2/1/09 Bottom Fishing Portfolio - Financials Get a Small Bounce

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). I am currently short one option for Energy Conversion Devices.

In December, 2008, I decided to buy some Ford (F) call options, to capitalize on a possibility of a rebound if Congress supports an auto industry bailout. Since the automaker bailout did not cause a large bounce for Ford, all the calls have expired worthless.

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. However, after companies started cutting dividends, I've decided to not to use this strategy. For example, Bank of America, which was the top percentage dividend payer in the 2009 Dogs of the Dow selections, cut its dividend from $1.28 per year to $0.01 per year. Pfizer, also a top 5 2009 Dog, also cut its dividend in half.

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, being down 82.68%. I now believe there is a high probability Bank of America will not survive the financial crisis and economic downturn.

My new strategy with financial stocks is to purchase 4 - 12 month out of the money call options. If financial stocks should recover significantly in the next year, I could make several hundred dollars. If there is no recovery, my losses are limited to the call purchase, which will be less than $200. For now, this strategy has worked well in the past two weeks.

The portfolio was up 4.4% in the past week, versus a market decline of up to 1% due to the selling pressure on the bad economic news. The financial stocks had a small bounce mid week due to the possibility of a "bad bank" being created. The overall portfolio is still down 42.35%, very near its low of -45.30% in December, 2008.

	Bottom Fishing Portfolio
Stock or Option [purchase date]	Shares	Purchase Price	Price on 1/30/09
Bank of America(BAC) [10/3/08]	100	$38.00	$6.58
J.P. Morgan (JPM) [10/3/08]	100	$49.74	$25.51
Wells Fargo (WFC) [10/3/08]	100	$37.07	$18.9
Monsanto (MON) [10/3/08]	50	$88.97	$76.06
Ford Dec 5 call (FLA) [12/2/08]	1000	$0.078	expired 12/20/08 at $0
Ford Jan 7.5 call (FAU) [12/3/08]	1000	$0.088	expired 1/16/09 at $0
PNC May 45 call (PNCEI) [1/20/09]	100	$1.51	$1.75
PNC Jan 55 call (WYLAK) [1/20/09]	100	$1.71	$2.15

Currently, I have profited from all four put contracts which have been closed or allowed to expired. Last week, I sold a February put contract short for Energy Conversion Devices and will consider doing the same for Monsanto if the market continues to decline.

	Put Contracts Sold Short to Open
Option [short date]	Shares	Short Price	Price on 1/30/09
Monsanto Nov 60 put (MONWL) [10/3/08]	100	$2.39	closed on 10/29/08 for $0.91
Energy Conversion Nov 20 put (EQIWD) [11/12/08]	100	$0.69	expired 11/21/08 at $0
Monsanto Dec 40 put (MONXI) [11/20/08]	100	$1.19	expired 12/20/08 at $0
Energy Conversion Dec 17.5 put (EQIXW) [11/25/08]	100	$1.39	expired 12/20/08 at $0
Energy Conversion Feb 15 put (EQINC) [1/14/09]	100	$0.44	$0.10

Perhaps, these stocks may still participate in a bear market rally in the coming months. If these stocks should rally significantly, I will look to close out the long 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. I am short an Energy Conversion Devices put contract and long PNC call contracts in our trading account. Alcoa and Pfizer shares are owned in our managed accounts.

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

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