Tim Ayles' Instablog We strive to build highly disciplined, sensible client portfolios. Portfolios that are focused on investing in businesses with solid free cash flows and solid dividend payouts. We buy businesses, not stocks. Tim is a Registered Investment Advisor. Tim Ayles http://seekingalpha.com/author/tim-ayles/instablog Reporting On Our 8 Guru Stocks http://seekingalpha.com/instablog/475264-tim-ayles/138865-reporting-on-our-8-guru-stocks?source=feed 138865
To refresh, the reason behind this idea is simple:

"If you had followed a select group of what we consider the world's best stock pickers and their top picks, you would have in back testing, done very well. By searching through 13F reports of the greatest investors of our time, and investing in their top picks, an investor could have produced amazing returns this past decade. Think about it. You are an individual investor with limited resources and limited information. Doing a lot of homework, you come up with good investment ideas that you think should pan out. Some work, others do not. With 13F investing, you get the best research and investing minds this world has seen, for free. Let them do the work for you. Just piggy back off their best ideas, find a handful of managers that you know and love, and combine their top picks to create your portfolio.

The logic behind the idea is simple. After putting in the research and gathering information on all the stocks in their portfolios, for whatever reason, there is always one stock in which they have invested more money than every other stock they own. Coco-Cola (KO) is Warren Buffett's top holding, for example. Currently, Bruce Berkowitz of the Fairholme Fund (FAIRX) has chosen American International Group (AIG) as the stock he thinks is worthy of more investment dollars than any other he has chosen. I realize these guys have more information and relationships than I can ever dream of, thus giving them a potential edge that I do not have. So what I do is try to piggy back off some of the best."

Using the back tester from AlphaClone.com I am able to see that my 8 stock index returned a hypothetical 14% for the previous 3 months ending 2/14/11, compared to the SP 500 returning 10.1%. Not bad out performance. (Please see disclosure below about the inherent risks of backtesting.)

That said let's take a look at the list for the next 3 month. We will track the prices of the index based on the opening prices of each stock for the date of 2/15/2011.

Current 8 guru stocks:

Selling:

JLL
BMY

Buying:

GCI
COP

Current index:

AIG
GCI
COP
TEL
ATLS
AAPL
VALE
POT

That's it for now. If you want to see the hypothetical results of these 8 managers, take look at the previous article from a few months ago:

seekingalpha.com/article/243914-reporting-on-our-8-guru-stocks

I will post the opening prices of each of the 8 stocks in the comment section below.

Other than that, we will see you in three months!


 




Disclosure: I am long AIG, ATLS, AAPL, POT, BMY, JLL.

Additional disclosure: Backtested results are hypothetical and do not reflect actual trading. the back tested results were achieved with the benefit of hindsight, and the trades were not actually executed. These backtested results do not reflect the complexities of actual investing and there are many material factors that could have affected actual results. These hypothetical results do not reflect taxes, commissions, transactions fees, management fees, brokerage and exchange fees, and other costs, nor do they reflect any dividends. These results are for educational purposes only for the reader to do their own research into 13F investing. We intend to only offer a limited amount of managers for the sake of creating a tracking index. It is in no way a comprehensive or diversified list, and we do not recommend anyone use this list for buy or sell recommendations.]]> Tue, 15 Feb 2011 01:09:31 -0500
To refresh, the reason behind this idea is simple:

"If you had followed a select group of what we consider the world's best stock pickers and their top picks, you would have in back testing, done very well. By searching through 13F reports of the greatest investors of our time, and investing in their top picks, an investor could have produced amazing returns this past decade. Think about it. You are an individual investor with limited resources and limited information. Doing a lot of homework, you come up with good investment ideas that you think should pan out. Some work, others do not. With 13F investing, you get the best research and investing minds this world has seen, for free. Let them do the work for you. Just piggy back off their best ideas, find a handful of managers that you know and love, and combine their top picks to create your portfolio.

