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Paul Zimbardo

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  • Time to Get Conservative? 50 Ideas for a Summer Sell-Off [View article]
    @Dr. O - In regards to commissions, that is a very good question. My broker charges the same fee for buy-write trades as it does for option commissions so I effectively get a 50% discount on commissions. A very important note - if your position is called away (as it often will be in this type of trade), you often have to pay a commission that is twice as high as a normal commission. As a result, you may consider buying back the option and writing out a covered call for the following month, especially if you are bullish on the underlying security.

    @User 274233 - I am very interested in ETFs that employ this strategy so I will look into BEO; however, I usually stay away from actively managed ETFs due to the fees.

    On Aug 04 06:52 AM Dr. O wrote:

    > Nice article on hedging/collecting premium with selling calls. As
    > you mentioned, this seems to work best in a sideways or declining
    > market. A declining market serves up increased call premiums, hence
    > the enhanced return relative to the index/stock. A sideways market
    > allows you to collect premium and make money even while the underlying
    > index/stock does nothing.
    > As a frequent trader, the first thing I wondered about were costs
    > of commissions and how selling calls with each stock purchase might
    > affect returns.
    Aug 4 10:37 AM | 2 Likes Like |Link to Comment
  • Time to Get Conservative? 50 Ideas for a Summer Sell-Off [View article]
    Another excellent article from Mr. Hickey.

    I narrowed in on AMGN as the best trade out of your list based on its risk/return profile and solid fundamentals even if I am forced to buy keep the stock short-term. Another plus for Amgen is its low beta of ~.5.

    In future articles of this type, I would complement the listing by including the equity betas.
    Aug 3 02:03 PM | 3 Likes Like |Link to Comment
  • From Obama's weekly address: "When we receive our monthly job report next week, it is likely to show that we are continuing to lose far too many jobs in this country. As far as I’m concerned, we will not have a recovery as long as we keep losing jobs. And I won’t rest until every American who wants a job can find one."  [View news story]
    As "I need more cowbell" points out, the blame-game is fruitless. If we identify the responsible parties for this current recession will that really help create new jobs or restore confidence in the financial markets?

    In regards to Mr. Obama's comments, I suggest that his staff economists provide a refresher lesson on what full employment entails. Specifically, the concepts of frictional and structural unemployment.

    If Mr. Obama follows through on his initiative of ultimately lowering employment past the point of full employment, this will only cause massive inflation and hurt all Americans. I hope that this was merely rhetoric.

    On Aug 02 08:59 AM I need more cowbell wrote:

    > Ladies and gentlemen, so much "he did, they did". This is not about
    > Dems vs. Repubs- they all SUCK.
    Aug 2 09:22 AM | 5 Likes Like |Link to Comment
  • An iTunes Subscription Could Subsidize the Apple Tablet [View article]
    I believe that Apple will follow its business model with the iPod Touch and offer just Wifi for the first generation, despite the lack of subsidy. Maybe even the possibility of tethering with an iPhone on AT&T?
    Jul 31 10:42 AM | Likes Like |Link to Comment
  • CNBC Viewership Down 28% [View article]
    I have begun streaming CNBC via TDAmeritrade's new platform thinkorswim rather than keep it on the TV constantly. Will this type of viewership switch be reflected in this data going forward? If so, I could see it being slightly misleading as five traders might have five streams going versus the previous one broadcast on TV.
    Jul 31 09:40 AM | 1 Like Like |Link to Comment
  • Everybody Hates Leveraged ETFs [View article]
    Regardless of your stance on leveraged ETFs, you have to be happy that some of the advisers/wealth managers are starting to uphold their fiduciary duty to their clients by not recommending vehicles that are unsuitable for their investment strategies and time horizons.

    I agree with MadScientist that leveraged ETFs are powerful tools for professionals but ill-suited for the uninformed. For example, a power drill may get the job done faster in the hands of a professional, but may cause more harm than good when used by a novice.
    Jul 30 10:47 AM | 1 Like Like |Link to Comment
  • Gamestop: Priced to Play [View article]
    I realized once I read "Gamestop’s publication, Game Informer, is the gold standard source of information for the growing base of serious gamers" that the analyst was out-of-touch with the target market of Gamestop. "Serious gamers" do not read Game Informer and instead visit popular blogs such as Joystiq. In brief, here are some reasons why Gamestop's core business is being compromised:

    1. Digital distribution is gaining steam; therefore, used games sales will suffer as digital copies cannot be resold.

    2. Consoles are lengthening their lifespan thus reducing the stream of new consoles for GME to push around the holidays.

    3. Publishers are focusing on digital sequels and recurring online streams of revenue (for example, GTA: IV and WoW) rather than retail sales of the original content.

