Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

The End of Easy

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Hi Everyone – – today was the best trading for me since…….

glances at watch

errrrrr……..

glances at calender instead

…….a very long time. It wasn't that we had some kind of cataclysm in the market. Heck, the Dow was down just double digits. But, across a wide swath of (mostly small cap) issues, I had a good day, and I added to my positions.

One of my favorite areas right now is utilities. I have the largest single position I've ever had on anything in my life in the XLU. I'm short a very meaningful amount of this stock. I was pleased today that, even in the midst of some fighting back on the part of the bulls, XLU remain pretty weak. Here's one look at the utility index:

0119-util

Let's face it, Utilities aren't exactly thrilling; we're not talking about red-hot investment banks or world-famous Internet companies. We're talking about utilities. Snore. But that's a big part of the appeal for me right now. A nice, steady diminution in value is what I'm after.

But let's take a look at something much more general – the Dow 30. There are a couple of points I want to make about the market, by way of this chart:

0119-indu

Take note of these features of the chart:

  1. The rise higher since March has been nothing short of sensational. The bulls have enjoyed an almost uninterrupted ascent higher.
  2. The strength and length of these thrusts has been diminishing, however. The lion's share of the push took place in the span of just about ten weeks, from mid March to early June. All the really easy money was made back there.
  3. There have been a series of successful "bases" made, which I've tinted.

The important point I want to make is this, and I've alluded to it before: the easy money for bulls and bears alike is gone for a while. The bears had their extravaganza last autumn. It was almost impossible to be a bear and not make money. The bulls had their time this spring and summer. It was almost impossible to be a bull and not make money.

As short as I am, I am not short because I think the world is about to plunge into the oblivion. Far from it; as I've said countless times, I am basing my trading on a long, slow, grind-it-out, frustrate-o-thon measured in years, not weeks. That's why I'm so bonkers about individual positions right now, as opposed to taking long-term index positions.

I think there's every opportunity for the bears to enjoy a nice slide in the market, but I am not that ambitious about how far down we will go. I think it's going to be very much a stair-step process, and an S&P 500 getting down to even 1040 or so – not even 5% from here – and I would look very hard at my positions to see if it's time to close them out and wait for better prices. I would at the very least tighten up my stops considerably.

My point is that bears had it easy last year, bulls had it easy this year, but I think the balance of the year – and the next few years to come – are going to be all about stock selection. Making money is going to be harder for bulls and bears alike. I, for one, am looking forward to it, because explosive moves in either direction just aren't my bag.

Intro to Wine Investing – Part 3 (by Scrillhog and Biffermas)

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(Editor's Note: This post was actually put up on Wednesday evening, but things got a bit mangled in Typepad-land, and a lot of folks probably missed it. I am therefore posting it again, since it's a superb piece. I also have an exceptionally busy afternoon, so I need a few hours break. Today was fantastic, however, and I look forward to doing a post tonight.)

Vino I'll be leaving Wednesday for Mendoza.  For those interested in following my misadventures I've set up a makeshift blog directed at my UC Davis classmates and fellow Slopers.  It's Disqus powered so swing by and say hello.  This series on Wine was enjoyable to write, and I appreciate the positive feedback given.

Based on the quality of comments from this wine series so far, it's obvious the wine knowledge of Slopers is extraordinary.  In an attempt to broaden my own horizons, I sent an email to Scrillhog, a very astute collector and enthusiastic contributor on the subject of wine.  I asked him to comment on this snippet I wrote:

As a starting point for any collectible purchase, I visit Wine-Searcher.  Tied into thousands of online stores, you'll get an accurate picture of the retail market.  I always check the eBay-style auction sites, Wine Commune and Wine Bid before purchasing anything.  I'll occasionally land a smoking deal, especially if there is no reserve price on the listing.  These sites are catered to the small collector.  Of the two, Wine Commune is my favorite for selling wine since only a 5% fee applies, compared to a 20% haircut from auction houses like Sotheby's.  Don't expect to fetch top dollar prices when you sell, but don't expect to pay top dollar prices when you buy either.  You’re simply out 5% plus shipping for every round trip wine trade; kind of like the obnoxious spreads in option trading.

His response was so good I'll Leave the remainder of the post to him.  Take it away, Scrillhog!

