Back to the Beginning

Now that I've at least gone over each company that I owned at the time, it is now time to work on re-balancing this portfolio while simultaneously updating on the companies I've bought since I started.  Looking below we see a very unbalanced portfolio.

The observant reader will notice that Red Hat is still at a lofty 28% plus despite the fact that I claimed I had divested due to this overly high number.  Well, I did in fact divest, but Red Hat is hitting new highs and the percentage has risen back to my original 28%.  The irony of course is that had I not divested, I'd have significantly more assets, but, nevertheless, I probably need to divest again. 

In addition to RHT, based from a pure analytical standpoint, I should also divest of MITK.  However, MITK is still very much on the rise long term with huge upside potential, so I may put off for a little.  Also, anything over 8% is in my opinion getting a bit high.  As much as I love Under Armour, it too is hitting recent highs and fluctuates between the high 60's and low 80's, so I may take advantage of its recent highs to sell half my stake.  If it drops down to $66 or so, consistent with its price after debt issues in Europe crop up, I would consider re-investing.  I still like UA for the long term as it's on the up, but it may be getting a little ahead of itself.

On the flip side, a bunch of 1% holdings hold little value.  Even if they skyrocket, like MITK did, going from 1 to 10% is not as impressive as going from 4 to 40%.  I'm looking at a strategy of dumping Dryships, a company which depends on a strong world economy, and racking up Brigus Gold.  My play on Northgate Mining payed off when it was purchased by AuRico Gold, but now I own AuRico gold and not the company I wanted - Northgate.  I'll hold off the verdict on AuRico but I may dump that.  I'd also like to continue my high risk/ high reward play on SORL by increasing my holdings there. 

So, as part of a short term re-balancing strategy, I should trim RHT and UA, dump DRYS and maybe later AUQ.  I addition to increasing BRD and SORL, I am looking to start positions on Mosaic and Israeli generic pharmaceutical company TEVA.

Sirius XM Radio - 0.5%

At this point, the percentages and holdings I own have changed quite a bit since I started. For example, Mitek has catapulted to second place due to its meteoric rise and passed Walter Energy as my secodn largest holding due to Walter's recent loss.  I also divested a bit of Red Hat (at $45) after seeing how much it weighted my portfolio.  I've sold Continucare and bought Gold mining companies, Northgate Mining (NXG), Brigate Gold (BRD) and Crocodile Mining (an over-the-counter, high risk high reward stock).  I've unsuccessfully piggybacked of the Aurex fund with Rubicon Technologies, and bought James River Coal Company right before it was downgraded.  Now, it's time to look at one of my worst buys of all time, Sirius XM radio.

When I bought Sirius XM, they were Sirius and XM separately.  I believed that Satellite radio would be as common as cable TV so I first loaded up on Sirius because it was "cheaper".  However I learned that because there were actually more available shares of Sirius, XM radio was actually cheaper, so, also to hedge my bets, I loaded up on XM.  I watched as both companies bled money competing with each other, prayed for the merger that eventually happened, watched it almost get delisted as it traded lower than $1 for awhile, and watched it return from the dead to pass $2.00.  Now, Sirius XM has a special role in my portfolio: every time I make money from selling some stock, I unload some Sirius to balance the capital tax gains with capital losses.  Needles to say, as much I and my family enjoy their product (especially Running with MJD for me, the Lithium channel for my wife), I don't think that satellite radio will be as common as cable TV.

Sirius XM radio is of course the culmination of a merger between Sirius Satellite radio and XM satellite radio,  Sirius radio was launched in 2002, although founded in 1990 as Satellite Cd Radio Inc. In 1999 the name was changed to Sirius.  As the pioneer in satellite radio, almost all of the early days consisted of simply building the infrastructure, including petitioning the FCC to allow them to broadcast (free of their regulations) and launching their sattelites (3 of them) and building their network.   The launching of Sirius radio was truly a remarkable acheivement given that no one had ever done anything like it before, so the bet was on something totally unproven.

