Larry Cyna's  Instablog

Whats-Hot-or-Not

Periodically we publish our stock picks. Stocks that we like are "Hot" and listed below. OUr portfolio has returned 35.76% this year.

Apple Computer ($AAPL) is Not a Hold

When Apple was rising and reached $676.00, we suggested a short or buying Puts. Market exuberance was pushing Apple higher, and as it always does, the market trends until it far over reaches value. Apple eventually peaked over $700, but then started its inevitable return to earth. That call made us a lot of money.

Sell Apple Inc (AAPL Nasdaq) (Recommended sell at $439.70)
Apple defied gravity and hit a high of $705. Since it has trended on down-slope with the $400 level broken, sliding to a new low of $385. Yesterday a rebound on news of a proposed dividend to shareholders, a share buyback, and a massive debt financing.

APPLE Will Falter
Steve Jobs, the genius who rescued Apple, is no longer there. When a determined and visionary genius is no longer at the helm, a replacement is hard to find. Who would be willing to work in the shadow of a great man, except a lesser man? Can you imagine Steve Jobs living under the direction of another leader? He could not which is why he left his previous employment to do his own thing. He could not be replaced by someone already working at Apple, because no-one with that level of intellect and drive would follow someone else's orders. His replacement is not the quality of the man he replaced.

Revolutions Fade
Apple created a computer that was revolutionary. Others followed. Apple created the iPad, and others followed, then the iPhone. Each drove the company to dizzying new heights.

But it's hard to keep revolutionizing the world. The mantle of innovation has passed and as the pipeline of products Jobs created reaches the market, the number of new revolutionary products following is thinning out.

A Bigger Problem - Apple Has Money Offshore
US tax law (see my blog of October 14, 2012) is written in a way to reduce the incentive for US companies to bring their profits home.. American companies span the globe and make large profits in many companies. But these profits stay offshore and are not repatriated, because to bring the money back to the USA involves paying a repatriation tax. So the money stays offshore. Apple has over $102 billion of cash offshore. So Apple decided on another route. They intend to give over $55 billion to shareholders thru 2015, and they intend to buy back shares. They hope to attract investors who are looking for yield and a share price.

The problem is that Apple doesn't have sufficient money in the USA to fund these goals of share buybacks and dividends to shareholders. So rather than repatriate the money, pay the taxes, and then pay dividends, Apple is embarking on one of the largest bond issuances in history with staggered repayment dates. This avoids any massive debt repayment call at one time in the future, and locks in the low interest rates. On the other hand, it is pure folly. In 2 or 3 years or whenever, Apple will continue to have the repatriation tax issue hanging over its head, and in addition will have this enormous new debt to repay.Does anyone remember what happens when a company has less cash than it needs to repay its creditors? It is a foolish short term thinking solution. Steve Jobs is likely turning in his grave.

Perhaps Apple hopes to bring out a new and revolutionary product that will carry on the glory years. Maybe a TV revolution, or eyeglasses that automatically connect to the internet, or a Dick Tracy watch? Unfortunately Google, Samsung and others are already competitors in researching these products. So in a competitive marketplace, Apple must make enough money from new products to fund these enormous dividends and buybacks, or else it finds itself needing to repatriate these offshore dollars. Likely it is postponing the inevitable, except worsening the situation.

More Issues - Competition is Growing
Google is after Apple territory, by bringing a core part of its Android operating system in direct competition with Apple with a feature called Google Now which is a downloadable app for Apple devices. Apple's advantage of controlling its users is about to be challenged. So invaders are on all sides, and Apple's defense is to take a company that has no debt, and bring on massive debt for the sole purpose of supporting its share price.

A company succeeds because it has the best management, not because it has the best product, or the best anything else. Excellent management steers a course that brings success. That is what Jobs did. If you judge Apple's management today, you must judge it on the folly of its current decisions.

Sell Apple or buy Option Puts. Use today's jump in market price which occurred as a result of the current bond announcement to take advantage of this temporary rise in stock value.

