Bottom feeders
• Place order to buy 100 shares of Alliance Semiconductor (ALSC, news, msgs) at a limit of 17 3/4.
As a general rule, stocks that are trading down at this point in the year are not good candidates for improved valuations before the end of the year. The obvious reason is the onset of tax-loss selling. In a year like this one, the effect may be magnified, as the mood may be a bit bearish.
Discuss the latest trades
on the Strategy Lab
message board
As I've often noted, my strategy generally relies on picking up stocks trading near their lows. Therefore, I am not expecting tremendous out performance in these last few months. What I have found, however, is that on a seasonal basis, bottom feeders with discerning taste and a proper time horizon will find this time of year particularly exciting.
I should clarify that I am not predicting a down market this year. I firmly believe that we as humans are quite incapable of predicting the market direction, and I generally feel that every single bit of effort geared to such a task is, in no uncertain terms, wasted.
Just the facts, ma'am
My proof is rather empiric. After all these years, with all our technology, someone somewhere should have been able to prove that consistently accurate market seers exist by now. As it stands, I have not read, seen nor heard one shred of evidence to prove that such beings exist. And while blind faith may have a place in religion, there is certainly no place for it in the markets.
At the same time, I am keenly aware that humans pretending to be expert market prognosticators make for very profitable TV. Investors should be not only aware but also wary of the symbiotic relationship between the media and money managers. Collectively, they are nothing more than hawkers of product.
We can be certain of one thing: value will win out. It is entirely expected and proper that the market cause individual securities to fall drastically below intrinsic value. But it also just as expected that the market will allow such securities to periodically rise above intrinsic value. Patience and the proper valuation techniques can work this fluctuation to an advantage.
Cash is king
During the recent Strategy Lab glitch that posted our cash positions rather than our portfolio values, it became quite apparent that several of the other participants are indeed holding chunks of cash -- my cash level was the lowest, and hence I at that point was the most fully invested.
In my portfolio of 15-20 securities, I tend to find enough stocks at most times to be fully invested. There is nothing in my strategy to keep me from remaining fully invested at all times. It may be that in a rising market I will not be able to find valuable shares with ease. In such cases, cash may accumulate to a small extent. But I never consciously raise cash to avoid a potential market fall, and I never force full investment simply to avoid missing a market rally. Such actions would be inconsistent with my firm view that market direction cannot be divined.
Today I will add to one position, and establish a new position.
Double whammy
Buy 100 shares of Alliance Semiconductor (ALSC, news, msgs) at a 17 3/4 limit. This stock has been hit by a double whammy. General sentiment recently turned against semiconductors, while political instability in Taiwan has hurt the market value of Alliance's massive stake in Taiwanese foundry United Microelectronics (UMC, news, msgs). Nevertheless, semiconductor stocks represent a growth cyclical industry over the long term, and Alliance recently pre-announced that its results would beat estimates in the near term.
The market continues to give little-to-no value to Alliance's operations independent of its investment portfolio. Given Alliance's operating history, this is not surprising. Nevertheless, management has undertaken changes that appear to give the operations a good chance at earning an ongoing and consistent profit. Once demonstrated, it will be this earnings power which will drive the shares higher. In the meantime, the investment portfolio will provide a soft floor.
moneycentral.msn.com
++++++++++++
Not your typical semiconductor company
moneycentral.msn.com |
