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Trading

The stock market is in a general lull for the last several months. The S&P 500 index is barely moving, but reaching highs. Normally, one would see movements around plus or minus one percent from the previous close. If there was extreme volatility, one would see two or three percent movement. In some instances, we are seeing a movement of maybe one or two points. That is less than 0.1% movement. There are many reasons for this, and we can only speculate what may have been happening.

Is This The New Stock Market?

  1. One school of thought is that the growth of the overall S&P 500 is influenced by the popularity of the index funds. Jack Bogle invented the first index mutual fund. In contrast to the actively managed funds, one can consider long term investment with low fees and tracking to the S&P 500 index as the benchmark. As actively managed funds underperform, more investors will settle on returns similar to the S&P 500. As more money is invested in the these index funds, these funds will have to purchase stock that mimics the S&P 500 index portfolio.
  2. Others think central banks’ intervenes in the stock market. Several central banks, including the US Fed, Bank of Japan, and the Swiss National Bank have been known to include stocks on their balance sheets. Usually, these central banks purchase government debt in order to issue currency for the country. However, open market operations have been allowed securities to be carried on their balance sheet, allowing the stock market to be “propped” up. Many people will believe the health of the country is relative to price of the stock market. So, central banks can purchase futures or futures options to maintain stability in the price if it starts to dip. If one had unlimited supply of money, one can argue that they can buy keep on buying as others sell, showing a larger demand for stocks if more sellers come into play to keep the overall market stable.
  3. Some may believe that algorithmic trading and high frequency trading have reduced volatility. However, it is highly suspicious when slight news cause dramatic stock declines or gap ups. Also, there have been several instances with one-day runaway market declines, attributing to “fat finger” mistakes.
  4. I guess one can believe that the stock market is awesome and will always go up, albeit very slowly. There will always be some who believe what the market gurus tell them. Financial news anchors and writers offer few reasons for the slow moving market. The focus is usually on the more exciting news, like Amazon buying Whole Foods.

How Shall We Approach the Market?

How do we approach the stock market now in the USA? Here are some stories that may give some approaches to the stock market.

  • Passive Paul likes to just put money into a fund and watch it grow. He has no interest in the stock market movements, but he wants to make money and retire when older. Although, he doesn’t like to lose his nest egg, he believes that the market will always go up and he will retire comfortably. So, he invests all into an index fund.
  • Cautious Cathy is protective about the money she earned. She wants to make sure that she saves enough for investments, but does not like to lose any money. She feels the US market is overheating, and is looking to diversify her investments. She decided to look at some undervalued ETFs that invests in international countries. With a rebalancing strategy, she moved some money from US investments to reduce some exposure.
  • Trending Tom is a technical trader. He is willing to take some risk, but is disciplined in following his trading rules. He has practiced by paper trading for months, and he even did some backtesting to make sure he has an edge. He makes sure each trade has the right position size and preset stop loss rules. Looking at the US stock market, the price continues to show that the “trend is your friend.” He had invested earlier at his entry signals. There has been some drastic dips in technology stocks recently, so as a rule, he placed tighter stops on those tech stocks he invested. If the market weakens further, he patiently waits for an entry signal on the short side.

This article covers trading financial securities, such as stocks. The world of trading often comes with rises and declines of securities, and most things do not rise or fall in a straight line. By the time this article is published, circumstances involving what we mention may have changed. Often, changes in securities can be to the detriment to the traders – seldom is it beneficial. A person should only trade with money that they’re willing to lose because losses are guaranteed. By reading this post, you agree that you’ve read our disclosure.


Back in 1981, a movie called The Cannonball Run had me fascinated with the Lamborghini. Not because of the ladies driving the car, but the sleek styling of the supercar, more so than the Ferrari. Today, I favor the Ferrari, but the car of my youth was the Lambo Countach. The earliest memory of the movie, besides the ludicrous premise and characters, is Jackie Chan driving with a partner in a high-tech Subaru. He had warning computers that tracked their route, drive without lights in the dark, and early warning of police cars. They were glasses that highlighted the road and the police car up ahead. This opened my imagination to the idea of computers used for augmented reality.

