Tag Archives: management

Buy United States Oil – Discovery Of Support Here

United States Oil (NYSE: USO) seemed to discover support Monday after a week’s slide with energy commodity prices. After the disappointment from OPEC on the supply front, more recently we’ve received good news on the demand front. Fresh economic data from China appears to show the start of stabilization and data Monday on the Eurozone showed a pickup in growth. Given my view that supply side concerns are well-priced in and could be overdone if Iran fails to come to fruition as many expect, demand improvement should serve USO long-term. Finally, Russia’s foray in the Middle East and its tensions with Turkey also present a near-term upside catalyst I believe not incorporated in price today. The United States Oil (NYSE: USO ) had an important discovery Monday; it found support. Some are pointing to technical analysis for reasoning, but there are fundamental factors to point to. Energy prices have stabilized for now thanks largely to supportive economic data out of Europe and China. Still, given recent supply stubbornness, energy could require a geopolitical catalyst to really get going to the upside over the near-term. Because I give weight to that possibility, I can recommend immediate purchase for aggressive investors and a buy and hold strategy for all others on a positive change in demand dynamics. 5-Day Chart of USO at Seeking Alpha The United States Oil security suffered a serious setback with energy prices over the past several weeks. Most recently, the OPEC decision to keep production quotas unaltered was deflating to say the least. Energy prices still held that day thanks to the strong jobs report that lifted all ships, but the week that followed (see chart) reset a course for energy more in line with the bad news. However, with the new week Monday brought fresh data to look over. The news was very good from both China and Europe in recent days. From China : retail sales, industrial output and fixed-asset Investment all exceeded economists’ expectations. Industrial Output increased 6.2% in November, year-to-year, far exceeding the economists’ consensus view for 5.7% (by Bloomberg). Fixed-asset investment increased 10.2% through the first 11 months of 2015. Retail Sales soared 11.2%, marking the best rate of growth for all of 2015. It finally appears that China is stabilizing. From Europe, we learned Monday that eurozone industrial production increased by 0.6% in October, month-to-month, in line with expectations. It’s a level consistent with 1.9% growth year-to-year, versus 1.3% previously seen. Growth was broad-based, with capital goods growth at 1.4% and durable consumer goods growth at 1.8%. Most of the eurozone members produced growth, save for Greece. November may still present a challenge if there was a shock to the regional economy due to terrorism and concern about terrorism, but October’s data shows a regional economy that is improving long-term. Given the U.S. economy has been in growth mode, the recovery of Europe and the stabilization of China is welcome news for the demand side of the energy equation. Economic recovery in Europe would also lend to euro stabilization and as a result, dollar stabilization. If the dollar can give back some ground on such a result, then oil prices should find further fuel to stabilize and look toward better days. Obviously, the supply side of the equation remains problematic, and it has been the key factor in energy’s demise. OPEC did not allay any concerns on this front when it effectively took no action to cut production at its December meeting. However, the pickup in demand that the latest data seems to point to would help to allay concerns as U.S. production continues to come offline. Also, I’m not a pure believer in Iran’s long-term return to production, unless it strengthens its security and defense relationship with Russia. Otherwise, I wonder how far it will be allowed to progress with its nuclear program, despite recent agreement with the West. With regard to Russia, I believe it is more likely to be a catalyst for oil price rise than for decline, as it remains active militarily in the Middle East. This is made clear by its recent foray in Syria and its conflict with NATO member Turkey. I expect there is a greater chance of escalation than for calmer heads to prevail in this regard. A significant enough mistake should serve as an immediate boost to energy prices, given Russia’s importance to the market and its relationship with Iran. So, after the latest price revaluation, taking the United States Oil down to important historic lows, I see upside opportunity for buyers. Monday’s gain, however questionable after the last week’s trading, appears to illustrate stabilization. It comes on tangible footing, given the latest economic data from both China and Europe. The wildcard of Russia’s presence in the Middle East and its friction with Turkey present the possibility for swift upside reward, but I see a long-term case for purchase as well. Demand should increase as the economies of Europe and China stabilize and return to health, and that appears to be starting now. Supply remains at issue, but the issue appears well-understood and priced in enough so that any change, for instance with regard to Iran’s production, would also serve upside. Therefore, I favor long stakes in oil and the USO now.

