A very common refrain among value investors, "my pal Warren" being head of the class, is buy on fear (sell on greed), and it is working with the toxic stock portfolio.

This is the second update to my ranting twelve weeks ago that the six most highly traded stocks receiving the most bad press would be a great contrarian investment, and that this group would outperform the overall market without much difficulty.

It was true earlier, and it is still true today as the DJIA topped 11,000 again. The toxic stocks list includes Bank of America (BAC), Citigroup (C), General Electric (GE), BP (BP), Goldman Sachs (GS) and Transocean (RIG).

Continue reading Chasing Value: Toxic Stock Update #2 -- BAC, BP, C, GE, GS, RIG

Chasing Value: Toxic Stock Update #2 -- BAC, BP, C, GE, GS, RIG originally appeared on BloggingStocks on Mon, 11 Oct 2010 10:00:00 EST. Please see our terms for use of feeds.

Continue reading Ray of Light: Risk Appetite Has Increased

Ray of Light: Risk Appetite Has Increased originally appeared on BloggingStocks on Thu, 29 Jul 2010 14:00:00 EST. Please see our terms for use of feeds.

Continue reading Great, Germans Halt Naked Short Selling

Great, Germans Halt Naked Short Selling originally appeared on BloggingStocks on Wed, 19 May 2010 18:00:00 EST. Please see our terms for use of feeds.

Continue reading 45 Days Without a 1% Slide Equals a Coming Correction

45 Days Without a 1% Slide Equals a Coming Correction originally appeared on BloggingStocks on Fri, 09 Apr 2010 18:30:00 EST. Please see our terms for use of feeds.

Despite the magnitude of the recent earthquake in Chile - in both physical and financial terms - it's unlikely to trigger a catastrophe bond payout. Catastrophe modeling firms AIR Worldwide and EQECAT offer a range of estimated insured losses of $2 billion to $8 billion, though the dust is still settling. According to insurance securitization blog Artemis.bm, "A similar quake in the right area of the U.S. or Japan would most certainly have triggered a cat bond."

Though there has been cat bond activity in Latin America, none have been issued in the region to cover earthquake risk. Low rates of insurance penetration are likely to keep what will already be a costly situation for insurers and reinsurers from being even worse -- i.e., because not much coverage has been written in Chile.

Continue reading Cat Bond Impact from Chile Unlikely, but Future to Change

Cat Bond Impact from Chile Unlikely, but Future to Change originally appeared on BloggingStocks on Mon, 08 Mar 2010 11:20:00 EST. Please see our terms for use of feeds.

Analyst Upgrades

• Keefe Bruyette upgraded MSCI Inc. (MXB) to outperform from market perform on valuation following Monday's sell-off as it views the acquisition of RiskMetrics (RISK) favorably. The firm has a $36 price target on shares. UBS also upgraded MSCI, to buy from neutral, and raised its target to $40 from $34, citing the recent pullback in shares and the accretive acquisition of RiskMetrics.
• Deutsche Bank upgraded Suncor (SU) to hold from sell on valuation and raised its price target on shares to $28 from $20. The firm continues to prefer Canadian Natural (CNQ) to Suncor, however, and raised its target on shares to $80 from $78.
• JMP Securities upgraded Grubb & Ellis (GBE) to outperform from market perform based on the improved operating environment and balance sheet, and valuation, among other reasons.
• Dell (DELL) was upgraded to buy from neutral at UBS.
• FEMSA (FMX) was upgraded to overweight from neutral at HSBC.
• Westar Energy (WR) was upgraded to outperform from market perform at Wells Fargo.

Continue reading Analyst Calls: AGN, AOL, DELL, KMB, MXB, RISK, SNDA, T ...

Analyst Calls: AGN, AOL, DELL, KMB, MXB, RISK, SNDA, T ... originally appeared on BloggingStocks on Tue, 02 Mar 2010 11:20:00 EST. Please see our terms for use of feeds.

Continue reading Alien sightings, government cover-ups, and investment risk

Alien sightings, government cover-ups, and investment risk originally appeared on BloggingStocks on Tue, 21 Apr 2009 17:30:00 EST. Please see our terms for use of feeds.

In a high stakes game of chicken this past week, the Senate GOP and UAW leadership could not agree on setting a date certain for cutting members wages and the hard-line senators would not accept anything less. (See Auto 'support fund': Senate & UAW clash.)

