Share Trading Tips

Thursday, March 31, 2011

Sensex To Surge 50%?

Dear Reader:

A select group of members are already preparing to profit from Sensex 30,000.

And they are doing that by buying blue chip stocks available for dirt cheap.

How are they identifying such stocks? How can you view these recommended stocks?

Now you see, we just stopped accepting such requests... but only for you, we are making an exception till 2 PM today.

So, Hurry! Read on for full details... (Remember, this is available only till 2 PM today).

Warm regards,

Rahul Goel
CEO, Equitymaster.com


Ignore what your stock broker, your friend and the "talking heads" on TV tell you, and...

Get Rich with
Safe Stocks
Some of these 'Safe Stocks' previously
surged 28 times... 33 times...

And one even jumped 53 times!


Dear Investor,

Blue-chips, or Safe Stocks as they are often called, are known for providing stability and consistent returns.

But please take a look at this now...

Company Name Returns (%)
Asian Paints 133% in 15months
Crompton Greaves 107% in 17 months
Hindalco 132% in 15 months
TCS 94% in 14 months

These are just some of the returns that members of a very privileged group have made - and consistently make - from some of the market's safest stocks.

And I'm going to reveal all about this group in the next few minutes... including their recent stock picks.

In fact, of all the stocks that were recommended for purchase to this group, 82.5% hit their mark.

I know your initial reaction is probably that this number is too good to be true. To tell you the truth, I felt exactly the same way when I saw the report on the track record.

But I even got it cross checked by an independent auditor. And as it turned out, it's absolutely true.

I will shortly share with you complete details about the track record, including the stock picks that did not work out.

But before that, there's something else you should know...

You've been lied to. . .

You see, if you're like most other investors out there, you too were made to believe that there are basically only two kinds of stocks:
1) Safe low-return stocks
2) Risky high-return stocks
If you wanted bigger returns, you were told that there's no other option but to invest in stocks that involve at least some amount of risk.

Or else, just settle for the dividends and small returns that the safe stocks gave you.

What if I told you now that Safe Stocks can make you triple-digit returns also?

It's true!

And how big could these returns possibly be?

Well, let me give you 3 examples...

We recommended L&T on 5th November, 2002 when it was selling at Rs 48*. And when we gave a SELL on it in March 2010, it had risen a whopping 3,275%.

Similarly, Voltas too, which we recommended on 30th June, 2003 returned 2,840% until August 2010 when we gave a SELL on it.

Then we recommended Titan on 21st July, 2003 when it was selling at Rs 67*. Today the same stock is priced at Rs 3,601.

An increase of 5,275%... and we haven't recommended a SELL on Titan yet.

(*Recommendation prices have been adjusted for bonuses and stock splits over the years)

You might say - Such big returns
don't happen every time

Agreed!

But you can make at least double your money from safe stocks consistently, if not more.

You already saw 3 stocks before that generated 100% or more returns in less than 2 years.

Apart from those...

Tata Steel gave 269% in 24 months
Bharat Forge gave 251% in 20 months
Tata Motors gave 129% in 13 months

And there are many, MANY more stocks like these.

So why settle for just tiny returns and dividends, when you can make 100% or more from SAFE large cap stocks easily?

All you need to do is hold the stocks for 2-3 years...

Oh and, you'll also need to do one other thing that most investors don't!

What books, schools or brokers will NOT teach you. . .

What I'm about to tell you now will be in complete contradiction to what you hear usually.

You won't hear this from your investor friend, your stock broker or your fund manager. And you also won't read about it in any financial magazine or see it on television investing news.

Listen...

Ever since you got into stocks, you must have had many people tell you that you should always see what the other investors are doing and take cues!

In other words... if a lot of investors are buying a stock, you can safely assume the stock is a good one and buy it.

And if a lot of investors are selling a certain stock, you can take it that the stock has turned bad and sell it away or refrain from buying it.

But while you may think that you'll become rich investing in stocks this way, the truth is you won't get anywhere doing what everybody else is doing.

On the contrary, you'll just end up like most of the investors who are forced to settle for meagre returns and never make the kind of money they want from stocks.

To make more money than other investors
You have to do what most other investors won't do

Invest in companies that everybody else is avoiding.

Don't get me wrong - I'm not telling you to invest in bad stocks. People are obviously avoiding them for a reason.

