Value Stocks and Investing

Introduction

Intentionally, this Podcast starts out with my voice talking about Euphoria and it ends up getting swallowed by the music of the jungle - the market.

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THE LETTER

A couple weeks ago, I was reading a letter from May 29, 1969.

This is what it said...

"...personal considerations were the most important factor among those causing me to modify our objectives. I expressed a desire to be relieved of the (self-imposed) necessity of focusing 100% on BPL. I have flunked this test completely during the last eighteen months. The letter said: "I hope limited objectives will make for more limited effort." It hasn't worked out that way. As long as I am "on stage", publishing a record and assuming responsibility for management of what amounts to virtually 100% of the net worth of many partners, I will never be able to put sustained effort into any non-BPL activity. If I am going to participate publicly, I can't help being competitive. I know I don't want to be totally occupied with out-pacing an investment rabbit all my life. The only way to slow down is to stop.

Therefore, before yearend, I intend to give all limited partners the required formal notice of my intention to retire."

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The letter I just read to you was written by Warren Buffett... The world's 2nd richest man...

Fast forward to May 5th, 2006... I'm on an airplane heading to the Berkshire Hathaway Annual Meeting...

My trip to Berkshire Hathaway started at the Nashville, TN airport, but things didn't start getting interesting until I got to Memphis, TN. It was there that I boarded the plane to Omaha, NE. One after one, people got on the plane. One guy with Benjamin Graham's "Security Analysis" book, another with Benjamin Graham's "The Intelligent Investor", another with Robert Hagstrom's "The Warren Buffett Way", and on and on. In hindsight, I think the entire flight was full of Berkshire Hathaway investors because I saw a bunch of them throughout the weekend at various events.

When the plane was landing, I was talking to a guy and his wife. He's been a Bershire shareholder since the early 1990's and this was his seventh visit to Omaha. He said he had to thank Warren because he did a lot of great things for him.

For me, it was my first visit and the excitement of the trip only allowed me four hours of sleep the night before.

I picked up my rental car at the Hertz place - a Pontiac Vibe. It was a nice car that got me around the city with ease.

THE FRENCH CAFE

At 11:15 AM, my first stop was the French Cafe in the historic district. The restaurant opened in the 1960s and had those sixteen foot ceilings. I ordered a beef tenderloin sandwhich and a quadruple Dewar's. Then I started asking the bartender and manager about the city and about Warren Buffett.

They said Buffett showed up the night before around 6-6:30 PM for pictures with friends. He ordered a Cherry Coke and stayed for about 30 minutes. They also said he was going to show up Saturday night to eat there. The bartender said it's intimidating to serve his table because he's so admired and everyone runs around frantically.

BERKSHIRE HATHAWAY HEADQUARTERS

From there, I went to Berkshire Hathaway's main headquarters. I didn't get the chance to go inside, but I did get some pictures of the building from outside.

BUFFETT'S HOUSE

Then I swung by Buffett's house for a few pictures. It's amazing he's been in the same house since 1958. People could drive into his driveway if they wanted to, but I'm not sure what happens after you do. I wasn't about to find out.

HOUSE

For a guy worth $50 BILLION, you would think he'd have heavier security around his house.

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YELLOW BRKer PARTY

At 4:30 PM, I showed up for the now-famous Yellow BRKer party. It was another opportunity to talk to other Berkshire shareholders.

I met some interesting people there and learned a few things.

One guy asked me what stocks I was holding, so I ran down the list: ACAS, APA, APT, ARLP, AZO, BBBY, BRKB, COF, CVX, DELL, DG, DVN, ET, FRX, HD, HDI, JNJ, KOF, LPNT, LXK, MVK, PSUN, SKM, SPF, WMT.

He was concerned about DELL. He thinks Lenovo is the lowest cost provider and will give DELL high competition in the international space - the place where all the growth opportunity is. He suggested I research Lenovo some more.

He thought the ET has already run it's course. I agreed, but I've already sold off major portions of my holdings after I doubled my money. The remainder is still up +150%.

I told him I was concerned about FRX because they might be too concentrated in too few products.

He liked the JNJ, but said LXK probably won't be going anywhere.

For SPF, like most of the people I talked to there, they said homebuilding has run it's course and it's time to get out.

They were interested in BUD and think it's a great buy. I told them I reviewed BUD, but felt their debt level was too high. I didn't think BUD could get out of debt within five years.

I also asked them if Buffett still owned the billion ounces of silver that he bought at $4/ounce. They said they thought he sold it, and I later found out at the annual meeting that Buffett did sell it a while back for a small profit. Today, silver is trading at $13/ounce. Buffett wishes he held, but he admits it's impossible to get out at the peak all the time.

ROBERT MILES SPEECH - "The Genius of Warren Buffett"

At 6:30 PM, I show up at Roskens Hall. I run into another shareholder outside and he points me in the direction of where I should be going for the speech because I couldn't find the auditorium.

Later, I find out, this guy was the teacher from the University of Tennessee that introduced Buffett to Clayton Homes. Before Mr. Miles gives his presentation, this man gets up and starts talking about his Buffett visit.