XM radio followed Sirius, perhaps ingeniously letting them pave the way.  XM radio has its origins in the American mobile Satellite Corp (AMSC).  After Sirius successfully petitioned the government to auction off digital licenses in 1992, a spin-off of AMSC (the American Radio Satellite Corporation) successfully obtained the other  license in 1997.  In 1999 the company went public after joining a partnership with GM and Direc TV.  After launching services in 2001, XM spent the rest of the decade competing with Sirius until their eventual merger in 2008.  The subscriber base has increased an order of magnitude over the last decade.  Although the product is solid and reasonably priced, I find their market share may be taken by other entities that stream via the internet.  On the other hand, most of the up front overhead costs appear to be out of the way, so it seems as if they should be able to operate with stronger margins.

Wells Fargo - 2%

Although I have yet to finish going through everything I owned (at the point of starting this blog), I would be remiss if I did not comment on the ridiculousness of the last couple of weeks.  After the dust cleared, I find myself down about 9%.  Now, during the last "crisis", I accumulated as much as I could.  After dropping over 1000 points in recent days due to, among other thing, the "Obama" downgrade (pissing 5 trillion dollars of borrowed money down the toilet while simultaneously killing any chance of growth is responsible more than anything for our country's first downgrade in its history).  I know, part of that 5 trillion dollars of borrowed money was a down payment on our transformation to the "Green Economy" - and notice all the "Green Stocks" I own, making money hand over foot on wind farms - and the rest was spent on an ingenious plan to maintain the "Permament Democratic Majority", or, in other words, buy votes in swing districts.  However, a lot of that loss is due to the very real sovereign debt problem of Europe, although, rest assured, a famous Nobel prize winning economist assures us the social democracy of Europe is running like a charm (they just give those things away to any brain dead moron, don't they).

Anyway, I digress ... with the very real sovereign debt problems in Europe slowing down any global economic expansion, Financials and Energy stocks took big big hits.  Since one should "Buy low", looking for long positions in financials and energy may be advised.  Now, in my opinion, you need to be real long in financials to make that a buy as its going to get a whole lot worse before it gets better, but energy stocks might be the way to go.  My own holding of Walter took it hugely on the chin making me regret the stop order I canceled, but even Walter has gone back up over 7% since its precipitous drop 2 weeks ago.  One thing I did NOT do was "sell to stop the bleeding".   One thing to be noted though, is that our anemic 0.4% growth last quarter contributed to the big recent losses.  Predicting these slow quartesr (or dare I say it, contractions) beforehand may be a signal to sell, then jump back in after the dust clears.

Now, back to our regularly scheduled program and the next stock I own in the wild and wooly world of ... Financials.  I do own Wells Fargo and feel extremely fortunate that I dumped my Bank of America and Citibank months ago (BAC at $13 - it now trades near  $6 and C at $40, it now trades near $25).  I traded in those dogs for this one for one fairly simple reason ... piggyback investing!  There is no shame in piggyback investing and in the last two years I have hitched my horse to the Oracle of Omaha himself, Warren Buffet with, excepting this one, very good success.  In the last 2 years I've bought and sold with Mr. Buffet, CarMax, NRG, and Nalco.  With NRG, I learned two valuable lessons.  First, NRG skyrocketed when Exelon wanted to buy them out.  NRG resisted believing they were worth even more than their offer.  I trusted that assessment and watched the buyout fail and the stock plummet.  Lesson learned, a buyout offer comes, sell when the stock price is inflated (see Continucare).  Next lesson, Warren Buffet sold his NRG stock and again, looking at under 10 P/E ratios, I held.  The stock fell.  When WB dumped Nalco, I dumped it the next day, despite my fondness for it.  These days, WB bought up tons of Wells Fargo, until it made up 20% of his portfolio.  Wells Fargo is currently the only piggyback stock I own of Mr. Buffets as I believe he has recently lost it, becoming way to emotionally invested in his buddy Big O and clinging to the belief that he won't continue to be a failure.  I also like John Paulsen for piggyback investing and recently started looking into the Auerx fund picks for future piggyback investing.  For now, I'll stick long, really long with Wells Fargo.