But sometimes, even perfectly good stocks get ignored due to some misconceptions. Those are the companies I'm telling you to go after.

Let me explain...

See, we all know there are no better companies than the large caps when it comes to stability.

Large caps are all well-established companies with stable earnings and no extensive liabilities.
  • They are well-managed and have consistently performed across business cycles

  • They have the resources to not only weather the downturns and disturbances, but also emerge stronger from them

  • Long-term prospects for large caps are outstanding
So the risk associated with large caps is very low, and you can be assured of steady returns and dividends from them year after year.

However, there's something most people
don't know about large caps. . .

There's a strong belief among investors that large caps are virtually immune to any and all kinds of problems.

That's not really the case.

The truth is that even large cap stocks go through hardships from time to time.

The reasons could be anything like:
  • Change in the company's top management
  • Some new initiatives started by the company turning out to be failures
  • Fall in demand for the company's product in the market
  • Bad economy
  • ...or anything else for that matter
When things like that happen, the demand for the large cap stock falls temporarily... bringing its price down and making it available to you at a discount!

This is when you need to act fast and grab the stock.

When you grab good companies for cheap, doubling or tripling your money with them becomes all the more easy.

Don't believe me?
Just see these 2 examples. . .

Example #1: Indian Hotels

Indian Hotels

This was a stock recommended at the height of the global crisis in November 2008.

High inflation, cost pressures, liquidity crisis and regulations concerning the real estate sector had made funding difficult. This coupled with unrealistically high land prices and government red tape was resulting in hotel projects taking longer to fructify.

The slowdown had also led to sharp declines in tourist traffic and room rates, and that too was impacting the company.

But we kept the long term picture in mind and expected the crisis to not have any material impact in the company's future over a 3 to 5 year period.

And the stock is up 93% since then.

Example #2: GSK Consumer

 GSK Consumer

We recommended GSK Consumer in February 2009 when the Indian malted beverage market was seeing stiff competition from new entrants like Dabur and Hindustan Unilever.

In the midst of all this, GSK initiated a 7% price hike in its flagship brand 'Horlicks'. It also leveraged its brand power to launch new variants.

This firmed up our confidence in the company retaining its 70% market share. Plans to introduce products from its global parent's portfolio in oral care, energy drink and other segments over the next 3 to 4 years was the additional sweetener.

So we maintained that despite competition GSK Consumer would be able to leverage its brand power to emerge stronger and improve returns to shareholders.

The stock is up 270% since then.

The Real Reason Why People Avoid Large Caps

Regardless of what everybody says...

We believe the main reason why people avoid large caps is because they aren't aware of this unique, time-tested, highly effective way of making BIG returns from large cap stocks.

Why else would someone say no to triple-digit returns from safe large cap stocks?

Of course, others with vested interests (you know who) also force investors to believe that large caps cannot generate big returns...

Plus, ordinary investors usually won't have the resources to execute this method properly.

But whatever their reason for avoiding large caps, this gives YOU an excellent opportunity to multiply your money safely.

Since you're investing in large cap stocks using this approach, you need not feel that you're taking on too much risk.

Agreed that no investment is 100% guaranteed. Not even large caps!

But with the big companies, you can be confident that they will not disappear overnight and take your entire investment with them.

Moreover, this approach is based on the time-tested investing principle of being greedy when others are fearful, and fearful when others are greedy.

So if done correctly, it is certain to produce profitable results... as has been proved already in the examples presented to you.

But that said, not every large cap company
will be a good buy

You need to know exactly which big companies are likely to recover faster and make bigger returns for you... and of course, when is the right time to buy them.

And this is where Equitymaster comes in...

You see, we've got this Premium research service called StockSelect.

Simply stated...
If you're looking at building a portfolio of blue-chip stocks that could deliver steady returns over the long term, then StockSelect is the service you need to be signed up for.
StockSelect tells you which big companies are a "must-have" for your portfolio... and more importantly, it notifies you as and when they're available at attractive valuations.

It works on a simple principle - buying great companies at bargain prices and making staggering returns on them when the company grows rapidly in a few years.

So with StockSelect, you not only earn consistent dividends but also big returns from the large caps stocks we recommend.

Take Tata Steel for instance...

Tata Steel

We recommended Tata Steel in December 2008, when the stock was trading a mammoth 80% lower than its 52-week highs!

