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Strategies & Market Trends : The New Millenium Portfolio -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7)	1/15/2000 12:35:00 PM
From: John Pitera	Read Replies (1) \| Respond to of 540

"Of Little Predictive Value" This is the first in a multipart series of my lambasting the shortcomings of brokerage stock opinions and rankings. Saturday 1-15-2000 By John Pitera After years of study, I have found that brokerage rating and recommendations Are sometimes right and some times very wrong, and are of no specific Predictive value. WCOM was Salomon Smith Barney's best pick at the end of May and within 3 weeks Had made a top for the 1999 and indeed had declined in price by 36% by the second Week of January 2000. Joe Kernan and David Faber who are two of the better analysts and commentators On cnbc actually make sport of pointing out how brokerage firms will all be recommending A stock when it has had a run up often only starting to cover it when it has had a large move up and will then downgrade the stock en masse, After the stock has declined Precipitously. Often an earnings or revenue miss or negative forward guidance will Have sent the stock in question into freefall. The brokerage house herd mentality is so pronounced that Faber will initiate a video clip of penguins scurrying to the edge of a little iceberg cliff and then plunging one after another into the water. They will actually say there goes Morgan Stanley, there goes Merill, there goes Smith Barney. Kernan and faber do this exercise and point to the chart with The telestrater and say here you were saying it was a buy at 75 and now at 32 you are saying It is a sell, and there are at least 4 of you firms telling us it's a sell now. It takes 4 downgrades to initiate this penguin video, and it is used when the downgrades come After the stock being downgraded by at least 30% usually. This video has been show almost weekly over the past year or two and highlights the precarious Nature of putting much faith in analyst rating without doing much more independent research. You might say well if the firms are always wrong, then I'll just fade the ratings of the street firms And make a mint. That does not work either. As the analyst opinions are right about half of The time. The Overarching theme is that the general Wall Street Research is of no specific predictive value And hence should be a minor background consideration in designing investment decisions. We must remember that Wall Street is a sell side business, and studies have been done where There are only about 30 stocks that are listed as sells when there are more than 7000 stocks that Are listed. The reason more are not listed as sells, is that The Wall street firms are in business, to Sell you stocks and to do underwriting, provide secondary offerings of existing stocks, to arrange New bond issues and other credit facilities for companies. It is of no use to jeopardize these Income possibilities from companies by having a sell on a stock. Smith Barney had a neutral rating on T for 4 years and created a stir when Jack grubman, one Of the top industry analysts raised T to a buy, this is after it had tripled from Q1 of 1997 into the Summer of 1999. He had some very valid concerns of whether they could have success with their costly cable Strategy. It was commented upon on CNBC that the real reason that SSB may have gotten in line And issued a buy on T was to be eligible to participate in the lucrative spinning off of The T wireless unit, into a tracking stock, the same way the FON spun off PCS. So this missive provides some insights as to why Wall Street rankings are of very limited Predictive value. . More to come on this topic.

To: John Pitera who wrote (7)	1/15/2000 10:06:00 PM
From: wlheatmoon	Read Replies (3) \| Respond to of 540

john, i see you and tom have been busy. i like the things you have discussed. i suggest we sell jan 70 puts on CNXT in addition to buying 40k worth of shares. the 70 puts were going for around 3 bucks when the stock was around 74. i'm sure it'll be lower when the market opens monday unless there's a gap down. in either case, the puts may expire worthless and we pocket the premium, or we get to buy the stock cheaper. CNXT should be in the trading and long term holding portfolio. let's just buy 500 shares for the trading portfolio, and 500 shares for the long term holding portfolio. same strategy could be applied to RFMD. broke out friday. been basing and consolidating very nicely between 65-75 for a while after the last run up to 85. broke out nicely friday. again, RFMD could occupy a position in both trading and long term portfolio. 500 shares of RFMD in each of those two accounts would be nice. additionally, selling naked puts can either get us money to play with or we can have the opportunity to buy it cheaper. i would use the naked puts in the long term portfolio as a way to generate more money and also as a way to add stocks we want for the long term at a little cheaper price if we can get it. AMGN broke out recently and can be bought anytime for the long term portfolio. let's buy 25% of what we would eventually want at 11:30 on monday. i understand the concept of paying up for the leaders. it's hard to do, but for a core holding where we buy 25% at a time, it becomes easier to accomplish. as we know, all the stocks will run up and down. we just have to be unemotional and buy on any decent dip on these mean MF's...-g- GBLX is another one we should go ahead and add to our long term portfolio at this time. same strategy. buy 1000 shares and sell 10 naked puts. we don't have to sell the 10 naked puts for january. we can even generate more income from the premium if we sell february, april, or even july puts. CRA is a tough one to buy because the genome companies have all gone bonkers recently. perhaps buy 200 shares for now and sell 3 june 185 puts. june 185 puts will probably get us about 3600 per contract, or about 10,800. the cost basis for our CRA in june would be 149/share if we were putted the stock, which would be a darn good price. it's such a good idea that i think i'll do it in my own account on monday..-g- HLIT has been running between 78-95 for a bit. it was a little weak on friday. perhaps arbitrage players keeping the price down until the CUBE deal is done, but it's a long term hold. let's buy 500 shares on monday and ignore it. JDSU should be bought, too. expensive, but it's the gorilla. buy 300 shares now for the long term portfolio and sell 3 june 150 puts for about 2300/contract. that'll generate $6900 and i doubt if we could ever own JDSU for 127 bucks (cost basis if putted the stock) again,,,unless, of course, BK hits. again, i like that idea so much, perhaps i'll do it on monday, too. hashing through these ideas are giving me ideas to do in my own portfolios. thanks for thread. that's enough money spent on my part. -g- mike