Weaker Yuan Put Currency-Hedged Chinese ETFs In Focus

Devaluation fear is gripping the Chinese currency yuan market again after five months. The currency fell to a four-month low level last week and stoked possibilities of further weakness going forward. A host of reasons are responsible for this. First, the relentless flow of offhand economic data added fuel to hopes for further stimulus measures. The Chinese economy is on its way to deliver a 25-year low expansion this year. China has already rolled-out a few of policy easing measures which haven’t yet materially lifted economic growth. The likeliness of more easing should devalue the currency ahead. In August, China’s central bank devalued the currency by 2%, following which yuan posted the largest single-day decline since the historical devaluation in 1994, after the country arranged its official and market rates in a line. Notably, the Chinese authorities follow a trading band around the official reference rate it sets each day for the value of yuan against the U.S. dollar. The Chinese government announced in August that renminbi’s central parity rate would follow the previous day’s closing spot rates more closely going forward. This indicates China’s intent to make its currency more market driven. As a result, a section of analysts believe that the actual motive behind this currency move was to prepare yuan as a reserve currency. However, the Chinese central bank assured the market that it will promptly intervene into the currency market if depreciation crosses the 3% mark. Now, with yuan getting the IMF nod to join the reserve currency basket from October 2016, China’s efforts the make the currency more “freely usable” and market oriented will likely go on (read: IMF Green Signal Put Yuan ETFs in Focus ). Last week, the currency weakened for two successive sessions amid lower fixings from the central bank, per CNBC . At the current level, yuan hovers around a four-and-a-half year low as PBOC fixed the yuan/dollar official midpoint ‘at its weakest since July 2011′. If this weakening continues, Asian emerging markets which are largely involved in exports would end up in a currency-war. Most export-centric economies will likely be forced to depreciate their currencies to stave off competitive and rev up their exports (read: 3 Country ETFs Impacted By China Currency Devaluation ). The investing world is divided into two clusters. While one part believes that there is no basis for persistent yuan depreciation, the other believes that extra devaluation is needed for the balance of payments’ adjustments, and for the authorities to jumpstart the economy and stamp out deflationary fears. The PBOC announced late last Friday that it has rolled out a yuan index rate against a basket of currencies, rather than tracking the greenback solely. Some see this as an indication of further weakening in yuan. Un-hedged ETFs tracking the nation have actually outperformed the broader market so far in Q4. Investors should note that even after such speculation, yuan declined just 0.26% against the U.S. dollar from August 12 to December 10, which is not at all a material devaluation. Still investors fearing yuan devaluation but still wishing to be invested in China ETFs, might try these two below-mentioned currency-hedged ETFs. The CSOP MSCI China A International Hedged ETF (NYSEARCA: CNHX ) in Focus The CSOP MSCI China A International Hedged Exchange Traded Fund looks to track the performance of the MSCI China A International with CNH 100% Hedged to USD Index. The index delivers the performance by hedging the currency exposure of the MSCI China A International Index, to the USD. The index is 100% hedged to the USD by selling Renminbi currency forwards at the one-month forward rate. Making its debut in mid October, the fund has amassed about $3 million in assets. It charges 79 bps in fees. The index is heavy on financials which makes up about one-third of the portfolio followed by Industrials (17.9%). The 381-holding product is extremely diversified in nature with no stock accounting for more than 0.01% of the basket. The Deutsche X-trackers CSI 300 China A-Shares Hedged Equity ETF (NYSEARCA: ASHX ) in Focus The Deutsche X-trackers CSI 300 China A-Shares Hedged Equity ETF looks to track the CSI 300 USD Hedged Index. The fund has amassed about $2.5 million in assets and its expense ratio is 0.85%. This index also has a tilt toward the financial sector with about 40% exposure. Industrials (17.1%) and Consumer Discretionary (11.2%) take the next two spots. In short, the fund is the currency-hedged version of the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEARCA: ASHR ) . Notably, the 300-stock ASHR is also a diversified fund, though not as wide as CNHX. The top holding of ASHR takes 4.05% of the fund. Link to the original post on Zacks.com

Peter Lynch Drops The Bomb: Don’t Just ‘Invest In What You Know’