Archer Daniels Midland - 2.2%

Archer Daniels Midland (ADM) is one of the largest agricultural companies in the world.  As a strong proponent of investing in company's that profit off things with intrinsic value, I believe ADM or other such agribusinesses should be a part of everyone's portfolio.  At $30 a share and trading at multiples of under 10, I consider ADM a buy and accumulate. Having not missed paying a dividend in decades also works in ADMs favor.  In fact, ADM is down recently, probably, I'm guessing, from the recent calls to end ethanol subsidies.  I for one (in addition to being against the ethanol subsidies, despite my stake in it) believe this is a very short term issue and ADM, with their vast ability to diversify, will be back up soon enough.  Of course, being located in the second worst state for doing business (Illinois) may not help either with short term outlooks, especially with class warfare rhetoric from their current Governor.  Indeed, it looks as if tax increases were responsible for ADM missing their most recent quarterly profit expectations.

You may have heard of ADM thanks to the recent Matt Damon movie "The Informant" and their price fixing scandal in the early 90's.  I'm fairly confidant that those price fixing days are behind them. 

ADM is another stock I've nearly doubled my stake off of as one of the "blue chips" I purchased during the height of the Lehman Brother's, "The sky is falling, the sky is falling", stock market "crash".  This one was chosen by my wife after reading "The Omnivores Dilemma".  I don't know what you got out of that book, but my wife got "Buy Archer Daniels Midland!" out of it.

Archer Daniels Midland started in 1902 as Archer-Daniels, a linseed crushing company based out of Minnesota.  With the acquisition of the Midland Linseed Product company, Archer Daniels Midland was first incorporated and, dare I say it, born.  Systematically and deliberately growing and expanding into many agribusiness facets, ADM has systematically added such agriproducts as soybeans, corn, and cocoa to its agri-portfolio, and now is the premier company for linking the farmers raw products to the consumer.  Along with RIG, ADM is another stock I may accumulate more of, especially at $30.  However, I also like Mosaic (MOS) as an alternative to one's agribusiness portion of their portfolio.

Transocean - 2.4%

Anyone who has read the previous posts either believes I a phenomenal investor or a colossal liar.  After all, it looks as if I've gotten huge returns on everything I own.  Of course, this is just an artifact of the order I'm listing what I own.  As I spend about the same amount everytime I buy, the winners will necessarily be the greater percentage of my portfolio.  At this point, we will now hit one of my biggest losers, Transocean (RIG).  Yes, many of you may know all about Transocean and their role in the BP oil spill.  And yes, believe it or not, I do have some scruples on stocks to own but energy ain't one of them.  I'll buy any carbon emitting, planet dirtying stock I can get my hands on if I think the price is correct and Transocean fit (and still fits) that bill.  People are not standing for $4.00 a gallon gas and the ocean is full of untapped oil reserves.  Getting ahold of these reserves is inevitable and Transocean is the company to do it.

I've already lost 25% on RIG, but nevertheless, this stock is one of the few I own that I would buy (as opposed to hold) at $60 a share, I see 25% gains in the 1 to 2 year horizon, if not more.  As a Motley Fool 5 start rated stoc, I feel even more sure of my assessment.  As a John Paulsen owned stock, I feel triply sure.  I see myself "cost averaging" RIG and doubling my holding in the near term.

Continucare update: Continucare (CNU), one of my larger holdings was recently tendered an offer by Metropolitan Health Networks.  The stock jumped $1.50 in one day (almost 25%).  Since the CEO of the company jumped at the offer, I did too and dumped all my holdings.  I have found through experience, if someone wants to buy the company you own, jump at the offer.  Lo and behold, I have cash in my account to buy more RIG.