The logic behind the idea is simple. After putting in the research and gathering information on all the stocks in their portfolios, for whatever reason, there is always one stock in which they have invested more money than every other stock they own. Coco-Cola (KO) is Warren Buffett's top holding, for example. Currently, Bruce Berkowitz of the Fairholme Fund (FAIRX) has chosen American International Group (AIG) as the stock he thinks is worthy of more investment dollars than any other he has chosen. I realize these guys have more information and relationships than I can ever dream of, thus giving them a potential edge that I do not have. So what I do is try to piggy back off some of the best."

Using the back tester from AlphaClone.com I am able to see that my 8 stock index returned a hypothetical 14% for the previous 3 months ending 2/14/11, compared to the SP 500 returning 10.1%. Not bad out performance. (Please see disclosure below about the inherent risks of backtesting.)

That said let's take a look at the list for the next 3 month. We will track the prices of the index based on the opening prices of each stock for the date of 2/15/2011.

Current 8 guru stocks:

Selling:

JLL
BMY

Buying:

GCI
COP

Current index:

AIG
GCI
COP
TEL
ATLS
AAPL
VALE
POT

That's it for now. If you want to see the hypothetical results of these 8 managers, take look at the previous article from a few months ago:

seekingalpha.com/article/243914-reporting-on-our-8-guru-stocks

I will post the opening prices of each of the 8 stocks in the comment section below.

Other than that, we will see you in three months!


 




Disclosure: I am long AIG, ATLS, AAPL, POT, BMY, JLL.

Additional disclosure: Backtested results are hypothetical and do not reflect actual trading. the back tested results were achieved with the benefit of hindsight, and the trades were not actually executed. These backtested results do not reflect the complexities of actual investing and there are many material factors that could have affected actual results. These hypothetical results do not reflect taxes, commissions, transactions fees, management fees, brokerage and exchange fees, and other costs, nor do they reflect any dividends. These results are for educational purposes only for the reader to do their own research into 13F investing. We intend to only offer a limited amount of managers for the sake of creating a tracking index. It is in no way a comprehensive or diversified list, and we do not recommend anyone use this list for buy or sell recommendations.]]> ko aig gci cop tel atls aapl vale pot bmy jll US Market Fund Holdings Long Ideas Be Careful Next Week http://seekingalpha.com/instablog/475264-tim-ayles/110521-be-careful-next-week?source=feed 110521 seekingalpha.com/instablog/475264-tim-ayles/107599-the-dow-is-repeating-the-pre-flash-crash-pattern , next week could be interesting for the market.

In that blog post I mentioned "If the pattern continues this way, we should expect a strong end to this week, followed by new highs next week and a reversal. This reversal will be a few % points and will have the perma bulls telling everyone it is a dip to be bought. "

As you are aware, last week did in fact end with a mighty surge in prices to close the week out after the QEII and NFP announcements. Although we did not make new highs this week, we got close, and some indexes did in fact make them before reversing a few % points.

The pre-Flash Crash pattern remains eerily intact.

Some other similarities are rearting their ugly head as well as just reported at ZeroHedge.com:

It has been a few month since everyone was throwing the word "contagion" around just to sound smart. Prepare to get a whole lot more of that. PIIGS CDS are now at a fresh all time record, way wider than during the May days, that lead to the flash crash and Greece's bankruptcy. All this means that the fair value of the market is now even lower than where it was on May 6, but the tail risk has been internalized by not only US but European taxpayers. That rubber band will snap again. Just a matter of time.



As stated last week, if your cash is burning a hole in your pocket and you are dying to by this recent dip to get on the Fed Induced Sugar High Rally ( seekingalpha.com/article/235315-market-s-sugar-high-won-t-end-well ) it might be very wise to let next week play out to prove that this pattern, which is similar in both time and price, is more a figment of my imagination.