Whats-Hot-or-Not - Historical Picks

Feb 2/13 E Mini (ES - CME) June 2013 (Picked@13,947, sold @ 15,460, profit of 1,513)
Feb 6/13 Tethy's Petroleum (TPL-TSX) (Picked@$0.74)
Feb 10/13 Scorpio Mining (SPM-TSX) (Picked@$0.95)
Feb 21/13 Medicago (MDG-TSX) (Picked@$0.54)
Mar 15/13 EMED Mining (EMD-TSX) (Picked@$0.175)
Apr 5/13 Detour Gold (DGC-TC, DRGDF on OTC) (Picked@16.60)
Apr 11/13 Dynacert (DYA-TSXV) (Picked@$0.14)
May 1/13 Apple Inc (AAPL) (Sell@$452.70)

Please sign up for our newsletter at cymorfund.com

We may or may not have positions in the securities we name under 'Whats-Hot-or-Not'. Whether an investment is made in a particular security depends on many factors, including portfolio balancing, timing, cash and capital reserves, asset allocation and numerous other factors. Readers are advised to do their own research and decide in light of their own circumstances. Matters discussed contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied.

Maximize Your Returns

People make and lose fortunes in the stock market.

Those more adventurous trade stocks with varying degrees of frequencies. They use trends, or signals, or technical analysis, or just guess and use their instinct as to whether a stock will rise or fall. The gain or loss is triggered when the stock is sold (if previously bought), or bought (if previously shorted).

Others invest because of long term value. The investor expects the stock to rise in value because it either appears undervalued currently, or is expected to increase in value in the future.

Other invest to get income, and buy dividend yielding stocks, or REITS.

Investors using these and variations of these methods have varying degrees of success.

A Different Way to Invest
There is another way to invest. It is amazingly easy, and requires no specialized knowledge. It requires no advisors. It requires patience. Lots and lots of patience and little else.

(click to enlarge)

Courtesy big charts.com

Examine the above chart which shows the Dow Jones average over several decades. It shows a distinct long term uptrend. But on closer examination, it shows another pattern. At numerous points along the way, the DJIA had dramatic falls in value.

If you would have bought the simple average in September 1998, and sold it when it as soon as it stopped its meteoric rise, you would have made a lot of money.

If you would have bought the DOW in February 2003, and sold it when it stopped its meteoric rise, you would have made a lot of money.

If you would have bought the DOW in March 2009 and sold it when it stopped its meteoric rise, you would have made a lot of money.

The examples abound everywhere. Whether you look at the DOW, or the TSX, or the Income Trusts, or any other sector, you will notice a similar pattern.

Patience is the Key
If you want to make big money, stay out of the market. Be patient. Whatever sector you like, will rise and sooner or later, will tumble on a temporary basis. When it tumbles, fear will pervade the market, and the losses will mount, as always. When the tumble is finished, buy that stock or that sector.

Don't hold forever. Be happy with the big gain. When the rise starts moderating, sell. SELL. Take your cash and park it waiting for the next tumble. The next tumble will always come.

Risk is Moderated, Gain is Maximized
Pretty simple isn't it? Everyone knows this happens, but people can't sit and wait. The urge to put your money to work is overwhelming. The smart investor, does nothing but wait. Usually once or twice a year, a minor tumble will occur. Every 3 to 5 years a major tumble will occur. Be smart. Live easy. Live stress free and wait for that magic moment.

We may or may not have positions in the securities we name under 'Whats-Hot-or-Not'. Whether an investment is made in a particular security depends on many factors, including portfolio balancing, timing, cash and capital reserves, asset allocation and numerous other factors. Readers are advised to do their own research and decide in light of their own circumstances. Matters discussed contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied.

The views expressed are opinions and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds. This report is for information purposes only, and is neither a solicitation nor recommendation to buy or sell, nor an offer to buy or sell securities. We are not a registered investment advisor nor a broker-dealer in any jurisdiction. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data.