Mitek update:  Congratulations to Mitek Systems who recently regained their listing on NADSAQ.  Their bank deposit imaging technology has not only octupled my investment in their company, but will now be more readily traded.  Although about $3.00 above their year projection, the average analyst rating is "strong buy".  I look forward to seeing how volume trading is affected by the stronger listing.

Key Energy Services - 3.6%

Key Energy Services (KEG) is another of those holdings that I stumbled onto almost 10 years ago while looking for cheap energy stocks.  Priced between $3.00 and $5.00, I would buy this one intermittently when I had smaller amounts of money in my account.  This was a pure play on oil stocks, looking for cheapies with good upside and solid reviews.  KEG fit the bill and has steadily increased over the last decade, so slowly that I was stunned to see it had more than tripled from when I bought it.  Still appearing to be on an uptick, we're keeping KEG as part of our broader energy portfolio.

Much like Walter Energy, Key Energy Services was a smaller part of a more diversified holding company called the Yankee Corporation, which held banking and environmental services in addition to energy services.  Unlike Walter, this was before we owned it.  In 1988, it split off into the Yale E. Company specializing in oil well services.  Since that time, this Houston, Texas based company has been acquiring smaller oil and oil services company year by year, little my little, consolidating into Key Energy Services, one of the largest, if not the largest, onshore energy services company.  Specifically, they specialize in oil drilling equipment and onshore drilling technologies and, according to them, the most cutting edge and largest technological oil service company in the country.  I still like this one as a long term hold.

Hattaras Financial - 4.2 %

In a future blog post, I'll get to another of our smaller holdings.  This smaller holding, which goes by the symbol WAC, was my introduction to Real Estate Investment Trusts or REITs.  Without WAC, there would be Hattaras Financial (HTS) in our portfolio.

Without stealing my WAC post's thunder, I'll just say that our second largest holding Walter Energy wasn't always Walter Energy.  When I bought it, it was Walter Industries.  When Walter streamlined, its real estate investment portion was jettisoned from Walter proper; but all owners of Walter received a portion of this new spin-off.  One day, I noticed a small amount of WAC was in my portfolio without my ever actually buying it.  I didn't really know what to do with it, so I sat and waited.  Eventually, this waiting took me to tax season.  While filling out the dividend portion of our taxes, I was stunned to see a huge jump from the previous year, I mean a gigantic leap.  Walter (WAC), the piddling amount I owned, had yielded more dividends than all my other stocks combined.  And thus I was indoctrinated into the world of REITs.  REITs are mandated by law to pay 90% of their profits as dividends in order to be taxed differently, I assume.  This payment in dividends can be more than a decent stock may increase over the same period.  Deciding I'd like a larger percentage of our portfolio to be these relatively high returns, I looked at a number of REITs and eventually settled on Hatteras Financial.  HTS promised 14% return in dividends and so far has paid off exactly that.

Now, lest people be looking the 700% return on Mitek systems or the 800% return on Ford and decide that 14% is laughable, Mitek was a risk/reward proposition and I have others like it in my portfolio, and Ford was a once in blue moon opportunity in which a series of unique circumstances came together.  At this point in a stagnant economy and the market making up most of its loss since Lehmen fell, a chance for 14% returns - cash every quarter in my ETRADE account - is very good (compare any CD or savings account).

So what is the catch?  Well, HTS makes its money by borrowing at very low short term interest rates and re-lending at higher long term interest rates.  As long as the spread in large enough, these 14% profits should keep rolling in.  If interest rates suddenly rise and the spread narrows, I assume my profits dwindle.  If the stock tanks once this spread contracts, well, therein lies the rub.  However, for now, I'll keep this small portion in my portfolio and along with WAC, see how different circumstances effect the wild and wacky world of REITs.  As a long term cash generator, I may see more REITs in our future.

