Five Top Stocks For The Long-Term- Stock #1

Before I begin this five part series, I’d like to remind everyone that I do not recommend you invest in any of the five companies I’m going to mention. You have to come to that decision yourself based on research you have done and the investment goals you have set for yourself. Remember that calling something a good investment is a relative term. What is good for one person could be bad for another person. This is simply an analytical exercise show the pros and cons of five different companies from five different industries whom I think are good investments for myself, based on my research and investment goals. So, on to company #1, Cherokee, Inc. (CHKE).

Many of you have probably never heard of Cherokee, Inc. If you’ve ever shopped at Dick’s Sporting Goods, Target and/or Eastern Mountain Sports, this is where you would find the products Cherokee makes. I call this my “Hippie Company”, because it gears towards sportswear and equipment for hikers, mountain climbers, rock climbers, campers and any other outdoor activities associated with nature.

I first bought this stock back in July 2006, when it was trading in the high twenties. It reached a high of about $38 per share during the summer of 2007. It currently is trading at just shy of $15 per share, but the great thing about this company is one, it is small (Market Cap of $130M), which means that it has room to grow. Again, I am long-term on this stock, so I can wait. If you are looking to make quick money, this is not the stock for you and you will end up broke before long anyway going for the quick hits and trying to turn over stock as fast as possible. This is when you slip into the world of the day trader. Chances are almost guaranteed you will be busted within a couple of months or less choosing this strategy.

Here are some more pros concerning CHKE.

1. No Debt- What I mean by this is no “long-term debt”, every company carries some debt in the form of accounts payable for example.

2. Only 2 analysts follow this stock- Analysts are idiots and their rankings of companies are typically driven by the investment companies they represent, which poses a huge conflict of interest. However, if they down grade a stock, the herd takes note and follows suit. The fewer the analysts, the less attention is paid to the company, which limits the volatility.

3. Great Management- The ROA and ROE are 38% and 50%, which is pretty ridiculous in this current economy. Also, the insiders hold 15% of the outstanding shares, which shows they are confident in the company enough to put their own money out there.

4. High Dividend Paid consistently- the current dividend is yielding 11.8%, which is like a junk bond, but without the high risk. Remember 75% of your long-term gains come from dividends reinvested.

Here are some cons concerning CHKE

1. High percentage of shares shorted- Currently 13.7% of the outstanding shares are being shorted by institutions. This means that they are bearish on this stock, mainly because of the industry it is in and the current economic crisis.
2. Low Amount of Cash- Currently has $14M in cash. Relative to its market cap, that is a lot, but the company is undervalued in my opinion and with stockpile of cash in the bank, it limits its ability to grow or expand into other markets. It also limits its ability to buy back stock when the price is cheap.

Since the stock is roughly half the price of when I purchased it 2 ½ years ago, as an investor, you can assess the situation in one of two ways. You can look at it as a bad investment, because you have an unrealized loss of 50% of you investment or you can investigate further into the company and determine if it is a buying opportunity or if the fundamentals of the company have changed and you have confidence in the company to flourish in the future. I prefer the latter, because I do not dwell on “unrealized” losses or gains for that matter. You have to constantly reevaluate your stocks in order to make an educated decision on what to do next. I have been checking everything with CHKE and I like what they are doing and I do not see any red flags that would indicate anything is terribly wrong with the company. I see this as an opportunity to lower my cost per share by doubling my investment (don’t confuse this with doubling a position. Doubling your investment means doubling the dollar amount you invest. Doubling your position means doubling your number of shares). Here is how “Dollar Cost Averaging” works in this situation. Just as a reminder, I’m using approximate prices and not factoring in dividends reinvested.

July 2006- 10 shares @ $30= $300
February 2009- 20 shares @ $15= $300

Total 30 shares for $600= $20 per share

With this, my “unrealized loss” has gone from 50% to 25%, but remember that you now have twice as much money invested that you could possibly lose, but you also have the possibility of making twice as much money, should stock price increase. For example, if the price returns to $30, my profit would be $300 or 50%, because the market value would be $900 for my 30 shares, but again, this is an “unrealized gain”, so don’t get too excited if this happens to you. This means that you must decide if the stock is priced low, fair or high and act on the conclusion you come to.

Doubling your investment amplifies your investment much more than doubling your position. Here is the same example, but instead of doubling the investment, we’ll double the position.