One of the ironies of the proposed, and not passed, Federal bailout, or support fund, as I have begun to call it, depending on your point of view, is that the proposed $14 billion is more than the value Wall Street currently places on the two companies.

General Motors (NYSE: GM) closed Friday at $3.94, down $0.18 or 4.37%, with a capitalization of $2.4 billion. Ford (NYSE: F) closed at $3.04, up $0.14 or4.83%, with a capitalization of $7.04 billion. The combined value therefore is $9.44 billion; yes folks, another Washington bargain!

While world markets sank on the news of the failed talks, U.S. investors yawned and were unimpressed with activity in foreign markets -- all three of the major indices ended up for the day. Perhaps that's because temporarily propping up the two companies by spending more than they're worth made no sense to anyone outside Washington D.C. or Detroit.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own shares of GM or Ford.

Sunday Funnies: Feds could buy GM & Ford originally appeared on BloggingStocks on Sun, 14 Dec 2008 16:40:00 EST. Please see our terms for use of feeds.

What if you went to Las Vegas, sat down at your favorite slot machine, and very time you dropped in $1, you got back $2? I'll bet you would never leave!

This is the holy grail. Great returns without any risk.

It doesn't work that way in Las Vegas. Why do you think investing is any different?

The foundation of returns is risk. The higher the risk, the greater the potential for returns -- or for losses.

You can achieve returns without risk. However, to do so you need to invest in what are known as "risk-free" investments. These include FDIC-insured Certificates of Deposits and Treasury Bills.

The problem with "risk-free" investments is that they generate relatively low returns. The historical returns of Treasury Bills is 3.7%. After inflation and taxes, there is little profit remaining.

Most people want higher returns than they can get with "risk-free" investments. To do so, you need to invest in the domestic or foreign stock markets (preferably both) and in bonds, which can vary in terms of safety.

Continue reading No. 3: Rich people know the foundation for all returns is risk

No. 3: Rich people know the foundation for all returns is risk originally appeared on BloggingStocks on Wed, 03 Dec 2008 11:00:00 EST. Please see our terms for use of feeds.

Any smart gambler, amateur or professional, knows that you only risk what you can afford to lose. That may be $1, $100, $500, or even a million dollars in a real estate or other major transaction. But only a fool bets the farm. Only a fool risks all.

What made so many bright minds all around the world foolishly bet the farm? One after another, that is what they did. Now we are all paying for it, some more than others. It was not just greed. It was something else.

How did this happen? I call it 'The Great Disconnect'.

When the managers of public companies do not suffer the same fate or consequences as their shareholders you have a disconnect! When politicians give lip service to understanding the pain of their constituencies but accept huge contributions from the enterprises they are supposed to regulate and oversee creating gargantuan conflicts of interest, you have a great disconnect.

When investment houses create financial instruments that are so complex that they cannot fathom the risk and the ratings agencies put candy coated frosting on them, you have a great disconnect!

I would propose that legislators not be allowed to accept any contribution creating a conflict of interest based on the committees they sit on. $700 billion reprise: Conservative bankers? Surely you jest!

I might even consider creating an independent committee of citizens selected from the willing, be placed in a position to review such matters.

Continue reading The great leadership disconnect: I bet the farm and you lose

The great leadership disconnect: I bet the farm and you lose originally appeared on BloggingStocks on Fri, 26 Sep 2008 16:45:00 EST. Please see our terms for use of feeds.

Continue reading Investment banks said to be developing credit derivatives clearing house

Investment banks said to be developing credit derivatives clearing house originally appeared on BloggingStocks on Fri, 18 Apr 2008 11:27:00 EST. Please see our terms for use of feeds.

In this month's Portfolio magazine, Michael Lewis wonders if the Black-Scholes formula -- the formula used to calculate and manage risk throughout the financial world, including determining the risk of trade positions and hedging strategies -- is flawed.

The Black-Scholes formula is an advanced mathematical formula generally credited with revolutionizing options pricing. Its assumptions are the basis for short trades and options designed to protect a trader against losses, no matter how much the market falls.

However, as Lewis outlines, while the formula has been good, it is not perfect, as evidenced by the October 1987 stock market crash, when traders and institutions learned that even with Black-Scholes techniques deployed, when the market is crashing and no one is willing to buy, it's impossible to sell short. The outcome? On "Black Monday," the Dow Jones Industrial Average plunged 508 points or 22.6% on October 19, 1987.

