in particular technology products among consumers.

 Harry Winston Diamond (HWD) – The diamond miner and jeweler has experienced a sizable appreciation in its price since I first bought in, I’m assuming thanks to improved corporate earnings and improved commodity markets. Buying into a commodity-producing company puts a new twist on your portfolio – that is, you’re now susceptible to improvements or declines in whatever commodity market your company participates in. With HWD, we gain during improvements and suffer during declines in the diamond markets. It’s true that the recession crushed the jewelling industry (who the hell was thinking of buying a diamond ring between 2008-2009?!), the appreciation in gold during the 2009 stock market rally lifted most other precious metals with it. As uncertainties in the global economic continue, investors find a safe haven in commodities.

 IMAX Corporation (IMAX) – I love this company, and I’m grossly overweight in their stocks (overweight works against diversification – I have proportionately more shares of IMAX than I should…if the stock price drops, my whole portfolio will suffer tremendously) but I’m confident. I started acquiring IMAX last year before “Avatar” came out and crushed box-office records, creating a large margin and (we’re all assuming) subsequently large fortune for IMAX. Secondly, this company has so much room to grow. They have a ton of cash, little debt, and they’ve already positioned themselves to dominate a market that I believe will become ubiquitous with the average American in the coming years: 3-D television. It’s already here; it’s just too expensive to mass produce. But when IMAX figures it out, IMAX could be the Google of interactive TV.

 Free Seas, Inc. (FREE) – I bought Free Seas last year at the bottom of the economic slump, around March of 2009. FREE is an international maritime shipping vessel operator. Basically, they lease out giant boat to companies who want to ship goods overseas. The shipping industry was hit particularly hard in the recession as countries produced, sold, and shipped fewer goods. So I figured an economic turnaround was bound to happen, and so was the return of shipping. I was sort-of right; although the company’s stock price has lost me about 22% since I bought it, the company itself has done well over the year and continues to buy new ships. I’m a holder.

 Converted Organics (COIN) – COIN is your typical “green” company – environmentally conscious businesses that we all hope will do well, and likely will over the long run, but are for now failing miserably to turn a profit. COIN manufactures organic fertilizer and soil from food waste. They have a promising business model – they charge garbage companies and restaurants to take in food waste (first revenue stream), convert it in to fertilizer, and sell it as an organic product (second stream of revenue) to large retailers like Wal-Mart and Home Depot. They are struggling to pay down debt caused by poorly-planned facility and business expansion by management last year. I’m holding for the long-run anyway – if they don’t go bankrupt in the process.

 BMB Munai, Inc. (BMB) – BMB is a Kazakhstani company that engages in oil and gas exploration, drilling, and production in one of the most undeveloped markets in the world. Research has shown that there is definitely oil in the area KAZ operates in; however, that research was conducted by KAZ. I’m a little skeptical, so the amount of cash I first put in KAZ was very small in comparison to my other holding, and I never added any more after that. I could lose it all and wouldn’t be fret it, so I’m holding this stock for that reason alone.

 People’s Education Holdings (PEDH) – My stake in PEDH and the reasons behind my buying this stock serves as a classic example of what NOT to do when you’re investing. Here’s why: I was watching PEDH when it popped and gained nearly 50% in one day, for no apparent reason. I waited for the deflation (anytime a stock jumps way up like that, you can usually bet that within a few hours or days, it should lose some of those gains). The deflation hadn’t come within a few days, so I bought, and I bought big. PEDH publishes and supplies educational textbooks and supplemental tutoring products to classrooms and students for all grades up through college. I knew that President Obama was a big supporter of educational spending, and that a few billion government dollars had been earmarked in this year’s budget for preparatory materials to be used in schools. PEDH would directly benefit from that spending! I should have done some research, not just jumped in with the rest of the crowd. My investment in PEDH has plummeted, but I’m a holder because PEDH is a solid company. The reason for the drop after the pop: I wish I knew.

 -Tom Copeland, tom@bullworthy.com

Bullworthy Market Update: February 27th, 2010

Bullworthy is bringing to you easy-to-follow and understand financial market news, commentary, and analysis. This week: President Obama and big banks; Greece and sovereign debt troubles; Toyota woes create opportunity for US auto makers; why I don’t (and you shouldn’t either) bother tying to be a day-trader.

Bullworthy Market Update: March 7th, 2010

This week in review is absolutely action-packed – a spectacular number of banks have failed this year already (including four this weekend alone), the Greek are in debt up to their eyeballs with no clear plan yet on how to repay $30 billion in loans due this year, and President Obama puts the pressure on Congress to pass major legislation that will retool the healthcare industry, which happens to be responsible for nearly a third of all the activity within our economy. Let’s get started.

A bank failure is essentially just that – the complete failure and liquidation of a commercial bank, savings and loan institution, or thrift. They are all interchangeable words for the same thing: your neighborhood bank. Most all economists and investors agree that we’re out of the recession, and the assumption would be that if a bank or a small business made it this far, things can only get better. However, not everyone is so lucky. Sun American Bank for example, is a Boca Raton based savings and loan institution that also happens to be one of four banks closed and taken over by the FDIC this past Friday afternoon. Recall that the FDIC is a government run insurance program that guarantees your deposits in just about any American bank, so that if a bank fails, the FDIC acts swiftly, efficiently, and perhaps most important, quietly, by lining up another bank as a buyer of the assets from the failure. Come Monday morning, customers of Sun American Bank will be banking with First-Citizens Banking and Trust. Pretty wild, huh? Learn more about bank failures and read the names of the 166 different banks that have been taken over since 2009 on a Wikipedia page here.

Aside from the fascination I’ve enjoyed in researching the process of a lean bank takeover discretely conducted in a matter of hours over the weekend, bank failures have greater implications the first-time investor would be wise to recognize. First of all, although we may be out of recession, the “lagging” effects are still very present and will continue to surface. Bank failures are an example; perhaps Sun American Bank made it through the credit crisis of 2008, the resulting stock market crash and recession of 2009, and somehow closed now. Their bad loans and mismanagement obviously caught up to them. Another example may be real estate. Although residential real estate collapsed in 2008 and is now beginning to recover, commercial real estate is a different story. Commercial real estate like malls and huge office and apartment towers have mortgages too – million dollar payments that are due each month. Many were bought with the same exotic mortgage structures as those sold during the housing boom from 2003 to 2007 that resulted in the deepest and most devastating residential forclosure crisis the world has ever seen. Some experts say what will follow will be a deep, painful commercial real-estate default crisis. Read more about these predictions from real estate mogul Robert Kiyosaki’s here.

Bullworthy Links: learning more about options

I really want to post everything I know about stocks, options, trading, economics, and other investment subjects, but I just don’t have the time. Besides, the web contains massive amounts of information anyway – I’m not sure that I would be saying anything new anyway.
The problem I’ve consistently run into is that of all the investment education websites, blogs, and videos available on the web, most of them are worthless. Take for example YouTube videos. YouTube supports user-driven content; that is, anyone with a video camera can post whatever they want for others to see. It’s a great service that literally sits as the poster child for 21st century internet technology and innovation. But the ugly side of YouTube is that core business – allowing anyone to post anything, anytime. YouTube has opened the floodgates for mediocre people to post their mediocre opinions about interesting subjects. Everyone’s an expert on everything, so I’ve been trying to do the opposite with my videos. I did a search of “day trader” on YouTube, producing hundreds of videos of guys talking about their “strategies” as an investor. One guy actually said, “I try to minimize risk”. WOW – what an absolutely brilliant insight. And check out this colassal jackass - a “day trader” who claims to be sharing the “secrets” of his “trading systems” that give him “consistant profits”:

At the other end of the spectrum, some guys use such complex lingo and technicality in what they’re saying that I was getting lost. One top of all that, no one is saying anything really interesting or educational. There seems to be no simple, straightforward answer to a question I’m watching first-time investors ask over and over: How do I actually buy and sell stocks and other financial products?
Well I’m not one to complain without presenting a solution. I’m a full-time student who also sits on the board of a local non-profit, and I work. I just don’t have the time to post everything I know myself, so I’ll do the next best thing: I’m going to post a series of blogs with links to quality websites, wiki’s, guides or tutorials on investment education that I approve as worth your time. I’ll periodically be scanning the internet for these sites and I promise they will help you learn what you need to learn to get started.

