The Proficient Investor

The title of this post says it all.

The market is pretty much in chaos. The Dow is down, Nasdaq is down, big names like Apple and Google are barely moving. So what do you do in a market like this? You wait. You either sell what you can and stay in cash, or if you are fully invested like I am, you simply wait.

My trades are usually over a 6-18 month timeline but there are a couple stocks I own that are longer term than that simply because I like the companies and I think their potential hasn’t peaked yet. If you trade shorter term then you want to be in cash. The great thing about being in a cash position is you can take your time and decide when to pull the trigger on that stock you really like.

One other thing I typically do in these kinds of markets is look for dividend paying stocks. Dividends can boost your overall portfolio growth and reinvesting those dividends can grow those good stocks faster than they otherwise might.

Now is a good time to be in defensive stocks like Lockheed Martin and Coca Cola or Proctor & Gamble. You want stable large cap stocks or cash. Cash as they say, is King.

Every once in a while a company comes along and decides they are going to really give back to shareholders for being loyal. Sometimes this means getting extra goodies or gadgets in the mail. A lot of times it means a cash dividend.

One such company announced today they will be giving out $300 million in dividends to shareholders in January.

The board of directors of Infospace (INSP) have decided to issue a $9 per share dividend to shareholders on or around January 8th, 2008 for shareholders on record as of December 10th, 2007. Free Money!

Not so fast, there slugger. Though it looks like free money it isn’t exactly. It’s more like a rebate on your purchase. I’ll explain.

When a dividend like this is given out, the money has to come from somewhere. In this case, the money is coming directly out of the stock price itself. On the ex-div date the stock price will adjust down $9 to accommodate the dividend. So if the price of the stock is $20 for example before the dividend, afterward it will be $11.

Wait, I’m losing money then?

Not really. You get some of your money back, see? The idea is that you would be holding this stock long term, after all we don’t just buy stock in companies based on dividends…earnings play a part as does growth. That being said, I think this is a fantastic opportunity to buy some stock, get some cash back and have some shares in a growing company that you can sell when the price moves back to a profitable value. Sweet!

Yesterday we saw the meltdown of online banking/brokerage giant E*trade(ETFC).  An analyst at Citibank interpreted figures and statements from E*trade that it was looking at possible bankruptcy.

This sent the stock plummeting 58% in value to close at $3.55.

Today we are seeing a rebound in the general market led by Apple(AAPL), gaining $15.71 late in intraday trading.  Google (GOOG) gained $24.75 in intraday trading along with some of the financials like GS which was up $16.94.  Etrade is up over 53% today, not quite erasing the loss yesterday but for investors who grabbed it at the bottom, we are seeing good solid gains here.

Takeover talk has resumed on Wall Street, but it was a comment by Matt Snowling, a Friedman, Billings Ramsey & Co. analyst that stated E*Trade is “exploring the sale of some of its troubled assets” and downgraded from outperform to market perform putting the target at $12.  With volume of 200 million shares, the stock is liquid right now and won’t be easily shorted in the short term.

Long term, I still don’t think its as troubling as panicky investors would have us think.  Even after today’s gain there’s still some upside here because although their banking arm is in trouble, it is backed by FDIC up to $100,000 in your account and their brokerage business is still in good condition and growing.  In July, when the stock was at $25, management laid out plans to focus more on the brokerage side of the business, so a lot of this downside is now priced in and we should be seeing the end of the decline here.

Today online brokerage E*Trade lost over 50% of the stock value after an analyst at Citibank cited potential losses from sub-prime mortgages that the company might not be able to recover from.

You know, this sounds awful speculative to me.  Even on Fast Money they are backing Ameritrade(AMTD) over E*Trade(ETFC) as if AMTD is doing better because of the problems at ETFC.   They also think investors are going to be leaving E*Trade in droves over fear they might not get their money back.

All this maybe, might not, could be, possibly…blah blah blah.  It’s all noise.  What I see here is a huge sale on a stock that I have had an account with since 1997.  As a multi billion dollar company, you don’t survive 10 years in such a competitive environment without having diversified your business model.  The facts are, yes they had some mortgage backed securities that melted down just like everyone else.  Just like Bear-Stearns, Goldman Sachs, Schwabb, you name it…every single one of the financial companies trading made bad decisions into the low rate mortgage market.

But E*Trade isn’t just a bank.  They are a brokerage like Ameritrade.  E*Trade’s brokerage business is fine and the fundamentals are intact.  Now I have been holding Ameritrade shares since December 2005 and the performance of that stock has been less than stellar.  A special dividend caused investors to bolt from the stock after they received the dividend and it has had trouble ever since.  At the time, Ameritrade was at $26 so it’s still $6 below that high.  I still hold shares of AMTD but I also pulled the trigger (50 shares) on E*Trade because the upside looks too good.