He said he wrote to Buffett and told him he had an article about Ben Graham that he wanted to publish. Buffett said he couldn't help him. They asked Buffett to come to Tennessee and Warren said he'd visit if he ever had business in the area. They kept talking back and forth (I'm guessing over months or years), and since Buffett didn't have any business in Tennessee, the Tennessee crew said they'd go to Buffett to meet him if it was OK.

So when they gave Buffett the book about the Clayton Homes owner as a gift, Buffett bought the company and gave all the students a B share, and the teacher an A share.

It was really interesting to listen to the teacher because he was full of enthusiasm. In fact, numerous people, throughout the entire weekend, were very proud to be Berkshire shareholders.

The Miles speech was equally interesting. Miles said that when the big opportunities come about, you should load up, just like when Buffett bought GEICO or the Washington Post. Miles said Buffett bought the Washington Post with a 20% Margin of Safety.

Miles said that Buffett is a genius in four things: Calculating numbers, and 3 other things which I forgot.

He said Buffett has the calcuation ability of Albert Einstein, the thriftiness of Benjamin Frankin, and the folksy penmanship of Mark Twain.

He said that Buffett runs on a treadmill for an hour per day to keep his body in shape and plays Bridge for 12 hours per week to keep his mind in shape.

He said Buffett can read five books per day if he wanted to, and that he is extremely intelligent.

He said Coke paid Buffett $125,000/year just to be on the Board of Directors. Recently, we heard that Buffett resigned from his position citing lack of time.

Buffett keeps his car for 10 years. When he got rid of his last car, it only had 35,000 miles on it.

He receives 250-300 letters per day from people around the world.

BORSHEIM'S

Inside the tent
At around 8:30 PM, I showed up at Borsheim's. They had a huge tent. Inside was a band, and bartenders serving drinks, and some finger food. They also had a bar made out of ice with liquor bottles suspended inside the ice. It was neat.

All the liquor was free. I imagine, they get everybody loaded and then they go inside and drop a ton of money on jewelry. When I went inside the store - it was huge and full of people. When I walked through the store, I entered into the mall area where it was full of people talking and having a great time. There were bartenders everywhere serving anything you wanted.

HOTEL

At 11:30 PM, I jumped in bed, watched TV and fell asleep around midnight. When the wake-up call rang at 4:00 AM, I couldn't get up, so I slept for another hour or so.

ANNUAL MEETING

You've got to get up early to get to the Qwest Center if you want a good seat

At 5:45 AM, I arrived at Qwest Center. The doors didn't open for another 75 minutes, but there were already 200 people in line and I showed up at the perfect time - any later and the line got really, really long. The building is impressive and the people in line were very nice. We chatted about stocks and the real estate market for about an hour. Once again, people were negative on the real estate market.

A camera crew came up to me an interviewed me for five minutes. It was kinda funny. One question they asked me was, "If you could ask Warren Buffett one question, what would you ask him?" I thought about it for a second, then said, "I'd ask him what's the next stock he's going to buy". hehe

It was cold standing outside, even in a thick long-sleeve shirt. People from Justin's Boots were out passing cups of coffee. When a couple thousand people were in line, a couple anti-abortion protesters came out in full force showing huge pictures of aborted fetuses - it was kinda gross at 6:30 in the morning.

When 7:00 AM came around, the doors opened up, and people started running inside. They ran, and ran, and ran, down a hallway and up a flight of stairs to get into the meeting area. Once inside, they started reserving their seats. It was a madhouse. Luckily, I got a front row seat on the side: Sec 121, Row A, Seat 5.

I was talking to the guy next to me that was a CPA. He's been there several times. He said they issued 61,000 passes in 2005 and 77,000 passes in 2006 for the event. The place only seats about 20,000 people.

A couple minutes before the movie begins, a bunch of bodyguards come walking out Warren Buffett and he takes a seat to watch the movie. He was only 20 feet away from me. It was amazing and I was smiling from ear to ear.

The meeting starts out with what felt like an hour-long movie. It was produced by Susie Buffett - Warren's daughter. It was a comedy which had numerous clips: a cartoon about Warren, Charlie, and the See's Candy CEO, as judges in an American Idol spoof called "Omaha Idol". The cartoon featured the likeness of Steve Jobs, Snoop Dogg, Oprah Windfrey, Bill Gates, Arnold Schwarzenegger, and other people.

Then, they show a clip of Warren Buffett who's calling Charlie Munger to tell him to "Buy Internet Stocks!"....ahhahaa... In real-life, Warren wouldn't do that because it's outside his circle of competance. Charlie's on the other end of the phone, saying "No! No! No!". Then Warren calls Jamie Lee Curtis, who's sitting in bed, talking to Warren on the phone. Warren convinces her to call Charlie up and convince him to buy Internet stocks. Jamie calls Charlie up, and Charlie says something like, "I think Warren must have misunderstood me. I agree, we should buy Internet Stocks". It was funny to hear them talk about that.

Then Ellen DeGeneres gave a tour of the See's Candy manufacturing facility and had a little too much fun with the candy.

Interwined with the comedy clips were advertisements of several of the businesses that Berkshire owns: Dairy Queen, Coke, Geico, and many others. It was like watching a comedy movie with a bunch of advertisements, but the bittersweet thing about watching advertising was.... we all OWNED a portion of these companies.

