My Boy Jack

My Boy Jack is a 3 year old race horse who finished 5th in the Kentucky Derby.

Mendelssohn is a 3 year old race horse from Europe.  He finished last.

It is not the results that interest me the most, it is the back stories which happened the day of the race and peoples reactions to these stories before the race even started.

The main story was the weather.  Not only did it rain and was raining for the race, but Kentucky had about 3 inches of rain.  That, is a lot of rain.  And the track was very wet and very muddy.

FYI, Just in case you do not know who won, it was Justify.

This is what one looks like when leading in a muddy field.

My Boy Jack is an experienced race horse who had won some races; including one in the mud.  His owner and trainer were all smiles during morning interviews and publicly stated that they were really glad to see all those rain clouds.  They felt good about their product and their chances of success in these conditions.

The day before the derby, before their statements and all that rain, My Boy Jack was sitting at 30:1 odds.  By race time he was 6:1.  That my friends is a huge swing.  This is like Warren Buffett saying he is buying more and more Apple Stock because he likes the product and the favorable conditions for success.  People tend to pile on the Buffett bandwagon.

Between a good earnings report, conference call and Buffett’s endorsement, Apple rose nearly 8%.

This is what one looks like finishing last, behind everyone else in a muddy race.

Mendelssohn on the other hand was not a race horse with a lot of experience, he has won, but has never even ran in the rain or raced in the mud.  He also is a European horse, and I don’t even know how one can transport a horse across the pond without totally stressing him out.  His owners and trainers were very much subdued in their interviews and even said they did not even know if he was going to win or not.   They did not like the rain, nor the mud and really did not want to talk to the media about it.

This is like Elon Musk not wanting to talk about boring financial and economic stuff like cash flow and debt.  You know the muddy, dirty side of running a business that is burning through cash.

Tesla’s stock sank nearly 10% after his horrendous earnings call.  People, and Wall Street, tend to jump ship if you ignore the messy stuff and refuse to answer key questions.

Interestingly, Mendelssohn’s odds did not change that much.  Probably because he was still getting hyped by the media.  For some reason, people were still believing the expert commentators instead of looking at the research.  I even heard one commentator state that the only reason My Boy Jack was gaining in popularity was because folks liked the name.

The moral of this story is that one should follow the money but do your research and don’t always buy into the hype.  After all, there was a reason why Jack was rated at 30:1 at one point.

My wife and I are not big gamblers, but we do enjoy the occasional horse race.  In fact, we have a bit of a tradition of going to Charles Town each year for our anniversary.  We avoid the one armed bandits and even the card tables and instead head to the all you can eat buffet, grab a bottle of wine and watch the races for the evening.  And yes, we place small wagers, usually a $2 across the board bet.

Our method is just as good as anybody else.  We look for consistency in both history and odds, who the rider and jockey are, and of course the horse has to “look” good and have a catchy name.  😉

So this year when the Kentucky Derby rolled around, we did essentially the same thing.  Ordered pizza, grabbed a bottle of wine and placed our bets online.

My wife has a soft spot for “greys” but since there were no grey horses, she looked at the names and the jockeys.  Ultimately she picked Good Magic (9:1) but thought that Audible (7:1) sounded familiar.  I told her that it was the name of a company which published and streamed audiobooks.  I liked her suggestion but in the name of competition, I chose Audible.

How did we do?

My wife’s horse came in second, and mine in third.  Our $12 of wagers returned $21.60.  An 80% return on our money.

The moral of this story, always listen to your wife.


Looking For Bargains

First of all, I hope everyone had a safe and happy Thanksgiving, or Friendsgiving, or if you don’t happen to celebrate either one of these events, a good week.

This is the time of year that we, as Americans, give thanks for what we have;  and then promptly go out and buy things we don’t have;  or things we feel that our friends and families simply must have.

Retailers love this and have created their own celebration events for which they are thankful.

Black Friday and Cyber Monday.

And nobody does it better than Amazon. Look at this heat chart from Friday.

Investors seem to know who is winning the online battle.
And, based on internet traffic, it appears that Amazon has captured over 50% of the Black Friday shopping traffic.

Out of curiosity, I took a look at what the top 5 Black Friday items sold on Amazon.