  So here’s the first run at my new feature, the Bullworthy Links. These links will take you to quality educational material and content on the subject of options trading. Stock options are tradable contracts – a financial product that investors can buy and sell in the open markets. Even the simplest option trade is pretty confusing, so it will help to learn as much as you can about the basics first. Here’s some links I approve and guarantee will do just that for you:

Chicago Board Options Exchange – the CBOE is the US’s largest open-market options exchange. A tutorial offered by the CBOE is the equivalent of the Dalai Lama offering a tutorial on Buddhism. A must read for first-time options investors!

The CBOE trading pit

Wikipedia.org – A Bullworthy mantra: if all else fails, Wikipedia it.

Investopedia.com – Another Wiki-type guide and introduction to options.

Understanding Stock Options Made Easy  - My favorite tutorial written by a trader. It’s clean with no ads, understandable, and simple. A pleasure to read!

These links should get you started. Looking for a guide to a subject you’re not sure of? Submit it through email here and I’ll be happy to post some helpful links for you.

-Tom

Reader question: “What do I do from here?”

You’ve done your due dilligence and are ready to invest. What do you do from here?
The short answer is that only you can decide where to go from here. How confident are you feeling? If you’re ready to commit real money, you’ll need to open an account with a brokerage house. There are many available (explained in the video). The next question is , “how much can I afford to lose?” That will determine how much money you commit to your new account. Once your up and runnning, start investing!
If you’re not so confident, but want to get your feet wet anyway, open a practice account with a broker. This is a fully-functional account with fake money. Most brokerage firms offer these “virtual accounts” (explained in the video).
If you’re really not feeling confident, keep on studying.
Thanks for your comment and feel free to send any investment related questions to Tom@bullworthy.com!

Intro to Investing

Watch me explain, buy, and then sell 50 shares of a stock in real-time, all in under four minutes. It’s a Bullworthy introduction to investing for first-timers; if I can do it, so can you!

Questions, comments of concerns? Tom@Bullworthy.com.

What is “DOW 11,000″, and why is it important?

Currently, the DOW trades at 10,991.68 points.
The Dow Industrial Jones Average (DOW) is the name given to the legendary stock market index that tracks the US’s largest 30 companies. The values of those companies that make up the DOW are averaged to give the index a particular score investors can monitor and benchmark their other stocks against. The DOW is an important measurement of how the overall American stock markets are doing because the stocks that are traded within the DOW (when compared to other stocks in the aggregate or overall markets) make up a substantial amount of the overall trading that happens in any given day.

The DOW’s history explains profitability in stock markets
To understand why the DOW’s point system is important to investors all around the world today, we have to understand what role the index has had since its inception on investor’s attitude towards a stock markets ability to be profitable. You see, the DOW was founded by a statistician over 120 years ago, and upon its first publication the score stood at around 40 points. In 1998, the DOW score was hitting all-time highs by coming in everyday around the 7,500 points area. By 2007 the score had climbed to over 14,000, and we all know what happened next – the biggest one day drop in the history of the index in September 2008 at 777 points. The index would go on to close around the low 6,000 in March of 2009, afterwards posting record-smashing gains to pass the 11,000 point threshold on April 12th, 2010. Simply stated, if your family had invested in the companies that made up the DOW index 120 years ago, you likely would not be here reading this today. I know I wouldn’t…I would be living in a huge mansion on my private island in the Caribbean.

100 years of the DOW

My point is, the DOW has created infinite wealth and massive appreciation since it was first founded, indicating that stocks over the long run will appreciate and make you money. Now you understand why the DOW is important to investors…let’s explore why the DOW points move.

The DOW rises and falls sporadically every day between the hours of 9 a.m. and 4 p.m., EST. Ever wonder why that is? Why can’t the damn thing just stay still for a few seconds?

The answer is because investors all over the world and buying and selling the stocks that make up the index constantly, in millions-of-shares-at-a-time volume, at the same time. If an institutional investor (mutual fund or a bank) buys 1.4 million shares of McDonalds, the DOW will rise a little bit. Maybe the next second (literally) another institutional investor sells 750k shares of AT&T – the DOW will fall a little bit. Now imagine that same scenario happening with 28 huge companies, hundreds of thousands of times a day.

The DOW dropped 127 points on Friday because Goldman Sachs is getting sued. Here are some resources I used to understand it all.

The DOW dropped 127 points on Friday because Goldman Sachs is getting sued.
In this post, I’ll explain the significance of derivatives using a few other sources I found around the internet I consider to be helpful for the first-time investor.

Information you’ll first need to understand: Goldman Sachs is an investment bank, an entity that uses other people’s money to generate fees and returns for themselves for whatever investment service is asked for. There are many different types of investments and assets that were a part of the Goldman portfolios that went sour during the housing bust of 2008, and of them was a type of derivative investments called collateralized debt obligations (CDO’s) and credit-default swaps (CDS’s). A derivative is an investment that derives its value from the value of another investment of assets (for example, a stock option is a derivative of stocks). The International Swaps and Derivatives Association is an organization made of derivative-trading firms. They have a great page here that explains the different types of financial instruments we call derivatives.

Now understand this: CDOs and CDS’ contributed heavily to the stock market crash and big bank bailouts across the globe in 2008. Essentially, investment banks like Goldman Sachs, JP Morgan Chase, and Citigroup were creating CDO’s in an attempt to bank on the mortgage boom in the 2000’s (note that these derivatives have existed since 1990, but they exploded in popularity only in this decade). So these banks were all set to profit as housing prices went up thanks in part to new homeowners and massive liquidity in mortgage markets, and they were set to incur some serious losses if they were wrong and it all came crashing down. Further complicating this risk was the intervention of hedge funds that came in and bet against the success of the CDO’s with CDS’. The banks wanted to incorporate the CDS because it was an exotic derivative that sort of acted as insurance for the CDO’s they had. Essentially, if the CDO failed, the CDS’ would offset the losses recorded on the bank’s books. The problem was the hedge funds KNEW the CDO’s would be probably end up being worthless in the event of a bust and bet BIG; the CDS’ were worth billions and billions of dollars. Eventually, the housing market crashed hard, the investment banks were wrong and their CDO’s were worthless. Because CDO’s and CDS’ work inversely of each other, the CDS’ were now performing outstandingly, putting millions of the banks’ dollars in profit into the hedge fund’s pockets, and the banks lost even harder.

Activision Blizzard gets hit by a nasty storm

I love using OptionsHouse to buy, sell and trade my stocks and options. Go to my website Diverse Trends and click on any OptionsHouse banner to open an account and receive 100 commission-free trades!

Show me the money!

I thought it would be helpful to show the world where my money is these days. Here’s one of the companies I own and why.

Activision Blizzard (ATVI) is a video game publisher who distributes some of gaming’s most successful franchises to date including “World of Warcraft” and “Call of Duty”, and other titles that span a seemingly endless list of categories and consumer tastes. Now, I don’t know much about video games (the last and only console I had was a Playstation 2, which I sold in 2007 despite its end-of-life adopted function as a shelf decoration, a purpose it served magnificently) but I do recognize the characteristics of a solid, profitable company when I see them. ATVI’s share price has come under intense pressure since the walk-off of a few key personnel who recently filed suit against the company alleging they weren’t paid the royalties they were owed. Investors punished ATVI’s stock at the time, but checking out a year-long chart shows the stock has traded in a relatively unchanged and narrow price range. Next year’s earnings are expected to grow 12%, and 14.66% in the next 5 years. ATVI has also stock piled massive amounts of cash and replaced the void management spots with a ten-year exclusive agreement between ATVI and the company that developed “Halo”, the sales record-smashing XBOX staple.