The stock's underperformance then could be attributed to its balance sheet that had been loaded with debt on account of the leveraged buyout of Corus.

While we saw the concerns as being valid, we knew those were far too exaggerated. Our calculations showed that even if the company's earnings were to fall by 50%, there would still be enough cash flow for it to pay for its financial expenses on the debt.

So we remained confident that the company will come out of the downturn rather unscathed.

And the stock is up 269% since then.

Please understand that we make all our predictions with a 2-3 year period in mind.

However, in some situations, the markets get into action and bump up the stock price sooner than expected.

In other cases, a market crash leads to the stock price falling rapidly.

So our advice to you is that you ignore the near-term variations and focus only on what you could make in 2-3 years time.

Great companies always recover when the storm passes.

So if you buy the blue-chip stocks at the right time, you could easily make attractive returns over 2-3 years.

Why you can trust us to deliver

We're not stock brokers. We don't gain anything even if you buy the stocks we recommend.

However, our credibility... and more importantly, our income... depend on whether or not the stocks we recommend make you money.

Because if you don't make money from our recommendations, you will simply not renew your subscriptions. Furthermore, you'll also tell your friends not to sign up for our services.

We don't want that, and that's why we take extreme care while finalizing the stocks to recommend.
  • All our recommendations are supported by thorough research - we list out the reasons to buy and also the investment concerns that we foresee

  • We travel far and wide to meet companies before we put out reports on them

  • For each stock, we clearly state the target price and also the time horizon for achieving the same
That's exactly why over 907,500 registered members (of all Equitymaster services combined) trust us!

And there's one other thing...

I bet you too, like numerous other investors, were taken aback by the 'Satyam' fiasco and started wondering how many more companies of that sort are there in India.

Well, guess what?

Because we meet various companies face to face, do our due diligence and continuously track our recommendations... we reduce the risk of a Satyam like situation emerging in stocks that we recommend.

Here's what one subscriber had to say about our research...

"It's been 5 years since I have been a subscriber to all the products of Equitymaster (EM).

EM's "power to people" approach is what made me to associate with them initially. EM's honest, independent and consistent research on stocks is worth appreciating.

In short, I must say it has been a "rewarding" experience."

      -- S R Samratt, a StockSelect subscriber since 2005


Another big reason why our research tends to be accurate
more often than not . . .

You see, most investors take the return on stock investment to be the key yardstick while deciding whether or not to buy a stock.

But legendary investors like Benjamin Graham and Warren Buffett have always maintained that 'evaluation of risks' should be given as much importance as 'estimation of returns'.

It is in this direction that our research team has developed the Equitymaster Risk Matrix or ERM which helps quantify the risk attached to a stock. The ERM is an integral part of our stock selection process.

Look, you probably understand that no two companies have the same degree of risk associated with them. Even if they operate in the same sector, their business dynamics, managements and valuations are different.

That's why it is important to evaluate the risk involved in each case separately...

And the ERM is designed just for that!

The ERM is a matrix designed to evaluate the key risks attached to a business, it financial history and its management. It ranks not just the company but also the sector in which it operates based on its relative risk profile.

When markets were at their nervous best in late 2008, our Buy recommendations on ACC, Tata Steel, Corporation Bank and Maruti Suzuki were backed by our confidence in the low risk profile of these companies as shown by ERM.

As expected, these stocks went on to multiply our subscribers' wealth several times.

Again, it is the same ERM that we rely on to quantify the risks we believe subscribers need to be cautioned about while recommending a 'Sell'.

"In 2007, Equitymaster was probably the only research house which will give most of HOLD or SELL recommendations rather than BUY reports and everyone knows what happened after that. I feel to be proud subscriber of equitymaster seeing again that you still are not afraid of giving the right opinion irrespective of market moods. Great Job!!!

At the same time in 2007 there were some brokers who will say BUY on every damn stock and stopped releasing updates when market tanked. They are doing similar thing now again giving BUY target on every damn stock. Old habits die hard."

-- Deepak Aggarwal, StockSelect subscriber since 2007


Given the complex operating environment that Indian business are aspiring to be a part of, we believe the ERM can offer immense value to investors seeking to maximize their long term returns by without taking on too much risk.

