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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • Counting Pennies And Missing Fortunes - By Charles Payne

    Question of the Week

    This year, one of the most revered political figures in the world passed away. Lee Yuan Yew took a poor nation with no resources and made it an economic powerhouse. Today, Singapore is admired by nations and leaders everywhere. But his methods were strict and people could be fined or jailed for things like:

    Not flushing public toilets
    Selling chewing gum
    Illegally peeing in elevators
    Walking around their house naked
    Spitting anywhere
    Graffiti, they would get caned

    Are there things we could take away from Singapore's success or does our freedoms come even before things like flushing public toilets?

    Post your answer below.

    What's happened to the notion of investing? Over the past three decades, investors have gone from a group of well-heeled families and institutions looking at value, to a motley crew led by firms that generate billions on gyrations. In fact, individual investors are more concerned with commission fees than what they're actually buying. The volatility and short-term mindset means that most investors will never see the kind of returns that made Warren Buffett the second-richest man in America.

    I got this email over the weekend:

    Tell Charles to quit telling people to buy one share of stock, i.e., WHR...that's just stupid, the stock would have to go up $10 just to pay the commission.

    Referring to the fact that Whirlpool Corporation (NYSE:WHR) is almost $200 a share, this person thinks it is too expensive for anyone that cannot own a lot of shares.

    There are so many things wrong with this email, but it reflects popular thinking by so many investors and those considering getting into the market. I want people to think of investing as being part owner of great companies. If you cannot start a business, investing in one already established is the next best thing.

    Listed below are a few popular businesses that are being started all the time by regular folks. They are not cheap. On the first day of operations, most would be worth much less than half of the value should the owner have to liquidate assets.

    Cost to start business

    Food Truck

    $15,000 to $100,000

    Gym

    $10,000 to $50,000

    Hardware Store

    $80,000 Plus

    This mindset that purchasing one share of a $200 stock isn't worth it is why so many people lose so much money buying "cheap" broken down stocks all the time. Also, it is why in 1980, fewer (regular) investors bought Berkshire Hathaway (BRK) at $260 a share. Remember, commissions back then were a couple hundred bucks going in and out.

    Well, take a look at how well Berkshire has outperformed the broad market. Both underscore the fact that people who invest and who are not spooked by difficult times can be richly rewarded.

    So, if you had purchased shares of BRK in March of 1980, you would be up 833,000% right now. With all due respect, the only stupid thing when it comes to investing decisions is basing it on pennies instead of a real-long term potential return.

    By the way, WHR is also one of those companies where an individual can buy stocks directly without an account and most of the time, at a very nominal fee. The bottom line is that great company stocks rarely go on sale; and if you want to own them, then own them.

    CEOs Fight Back

    When Restoration Hardware reported last week, the company beat the Street on the top and bottom lines. However, it issued so-so quarterly guidance. The stock, initially up $3.00, plunged to be down $4.00, that's a seven point reversal. Yet there were legitimate reasons for the near term issues explained by management, but the stock opened lower the next session anyway.

    Then smart investors followed the real message of the conference call...

    Gary Friedman - Chairman and Chief Executive Officer

    "Has our top line moved around up and down, absolutely, and is this stock volatile, absolutely, straight up between $55 and $100, right and that's why I made the point about traders versus investors because we manage this business like investors. We manage this business like it's the last place we will ever work and we own 100% of the company.

    "And we believe we will build the best company the home furnishings industry has ever seen, with the best model and it will be the most durable business that we have and I think this is going to be a great long-term investment. But I'll tell you, look I've got it, but stock goes up and down, makes us all feel good or bad again short term.

    "But I think what we say here is we have to look beyond these bumps and we have to make decisions to build the great enterprise and that's what we're doing. So whether it's seven or six next year, whether the sales are 14 to 16 this year, you know, and accelerate and its - we have a business today that is going to have a mid-teens operating margin, that's growing faster than anybody in the home furnishings industry."

    Granted there are CEOs that try to get Wall Street to buy into a new line of metrics; nobody's buying into that nonsense. But current management at Box, Inc. (NYSE:BOX) and the geniuses behind Groupon (NASDAQ:GRPN) try to get Wall Street to reinterpret success. Yet this is different than the knee jerk reactions I'm seeing at typical quarterly warnings. I get poor execution is the death knell for stocks. In the past, there had to be evidence such inconsistency was consistent, these days, its head for the doors fundamentals be dammed.

    We dig in deeper and close out the noise to know the difference, although shorts are a powerful cabal these days and with media coverage being so stupid and short-term, it's easy to craft a narrative that a stock should be sold. Months or years later when that same stock is changing hands at an all-time high, who will know the difference? Heck the same analysts and TV personalities will scream about the virtues and say it's okay to chase the stock.

    Technical View

    The market has enjoyed a heck of a ride and everyone has to be somewhat antsy about the next big move. In this age of skepticism, it's been easy to A) dismiss the rally or, B) have people make poor choices, such as missing the move or owning things that have underperformed. However, if you have been in the market and made a few bucks, there's a new kind of pressure on whether to sell it all and find a comfortable bunker.

    I would say to use moderate cash to buy a major pullback, but don't panic. From a technical point of view, here's the worst-case scenario: In 2012, the S&P 500 broke out on July 16th at 1,362; and it was re-tested at that level as support on November 12th. A 50% retracement of the move made since then would mean a pullback to 1740. Still, I think it would take a news event to trigger such a move. In the meantime, 2,000 continues to be a must-hold support point.

