Bottom Fishing With The Bears (Ivan Cavric)

Bottom Fishing With The Bears (Ivan Cavric)

A famous quote attributed to Baron Rothchilds encourages us that “the time to buy is when there is blood in the streets.” It is somewhat dramatic but it does get your attention. Reading and listening to the latest financial news one would have to conclude that there is “blood in the streets”, at least figuratively speaking.

Certain market sectors have been pummeled, primarily the Financials and Auto industries. Each day brings more bad news and it seems that there is no light at the end of the tunnel. Foreclosures, bankruptcies and government bailouts dominate the financial headlines. You hear things like no one is too big to fail. Yet our system is such that periodically these events must occur and that the survivors end up much stronger and more competitive when it’s all over.
It’s in times like these that opportunities arise. For the brave souls who go against the tide they become beneficiaries of great rewards. Others may see them as reckless or in most cases simply “lucky”. However it’s more than that. It’s the ability to act when others remain paralyzed. The only question is how to prudently go against the tide? Problem with bottom fishing is that no one really knows with certainty where the bottom is and when will the turnaround occur.
The next few paragraphs will attempt to outline a strategy to us for bottom fishing. It has been my experience that having a plan gives you the courage to act when the majority remain on the sidelines. Is this strategy foolproof? Of course not! Nothing is, and if you are one of those who believe otherwise, save yourself some time and stop reading the rest. However what it will do is greatly increase the probability in your favor. It will give you a blueprint as to how to proceed through the everyday noise. I know you must have heard this saying hundreds of times before, so one more time won’t hurt. “People don’t plan to fail, they fail to plan.” Investing in the market isn’t any different, you need a plan. Especially in a bad market! The strategy that is outlined works on individual stocks as well as EFT’s (exchange traded funds). You choose your own investment vehicle. As a suggestion it would be wise to use quality stocks listed and or quoted on major markets such as NYSE and NASDAQ as an example. And preferably purchase stocks that compose the S&P 500 Index. Only you know your risk tolerance, this is merely a suggestion.
Enough with the prelude, lets get down to the Bottom Fishing Strategy or BFS for short. In the demonstration I will use a fictional automaker listed on the NYSE trading at $10 per share under the symbol DOG. That’s right DOG, and it’s fictional and for illustration purposes only, so don’t go out and try to buy it or worse say that I am recommending the stock. As with most of the auto sector DOG has been hit hard. The price of the stock is down 60% from its 52 week high. Could this be the bottom? Who knows? As you research the company you feel that it may be a good long term investment and this seems like a buying opportunity. You have $10,000 to invest, what would be the best way to proceed?
Well, let’s put the BFS (bottom fishing strategy-remember) to work. Follow the seven steps carefully. They will apply equally to any investment decision you make.

1. Divide your $10,000 allocated for investment into four groups of $2,500. The procedure is the same whether investing $1,000 or $1 million. If you have under $1,000 than it would be best to consider other options.

2. Immediately purchase 250 shares of DOG at the current market price of $10 per share using your first $2,500 allocation and keeping the remainder in cash hopefully earning interest. (NOTE: commissions are not included in our illustration because they vary greatly between firms).

3. If and when the stock drops by 7% or $.70 to $9.30 buy 268 shares of DOG using your second $2,500 allocation. Now you are holding 518 shares of DOG at an average cost of $9.68 per share and still have $5,000 to invest.

4. DOG drops another 7% to $8.65, buy 289 shares suing your third allotment. You are currently holding 807 shares of DOG at an average cost of $9.20 per share and still have $2,500 to invest.
5. Stock drops again by another 7% to $8.04, buy 311 shares of DOG. Your total holdings of DOG are 1,118 shares at an average cost of $8.94 per share and you are fully invested.

6. This step is VERY IMPORTANT. Place a stop loss order 15% below your last purchase price which in our fictional illustration was $8.04. Therefore an open stop loss to sell 1,118 shares of DOG would be entered at $6.84. DO NOT CHANGE THIS!