"I am a subscriber to these services for the past five years. I realized the value of fundamentals for investment decisions only after I started using the services of equitymaster.com.

Earlier, my decisions used to be based on "tips" or "advice from friends" etc.; Equitymaster taught me to base them on business fundamentals.

One very good quality of your organization is that I never have even 5% of doubt about your unbiased approach and your integrity to the retail investors.

Overall, I value the services offered by Equitymaster.com and I acknowledge their contribution to make my investment decisions more scientific."

-- Satish Pendse, a StockSelect Subscriber since 2003

But I won't lie to you -
Sometimes we make mistakes too

Like I said before, StockSelect has an accuracy rate of 82.5%.

That means for every 6 large caps stocks we recommend through StockSelect, 5 hit their target.

So there's 1 stock out of every 6 that does not perform as expected.

Now, there's no doubt that we recommend a stock only when it meets all the required parameters.

But sometimes... despite having all those valid reasons for recommending the stocks... the assumptions we make turn out to be incorrect.

For example, here are 2 stocks that didn't do like we expected them to...

1) Raymond:

The Indian textile industry had just broken the shackles of the quota regime. The government's benign subsidized loan scheme for this sector made it more appealing. What better time to recommend one of the most established names in Indian textile manufacturing and retailing? This was the thought behind our 'HOLD' recommendation on Raymond way back in September 2006.

The company then had a reasonable debt to equity of 0.7 times and net profit margin of 15% which was one of the best in the sector. Since then the stock corrected by 67% (on a point to point basis) until we recommended a Sell on it in September 2008.

Despite having recovered India's largest and technologically most advanced manuthe stock is down 16% from the price at which we recommended a HOLD.

While our judgment of the management's ability to takeoff the joint ventures with foreign partners was faulty, forex losses on sales as well as external borrowings aggravated the matter.

Economic recovery in the developed markets too did not shape up too well over the last two years. The management still remains quite unsure of where its focus lies.

2) Punj Lloyd:



We had recommended Punj Lloyd in 2008 backed by our optimistic assumption about the company consolidating its position as the second largest engineering and construction player in India. Its foray into the oil and gas pipeline business was especially encouraging.

We expected the company would grow due to a strong demand from sectors like pipelines and terminals, aggressive forays into newer segments, and execution of large scale domestic and international projects.

But unfortunately execution delays and cost overruns marred the performance of the company. Our attempts to meet the management to get some clarity on the future direction of the business were also in vain.

In addition to this, after some change in the senior management, the new members seem very reluctant to share the long term outlook for the company. Finally we asked our subscribers to stay away from the stock.

Meanwhile the stock never came back to the recommended levels and the company's problems are far from being resolved. And today, the stock is down 65% from initial recommended levels.

The truth is, despite making all the efforts to be as accurate as possible, there will always be factors that we can't control.

But all said and done, you can rest assured that when you receive a research note from us, it is our honest opinion about the stock - based on certain time-tested criteria and assumptions.

"I would want to acknowledge the fact that Equitymaster is ACTUALLY REALLY GENUINE in its research, SELFLESS and not giving recommendations with a HERD mentality !! Like some magazines and news channels do..."

                -- Nishank Mehta, a subscriber since 2009


So here's what all you get by subscribing to StockSelect. . .

52 Blue-chip Recommendations in a year

Every Friday, we'll send you a StockSelect report recommending a Buy/Hold/Sell on one large cap company.

In this report, we will provide you detailed and extensive analysis of the company along with our expert opinions.

Look...

Even though large cap companies are a dime a dozen, it's still important to know which stocks are the right stocks and what is the right price and time to buy these stocks.

StockSelect tells you just that!

Consider the case of Bharat Forge...

 Bharat Forge

Bharat Forge is one of India's largest and technologically most advanced manufacturers of Forged & Machined components...

We recommended this stock in April 2009. The company was then facing serious issue on the balance sheet front as it had loaded the same with debt.

Our view was that the company was soon to get a return on the expansion it made using this debt. We expected the company's domestic operations as well as foray into other segments to minimize the impact that sharply lower exports were having on its overall business.

While we agreed that the company was no doubt struggling to grow at rates that it has managed to do in the past, we thought the fall in stock price was much exaggerated.

And the stock is up 251% since we recommended it.

