Building Our Winter Portfolio

Last week was busy around here.

Three of my limit buy orders executed and we picked up excellent bargains in electronics retail and computer storage, and doubled down on our pharmaceutical holding. Here are the buy prices:

Electronics Retail: $25.00 on 9/19
Computer Storage: $4.25 on 9/23
Pharmaceutical: $26.50 on 9/23

I first bought the Pharmaceutical company on Feb. 25, 2003 at $28. Doubling down at $25 gives me an average buy price of $26.50. You can see all of these results on my Strategies page.

Specific company names and symbols are shown only to Kelly Letter subscribers, who receive email alerts from me. If you’re curious to know more about The Kelly Letter, now would be a great time to take a look. Glance left to see how many open positions are slightly in the red. The market has been getting cheaper and subscribers are now smack in the middle of a great portfolio-building process. The market will rise over the fall and winter. Where will your money be when those red arrows turn green? Join now and get positioned for profits early next year. The letter is free for a month, so there’s no risk. To read more about it, click here.

It’s natural during a portfolio-building time like now to see recent buys drop a bit below our buy price. I’m not at all worried about our recent purchases and, in fact, if you haven’t bought yet you can still do so and get even cheaper prices on several stocks than I got. Good for you!

Hurricane Katrina was devastating, of course, and Hurricane Rita is set to hit land over the weekend and cause even further damage. This is hurting insurance companies, as everyone around here knows from my ill-timed foray into PXRE Group, and also hurting the larger economy and market. Oil prices are still high and threatening to go higher. The Fed raised interest rates again, indicating that it’s worried about inflation from higher gasoline prices. Although, not raising interest rates would have been a signal that the economy is in worse shape than people thought and needed the looser money to stay afloat. Talk about a tough position to be in. In the end, though, rates were raised and the market doesn’t like that.

So there are several reasons for prices to be headed lower these days. Looking farther out, there’s every reason to believe that the market will be fine and that our carefully-chosen investments picked up at bargain prices will do better than the general market.

We are still not as low as I think we might go. Notice the “think” and “might” in that sentence. There’s not much certainty in this business. That’s why you have to pluck the cheap prices when they come and not be terribly surprised when you could have gotten them a tad cheaper if you’d just waited a week. On the other hand, if you try to wait two weeks, you might miss the initial rebound of 5% or 10%.

The wise investor, facing those ever-present tradeoffs, chooses to buy some stocks a bit early just in case the rally comes later than expected, and some stocks a little later just in case the market drops lower than expected. That way, if the rally’s early you still participate somewhat and if the rally’s later you had a chance to buy deeper into the low prices.

That’s what I’ve always done and it has always served me well in the final analysis. I have every expectation of it serving me well this time around, too. Your job, if you haven’t already done so, is to decide what you want to own and at what prices, then set those limit orders and hope that they hit. More often than you think, they will. If you get good at knowing the right prices — not perfect, but good — the market will take care of the rest.

On that note, we’re waiting for lower prices to buy into telecom, alternative energy industries, semiconductors, and Japan. The buy prices are set, and now we’re just waiting.

And now for something completely different.

It’s Saturday evening here in Sano where I spent the day watching elementary school children compete in their undokai, or sports day. It’s like a track meet in that it has relay races, but it also has dancing and unusual group events like seeing which team can roll a five-foot-tall medicine ball around the track fastest.

In the kibasen, the remnant of a samurai cavalry game, three team members form a base, called the horse, and the fourth rides on top. The rider is supposed to steal the hats of riders on opposing teams, but it always becomes more than that as the kids pull each other’s hair and punch their way to victory, sometimes by toppling the entire opposing team to the dirt. There are injuries and tears and sometimes blood. Now, here’s the human nature question of the day:

Do you think the boys or the girls are more aggressive?

Please email your answer to me with “kibasen” in the subject. I’ll tally the results over the weekend and post them along with the real answer.

Then we’ll get back to portfolio-building next week.

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