The funniest part of the movie is when they had the four girls from Desparate Housewives sitting around a card table talking about the man they want to marry. They were trying to decide whether they'd marry for love or for money. Three of the girls would rather marry for love, but Nicollette Sheridan said, "Why marry a Millionaire, when you can have a Billionaire?" She pulls out Charlie Munger and he's sitting around the table with them. It was hilarious because Charlie's like 80 years old and he's got really thick glasses.

Later, Buffett was joking about how she pulled an Anna Nicole Smith move and that, "When choosing between old rich guys, pick the older one."

The movie also featured a clip from Buffett's congressional testimony about Solomon Brothers and how if one of the 8,000 employees loses money for the company, that's OK, but to lose a shred of reputation it's unacceptable.

After the movie, Buffett and Munger introduced the Board of Directors. Bill Gates was sitting front and center. Buffett and Munger then proceded to answer questions from the audience.

http://users.rcn.com/hpersson/BRKA_Meeting_Notes-2006.pdf

Instead of going in-depth on everything Buffett said, I'm going to give you the highlights:

Buffett is pumped up and excited about his recent purchase of Iscar Metalworking for about $5 Billion. He kept saying that shareholders should be rewarded in five to ten years down the road.

Buffett is going to Israel in September to look at similar businesses to buy.

Buffett also talked about how not all businesses are attractive to him. That the owners of some businesses have big heads and want big dollars. He said he's in the middle of one such deal, and he think it's a mismatch and he will walk away, but he wants to talk to this guy so he can learn all he can from him. It was an interesting comment because it's almost as if he's an alien who walks around and sucks out the brains of everyone he speaks to.

Buffett talked about the Forest River CEO's annual letters. I think the guy wrote a book and it's recommended reading.

Warren says he's not interested in Internet stocks because he doesn't have good visibility of what an Internet company would look like in 5-10 years. He says he likes companies that will look a good bit the same 5-10 years down the road as they do now.

Buffett says there's no question that ethanol usage will grow. Munger says he doesn't like ethanol because it takes more energy to make ethanol than what you get out of it.

They both talked about how copper has gone from 70 cents to $3.50 and how oil has gone from $10 to $70.

Buffett said, "It begins with fundamentals and then it turns into speculation. What the wise man does in the beginning, the fool does in the end."

Buffett said once people get envious about something that is hot (like commodities and housing), nobody can determine the peak because it's unknown how outrageous the prices can go.

One person asked if it's a good time to buy Berkshire Hathaway stock. Buffett said, "No". They don't just go out and buy stocks of companies they love. They Will only buy stock when the price is right.

Around that time, I was getting tired. I had 4 hours sleep the past two days, so I went to the shopping area where all the companies feature their products - some are selling stuff and others were not.

EXHIBIT AREA

I go downstairs to the exhibit area and got some lunch. To my amazement, the place is jam-packed with people. There's an overflow set up in 3 locations with large-screen TVs and chairs all over the place. Thousands of people had to watch it from this area.

I go to the bookstore and found several DVDs worth buying.

I also met Janet Lowe there. I've already got three of her books, "Value Investing Made Easy", "Warren Buffett Speaks", and "Damn Right" which is a story about Charles Munger. I asked her why they didn't have "The Rediscovered Benjamin Graham" book there, and she said I could find an autographed copy of it at the Marriott near Borsheim's.

Meanwhile, Buffett was still on stage talking... I kept passing TVs with a bunch of people sitting around them, taking notes, and watching. I must have missed another 45 minutes of it, but I already know so much about him, that a lot of the things he was saying was a duplication of effort.

I picked up a couple more things, then headed over to the Marriott to buy Lowe's book.

NEBRASKA FURNITURE MART

At 6:30 PM, I woke up and headed over to NFM. The place was jam-packed - probably a thousand people were there. The lines were long. Inside, I got to eat some of Warren's favorite things: a Hamburger, Cherry Coke, and a Dairy Queen Dilly Bar. I watched some people play Warren's favorite game: Bridge, saw his favorite color: Red, and heard his favorite music: Dixieland. His favorite place to live is Omaha. There were three other of Warren's favorite things there, but I didn't see them.

I also walked around the Nebraska Furniture Mart. They had an 82-inch flat panel screen that was selling for over $100,000. It was huge.

This was probably the worst part of the trip, but it could have been because I was so tired. I packed in a lot of things to do while I was there. In less than 45 hours, I toured a beautiful city and had a great time.

I just might go again next year.