Disclosure: Long SDS, PSQ, SPXU, against long positions in individual stocks]]> Fri, 12 Nov 2010 08:46:22 -0500 seekingalpha.com/instablog/475264-tim-ayles/107599-the-dow-is-repeating-the-pre-flash-crash-pattern , next week could be interesting for the market.

In that blog post I mentioned "If the pattern continues this way, we should expect a strong end to this week, followed by new highs next week and a reversal. This reversal will be a few % points and will have the perma bulls telling everyone it is a dip to be bought. "

As you are aware, last week did in fact end with a mighty surge in prices to close the week out after the QEII and NFP announcements. Although we did not make new highs this week, we got close, and some indexes did in fact make them before reversing a few % points.

The pre-Flash Crash pattern remains eerily intact.

Some other similarities are rearting their ugly head as well as just reported at ZeroHedge.com:

It has been a few month since everyone was throwing the word "contagion" around just to sound smart. Prepare to get a whole lot more of that. PIIGS CDS are now at a fresh all time record, way wider than during the May days, that lead to the flash crash and Greece's bankruptcy. All this means that the fair value of the market is now even lower than where it was on May 6, but the tail risk has been internalized by not only US but European taxpayers. That rubber band will snap again. Just a matter of time.



As stated last week, if your cash is burning a hole in your pocket and you are dying to by this recent dip to get on the Fed Induced Sugar High Rally ( seekingalpha.com/article/235315-market-s-sugar-high-won-t-end-well ) it might be very wise to let next week play out to prove that this pattern, which is similar in both time and price, is more a figment of my imagination.


Disclosure: Long SDS, PSQ, SPXU, against long positions in individual stocks]]> Market Outlook US Economy US Markets The Dow is Repeating the Pre-Flash Crash Pattern http://seekingalpha.com/instablog/475264-tim-ayles/107599-the-dow-is-repeating-the-pre-flash-crash-pattern?source=feed 107599
Is anyone else to the point where they wake up and wonder how much the stock indexes are going to be up today?

The market climb has been relentless and it seems like it might never end. The midset out there is in full agreement with David Tepper: "If the economy improves, stocks will go higher. If the economy falters, the Fed will print and stocks will go higher."

Now that the GOP has won the house and reports are that Fed-Slayer Ron Paul will be taking over the chair of the Monetary Policy Subcommittee, one has to stop and wonder if the Fed will be able to accomplish Teppers second prediction.

That said, the chart of the Dow is showing a pattern that makes me think I am Bill Murray in the movie Groundhog Day, reliving the same day over and over.



Take a look at price action around January of 2010. After going up non stop for months, the Dow hit a rough patch around 10750 and went down for three straight weeks and bottomed around 9900. After scaring people into thinking the never ending ride higher to Fed induced riches might be over, the market turned around and went straight up for 10 weeks withough even the thought of a correction. The tenth week saw a massive surge in which the week closed on a new high. Then the 11th week came, a new high was made, but the week closed down, thus wiping out the gains from week 10. One week after this - the flash crash hit.

Fast forward now to August. Around the 2nd week of August, the market peaked out at, you guessed it, 10750. For three weeks the market pulled back to around, you guessed it again, 9900! Everyone again was feeling the investing blues. Then September came and began an endless march to stock nirvana.

Not that past performance is indicative of the future, but is anyone else slightly concerned that this week is now the 10th week of this straight up pattern? So far we have matched step for step (almost to the point) the pattern earlier this year. If the pattern continues this way, we should expect a strong end to this week, followed by new highs next week and a reversal. This reversal will be a few % points and will have the perma bulls telling everyone it is a dip to be bought.

I would caution that you give it another week after that before buying just to make sure the correlation of the last Fed induced ramp is not leading us to another crash two weeks from now.

If this is the never ending ride straight up during a new bull market, you will have plenty of time to get on board. In the short term, make sure this pattern playing out is nothing more than a coincidence. Better yet, look to use puts while the VIX is low to protect the downside of your long exposure.