By subscribing to StockSelect, you'll be notified of 52 exciting Blue-chip Buy/Sell/Hold opportunities at the right time.

You can then explore the opportunities further if you like, and pick a final list of blue-chip stocks to invest in.

In addition to these, we also release special reports from time to time on attractive large caps opportunities.

Fast action takers will benefit from these reports also.

"As regards the positives....the reports are very comprehensive, logical and the analyst seems to have a good understanding of the industry and the firms biz model which I have found lacking in most other reports and recommendations that I come across.

Also it compares the company with their peers too in the market. These days whenever I think investment in stocks ...my 9 year old son Chirag has an opinion but he also insists that I look up the opinion of Equitymaster too !!!..

So you see your team has a lot of credibility not just in this generation but also in the future generation."

-- Tarun Malkani, a StockSelect Subscriber since 2007

Ongoing Research on
The Companies Recommended. . .

And we don't just recommend some companies and forget about them.

At the end of each quarter we review all the stocks that we recommended during the six month period prior to that.

We provide subscribers our latest analysis on all those recommendations... and whether we maintain our views on them or have changed the same.

We illustrate in detail our reasons for maintaining the stance or change in stance, and finally summarize all of those into a table as you can see below:

stoctselect recommendations

Apart from these quarterly reviews, another thing that forms part of the "ongoing coverage" is the Quarterly Result Analysis that we write for all companies under coverage... wherein we also mention whether the results are in line with our estimates or not, and whether we maintain our view on the stock or not.

Given that the markets are likely to remain bumpy for some more time, this kind of information can come in very handy.

Here's what one subscriber had to say about our review reports...

"I appreciate your dedication in giving periodic reviews and outlook/current recommendations. This is a stand out feature in your basket!"

    -- Srinivasan S, a StockSelect Subscriber since 2008

S-Features

These are articles and reports that are available to our premium subscribers only.

We release over 800 of them every year.

You might understand that there a lot of factors influencing the stock price, most of which need to be monitored regularly. So from time to time, we release instant reports and updates on various companies.

These articles include excerpts of management meetings, extracts of conference calls, updates on the happenings in a company and our personal views on it, and so on.

This is all "unadulterated" information and it will serve as a valuable input for your investment decision.

The Portfolio Tracker

The Portfolio Tracker is an online utility that helps you track all your equity and mutual fund investments in one place! It's online, and is available to you 24 hrs a day.

You just have to enter the details of stocks or mutual funds owned by you ONCE... and Portfolio Tracker will show you what your entire portfolio is worth AT THAT MOMENT anytime you log into it.

Furthermore...
  • You can set your account to send you automatic end-of-week and end-of-month performance updates for all your portfolios.

  • You can set up priced based alerts for all the stocks that you own (and also the stocks that you don't own but only wish to track).

  • Plus, you can also track your SIPs and get NAV alerts for the mutual fund schemes with Portfolio Tracker now

But wait...

What makes the Portfolio Tracker the indispensable tool that it is are the intelligent reports that come along with it.

You see, we at Equitymaster have spent a considerable amount of time trying to understand how the fund managers who invest for the long-term track and review their portfolios.

And it is the relevant learnings from this exercise that we have translated into reports.

In a nutshell, these reports help you answer questions like -
  • Should you be buying stocks from the automobile sector or the consumer products sector? Do you have too much of cement stocks in your portfolio?

  • Which stocks deserve your maximum attention?

  • Is the construction of your portfolio in line with what a smart fund manager would have?

  • ...and so on
Here's what one long-time user had to say about Portfolio Tracker:

"I have been using the Equitymaster Portfolio Tracker since 2002 and have found it very useful to track my investments, and also to carry out meaningful analysis.

Moreover, what is equally important, I have found the team at Equitymaster extremely responsive.

This applies both to requests for the inclusion of new Mutual Fund Schemes/Scrips as also designing new reports."

                       -- Jose Rodrigues, a member since 2002

The Portfolio Tracker usually costs Rs 330 for a year. But by subscribing to StockSelect, you get it absolutely FREE.

"How to Plan Your Equity Portfolio":
Our Recently Released Asset Allocation Guide

Our experience shows us that a majority of new investors fall into two main categories:
  • Those that primarily aim for big returns and often take unnecessarily risks to achieve the same

  • Those that are overly particular about safety and often forgo excellent money-making opportunities just because there's a slight bit of risk involved
The truth is... if you want to make to lead a RICH and HAPPY life with the money you make from your stock investments, you must learn to tread the middle path between the two.