Published Every Thursday

Resource Stocks Suffer Dramatic Losses
The Junior Resource Market is plummeting and has been for over a year now, with recent down moves accelerating.. Most stock charts look like hockey stick handles, or downhill ski slopes. Even producing mines, established mineral deposit companies, and producing energy companies show the same type of heart wrenching downward slope in their stock prices.

The senior resource stocks have not escaped this carnage either. Whether it be Barrick which fell from $42 to $29, or Detour which fell from $29 to $19, or Newmont which fell from $64 to $41, barely any stock in the resource sector has escaped the meltdown.

Commodity Prices Show Surprising Strength
Yet, commodity prices have shown remarkably stability during this entire period. Gold, although weak, was only slightly higher 1 year ago. It was slightly over $1,600 per oz; now it is slightly under $1,600 per oz. Silver was slightly under $30; now it is slightly under $28. Copper was around $3.80; now it is around $3.40.

This is quite remarkable. What the market is telling us is that the commodities remain in demand at a more or less stable level, while the producers and creators of those commodities are regarded as relatively valueless. Doesn't this remarkable divergence seem odd to you?

The Market is the Last Place to Look for Fair Value
As we have remarked so many times, the stock market is a place that ebbs and flows with sentiment and with little regard for fair value. A quote from Warren Buffet is appropriate here: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Warren knows that emotions like hope, greed, and fear dictate stock prices rather than logic and value. When people are panicky or fearful (as in a bear market) he takes that chance to buy great companies at cheap prices.

If you can't stand the heat, get out of the kitchen. Sell your stocks and buy Savings Bonds. But for those that take a longer term view, one has to only go back over the last 6 years. In 2006, stocks were on fire and the price of just about every piece of junk was far greater than its value. Yet investors scrambled to buy something, anything. Jump on the bandwagon and get rich.

The market valued stocks at incredibly lofty valuations. Then came 2008, and everything crashed, Nothing had value and investors rushed for the exits. The same stock that was worth $10 in 2006-7, was unloaded at $1 in 2008, and the seller was thankful to get the $1. Once again, the market value bore zero relationship to real value. The sentiment said "Head for the Hills", and value became zero value.

In 2009 and 2010, the same stock that was worth $1 in 2008 rose to $10 and then to much higher values. Those that did not panic, those that had nerves of steel, made truckloads of money.

A Repeat of the Same Scenario, Again
So here we are again. Resource stocks once again have no value. Investors fear the EU will financially disintegrate, or China will slow down, or King Kong will return. Abandon resource stocks at any price.

Yet, commodity prices, which reflect demand in the real world, are surprisingly strong. Steel is still needed to build bridges. Oil is still needed to power engines. Copper is still needed for electrical wiring. Demand for all commodities remains robust.

Guess What Will Happen to the Value of Resource Stocks?
In due course, probably very soon, there will be a realization in the market (the market that ignores real value) and the price of resource stocks will do what they did the last time this sort of meltdown occurred. They will do what they did in 2009 - they will rise.

Those that ignore this certainty will miss the train. They will buy after these stocks are valued at far more than their real value. Those with intestinal fortitude will buy when stocks are valued at stupidly low prices. History does have this habit of repeating itself - over and over again.

We may or may not have positions in named securities. Whether an investment is made in a particular security depends on many factors, including portfolio balancing, timing, cash and capital reserves, asset allocation and numerous other factors. Readers are cautioned to do their own research and decide based on their own risk tolerances and circumstances. Commentaries contain forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied.

The views expressed are opinions only, not investment advice. Persons investing should seek the advice of a licensed professional and should not rely on the opinions expressed herein. This report is neither a solicitation nor recommendation to buy nor sell securities. We are not a registered investment advisor nor a broker-dealer in any jurisdiction. We do not accept investment funds. The information contained herein is based on sources which we believe to be reliable but is not guaranteed to be accurate and does not purport to be a complete statement or summary of the available data.