There is really not much to say historically about HTS.  Its been around for 4 years and is based in North Carolina (Winston-Salem) much as one of my favorite other stocks is.  Hatteras gets its name from an island in North Carolina.  Despite its relatively recent start, Hattaras' management team has been around much longer, with plenty of experience in the real estate investment world.  The management team seems confident that they can whether interest rate changes maintaining these high returns.  As long as they stay above 8% without the value collapsing, I'll deem this a long term success.

Ford - 6.1%

And now we come to what was in my eyes, the easiest investment opportunity I've ever had.  The year was 2008.  Panicked by the collapse of mortgage backed securities, Lehman Brothers, and the financial sector in general, America and all the savvy analysts that claimed "housing prices always go up!" were now claiming "The auto industry will go bankrupt!"  GM, Chrysler, and Ford were all given negative stars by rating agencies and investors everywhere were shedding everything they own "to stop the bleeding."

Now, anyone with 15 spare minutes could have learned that GM and Chrysler were far worse off than Ford and thus Ford would be the last to fall.  They also would have known that Ford had just sold Jaguar and thus had "cash on hand" that would allow them to avoid a Government bailout and all the accompanying attached strings.  At $1.56 a share I bought what I could.  At $2.12 a share I bought some more.  Ford continued up and up and up and now is in the $15+ range netting me a more than 800% return.  Now, in retrospect, I am of course kicking myself for not buying more.  Had I put as much into Ford as I had into Under Armour, I'd be quite a bit richer now.  The lesson here is "trust your instincts" as even though I was confident and pulled the trigger, I still had those nagging doubts based on the collective thoughts of others.  Additionally, I feared Big O's takeover of GM would lead to the US Government passing legislation favorable to GM and unfavorable to Ford (sound paranoid?  AIG which owed Goldman Sachs 20 billion was bailed out.  Lehmen Brothers, Goldman's competition, was not).  However, I learn to not regret what might have been and try instead to learn from all these previous experiences, be thankful that I bought when I did (I think $1.56 was the absolute lowest Ford went), and pat myself on the back again for another good pick.

Ford still has room to grow and appears to still be on an uptick.  Their very savvy CEO Alan Mullany is the poster boy for why CEOs deserve their compensation and the company has used the "financial crisis" to hasten their new business model which is slimmer and sleaker than the "Ford Excursion" days.  Obviously, the vast amount of their growth is behind them but it is still mildly undervalued and I plan on holding until they offer a dividend or until Mullany leaves.  $17 is a good short term price for Ford and I see no reason for it not to go even higher.

Under Armour - 7.5%

Started by a former university of Maryland football player in 1996, Under Armour epitomizes the type of product all good businesses are founded upon.  An unbelievably strong product with unique characteristics, Under Armour was selling out before the owner had a factory secured solely based on word-of-mouth.  By 1999, UA was fully functioning and showing a profit.  Now, a stalwart of professional, college, and high school athletes, even the casual weekend warrior swears by Under Armour.

I started tracking Under Armour last April and tracked it for a couple of weeks.  It went from about $32 to $36 during that time.  Despite not being a typical stock I own or would purchase, i.e. a "retail stock", Motley Fool had given it 5 stars and it had a lot of qualities I liked.  Furthermore, my wife had pointed out that the ladies on the Real Housewives of New York were all wearing it, demonstrating its clear market expansion beyond professional athletes.  This was a high quality product and the people who used it tended to abide by it.  Although all important considerations the most important and interesting aspect of this purchase  has to do with my tracking.