Therefore our intention through this guide is to help you allocate your investments properly... to not just give you a chance of maximizing your stock market returns but also keep the risk involved to a minimum.

So after reading this guide, you will FINALLY know how to distribute your investments between large, mid and small caps stock... apart from a lot of other things.
And this guide, too, will be available to you FREE when you subscribe to StockSelect.

The Equitymaster Yearbook 2011 (PDF Version):
Be among the first to get it

The Equitymaster Stock Market Yearbook 2011
An extremely popular publication, the Equitymaster Yearbook, is a guide consisting of financial analysis and business profiles of the leading 200 companies in India.

It helps you understand the long-term trends associated with each company and sector, and thereby plan your investments intelligently.

For each of the 200 selected companies, the Yearbook provides a full page of financial and other important data, conveniently tabulated under relevant headings with a host of important ratios.

And apart from this, you also have detailed notes on over 20 sectors, the Indian economy, mutual funds and a lot more.

Simply put, this Yearbook offers accurate, unbiased and detailed data on leading companies, sectors and economy all in one place... and there's no other resource that offers all this information together.

That's why it's something every investor must have.

The Yearbook costs Rs 750 to buy separately. But if you subscribe to Equitymaster through this offer, you will get the PDF version of this Yearbook absolutely FREE.

Free subscription to
The Daily Reckoning . . .

Are you someone who's interested in monitoring or even investing in the global markets?

Now you can read what knowledgeable investors across the globe read every single day for global market analysis and investment ideas.

Yes, we are delighted to bring you 'The Daily Reckoning', a daily financial e-column by Bill Bonner, Publisher and Editor, and three-time New York Times best-selling author.

The Daily Reckoning is published every day in 3 languages from offices in 6 countries - US, UK, Australia, France, Germany, South Africa.

Now, it's India's turn... and your turn to get it for FREE!

When you subscribe to StockSelect, you automatically get a free subscription to the Daily Reckoning also.

- - - And I've saved the best news for last - - -

You might be thinking all this would cost a lot, but no!

The price of StockSelect is normally Rs 5,000 per year, which is anyway not much to pay for a service like this.

But for the next few days (till 31st March,2011) today till 2pm only, you can subscribe to StockSelect for Rs 2,450 only.

This is less than 50% of the actual price, and comes to about Rs 205 per month.

And, you can sign up at this highly discounted price and test-drive StockSelect for a full 30 days.

If you don't like it, get in touch with us before the 31st day, and we'll refund the full fee you paid. That's a promise!

However, you must act quickly.

This offer will close at 5PM on the 31st of March 2pm Today! And after that, the subscription price of StockSelect will also go back up to the usual Rs 5,000.

So to summarize, here's all you get by signing up to StockSelect...
  • StockSelect subscription for Rs 2,450 only... (less than 50% of actual price and equating to about Rs 205 per month)

  • Equitymaster Yearbook 2011 (PDF Version) worth Rs 750

  • Special Reports from time to time

  • Quarterly reviews of our recommendations

  • S-Features

  • The NEW Portfolio Tracker

  • Our Special report - "How to Plan Your Equity Portfolio"

  • FREE subscription to 'The Daily Reckoning'

Try StockSelect without any risk. . .

Look, StockSelect has an extremely good success rate of 82.5%, and you'll also be investing in the some of the market's safest stocks by subscribing to it.

Plus, you've also got nothing to lose...

If you make use of this offer, you can subscribe to StockSelect at a highly discounted price, and try the service for 30 days without risk.

During this one month, you'll get 4 current issues of StockSelect... plus access to archives of all the previous issues.

After going through the current and past issues, you should have a good idea of whether StockSelect is for you or not.

If you don't like what you see, just let us know before the 31st day and we will refund the entire price - no questions asked.

So you have at least 2 good reasons to sign up for StockSelect NOW:
  • To get your subscription to StockSelect for just Rs 2,450 instead of the usual price of Rs 5,000

  • To get access to our extremely popular Equitymaster Yearbook 2011 costing Rs 750 for FREE
Why delay any more?

