The Irish Investor

Howdi Folks,

Been a while since the last post. The new year has been a hectic one. A number of new projects have cropped up and theirishinvestor has fallen by the wayside.

This is not to say I have stopped the process of looking for investment opportunities. I believe we are in a time of great opportunity, but with several projects on the go something had to give and regularly updating of the site has been the casualty.

My hopes for the site were fairly modest. To learn and share my experiences investing. There was also the technical challenge of building the site.

Few reflections on the experience:

Due to the declining market I felt some short term financial spread betting was a good course of action. Mainly because you can bet on the market going down. Also relative ease of entry and exit of positions. With hindsight this was not the best move. As the name implies spread betting is gambling and even more its leveraged gambling. Watching positions takes too much work and could easily become compulsive. Also the ease of placing a trade mean you can make some rash moves. I made some money spread betting. But ultimately I gave most of it back.

If you do want to trade online, interactive brokers were the best online broker I came across. This is for price and selection. They are based in the US and do not do Irish shares (also they do require a minimum of $10,000 open an account, a considerable some to start).

Anyone with a good bit of time left to retirement, who is serious about actively managing there investments should look into a SART. In other words your own pension scheme. You decide what to invest in. No kick backs for brokers or fund managers fees. The best quote I got to set up a SART was €1,500 (+ VAT). To get the most out of this initial outlay you need to be putting aside a good bit each month and build up the pool fairly quick.

Irish brokers are not to be trusted (At least were not). For example I have emails from Davys which set unrealistic targets for shares. As bank shares declined they set future share targets of existing price plus 50%. George Lee and David Mc Williams are not mega brains, economists saw the signs for years. These brokers employ an army of economists. I believe, maybe incorrectly that these guys felt the truth was bad for business. Lets hope thay have learned their lesson.

Timeline. Investing is playing the long game. A good well managed company over the long term will produce a good return on investment. Its important to remember that this could be 5-10 years. Short term investments that go wrong and become long term investments, rarely work out.

Exchange Traded Funds. As a means of diversifing your portfolio and reducing your risk these are particularly usefull. A good book on this is ‘A random walk down wallstreet’.

Thanks to those that read, contributed and emailed. I wish you all the best with your future investments. When I get the time I will drop by with the odd update.

theirishinvestor

Lastly, a quote from Warren Buffett:

“An investor should act as though he had a lifetime decision card with just 20 punches on it.”

Mainstream Renewable the new company headed by Eddie O’Connor of Airtricity fame is looking for investors.

I attended a talk by Eddie’s last week in the RDS. One of the main things I took from the talk is that Eddie is a man of vision. He painted a picture of a world not just needing green energy but driven by green energy.

Tying in with my previous post about Obama’s drive for a green economy. The introduction by the RDS speaker mentioned that Obama’s team have been in touch with Eddie for green energy advice. Which is more than a little tip of the cap to his experience.

On the back of the talk I did some research into investment opportunities in Mainstream. For those who are interested here are the main points:

• Dolmen are acting as placing agent for €50 million in loan notes.
• The minimum investment is €50,000 per individual.
• The term for the loan is 3 years. The loan pays an annual coupon of 12% per annum.
• There is a warrant attached that gives investors the right to convert 25% of their loan notes into equity on maturity. This will be at a 10% reduction to the prevailing market value.

These points are a rough overview and should not be used for decision making purposes. Anyone interested should contact Dolmen Stockbrokers. Again this is something I came across but not something I am endorsing. Readers make there own choices on investments.

Personally I do not have €50,000 to spare at the moment so the opportunity is not for me, but given the success of Airtricity there is likely to be a lot of interest in the opportunity. Also I would question why Mainstream cannot get a bank loan for the €50 million at less than 12% per annum. It seems like an expensive way to raise finance. Mind you if all the loan notes are converted to equity shares there will be €12.5 million that does not need to be paid back in cash. In addition €12.5 million of equity in three years should not dilute the existing shareholding by too much.

For investors, provided everything goes right they should get there money back over three years and also have a shareholding in Mainstream at the end.

There are a number of green energy investments available at the moment. There are a number of BES schemes targeting Wind and assorted green energy. I will hopefully get a chance to do a post on these in the coming months.

theirishinvestor

Been a little while since my last post. Here is an update on what I have been up to and looking at>>>

My last post focused on the potential for an end of year market rally. In keeping with that I set spread bet orders just anticipating new lows for FTSE, Wall St and DAX futures. When futures hit these levels my buy orders were automatically triggered. Initially I thought I had set my order levels too low, but over the course of the month I have been able to catch two Wall St. rallies netting €1,950 and €2,028 on two separate occasions. I have also had similar success with the DAX and FTSE futures. Rather than try and ride the rally out to the end I have cashed out and reentered the market to ring fence the gains. I feel we will see further gains by Christmas.