    I agree that GME will be able to maintain its fat margins and that the competition from BBY and WMT will not be major factors but I do not see Game Stop being able to achieve growth in the high-teens.

    I have enjoyed some of your other articles (COH) but I respectfully have to disagree with your conclusions based upon the above.
    Jul 29 10:32 PM | 1 Like Like |Link to Comment
  • American Express (AXP +0.9%) buys back $340M in TARP warrants, estimating that the government earned an annualized 26% on the investment.  [View news story]
    It is too bad for the average taxpayer that these amazing returns from the likes of AXP and GS are vastly overshadowed by the losses on AIG and others.
    Jul 29 04:21 PM | Likes Like |Link to Comment
  • Kinder Morgan's Dividend Payout Rate Is Unsustainable [View article]
    Looks like I have sparked some debate which is always a good sign. Thank you for the positive feedback and constructive criticism. To those who chose to merely insult me for a) contributing to the community and b) trying to help other investors; that is your prerogative. I welcome constructive criticism and comments as that is the only way that we will all learn and grow. As always, make sure that you understand and are comfortable with any investment that you choose to make. While I typically like to respond to each comment individually, due to the overwhelming number of comments I will use a more general approach to responding.

    First I would like to point out that I am familiar with Master Limited Partnerships; however, I have not analyzed any of these vehicles in the past. In retrospect I should have explained MLPs a little more thoroughly and stated why I believe the payout rate is unsustainable. I hope to do so in my comments. My primary source for research on MLPs is S&P, specifically the website below:


    First, I understand that they are really distributions rather than dividends and units rather than shares but the points I made are the same. I would also like to address the common misconception that MLPs must “pay out at least 90% of its distributable cash flow” as Mr. (or Mrs.) Sitting Duck and others mentioned in his/her comment.

    In reality, MLPs “must GENERATE at least 90% of its income from qualified sources” and there is no requirement about distributions. In return for meeting this requirement, MLPs receive beneficial tax treatment (in sum, the MLP does not pay income taxes and instead each partner pays based upon their ownership stake, similar to an S-Corp). Based upon this critical distinction, MLPs yield is based on earnings just as much as it is upon cash flows. As you can see from KMP’s financials, revenues and cash flows have been steadily declining. No magically operating structure can permit this type of company to continue growing its earnings at its historic rate with these fundamentals.

    This was the point that I was trying to stress: you need to analyze BOTH cash flows and earnings when investing in MLPs as there is no minimum cash flow payout requirement.

    I am quite surprised at the number of comments that say that believe that MLPs have to payout 90% of their cash flows, what that is certainly not the case. Judging from the “+10” rating at the time of my writing this on Sitting Duck’s comment, I am forced to believe that this is the prevailing misconception among our community. At the very least, my article helped to correct a misconception. Maybe as I follow-up article I will write about MLPs in general, specifically: 1. What they are; 2. What the requirements are for this treatment are; 3. Benefits to this treatment; and 4. Disadvantages to this treatment. Thoughts?

    You cannot ignore the underlying fundamentals of the company: revenue is falling, debt is rising, and the company is paying out more in dividends than it can afford to based upon its cash from continuing operations and used for investing activities (specifically, CapEx). Just look at the issuance of debt the past few years alone would have be alarmed if I were an investor.

    In regards to Penn West, yes, every investment can “cut both ways” as for everytime someone sells, someone else is buying.

    @djj420 I have no intentions of investing in KMP and it would be unethical for me to not disclose if I had intentions of investing in a company that I write about.