[Sign up now! Click here]
 

Regards,

Rahul Goel
Chief Executive Officer
Equitymaster.com

P.S.: This offer will close at 5 PM on 31st of March 2PM Today! So sign up before then to get...
  • Subscription to StockSelect for just Rs 2,450 (usual price = Rs 5,000)
  • A free copy of the new Equitymaster Yearbook 2011 (PDF version) worth Rs 750
  • Our Special guide - "How to Plan Your Equity Portfolio"
  • ...and much more!
P.P.S.: There's a 30-day money back guarantee on this offer. So sign up and at least see what StockSelect is all about. If you don't like it, we'll give you a FULL refund anyway.

P.P.P.S.: Here's what another subscriber has to say...

"I am a subscriber to StockSelect, MidcapSelect & Hidden Treasure.

Equitymaster has really shown its skill in finding the PICKS much before others do.

I know that it is not so easy for an analyst to 'pick up' ahead of others always.

BUT YOUR RESULTS INDICATE THAT THE TEAM WORKS HARD."

-- Satya Pal Gupta, an Equitymaster Subscriber since 2005


P.P.P.P.S.: If you have any queries, please do not hesitate to contact us at +91-22-61434055 or Write in to us. We will be delighted to assist you!

Subscribe Now!


*Returns have been calculated as on 1st January 2011 or on the date of Sell Recommendation, whichever is applicable.

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Equitymaster Agora Research Private Limited
103, Regent Chambers,
Above Status Restaurant,
Nariman Point, Mumbai - 400 021. India.
Telephone: 91-22-6143 4055

Insider Trading at Warren Buffett's Berkshire Hathaway?

To ensure uninterrupted delivery please add mail@wyattresearchnewsletters.com to your contact book

From the desk of

Ian Wyatt

Editor, Daily Profit

Thursday
March 31, 2011

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Insider Trading at Warren Buffett's Berkshire Hathaway?



One of Warren Buffett's top executives at Berkshire Hathaway has resigned amidst a swirl of insider trading controversy. Former MidAmerican CEO David Sokol bought $10 million worth of Lubrizol (NYSE:LZ) before he suggested a Berkshire-Hathaway buyout of the company to
Buffett.

Lubrizol stock jumped nearly 30% on the news that Berkshire would acquire the company. Sokol made nearly $3 million on the deal. And he is insisting that he did nothing wrong.

Individual investors are up in arms about this case, as it appears inappropriate, at best.

"I'll say this: if Sokol didn't break the letter of the law, he violated its spirit," said Ian Wyatt, of Wyatt Investment Research. "And this is exactly what's wrong with Wall Street and securities law enforcement. We all have the sense that Wall Street insiders can use their advantage to line their pockets. This Sokol story is a perfect example."

One way individual investors can level the playing field for themselves is with dividend stocks. Research shows that nearly 70% of long-term stock market gains come from dividend income. You can access a Wyatt Investment Research report that features 7%, 8% and 10% dividend stocks.

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Buffett and Sokol Going to Jail?


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Thursday, March 31, 2011

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More on the End of QE2

Sell Treasuries

Throw the Crooks in Jail!

Fellow Investor,

 

Another nice day for stocks has pushed the S&P 500 right to resistance at 1,335 as the first quarter winds down. If funds are buying stocks and "window dressing", as I suggested yesterday, then we may see them dump those stocks during the first couple of days of the second quarter.

 

Over the past couple of years, the first day of the month has usually been an up day. But with the S&P 500 up against resistance, and earnings season right around the corner, I'd say a moderate decline is warranted.

 

The stock market has been amazingly strong essentially since August. Even the events in Japan and the Middle East only resulted in a minor correction. But let's not get complacent: the end of QE2 in June has the potential to bring a more serious stock market correction.

 

Recent comments from Fed governors suggest that the Fed is prepared to stand down on its liquidity-producing operations and see if the U.S. economy can stand on its own strengths. There are enough question marks about U.S. economic growth in the absence of stimulus that we should expect a correction.

 

However, the Fed will likely be ready to unleash QE3 at a moment's notice. And fund managers and institutional investors know the Fed will backstop the stock market, so any weakness as we move through the end of QE2 will be a buying opportunity. Make a note of this to start looking around then.

 

*****Speaking of the Fed, it has apparently turned down an offer by AIG (NYSE:AIG) to buy back some of the toxic assets the Fed holds as a result of TARP.