Scrillhog As a consumer/ collector I'm lucky to live in CA, where I can buy wines from a huge list of retailers that I'm able to visit in person and build relationships with the owners. The first thing I’d say about wine investing is to forget about it unless you are also a wine lover.  In this day and age there is plenty of risk and uncertainty in the fine wine world.  If you're a wine lover you probably know much of what I’m about to say.  If you’re not, and still determined to invest in wine, well then read on.  Today's economy is the perfect time to try and strike deals with retailers –  mainly the smaller ones, as chains like K&L or Bevmo won't be able to work the same type of deals. Many small retail shops are struggling to move wines, especially with the string of amazing vintages we've had, so at shops where I have a personal relationship I'll often offer to buy the remaining stock of xyz wine for just barely above their wholesale cost, getting a great discount and helping them move product. This is easier since I know and have bought wine from these folks, so many times I don’t even have to ask, they’ll just offer.  If you were to randomly walk into a shop and try to strike the same deal, you might look like a "cherry picker" to the shop owner. Then again, shops are hurting and that method could very well work.

1789 Lafite For personal consumption, I buy a lot from Winebid, and always use Wine-Searcher but the biggest problem I have with them and random shops across the country is the inability to guarantee provenance. I’m a believer that wine should be treated similar to milk.  Quality goes down when it’s stored improperly, but the difference is a lot harder to tell than spoiled milk.  Provable provenance of temperature controlled storage is important to wine buyers, and many are willing to pay a premium for that peace of mind.  For that reason I’d avoid buying older wine for investment at anywhere other than the most reputable online auction sites. As investors/ traders, buying expensive wines from uncertain places is taking on lots of risk. To go further, if you try selling them via private party, you might have luck but if your wines are possibly heat damaged etc you could get a bad rep in the wine buying "community". If you plan to sell at auction they will definitely sample wines from your cellar before placing the rest up for sale.  One respectable auction house you can buy from online is Acker Merrall & Condit.  You will have to pay the buyers premium but there are many lots that go for a bargain even with that fee and you can buy online without having to be present at the auction.

So where else does an investor go for new wines? 


US wines – get on the mailing lists.  This gets you guaranteed provenance as you have shipping, storage receipts etc. Biff mentioned in a post he’d been trying to get on the Harlan list for some time. If you're a "flipper" and on that list with a big allocation you can sell it or a portion of it at big markups to private parties who can't find the wines and are willing to pay top dollar. Just think how lucky you'd be if you got on the Screaming Eagle list in the first vintage? Those wines sell for $1k + per bottle.  The top lists have been closed for nearly a decade and if they open to new people in this climate they might not hold the same allure they once did, so best thing to do for domestic wines is hunt for the big new up and comers.  Personally I don’t find US wines something I’d look to make a profit on.

Screaming eagle Here's a short list of top US wineries:

  Sine Qua Non

  Marcassin

  Colgin

  Bryant Family

  Scarcrow

A list of up and comers:

  Maybach

  Buccella

  Seven Stones

  Lillian

  Rhys

Oldwine

Moving on to French wines, which I find more suited for investment purposes.  The auction market is worldwide, and for the most part foreign buyers are not into US wines.  The Asian market is booming, and people there are buying top Bordeaux and rare Burgundy.  One of the best ways to buy French wines is En Primeur, which means you are buying wine as a future and taking delivery much like one would do with corn, wheat, or oil.  Like other futures, there are inherent risks buying wine this way.  Many well-known retailers (Zachy's, Acker, K&L, etc) offer Bordeaux / Burgundy futures well in advance of the grapes even being harvested.  Here are some things to consider when buying wine futures:


1. Currency changes. The dollar vs. euro will of course affect wine prices. Would you buy French wines today when the dollar is sinking or do you think it will gain strength a year from now, leaving French wines cheaper and you with money that doesn't have to be tied up for 1-2 years?

2. Ability of retailer to deliver the wines. Reputable houses should deliver the wines once in bottle, but recently there have been some houses unable to deliver wines from a top vintage. Now you have wines with huge scores by critics you will not be able to find elsewhere for the same price you paid, and you just gave your retailer a two year interest free loan only to receive a 100% refund. Read the fine print and do your due diligence.

3. Scores change. What may have been scored highly in barrel will change once the wines are in bottle, sometimes to the downside.  Nothing like buying heavily into a supposed top vintage only to find a drastic change of opinion once the wines are in bottle.

Here's an article on buying en primeur.