    This is going to be an interesting week for sure. However, make sure you are looking well beyond the week if you indeed want to be a successful investor.

    Today's Session

    It's been a while since we've had a merger Monday like this and once again most of the action is in the biotechnology space.

    • United Health is taking over Catamaran for $12.8 billion
    • Teva is acquiring Auspex for $3.2 billion
    • Horizon Pharmaceutical is buying Hyperion for $1.0 billion

    The media can't get enough about Teva Pharmaceuticals (NYSE:TEVA) acquiring Auspex Pharmaceuticals (NASDAQ:ASPX) to increase its leadership position in providing treatments for movement disorders and how United HealthCare (NYSE:UNH) is acquiring Catamaran (NASDAQ:CTRX) to better help customers manage complex cost and outcomes in the growing pharmaceutical market.

    In the technology space, Fujifilm (OTCPK:FUJIY) announced that it would be acquiring Cellular Dynamics International (NASDAQ:ICEL) for $16.50 per share or approximately $307 million, this is quite a healthy premium as ICEL closed at $7.94 on Friday. The acquisition will provide FUJIY with more exposure to the healthcare sector as ICEL specializes in creating technology platforms that allow the production of high-quality fully functioning human cells. More details on how ICEL will be accretive to FUJIY will be released at a later date.

    What's eating Main Street? (I ask for the 1,000 time)

    This morning, the Bureau of Economic Research posted personal income and spending data for February and once again, I have to ask, why is Main Street hoarding money?

    • Disposable Income +$54.2 billion
    • Spending +$11.1 billion
    • Savings 5.8% from 5.5%

    People are afraid to spend money, even with cheaper gas and as wages edge a little higher. Not a great sign.

    Mar 30 1:13 PM | Link | Comment!
  • Bears Koww - By Charles Payne

    Even the biggest number-crunchers, the fundamental analysts on Wall Street, peek at the charts when the sledding gets tough, and it's been very tough lately.

    Speaking of gyrations, after the crumbling at the start of trading, the market rebounded into the green and then the battle was joined. With the buy-on-dips crowd making their move, the bears loathe giving up momentum, pouring on the pressure.

    The good news is that while the major indices all finished lower, unlike prior sessions this week, the market finished at the low of the day.

    Dow Jones

    By the way, lots of traders are talking about the so-called black crows - the S&P closing at session lows three days in a row. I don't take much stock into those things; in fact, it's been more of a buyers strike than wholesale panic, except in areas like biotechnology, where TV talking heads who missed the entire rally have been chasing people out as quickly as possible.

    Broadening out, the chart displays the long-term trend of higher lows, but if we temporarily take out the March 11th low, then on a closing basis, the Dow is looking at 17,164.

    Dow Jones

    So, what should you do about this latest bout of anxiety?

    Today's Session

    Right now, it looks like the bulls and bears are exhausted as the market will open flat, but the bias is still to the downside. Perhaps nothing reflects this lackluster aura than the third update of Q4-2014 gross domestic product (NYSE:GDP) reading being unchanged from the previous release of 2.2%, but down from the advance report of 2.6%.

    Interestingly, consumer spending is at 4.4%, up from 4.2%, and countering other data points that say the consumer has pulled it in.

    Then there's corporations which lost money during the quarter, but domestically and abroad, still paid out big dividends.

    Q4-2014

    Corporate Condition (in billion USD)

    P/L

    -$30.4

    Taxes

    -$4.8

    Dividends

    +18.6

    The market is still struggling for some form of leadership, or a catalyst for reversal to the upside. I'm not sure how that happens today. So a session that sees the Dow off less than 100 points could be considered a moral victory.

    Mar 27 10:10 AM | Link | 1 Comment
  • Maddening - By Charles Payne

    It's a different type of March Madness, and very few people are cheering.

    After early rallies failed back-to-back on Monday and Tuesday, it was unlikely that a lot of buyers would take the bait yesterday. There was a slight bump and suddenly, timber!

    Today marks the 27th day in a row without back-to-back up sessions…that's the longest streak in 20 years. So, why can't the market get off the dime?

    With earnings season right around the corner and the latest jobs report out next week, it's pretty clear anxiety is helping to stall this rally. Except, perhaps, earnings are having a different impact: companies buying their own shares historically dry up in the new blackout period, ahead of the earnings release.

    Obviously, buyers are staying away. These days, it's rare to release an economic report that meets analysts' expectations.

    Actually, I think it's good when the bad news is bad…however, no one is thrilled about bad news.

    Breaking the Bond

    There is a bond market dilemma as economic data might be too weak. Yesterday's five-year note auction had the least demand since July 2009, sending yields higher. The 10-year also saw a five basis point increase in yields.

    We know when things get tough for financial markets, there are no safe havens. With bonds and stocks under pressure, what's the message? And what should investors do?

    US 10-Year Treasury Bond

    Also, one has to wonder if the Fed has lost control of rates at this point. It is too early to tell, but could this be a sign that bonds are finally ready to correct? Of course, that has been a rumor, a hunch, and conventional wisdom for a long time.

    Moreover, in the end, it was an ugly session; there are cracks in the equity and bond armor.

    Today's Session

    The major indices are all trading in the red this morning. Lowered guidance from SanDisk is sending tech names even lower as the company reflected on a deceleration of growth for its first quarter of 2015. We're staying vigilant and looking for the companies that defy the broader market by trading higher.

    Mar 26 10:09 AM | Link | 1 Comment
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