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The BMW Method
What Worked, what Didn't

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By RaptorD
June 12, 2008

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I have a hard time tracking CAGR for my ports. Not because I'm math challenged or anything. I just trade too much. I often buy in stages and I usually sell in stages. ScotTrade loves me so much they are considering buying me my own helicopter just like the founder's that you see in their TV commercials. But overall my plan seems to be working, knock on wood, twice. But it could be better of course-if only I knew where to head right now. And there's the problem. Maybe you see it too?

Anyway, I keep telling myself I'm having a great year. For the last year I've had considerable (to me) holdings in energy, commodities and precious metals, several of which have been on fire. Meanwhile I've trimmed way down on the small- and micro-caps to the point of near extinction with the exception of a few I still ride up on waves and they're doing well, but I smell a top again. I know, I know, it's not LTBH at all. This market just loves to turn the tables on my holdings lately, so my defense involves being extra nimble with my holdings. Heresy to you buy-and-forgetters. But lucky or whatever, most of the companies I let go have since tanked. So far so good. My "regular" stocks are, on average, wasting investor's oxygen by simply breathing. Even most of my "BMW companies" have been pared back and several are treading water, some more successful than others. Yahoo for Wally (WMT) I wish I had bought more.

All this has resulted in cash piling up and repopulating not like bunnies, but s-l-o-w-l-y, more like an elephant's gestation period (wee, baby elephants, I'm poor) at my broker's oh-so-generous 1-point-something interest rate. So if I factor all this into my returns for the trailing twelve months, my "great" returns are pretty much "ho-hum" returns. As close as I can calculate, it looks like a CAGR of 3.5-3.7% CAGR. Not too hot. Worse yet, most of the gains were made through mid May and are now trending down.

I suspect the commodity boom will be due for a break so I don't think piling on top of my current positions is a healthy investment scheme, although here in the Midwest we were pounded by torrential rains, high winds and 30-40 tornadoes again last night for the third week in a row. I can tell you that there are thousands of acres of farmland under water throughout much of Nebraska, Kansas, Missouri, Iowa and parts of Illinois. That can't be good for food prices in the months ahead, so the question may be how high they can go. Last week my wife and I saw shingles flying down the street at 60 mph and felt bad for the homeowners who lost them. The next morning we discovered that some of our own shingles flew to another county along with them.

< My son is at a Boy Scout leadership camp for several weeks down on the Kansas/Nebraska border, thank God not at the one on the Nebraska/Iowa border where several scouts were killed last night. I've never seen weather like this spring here in Jthe Midwest. Hmm .... I wonder if my Avalanche floats on water.  >

So here's what's worked for me in the last 9-12 months, in no particular order.

  • Ag commodities
  • Fertilizers (Can you say potash? Bought another co this week but the price is sooooo high now)
  • Ag machinery
  • Foreign currencies
  • Coal (still going strong)
  • Water (all ETF's except 1 utility)
  • Gold & miners
  • Silver & miners
  • Uranium
  • Paladium
  • Oil
  • Oil service companies
  • NatGas
  • Railroad (1)
  • Entertainment (gaming) companies
  • BRK/b, AAPL, HANS (rode each on 1 or 2 solid up-trends)
  • WMT

Several of these waves or trends are leveling out or already headed down. So what next?

Here's what didn't work for me: I stop-lossed a lot of companies at 5-10% but some others really got pounded.

  • Banks (bought several way too early but sold in an uptrend for small average gain, currently out completely and won't touch them for awhile.) I parted with my last shares of our old friend Doral late in ‘07. I had to trade almost 12,000 shares to end up with a CAGR of J2-point-something % return. Hard lesson learned-again.
  • REITs (still holding 1 w/ high dividends, but tanking as we speak.)
  • Refiner (1)
  • GE (losing so far. Yes, I'm still in this one-big time.)

My positions have gone from 40-50 in Jan '07 to 22 today plus any that fall to my limit buy price. Not much chance, my limit prices are L-O-W. It's ok, call me cheap.

What's Hot Now

I consider myself a moderate optimist but right now I don't see any particular sectors that look really bright. Foreign stocks are a lot cheaper than a year ago but I think our fellow citizens around the globe will see inflation following our unfortunate lead. Food will remain strong for awhile but I don't feel it is an area safe to buy and hold while napping or fishing either. And the biggie, oil. It simply has to come down in price one of these days ....... Doesn't it?

So what I see on the horizon for opportunity, is no slam-dunks anywhere (please, what am I missing?) but I think the times require going back to the simple basics, strictly on a company-by-company basis, searching for great fundamentals and super low prices and tempering those screening results through my highly subjective "recession-resistant" filter.

In other words, it sounds like the same old thing. If we want a big payday-and we do-I think we're going to have to work that much harder.

So Diligence is Hot. Laziness is Not. Ha! Same old thing. Work, work, work.

.... And then? Payday!

Dan