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Buys, sells, and lessons well learned


Over the 9 years I have invested, I learned a few lessons:

1.  Buying great companies with a future over the long run (at lest 1 year) is the best money maker.  The key is finding companies with a future.  SNP (China Petroleum) was selling for $15 in 2003, when it was the third largest refiner in China.  Now it is the largest refiner in China and sells for $77. 

That said, going to the pesent, where is the growth?  Well, there is generic pharmacuticals.  TEVA and RDY come to my mind.  TEVA is the world's largest generic pharmacutical company.  RDY is a growing Indian generic pharmacutical maker.  RDY, being smaller and based in India, has more growth potential over the long run.

Also, flashdrives are the future.  The first company that comes to mind is Sandisk (SNDK), the largest flashdrive maker in the US.  STEC is a smaller name that may prove profitable.  With MP3 players and smartphones flying off the shelves, flash is almost a no brainer.  But the key will be when we get rid of diskdrives.

Robotics are increasing.  That should poise ISRG, a maker of the Da Vinci medical robotic arm, well for the future.

Cloud computing is growing.  VMware (NYSE:VMW) and much smaller competitor Netlist (NASDAQ:NLST) should do well.  The risk, NLST is not profitable, but it may also grow faster the VMW.

Telsa Motors (NASDAQ:TSLA), the first electric car company, should do well if oil stays high.  However, it is a very young and unprofitable company.

Overstock (NASDAQ:OSTK) may do well, since online shopping is the future.  For a long time, it was not profitable, but Amazon (NASDAQ:AMZN) was also not profitable for a long time.

And good place to start is the list of "In/Out of Favor" in MSN Money.  Find the quality companies.  Also, if they list the quality companies as a strong buy, I would consider it.  Zack's recommendations also do fairly well.

2.  You can make money fast by trading more frequently, but you can also loose fast if you push the wrong buttons.  High return comes with high risk.  I was able to double my money in a month but loose it all in two months.  How I did it?  Looking at the earning releases and the "Unusual Volune," the "Largest Percentage Gainers," and the "Most Active" sections of Yahoo Finance.  If you think a company will report good earnings AND impress the Street, buy before the earnings report.  If you are unsure, wait till they report and see how the market reacts.  If it impresses, it usually will go up for three days.  After the three days, sell.

For "Unusual Volume," that can just tell you what the herd is buying.  Chances are, they know something you don't.  Same goes for "Most Active" and "Largest Percentage Gainers."  If you can find out why they are buying, then great.  You lower your risk of loosing.  But most of the time, it is a gamble.  And the problem, there is not much, if any, consistancy of when it will turn south.

That said, watch ISRG and VMware, which reports this week.  Also, SNDK is reporting next week.  Note, I also recommend these stocks for the long term.

3.  Look at the product and use common sense.  The iPod was flying off shelves in 2002.  Months later, Apple (NASDAQ:AAPL) soared.  Look at the most sold products at Amazon or other retailers and buy the company that makes the product.  Also, check consumer reports.

But this rule can also be applied to other things, such as movies.  Transformers did well in the box office.  Hasbro (NASDAQ:HAS) will probably do well, too.  By the way, they are reporting earnings Monday, 7/19. 

Basically, look where consumers are buying, or where the money is flowing.

4.  Inspect stocks which are cheap and won't fail.  Citigroup (NYSE:C) fell to a dollar, but would it fail?  No.  Would Bank of America (NYSE:BAC) fail?  It was best to buy these stocks after they hit the "Most Percentage Gainers" for two days in a row.  However, in C case, the New York Stock Exchange has a $1 minimum.  There was little downside when it fell to a buck.  Sorry I couldn't tell you, because I just found this place two days ago.  But I did mention it on Facebook.

Lockhead (NYSE:LMT) was the largest contractor to the US military in 1998 according to the World Almanac.  At $5 a share, it seemed a steal.

5.  If insiders are buying, the company may be doing well.  If the stock is cheap on valuation metrics, that is a good signal.  A fund bought a large stake in ACAS 6 months ago.  So far, it is up 10%.  The insiders know more than you.

6.  Buy boring companies in steady industries.  ONP is a Chinese paper company.  CLW is also a paper company.  CLW is doing better than ONP, because ONP is in investigation.  But if ONP prevails, it will do well in the long run.  Also, CAGC is a Chinese fertilizer maker.  It may not fly, but could it be the Potash (NYSE:POT) of China?  SEED is a genetic seed maker in China, but could it become the Monsanto (NYSE:MON) of China?  Even if these don't happen, they should produce strong cash flows.  China, the most populous nation in the world, needs to eat.  And arible land is ever decreasing due to geology.

Chemicals is not a high flying business, but I like Valhi (NYSE:VHI) and Quacker (NYSE:KWR).  Again, cash flows should remain strong.  VHI is not profitable but has promise in disposing of nuclear wastes.

7.  If a private company like Google, which is very profitable and successful goes public, buy it.  Check out Harrah Entertainments IPO later this year.

Also, I see value in Dryships (NASDAQ:DRYS) drill ship unit which is going to be spun off.

8.  And high return on equity can be a good indicator of good times.  SID has a return on equity of 52%.  It has done well so far this year.

9.  Last is my superstitious rule, if the company is trading for a low P/E and pays a large dividend or increasing it, research the stock.  Find out why it pays a high dividend.  In 2004, DRYS sold for a P/E of 6 with a huge dividend.  A year later, it shot up.  The catch, many large financial stocks had large dividends due to depressed stock prices during the credit crisis.

Okay, more will come later.  Until then, good luck investing.

Disclosure: I own ONP, CAGC, RINO, NLST, SNDK, VHI, and TSLA