July 2006- 10 shares @ $30= $300
February 2009- 10 shares @ $15= $150

Total 20 shares for $450= $22.50 per share

With this, my “unrealized loss” has gone from 50% to 33%, but remember that you now have $450invested instead of $300 that you could possibly lose, again, so the stakes are higher now. For example, if the price returns to $30, my profit would be $150 or 33%, because the market value would be $600 for my 30 shares, but again, this is an “unrealized gain”.
Buying incrementally like this helps lower the effects of a volatile market. Remember that you may run into a stock that you think is really low that you already own and you increase your investment and the stock tumbles even lower. Do not get discouraged and try to keep a level head. Remember that the stock market is not rational by any means. I attribute a mob or riot type mentality to the market. Perfectly law abiding citizens can get caught up in a riot and behave the opposite of what their values are, because they simply follow what the crowd is doing. Until next time…..

The Stimulus Package- Dum Di Dum Dum!!

Back again and this time we got a big daddy of a problem here. You've got to love the government's sense of humor. The whole thing started off by coming to the table with about $750 Billion worth of tax cuts, tax credits and a miriade of other changes O'Bama and the Dems. felt would bring the economy out of the red hot burning ashes of the recession/depression. The Repulicans in their infinite wisdom were against the stimulus package, which in my opinion, I'm somewhat in agreement with, but for different reasons. Their problem with it was mainly it was throwing too much money around. When I read about this, I said to myself, "WTF?". Did the Republicans suddenly have amnesia and forgot about the Bush administration and the fact that the national debt doubled during the 8 year reign of terror? I think the real reason is the Republicans, who in general are well off financially, are worried about big government and having some of their control taken from them. Personally, I really don't care.



Anyway, O'Bama and the Dems. decide to make some changes in accordance with the wishes of the Republicans in an attempt to come to some compromise. So, the go back to the drawing board and make some changes and come back with $850 Billion. Again I said, "WTF?" A few more changes later and we are looking at slightly over $900 Billion. Pure genius.



Here is the deal on the whole kit and kaboodle. The Dems are too short sighted in this and Republicans should just shut the f*ck up, because they already had their chance for the past eight years, so they have credibility. However, should this package get passed, the Dems will have one uped the Reps in the f*ck up department. The long-term damage to the dollar and the inflation rate will dwarf the possible (not guaranteed) boost to the economy. As I have stated before, we could be looking at hyper-inflation sometime in the next 3-7 years because of this package. I'm not saying we could end up like Brazil or Mexico with 5000% inflation rates, but we could easily make the 18% inflation rate we saw in the late 70's early 80's look like a walk in the park. If this garbage keeps up, I might start shorting the dollar and heading down to the bank to buy some Yen and Euros to hedge against the fallout.



Now the big question is what should be do about our portfolios? It's too early in the game to make any drastic changes. Stay the course. If things get bad, your dollar buys more shares, if things get good, your dollar buys less shares, but the portfolio value goes up. By aware about what companies and banks get stimulus money. They are talking about capping cash compensation for executives of companies who get a "significant" amount of stimulus money and even more importantly, they are thinking about imposing a suspension of dividend payments to shareholders of these companies. Bank of America (I own) will almost certainly be one of these companies. This is extremely important to keep up on, because with no dividends to reinvest into your portfolio, this could really hurt your overall return, since about 75% of your portfolio growth over the long term is attributed to dividend reinvesting.



Just for fun, the extreme fallout of this whole thing could be the whole stock market closing and stock shares dissolved. If you want to invest and companies want to raise financing, then they all would have to issue bonds. Doubt that will ever happen, but the sh*t would hit the fan if it did.



FYI- I'll be starting a five part series outlining the five best long-term stocks to invest in and why. Peace out and enjoy the weekend!

What To Do When Stocks Are Not For You!

Before I begin, I just want to point out the title of this post rhymed. Don’t worry, I won’t quit my day job. Anyway, enough of the small talk and on to some big talk.

Most of you for at least the last six months have been scratching your heads when you receive your brokerage account, 401(k), 403(b), etc. statements. Many of you are noticing that all the gains (unrealized gains) you had made over the previous 2-3 years have evaporated, or maybe you haven’t. During the housing run up, everyone was feeling good about how well their retirement plan was performing. Some of you probably even increased the amount of money taken out of your paycheck when the market was rocking and your account was blowing up (in a good way). Then, when things started to unravel, most folks do at least one of these three mistakes.