Option play: May $12.00 put: At the time I started buying into Activision, I thought it was sure to appreciate within a reasonable amount of time (I wanted to be out within 3-6 months), but it didn’t go my way. ATVI has traded flat since I’ve owned it, going on about 6 months. I think there’s growth in this stock, but I overestimated how quickly I thought it was going to rise. Now I’m stuck with a small loss and my choices from here are limited (but thankfully, simple). I can choose to hold the stock and wait; I can buy more shares, hold the stock and wait; I can do either combination of the previous two along with options to limit my risk; or I can sell all my shares. I still love this company so I decided to buy an option, wait, and hold.

Options give me the right, but not the obligation to buy or sell shares of some companies stock with the investor on the other side of the same trade. As far as this situation goes, I don’t want to buy more shares, and I’m not sure if or when it’s going up so I won’t buy a call option. I don’t want to risk my shares getting called out (sold), so I won’t sell a call option either. I’m not convinced the stock will gain much in the next few weeks, so I just want to protect against any potential future downturns. This strategy would be the opposite of my bullish outlook on ATVI, yes, or you can look at it as me “hedging” or limiting my risk. I would do this by buying a put option. Buying a put option gives me the right, but not the obligation, to sell the stock at a certain price (official term: strike price) and a certain time (official term: expiry). I have to choose the strike and expiry from a list that OptionsHouse provides to me called an options chain. I choose the May expiry because I would like to sell my shares in May (that DOESN’T mean I don’t love the stock or want to get back in – I just think this recent suit that came against the company could get ugly very, very soon). I chose the $12.00 strike price because that’s about what I bought it for in the first place.

Knowing your only possible outcomes reduces risk: Now that I know what price I can exit ATVI at, here’s what happens now. I own shares of ATVI but I also own a put option on the exact number of shares I own. The shares and the option work inversely of each other.

If the share price of ATVI rises, I profit on that value since I own the shares. But the profit will be smaller (official term: offset) because the value of the put contract will fall (remember the inverse relationship). Again, I’m not convinced this stock will rise, so if it does, I’ve done well for myself. This would probably be the least likely outcome; for now.

If the share price falls, the value of the option rises. So while I’ll lose since I own the shares, that loss will be offset by the option protection. This outcome is probably more likely to happen.

If the share price remains constant, at the expiration date in May I’ll exercise the option and get out of ATVI for now, breaking clean even. I’ll get back into ATVI when I think the time is right because I love this company – they are just under some short-term pressure in the next few weeks that I don’t want to be any part of. This scenario serves as the most likely scenario.

The lesson: Investors want to control their risk to maximize their returns, and we’re constantly looking for new strategies, tools, and knowledge to do that. Buying and selling options contracts on the stocks you own is a classic risk-reducer. I emphasize “stocks you own” because taking out options contract on a stock you don’t own (recall that options are created for the stocks out there; in other words, they are a derivative or an underlying asset) is called “naked” trading. Be forewarned: options can be very risky because they have the potential to be very volatile in their price swings. Naked trading will amplify that risk to dangerous new levels. You can lose money in options; however the most money you can lose is the amount you’ve paid for an option if it expires worthless or unexercised.

I love using OptionsHouse to buy, sell and trade my stocks and options. Go to my website Diverse Trends and click on any OptionsHouse banner to open an account and receive 100 commission-free trades!

-T

“WOW”!

What else can I say? 2010 has thus far been an ugly, ugly year for investors across the globe, or at least so it seems. The DOW has climbed a few hundred points, economic data suggests the US economy is expanding and back on track, and companies are reporting fantastic earnings for the first quarter. So what’s the *%&$ing problem?!

The problem, my friends, is the proliferation of technology and people not knowing how to use it. Now, I apologize in advance if I go off on a tangent here, but please try to keep up, because this may be the most important thing I’ve written so far. In the 1980′s, Michael Bloomberg found great fame and accreditation for founding Bloomberg L.P., a financial media company that developed and installed digital trading terminals in the New York Stock Exchange to help floor trader’s execute (then) lightning-speed trades, increase liquidity and access to stock markets. From there, the technological boom took off. Fast forward 15 years to 1998, when personal computers and the internet was becoming more and more accessible to the average Joe and this little boutique online trading firms began to pop up. Their purpose? To allow for retail investors (you and I) to sit at a desk and trade stocks over the internet.

Fast forward another ten years. Online trading has exploded; it’s literally everywhere. Every online message board, every CNBC show, every radio program, EVERYWHERE, EVERYONE is now a “trader”. Even Grandpa is trading $5,000 in Ford stocks for penny-gains (“look at that!” I can hear him now saying, “I made $14.75 off ONE TRADE! Amazing!”) And maybe I am bashing my own kind, but I’m not ashamed. The reality is that 70% of the “traders” you see on YouTube are not professionals, and I’m willing to bet only about 4% actually make money over long-term, sustainable periods of time.

So incompetence flooding the market is one issue. These people get all fired up about something they see on CNBC and panic-woosh, just like that, everyone jumps on the bandwagon and we end up with massive equity selloffs around the world’s markets (of course, the silver lining in overselling is that shrewd investors like you and I can buy great stocks and options at great prices). The other fundamental issue I think about everyday is technology. Technology has made trading easier (just turn on your computer), faster (before I blink my orders are filled…its instantaneous these days), and more price-efficient (some stocks trade for $.0560…how the hell did we ever get so accurate???). But this same technology has a down side, and you better believe smarter people than you and me are using it to make money off of us, and not just a little money, I’m talking millions.

Ever heard of “high-frequency trading”? Smart Money magazine first did an article about a hedge-fund company back in 2007 that had developed this automated trading system that can butt in on the exchange between your money and the shares you’re buying for like 1/15th of a second, and in that time shave a penny off the price and stuffing it in a bank account. This company was doing that millions of times a day, and absolutely killing it in profits without risking anything. Last year, Forbes did a cover story about the “New Masters of Wall Street” – high-frequency traders who were setting up these systems, kicking their feet up on their desk and letting the millions just roll in. These are brilliant people, by the way – mathematicians, electrical and software engineers, professors, PhD’s – and you can bet they will beat you in their own game. You’ve got the odds stacked against your success right off the bat if you plan on becoming an active investor because you have to beat these guys out of your pocket. I’ve read one report that claims high-frequency trading accounts for nearly 70% of the overall volume on the New York Stock Exchange. Read more about algorithmic trading or dark pools and familiarize yourself with what you’re up against everyday the markets are open.

So here’s my final point: you’re up against some steep competition if you want to claim yourself to be a “trader”. If you’re making $75 bucks here, or $125 there, but lose $25 bucks here, and think you’re doing pretty good then wonderful- let me know when you’re approaching retirement, because you’ll probably need a job and I’ll probably need an assistant. It’s a losing game my friends, because even today the people who regulate financial markets don’t even know what we’re up against. Case in point: the DOW dropped almost 1,000 points around 2:45 pm on Thursday, May 6^th, 2010, the biggest intraday (time between when the market opens and closes) drop in the 126 year history of the stock market. Why?

There’s conflicting theories on the cause of the drop. Among the most popular:

• Trader error. The proverbial “fat-fingered” trader pressed a B for billions instead of M for millions during a trade execution using his keyboard at the New York Stock Exchange. While probable, wouldn’t there be some safeguard against this? Wouldn’t that trader know what he’s doing? Further, there is no way to track who the trader was, what firm he worked for, or what stock he was trading (although it’s been speculated it was a trader from Citigroup and Proctor and Gamble stock). Pretty scary if you ask me.