(If you want to see the pictures and other things, visit this link:)
http://www.Lawrenceburg.com/buffett/

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RECENT TRADES

Symbol Name Bought BuySharePrice DateSold SellSharePrice DaysHeld Profit% Annualized%

PTEN PATTERSON-UTI ENERGY, INC. 2006-06-22 $26.50 2006-06-23 $27.43 2 3.50% 638.75%

COP CONOCOPHILLIPS 0.665780 2006-06-22 $60.08 2006-06-23 $62.01 2 3.20% 584.00%

JOSB JOS. A. BANK CLOTHIERS 2006-06-20 $22.29 2006-06-21 $24.35 2 9.19% 1,677.18%

MVK MAVERICK TUBE CORP 2006-02-27 $47.46 2006-06-15 $62.95 109 32.65% 109.33%
MVK MAVERICK TUBE CORP 2006-03-10 $44.61 2006-06-15 $62.95 98 41.11% 153.11%
MVK MAVERICK TUBE CORP 2006-05-15 $52.88 2006-06-15 $62.95 32 19.06% 217.40%
MVK MAVERICK TUBE CORP 2006-05-24 $46.12 2006-06-15 $62.95 23 36.49% 579.08%

EBAY EBAY INC. 2006-05-08 $31.65 2006-05-26 $33.94 19 7.20% 138.32%

ACAS AMERICAN CAPITAL STRATEGI 2005-04-29 $31.59 2006-05-24 $33.91 391 7.36% 6.87%
ACAS AMERICAN CAPITAL STRATEGI 2006-01-17 $35.55 2006-05-24 $33.91 128 -4.60% -13.12%
ACAS AMERICAN CAPITAL STRATEGI 2006-01-30 $34.99 2006-05-24 $33.91 115 -3.10% -9.84%
ACAS AMERICAN CAPITAL STRATEGI 2006-02-24 $36.35 2006-05-24 $33.91 90 -6.70% -27.17%

BRKB BERKSHIRE HATHAWAY INC 2006-05-08 $2,982.00 2006-05-24 $3,070.18 17 2.93% 62.91%

ACAS AMERICAN CAPITAL STRATEGI 2006-05-09 $33.97 2006-05-24 $33.91 16 -0.18% -4.11%

SKM S K TELECOM CO LTD 3/24/2006 $23.08 5/17/2006 $26.01 55 12.72% 84.41%

JNJ JOHNSON & JOHNSON 12/13/2005 $60.05 5/16/2006 $60.41 155 0.60% 1.41%

CVX CHEVRON CORP. 12/28/2005 $56.47 5/16/2006 $60.62 140 7.33% 19.11%
CVX CHEVRON CORP. 1/30/2006 $60.00 5/16/2006 $60.62 107 1.00% 3.41%

JNJ JOHNSON & JOHNSON 2/2/2006 $57.88 5/16/2006 $60.41 104 4.35% 15.27%

SKM S K TELECOM CO LTD 3/24/2006 $23.08 5/16/2006 $25.79 54 11.75% 79.42%
SKM S K TELECOM CO LTD 4/10/2006 $23.40 5/16/2006 $25.79 37 10.20% 100.62%
SKM S K TELECOM CO LTD 2/27/2006 $24.55 5/16/2006 $25.79 79 5.00% 23.10%

LXK LEXMARK INTERNATIONAL 8/26/2005 $62.99 5/10/2006 $52.40 258 -16.84% -23.82% *small amount
LXK LEXMARK INTERNATIONAL 12/13/2005 $47.13 5/10/2006 $52.40 149 7.88% 19.30%
LXK LEXMARK INTERNATIONAL 3/22/2006 $45.50 5/10/2006 $52.40 50 15.12% 110.38%