Under Armour had gone from $32 to $36 during a 2 week period then all of a sudden, one day it dropped to $30.  Did it drop because it missed earnings?  Did Goldman or Merril come out with a downgrade?  No.  Greece had a financial calamity and it looked as if it's debts couldn't get paid.  So, what does this have to do with Under Armour?  Absolutely nothing.  The Dow lost over 200 points because of problems in Greece and took Under Armour with it.  Nothing about a $36 Under Armour had changed except now it was $30.  I pounced figuring I had an easy 18% profit.  The market would clear up after panicking about Greece and UA would go back to its true worth of $36.   And this, my friends, is one of the easiest things I would do when developing a private portfolio.  Wait for the market to tank from some political reason that has nothing to do with the company you want to buy, and buy then.

Within days, Under Armour was back at $36 and then shot beyond.  Now trading at around $70, UA has made it to the top 5 in my portfolio.  This after a huge recent drop due to inventory concerns  As early May is the one year anniversary of my purchase and it may be overpriced, I may dump it after having it for the requisite time to qualify as long term capital gains (one of my rules - I hold for at least a year and a day).  However, I like the company so much it may also be a long term holding.

Mitek - 7.6%

Mitek is a company I discovered by stumbling across an amateur blog, pretty much like this one.  It was what I think of as a "low risk/high reward" stock.  Mitek, listed as "MITK.OB" is, as its name suggests, an "over-the-counter" stock.  I amassed a large number of shares over the years at prices between 0.50 to a $1.00 a share.

Now, I do not advocate the "penny-buying" stock strategy by any stretch.  Indeed, I was weary of Mitek at first.  The philosophy of such buyers is simple - a $0.40 stock fluctuates to $0.50, and viola, an easy 20% increase.  This strategy has many flaws, but the first and most simple one is a lesson I learned with Mitek.  Generally, when I place an order, I type "market" for my price, and by the time I've switched from the trade screen back to my portfolio, the stock is already listed as having been purchased at the current market price.  With a smaller, over-the-counter stock, there is a "bid" price and an "ask" price.  So, if the ticker says the price is, say, $0.50, the bid price may be $0.35 and the ask price may be $0.65.  When you place your order, listing "market" as your price isn't an option.  You list the price you want to buy it at (usually the ask price) and hopefully, the trade will go through.  This where my lesson was learned - I was under the impression I had bought about 40% more of this than I did, but, evidently, 40% of the time, my bid price wasn't good enough.  Obviously, someone with dreams of making an easy 20% based on random fluctuations of a $0.50 stock can't make these dreams a reality as a $0.40 market price means you pay $0.55 to buy, and when it goes to $0.50, you might sell at $0.40, so - you lose. Fortunately, my plans for Mitek were more long term.

Mitek, despite being a "penny" stock had been around since the early 1980's. In fact, formerly listed on NASDAQ, Mitek lost its listing priviliges in 2004.  Based in La Jolla, Mitek makes visual recognition software, such as for identifying handwriting.  I figured they did things for UPS and the like, for recognizing the electronic signature when you received a package.  And so Mitek, labored between $0.50 and $1.00 for awhile and I just let it sit there in my portfolio, not paying too much attention to it.  Suddenly, it popped.  It went from having NO analysts covering it to 3 and had a price target listed at $3.25.  The price slowly but surely made its way towards that point.  So what happened?  This:

That's right: Mitek, patented the technology that allows smart phones to digitally capture check images to be deposited into your bank.  I believe at this time, they currently have licensed that technology to 5 of the 10 largest banks.  Mitek currently trades at around $5.00 a share and still listed as over-the-counter.  Still as a small cap stock with lots of room to grow, smart phones and uses for imaging technology in their infancy, I hope to hold this one for awhile. I'd like it a lot more if it wasn't based in California, the cost of doing business there being extremely restrictive.

Continucare - 7.8%

When I first heard of Continucare, it hit me like a thunderbolt.  I started reading about this company everywhere one night. Everyone loved it, its numbers were very appealing, small cap, good cash/debt ratio, strong earnings.  Priced in the min 4's, I saw it going to $5.50 very soon and bought up a block.  Almost immediately it dropped to $3.60.  I had a flash of irrational paranoia regarding conspiracy theories, articles planted to scam poor suckers like me, and the cast of "Boiler Room" laughing at me behind my back. However, seconds later, cooler heads prevailed and I bought a second block twice as large as my first.  More than a year and a half later, Continucare trades in the $5.30 range and I see it hitting $6 quite easily in the mid to short term.

