Reminiscences of a Stockblogger

Jul 9

Growth Slowdown but not Recession

I put a fair bit of stock in what the Lakshman Achuthan and the ECRI says. I have done well in following their forecasts. They are not always right, but they are right more than most. I try to put their calls in the context of what makes sense to me and what the market seems to be saying.

Lately Achuthan has been talking slowdown. But not recession.

http://finance.yahoo.com/video/breakout-25484663/is-the-economic-recovery-over-25892586

This is the sort of environment that should be good for the sort of stock that I invest in. I like to invest in commodity stocks and in special situation stocks that are undervalued. Stockpicking within both of these stock groups can be successful in a low growth environment. I will point to the second half of 2007 and the first half of 2008 as an example. The market went sideways to downwards during that time but there was enough interest in the market, and enough liquidity, to let a stockpicker find stocks that still did well.

What I need to watch closely is whether Achuthan begins to get even more negative, and signs that a recession become more clear. Because that’s an environment that no one with longs does well in.

Jul 8

Taking some Profits after the Rally

I took some profits after the weak jobs number today. I also bought some SCS as I had mentioned previously:

Jul 7

Comparing Oil Juniors

I posted a spreadsheet I keep that compares oil juniors on the ARN.v Investors Village board today. It generated a little controversy on the subject of bean counters.

The truth is that I like to use spreadsheets to compare companies in a sector. I have a number of them. One for oil juniors, another for gold producers, another for oil services companies, for trucking companies, and so on and so on.

But please don’t misunderstand me. I am not someone who relies strictly on quantitative analysis, ratios and such, to pick stocks. I always look for the story first. Numbers are a useful tool, but the market is not so rational that you can use them with disregard. I have learned this lesson after having invested in too many undervalued stocks that have continued to remain undervalued for far longer than I have had patience.

What spreadsheets are useful for is understanding how the market is valuing the story when compared to other stories. Stocks with good stories are always going to command premium valuations. Take Arcan as an example of that. Arcan trades at 155K per flowing boe one of the highest of the stocks I follow and one of the highest in the sector I’m sure. But Arcan has a unique land position on a developing play (Beaverhill Lake) that is likely to lead to strong growth and eventually a buyout. You can’t capture that in a spreadsheet and so you would miss the boat if you had only looked at Arcan through the eyes of an accountant.

So what else does this spreadsheet tell us?

Well it tells you just how much you are paying for growth with Second Wave Petroleum (SCS.to). You can’t justify the current price of Second Wave based on their reserves found so far, or their current production. You have to look ahead to their potential in the Beaverhill Lake play and realize you are paying for some of that success in advance.

So does that make it expensive? Well some might say so, but it depends on what that potential success actually becomes. I’ll tell you what, I just read a report explaining the success of Coral Hills (a private oil co also with a sizable land package in BHL that surrounds SCS land and is also a farm-in partner to SCS on some of their land) and the IP’s coming from Coral Hills last couple wells, which basically surround the land owned by Second Wave, have met the expectation of the first boomer well (news release here). Now nothing is a sure thing and it could be that these are small sweet spots and that succes won’t translate to SCS, but I wouldn’t bet on that sort of pessimism. The bottomline to me is its an impressive result and it overrides any concern about the valuation of SCS being too high. I plan to pick up some Second Wave this morning.

Jul 6

Quite the Day

Well I certainly picked an interesting day (two days I guess on the Canadian market) to start my new portfolio. A lot of big moves around the commodity sector, including for some of the stocks I own.

Now that’s great, but it did also pose a problem of its own. I hadn’t bought any of the stocks yet for my tracking portfolio. Monday morning on the Canadian market (Tuesday for the US) it was my plan to buy a full position in every stock I own in my real world account so that I had a portfolio that essentially mimicked my actual account as of the start of trading July 4th.

But what do you do when the stock is up big at the open? For example, Coastal Energy opened 4-5% higher on Monday morning. Canfor opened up 30 cents higher. Today on the US market Mercer opened significantly higher. And then there was Klondex, that closed up 10% on Friday. How do you buy that?

Its tough to swallow to buy stocks up a lot, even when it is just a mock portfolio, and especially so when the results are going to be put up here for all posterity. You don’t want to start at the peak of a short term blip. Its especially tough when many of the stocks are one’s I bought at significantly lower prices in my actual margin account. I bought Coastal at $4 and now I have to buy it at $8.30? I bought Mercr at $9.80 just a few days ago, and now I buy it more than a dollar higher. And I have to buy Klondex at $3.10 when it was $2.40 just a couple weeks ago. The horror!

Well, in the end I caved. In a couple of cases I didn’t buy right away, hoping for a lower price, and I got burned for doing so. I put in a bid for Coastal at $8.15 and ended up buying it at $8.50. With Klondex I tried to get it at $2.90 but eventually threw up my hands and paid $3.10. And there was one stock that I didn’t yet buy. I didn’t get Home Federal. Its just so illiquid, and the way that these RBC practice accounts work is that the shares have to be there for you to fake buy them. The bid/ask spread yesterday was 50 cents, $13 versus $13.50 and I’d probably be fake buying up to $14 to get enough shares on the ask. So instead I have a limit order in for it, and they get filled as the stock actually trades at or below that order. I’m not worried; there is no catalyst for HFBL in the immediate term so I think I’ll get my shares.

But what a couple of days this has been! Best in a few months. Arcan was up a lot, Mercer and Canfor both up a lot, Coastal up a lot. Its tempting to sell some of the trading positions down soon (Mercer and Canfor come to mind), but not too quickly; this leg down has gone on a long time, so I would expect a few more weeks of revival before I begin to cut back.