First, you think about switching your investments, but decide to wait, because you believe the mutual funds you have chosen have just hit a bump in the road. Then, when the market has gone down too far for you to handle, you decide to move your investments at a far greater loss than when you initially thought about moving them.

Second, you decide to reduce or even stop your paycheck deferments, because you feel like you are throwing money away and will bring your deferments back to normal levels once the market recovers and your funds start to perform well again.

Third, you move your entire portfolio and future deferments into a money market or stable value fund, because it is safe and you have decided the investing in anything riskier than that is just gambling with money.


If you are part of the 90% of people who have done one of these three things in response to the market, you didn’t make the wrong choice (remember, there are no rights and wrongs in investing), you made the less ideal choice. Of course there are exceptions for choice #3, since if you are close to retirement (less than 5 years away), then you should have moved your money to safer waters. The problem with that is you should have had your investments in something safer to begin with being that close to retirement, unless you are going to be collecting a pension and do not foresee needing to access your retirement account immediately upon retiring.

So, what is the right or more appropriately, what is the “appropriate” answer? Now, let me remind you this is strictly my opinion and is only for folks who are long term (15+ years) until they retire. Remember this phrase, “Stay the course”. What this means, when referencing investing, is to understand that the market goes up and it goes down and sometimes stays at relatively the same levels for a period of time. When you start moving your investments around, which is what most do when the market is down, then you are attempting to time the market. If the market was rational, this would be a fairly easy thing to do, but often time the market reacts or actually overreacts to certain types of news. The internet has made news available virtually the second it is obtained. By the time you are reading the latest news on a company, the market has already made an adjustment. New news is in fact old news by the time you read it. The other problem is that sometimes the market reacts in the opposite direction of what rationale would dictate. Most of the time, people will buy more when the market it performing well, which leads to overpaying for a stock and will sell when the market is performing poorly, which leads to selling when the price is well below its intrinsic value. Get your head out of your ass and eliminate the impulse to do the wrong thing. The idea is to exercise the dollar-cost average strategy. The idea is that you invest the same amount into the same funds each pay period. That way, you’ll mitigate the risk by not trying to time the market. During extended bear markets, you may even try to increase your investment, thereby purchasing shares of a stock or mutual fund at a lower price, which will get you more shares for your dollar and reduce the overall average cost per share.

If stocks are not for you, then what should you invest in? Remember that savings accounts are suitable for short term savings. Over the long term, their rates of return are lower than the consumer price index (inflation rate). This will create losses due to a reduction in purchase power. There are a couple of things you can invest in other than stocks or stock mutual funds.

First, you can invest in bonds. There are several different types of bonds, treasury bonds, savings bonds, municipal bonds etc. or even bond funds. Bond funds are typically available for any company 401(k) plan. Bonds are considered safer than stocks, but are not guaranteed investments. They can go down in value and their rates of return typically trail stocks over the long term.

Second, you can invest in a money market account. The interest rates on money market accounts vary according to how the market is performing and also to interest rates. If interest rates fall, the rates of return on the money market account will fall as well.

Lastly, you can invest your money in bank products. This includes, CD's, savings accounts and even money market accounts that have a fixed, yet variable rate. They adjust the rate on a weekly, monthly or quarterly basis, depending on who where you are investing. Many are now coming up with on-line savings accounts. The rates now are typically 2.5%-3%, however, they have been as high as 5.25%. Once the Fed starts raising the rate, you'll see these rates start to climb. The only draw back to bank products, is that you have to pay taxes on the interest each year, as long as it is more than $10. It can be a great way to park your money until the crap storm blows over. The crap storm will last another 10-12 months. If you are emotional about your money, park in the banks. If you are a nut job like me, then keep increasing your contributions to your 401(k) and max it out if you can. Try not to pay too much attention to the garbage that is going on. The internet is a great place to get information, but it causes as much damage as it prevents. Peace and I'm out!!