I reject the fat-fingered trader theory. I think someone made a shit load of money during those 15 minutes when the DOW was down by almost 10%, and then rebounded over 6% as suddenly as it fell. Further, the Greek debt crisis isn’t helping – everyone is worried that it’s just a symptom of a greater global credit risk, and that Greek problems are more systemic than we first anticipated, and I agree.

I’m trading against these markets. I’m using put options to short a handful of stocks. Here’s a video showing you how I do it. If you want to get started making your money work for you, email me at tom@bullworthy.com and let’s get you 100 commission-free trades at Optionshouse.com. Hey, if I can beat the high-frequency traders and faulty technologies, so can you.

-Tom

CNNMoney sheds light on the infamous 1,000 point sell-off

After the massive market slide last week when the DOW dropped almost 1,000 points around 2:45pm on Thursday, May 13th, 2010 I wrote a piece that outlined my skepticism for “day-trading” retail investors and the explosion of information technology and easy access to financial stock markets that came with the internet boom. I stopped short of calling it a disaster, really; and I stick by it. Too many people who have an Ethernet connection, a couple thousand dollars to bet on and a computer can buy stocks without any credentials, training, licensing, or experience, a lethal concoction I foresee we will soon regret. Because a stock market is where people come to buy and sell securities at prices that change 3-10 times a second. Complex models have been developed by brilliant mathematicians that are willing to pay millions for computer software that will automatically trade markets or trends with almost no human interference. These people have more resources and knowledge than you or I, and they are using it all to take our money, everyday.

So in this particular article I wrote, I was questioning whether or not this 1,000 point intraday plunge was an “omen” of sorts. That maybe allowing people who sit at home in front of the computer all day, buying and selling shares for marginal profits thinking they know what they’re doing is a mistake. I think someone was behind that massive trade last Thursday, and I think whoever it was made a ton of money when it came back up 15 minutes later.
Was I right? You decide. Here’s an article published at CNNMoney.com today concerning the source of the market drop:

NEW YORK (CNNMoney.com) – By Ben Rooney – Investment firm Waddell & Reed responded Friday to a media report that it placed a large sell order for certain stock futures that regulators believe may have contributed to last week’s brief-but-historic stock market crash.
In what has come to be known as the flash crash, the Dow Jones industrial average plunged 1,000 points — the biggest intra-day trading drop ever — on May 6, briefly erasing $1 trillion in market value, before regaining much of the lost ground.

While the ultimate cause of the collapse remains unknown, regulators have focused their investigation on a sharp drop in the value of a stock future called the E-mini S&P 500, which investors use to bet on the future performance of stocks in the broad stock index.
Waddell, an asset management and financial planning company based in Overland Park, Kan., sold a large order of E-mini futures contracts during a 20-minute span that corresponded with the plunge, according to a document obtained by Reuters.
In a statement, Waddell said it was one of possibly 250 other investors trading the E-mini futures contract on the day in question.
“On May 6, as on many trading days, Waddell & Reed executed several trading strategies, including index futures contracts, as part of the normal operation of our flexible portfolio funds,” the firm said in a statement.
Waddell added that such trades are used to protect investors from potential losses, adding that the firm is a “‘bona fide hedger’ and not someone intending to disrupt the markets.”
“This is a longstanding and well-monitored practice in certain of our investment portfolios,” said Waddell.
Waddell (WAD) shares fell 5% to $32.38 Friday.
Gary Gensler, chairman of the Commodity Futures Trading Commission, said in congressional testimony Tuesday that regulators were focusing on one particular trader in the market for E-mini futures as part of the commission’s investigation into the flash crash.
Gensler said the trader in question entered the market at around 2:32 p.m. ET on May 6 and finished trading by around 2:51 p.m. ET. He said this trader and others had executed hedging strategies of similar size previously.
A spokesman for the CFTC said the agency has no comment on the report.

What do you think? Drop me a comment. -T

The S&P 500 is testing new lows – here’s how I’ve learned and what you need to know!

As the market adjusts itself from the exponential rally from 2009, six months into the year we’re just slightly below where we started in January. The first six months of the year is lost; the S&P 500 was up 8% for the year from January 4th at 1,133 to 1,219 reached on April 26th; but then yesterday closing down nearly 13% from that high and only 2% higher than the lowest the index has read for the year, reached on February 5th. Think about it – in six months, you’re IRA or the pension fund your company offers likely earned nothing and considering furious inflation may be just around the corner and interest rates could soon rise if this recovery regains traction, you’ll need to be earning at least something. Need a quick brush up lesson? Inflation occurs when a country prints and spends more money without backing it with a firm, tangible asset (most currency is on the gold standard). That means the purchasing power of $1 is will be weakened, meaning you can’t buy as much tomorrow as you can today. Inflation erodes returns, causing investors headaches; today, we’ll need to make at least 3% returns just to keep up with historical inflationary rates. Interest rates are the percentage rates borrowers pay to investors to use their money, and of course the government lowers standard inner-bank interest rates to spur lending (lower interest payments entices borrowers to borrow, creating economic growth and opportunity). The government agency that controls these rates is the Federal Reserve System (Fed), who has kept interest rates at rock-bottom levels basically since 2000, in response to the tech stock market crash of the same period. The Fed then raise interest rates when economic growth and stability is apparent and solid to curb lending, and subsequently, discourage inflation and potential bubbles (case in point: if the Fed had raised interest rates in 2003-2005, people would not have been able to take advantage of cheap credit and buy expensive homes – maybe the housing crash of 2008 would not have been so severe?)

So you see the cyclical challenges that lie ahead (remember: while the nature and severity of every recession may be different, typically, the solutions and weapons used to bring economic growth back are the same. In other words, each recession adheres to a timeline or cycle). But there’s much, much more when it comes to guessing what trend we’re on today in terms of growth, and I’m going to break it down for you.

Fundamentals

The fundamentals of the S&P 500 are strengthening. When you read about fundamentals, remember that we’re talking about evaluating the strength through sound financial practices, and tangible, measureable, and justifiable reasons why you think an entity will succeed or fail. For example, a company that has little debt, plenty of cash, is generating revenues and profits and just recently declared a dividend, has what you would call strong fundamentals. A company that is missing one or two of those characteristics has decent fundamentals. A company that is missing most of that has weak fundamental strength. Fundamentals in stock markets and the overall American economy are based on compiled and regularly released economic data and the strength of the companies selling on that particular market or index.

The fundamentals of the S&P 500 are what I would call “decent” – corporate spending has been up this year as durable goods orders last week were way better than expected thanks to a boost in non-commercial airplane sales. Consumers are beginning to spend too – measured by Consumer Confidence, a report released monthly, shows a third consecutive monthly gain. Jobs data has improved, but the numbers are tricky because of the consensus poll that was taken this year that showed nearly 80% of those hired were temporary workers. While unemployment is down about half a percent, as those temporary workers are released and next month’s data comes out, unemployment will probably rise again. Corporate earnings for the S&P 500 companies have been tremendous since around this time last year, with companies from all nooks and crannies of the index crushing their analyst’s estimates. These figures come as companies release quarterly earnings while averages are compiled for all those companies as they report. But there’s a catch to this one too: in the face of severe recession and expected declines in sales, companies aggressively cut costs (most obviously labor and work force) and maximize revenues, actually resulting in record earnings and profits for companies across the board. What we as serious investors want to see is top-line growth; we want to see economic and company-wide expansion and growth and the ability to strengthen balance sheets and cash flow in the process. Aggregately, we may be a long way away from that kind of prosperity in the S&P companies, although there is some good news: some of the S&P’s biggest names are performing at incredible capacities and are projected to continue growth, like Apple and Exxon Mobile, lifting the averages for the entire index.