  • Amazon Echo Dot
  • Fire TV Stick with Alexa voice remote
  • TP-Link smart plug
  • Instant Pot DUO80 8-quart 7-in-1 programmable pressure cooker
  • 23andMe DNA test

The two which caught my interest of course were the ones that were not Amazon related. (Anything Echo/Dot or FireTV related was a lock to be on the list) – The pressure cooker and the DNA test by 23 and me.

I mentioned these to my wife and, thinking I was looking for gift ideas, promptly said she did not want the DNA test kit. After being married to her for nearly 30 years, I knew the last thing she wants to do is send PII to some company on the internet.

So maybe I’ll buy the pressure cooker….

But really, I was more interested to see if there might be some potential investment opportunities.

The Instant Pot pressure cookers appears to be a privately held Canadian company and 23 and me is a venture capital company funded by some publicly traded companies such as Johnson & Johnson (JNJ), Roche (RO.SW), Google (Googl) and Illumina (ILMN).

From purely a sales perspective, Amazon (AMZN), and these other companies might be an interesting place to start your investment research. However, one would be hard pressed to classify AMZN (with a P/E of 300 and a PEG of 5) as a traditional value investment stock.

Of course, as investors, there are many more ways to look for bargain investments. A month from now, one of the more talked about strategies will be looking at the Dogs of the Dow. This is generally a list of the highest dividend companies of the DOW30.
The current list has some very interesting names on it.

Ticker Company Yield
GE General Electric 5.28%
VZ Verizon 5.02%
IBM International Business Machines 3.95%
XOM ExxonMobil 3.78%
CVX Chevron 3.71%
PFE Pfizer 3.61%
MRK Merck 3.46%
KO Coca-Cola 3.23%
CSCO Cisco Systems 3.18%
PG Procter & Gamble 3.12%

Some, such as Cisco, I already have positions in. Others, such as GE have been so beat down this past year they may be compelling to invest in but GE is a mess right now and is not without risk. Long term, however, it may present an opportunity.

I also ran my own version of a “value” screen on Finviz and came up with stocks. Some, like the Dogs, pay dividends, some don’t.

Ticker Company Country P/E
HMC Honda Motor Co., Ltd. Japan 10.45
LM Legg Mason, Inc. USA 15.22
NUE Nucor Corporation USA 15.57
RIO Rio Tinto plc United Kingdom 14.41
SBS SABESP Brazil 8.13
STX Seagate Technology plc Ireland 15.24
TKC Turkcell Iletisim Hizmetleri A.S. Turkey 14.51
TS Tenaris S.A. Luxembourg 61.1
VLO Valero Energy Corporation USA 17.85
WDC Western Digital Corporation USA 19.37
WOR Worthington Industries, Inc. USA 14.38
CFG Citizens Financial Group, Inc. USA 15.3
COHR Coherent, Inc. USA 37.85
ESNT Essent Group Ltd. Bermuda 14.97
GGAL Grupo Financiero Galicia S.A. Argentina 17.41
HCCI Heritage-Crystal Clean, Inc USA 21.95
INVA Innoviva, Inc. USA 16.76
MDC M.D.C. Holdings, Inc. USA 11.62
MTZ MasTec, Inc. USA 14.45
OCLR Oclaro, Inc. USA 7.93
PNFP Pinnacle Financial Partners, Inc. USA 20.11
PZN Pzena Investment Management, Inc USA 15.9
RICK RCI Hospitality Holdings, Inc. USA 27.88
SUPV Grupo Supervielle S.A. Argentina 17.66
WPPGY WPP plc United Kingdom 9.33

I think I will keep these stocks on a special thanksgiving value watch list to see how they perform and conduct some further research..

What “value” stocks do you like or follow?

Is The Stock Market Setting Up For A Fall?

One thing every investor should do is look at current market conditions.  Our investment club starts off each meeting doing just that.  We look at a lot of different charts which track trends and patterns.

Some are in confirmed uptrends.

–          The momentum players see this as strength in the market.

Some are indicating possible over bought conditions

And others are close to inflection points with percentage of stocks hitting new highs, or above their 20, 50, 200 moving averages, etc.

–          The contrarians look at the last two groups as signals for a correction.

I’m going to mention one more indicator group which is not usually mentioned.

