Wednesday, March 14, 2007

I was right

Since this blog is published anonymously (oh, if only you knew who I was) I don’t have much to boost my stature here in the great wide internet. So forgive me for taking this time to review my predictions and note that they have been borne out by reality. You can check the old articles and use google with the cache function to make sure I haven’t modified any retroactively so you can verify it’s all true. Today’s entry is shamelessly dedicated to crying out “I was right!”.

== Stock Picking ==

Forgive me for being so blunt about being right but I take quite a beating in reviews sometimes, and it feels good to stand proud. I know I’m not as flashy as those guys who post three stock picks a week. And some days my posts are just the daily events I find most worth your attention. My stock picks, however, perform very well. A recent analysis of results showed my buy calls returning a whopping 22-26% over the average 6 month holding time (depending on how you do the calculations).

I’m not selling the Finance Wonk Portfolio stocks even now as they are chosen for the long term and should handle the slump just fine. You don’t have to take my word for it though, go to the Portfolio page (link) and read the call on each stock to see my exact analysis – I put everything in the open here and demand a serious present value discount.

(Special note on the Portfolio: AAPL stock has a special place on that portfolio as the “risky, volatile” member of the gang – holding all but that one is fine.)

== Market Drop ==

On February 26th I recited my market concerns and said “I'm certainly keeping a chunk of change on the sidelines, and I recommend you do too. Nothing hurts like holding cash while the market goes up... except holding all stocks when it goes down!”

I moved 75% of my money, basically everything not in the Finance Wonk Portfolio, to cash that day and the next (and announced it here). That was less than 24 hours before the 400 point drop that started the recent market drop. My average exit price was 2-3% above closing prices today, and 3-4% above recent lows. You did the same if you have been following along. I report my moves here and invest real money according to my calls, so this place keeps me disciplined and honest.

== Mortgage Company Meltdowns ==

A lot of people were blindsided by the recent total meltdown in the mortgage industry. Not my readers.

Early last month a couple small sub-prime mortgage companies had problems and the market went back to normal after deciding that the problems wouldn’t spread. To the contrary, I said on February 22nd, “I would like to make special note that the bloodletting in the mortgage industry continues to grow” (bold from the original).

I even laid out the scenario by which the failures happen, with sudden loan calls based on financial covenants. That’s exactly what happened to New Century in the last few days that blew the once huge company all the way off the New York Stock Exchange and onto the Pink Sheets where it trades amongst people assuming it will declare bankruptcy.

== So what’s next? ==

I really don’t believe the market drop is over. Pundits are blaming this weeks drops on the mortgage company crashes, just like they blamed last week on Asia. These are just excuses that avoid confronting the fact that the market has been moving down.

There are other factors that can continue to press down on the market. Big players are going to be unwinding their leverage and expecting more risk premium – lowering stock prices. Housing has another couple gut punches to take from the mortgage shakeout and increased lending costs. All the bad news may even be enough to effect the consumer, in which case we could be in for some real hurt.

If you got out when I said you can't really go much wrong at this point. You could buy any time now and outperform the market by 3% for the year with your eyes closed. I think that holding significant cash is still a good idea, though, and I continue to recommend it.

Invest Well,

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