Monday, September 12, 2011

It is the time again!

If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?

It is time for reflection and meditation. The DOW has dropped from 12810 on April 29 2011 to today’s 10902. My portfolio has given up all the gains this year and then some. There are again talking heads on TV asserting the second dip. And again I believe there are a lot of low hanging fruits in the stock market.

There are a lot of things going for me now. My capital position is stronger with ample liquidity. I am gaining more man power and I got a small raise back in April. It is about the same time last year I wrote the piece “It is time!” And I am almost seeing the same things repeating themselves now.

Last year this time, I bought my second condo. If I waited longer, I might get a better deal. But the deal I did make is a good deal which is accretive to my earnings immediately. And I bought stocks at good prices with good dividend yield. For the first 6 months of 2011, I saw my cash income from rentals and dividend increased more than 50%.

Maybe I am the anomaly. And I believe many of you who were reading are anomalies too. We are holding up well while the world around us collapsing in slow motion. Last night, a friend asked me what the Greek Default would impact us. I thought hard then and I thought hard now. But still, my answer would be and should be “I don’t know”. Maybe it will cause EU to break up. Maybe EURO will drop in value. That might hurt US export. But it is unlikely it will hurt US in a big way. But the “unknown” danger caused more damage than the obvious risk.

Enough! I am not buying or selling based on my macro view. In the last few weeks, I have bought several stocks. And the low market provided yet another opportunity.

General Dynamics (GD) is a defense contractor with a forwarding p/e of 7.56. If there is one thing United States won’t outsource, it is defense equipment manufacturing. If there is one thing United States enjoys a compelling advantage over other nations, it is the defense industry. And among all the defense contractors, GD has the lowest debt to asset ratio. GD has a track record of allocating its capital rationally. The strong headwind towards the industry is the potential tens of billions of defense budgeting cut. And we don’t know how much. But GD has a reputation of controlling its costs, a substantial civil revenue base and a growing 3.25% dividend yield. I am buying the best company in the best industry at a very low price. I bought 300 shares at $58.37 a share.

It is the time again to reflect and meditate. Take a deep breath and keep charging forward. We may realize there are more anomalies than we expect.

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