CVX CHEVRON CORP. 1/17/2006 $61.33 5/10/2006 $62.49 114 1.87% 5.99%

LXK LEXMARK INTERNATIONA 12/13/2005 $47.13 5/8/2006 $52.65 147 11.67% 28.98%

CVX CHEVRON CORP. 1/17/2006 $61.33 5/8/2006 $61.53 112 0.29% 0.95%

COF CAPITAL ONE FNCL CORP 2/2/2006 $82.90 5/8/2006 $86.02 96 3.73% 14.18%

LPNT LIFEPOINT HOSPITALS, 2/6/2006 $30.27 5/8/2006 $33.14 92 9.47% 37.57%

DVN DEVON ENERGY CORPORAT 2/23/2006 $60.53 5/8/2006 $61.59 75 1.73% 8.42%

SKM S K TELECOM CO LTD 2/27/2006 $24.55 5/8/2006 $27.76 71 13.06% 67.14%

BBBY BED BATH & BEYOND INC. 3/2/2006 $36.30 5/8/2006 $38.55 68 6.17% 33.12%

SPF STANDARD PACIFIC CORP 3/10/2006 $31.55 5/8/2006 $31.97 60 1.29% 7.85%

LXK LEXMARK INTERNATIONAL 3/22/2006 $45.50 5/8/2006 $52.65 48 15.69% 119.31%

KOF COCA COLA FEMSA SA DE 4/10/2006 $32.99 5/8/2006 $34.05 29 3.20% 40.28%

ARLP ALLIANCE RESOURCE PAR 2/27/200+6 $37.05 5/8/2006 $42.07 71 13.51% 69.45%

DVN DEVON ENERGY CORPO 2/9/2006 $60.47 5/2/2006 $63.11 83 4.34% 19.09%

ARLP ALLIANCE RESOURCE 2/27/2006 $37.05 5/2/2006 $42.86 65 15.63% 87.77%

ET E TRADE GROUP INC 4/21/2005 $10.60 4/18/2006 $26.01 363 145.37% 146.17%

MBT MOBIL TELESYSTEMS 4/3/2006 $33.21 4/18/2006 $33.44 16 0.68% 15.51%

YCC YANKEE CANDLE 4/10/2006 $27.39 4/18/2006 $28.55 9 4.20% 170.33%

LEN LENNAR CORP 5/2/2005 $51.15 4/10/2006 $61.27 344 19.76% 20.97%

MSFT MICROSOFT CORPORATION 12/13/2005 $27.21 4/10/2006 $27.29 119 0.27% 0.83%

PHM PULTE CORP 4/3/2006 $38.24 4/10/2006 $40.76 8 6.58% 300.21%

WHI W HOLDING COMPANY INC 4/28/2005 $8.72 3/22/2006 $7.88 329 -9.59% -10.64%

NOK NOKIA CORP 8/26/2005 $15.44 3/22/2006 $20.49 209 32.69% 57.09%

RCII RENT-A-CENTER INC. 8/29/2005 $20.03 3/22/2006 $24.29 206 21.25% 37.65%
RCII RENT-A-CENTER INC. 1/30/2006 $20.29 3/22/2006 $24.29 52 19.65% 137.93%

WHI W HOLDING COMPANY INC 3/10/2006 $7.29 3/22/2006 $7.88 13 8.07% 226.58%

RCII RENT-A-CENTER INC. 6/13/2005 $23.96 3/22/2006 $24.29 283 1.63% 2.10%

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SELLING HIGH
Check out these links for discussions on my thought process about Selling High and Buying Low:

http://www.gurufocus.com/forum/read.php?2,1565

http://www.gurufocus.com/forum/read.php?2,1793

HOME DEPOT - HD
http://finance.yahoo.com/q?s=hd

http://quicktake.morningstar.com/Stock/Income10.asp?Country=USA&Symbol=HD&stocktab=finance&pgid=qtqnnavfinstate

RESEARCH PAPER WRITTEN 20-YEARS AGO
http://www.aistockbot.com/Michael-Salvucci-1986-Sound_Investment_Strategy.pdf

PODOMATIC

Before I start the show, you may know, we use podomatic.com for our podcasting service. Podomatic.com has decided to put a bandwidth limitation on our podcast feed (this makes our show unavailable for listening or downloading sometimes) because we're their #1 business show and we're draining their bandwidth, so if you can't listen to this show, you can either: (1) try back in a week when the limit gets reset, or; (2) sign-up for a premium account at Quantinetics.com and get full unblocked access to our content.

Podomatic wants me to pay for bandwidth, but I won't pay unless I get something in return. Why? Heck, I'm a Value Investor - I only pay less than what I can get out of it. Value people, KNOW... not to buy something unless we're paying less and we're getting an above average return on our dollar.

We may switch away from Podomatic, but for now, we're going to stick with them.

IN THE PREVIOUS SHOW

We talked about "Taking Profits". The S&P 500 peaked at 1290.15 on Jan. 9th. On Jan. 11th, we told you to "Take Profits". We sold stocks, waited, and bought some more.

TAKING PROFITS ....AGAIN

Ladies and Gentlemen, it's time to take profits again. The S&P 500 is sitting at 1307.25 now.

Over the past two months, we:
sold GS for +11.85% (28 days)
sold BBY for +15.10% (28 days)
sold QLGC for +18.65% (49 days)
sold BBY for +27.48% (232 days)
sold GTRC for +8.05% (29 days)
sold SYY for +0.05% (31 days)
sold CAJ for +19.41% (161 days)
sold FDC for +10.22% (207 days)
sold SPLS +4.55% (235 days)
sold NYB for -5.50% (281 days)
sold NEW for +12.27% (74 days)
sold YCC for +16.68% (56 days)
sold AEOS for +16.10% (101 days)
sold some ET for +148.25% (331 days)
sold some RCII for +0.35% (278 days)
sold LOW for 16.29% (278 days)

MARKET TIMING

Now, let's talk about why we should sell some stuff now... it's called Market Timing

I don't think Market Timing works as a singular strategy... my tests show that Market Timing provides a 12% profit over 1.5 year period, which is unacceptable to me. However, Market Timing when coupled with value methodology is a great way you can enhance profits. If you want to sell some stocks to move into cash, market timing will provide you with the gunpowder necessary to get a couple extra percent gains out of your trades.

Let's take a look at this chart:
S&P 500 Market Cycle Chart

The black diagonal line is a linear regression line. That line is used for estimating the future direction of what the average price should be. The green and red diagonal lines are the outer boundaries of the price range. When you hit the green line, Mr. Market is in a stage of euphoria, but we've peaked and it's time to sell... If we hit the red line, Mr. Market is pessimistic about the stock market and it's time to buy. The best thing we can do with Mr. Market's wallet is to open it up and remove some money from it.

There's 3 vertical blue lines. They signify Jan. 1, 2006, July 1, 2006, and Dec. 31, 2006. The blue horizontal line is a dividing line. If we go above that horizontal line before July 1st, we're in overbought territory. If we go above the black diagonal line, we're also overbought. Every time the market goes up, it reduces our chances of it continuing to go up in the short-term. At some point, there's a tipping point where something triggers a reaction to send stocks plummeting.

At 1307.25, we're about halfway between the black diagonal line (the linear regression mean line) and the green diagonal line, the max.

