Saturday, April 18, 2009

Easy trade - how can I find them?

Every day, there are easy trades out there, even for a slow, bumbling trader like me. Not fixating in one sector seems to be the key. Even within the sector, not fixating on one company is a very good idea that I have failed to learn so far. (My excuse is that I seem to have the Asperger Syndrome and I'm easily fixated on a very limited number of things and don't trust my intuitions...)

Case in point: C (Citigroup). I did have some sort of gut feel that it was a buy when the big investors and hedge funds shorted it to below $1. I even called up the order screen and put in the order to buy C at market for 10,000 shares. Would have cost me $10,000. Worst it could do was to go to zero, which I thought was highly unlikely. It could go to 50 cents or so, like FNM, FRE, and AIG (companies effectively taken over by the government). Upside, I thought, at least up to the conversion price ($3 plus) so as not to piss off the Saudi prince and the Singapore government. That would have been the easy trade, in hindsight.

Instead, I waited until C's share price went up to $2.70 to get in. Upward movement is stalled for now, and it may indeed come DOWN to the conversion price.

When I bought C, I actually had more attractive candidates, under the radar and far less manipulated by the big boys: FITB and RF. They are regional banks which have had their share prices decimated in the past 6 months. I could have gotten the equal amount of shares of FITB as I got C, or 2/3 the amount for RF. Either purchase would have resulted in much greater gain with less stress (although FITB would probably have triggered stop loss on a massive decline on Tuesday).

But since I had spent time studying C, I got totally fixated and ended up buying it instead of other choices. Hindsight is 20/20, they say. It is, so I'd better learn something from it quick.


Right now, I'm looking for a less crowded trade, place where just about everyone is negative and predict worse things to come. One such recent trade has been successful: MTL. It's a commodity play (iron ore, coal and steel) and emerging market play (Russia). Analysts and economists are still saying commodities markets will not recover anytime soon, and that emerging markets will be hit even harder. The stock is up 70% since my purchase 3 weeks ago. My thinking was that it would be an inflation play long term (I think it is impossible not to have inflation with all the money that Fed is pumping into the economy), and Russia was one of the net creditor nations and its national debt was only 6% of GDP.

One of the less crowded, or much despised, market is commercial real estate. Unlike the Russian stock, I haven't come up with the justification for getting into it yet... I have several stocks (mostly closed-end funds) I've been looking at, but again, I'd better not get fixated...

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