    In closing, even if you still disagree with my analysis of MLPs or application of my framework to KMP, hopefully you can still appreciate my effort and use this framework when analyzing other high yield stocks. If I was able to help at least one other person (thanks Milt!), I believe my work was worth the effort. In the end, this will only help to make me a better writer and analyst.
    Jul 28 12:24 PM | 11 Likes Like |Link to Comment
  • Why Microsoft and Apple's Market Caps Should Be Reversed [View article]
    Excellent comment from Mr. Arends article on Marketwatch today:

    "I will repeat my caution. Over the past five years Apple has gained nearly 60% a year. The chance that it will do the same over the next five is remote. That would make it worth $1.25 trillion. The returns are likely to be more modest. And the risks will be greater."
    Jul 27 02:21 PM | 3 Likes Like |Link to Comment
  • AT&T (T +3.3%) can't figure out if it loves the iPhone, or hates it. On the one hand, the iPhone continues to lure coveted subscribers from its rivals. On the other hand, the hefty subsidy it pays Apple (AAPL) for every iPhone sold is eating away at its bottom line.  [View news story]
    Another important point - all of those iPhone users consume a great deal of bandwidth which decreases the reliability for the other users. This will force AT&T to enhance its network or risk losing customers going forward; however, I am confident that AT&T will continue to grow long-term.

    The margins will improve when the subsidy hits slow down as each new customer is far more profitable due to the expensive data plans.
    Jul 23 11:14 AM | Likes Like |Link to Comment
  • Conventional wisdom dictates the need for stock pickers grows during periods of market weakness. This time, though, Chuck Jaffe thinks 'market pickers' may have the upper edge.  [View news story]
    Excellent article but I believe that there is room for both schools to be successful. Asset allocation is absolutely critical as it is well documented that this is the source of most performance; however, why not narrow down on individual instruments/products within the asset class? For a purely hypothetical example, someone may decide to allocate 60% to stocks, 30% to bonds, and then 10% to cash/money markets. In this scenario, they decide to allocate their stock money evenly between technology and energy.

    Mr. Jaffe is correct that the investor could simply purchase ETFs for these sectors but with the correct "stock picking" skills and experience, it may be possible to outperform the ETF benchmarks by selecting individual stocks within the sectors.
    Jul 22 11:26 AM | Likes Like |Link to Comment
  • Why I Still Like Apple [View article]
    I agree that AAPL is still a great long-term investment, I am hesitant about buying it at this price level. I have owed AAPL for years and enjoyed the ride but I would wait until it inevitably slips back into the $140s before its next earnings blow-out before adding to my position. My current strategy? Sell puts ~$145 and enjoy the premium while I wait.

    As the Wall Street Journal points out, Apple is still strong, but it is near impossible for it to continue to double its market cap.
    Jul 22 10:05 AM | Likes Like |Link to Comment
  • Starbucks (SBUX): FQ3 EPS of $0.24 beats by $0.05. Revenue of $2.4B (-6%) in-line. Operating margin of 10.6% vs. 6.9% in 2008. Delivered $175M in cost savings, exceeding its FQ3 target of $150M. Comps fell 5% vs. an 8% decline in FQ2. Shares +8.7% AH. (PR)  [View news story]
    I skimmed the press release and while it does seem as if things are improving at SBUX, I read nothing that would make me want to initiate a position. The cost reduction initiatives appear to be helping but the comp store slump is alarming. The catalyst of the revenue decline appears to the “foodservice and other” grouping: could this mean that Starbucks is returning to its core competency of selling coffee products? Investors should hope so; however, if that is the case, where is the “13 percent to 18 percent” non-GAAP EPS growth going to come from? Last I heard, Starbucks was closing stores, not expanding at a rate that would support that type of growth.
    Jul 21 04:42 PM | Likes Like |Link to Comment
  • Apple Earnings Preview [View article]
    The trend recently (i.e. the past ten days) has been for companies with strong earnings to surge in the few days leading up to the earnings release and then rise only moderately after earnings. This has happened with Goldman, IBM, and many others (CAT is a notable exception but it had other factors in play). I have owned and witnessed AAPL easily surpass expectations in the past and I learned long ago to never bet against AAPL long-term but I do have to question how much room it has to the upside. It has pulled back the past couple of sessions but it is still well over its 20- and 50-day MA (also, RSI is on the high-end). With Apple’s volatility, it is usually easy to find attractive entry points when the strength wanes.

    My quick conclusion? You cannot go wrong investing in AAPL long-term but it is near impossible to guess where AAPL will go after-hours when it reports for trading purposes.
    Jul 21 03:34 PM | Likes Like |Link to Comment