Sunday, January 11, 2009

1/11/09 Bottom Fishing Portfolio - Financials Continue to be Toxic

On Friday, October 3, 2008, I couldn't resist the temptation of buying some stocks before the bailout vote. I bought shares of Bank of America (BAC), J.P. Morgan (JPM), Wells Fargo (WFC) and Monsanto (MON). I believed that these three banks will not only survive this financial crisis, but will be one the four major banking powers in the next year. Monsanto was down over 50% from its high and its seed and agricultural businesses are still very strong.

As part of this portfolio, I have also been selling put contracts to open on specific stocks. I have been selling put contracts at one to two months from expiration on Monsanto and Energy Conversion Devices (ENER). Since these stocks rallied last week, I have stopped selling put options on these stocks.

Three weeks ago, I decided to buy some Ford (F) call options, to capitalize on a possibility of a rebound if Congress supports an auto industry bailout. On December 2, 2008, I bought the December 5 call and on December 3, 2008, I bought the January 7.5 call. Since the automaker bailout did not cause a large bounce for Ford, the December calls have expired worthless.

This week, I began thinking about buying some high dividend paying stocks, such as DuPont (DD), Pfizer (PFE) and Alcoa (AA), which are paying 6-7% dividends and are picks in the Dogs of the Dow system. These are pretty high dividends, and I need to evaluate if the companies will be able to maintain them during this recession.

In hindsight, I bought the financial stocks way too early. I've learned my lesson. I will not purchase any more financial company stocks, until there is a more clear turnaround in the financial crisis of 2008. Of the three financial stocks, Bank of America has been the worst pick. It also appears that I had been overly optimistic about the market impact of the automaker bailout.

The portfolio was down 7.0% in the past week, as were the market indices. The overall portfolio is still down 34.33%, after reaching a low of -45.30% three weeks ago.

Bottom Fishing Portfolio
Stock or Option [purchase date]SharesPurchase Price

Price on 1/9/09

Bank of America(BAC) [10/3/08]100



J.P. Morgan (JPM) [10/3/08]100



Wells Fargo (WFC) [10/3/08]50



Monsanto (MON) [10/3/08]50



Ford Dec 5 call (FLA) [12/2/08]1000


expired 12/20/08 at $0

Ford Jan 7.5 call (FAU) [12/3/08]1000



Currently, I have profited from all four put contracts which have been closed or allowed to expired. Next week, I will consider selling some January put contracts short for both Monsanto and Energy Conversion Devices.

Put Contracts Sold Short to Open
Option [short date]SharesShort Price

Closed Price

Monsanto Nov 60 put (MONWL) [10/3/08]100


closed on 10/29/08 for $0.91

Energy Conversion Nov 20 put (EQIWD) [11/12/08]100


expired 11/21/08 at $0

Monsanto Dec 40 put (MONXI) [11/20/08]100


expired 12/20/08 at $0

Energy Conversion Dec 17.5 put (EQIXW) [11/25/08]100


expired 12/20/08 at $0

Perhaps, these stocks may participate in a January effect rally which some experts predict is very likely this year. If these stocks stocks should rally significantly, I will look to close out the positions in the financial stocks.

Disclosure: At time of publication, I own shares of Bank of America, J.P. Morgan, Wells Fargo and Monsanto shares and call options for Ford in our trading account. Alcoa and Pfizer shares are owned in our managed accounts.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

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