I should have already been out!

Looking at the signals of the stock (which I’ve included below) I can see that the MACD says less people are buying then selling on Sept 28th, 2009 (according to Google) and October 16th (according to Yahoo). Then on October 16th the 50 day moving average cuts above the stock price. Those are the two indicators that I’ve been using and really like their pattern. And based on those signals I should have got out on the 16th or 19th of October for around $7.57 for a profit of $41.75. (woulda, shoulda, coulda doesn’t get you very far in the stock market though!)

That all being said, why am I still in Cold Water Creek (CWTR)? Good question. Mainly because I wasn’t monitoring my share / companies properly. It only takes 15 minutes a day which is completely true but I just stopped monitoring. Lesson learned and luckily it’s only a $41.75 lesson (so far). I will onto my stocks for now and wait to see what happens. Now I’m going to be monitoring my AAPL stocks so I don’t make the same mistake twice!

I will start updating the site again as I have a feeling I’m going to be selling this position soon and will be looking for more companies to buy into soon.  I’ll keep everyone updated with my progress.

Now I’m back to posting.   Interestingly enough I’ve actually missed quite a bit while I was gone.  This ranges from apple’s stock going up (and a bit back down), acceleware’s stock moving to $1.00 (and back down) and coldwater creek’s stock taking a little rollercoaster.

Anyway, I’ll try and provide at least a ‘tri’ weekly post on this blog.  So without further ado we’ll have blog posts here eventually.

It’s an interesting point to consider as a Rule One Investor. If the company did worse then last year in the fourth quarter what does that mean?

Well, obviously we need the whole year and the previous 9 years to make an appropriate statement. However, this does show that the growth rate is probably falling. A decreasing growth rate is not something that a rule one investor wants to be concerned with. It makes the business less predictable.

Does it matter that the stock price actually increased? No! It would matter if we were buying or selling the stock, however, I don’t have a position in the stock as discussed when I was selling my Lowes (LOW) stock. The price increase is simply a reajustment because of the undervaluation of the stock.

I am waiting to see the annual report to recalculate the Rule #1 numbers and see if Lowes still qualifies as a rule one stock.

You then analyze what is overlapping in each circle and pick companies to investigate further based on a common theme in each circle. I thought it’d be a good exercise to complete this exercise right now, without the circles.

Things I’m passionate about (Passion)

• Sports
• Cooking
• Traveling
• Relaxing

Things I’m good at (Talent)

• Sports
• Cooking
• Engineering
• Research
• Finding deals

Where I Spend my Money (Money)

• Sports
• Traveling
• Shopping
• Food

As you can see the common theme in all the circles (bullets) are sports, traveling and cooking. This shows that I have meaning in these areas of business. The next post I’ll discuss the various companies that are available options in these categories.

PE = Current Price/ Earnings Per Share (EPS)

So if a stock has a EPS of $2.00 and a current price of $40 then the PE would be (40/2) = 20. This means that the current price and the PE are related and related to the number of shares. Therefore, anytime the EPS is diluted (stock options) this decreases the Price per earnings. So as Phil Town states “The PE ratio indicates how much we’re willing to pay for a dollar’s worth of a company’s earnings”

Using a quote from Investopedia

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

So the PE is the price that the market is willing to pay for $1 of earnings and when we have a high PE then we’re expecting more earnings. Putting this into context of our current market. If we’re expecting a recession then the earnings in the future are expected to decrease, therefore, the market is willing to pay less for $1 of earnings.

Yahoo Search and other products disappoints and has weak 2008 sales outline – CNN report

eBay.ca and others cutting listing fees and increasing commission to combat increased competition – CNN report.

Amazon’s stock drops 12% in after hours trading – CNN report

So why are all these stocks dropping in numbers? Is it because of the possible recession that everyone fear’s (and seems to be the excuse for everything that happens on the stock market)?

Or could it be that investors are re-analyzing the numbers and figuring out that these stocks maybe over-valued? It’ll be interesting to see what happens tomorrow after Google releases their profit report.

Luckily there is a bit of an easier way… using your friend the internet! However, be warned that this method does not meet the qualifications of having meaning to you. Also, the old adage you get what you paid for might ring true here. Anyway, here are a few other methods to consider for finding rule one companies:

• Read Phil Town’s blog (you should be doing this regardless if you’ve started trading or not)
• Read this blog (cheap plug I know!)
• Join a forum and discuss companies with people
• Buy a Rule #1 list from ebay! (not really recommended but I thought it was interesting that someone is actually selling a list on ebay)
  

All these methods should give you a big list of possible rule one companies. Now the rest of the work is up to you, ie: determining the four M’s for these companies.

The first chapter deals with speculative investing compared to intelligent investing. Graham states that investing consists equally of three elements:

1. Thoroughly analyze a company, and the soundness of its underlying business, before you but the stock
2. must deliberately protect yourself again serious losses
3. must aspire to ‘adequate,’ not extraordinary, performance.

Now the question is does Rule #1 investing actually follow these three elements?

1. Yes. The keys to Rule 1 is to throughly analyze the company in question.
   • You must ensure the company has high and stable growth rates.
   • The company must have a moat to protect itself from outside attacks.
   • You must trust the management that they’ll be protecting your best interests
2. Protect yourself again serious losses
   • You must insist on having a margin of safety (MOS) which is half the sticker price.
3. Adequate performance
   • Rule #1 investing is striving for 15% return. This is not considered extraordinary returns and is definitely adequate.

Rule One Investing passes all the requirements of Intelligent Investing as considered by Benjamin Graham. This demonstrates that it’s not a flash in the pan method like The Foolish Four: How to Crush Your Mutual Funds in 15 Minutes a Year and other speculative investing methods.

I’m also in the process of creating a tool that will allow you to easily determine the Margin of Safety (MOS) for each company on any index. Right now I’m having to manually determine the MOS on the TSX and TSX-V. I’ll let everyone know when that’s up and running.

To finish off this first blog…. I’ve just started reading the Intelligent Investor by the master of investments Benjamin Graham. I can tell it’s much more indepth then Rule #1 . So I’ll provide a book review when I’m done reading it.