Continue reading Another Wall Street worry: A (potentially) flawed risk formula

Another Wall Street worry: A (potentially) flawed risk formula originally appeared on BloggingStocks on Tue, 04 Mar 2008 14:14:00 EST. Please see our terms for use of feeds.

Robert J. Shiller's Irrational Exuberance is the classic book for understanding the stock market bubble of the late 1990s and early 2000s. His contribution to the study of real estate is equally compelling. The House Price Index used to track our real estate market was co-developed by Mr. Shiller -- and is innovative in that it adjusts for the quality of homes involved in transactions.

So given his expertise in bubbles and real estate, he is probably the guy to listen to when it comes to the topic of the real estate bubble.

In a column in this Sunday's New York Times, Shiller gives an interesting possible explanation for a question that hasn't gotten a lot of attention: Why were Alan Greenspan -- and a lot of other presumably intelligent people -- unable to see that real estate bubble for what it was given that, in retrospect, it seems so obvious?

The answer may lie in a psychological phenomenon known as information cascade. Be sure to read Shiller's column for an explanation of how this may have applied to the real estate market. It's fascinating stuff.

And understanding why the bubble wasn't widely detectable is key to understanding why it happened. As Shiller writes, "The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks."

Robert Shiller: Why most couldn't see the housing bubble for what it was originally appeared on BloggingStocks on Sun, 02 Mar 2008 15:10:00 EST. Please see our terms for use of feeds.

Continue reading The Dow corrects: Now what?

The Dow corrects: Now what? originally appeared on BloggingStocks on Tue, 27 Nov 2007 12:03:00 EST. Please see our terms for use of feeds.

Washington Mutual (NYSE: WM) had assets of $312 billion on 6/30/07.

• WM is recently trading at $34.96 in pre-open trading, below its close of $35.28.
  
• WM says: "Weakening housing market and disruptions in the secondary market through the end of the third quarter will result in a decline in net income of approximately 75% from the prior quarter."
  
• WM will announce full EPS on 10/17.
  
• WM overall option implied volatility of 35 is above its 26-week average of 30 according to Track Data, suggesting larger price fluctuations.

Merrill Lynch (NYSE: MER) is recently trading at $73.70 in pre-open trading, below its close of $74.78.

• MER says: "Challenging credit market conditions will have an adverse impact on its net earnings for the third quarter. The company expects to report a net loss per diluted shares of up to $0.50 cents, resulting form significant negative mark-to-market adjustments."
  
• MER October option implied volatility of 44 is above its 26-week average of 30 according to Track Data, suggesting larger risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Option update: Washington Mutual (WM) and Merrill (MER) volatility up into guidance originally appeared on BloggingStocks on Fri, 05 Oct 2007 09:30:00 EST. Please see our terms for use of feeds.

You currently don't have to ask too many Americans about economic conditions in order to get the impression that at least here at home a majority of people sense that economic upheaval is quite underway. The word recession is becoming a bit too commonplace for my taste and I have come across more than a couple references to "the coming pandemic." I myself wouldn't go so far as to predict widespread economic collapse, but I have called the current economic environment a "realignment" and I hold with that assessment.

In light of our volatile economic times I thought it might be a good thing to do a quick piece about risk assessment. I have suggested that now is the time to cut risk to the bone; I still hold to that. The theory is that the greater risk you take the more you should be rewarded for taking that risk. My position is that currently our high risk economic environment will not, except in a few scattered cases, provide adequate return for the risks involved. In my opinion the risk curve is temporarily broken and I suggest holding the bulk of your money away from high risk play.

Continue reading Deciding how much risk to take under current conditions

Deciding how much risk to take under current conditions originally appeared on BloggingStocks on Sun, 16 Sep 2007 17:40:00 EST. Please see our terms for use of feeds.

McAfee (NASDAQ: MFE) volatility of 39 above 26-week average of 30. MFE, an intrusion prevention and security risk management provider, is recently up .22 to $33.75. MFE over all option implied volatility of 39 is above its 26-week average of 30 according to Track Data, suggesting decreasing risks.

