Investment Contrarians

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Why Sitting and Waiting Makes More Investment Sense Today Than Chasing Gains

By for Investment Contrarians | Nov 25, 2013

More Investment Sense TodayThe more I view this stock market, the more nervous I get. While Wall Street gets set for some terrific year-end bonuses and investors take some amazing gains off the table, I’m sensing some euphoric buying in numerous areas of the stock market.

We saw what happened to hydrogen-cell car maker Tesla Motors, Inc. (NASDAQ/TSLA), as the high-momentum stock rocketed to $194.50 on September 30. The euphoric buying was clearly overdone and set for a nasty decline as short-sellers jumped in. Fast-forward nearly two months, and the stock has plummeted 38%, sitting at the $120.00 level as of Friday. And while some are blaming multiple engine fires in several Tesla cars, the reality was the stock simply accelerated much too fast on the chart to levels that were clearly unsustainable. Even now, trading at 80 times (X) its estimated 2014 earnings and with a price-to-earnings growth (PEG) of 11, the valuation is obscene.

Areas that I view as having some excessive run-ups and valuation in the stock market include the Internet services and social media sectors, which include such stocks as Facebook, Inc. (NASDAQ/FB), Twitter, Inc. (NYSE/TWTR), and Netflix, Inc. (NASDAQ/NFLX). These high-momentum stocks are excessively priced by the stock market, so investors should be wary of chasing them higher. As an alternative investment strategy, wait for the stock to come to you; in other words, wait for weakness in the stock market and for prices to decline before jumping into these investment areas.

The cloud services area in the tech sector has also seen some massive advances to the point where there is so much hype built into the … Read More


Why Did Institutions Sell 29 Million Apple Shares?

By for Investment Contrarians | Nov 8, 2013

29 Million Apple SharesApple, Inc. (NASDAQ/AAPL) is maintaining its position as the top seller of smartphones in the U.S., but in the more important global market, Apple is trailing behind its competitors. Unless Apple gains traction in China and the emerging markets, the stock is going nowhere—and that is exactly what institutional money is saying. In the last six months, institutions sold a net 29.14 million shares of Apple, cutting institutional ownership by 5.5%, according to Thomson Financial. The takeaway point in this scenario? When institutions sell, you need to take note and follow the pro money.

Simply put, by looking at where the institutional money is flowing, you can get a better sense of the market. Institutional investors are the money guys who have better access to important information and know when it’s time to jump ship. When a top-ranked analyst says jump, it’s usually wise to jump.

Take a look at the high momentum Internet services stocks. Institutional ownership is declining here, and I’m not surprised, given the massive run-up in prices this year.

Netflix, Inc. (NASDAQ/NFLX) has been the current target of heavy selling by institutions, as the share price surged above $300.00 and the valuation got out of whack at 86 times (X) its estimated 2014 earnings per share (EPS) and a massive price-to-earnings growth ratio at 8.62. Talk about overvalued! Institutions realize this, and over the past six months, 16.13 million shares were dumped, representing a decline of 4.5% in institutional ownership, according to data from Thomson Financial.

Even insiders at Netflix are selling, with 1.06 million shares sold via 26 transactions. On November 4, Neil Hunt, Netflix’s … Read More


Finding Money-Making Opportunities with Bank Stocks

By for Investment Contrarians | Feb 14, 2013

Opportunities with Bank StocksThe major bank stocks all closed off 2012 near their respective 52-week highs; and they’ve started 2013 with a bang. Driven by an improving banking industry that is assuming less risky businesses while shoring up their balance sheets and producing stronger units, the KBW Bank Index is up eight percent, outperforming both the S&P 500 and the Dow Jones.

The subprime credit crisis that surfaced in 2008 and drove the U.S. and the global economy into a recession was not what we wanted to see; but in some sort of twisted way, the events have led to an industry that has restructured the way banks do business—more specifically, the amount of risk that is assumed by a bank via sophisticated strategies. So far, this shift in structure, coined the “Volcker Rule” because it was set in place by economist and ex-Federal Reserve Chairman Paul Volcker, appears to be capping the number of speculative trades made by the banks, which is good.

Banks have altered the way they do business, and they’ve shown positive strides along the way.

In my view, the operating results have been fairly good, and this indicates that the banks will be able to grow their business volume across the board during the U.S. economic recovery.

Moreover, with the housing market and the U.S. economy continuing to improve, I feel bank stocks will also see some gains.

Most of the big banks have paid back part or all of their government loans. Overall, bank stocks are showing promise and delivering better results.

While risk surrounding the bank stocks has declined, there are still issues that could hamper … Read More


Portfolio Protection Against the Collapse of the U.S. Dollar

By for Investment Contrarians | Feb 12, 2013

Portfolio ProtectionWhen it comes to the state of U.S. politics and the economy, you can’t believe everything you read or hear.

Example 1: In 2003, President George W. Bush famously gave a speech aboard the aircraft carrier USS Abraham Lincoln, during which a banner behind him proclaimed, “Mission Accomplished.” It wasn’t then, and it still isn’t.

Example 2: Who can forget these wise words from former Federal Reserve Chairman Alan Greenspan in 2007: “The worse is over for the U.S. housing market, and there will be no economic spillover effects from the poor housing market.” It wasn’t then, and it still isn’t over.

Example 3: Here’s more dubious wisdom coming from the world of finance. Published in the pages of the Saudi Gazette, a January 28, 2013 article announced, “Global ‘economic crisis over,’ say Davos pundits.” Courtesy of Philly.com, a February 6, 2013 article headline proclaimed, “Financial crisis officially over, proceed into stocks with caution.” Again, it wasn’t then, and it still isn’t.

Why do some think the global crisis is over? Because the stock market is doing well. The Dow Jones index recently rose above 14,000 for the first time since October 2007. And the S&P 500 is trending near its all-time high. So, what more proof do you need? Well, for one, how about looking at those who are not liquid enough to participate in the stock market?

Frankly, I’m not sure how anyone can declare an end to the global economic crisis when the eurozone continues to report record unemployment and a bleak economic outlook. Here in America, the unemployment rate remains stubbornly higher and economic growth projections … Read More