Based in Florida (another selling point - low tax base), Continucare operates 18 primary care facilies, offering outpatient services to Florida's aging population.  Having gone public in 1996, Continucare recently switched from being listed on the AMEX to the NYSE. 

At my time of purchase, "Pelosi-care" was being pushed down our throats, and it wasn't clear whether it would make it through or not.  Health care stocks were, in my opinion, under-priced because of the uncertainty, and Continucare was positioned to be unaffected regardless of the outcome.  Since that time, the company has used its excess cash to purchase sleep research facilities throughout the U.S. which does not really excite me, but I still believe this stock is on an upward trajectory.

Walter Energy - 13%

Walter Energy (WLT), formally Walter Industries, is a coal company that specializes in coking coal used for making steel which it sells to China. Originally, a home building company from Florida, Walter got involved in the coal business when it bought 4 mines in Alabama n 1972.  After going private in 1988, it went public again in 1997.  Over a year ago, Walter spun off its home building and finance business and changed their name from Walter Industries to Walter Energy in an effort to re-brand themselves.

Much like Red Hat, this is a stock that takes up a large percentage of the portfolio because it was bought cheap and increased in value, in this case rapidly.  Unlike Red Hat, I don't plan on de-investing any time soon.  First, this company appears to be run extremely well and efficiently making smart decision after smart decision; second, its market does not appear to be going anywhere as China needs its coal; and third John Paulson, the shrewd investor who correctly predicted the collapse of the housing market and, more importantly, figured out how to profit from it by selling mortgage backed securities short, recently added this diddy to his portfolio.

Also, unlike Red Hat, I cannot really pinpoint when and where I first heard about Walter.  It was around 2005 and I believe I started tracking about ten stocks involved with China.  I purchased my first bloc at $30 and watched it jump to over $90, then plummet down to $37.  In some cases, wild swings are a major turnoff, and perhaps if you are protecting wealth instead of trying to accumulate it, they should be.  However, I viewed the $90 price as a realistic target and bought my next bloc at the aforementioned $37.  When it started climbing back up, past $90, I figured it would do what it did before, and I put my STOP order in when it hit $94 for $89.  When it went up to $109, I changed my STOP to $101.  When it topped $120, I canceled the Stop order altogether and now expect the 4 or 5 dollar swings a day. With a current price target of $150, its recent purchase of Western Coal (overwhelmingly improved by their investors), no analyst giving it a worse rating than "neutral",and  nuclear power now suddenly on the wane, I see no reason to do anything but hang on for the ride.

Red Hat update: 2 days after my post, Red Hat announced a 25% quarter-over-quarter increase in sales, beating the analysts predictions.  The stock increased 18% in one day fulfilling my predictions in much less than the 6 months to 2 years I had originally thought.  This is par for the course. No one understands how they could possibly make money so they get trashed and everyone claims they are overpriced.  The price goes down until the quarter results come out which they invariably beat and the price goes back up.  However, as I promised, I need to put my stop order in and de-invest in 15%-20% of my holdings.  I think 20% is a decent target for ones maximum percentage of one holding in their portfolio. This was historically about the percentage that coke was of Warren Buffet's portfolio, although that's up to 25% more recently.

Red Hat - 28%

Back as a graduate student in the mid to late '90s, I noticed large empty boxes with the word "Dell" stamped across them.  Everywhere I looked, stacked up in all the corners of each and every professor's lab.  What was this Dell?  Well, I soon learned they were basically a mail order, build your own desktop (or laptop) computer company, and they were being purchased in bulk by most every research advisor at my university.  I talked to my uncle who was a bit ahead of the computer curve (he had had a Prodigy email account when they first came out) and told him "Dell" is the computer company of the future. He scoffed at me and informed me that, no everyone was buying Gateways.