The IBD50 list of stocks contains a list of growth oriented stocks with good fundamentals and positive chart patterns and setups.

In the latest weekly issue of the IBD paper, half of the stocks, 25 of them, have one or more of the following comments associated with them.

  • Extended from last breakout.
  • Late stage base.
  • Take profits.



Late Stage

Profit Taking

























































Four of these stocks I am either currently invested in or have been within the last couple weeks.  Five others I have on watch lists and or have been invested in within the past year.

Interestingly enough, AMAT, which is listed as in a risky late stage base and in profit taking zone is also listed in an article, in the same paper, as a possible upcoming earnings call option play.   I wonder if these IBD analysts spend much time talking to each other or reading each other’s work…

Are we due for a correction?

–          The contrarians would say that the risk is higher with so many IBD stocks over extended and in profit taking zones.

Are stocks and the market in full acceleration mode?

–          The momentum traders would say that hitting new highs and either continuing momentum or hitting new buy points is a strong growth indicator.

Regardless of the market direction, it pays to do your homework and look at risk reward ratios.

One possible strategy would be looking at the IBD50 again but this time at the other 25 stocks.  The ones not over extended, in a risky late stage base, or in profit taking zone.  Do any of these show signs of weakness and failing?

Yes, there are a couple which are showing sell signals.  So this is a definite sign of weakness.

Others are testing support which can be a sign of showing possible strength (if it bounces off of support) or weakness (sell signal, if it fails).

Here is the breakdown as I see it.

Testing 10 week line: 

IBD views this inflection point as a test of support and confirmation of upward trend of a growth stock.  Often viewed as a possible secondary entry point if it bounces off of this supporting trend line or a possible sell signal if it falls below the trend line.  I would put these into a watch list:


Failed Breakout but still testing 10 week line:

This is a subset of the previous 10 week support line indicator.  These stocks pulled back after passing a buy point and are now testing the trend line.


Flat Base: 

An IBD consolidation pattern which can signal strength if the lower support range holds and or the stock bounces off of a trend line or passes top level resistance (a buy point).


Base on Base:

Another upward trend IBD pattern which investors can view as another secondary buy point.


In Buy Zone: 

IBD defines this as within 5% of a breakout buy point.


Double Bottom:

IBD version of a potential reversal pattern and or test of support before a breakout.


So of the remaining 25 within the IBD50: 14 are in noteworthy patterns

–          5 stocks are is possible strong buy point patterns:

–          2 are showing weakness but still showing support

–          5 are testing support and at a possible inflection point.

–          2 have flashed sell signals.

So, do you see the market at an inflection point?

Setting up for a correction?


Confirming strength and momentum?

Regardless, it is good to do your homework and be ready to action no matter what happens.


Swing Trading

IBD has a relatively new investment service called Swing Trader.  Now, to be fair, there is nothing new about swing trading.  What makes this slightly different is that their swing trades are based on IBD CANSLIM investing.

What is CANSLIM?

It is an investment system based on both fundamental and technical analysis.  CANSLIM is an acronym for the seven traits winning IBD stocks have before they breakout.

  • Current Quarterly Earnings – increasing quarterly sales
  • Annual Earnings Growth – at least 25% or more for the past 3 years.
  • New Product, Service, Management or Price High
  • Supply and Demand – high demand for limited supply of shares.
  • Leader or Laggard – industry leaders with superior earnings and sales.
  • Institutional Sponsorship – funds account for 75% of all market activity.
  • Market Direction – 3 out of 4 stocks follow the market’s trend.

IBD has a 30 day free trial for their Swing Trading service.  I decided to sign up.  Not necessarily to spend even more of my hard earned money but rather to see exactly how well they are doing.   To be honest, one could consider some of my trades swing trading.  My style of investing is quite similar to IBD in that I look for good technical setups and momentum trends of well-run or popular companies; but above all, when it comes to truly short term trades, I look for opportunity.

Case in point, some of my more recent trades were based on what I thought was opportunity.

  • When Amazon announced buying Whole Foods, and selling SEARS Appliances; Home Depot, Walmart, and Best Buy took a price hit yet recovered quite nicely.
  • When Disney announce they were leaving Netflix, NFLX took a price hit, and interestingly enough, filled the gap from their recent quarterly report breakout and found support.
  • And more recently Hurricane recovery trades with Home Depot, Restoration Hardware, Lumber Liquidators, Owens Corning, Generac Holdings and General Motors.