Technical’s

Technical’s are much more complex and just as important to recognize and understand as fundamentals. While the reasons for the importance of technicals and the application of technical’s as a standard investor’s tool have evolved and changed over the years, the basic idea is simple: momentum. In its most simplistic form, technical analysis involves looking at a chart of a company or index and identifying trends in the way the stock moves at certain intervals of time. You may look at a chart and say, “OK. Here is where the price of this company was highest, and that’s a resistance level, meaning if the price ever goes higher than that point it will likely continue on higher. And here is the lowest point the price has ever been, and that’s its support; if the price should dip below this point it’s equally likewise it will continue on lower”. Congrats! You’ve just conducted technical analysis. Practicing technical analysis is completely different from fundamental analysis; in fact, trading on technical indications completely ignores the fundamentals of a company or index, with the idea being basically “who cares if this company or index is strong if no one is buying it – just look at the chart!”

The technical’s for the S&P aren’t pretty. The price on the index has been battling overhead resistance at 1,090 for some time now while testing lower and lower support levels more often. In fact, since the highs of April, the S&P has been setting lower and lower support levels while testing that higher resistance level only once or twice. The question is this: are these drops a trend that will continue all year long, or is it simply a bump in the road, understandably so considering how far the index has come off March 2009 lows (about 75%!) For techies, the answer lies in the charts.

Here’s where we’re at. Investors have been selling off the S&P since April, shedding about 13%, more than what we would consider to only be a “correction”, defined as a 10% drop after a massive rally and then continuing the massive rally again. The sell-off has been on foreign debt concerns out of Spain, Portugal, and of course Greece, and as of yesterday, Turkey too. Add to that increasing trade and human rights conflicts between Taiwan and Korea; massive devastating earthquakes, floods, and other natural disasters in Haiti and all over China; uncurbed and wild growth in China that could eventually be a bubble; continued and unimproving social unrest all over Afghanistan, Pakistan, and Israel; and domestic issues like debilitating unemployment, stunted economic growth and massive government debt, and of course what’s now been called the largest oil spill in the history of the US in the Gulf caused by BP’s rig explosion and sinking in April. The news all around us is bad at a time (considering the financial meltdown and worldwide stock market crisis and panic in 2007-2008) when we need and we’re expecting good news. Millions of Americans are in homes they can’t afford and foreclosures are rampant, and there could be the equivalent of the same real estate debt and investment explosion happening in commercial prosperity just around the corner. Investors are beat and tired, and if they continue to sell the S&P below that low reached in February 5t, 2010 low of 1,044 (we’re only 2% away), then watch out – we could be reliving 2008 all over again.

As always, post comments or email me at tom@bullworthy.com and share your thoughts, experience, and opinions.

A Play for the Bold – IAG call option could rally this morning

Feelin’ bold? I was, so I put on an investment that incorporates a lot of risk, a lot of certainty in its theory, and if I’m right, a lot of payoff.

I have been buying and selling shares and options on I AM GOLD, Corp. (Ticker: IAG) for quite some time now; since April 2009 in fact. While just over a year isn’t a whole lot of time in the long run, it’s substantial enough to have provided me with opportunities to monitor and form a general price movement and behavioral model for the stock. I was in the stock, not the option, when it made that big push for $20/share and I sold almost all of my position, only to watch it tumble back down to the levels I first began buying at. It was November of 2009, a time when market uncertainty and the threat of a double-dip recession loomed in the U.S., before the last leg of the rally in December and January 2010.

There are a lot of impressive developments coming out of this company. IAG produces about a million ounces annually from 7 mines on 3 continents, creating globalizing opportunities with the goal of reaching 1.8 million ounces of annual gold production by 2012. The first quarter of 2010 brought earnings of $.16 per share, an increase of 12%, and net earnings were $.14 per share, an increase of 63% year over year. Cash flow and gold production showed only signs of strengthening. A number of intrinsic value calculations I’ve performed puts this stock price at as much as $45 per share in 2011.

Gold has been rallying this week, breaking as much as $1,250 an ounce, a psychologically and technically significant level in the wake of stock market hesitancy among investors. I always take a look at IAG at times like these because the company offers the exposure to gold (albeit in a round-about way), but also the exposure to stocks and the ability to rally on what I call “the emotional rollercoaster”; investors tail spinning into panic and pilling into a safe havens like a profitable gold production company or other commodities.

I took a look at the options chain yesterday, and noticed a small spread between the prices to buy and the prices to sell the call option (the call options is the right to buy a stock, but not the obligation). The strike price was $17.50 (the price the stock has to reach and surpass to become valuable), and the expiration is this month (the third Friday of the expiration month is the actual expiry day). Once the expiration time passes, the option is worthless if not sold or exercised. This is a risky bet because the expiration date is around the corner – what are the chances the stock will rally past $17.50 in a week and a half?

I think the chances are pretty good, considering the BP oil spill fiasco will likely get worse before it gets better and investors will continue to be turned off of oil commodities. I think we’ve only seen the beginning of the European debt crisis, and although Ben Bernanke, the chairman of the board at the Federal Reserve, the government’s banking system says the crisis won’t cross over the Atlantic, I’m not so sure.

The price of the option contract I bought is currently trading at $.50 each. You can buy as many as you want; for privacy protection, let’s just say I bought a lot and will not disclose the actual number. Each contract represents one hundred shares; that means you have to multiply the option contract price by 100, and then again by however many contracts you want to buy (one contract at $.50/each, multiplied by 100 = $50 each contract). The option contract price appreciates as the stock price approaches and passes the strike price of the option; in this case it’s $17.50. The stock is currently trading at $17.30 with a 1.5% rise and after-market jump after hours yesterday. The spread between the bid and ask price (the buy and sell price) in pre-market this morning on the stock has a massive spread; $17.11 and $19.53, respectively, indicated a potential rally in the price. We’ll see if I’m as good a trader as I think I am.

Share your comments or thoughts here or send them to tom@bullworthy.com!

-Tom

A Play for the Bold Update – a $1440 gain in 10 days.

“Feelin’ bold? I was, so I put on an investment that incorporates a lot of risk, a lot of certainty in its theory, and if I’m right, a lot of payoff.”

Boy, did it ever.

Last Wednesday the 9th I wrote an article about a strategy I was putting on (see the article below this one). It’s called a “short call” – I was basically buying a call option that was set to expire in less than a week. The investment was to pay off if the shares of I AM GOLD, Inc. went above $17.50 before today. While it was an incredibly risky bet, I was fairly confident the stock movement would happen based on simple technical analysis and some fundamental knowledge I have of the company. You’ll recall in the article that I mentioned I had been trading IAG for quite some time now – a key strength in any investment strategy – so I was familiar with how the companies’ stock moved.

Here’s basically how it works: I paid $.65 per option contract that gave me the right, but not the obligation, to buy 100 IAG shares at $17.50 a share (every option contract equals the right to 100 shares, so ten option contracts would give you that same right to 1,000 shares).At the time of the investment, the shares were trading at around $17.25 a share. All options come with an expiration date, which happened to be today, so at the time I put on the trade I had exactly a week and a half for this to work. And therein lays the risk: the chance of IAG passing by $17.50 in that very short amount of time was slim to none according to the fundamentals of the markets. But I knew IAG was trading at just over $20 a share two weeks earlier and I was familiar with the volatility in the stock.

Additionally, I knew that since IAG is a gold-mining company, the stock price typically holds up during major market sell-offs like the one we’ve been in since May 2010. The DOW has shed more than 10% during this year’s correction, and it defiantly wasn’t likely that would end this week. Lastly, because IAG is a gold miner, the share prices move when gold moves, and gold is has been hitting new highs this month as investor flee stocks for commodity and metal security (recall that gold, metals and U.S. Treasuries move in opposite of major stock markets).

So I was feeling good – until Monday and Tuesday morning. The farther a stock price falls from the option strike price (mine was $17.50 a share), the less it’s worth because no one is willing to buy your call option from you if the market price is lower – essentially, it’s worthless. The stock hit $16.70, and I lost about 85% of what I invested; I nearly pulled the trigger, sold it all, and charged it to the game.