Disclosure: Long SPXU, SDS]]> Wed, 03 Nov 2010 17:37:16 -0400
Is anyone else to the point where they wake up and wonder how much the stock indexes are going to be up today?

The market climb has been relentless and it seems like it might never end. The midset out there is in full agreement with David Tepper: "If the economy improves, stocks will go higher. If the economy falters, the Fed will print and stocks will go higher."

Now that the GOP has won the house and reports are that Fed-Slayer Ron Paul will be taking over the chair of the Monetary Policy Subcommittee, one has to stop and wonder if the Fed will be able to accomplish Teppers second prediction.

That said, the chart of the Dow is showing a pattern that makes me think I am Bill Murray in the movie Groundhog Day, reliving the same day over and over.



Take a look at price action around January of 2010. After going up non stop for months, the Dow hit a rough patch around 10750 and went down for three straight weeks and bottomed around 9900. After scaring people into thinking the never ending ride higher to Fed induced riches might be over, the market turned around and went straight up for 10 weeks withough even the thought of a correction. The tenth week saw a massive surge in which the week closed on a new high. Then the 11th week came, a new high was made, but the week closed down, thus wiping out the gains from week 10. One week after this - the flash crash hit.

Fast forward now to August. Around the 2nd week of August, the market peaked out at, you guessed it, 10750. For three weeks the market pulled back to around, you guessed it again, 9900! Everyone again was feeling the investing blues. Then September came and began an endless march to stock nirvana.

Not that past performance is indicative of the future, but is anyone else slightly concerned that this week is now the 10th week of this straight up pattern? So far we have matched step for step (almost to the point) the pattern earlier this year. If the pattern continues this way, we should expect a strong end to this week, followed by new highs next week and a reversal. This reversal will be a few % points and will have the perma bulls telling everyone it is a dip to be bought.

I would caution that you give it another week after that before buying just to make sure the correlation of the last Fed induced ramp is not leading us to another crash two weeks from now.

If this is the never ending ride straight up during a new bull market, you will have plenty of time to get on board. In the short term, make sure this pattern playing out is nothing more than a coincidence. Better yet, look to use puts while the VIX is low to protect the downside of your long exposure.




Disclosure: Long SPXU, SDS]]> dia spy spxu sds US Market Market Outlook US Economy Playing the long bond with POMO in our face http://seekingalpha.com/instablog/475264-tim-ayles/88339-playing-the-long-bond-with-pomo-in-our-face?source=feed 88339
As posted earlier - use the upcoming dip to buy though.

This is a trade, not a fundamental change of position.


Disclosure: Long TLT, BND, and other bond ETF's]]> Wed, 18 Aug 2010 10:09:39 -0400
As posted earlier - use the upcoming dip to buy though.

This is a trade, not a fundamental change of position.


Disclosure: Long TLT, BND, and other bond ETF's]]> Paring back exposure to the long bond....... for a trade only http://seekingalpha.com/instablog/475264-tim-ayles/87960-paring-back-exposure-to-the-long-bond-for-a-trade-only?source=feed 87960
We plan to buy the next dip that we are certain is coming soon.


Disclosure: Long BND, TLT, BDF, and other bond funds and etf's in client accounts]]> Mon, 16 Aug 2010 18:22:40 -0400
We plan to buy the next dip that we are certain is coming soon.


Disclosure: Long BND, TLT, BDF, and other bond funds and etf's in client accounts]]> bnd tlt Variable Rate Investments http://seekingalpha.com/instablog/475264-tim-ayles/69214-variable-rate-investments?source=feed 69214
The problem with cash, as most market guru's claim, is that it doesn't pay anything at the moment. To hold cash means to earn near 0% interest. It's a bet on the direction of the dollar is all, and with dollar bulls now registering over 90%, the up trend in the greenback might be due for a pause.

It seems investors instead are using their cash from stocks they are selling and rushing into bonds based on the hundreds of billions of inflows into such funds in the past year. These investors will have to hope and pray that rates will continue to stay steady or drop (althoug I can make a case for lower rates, most think that idea is crazy.)