The U.S. National Debt and You

The biggest concern of the average American nowadays is the economy. With the vote today on whether or not Obama will get the second half of the $700 billion released to pump into the economy, the main concern that pops into folks’ heads is how the hell are we supposed to recoup those funds for the tax payer? Keep in mind that we are at the tip of the iceberg on this trendy little bailout period we are experiencing. Next on the bailout list (drum roll please)……..California!! Yes, an entire state will get bailed out this year and no, I’m not kidding. I’m dead serious!
Anyway, what is the national debt? I’m not asking this question to insult your intelligence, however everyone has some idea, but do not have a grasp on it completely. For most of the people whom I have conversed with concerning this topic; they have no idea or only a partial understanding of what comprises the national debt.
The national debt is very simple to understand. It is made up of all the debt obligations of the government. So, if you own any government backed or government issued debt instrument (i.e.bond), then that is part of the national debt. The government pays you, the bond holder, the interest on the bond (if applicable) periodically and then at the time the bond matures, you get the face value (principal) of the bond. Many institutions, both domestic and foreign, own US issued debt instruments. The bond example is just one type of debt instrument, but I won’t bore you with all of the types of debt instruments. The funny thing about US investors who hold government issued bonds is that they interest payments and principal are paid back with tax dollars. Essentially, you are being paid back money you lent to the government with your own money, even if your share of the tax dollars being used is proportionally microscopic to the total.
This type of debt comprises about 60% of the total national debt. The other 40% comes from deficit spending. The total national debt is approximately $10.7 Trillion. It has increased about 60% since 2003 and has doubled since 2000. The biggest contributors to the national debt have been the wars in Iraq and Afghanistan ($900B) and deficit spending. Many ask the question, if there is always a budget deficit, how do we reduce or eliminate the $10.7 trillion bill. The answer is, we don’t.
Here’s the other issue, where is all this bailout money coming from? Is there some secret emergency fund that this money is stashed in? Nope, there are TARP funds and other agencies that have “authorized” funds in varying amounts. None of these agencies have actual money, just authorization to spend money. One of the cool things about the government is that when the time comes when approval is given to one of these agencies to use their “authorized” funds and there is no money, we simply print more. Pretty sweet! I need to get me one of those printing presses, so I can print some money when I run out. When this printing of money occurs, two things take place. First, I get pissed off and second, the value of the dollar goes into the toilet. The reason why this occurs is the basic rule of the more of something there is, the less the value of each individual unit.
A byproduct of the dollar’s value getting deep sixed is that inflation occurs. If this bailout trend continues and the government keeps pulling the handle on the money machine and yelling “ca-ching” with each pull, we could possibly see a scenario straight out of Brazil a few years back. Basically, the country decided to not pay back debts they owed to other countries and defaulted. The main reason is that their economy was so bad, they had to print money to keep it going. They printed so much money, the inflation rate was 5000% (that’s not a typo) and the Brazilian currency was effectively worthless. In order to stop the rate of inflation from increasing exponentially, they had to stop printing money, which meant they couldn’t meet their debt obligations. The problem with a country defaulting is that the creditors are people and institutions in other countries who are holding defaulted Brazilian bonds and other debt instruments. This creates a ripple effect throughout the planet. I doubt the U.S. is going to reach that point, but unless the trend changes, we’ll eventually reach that point. If the U.S. defaulted, then the world will have a meltdown and would never recover. Everyone would pretty much have to start over from scratch.
In closing, to give you an idea of how bad we are as a government and a country in terms of money management, I’ll leave you with the following stats:

Total US Currency in Circulation (worldwide)- Approximately $900 Billion
Total US Credit Card Debt- Approximately $14 Trillion

Source: I read it somewhere. I can’t remember where, though.

Next on tap, where to invest if you don’t like stocks.

As a side note, the next rap song about money or anything relating to the government should have an Obama look-a-like dressed in a rhinestone jumpsuit pulling on a huge handle and cranking out sheets of money with a big smile. That’s just the image I get in my head when the subject of government bailouts comes up.

Technical Difficulties

I was just reviewing the recent posts and it appears that two were spliced together. I will be producing an little ditty on the recent moaning over the national debt and what it means to you and I. I'm a conspiracy theorist, so I believe the government is trying to sabotage me;) Forgive the sarcasm. I'll be on in the next few days. Hey, for all of you sports fans, what the heck happened to Boston College losing to Harvard. Not only are the players distraught, but their kids will most likely be working for the guys who beat them at hoop! Talk to you in a day or so!!