Side note for experienced investors: I did not use a stop-loss, although I would never again do this without one! Lesson learned!

Then on Tuesday and Wednesday it all came back exactly as I thought it would. The stock finished above $17.50 on Tuesday, and advanced to more than $19.00 on Wednesday. I had enough sickness for one week. When the option bid price (the price other investors are willing to pay) hit $1.45 a contract, I pulled the trigger and sold my entire position netting (minus commissions) just under $1440.00 for the trade.

Whew! Just think though, if you would have followed my strategy in my exact same footsteps, what would you do with all that extra cash?

Oh, and here’s a video I did a few months ago…watch me trade a live put option and make $50 in seconds (no bullshit, by the way – you can do it too).

As always, comment or email questions or concerns!

Tom

Bullworthy Post Called It First on May 7th: CNBC says Flash Crash due to “high-frequency trading”

Originally, when the Flash Crash first hit the market as a nearly 1,000 intraday point drop on the DOW, investors, analysts, economics, and news-talk journalists went ballistic. The DOW had never dropped that many points in any single day since it’s inception over one hundred fifty years ago; and further, a sudden plummet like that has never happened in that short amount of time. In less than fifteen minutes, the DOW lost nearly 10% of its value with a single trade, causing professionals all around the world to cover their mouths with their hands and loudly speculate to each other, “…what the hell was that?!”

The reason is because despite the technological breakthroughs our society has accomplished, we don’t know exactly what trades happen when, because the difficulty and complexity of tracking each one would equate to something like finding a particular needle not in a haystack, but say, all the haystacks in North America. The shares of publicly-traded companies are exchanged in individual “trades” – a buyer agreeing with a seller on a number of shares at a given price – and literally millions upon millions of shares of fifteen thousand different companies pass through trader’s hands everyday. In Citigroup’s case, during the financial panic of 2008 the amount of shares changing owners in one day was more than four billion. Want to find exactly who traded what during that May 6th, 2010 thousand point crash? The Securities and Exchange Commission would love to meet you, because they’re still lost for answers.

But many explanations have been offered up (naturally, not many of them relevant after today’s news) that primarily revolved around what is referred to as the proverbial “fat-fingered trade”, meaning a trader accidentally pressed the “B” button on his electronic trading platform, inadvertently indicating he wanted to sell a billion shares, not the “M’ button for the million shares that was intended to be sold that wouldn’t have had any affect on the DOW in that case. Oops.

Well, I didn’t agree. I wrote a blog post explaining a recent trading strategy and computerized activity smart hedge funds engage in called “high-frequency trading” using “dark pools”, both of which are explained in that Bullworthy May 7th article found here. Essentially, my argument was that these smart, resourceful money managers and traders that are using this powerful software trading technology to trade based on computerized systems and formulas that put you and me as retail investors at severe disadvantages if we wanted even the most simple levels of fairness, one for example being favorable price executions.

Then, a week later CNN posted an article (found here) that revealed an investment firm called Waddell and Reed came forward as the responsible party for the Flash Crash and that it was not necessity a “fat-fingered trade”. I put the question to the readers: was I right? Was there some smart, resourceful trader out there that made millions by shorting the DOW one thousand points and then buying it back as it recovered for immediate trades? Was Waddell alone in this bizarre trade? Read that Bullworthy May 14th post here.

Well today brought even more news and light-shedding on the matter. Here is an excerpt from the article, and I quote: “But a growing chorus of traders and legislators believe the flash crash is symptomatic of a larger problem with high-frequency trading and a market that lacks visibility and is susceptible to similar events in the future”.

I was speechless when I saw this article hit the wires, posted right on the front page of YahooFinance because (do I need to even say it?) I was absolutely right.

Here’s the full article so that you may form your own opinion.

“The May 6 “flash crash” may be history, but its after-effects—and threat to the stock market—continue to loom large after two recent mini-crashes in individual stocks.

Regulators have characterized the initial flash crash, which saw the Dow lose nearly 1,00 points in a matter of minutes, as a one-off occurrence possibly attributable to a “fat finger” trade or some other market anomaly. But a growing chorus of traders and legislators believe the flash crash is symptomatic of a larger problem with high-frequency trading and a market that lacks visibility and is susceptible to similar events in the future.

“We have a global economy and a global trading system, but we don’t have a global framework to deal with it yet,” says Doug Roberts, chief investment strategist at Channel Capital Research. “Until you do, you’re going to be prone to this. With the average investor, they’re going to want to be a little bit more conservative.” The problem could be even more serious when it comes to investor confidence. While market volume always thins out in the summer, some think the flash-crash also is playing a role and could be a long-term deterrent to participation if regulators don’t come up with preventive measures soon.

“People are voting with their feet,” says Sen. Ted Kaufman (D-Del.), who has been pressing the Securities and Exchange Commission and Congress to address the underlying causes that led to the flash crash. “Why would they not be concerned? We are playing with dynamite here.” Thus far, the main reaction has been the implementation of circuit breakers that stop trading on individual stocks should they rise or fall more than 10 percent in a five-minute span. The rule, implemented for a six-month test period, got it’s first workout when Washington Post doubled inside of a second Wednesday, from nearly $460 to $929.18.

The circuit breakers essentially did their job, halting trading in the company after the surge. But the mystery remains over why such events happen in the first place. The WaPo jump was the second flash-crash since the initial event. Tech services company Diebold saw its shares plunge 35 percent then recover in a period of a few minutes on June 2, before the circuit-breakers kicked in. The non-transparency that stems from high-frequency trades, which can happen in milliseconds, makes tracking the trades virtually impossible. Some estimates have high-frequency trading accounting for about 70 percent of all market activity.

A congressional panel looking into the issue has made little headway. “Before you can actually get involved with the market structure, you have to have some idea of what is happening inside the black box. A bunch of people sitting in a room starting at the black box and saying, ‘What are we going to do about it?’ doesn’t help,” Kaufman says. “The high-frequency trading industry has been very successful in slowing down any real investigation into what’s happening”. Defenders of high-frequency trading say it pumps liquidity into the markets and makes fair trading possible.”

By Jeff Cox, staff writer at CNBC.com

So feel free to post your comments or chat with me at tom@bullworthy. You can also find me on Skype@tommycopeland, Twitter@financialbull, or Facebook@bullworthy.

Tom

Earning Their Copper: Penny Stocks That Are Actually Worth the Pennies

Successful first-time investing is all about learning as much as you can and then applying that knowledge with discipline and practicality. And while that sometimes isn’t even half the battle you’ll likely face ahead, it is probably the first step and will soon be your golden rule if you ignore it and lost money on your first trades. Investing with discipline and practicality means you’re buying what you know, when you know it, and at a price and value that you understand.

Is that too much to swallow in one sentence? I know it probably is, but you’ll have to get used to it. Let’s take this one step at a time and use (what seems to be, at least) a common first-time investors Holy Grail: the penny stock.

A penny stock has undergone many definitions among traders and no one description seems to hold any more validity than the other. Some say a penny stock is any publically-traded stock that trades for under five bucks a share, while other insist trading under a dollar a share is the mandatory criterion. I have to agree with the former argument; when deep recessions hit and stocks tank, many times it’s because one rotten apple spoils the whole fruit basket because even the good apples are considered tainted (consider the big banks of the 2008 financial crisis: Lehman Brothers and Bear Stearns who dramatically failed and brought down with them some smaller banks and thrifts that had no exposure to mortgage lending and investments and therefore weren’t as vulnerable but their shares plunged anyway). In medicine, and as of recent popularity in business and finance, this foul, bad reputation is referred to as “contagion”. My point is this: sometimes a stock trades below five bucks a share without truly being worth anywhere near that little amount when it’s really not the company’s performance at fault, and they shouldn’t be classified as a penny stock.