Since I do not know the direction of interest rates, I propose finding investments that provide and income like a bond would, but that could increase in value if rates rise. I will give a list of my favorites in this article. They are not plentiful, but these investments are out there. They are, in a nutshell, publicly traded SWAPS. These investments hold a specific fixed income debt security in a trust, per se, and pay out a variable rate. The creator of the trust (usually a large bank) is willing to take fixed income risk, while paying out a variable rate. The creator of the trust will make a lot of money if interest rates fall, and lose money if they rise. Don't lose sleep being sad for them though. They have ways to hedge off their own risk in the event that rates rise. You as an investor though, usually don't. Thus the reason these investments should have a place in fixed income portion of your portfolio.

The first one I would recommend and investor look at traded on the NYSE under the Symbol: GJO This is a VERY illiquid investment (as most of these are) in which only $25 million was issued. This is a trust created by Wachovia Corporation to buy Wal-Mart bonds that are due Feb 15, 2030 and have a 7.55% coupon rate. The underlying bond that this trust holds is currently trading at a price of $130 (par is $100) giving a yield to maturity of about 5%. If you wanted to buy the bonds themselves, and rates began rising, your principal would drop dramatically as rates rose. With GJO though, your principal can rise! At the time of this writing, GJO is trading at $17.79. Par value of GJO at maturity is $25 per share. This means that you will earn 40.52% at maturity if you were to buy today just on principal appreciation alone. With the maturity date around 20 years away, this equates to just under a 2% annualized return alone. But this is not all. Wachovia has aggreed to pay you three month LIBOR plus .50% based on the $25 par price up to a total of 7.5%. As you can see, this was probably not the best investment to buy when rates were higher. But with LIBOR at a point where it can't go much lower (it is near 0%) one has to imagine they are getting in near the lows. With the discount to par, the current yield on GJO stands at around 1.12% - about 400% better than the bank! As long as Wachovia stays around (not hard to imagine since they are owned by Citigroup, who in turn is seemingly not allowed to fail) and as long as Wal-Mart continues to pay interest on their bonds, an investor should expect to continue to be paid. I for one would rather own GJO at 1% with the potential of 40% gains and an income that can rise along with interest rates.

The second is a bit different in that this investment has a floor on the rate that it pays. The symbol is: PYT With a par value also at $25 and a maturity date of 2/15/2034, this investment hold the Goldman Sachs 6.345 coupon bond. The variable rate paid by the creator of the trust - Merrill Lynch, is 3 month LIBOR plus .85% There is a catch though. The lowest rate you will receive is 3.00% or LIBOR plus .85%. Because LIBOR is near 0%, the 3% floor is currently in effect. Remember though that this 3% is paid based on a $25 par value, and with PYT currently trading at $16.66 at the time of this writing, the true yield to buyers today is over 4.5%. With potential principal gains at maturity of 50%, the current yield to maturity is near 6.5%! The cap on the interest rate paid is 8% on this investment. With the current yield to maturity on the bonds that make up this investment sitting at 7.75%, an investor is not giving up much yield for some protection in the event of rising interest rates. I would much rather own PYT instead of the underlying GS bonds at current prices.

One thing to keep in mind is that both of these issues are very tiny. If you are looking to add variable rate investments in your portfolio, make sure you buy these wisely. Do not use market orders, and be patient to get your price. In any event, buying variable rate protection if you are worried about higher interest rates makes a heck of a lot more sense than buying fixed rate bonds or leaving money in cash.



Disclosure: Long GJO, PYT

Disclosure: Long GJO, PYT for personal and or client accounts]]> Tue, 18 May 2010 12:12:02 -0400
The problem with cash, as most market guru's claim, is that it doesn't pay anything at the moment. To hold cash means to earn near 0% interest. It's a bet on the direction of the dollar is all, and with dollar bulls now registering over 90%, the up trend in the greenback might be due for a pause.