This has been a reasonably successful month for me but I should also include a note on my mistakes. The psychology of spread betting is important to understand. After I had made my first gain of €1,950 I placed a silly trade on oil rising in value. This lost me €500. I had previously made notes on where commentators expect oil to be by year end. These estimates had been reduced to €40-45. Yet in a rush of blood to the head I expected a short rally in prices when oil was at €58 a barrel. One decent gain and I thought I was invincible. I learned a €500 lesson. I also tried to buy into Wall St. futures when they were around 8000, this was a rushed decision and cost me around €900. Going forward I plan to place less trades and put more analysis into each selection. This is not to increase my gains but to reduce unnecessary losses. I have been flitting away my gains on silly trades.  From a psychology perspective I need to leave time between trades so one does not influence the next.

Back to the present>>>

Tomorrow is Thanksgiving in the States. That’s a bank holiday and the day after the Christmas selling rush begins proper in the USA.  If initial retail sales are weak it could spook investors and send the market lower.

But there are a lot of positive factors coming to bear (no pun intended). Obama is making clear he intends to tackle the economy head on and has held a number of high profile press conferences to announce developments to this end. The EU is also planning a stimulus package and rate cuts. This should boost indices and ETFs tracking these indices in the run up to Christmas.

Also Obama has indicated that a renewable energy economy is one of the goals of his presidency and it appears he will work this into the stimulus package. So despite low oil prices ETFs that invest in US solar and wind companies should be in for a bounce in the new year.

Gauging from commentators there is the expectation of a 10-15% rally in the markets on the back of the above conditions. It is also worth keeping the adage ‘buy on the rumour and sell on the news’ to mind. Once it is completely clear how the new stimulus packages are to work the market may lose faith and we may begin to see the rally falter. Things are not always as good as they sound. Also under accounting guidelines we may see some companies try to get out as much bad news as possible before the year end, redundancies for example.

So currently I am gearing up for the rally and selecting my stocks, spreads and EFTs.

theirishinvestor

There is an idea doing the rounds in financial circles at the moment. The suggestion is that we may get a temporary rally in the stock markets towards the end of 2008. The underlying reason for this rally is that a lot of investors cash has been sitting on the side line for the last 6-8 weeks. Once things calm down investors will re-enter the market and drive prices up. The concept is best summed up by Chuck Carlson, the CEO at Horizon Investment Services. Click here for an audio recording by Chuck.

If this rally materialises it will present two different opportunities:

The first is picking stocks that will benefit most from the bounce. Wall Street companies with good fundamentals are likely to benefit. Good indicators should be companies with good P/E ratios or companies that have begun share buy back schemes.

The second will be spread betting on the NYSE/ Dow Jones taking a bounce. This is not for the faint hearted and can be very risky. The coming week will see the release of data on consumer spending in the US. This should drive the NYSE down. The trick will be in picking the right time to go long on the index. Personally I feel that if the DOW gets to 8,000 I will go long at €1 per point. Indices are incredibly volatile at the moment, so will not put stops in place but will keep plenty cash in my account to ride out any further drops.

Before either of the above scenarios come into play I need to see how the market reacts to US consumer data next week. The market may have priced in bad news already, so it will be interesting to see how the market reacts. I have a few spreads open at the moment shorting the DOW and oil prices, so bad news could be good news so to speak.

theirishinvestor

This something I don’t seem to have at the moment.

I spread bet on gold yesterday evening hoping a big drop in markets today would have investors running into gold. At the time of writing this gold looks like it may be beginning a rally, but this morning it sunk like a stone. I closed out before lunch down €680. My timing was all wrong. First of all I should have closed out when the loss was close to €200, but emotion told me to hang on for the upturn. When the loss go to big I closed out, only to find a few hours later that gold is making a come back. Moral of the story is do not try to ‘catch a falling knife’. Gold has been on the decline over the last few days and trying to pick the exact moment when the price turns around is difficult, risky and costly.

Another trade today was to sell my equity stake in Ryanair. I had intended to hold on til Ryanairs half year results on November 3rd. The reason I changes my mind was because of OPEC’s cut in production. This will most likely mean higher oil prices going forward. This will impact on Ryanair’s forecast for 2009. I decided to bank the profits on my Ryanair shares.

My biggest concern with equities at the moment is that if they take a sudden drop I could find myself in a situation where I have to hang on to the same stock for a prolonged period. Taking a loss is one side of the equation and the other is not having liquid investments. In investing you have to be willing to take a loss or wait out a rough patch, which I am ok with. My real concern is that in the current market ‘cash is king’. Without a reserve of cash I will not be able to take advantage the unfolding situation. For example there was talk on CNBC earlier of the NYSE taking a record fall today. This does not seem likely at the moment, but the smart cash should sit on the side line and wait til a bottom is in sight. I am not sure if anyone can see the bottom in the current market.

On my other equities I intend to hang on to BP and Shell as the OPEC news will most likely have a positive impact on their share price. There was positive news about Tysabri this week so I intend to hang on to my Elan shares. I will aim to focus on financial spreads over the next few days, the market clearly has further to go and I try identify some shorting opportunities.

theirishinvestor