Another important criterion a publically-traded company must meet with the penny stock label accurately is that it’s traded “over-the-counter” or OTC on obscure, unregulated stock exchanges that are rife with ambiguity and unsureties. The two most major exchanges in which penny stocks are traded are Over the Counter Bulletin Boards (OTCBB) and Pink Sheets. Here’s the difference between the two and after you read you’ll understand why your knowledge and discipline will be so important when deciding whether or not to buy a penny stock. OTCBB is an exchange in which regulation occurs (companies are required to report financial documents, statements, and changes to the SEC and be made available to the public at all times) and typically they feature companies of all sizes who a) don’t meet the listing requirements of major exchanges, including but not limited to a certain stock price or shares outstanding and free trading; or b) are gearing up for major exchange listing.

The Pink Sheets by stark contrast lists companies who are not required to file any public documentation and are under no obligation of regulation. For all the shareholder knows, a Pink Sheets company could be one big Nairobian credit card and identity theft scam (sorry Africa, I’m just so damn tied of those emails.)

Know what it is you’re trading. Enough said about discipline for now.

Practicality means doing some homework. If you’ve found a penny stock company that you think has a unique idea and could gain some attention, do some homework! These are publically-traded companies; that means any and all information (within reason, and after its public release of course) is available for you to know.

The majority of penny stock companies are new and small companies that have a ton of debt and not much revenue because there are in that start-up phase. So by that very nature, their share prices tend to be very volatile and don’t trade very often, meaning that if a big number of shares traded in a transaction one day in relation to how many shares are outstanding and available to purchase, there is a huge price swing whether it be up or down. Another investor buying ten thousand shares of a fifteen cent stock could send the share price up five hundred percent in a day (I’ll talk more about why penny stocks move up and down and the factors that contribute to those swings in a later post next week that includes why they can also be dangerous and unforgiving).

Expecting a four-thousand percent return on a penny stock you just read about on a YahooFinance bulletin board? Great! Let me know about it, so I can avoid buying it.

Here’s the bottom line. If you found a penny stock you really want to buy because you think it could explode, then stop for a second and consider this: is there really anything interesting about this company? Where’s the story and where is the proof? If you can’t come up with much, it’s hyped. Here’s an example of an interesting company who’s executive board I recently met and talked to.

Janel World Trade* has been a logistics and transportation services company since the 1970’s, shipping all over the world for its clients and has gained exceptional accreditation in its business, most notably into China. In 2007, an environmental organization approached Janel to help them ship six hundred containers to a heavily polluted and contaminated lake in a Chinese providence called Lake Tai, a huge body of water that supplied water to millions of people in many towns and two major cities: Shanghai and Wuxi. The containers held an anti algaecide solution called Clear Blue 104 the environmentalists had been contracted to distribute but were having issues clearing the requisite permits with the local Chinese authorities. Soon, the group had lost the contract to deliver Clear Blue, creating an opportunity for Janel to step in and take over by using their government contacts, knowledge, and experience. The company eventually landed a United States Trade Authority grant to test the solution in live lake conditions, a grant from a U.S. government agency that obviously has big interests in building trade around China. The initial testing has gone well and the next step is to actually implement the solution into Lake Tai. Should this all go according to Janel’s plan, there are hundreds of other lakes (and millions more dollars that will be committed to Janel) that can be taken advantage of, brining in a whole new vertical business to the company’s corporate and operational structure and new streams of dependable, high profit margin revenue.

And what if Janel does not get follow on contracts immediately? Because Janel is such an unknown and under followed company, there has been no value placed on the potential for large high profit contracts in the water pollution remediation sector. Janel, which did $71 million in logistics business last year, is trading at a very low market capitalization of $8.8 million (remember that “market cap” is calculated by taking the amount of shares outstanding (available) and multiplying that by the stock price – loosely defined, its a way to value a companies worth). When Janel gets noticed by more investors, this valuation could easily rise to a more reasonable multiple of sales. In the second quarter of 2010, Janel announced record-high revenue increases of about twelve percent at $20 million dollars in only three months. Janel’s stock trades under the symbol JLWT for just $.40 per share.

Price-to-sales is another fundamental business valuation (PSR) that pegs a stock to it’s performance history or to that of other stocks. PSR is calculated by dividing the share price by the revenue per share. Most small, un-traded, and unnoticed stocks like Janel have little or no revenue, much less $71 million.

So what about Janel? IT’s tremendously low; in fact a PSR of just one times sales, a modest estimation, would put JLWT (on last year’s revenues and no contribution from Chinese environmental contracts) at a price of $2.00/share. Now there is a penny stock worth its copper.

As always, post your comments, questions or concerns or email tom@bullworthy.com.

*I have received absolutely no cash or any form of compensation from Janel World Trade before, during, or after writing this article.

The End of BP: Bullworthy Sits Down With John DiBella, The COO of Enviro Voraxial Technologies

“How long will you be down there for?” I asked John, between sips of coffee. We had just started talking. “As long as we have to be” he responded with authentic austerity.

Within the oil industry, there is a market that a small South Florida company with a proven technology is perusing called “produced water”. For every one barrel of oil extracted and produced from underground wells here in the U.S., up to ten barrels of water is extracted. This water needs to be treated and purified of its contaminants before it is released back into the environment. Just how much water needs to be separated and then produced by these oil explorers? To answer that, you’ll need to consider that more water is produced in one year from oil companies than the amount of water that spills over the Niagara Falls in nine straight days.

Researching companies that are positioned for results in the gulf spill disaster zone there are a few opportunistic publically-traded companies that highlight the skills needed. But the problem, from the day the Deepwater Horizon rig exploded in late April to today has been a severe lack in efficiency – getting more done with less.

Enviro Voraxial is one of the companies meeting the need for efficiency. When I spoke with the company’s chief operating officer John A. DiBella, he was in the Gulf Panhandle meeting with local communities, authorities, and oil spill clean-up officials to discuss their technology and demonstrate the oily-water separator his family and him had built an entire company around called The Voraxial Separator. The separation machinery comes in a series of scalable sizes that are all designed to treat a range of wastewater flow rates and volumes; the Voraxial is arguably the world’s most efficient technology for high volume, bulk separation of fluids such as oil and water.

It’s clear that BP was not equipped to handle this kind of spill, but Mr. DiBella is happy to offer up that the oil company has been responsive in their efforts to locate, test, approve and acquire technologies that can help manage the enormous clean-up effort that lies ahead. In our conversation, Mr. DiBella did confirm that BP is reviewing the Voraxial separators and that Enviro was now one of 60K original clean-up assistance applicants, and then whittled them down to 250-500 closely considered candidates the oil company would be in discussions with.

And that’s the theme Mr.DiBella and I agreed should be emphasized: efficiency. The Voraxial is a proven technology that has generated revenue for the company as a diversified machine coming in four sizes: the Voraxial 1000, the Voraxial 2000, Voraxial 4000, and Voraxial 8000, all designed to handle different volumes of fluid efficiently and cost-effectively while using less space and energy than other technologies. Customers include the U.S. Navy and the State of Alaska (both have issued Letters of Endorsement to Enviro Voraxial that can be found on the company’s website here), and other major, worldwide energy exploration and oil and gas drilling companies.

I asked Mr. DiBella to compare the Voraxial technology to some other high-profile competitors. One of them is a company called Ocean Therapy Solutions that offers an oil and water separator centrifuge developed with financial backing from actor and enviro-activist Kevin Costner. Politely, Mr. DiBella began by acknowledging that any separation technology that can be used should be used because this Gulf oil spill is such a grand disaster.

“It’s great that everyone is trying” he said, before going on to explain that Ocean Therapies separator maxes out at around 150-200 gallons per minute of separating power (about 5,500 barrels per day), while the Voraxial 4000 does over two and a half times the volume of Costner’s machine at fraction of the cost (about 40% the cost), weight, energy, and space. Finally, the Voraxial 8000 does about 25 times the volume of Ocean Therapies largest unit at about 3 times the cost.