It seems investors instead are using their cash from stocks they are selling and rushing into bonds based on the hundreds of billions of inflows into such funds in the past year. These investors will have to hope and pray that rates will continue to stay steady or drop (althoug I can make a case for lower rates, most think that idea is crazy.)

Since I do not know the direction of interest rates, I propose finding investments that provide and income like a bond would, but that could increase in value if rates rise. I will give a list of my favorites in this article. They are not plentiful, but these investments are out there. They are, in a nutshell, publicly traded SWAPS. These investments hold a specific fixed income debt security in a trust, per se, and pay out a variable rate. The creator of the trust (usually a large bank) is willing to take fixed income risk, while paying out a variable rate. The creator of the trust will make a lot of money if interest rates fall, and lose money if they rise. Don't lose sleep being sad for them though. They have ways to hedge off their own risk in the event that rates rise. You as an investor though, usually don't. Thus the reason these investments should have a place in fixed income portion of your portfolio.

The first one I would recommend and investor look at traded on the NYSE under the Symbol: GJO This is a VERY illiquid investment (as most of these are) in which only $25 million was issued. This is a trust created by Wachovia Corporation to buy Wal-Mart bonds that are due Feb 15, 2030 and have a 7.55% coupon rate. The underlying bond that this trust holds is currently trading at a price of $130 (par is $100) giving a yield to maturity of about 5%. If you wanted to buy the bonds themselves, and rates began rising, your principal would drop dramatically as rates rose. With GJO though, your principal can rise! At the time of this writing, GJO is trading at $17.79. Par value of GJO at maturity is $25 per share. This means that you will earn 40.52% at maturity if you were to buy today just on principal appreciation alone. With the maturity date around 20 years away, this equates to just under a 2% annualized return alone. But this is not all. Wachovia has aggreed to pay you three month LIBOR plus .50% based on the $25 par price up to a total of 7.5%. As you can see, this was probably not the best investment to buy when rates were higher. But with LIBOR at a point where it can't go much lower (it is near 0%) one has to imagine they are getting in near the lows. With the discount to par, the current yield on GJO stands at around 1.12% - about 400% better than the bank! As long as Wachovia stays around (not hard to imagine since they are owned by Citigroup, who in turn is seemingly not allowed to fail) and as long as Wal-Mart continues to pay interest on their bonds, an investor should expect to continue to be paid. I for one would rather own GJO at 1% with the potential of 40% gains and an income that can rise along with interest rates.

The second is a bit different in that this investment has a floor on the rate that it pays. The symbol is: PYT With a par value also at $25 and a maturity date of 2/15/2034, this investment hold the Goldman Sachs 6.345 coupon bond. The variable rate paid by the creator of the trust - Merrill Lynch, is 3 month LIBOR plus .85% There is a catch though. The lowest rate you will receive is 3.00% or LIBOR plus .85%. Because LIBOR is near 0%, the 3% floor is currently in effect. Remember though that this 3% is paid based on a $25 par value, and with PYT currently trading at $16.66 at the time of this writing, the true yield to buyers today is over 4.5%. With potential principal gains at maturity of 50%, the current yield to maturity is near 6.5%! The cap on the interest rate paid is 8% on this investment. With the current yield to maturity on the bonds that make up this investment sitting at 7.75%, an investor is not giving up much yield for some protection in the event of rising interest rates. I would much rather own PYT instead of the underlying GS bonds at current prices.

One thing to keep in mind is that both of these issues are very tiny. If you are looking to add variable rate investments in your portfolio, make sure you buy these wisely. Do not use market orders, and be patient to get your price. In any event, buying variable rate protection if you are worried about higher interest rates makes a heck of a lot more sense than buying fixed rate bonds or leaving money in cash.



Disclosure: Long GJO, PYT

Disclosure: Long GJO, PYT for personal and or client accounts]]>