However, during the period of about April 20, 2005 an August 3, 2005, the S&P failed to reach the green line and it might have caused a permanent shift downward of about 25 S&P points. This is signified by the blue diagonal line.

I'm not sure what major news events were going on during that period, but there seems to be something significant about that time period in U.S. history. I'd like to challenge my listeners and readers to investigate and come up with the best reason why the S&P 500 could have shifted downward during April 20, 2005 an August 3, 2005. This could be a great learning experience for you.

The October 13, 2005 1176.84 where it went outside the range (this is called an "outlier") also provides some validation that perhaps the S&P did take a permanent 25 point shift downward.

If both of these things are true, the blue diagonal line is the new resistance line... the place where Mr. Market is most optimistic about the stock market and he wants to buy anything "at any price".

The Latin word for "at what price" is "Quanti", and that's the first half of the Quantinetics name. The second half, is "netics", which means "action". We attempt to achieve profits by looking at price action.

OK... so Mr. Market is goo goo and ga ga for stocks right now... Everybody in the market thinks they are geniuses because they are making so much money. But remember: bigger profits is what separates the men from the boys.

This blue diagonal line is signaling a temporary peak. At Friday's 1307.25 price, it's telling me that it has to break past that blue diagonal line to prove the green diagonal line is still legit. If it fails to do this in this current bull run, this blue diagonal line will be the new resistance level and we're at a peak right now.

I usually call short-term peaks within 21 days, but I'm not perfect. Short-term peaks are defined using my +/- 2% shift in S&P 500 performance (just one of many types of market timing strategies).

If we put our mouse cursor (the arrow) on the 1307.25 price and move straight to the right where we hit the red line, we will see that chances are, the market will hit 1307.25 again sometime between now and November 15th or so. Now... is it better to have stocks? Or, is it better to have cash and buy back later when things aren't looking so great?

Mr. Market is a manic depressive individual. Some days he wants to pay a lot of money for your stocks. Other days, he is depressed and he won't offer you much. You've got to sell some stocks while Mr. Market is euphoric, in my opinion.

I think you should take some stocks off the table and save it to buy stocks when Mr. Market is depressed.

PAST PERFORMANCE

As you know, past performance is not indicative of future results, but here's a look at my current performance:
Performance Chart

As you can see, I'm peaking right now and so is the S&P 500. You will also see that I'm crushing the S&P 500.

This is the type of time when we should sell stocks. It's the time when everyone feels bold and brazen.

We've added onto some positions over the past two months: ACAS, COF, CVX, DG, DVN, HD, HDI, PSUN, RCII (and sold), SPF, WHI

The recent tankage of COF means it might be a good time for you to get in if you like the stock. Mr. Market is also depressed about HDI and PSUN.

We also added onto two of our oil stocks recently: CVX and DVN. Gas prices have shot up 30 cents a gallon the past week, but the stocks haven't. Take a look at APA, CVX, DVN, and MVK if you're interested.

We also made new entries into ARLP, BBBY, JNJ, LPNT, MVK, SKM.

Happy Trading!

- Vooch

Be sure to TAKE SOME PROFITS while the market is in euphoria. There's an insatiable appetite for stocks right now.... an appetite for destruction for the retail investor.

Recently, I :
sold some TM for +45.11% (247 days)
sold some BZH for +56.72% (247 days)
sold some ET for +86.36% (257 days)
sold some ET for +94.19% (258 days)
sold PBG +3.05% (7 days)
sold remaining BZH for +74.85% (253 days)
sold remaining TM for +48.33% (253 days)

We're reducing some of our exposure with homebuilders.

Don't be piggish - take some money off the table sometimes. I'm in 20% cash now.

Pullbacks usually last at least 45 days.... some people have to wait at least 30 days because of Wash Rules after they exit positions, so when the market pulls back, it's usually for a period of several weeks or months.

The market knows how to use a retail investor's emotions:
http://www.aistockbot.com/BullBear.html

Don't be emotional ! Be robotic and systematic in your trades.

Also, be sure you've got some oil stocks (7-10% or so) in your portfolio. I've been buying CVX and APA lately.

In this podcast, we review some of the Marketocracy tests we ran this year that didn't work.

Companies in trouble (via high levels of shorting - SEC's Regulation SHO, class action lawsuits), pump and dump candidates, and previous losers, were the tests which had the worst performance compared to S&P for 2005.

The lesson? Don't buy losers. Buy winners!

Some of this year's winners:
ET +93.28%
BZH +60..32%
TM +44.02%
KRB +36.01% (we sold after BAC bought them out)
DVN +35.5% (we took the profits)

Our biggest losers this year (we're bagholding these):
LXK -16.66% (we still like this toll bridge company because people are forced to buy print cartridges)
RCII -16.71% (we still like this company after they sold their unprofitable stores)
NEW -14.99% (we received some big dividends with NEW which cuts this loser way down. Plus, show listeners could have made +9.4% in a short period by buying this stock).

We sold one stock for a loss this year: RGF -3.0%, but we also received dividends, so the real loss was more like -1.0%.

WE ARE RE-RELEASING THIS PODCAST AFTER FIXING A TECHNICAL AUDIO GLITCH.

