Wednesday, March 8, 2017

March Desert of the Real Economics and Investment(C) Newsletter


DESERT OF THE REAL ECONOMIC AND INVESTMENT ANALYSIS©
By Desert of the Real Economics, LLC
March 2017

           
            Welcome to the Desert of the Real![1]

            For the last few months, we have been making baby steps toward reintroducing this Investment Newsletter and the Desert of the Real Economics and Investment Analysis website. But this week makes the reintroduction of the website and Desert of the Real Economics and Investment Analysis© Newsletter.
           
            Who are We?

            FIRST AND FOREMOST, we are not trying to sell you anything, nor use your email or any other information for any purpose other than to send you this newsletter and the link to our Website. If you don’t want to receive it, simply email us back and we will take you off the list.

 The newsletter and website is written by Rob and Julie Feightner. Rob spent a few years working as a stockbroker in New Mexico and has been a private investor since 1982. He has worked in the healthcare information technology arena and is an online-college instructor. In those years of investing he has developed a core investment philosophy and methodology and the analytical tools that support that methodology. And he is always learning and developing and refining new techniques. He enjoys analyzing stocks and markets and buying and selling stocks and options. There are only two types of stocks in which the Quantum Multiplier Portfolio will not invest-tobacco stocks and companies that make a substantial percent of their earnings from the construction and/or sale of military equipment.
           
            Julie is a molecular biologist and a continuing lecturer at IPFW. She is also in her last year of her studies for her MBA. Julie has excellent financial analysis and business management skills. She also has cutting edge knowledge of biogenetics and the new drugs and genetic advancements that will work miracles with disease and disability. And which will provide handsome returns to investors savvy enough to select the breakthrough companies in the biogenetic sector.

            The Newsletter will begin as a monthly newsletter. Web postings to the site should happen at least weekly. The Newsletter will track a portfolio selected by the Authors, the Desert of the Real Economics Quantum Multiplierä Portfolio. The investment philosophy and methodology will be discussed later in this newsletter[2] and frequently discussed in the newsletters and the website. There is just too much to the methodology to digest in one newsletter.
The web postings will provide additional information on the portfolio and address other investment, financial and economics matters. A little comedy may be thrown in when we need it.

            Why do we Write this Newsletter and have a Website?

            We do this for several reasons. We like to share our knowledge and information on investing and economics.  Accurate information on these topics, especially economics, is invaluable in this post-information, alternative fact littered world.

            Rob was mentored in trading and analysis by Bart Busick. Bart was a stockbroker and college educated musician. Rob knew Bart when he lived in Albuquerque, NM. Bart passed away in 2013. Rob believes that it is his duty to share with others some of the knowledge that Bart graciously shared with Rob. In doing so, he honors Bart and his role in Rob’s life.

            The process of writing the web posts and the newsletter keep us sharp and focused. Being able to quantify and explain our investment and economic thoughts and observations requires fingertip knowledge of the business and our methodologies.

            And who knows? Someday we may be able to charge for this newsletter and pick up some money on the side.

           
The Investment Philosophy is succinct and is set out below:

            Studies show that 70 to 80% of a stock’s movement can be attributed to the movement of the overall market and the movement in the particular stock’s sector. Yet most analysts concentrate their efforts on analyzing a stock’s fundamental indicia. And many portfolio strategists just conjure up newer quantitatively derived strategies for portfolio diversification. So most of what you read or hear about a stock from the analysts only influences 20-30% of its movement. How would you like a doctor that could only cure 20% of your ailments or a fire department that would only respond to 30% of fire alarms?

So when the market is moving forward, we are moving with it. And we are in the sectors that are moving the most within the market.  We will also be using our investment methodology to leverage higher returns in options. But since options move so fast many of the contracts will transact between editions of this monthly newsletter. Some will be addressed in the Website.

When the market is retreating, we are using options to profit.

And if the market is moving horizontally, we are using options to profit. But these option strategies will be discussed in upcoming editions of this newsletter.

An Overview of How it Works

1. When the stock market is moving forward, you are fully invested in stocks and options that reflect the market movement. When the market is reversing course, we move to wealth preservation strategies and option strategies. I am sure some readers are thinking ‘Yeah, right smart guy. How can you tell when the market is going to move up?’ The simple answer is that you cannot accurately predict when it will go up or down. But you can employ technical indicators that are trend tracking and trend following. You stay invested until these technical indicators reverse to negative. Then you follow your strategies for falling markets or horizontal markets.

2. Within all markets, some sectors will outperform others. Find the best sectors and find the best performing stocks in those sectors.

3. When you find the best stocks in those sectors find the best price points to buy, sell, and plot stop loss points. On this last point, proper implementation of stop loss orders is key to a good strategy. It sounds counterintuitive, but knowing when to cut losses and trap hard-earned gains can be as important as knowing what to buy and why. Although this is an old cliché, “no one ever lost money by taking profits.”


