Yieldpig's  Instablog

Send Message
20 Year professional investment management vet. Dad. Beatles fan.
My blog:
  • How bazaar...how bizarre 0 comments
    Jan 20, 2010 11:27 PM | about stocks: GE, SPY
    Hopefully, you’ve experienced the carnival known as a swap meet (aka flea market). If not, treat yourself. Spring is approaching. Pick a brilliant weekend, load the family up, and drive. You’ll discover the smell of puppies and roasted corn floating across a crowd which typically is shoulder to shoulder. The most amazing thing, and we’re not trying to be elitist, is the enormous collection of what a Jewish mother would refer to as “drek” offered for sale. Sometime the prices are fair. Some times they’re downright bizarre. Perhaps a shorted out, J.C. Penney brand all in one stereo system does deserve a premium. There will also be modestly amazing finds. The Picassos that Aunt Dot found in the attic and was priced at $35.00 “ ‘cause it was big and not a pretty as the picture of the dogs playing poker” are few and far between and usually the stuff of urban legend. The small, pleasant surprises are more like the story our editorial director told of stumbling across a framed, original stock certificate from the famed White Star Line (the company that launched the Titanic) for ten bucks when, per certain catalogs, it was probably worth at least five times that if not more not to mention the conversation value. That’s a realistic surprise that is bound to occur more often than not.
    Although some of Wall Street’s hoi ploi would disagree, the market, at the end of the day, is an enormously glorified swap meet. Some things are priced correctly, some incorrectly either for the good or for the bad. And small, pleasant surprises can be found buried in the bins. The crowd is also shoulder to shoulder, however, we’re not sure about the roast corn and puppy smell.
    The current rally from the panic lows of March ’09 is more bizarre than bazaar. Granted, many investors were absolutely convinced we were all headed back to the Stone Age where all money and financial investments are just useless pieces of paper. Now, those same investors may be or are considering chasing some prices after a 70%+ move in the S&P 500 index (SPX) from the panic lows. If GE is Ok to buy here at around 16 ½ (just wanted to throw in an old timey fraction) what was wrong with it at 5.73? Sure, it looked like the world was ending but wasn’t GE an iconic American business at that time too?
    Since those dark days, many names have climbed that wall of ambition (What? Me worry?) posting triple digit gains in some instances. Many did so without the benefit of a decent dividend yield and/or a dividend cut or elimination all together! So, while the investor with the intestinal fortitude to pull the trigger back in March will be well compensated for his or her risk if and when (mainly if) they decide to give their shares to someone else, they haven’t been compensated during the climb. There are a few strategies the lucky investor could use to manage some of that risk: using covered call options or protective put options, selling the equity and buying the debt of the same company if the debt offers better value and yield than the equity, or just selling the equity altogether.
    If the market continues to climb its perceived wall of ambition, great. Otherwise, a lucky find may magically turn in to the old, shorted out J.C. Penney brand stereo.
    To read the rest of this post in its entirety, including specific ideas, please read the Yieldpig blog! 

    Disclosure: No positions

    Disclosure: No positions
    Stocks: GE, SPY
Back To Yieldpig's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.