E*Trade will recover from their mortgage woes and their growth is going to continue.  I’ll ride out this storm and after I think will book a solid gain in a very short time.  E*Trade as everyone has been saying is now even more of a takeover target than it had been.  According to news posted by the brokerage, they still have over a billion in capitalization and aren’t worried about the issues mentioned in the press today.  They also stated the remarks by Citibank were irresponsible and inaccurate.

My take?  Take a small position you can live with because I think you get an easy double on E*Trade.  200 million shares traded hands today so even if there are shorts they are going to have to cover quickly on that kind of volume.

The US stock markets stayed relatively flat today with the Dow closing down .38% and the NASDAQ down .54% while the S&P closed down .50% as well.

Google finally unveiled the much rumored GPhone…sort of.  They confirmed they are creating an open source mobile phone software that will be available to all major manufacturers such as Motorolla, LG and Samsumg, among others.  While they won’t confirm their own hardware, it is still rumored they are making a move into the space which will compete with the likes of the Apple iPhone.  Although, in a recent inverview with Steve Jobs at the D5 conference it was stated that Apple was working closely with Google to develop software for the iPhone.

Google ended the day up $14.40 at $725.65 shattering the recent 52 week high of $713.25 and is showing no signs of slowing down.

Apple closed at $186.18, down $1.69 or .90%.

In other news, Netflix announced they are considering plans to offer the popular watch instantly feature on the Playstation 3 and XBox360 Consoles.  No date has been set.  Netflix (NFLX) closed up $.25 at $26.51.

A slow start to the trading week but it’s to be expected as the holiday shopping season gets underway and earnings season continues to bolster the market.

At the time of publication, I had no shares in Google, but did have shares in Apple, Inc. and Netflix Inc.

Netflix reported Q3 2007 earnings that beat analyst estimates by 8 cents.  The stock rallied early at $25.05 in intraday trading.

While other financials are still experiencing problems, the brokers seem to be doing fine.  Ameritrade (AMTD) is up 18 cents at $19.30 in intraday trading while Goldman Sachs (GS) is up 52 cents at $222.70.  Consumer staple Coca Cola (KO) is up 26 cents at $59.51 just off the52 week high set last week.

Computer maker Dell is up 21 cents in intraday trading after announcing yesterday they would begin selling their systems in Staples stores in the US while Staples was down 48 cents at $21.80.

Apple continues to set a new high every day it seems.  The stock was up $11.25 in intraday trading at 185.61 on 45 million shares volume.  If you haven’t already picked up Apple (AAPL) it isn’t too late, as I think this stock goes to 200 and from there to 250.  I’ll put it this way, Apple could be the next Google.

The battle rages on between Blockbuster(BBI) and Netflix(NFLX) but who is going to win in this market? My money is on Netflix, which I have supported since this whole debate began.

If you look at the growth rates of both companies, they are both stagnant but when you compare earnings projections, Netflix is the clear winner. Sure they lost about 55,000 subscribers during Blockbuster’s media blitz earlier in the year with “Total Access”, but where is Blockbuster now? Seen any ads for Total Access lately? No you haven’t because they have all but eliminated their advertising budget.

Analysts predict a loss of .87 cents per share of Blockbuster compared to an estimated gain of .15 cents a share for Netflix.

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By now you must know who investing guru Jim Cramer is.  You have probably also heard his now famous (or is it infamous?) BOOYAH! on television.  What you probably haven’t seen is the line of T-Shirts I have designed that were inspired by Mr. Cramer.

You can buy shirts and other gifts featuring my bull artwork like the one you see in this post.  These shirts make great gifts and always inspire me to remember there is always a bull market somewhere to be found.

Let me know what you think of the designs and feel free to buy as many as you want!

I decided I didn’t like the plain-jane look of the previous theme I was using and reverted to an old one that not only seemed to convert adsense well, but also just looks nice.  Green is the color of money anyway and that’s what this blog is all about.

Let me know what you think of the new theme.  Feel free to comment.

One thing you probably notice right away is the sheer lack of overwhelming ads.  In order to make the site more pleasing, I am going with only a few ads.  If you would like to secure ad space, click on the Advertise link above where you can find all the details about advertising on this site.

Over the past few weeks, online brokerages E*Trade and Ameritrade have been discussing a possible merger sending share of E*Trade up nearly 7% on Tuesday.

The merger is valued at $20 billion and would create a combined 11 million accounts. TD Bank which is the banking arm of TD Ameritrade opposes the merger citing uncertainty in what control it will have post-merger.  The big concern here is E*Trade’s mortgage portfolio which may be negatively impacted due to the sub-prime problems that have surfaced for other financial institutions lately.

I think this merger is an excellent idea and would create a much stronger platform for both companies to compete in the online brokerage and banking sectors.  The merger could mean great news for consumers as well which might lead to cheaper trades which ultimately leads to more trading by individuals because they wouldn’t be paying as much in commissions.

Both E*Trade and Ameritrade are down 30% and 20% respectively over the past month.  Shares of Ameritrade gained 1.6% in Tuesday trading.