Early History of VR and AR

With the increasingly popularity of Virtual Reality (VR) and Augmented Reality (AR), one would think that this is a recent technology. However, the early premise was postulated in the 1960’s. Ivan Sutherland created the first VR system, and later built a head-mounted system in 1968. Fifty years later, technology has advanced and costs have come down, allowing consumers access to VR and AR technology. More companies are being founded, driving further development in software and hardware.

If one would have invested in VR technology early on, one would have to wait a very long time for that investment to pan out. Although many want to invest like Warren Buffett and Charlie Munger, many do not have the patience to invest for the long-term. Even waiting for five years would be too much for many investors. This is one of the reasons why Ponzi schemes work. People want to see some sort of return right away, no matter how small, like 1% return per month in the case of Bernie Madoff’s fund. But, the misconception of fast returns on technology will cause much pain. We tend to have short-term memories on the technology bubble from year 2000-2001. Maybe this time is different…

Three Lessons I Have Learned Riding the Tech Hype

There is a small California company that I have invested early on back in year 2001. This company built high resolution small displays that can be mounted on helmets. The technology also used organic light emitting diodes (OLED). These are the same technology now found on many smartphones. They also won several contracts from the U.S. government, furthering their research and development. The displays had the effectiveness of watching a large high-definition television, when mounted in front of the eye. I saw the potential for VR and AR applications with this technology. However, the stock did not recover from the hype and the tech bubble, and floated near its low price for a very long time.

  1. Investing too early is as bad as investing too late. One can hope that the stock will go up, while the stock is moving sideways or declining gradually, but the price action shows lack of interest in the technology and the company. Unless one had the patience to wait a very long time, it is better to invest in other growth stocks or technology. Technology sometimes take a long time to develop and become mainstream.
  2. Technology companies will offer glowing reports and many positive news as possible. Even financial publications and investment newsletters will list out many reasons to invest. The reasons can be well written and very persuasive. They can have many charts and show the growth potential. They can project the total market share and potential market. However, these can be very speculative, and it is best to be cautious of other people’s investment opinions. This why we try to provide positive and negative views on what we share in FinTekNeeks.
  3. Risk management and having a trading plan is very important. Although I had expected the stock to shoot up, it never did and I lost a bit. The stock did a 1:10 reverse split, which reduced the number of shares I owned. Unfortunately, I sold a bit too late for a loss. With hindsight being 20/20, if I had a trading plan, I may have been able to invest in more silver mining stocks, which would have yielded me significant returns in the early 2000’s.

It may be difficult to determine what is hype and what is not. With today’s valuation, one may consider the current tech stock market to be in a bubble. Our readers should take precaution in managing risk and having trading plan – whether the tech stocks decline further or rebound completely. Doing your own research is better than following gurus, following chatrooms, or watching financial television. And sometimes, timing when to invest is better than investing early. Because, the time may never come.

This article covers trading financial securities, such as stocks. The world of trading often comes with rises and declines of securities, and most things do not rise or fall in a straight line. By the time this article is published, circumstances involving what we mention may have changed. Often, changes in securities can be to the detriment to the traders – seldom is it beneficial. A person should only trade with money that they’re willing to lose because losses are guaranteed. By reading this post, you agree that you’ve read our disclosure.


At the end of July, I will be releasing a video with a trade I’ve been making this year and how I’ve been playing it. This video covers the tools I use, how I assess the trade’s value at each point, and the steps I take to trade this opportunity – and in my view, this is one of the biggest opportunities this year, in addition to offering a good overview of value trading.

Overview

For high net worth readers, this will be the only opportunity this year to see a live trade, outside of our investment outlook webinar earlier this year. As you know – since you’re high net worth – the cryptosphere gains won’t hold over the long run and people who are getting a taste of these 1000% gains are being misled into thinking they’re good traders, when they’re not; they’re just getting lucky and this will soon change.

Cost: $15,000

To sign up, contact us at both email addresses and we’ll send the payment information. You have until June 9th to pay. In the final week of July, I will send the video to the people who’ve signed up.

