Wednesday, April 9, 2008

1998-2000? plus thoughts on stocks

First a long overdue disclosure -- my keyboard's letter i doesn't work very well -- I have to work it to get the I to show up most of the time. Usually I catch it but if you are reading and you can't figure out what word I am trying to use, just try addng an I and it will probably make sense (as in adding).

Been thinking about the current period and comparing it to 1998-2000. Our current situation is probably a mixture of that period with the post 1990 period. Most stocks were relatively flat during both times (after the bounceback in 1991 stocks were flat until late 94). Technology stocks were the one major exception in the 98-00 time period. I remember during that period being frustrated that none of my non-tech stocks would move -- they would go up and down but never get anywhere. Their earnings would be ok -- nothing to get the stock moving in either direction.

That's what I am thinking we are in or potentially heading for except substitute energy/materials for technology. If that is the case, then expect those energy/materials stocks (include ag in those) to really get moving over the next few years -- I envision the two sectors making up closer to 20% of the S&P 500 up from about 13%? now. Most of that will come out of financials but some also from consumer discretionary and technology as well. I think health care depends on what happens to the drug stocks -- they still dominate that sector.

On to stocks....

Dr John brings up a great point in his last comment -- position size is how you handle the risks of ILMN -- a great story but an expensive stock. That's probably why I am a little worried -- its a bit bigger for me than I feel comfortable with -- don't get me wrong its only a little over 3% of my portfolio so its really not that big but its probably bigger than it should be relative to my other choices -- stocks like FLIR, TECH, LH, etc. Trouble for me is that every time I have sold ILMN so far it has gone materially higher so that I have some regret. That's the way it works -- you trim on the way up and you get that feeling of missing out but if the stock plummets 30% one day because they missed you will forget that regret instantly.

FLIR -- so far it appears I got too cute when that stock was $24 -- sure would have been nice to have bought some shares then -- I thought I might get the chance closer to $20 so I was trying to keep my powder dry. In hindsight, I could have bought some more at $24 and then more again at $20. Business there remains strong. It remains to me one of the best stories and yet because of my timidity its not one of my biggest positions.

LH -- interesting slide in their latest presentation talking about pharmacogenetics -- or the use of testing to personalize medicine. They talk about a huge spike in the growth of DNA related testing in neuro-psychiatric related medicines coming in 2010 or later. I haven't heard who is developing those tests but that could be an interesting story -- most of the diagnostic testing that I read about is in infectious diseases or cancer. Would be neat to know who is working on these neuro-psychiatric disorders. Makes sense because there is a lot of money spent on those drugs and a lot of patients that are misdiagnosed or not properly medicated -- those drugs affect people differently so a test that would help predict people's reactions would be very useful.

I finally did sell those calls on my MCO position -- I went with the may 35's for $4.60 which meant that I gave up any upside above $39.60 -- not much higher than the $38 the stock was trading at when I sold them. I just went for a little more downside protection and a price I would be comfortable selling the stock. Would prefer to sell it in the $40's but my thought process now is that my risk is more a move back to the lower $30's rather than a move above $40. Another 6 weeks is all we are talking about on this position. If the stock is between $35 and $39, I will probably roll the options forward. In fact the ideal situation is the stock stays within $36-38 and I make some money while rolling the position forward for more money. Time will tell.

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