Lafite barrel room One recent vintage – 2007 Rhone (
Chateauneuf Du Pape
) was heralded as “the best ever” by Robert Parker, wine critic.  He scores wines in barrel, issues a report and then later issues an updated report once the wines are in bottle.  At the end of Oct, he released the current issue and scores for many wines were upgraded.  To my chagrin, I had not bought as many wines as planned due to various reasons, and now find myself priced out of wines that I wanted to buy anyway.  As an example, the 2007 Usseglio Mon Aieul, one of my favorite wines every vintage scored 100 points.  I bought a bit, but not as much as planned before the report.  Once it came out, the price increased at least 50%.  As an investor, if you bought before you could have made a healthy profit.  As a consumer, I now find myself priced out of that particular wine, and would rather backfill older vintages than buy 07 at the current premium.

Bordeaux and Burgundy are what I feel to be wines that will appreciate the most.  They have proven aging ability, old world cache, and many are rare enough to be highly sought after.  You want to buy by the case, in their original wooden case (OWC) and the magnum format (1.5 liter) is probably best.  Wines age best in that format (opinion), and they hold additional value.  Rare wines from these regions can obviously fetch higher prices.  Some domaines in Burgundy bottle as little as 2-4 barrels of a wine.  Good luck acquiring those.  Here are a few names to research:

Chateau Bordeaux:

Lafite, Mouton-Rothschild, 

Latour, Margaux, Haut-Brion, 

Leoville Las Cases, and 

Pontet Canet



Burgundy:

Romanee –Conti

Leroy, Mugnier, 

Bouchard, Ponsot

Dujac, and 

Lignier

In closing, there are many things you need to factor in if you want to buy wine for investment.  Storage costs, auction fees, time spent finding buyers, etc.  If you don’t have a passion for it, I think it would be more of a hassle than it’s worth.  Personally, I don’t buy wine for investment purposes – I just love drinking it , collecting it, watching it change and sharing it with loved ones.  I’m fascinated by history and love opening something that has been through world wars, recessions, depressions, other significant events and is still vibrant, alive and full of character.  Hopefully you found this post interesting… I didn’t plan on writing it, but it was fun!

Nathaniel’s Sai of Death (by Nathaniel Goodwin)

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Believe it or not, I spent a great deal of my youth at comic book conventions swapping TMNT merchandise, and at local flea markets purchasing dull butterfly knives and shurikens (ninja stars for you laymen). I still keep shurikens in a pouch attached to my belt at all times to fend off any danger.

When I feel my positions are in danger I will sometimes use sais (pitchforks for you laymen) as another tool to see what might be going on.

I saw dead bear carcasses all over the place Wednesday afternoon. I give you this weekly chart of IWM, you can't swing or day trade off of this, it's more for a bear morale booster, but should strike fear into the hearts of bulls across the land. After I made it, it scared me so much I wet myself.

Shout out to my Sensei Chen, master of forks.

DeathFork

I’m Gettin’ Nuttin’ for Christmas (by Fayssoux))

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Retail stocks have been a tear since the March lows.  Conventional wisdom in the financial media is that leaner inventories combined with firmer demand than anticipated will lead to a good holiday season for retailers.

I am skeptical on the latter point. Consumer confidence data has been trending down, which is not part of the bullish script.  Housing and employment are nagging problems.  Consumers are dubious on the sustainability of the recovery.  One tool I use for consumer research is Google Insights — you can track trends in search volume by topic, like, for instance, Neiman Marcus or Kmart or Sports Authority.

In each of those instances and in many others I ran, searches in October and early November in 2009 were less frequent than in 2008.  This is healthy happy bullish 2009 versus Lehman is melting, TARP is coming the world may end 2008.  Will search volumes predict a weaker than expected Black Friday and holiday selling season? I don't know, but if they do, retail stocks should see some air come out.  Should does not mean will in the environment.  But one catalyst for a leg down is weaker than expected sales in mainstream retailers.

Xrt

The Whole Schmear

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As regular readers know, I am held hostage at Principal Financial Group (home of the World's Worst Self-Directed Brokerage ™) until mid-January, at which time I shall gleefully flee and put the entirety of the funds into a hedge fund for which I happen to have a lot of respect.

Until then, I'm stuck trading – God help me – mutual funds. After my dashing escape from DZZ (with, incredibly, a profit, last Thursday) I've been in all cash waiting for the right opportunity to move into my fund of choice.

As of last night, I've put 100% of my 401-k into UCPIX, the ultrabear small cap fund. Principal, ever inventive, actually found a way to muck up this trade too, but I shan't bore you with the details. Suffice it to say I am "all in" UCPIX with a target exit of about $8.75.

0119-ucpix