Let me repeat:

  1. This is exclusively for high net worth readers ($5 million or more)
  2. This is only what I am trading and what my theories are in relation to this trade
  3. The video covers how I’m trading this instrument
  4. This is not a crypto-token, most of which are all in unsustainable bubbles
  5. This provides a behind-the-scenes-look at value and contrarian trading

If you’re a low net worth reader, I suggest that you sign up for the annual investment outlook webinar, as this is most appropriate for people with a net worth under $5 million. We only allow so many people to attend, so the early bird in signing up gets the worm.

Leading image from Pixabay.


Owens-Illinois is another company that is probably not well known, unless you are part of the industry. Companies that produces a product that most people have probably touched or broken. Several years ago, they have changed their name to O-I. We will be calling it OI from now on in this article. So, what does OI produce that is so common as sand in beaches? Well, they produce majority of the bottles in this world.


Glass, glass, and more glass

How can selling glass bottles and glass packaging be a $7 billion dollar business? It has to do with volume. Although OI doesn’t produce all of the glass products in the world, they do specialize in glass packaging. OI falls under the consumer goods industry, so their business tends to be cyclical. However, they have been known to produce one out of every two bottles in the world. They have over 10,000 product offerings, so they produce tons of glass products every year.

Owens Bottle Company was founded in 1903, and later merged with Illinois Bottle Company in 1929. Thus OI has been around for a very long time. The headquarters are located in Perrysburg, Ohio but operates worldwide in 23 countries. It has seen good days, when the company was added into the Dow Jones Industrial Average and the original S&P 500. It was taken off the indexes in 1987. Only in 2009, OI was added back into the S&P 500. Not to be confused with Owens Corning (OC), a separate company that was formed as a partnership with OI and other companies.

Although packaging is not a sexy business like Tesla, or a hot trend like VR, O-I seems to make a decent amount of money. Making money doesn’t have to be sexy. Trying to be a hot company will only burn through lots of cash, ask Uber and Tesla.

The main reason that got me interested in this company is their stock price. Again, just looking at price, we see that it is reaching 52-week highs in recent days. With a low back in 2016 around $11-$12 per share. In the beginning of 2017, it was trading in a range, but started breaking out above the 50-day moving average and the 200-day moving average. An entry option is to wait for a pullback into the 50-day moving average line (around $21). It does not seem like it will pull back all the way down to the 200-day moving average line (around $19.20). However, there will be risk involved if there are any negative news, as we have seen in recent stock movements. We are seeing some drastic drops with negative earnings.


Old Industry, Old Risks

Manufacturing is a capital intensive business. With an industry so well established, and a commodity business like glass, it is hard to get high margins. It has net earnings of $49 million last quarter, and is expected announce Q2 2017 earnings in July. Here are the risks that I see involved with OI:

  1. Although cash and cash equivalents is about $312 million on hand, the amount of long term debt is more than 17 times cash on hand. The long term debt is sitting at $5.4 billion, with additional long-term liabilities at $988 million.
  2. The company was in business for a very long time, and it produced some products that turned out to be risky. Due to its past manufacture of asbestos, it is liable for lawsuits that will continue for many years, with $565 million held under liabilities.
  3. The amount inventory held seems a bit questionable, in my opinion. I guess you can say that with $1.6 billion in sales per quarter, while holding $1.0 billion in inventory translates into about 8 weeks of inventory. This may seem reasonable if the lead time to build more glass products are significant. We do not belong to this industry, so it is hard to determine if inventory can be improved through Just In Time inventory management or some other manufacturing efficiency process.

Conclusion

This is not a recommendation for anyone to invest in OI. With OI dominance in glass bottles and packaging, OI should continue to generate revenues. Growth prospects are limited, with only options of buying out the competition. Reflecting in the stock price, the stock has gone from relative recent lows of $17.5, and is now above $22. One may consider pullbacks into the rising moving averages as an entry signal. However, caution should be taken around potential earning shocks, which could lead to trend reversal.

This article covers trading financial securities, such as stocks. The world of trading often comes with rises and declines of securities, and most things do not rise or fall in a straight line. By the time this article is published, circumstances involving what we mention may have changed. Often, changes in securities can be to the detriment to the traders – seldom is it beneficial. A person should only trade with money that they’re willing to lose because losses are guaranteed. By reading this post, you agree that you’ve read our disclosure.


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