Today, we combine the free MSN Moneycentral Stock Screening feature at http://moneycentral.msn.com with the free Marketocracy fund management feature at http://www.marketocracy.com .

CORRECTIONS:
We said "it's gone up $3.68. Divide that by $39, is 9.4% profit".
We intended to say, "it's gone up $3.68. Divide that by $36, is 9.4% profit".

We said our email address is, "mike at Quantinetics.com".
We intended to say, "michael at Quantinetics.com".

SCREEN RESULTS:
Here's the results of the screen we did on today's show:
Symbol Company Name Rank ROE P/E FwdP/E P/S
AHG Apria Healthcare Group Inc. 7 31.50 16.20 14.50 0.81
ATK Alliant Techsystems Inc. 15 23.90 16.40 16.40 0.91
BLL Ball Corporation 28 18.50 16.60 15.70 0.74
BZH Beazer Homes USA, Inc. 32 17.80 12.50 6.90 0.61
CRFT Craftmade International, Inc. 8 30.60 16.30 12.40 0.91
CTR The Cato Corporation 34 17.40 16.70 16.30 0.84
CTX Centex Corporation 19 22.20 7.90 7.20 0.65
CVX Chevron Corporation 27 18.60 9.10 8.60 0.74
DE Deere & Company 43 15.40 12.00 11.30 0.83
DHI D.R. Horton Inc. 17 23.50 7.80 6.80 0.82
DLTR Dollar Tree Stores, Inc. 30 18.00 15.70 15.40 0.77
DRTK Duratek, Inc. 45 15.00 14.60 13.60 0.79
EC Engelhard Corporation 29 18.30 16.40 16.00 0.85
ELUXY Electrolux AB (ADR) 38 16.60 14.10 13.70 0.38
FAF First American Corporation 37 16.70 10.30 9.60 0.58
FTO Frontier Oil Corporation 10 26.40 10.60 9.80 0.60
GGB Gerdau S.A. (ADR) 6 43.30 6.20 5.90 0.85
HOC Holly Corporation 26 19.00 14.20 11.30 0.60
HOV Hovnanian Enterprises 11 26.20 7.50 6.10 0.62
JBX Jack in the Box Inc. 39 16.50 14.30 14.00 0.50
JCI Johnson Controls, Inc. 40 16.00 15.60 14.30 0.51
KBH KB Home 16 23.80 9.10 6.60 0.83
LEIX Lowrance Electronics, Inc 25 19.10 15.90 11.20 0.87
LEN Lennar Corporation 18 23.20 8.80 6.60 0.79
MDC M.D.C. Holdings, Inc. 14 24.00 6.40 5.90 0.63
MT Mittal Steel Company N.V. (ADR) 3 62.40 6.80 5.50 0.50
MTH Meritage Homes Corporation 13 25.20 9.00 7.10 0.67
MVK Maverick Tube Corporation 44 15.20 11.70 11.00 1.00
NJR New Jersey Resources Corporation41 15.90 15.80 15.30 0.37
NTY NBTY, Inc. 33 17.80 13.20 11.80 0.65
NVR NVR, Inc. 1 71.70 8.80 8.10 0.88
OHB Orleans Homebuilders 12 25.20 6.50 5.70 0.38
PBG The Pepsi Bottling Group 22 20.70 15.90 15.80 0.62
PCAR PACCAR Inc 35 17.20 11.60 10.20 0.88
PHM Pulte Homes, Inc. 31 17.90 8.20 7.50 0.76
RYL The Ryland Group, Inc. 9 27.00 9.20 8.20 0.75
SLGN Silgan Holdings Inc. 2 66.80 15.50 15.50 0.56
STRT Strattec Security Corp. 23 20.10 12.30 12.20 0.84
SUN Sunoco, Inc. 20 21.40 12.90 11.10 0.37
TKS Tomkins plc (ADR) 5 47.60 14.20 11.70 0.68
TLB The Talbots, Inc. 24 19.50 16.90 16.00 0.83
TOA Technical Olympic USA, Inc. 36 17.10 6.40 5.90 0.50
TUES Tuesday Morning Corporation 4 53.00 14.40 14.40 0.96
VFC V.F. Corporation 42 15.80 12.10 12.10 0.98
WHR Whirlpool Corporation 21 20.90 14.50 13.90 0.40

TODAY'S NOTES:
- MSFT increases dividend 12.5%, plus loses deal to GOOG
- A spreadsheet error in our DNB purchase allowed us to make almost $1/share by luck. We dumped DNB this week.
- We dumped RGF - the risk/reward ratio is out of whack - we lost -1.3%.
- Our ET, went up from +86% to +96% in a couple days
- Our LEN shot up this week

PODCAST CORRECTIONS:
- Today, on the podcast, we said MSFT said they would complete $16B stock buyback by "Dec 20, 2006", but we intended to say , "Dec 2006".
- Today, on the podcast, we said GOOG will be spending "$5B" for a 5% share in the aol deal, but we intended to say, "$1B".
- Last week, we referred to the "Visteon" Operating system, when we should have called it the "Vista" Operating System.

2005-12-10

NEW is trading at $36.00 right now. This upcoming Friday is options expiration day and the maximum pain is $35.00, which means, the stock is probably going to drop a buck between now and December 16, 2005.