Mr. DiBella was confident in the company’s discussions with BP and other Gulf officials in the benefits that the Voraxial technology can bring to all parties involved in the clean-up effort. “BP has been responsive” he said, before going on to explain how Enviro is positioned to not only properly deploy its units in a timely manner and contribute to the Gulf clean-up effort but at the same time maintain as a small company whose technology can be used in a multitude of other functions. The company is currently pursuing many projects in the refinery, tar sands and produced water industries.

Mr. DiBella has also forwarded on to me a letter he received from a fuel division manager from the U.S. Navy. Although the material was confidential and quotes were not available at the time of this publishing, it was well within the manager’s opinion that deployment of the Voraxial would reduce, by large margins the damage done t the Gulf and recover a far greater amount of hydrocarbons that have been released in the Gulf. The letter also went on to praise the technologies efficiency and conceded that the machine is so powerful, spills of any magnitude could be dealt with in the future.

I had also asked about the conditions of the fundamental capital structure of the company – specifically, cash flow and long-term debt. “You have a small company with new technologies working with some of the largest companies in the world with a clean balance sheet and at a time when our product is needed so desperately” Mr. DiBella said, “we moved this company to a debt-free position and we believe the shareholders will be rewarded”.

The debt-load he is talking about shedding is the largest long-term liability on the balance sheet, accrued salaries to executives, which was converted into stock options in the beginning of June. “The officers are not here to draw a salary” Mr. DiBella concluded just before he had to hang up, “we’re here to build a business and in doing so, benefit from the appreciation of our share price”.

As always, feel free to contact me with questions, comments, or concerns, or suggest another CEO or company to interview at Tom@bullworthy.com.

DISCLAIMER: I have not been compensated in any way, shape, or form by Enviro Voraxial, John DiBella, or any of their affiliates or third-parties.

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Crisis Investing – Bullworthy Talks with Leslie Kessler, CEO of PureSafe

As we’ve seen all too much this year alone, natural and man-made disasters have exposed drinking resources in those stricken communities to bacteriological and chemical contamination, making a once abundant clean drinking water source ineffectual in the greatest times of need. Leslie Kessler and I spoke on many different historical examples of catastrophes whose immediate first response relief has been swift and passionate, but not necessarily efficient as civil unrest and desperation threatened the prosperity of the relief efforts because of a prolonged lack to basic survival resources.

Ms. Kessler is the chief executive officer of PureSafe Water Systems, Inc., a company that has committed to developing PureSafe patented technology to provide purified drinking water to disaster response teams using a mobile unit specifically designed for rapid deployment worldwide. The unit can siphon water from any source albeit a lake, swimming pool, flood site, pumping it through the non-specific contaminant purification system- meaning it can decontaminate any and every strain of bacteria or pollutant with no need to test the water supply first for safety. The output takes only thirty minutes and can supply up to thirty thousand gallons of water a day, enough to serve forty-five thousand thirsty survivors and victims’ in portable bottles or bags onboard the unit.

PureSafe is considered a game changer among the disaster relief community that includes the government analysts testing the prototypes. While disaster relief is a highly collaborative effort among citizens and governments to suppress the damage and deliver resources and aid during an emergency in an efficient and well-organized fashion, the fundamental problem lies in distribution and the lack of preparedness protocol in public and private entities that are overwhelmed during these kinds of crisis (think of a hospital, for example). Take Hurricane Katrina as a practical model. The machine could have been air-lifted on a roof of by the stadium, connected it to contaminated flood water, and distribute it to the suffering people accordingly.

The company is currently undergoing government approval testing and in that effort, has hired on Underwriters Laboratories to help evaluate the electrical safety and performance of PureSafe’s First Response Water System functioning prototype. On today’s agenda is assessment of the uplift capabilities of the machine by crane.

The functions are simple enough so that the end-user only has to turn on the failsafe machine. Buyers of the mobile units (equipment with heavy-duty wheels built for abusive terrain and a helicopter-lift positioned onto the frame) are from the public and private sector and will include local, state, and federal agencies and departments including FEMA; hospitals and universities; the military, national guard and Homeland Security; hotels and many, many more national and international organizations that have interests in disaster response preparedness. The machines can be bought outright with warranties, leased, or rented with PureSafe providing on location support and staffing; towns and cities can also pool money together to buy one machine to share.
Ms. Kessler came into PureSafe in 2007 and immediately recognized that the existing technology was not fitting the needs of those demanding the kind of solutions the company was in the process of creating and subsequently, they started all over. They realized no company was totally focusing itself in the disaster response area that concerns water distribution while recent events have emphasized, now more than ever, that preparedness is the key – what if there’s an interruption in the water supply?

“It’s a great decision to be dealing with something that can make a difference and save people’s lives, and still be a very profitable company” said Ms. Kessler.

They’ve been attending conventions to network with potential buyers and investors this year. The company’s presentations have been extremely impressive: PureSafe is fulfilling a whitespace by providing a simple water purification service that can deliver potable water to thousands with the flip on an “on” switch. Ms. Kessler didn’t want to give information that has yet to be disseminated, but she did give a one-word response to questions concerning this year’s corporate performance that gives all the guidance shareholders need to hear: revenue.

Ms. Kessler confidently asserted that yes, in fact revenue will be booked this fiscal year and sales will be made. In July, the company will be presenting at a fire expo show with representatives from all over the Eastern seaboard that will offer major exposure for the PureSafe First Response Water System. The business structure is in place and the newly appointed board of directors is deeply experienced, knowledgeable, and very active. The workload and margins are in place and favorable. Finally, the need of the products are there, so what comes next, I asked her? It’s time to start selling inventory.

For comments or questions please contact Tom Copeland.

Technology and the Uneven Investor Playing Field

If you read the Bullworthy.com blog with any regularity, you’ve had a handful of basic investment concepts and fundamental guidelines hammered into your brain; the simplest reason being is that repetition creates habit, and habit creates success. All too often human nature displays a selfish squandering of humility, and the average person just never learns. If you’re having a hard time understanding what a stock is, don’t stop studying until you get it. If you’re buying a stock because it’s up 32%, and it losses half its value three days later, stop trying to capture momentum plays. And if you really want to understand what the companies of the future are going to look like, you have to accept the idea that the playing ground for investors is no longer level.

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Read the rest of the article on the new Bullworthy.com homepage.

You can also read this article on the Bullworthy page at Business Insider.com.

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OK, so using a content broker to make money as a freelance writer isn’t really a “job”, but brokers do offer a unique platform to help you pull in some income. Content brokers are websites that bring together both writers and webmasters who are looking for web content. For their part in facilitating that relationship, content brokers charge a fee usually to the writer, the client, or both.

In his article on the Working Writer’s Coach, Tom Copeland breaks down the good, the bad, and the downright ugly of Constant Content and Text Brokers. REad more about it here.

Web traffic…Hmmm…

My friend thinks web traffic doesn’t matter, and that got me thinking. How much influence do visitors have while measuring your businesses Web presence?

In this post, I wonder if site traffic important to you in measuring the success of your web presence and online marketing efforts? Does it feel more like your website is just an electronic business card – and nothing else? If so, I have a feeling you’re not alone.

How often to businesses overlook or simply are unaware of the two most powerful analytic tools available to webmasters? Do business owners even care to use these tools? I hope not; if they did, I wouldn’t have a business.

Read the full post by going to the Bullworthy Web presence marketing blog here.

“Twitter is something your doctor told you the sudden muscle contraction medication he gave you last will take care of”http://bit.ly/9e3DVa

Really funny update to the website…”You don’t need Bullworthy Content IF…” list – http://bit.ly/9e3DVa

Florida Homeowner’s Insurance Looking A Little Bubblish – great article – http://bit.ly/9KoBwi