Here is why:

A. If you are buying good stocks in a moving market, you are almost sure to get gains that beat, or at least equal, market-equivalent gains. If you do it well, you will substantially exceed the relevant indices.

B. Despite your best efforts, some of your picks will lose money. That is inevitable. Just keep your losses very small and put your money elsewhere. Being a stock trader is like managing a major league baseball club. The season stretches from April to October. Keep people healthy. Use pitchers wisely. Keep a good pipeline of players in the farm system. You are bound to lose some games, but consistently work your plan and you will win more than you lose. You will keep your job and your club will make the playoffs.

C. Put in stop losses and be mechanical about them. The author usually sets stop loss orders at 7% below the purchase price, or a point on the chart where short-term price support will break down. For stocks that will be highly volatile, a trailing stop order of 15% is advisable. Keeping stop loss orders at 7% preserves your capital and allows you to rebuild your portfolio faster. If you lose 25% on a $1000 investment, you will have $750 left. To get back to $1000, you must earn a 33% return. $1000-25%=$750. To get back to $1000, you will have to get a 33% return. You will need $250 to pull back even and $250 is 33% of $750. If you lose 50% of your investment, you will need a 100% return to come out even. More money lost, more risk to get back where you were. 

D. When you have good gains in a stock, raise the stop-loss price to keep your profits. A good rule is to sell 30% of your position when you have returned 30% on the stock. When you hit a 50% return, sell 50% of the position.

E. Never fall in love with a stock. We have heard it said that there are no good stocks. Just some that are better than others. If you have to sell a winning stock that turns negative, you can always buy it back when things turn around. Buying a stock is not like going to the Senior Prom or graduating from college. Buying a stock is not a once-in-a-lifetime event. The opportunities come around more than once and you can buy and sell stocks several times. As an example, the Author’s have owned US Steel (USS) twice. One time it was held as a growth stock in a nice moving market and sector position. Another time he owned USS as a dividend and income stock.

Be nimble and opportunistic. Take what the market gives you. Don’t let unthinking greed or baseless fear knock you out of your system. Remember, pigs get fat and hogs get slaughtered.

 What’s Next? Who Knows?

We do know that this market will reverse, but we do not know when. By many measures, it is topping out. We will have indications, as certain shorter-term indicators stall and reverse. We are seeing lower volume moving shares forward, a sign of weakening. But with interest rates still low, even with a Fed move in March, stocks look great relative to debt instruments. When the indicators all reverse, we put the defense and the wealth-preservation strategies in place. And we work our strategies for the falling market.

ONE EAR TO THE GROUND, ONE EYE ON THE TACHOMETER IN THE DESERT OF THE REAL!

DESERT OF THE REAL QUANTUM LEAP PORTFOLIO™

1.    Fedex Corp. (FDX) Air Freight and Logistics Sector. Large Cap.
2.    Dominos Pizza Inc (DPZ) Food, Hotel and Leisure Sector. Large Cap.
3.    Celanese Corp (CE) Chemicals Sector. Mid Cap.
4.    Citizens Financial Group (CFG) Banking Sector. Mid Cap.
5.    InterDigital Inc. (IDCC). Communications Equipment Sector. Small Cap.
6.    Raymond James Financial Group Inc. (RJF) Capital Markets Sector. Mid Cap.
7.    ACADIA Pharmaceuticals Inc. (ACAD) Biotechnology Sector. Mid Cap.[3]
8.    Loxo Oncology Inc.(LOXO) Biotechnology Sector. Small Cap. [4]
9.    Cynosure Inc. (CYNO) Healthcare Equipment and Supplies. Small Cap. [5]
10. Applied Materials (AMAT). Semiconductor. Large Cap Growth.[6]

The Details of the Desert of the Real Quantum Multiplier Portfolioäare on the attached pages.  It should be noted, however, that the portfolio changes quickly and positions will be bought and sold between newsletters. Some updates may be posted the website.

The Desert of the Real Quantum Multiplier Portfolioä is a separate document in the form of an Excel Spreadsheet.

The next Desert of the Real Newsletter will be published in April 2017.