 

This is an incredibly ironic situation.

 

Back in 2008, the Fed lent money, guaranteed existing loans and took on toxic assets to help improve banks' balance sheets and stabilize the financial system. We should also remember the TALF program that was supposed to create a market for toxic assets. The program failed, because banks believed these toxic assets were more valuable than the prevailing "mark to market" prices indicated.

 

Now, the Fed recently announced it would be selling some of the toxic assets it holds. Institutional investors, including PIMCO and Blackrock (NYSE:BLK), have raised cash to buy toxic assets. And AIG wants in on the action.

 

AIG received $182 billion in loans and guarantees from the U.S. government and the Fed during the financial crisis. Some of that money went right out the back door as cash payments to Goldman Sachs (NYSE:GS) and other banks with which AIG had entered into credit default swaps.

AIG is now 92% owned by the government. Yes, you read that correctly: 92% owned by the government, or you, the taxpayer. And it wants to spend $15 billion to buy back some of the very same toxic assets that brought about its downfall. The Fed has denied AIG's offer, and rightfully so. AIG would essentially be using government to buy government owned assets.

 

I suppose the proposed transaction would help AIG repay its debt. But it is high time for the Fed (and Treasury) to stop aiding financial companies with favorable treatment, particularly when they're trying to make the same mistakes that got them into trouble, and us into debt, the first time.

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*****Warren Buffett and PIMCO's Bill Gross: the U.S. dollar will continue to lose value so long as the U.S. government refuses to deal with $75 trillion of outstanding debt and liabilities (Medicare, Medicaid and Social Security). Senator Harry Reid (D – Nevada) has already stated it won't happen for the next 20 years. He's 71 now, in 20 years he'll be 91. Given that the average male life expectancy in the U.S. is 75…well it's unlikely Senator Reid will have to account for his intransigence.

 

Gross says we are "...out-Greeking the Greeks..." and that Treasury bonds "have little value."

 

Buffett is quoted as saying:  "I would recommend against buying long-term fixed-dollar investments...If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not."

 

In the context of falling value of the U.S. dollar, it is essential for us all to grow the number of dollars we have though our investments. Investors should own precious metals like gold and silver. Investors should also own stocks that pay solid dividends.

 

You can find some of my top dividend ideas HERE.

 

*****And speaking of Warren Buffett, one of his top executives, David Sokol, has resigned on accusations of insider trading. Apparently, Sokol bought $10 million worth of Lubrizol (NYSE:LZ) before he suggested a Berkshire-Hathaway buyout of the company to Buffett.

 

Lubrizol stock jumped nearly 30% on the news that Berkshire would acquire the company. Sokol made nearly $3 million on the deal. And he is insisting that he did nothing wrong.

 

I'll say this: if Sokol didn't break the letter of the law, he violated its spirit. And this is exactly what's wrong with Wall Street and securities law enforcement.

 

We all have the sense that Wall Street insiders can use their advantage to line their pockets. This Sokol story is a perfect example.

 

And what's worse, it takes a violation as egregious as Madoff before anyone actually goes to jail. (And yes, I recall when Martha Stewart was jailed for insider trading. She acted on another's advice to sell Imclone stock. In my opinion, what Sokol did was worse, because he had influence over the deal.)

 

It's time there are actual consequences for wrongdoing on Wall Street and in the Boardroom. Bankers who mislead regulators and investors and plunged the banking system into chaos should be doing time. Same goes for regulators that turned a blind eye and ratings agencies that perpetuated the lies.

 

What do you think?

 

Should these crooks, or "banksters", as my colleague Kevin McElroy from Resource Prospector calls them, be doing time in the Big House? Are regulators doing their job or are they asleep at the switch? I'd love to hear from you. Write me at ianwyatt@wyattresearch.com.

 

Until tomorrow,  

 

 

Ian Wyatt
Editor
Daily Profit


 

 


 

P.S. The nice thing about dividend stocks is that the numbers can't be faked: the stock either pays a dividend or does not. Period. My new High Yield Wealth service brings you a steady stream of solid, consistently high paying dividend stocks to add to your portfolio. If you're tired of Wall Street crooks cooking the books and you want some real money coming your way, I suggest you take a couple minutes right now to see if High Yield Wealth is for you. Click here to find out more.

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