None of these stocks, except NFLX, made it on to the IBD Swing Trader alerts.

Looking back over the IBD Swing Trader alerts for the past year, I am less than impressed with the overall average return of .50%.  However their two currently active trades are based on classic setups and are performing quite nicely.

So, do you ever make short term trades, and if so, what are some of the triggers you look for?

The Amazon Effect

Amazon is, and has been, transforming the way we do business.  They have been doing this for years.  At the core of this transformation is what I will say is the Online World.  Yes it is a generalization, but from being able to buy books online to a cloud service provider to a mobile payment platform and even a one click buy it now system to most recently high profile deals with NIKE, SEARS, and Wholefoods; Amazon is transforming the way we do business from traditional brick and mortar to online.

According to Millennial Marketing, Amazon rates highest in satisfaction and experience not only with Millennials, but across other generations because of “its consistent ability to reduce friction in the consumer journey and stay at the forefront of market innovation.”

It even beats out other brand names such as Apple and Netflix in customer satisfaction and both Apple and Netflix do an excellent job with online marketing and innovation.

And how has practically the whole retail sector, and investors, reacted?

The retail sector has taken a nose dive.  Both investors and publicly traded companies have stuck their heads in the ground and proclaimed that Amazon is taking over the world and the end is near.

Grocery stores such as Kroger and even Walmart took a dive when Amazon bought Whole Foods.

Blue Apron IPO took a beating because Amazon now has a potentially huge food delivery network.

Home Depot and other similar stores took a dive when Amazon agreed to sell SEARS Appliances.

Even NIKE has agreed to add Amazon as a delivery channel for their product.  But NIKE is smarter than some of the other retailers.  Part of their agreement is for Amazon to crack down on fake NIKE knock offs.  Not only do these cheap imitators take revenue away from NIKE, but they also damage the NIKE Brand and the NIKE reputation.  So the NIKE deal with Amazon is actually a good thing for them.

Home Depot does sell appliances.  So does Lowes and Best Buy.  HHGregg went out of business because they failed to adapt and could not compete.  But stores like Home Depot and Best Buy are more than just appliances and they happen to have good online presence and customer loyalty.  A fellow blogger recently wrote about this here.  Check it out.

I think the entire retail sector has over reacted and the recent Amazon effect on the retail industry has created some good potential bargains.

The key to retail success today is how well do you market to and retain the mobile online consumer?

A company basically has three options.

  • Agree to be bought out by Amazon.
  • Develop a successful one stop shop and buy mobile campaign and customer loyalty program similar to Amazon.
  • Or join Amazon to make your product and your brand stronger and more available to the online world making it easier to buy.

I’ve already mentioned how NIKE has taken advantage of Amazon.  Here is another company which I have written about in the past and has done remarkably well recently.


They make online ordering, and reordering, quick, simple and easy.  It fits the millennial mobile mode of online shopping perfectly.

However, on the surface, their business could appear to be threatened by Amazons move into the food and food delivery business much like Blue Aprons.   But they too have “joined” Amazon in a very interesting way.

You can use Alexa to order food from GRUBHUB.  They have taken advantage of the Amazon effect and incorporated it into their business model with hands free ordering.   This is not without possible risk.

Amazon has been accused of poaching sales from retailers.

“A study by Upstream Commerce, a retail intelligence firm that tracks pricing, suggests that Amazon will use the pricing data from outside merchants who sell through it to ultimately compete with them.  In women’s apparel, 25 percent of the top products initially offered by marketplace vendors were sold by Amazon within 12 weeks, according to the report.”

Other retailers have directly and indirectly acknowledge “competition” as a future risk and as a result, many good quarterly reports have sent stock prices down instead of up solely because of this “competition” in the market.

GRUBHUB reports this week.  They had an outstanding report three months ago.  It will be interesting to see if the Amazon effect is viewed as a boost or a bust for their business.

Disclaimer:  This post is meant for informational and conversational purposes only.  It should not be viewed as a recommendation to buy a particular stock or fund.  As always, please do your own additional research before buying stocks.