Aloha, Shalom, Namaste, Later Dudes…

Julie Feightner

Rob Feightner

desertoftherealeconomics@gmail.com
           


[1] The title of this Newsletter, “Welcome to the Desert of the Real”, comes from the 1998 film “The Matrix”. The world in the Matrix is a Simulacrum, a computer–generated illusion. It only “looks” and “feels” like the late 20th century. Instead, human beings are enslaved in tanks of fluid, wired to the Matrix. Also, readers steeped in post-structuralist philosophy may recognize the title as a paraphrase of a quote in Jean Baudrilliard’s 1981 book, “Simulacra and Simulacrum”. Baudrilliard died about ten years ago, on March 6, 2007. One can only wonder what he would think of current political developments.
[2] IMPORANT DISCLAIMER: This newsletter is offered for informational and educational purposes only. Any and all information is not written for, nor intended to be directed, to, or for, anyone’s individual financial situation. Sources of information provided are believed to be reliable, but are not guaranteed to be complete or without error. Opinions and suggestions are provided with the understanding that readers are acting on their own analysis and information. Readers may not rely on any information contained herein are not relying in any way upon the information contained in this newsletter. Readers assume all risks involved. The Authors may or may not buy or sell securities discussed in this newsletter. The Authors are not licensed as Broker-Dealers or investment advisors. The Authors make no representations, warranties, guarantees, or promises of any kind or nature. The Authors are not paid by any company to promote its stock.
[3] ACADIA Pharmacueticals fell and hit the 7% trailing stop loss. Still, it earned a 4.76% return over the 13 days it was held.
[4] Julie, as a molecular biologist, was instrumental in identifying Loxo Oncology and the great potential for this stock. The Company is engaged in developing selective medicines for patients with genetically defined cancers. Its pipeline focuses on cancers that are dependent on single gene abnormalities, such that a single drug has the potential to treat the cancer. Its pipeline includes LOXO-101, LOXO-195, Rearranged During Transfection (RET) Program and Fibroblast Growth Factor Receptor (FGFR) program. LOXO-101 is a selective inhibitor of tropomyosin receptor kinases (TRK) for the treatment of patients with soft tissue sarcoma. LOXO-195 is a selective TRK inhibitor capable of addressing potential mechanisms of acquired resistance that may emerge in patients receiving LOXO-101 or multikinase inhibitors with anti-TRK activity. It has designed a series of RET inhibitors that optimize on-target potency for RET gene fusions, mutations and clinically-identified resistance mutations. It is designing FGFR1-sparing FGFR inhibitor.
[5] Cynosure was a grand slam. It was in the portfolio a little more than a week and was making attractive returns. But on Tuesday (2.14), the Authors got a nice Valentine. Cynosure announced that it was being purchased by Hologic for $66 per share, providing an immediate gain from sale of the stock of approximately of $16. The post sale value and earlier returns combined for a total return, in eight days, of 32.9%, or an annualized return of 1,502%. A few more of these and the Authors can retire to the mountains north of Santa Fe, New Mexico.
[6] We sold July covered call contracts on AMAT for 1.82 with a Strike Price of 38 for a premium of $364. 

Quantum Multiplier Portfolio 2016-17 Results
































END-Of-DAY



NEXT


TODAY's Date  Or or



EARNINGS  STOP LOSS












DATE DATE PURCHASE SALE PERCENTAGE DAYS ANNUALIZED STOP RELEASE RENEWAL
STOCK PURCHASED SOLD PRICE PRICE GAIN HELD GAIN LOSS DATE DATE











LONG









FDX 6/28/16 3/8/17 $147.16 $194.35 32.07% 253 46.26% 180 3/21/17 5/20/17











FNSR 2/15/17 3/8/17 $34.78 $34.48 -0.86% 21 0.00% Trail 7% 3/9/17






















LOXO 1/23/17 3/8/17 $39.68 $44.49 12.12% 44 100.56% Stop 31 3/15/17 6/8/17






















CFG 1/23/17 3/8/17 $36.17 $38.31 5.92% 44 49.08% Trail 7% 4/20/17 6/12/17






















DZP 1/30/17 3/8/17 $171.13 $189.04 10.47% 37 103.24% 164 2/28/17 6/8/17






















CLVS 3/2/17 3/8/17 $60.62 $62.17 2.56% 6 155.55% Trail 7%
7/3/17






















AMAT 2/16/17 3/8/17 $35.62 $36.87 3.51% 20 64.04% Limit 32.5 Mid-June 6/17/17























































RFJ 2/8/17 3/8/17 $75.53 $79.79 5.64% 28 73.52% Trial 7%
6/12/17






















CE* 2/9/17 3/8/17 $87.77 $89.99 2.53% 27 34.19% Trail 7% 2/1/17 6/12/27














































































*Declared .36 Dividend to Holders as of 2/21/17







































9/1/04
$67.64





























11/24/04
$59.27







































STOCK




















LONG









FDX




















FNSR 2/1/17 2/14/17 $34.64 $36.29 4.76% 13 133.74% 2/14/17 Hit stop loss 2/14/17






















LOXO 2/6/17 2/14/17 $49.60 $65.93 32.92% 8 1502.13%
2/7/17






















RSP 1/1/15 3/8/17 $48.74 $90.51 85.70% 797 39.25%
























XPO 2/15/17 3/8/17 $49.00 50.43 2.92% 21 42.28% Trail 7% Sold on 2/22/17






















BEAT 2/16/17 2/28/17 $25.55 $25.43 -0.47% 12 0.00% Trail 7%
6/17/17






















IDCC 2/1/17 2/23/17 $99.95 $95.05 -4.90% 22 0.00% Trail 7% 2/23/17 6/8/17

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