Six months later, I saw my first Dell TV ad.  A hip young lady was showing off how she had custom built this computer and ordered it online.  Because she was young and hip, the computer was of course designed with sate-of-the-art music software and we, the television viewing public, were privy to all her hip young tunes.  Gateway fell off the map and I learned an amusing and interesting lesson: look at what the professors were buying with their grant money.  Whatever they were buying, basing their career on, using what massive funding they had procured for the sole purpose of building their ideal labs, was bound to be of the highest quality and endorsed by those in that field.  So, soon after the Dell mania spread, I looked at what the next wave might be.

Now at this time, we were using HP and SPARC workstations with unix, but like most of the younger professors, my advisor was upgrading and switching semi-regularly.  Like everyone else she was buying Dells, stripping them on the pre-installed Microsoft OS, and loading them up with Linux - Red Hat Linux.  Thinking back to how great it would have been to buy Dell when the boxes were first showing up, I immediately investigated the prospect of buying Red Hat. 

Alas, Red Hat was not at that time public, but its IPO was on the horizon, indeed within a few months of my brilliant brainstorm.  I looked into it, decided the $40 offering was above my pay grade, and that I couldn't get in at the IPO anyway.  Riding the wave of the dot-com tech boom, Red Hat proceeded to rise to $120, and then when the bottom fell out, Red Hat went with it.  Now was my time to pounce.

As a poor graduate student, I had little spare cash to buy anything, but whenever I could, I stockpiled Red Hat, buying between $3.60 and $8 over the next couple of years.  Incidentally, this went against the advice of every person I spoke with, many of whom were told by their stock advisers that "Red Hat can't make money".  By 2003, Red Hat had posted its first profit and now, many many years later, Red Hat has proven to be resilient, recession proof, and is still being loaded on all the scientist's Dell workstations.  They give their product away and charge for premium services or premium versions of their free product.  Many companys and governments pay for this service or for their premium products because it's about and order of magnitude cheaper than other IT solutions and because it's open source, it may be customized for each individual business.

Now, at 28% of the total portfolio, I am well aware that I am way over-invested in Red Hat, primarily because I bought it early and often when it was cheaper.  I know I would be advised by any risk management expert to de-invest and spread some of that percentage around and that I will in the medium term future.  The only reason I don't right now is that I don't particularly want to suffer the tax consequences all at once, especially as I have two major sell-offs planned this year.  Furthermore, although it has dropped recently to around $39, I fully expect it to bounce back at least to $45 in the next 6 months to 2 years and would probably wait to sell some when it reaches that target.

A Prequel

The Random Walker takes its name from "A Random Walk on Wall Street" and features a semi-stream of conscious on investing and my investments.  This is a way to keep on top of my investments as well as a way for my wife to see what we own and why we own it.  "Diffusion Monte Carlo" is a numerical methodology for solving complicated physics problems using statistical methods.  Many of these methods include what is known as "Random Walkers".  Unfortunately and somewhat amusingly, all variations of "arandomwalk", "therandomwalk","randomwalker", etc., were all taken, mostly by people who haven't posted since 2003.

Highly influenced by "A Random Walk on Wall Street" , I'd like to think of myself as a value investor, although I have a small portion devoted to "Castles in the Sky" (very small).  As a value investor student, I find the Motley Fool to be one of my favorite resources, and I also read Forbes, The Street, Seeking Alpha, etc.  Although I don't buy into the Motley Fool official recommendations (Hidden Gems, Game Changers, etc.), I do find their subjective articles comparing company with company and giving information like cash to debt ratio, and other things that may appeal to me personally, highly helpful.

The first so many posts will be each individual stock that I own and why it was purchased starting with the largest percentage of the portfolio to the smallest.  From there, we'll play it by ear.