However, the January max pain is around $45 and falling. With new contracts being added every day, perhaps, It'll fall all the way down to $35 again. I dunno. Perhaps you can make some money between this differential. It'll also be paying a dividend for those who hold the stock around January 18, 2006.

CORRECTION:
The dividend for the fourth quarter will be paid Jan. 30 to shareholders of record on Dec. 30, the company said. Per: http://biz.yahoo.com/ap/051216/new_century_dividend.html?.v=1

Some notes about AEOS:

- It's been generous to the stockholders - it makes an increasing amount of earnings/share almost every year

- It's been profitable for as long as the eye can see - one thing I learned from Buffett, as simple as it may be, profits help increase a stock's value and losses don't.

- ROE 27.9%

- Book Value $6.38, price/book ratio is a bit high (around 4:1), but much less than Buffett's purchases in BUD.

- AEOS P/E Ratio is 13.6. S&P 500's P/E is 16.74. So we're more attractive than the S&P 500 as a whole. Plus, the S&P500 is attractive, which brings more bullishness to the marketplace. On average, AEOS usually runs in the 8-25 p/e range, so we're a little on the low (undervalued) side.

- No dividends, but they continue to buyback shares when appropriate.

- One of my friends works for AEOS. He has always been very positive on the upper management of AEOS, so high employee morale is a plus. During my last (six months ago) discussion with him, I told him of my recent (six months ago) purchase in PSUN (a competitor) because of valuation - it's a stock which I still hold. He was very aware of them and didn't say anything negative about them either. I'm up +17.74% with PSUN in less than six months. I don't know what he thinks of AEOS or PSUN today, but my intrinsic value estimation of AEOS was good enough to warrant today's purchase.

- Per finance.yahoo.com:
Profit Margin (ttm): 12.96%
Operating Margin (ttm): 20.73%
Return on Assets (ttm): 23.13%
Return on Equity (ttm): 31.06%
Qtrly Revenue Growth (yoy): 14.70%
Qtrly Earnings Growth (yoy): 26.30%
Total Cash (mrq): 556.38M
Total Cash Per Share (mrq): 3.58
Total Debt (mrq): 0
Total Debt/Equity (mrq): 0
Shares Outstanding: 155.39M
% Held by Insiders4: 14.11%
% Held by Institutions4: 80.50%
Shares Short (as of 11-Oct-05)3: 5.99M
Short Ratio (as of 11-Oct-05)3: 1.4
Short % of Float (as of 11-Oct-05)3: 4.20%
Shares Short (prior month)3: 5.08M

- Share Buyback Program
[biz.yahoo.com]

"American Eagle Expands Buyback Program
Thursday November 17, 2:40 pm ET
American Eagle Outfitters Board of Directors Approves Expansion of Its Repurchase Program

WARRENDALE, Pa. (AP) -- American Eagle Outfitters Inc. said Thursday that its board approved the expansion of its repurchase program by an additional 4.5 million shares, citing confidence in its earnings potential, growth prospects and financial position.
The apparel retailer said it completed the repurchase of 6 million shares in the third quarter under its buyback program.

American Eagle shares rose 6 cents to $23.56 in afternoon trading on the Nasdaq."

Ok, so not only did they complete a repurchase of 6 million shares (a sign of real profits), but they are also expanding their share repurchase program by 4.5 million shares, albeit 4.5 mil is not much compared to 155 mil, but it's a good strategic move, imo.

- This stock has taken a dip recently, but the stock's price is still better than it's 2-year long-term trend. This is a positive.

- Next year's earnings estimate is $1.94/share.

- One potential caveat is the market-as-a-whole. While the S&P 500's P/E ratios look favorable, we might be in the midst of a short-term market reversal. Look at this chart:

[www.quantinetics.com]

The S&P Index 1247.27 price was last Friday's closing price. The index has gone up to 1261.23 as of tonight, which puts us into that grey area where the market needs to do a pullback sometime.

I'm anticipating the market doing a reversal this upcoming Friday, but since the avg S&P P/E is only 16.74 and since no one can predict the future, it's anybody's guess. However, since the S&P 500 market has already risen +7.17% recently, it might be wise to take a break regardless.

I'm still doing research on Market Cycles (timing) even though the general consensus is that market timing doesn't work. Personally, I think otherwise.

- We're on the verge of the holiday shopping season. I'm betting on AEOS. While I hate gambling (eg. lottery tickets, casinos, etc.), I accept the fact that choosing a higher-probability performer over another, is considered a form of gambling.

- I've learned that if you're a mega-fashion retailer, like AEOS, GAP, ANF, PSUN, URBN, the public is more willing to allow you to recover from missteps (eg. a bad season, like when GAP got 40-something year old baggy-eyed Sarah Jessica Parker pushing clothes to 20-somethings) than if the company was a lesser-known brand name. In my opinion, there's a momentum behind successful fashion brand names.

- My initial entry price was $24.59 on November 22, 2005.

- My target price is $38/share for a +54.5% gain.

- The current price (as of 12/03/2005) is $20.93.

Now... can you say... "KABOOOM!" ?

May all your trades be profitable,

Vooch