Symantec (NASDAQ: SYMC) over all option implied volatility at 36. SYMC provides solutions to help individuals and enterprises assure the security and availability of their information. Soleil Securities says "we are reiterating our SYMC Buy rating and our $27 price target." SYMC over all option implied volatility of 36 is above its 26-week average of 33 according to Track Data, suggesting slightly larger risks.

Websense NASDAQ: WBSN) implied volatility of 42 above 26-week average of 32. WBSN, a web security and web filter software company, has a market cap of $907 million with zero long term debt. WBSN reported total 2006 revenues of $178 million. WBSN is recently down .02 to $19.97. WBSN over all option implied volatility of 42 is above its 26-week average of 32 according to Track Data, suggesting larger price risks.

Aladdin Knowledge Systems-(NASDAQ: ALDN) implied volatility Elevated at 39. ALDN is a global provider of security solutions that reduce software theft and protects network users from undetected spam & viruses. ALDN has market cap of $298 million with zero long term debt. ALDN reported 2006 annual total revenue of $89 million. ALDN over all option implied volatility of 39 is above its 26-week average of 33 according to Track Data, suggesting larger risk.

Volatility Index S&P 500 Options-VIX down 1.61 to 28.38.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Option update: Software intrusion-security company's volatilities originally appeared on BloggingStocks on Mon, 20 Aug 2007 16:00:00 EST. Please see our terms for use of feeds.

Continue reading Smart money? University endowments see opportunity in sub-prime

Smart money? University endowments see opportunity in sub-prime originally appeared on BloggingStocks on Fri, 22 Jun 2007 17:15:00 EST. Please see our terms for use of feeds.

Pogo Producing Co. (NASDAQ: PPP) volatility and share price spike on strategic alternatives.

• PPP is engaged in oil and gas exploration, development, acquisition and production activities.
  
• PPP announced in its earnings release on 4/24 "that its strategic alternatives process, which includes the possible sale or merger of PPP, the sale of its Canadian or other significant assets, and changes to the company's business plan, is ongoing."
  
• PPP is recently up $3.92 to $52.47. PPP call option volume of 2,746 contracts compares to put volume of 1,090 contracts. PPP May option implied volatility of 40 is above its 26-week average of 30 according to Track Data, suggesting larger price risks.

Armor Holdings (NYSE: AH) implied volatility suggests Flat risk as AH at record High

• AH, a manufacturer of tactical wheeled vehicles, has a market cap $2.5 billion with long-term debt of $419 million.
  
• AH reported 2006 annual revenue of $2.3 billion. AH is recently up $1.31 to $73.39.
  
• AH overall option implied volatility of 29 is near its 26-week average according to Track Data, suggesting non-directional risk.

Option volume leaders today are: Symantec Corp. (NASDAQ: SYMC), Cisco Systems, Inc. (NASDAQ: CSCO), Dendreon Corp. (NASDAQ: DNDN) and IBM (NYSE: IBM).

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Option update 5-3-07: PPP spikes on strategic alternatives originally appeared on BloggingStocks on Thu, 03 May 2007 13:50:00 EST. Please see our terms for use of feeds.

Amaranth Advisors was a hedge fund, so it's not a big deal that it collapsed because of hugely speculative bets on the direction of natural gas prices. While it was a rare collapse because of its size, these funds come and go all the time. But Bank of Montreal reported today that it lost around $404 million making similar bets on energy. Aren't banks supposed to be conservative? Hey risk management guys (Ben Stiller in Along Came Polly), where were you on that one?!

Here's what the company's CEO said about it on the conference call: "The loss that we announced today is outside our tolerance."

Oh, OK. Have you noticed that unexpected volatility and wild swings seems to happen a lot -- more than the experts say it should? And that large one-time events seem to have a greater impact than the day to day occurrences, but we focus most of our energy on the mundane rather than the rare? I just finished an excellent book called The Black Swan: The Impact of the Highly Improbable by Nassim Nichola Taleb. In it, Taleb explores the impact of the unforeseeable on the course of life and history, and refers frequently to the financial markets -- he was once a derivatives trader. It may seem dry in parts and is probably not for Jim Cramer fans, but it's one of the most intelligent books with applications to investing that I've seen in a long time.

Bank of Montreal bets wrong on natural gas originally appeared on BloggingStocks on Fri, 27 Apr 2007 20:37:00 EST. Please see our terms for use of feeds.