Summary The idea of “invest in what you know” is misunderstood. Using the products of a company doesn’t preclude you from doing more work. The financial implications must be understood before you can say that you “understand” the company. If you are an expert in an industry, use this knowledge as an edge to help you spot opportunities earlier than anyone else. Invest in what you know, but only if you truly “know”. I recently came across an article on Peter Lynch on WSJ where he clarified what he really meant by his trade mark saying of “invest in what you know.” If you are not familiar with Peter Lynch, here’s a brief introduction. He was the iconic manager of Fidelity’s Magellan Fund between 1977 and 1990. Turing his tenure, he averaged an annual return of 29.2% . Keep in mind that the Magellan Fund was not a special hedge fund of some sorts, it was a plain vanilla mutual fund. So despite a lack of more sophisticated financial instruments at his disposal, Peter Lynch was still able to churn out extremely impressive returns. What was his secret? His investing philosophy is commonly (mis)quoted as “invest in what you know.” Don’t Just Invest In What You Know Peter Lynch’s investment philosophy was lauded by the investment industry and his influence even extended to small-time investors. Speaking from personal experience (some of which I’m sure you can relate to as well), amateur investors often believe in their stock picks because they “know what they are buying.” But do they really understand the company? For example, how many of your friends own Facebook (NASDAQ: FB ) but have no idea how to read a balance sheet or an income statement? How many people buy Exxon (NYSE: XOM ) just because they use its gasoline? During the interview, Peter Lynch stated: “I’ve never said, ‘If you go to a mall, see a Starbucks (NASDAQ: SBUX ) and say it’s good coffee, you should call Fidelity brokerage and buy the stock.'” Similarly, just because you enjoy using Twitter (NYSE: TWTR ) or Facebook, it doesn’t mean that those are good stocks to buy. During the post-recession bull market, those who bought into the popular stocks made a lot of money, further perpetuating this false idea that “invest in what you know” is all that is needed to be a great stock picker. Unfortunately, just because you “know” the company, it doesn’t mean that you don’t have to do the hard work. For every stock that I own in the V20 Portfolio (which you can learn more about here ), I do thorough research before investing even a penny. With the market awash in “easy money” these days, particularly with the surge of FANG [Facebook, Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ), Google (NASDAQ: GOOG ) (NASDAQ: GOOGL )] investing, getting rich quickly has never been more simple. While those who rode the gravy train have made a lot of money (at least on paper), the end result does not necessarily indicate that they made the right decision initially. Stocks can only go up or down, much like how a ball can only land on red or black in a fair game of roulette. I think we can all agree that gamblers who claim that they “beat the system” by winning at the game of roulette are certainly delusional. Yet the success of FANG investing is celebrated. In Peter Lynch’s words, “People buy a stock and they know nothing about it. That’s gambling and it’s not good.” What he means by “know nothing” is that investors use the products and services, but know nothing about their financial impact. Next time ask your friend what Facebook’s ARPU is, or what Starbucks is earning on a cup of coffee, and more likely than not, their look of bewilderment will betray their “knowledge” about the company. And this is a dangerous thing. What Peter Lynch Really Meant To Say Was… … That you should use your specialized knowledge of a certain industry to augment your analysis. If you operate oil rigs, you understand the core operations of the industry better than anyone outside of the industry , and this gives you a unique edge. But this doesn’t preclude you from doing actual work. Can the company pay off its debt in time? How profitable is the backlog? Is the management selling off assets just before the industry swings back to a boom phase? These are all questions that you likely cannot gain from your typical work without you putting in extra effort. With metal prices reaching multi-year lows, Peter Lynch gave a specific example. He said, “If you’re in the steel industry and it ever turns around, you’ll see it before I do.” That person can then use this knowledge to predict the company’s revenue, earnings, cash flows, etc., and spot an opportunity before anyone else. How I Apply Peter Lynch’s Philosophy Funnily enough, Peter Lynch doesn’t specialize in any specific industry. Where he lacks in real industry experience, he makes up for it with intense research. Similarly, I am not what you call an aviation expert (or even a fan), and I am invested in Spirit Airlines (NASDAQ: SAVE ). I’m not a subprime borrower and I’m invested in Conn’s (NASDAQ: CONN ). I don’t use VoIP phones (in fact I use Skype) and I’m invested in MagicJack (NASDAQ: CALL ). I have confidence in these stocks not because I particularly enjoy their products (for the above cases I’m not even a user), but because after thorough research, I concluded that these stocks were attractive enough at the prices that I bought them at. Ironically, I don’t invest in a lot of things that I do use every day. I’m the owner of multiple HP products yet I don’t own any HP shares. I use Google all the time and I never bought a single share. I don’t own these stocks because I know that just because I’m a user, it doesn’t make me anymore “in the know” than Joe across the street. In addition, the prices that these stocks were trading at were simply not very attractive to me. Notice how this is the polar opposite of “invest in what you know at any price” kind of mentality that is so prevalent in today’s markets. Takeaway It may be quite shocking to hear that “invest in what you know” isn’t all that you need to be a good investor, but I hope that this article clarifies what Peter Lynch really meant to say. Now one thing I want to make clear is that I don’t mean to discourage you from investing in what you know, it’s just that the threshold of “knowing” is a lot higher than what everyone thinks it is. Thankfully, Seeking Alpha has a wealth of information available for you to discover. From small caps all the way to mega caps, there is an expert covering virtually any stock that you can think off. I encourage everyone to read some of the analysis on their favorite stocks, and I’m sure that you will discover something new. From “not knowing,” you can slowly build up your knowledge, and be confident enough to say that you truly “invest in what you know”. Why Follow Me I personally invest a ton of time researching every single company that is in the V20 Portfolio (+43% YTD). It’s not a model portfolio, it’s a real money portfolio where you can see the real impact of portfolio decisions and their long-term consequences . Investing is straight forward (though not easy) if you know where to look. If you are looking for a place to find some ideas that could complement your own portfolio, you can click the ” follow ” button and be updated with my latest insights.