7. If stopped out of the trade, which would mean the stock traded at or below $6.84, DO NOT BUY THIS STOCK AGAIN! UNDERSTAND! Go elsewhere. You have lost $2,359.59 or approximately 23.5% of your investment but it could have been worse. This is your worst case scenario and you know it before you even place your first trade. Look elsewhere for opportunities.

Follow this procedure for every investment you are considering. BFS allows you to
plan out your purchases systematically before you execute your first trade. Always keep in mind, once you decide to use the BFS, stick with the plan.
Yes I know, I can hear some of you already saying, “well that sounds good but what if the price of the stock doesn’t drop after my initial purchase”? Or “I purchased a couple of times and it stopped going down”! Congratulations! You have managed to pick the bottom, now hold on for the ride up and enjoy your profits. And yes I do have a strategy to maximize your profits when your stock is rising. However that is being saved for another article, maybe even a book. Now that you have a tool the rest is up to you, put it into practice, plan wisely and trade with confidence.

Ivan Cavric

Art Collecting: For Profit and Pleasure by Ivan Cavric

Have you ever considered collecting art for investment purposes? If you are at home or in your office take a quick look around. Chances are that you have some sort of art hanging on your walls. You or some else selected it because you need something to put on your walls and you liked the how it looks. In some cases the price may have been a consideration. Since you will buying art, why not select works that have investment potential?

When it comes to collecting art most people feel inadequate or intimidated. We have been led to believe that you require specialized knowledge to be an art collector. The critics and most experts don’t offer any help either. Some are more interested in selling their particular showings rather than educating you how to become an art lover and a long term collector.

Collecting art can be very profitable and enjoyable. It is one of the few areas where you can have your proverbial cake and eat it too. Anyone can become a successful art collector. All it takes is to learn a few ground rules, most of which are common sense. Since you have read this far you have demonstrated that you possess common sense, now all you need to learn is a few basic rules.

However, before I get into the basics one point needs to be clarified. I am not writing about collecting the works of masters such as Dali, Monet, Van Gogh etc. For this type of collecting you do indeed need specialized knowledge that comes from years of study. Most of these works have proven their investment quality and serve as motivation for us to find the next great masters. And there will be new masters! The only question is which ones.

That’s where the fun in art collecting is! You just may be the one of the few who started buying the early works of an artist who suddenly becomes famous. It is possible! Imagine for a moment having purchased some early works of an unknown artist named Picasso. Early in his career his works were affordable and easily available to anyone. Now, look where the prices for originals have gone to - some sell for millions. And since we have already established that you will be buying art anyway, why not buy art as an investment? Who knows, in 5, 10 or 20 years the artist may be the next Dali.

Collecting art for investment purposes is much like treasure hunting. You have to dig through a lot of dirt to get a few gems, but they do exist. Collecting art is very affordable. Remember we only want to buy works of the yet undiscovered. There is a lot to choose from so be discriminate.

In order for you to build a collection, a valuable collection, lets go over a few basic rules. I call them basic because it is enough to get you started with confidence. Once you begin you will be able add to your knowledge from your own experiences. The great part about treasure hunting is that there is always something new to discover. So never stop learning!

Now to the basics.

Collecting Art for Profit and Pleasure

1. Have a fixed budget allocated for collecting. Know how much you are willing to spend on an acquisition and how often acquisitions will be made. This is the first step because it will keep you focused. If you are starting out with only a few hundred dollars it doesn’t make any sense looking at works in the thousands. Remember you are just starting out, stay focused.
2. Buy art that you like! Since you are collecting for pleasure as much as for profit you have to like the work. Never mind what anyone tells you about the investment potential, it’s going on your wall and you have to like it!
3. Step 2 doesn’t always work and there is a good chance that you may miss out on some extraordinary artists. Art is subjective and what one person considers as art others may think its junk. To avoid this, for every 3 pieces you purchase that you like, buy one that you particularly don’t like, yet it fits your criteria as a possible investment grade collectible.
4. BUY ONLY ORIGINALS! Originals are one of a kind. Once an artist becomes well known there will be many collectors bidding but only one original will be available.
5. Limited Edition Prints are glorified POSTERS. In most cases the framing is worth more than the print. Serious collectors should avoid prints of any kind, even the prints of well known famous artists. In all probability the prices have been inflated. They should not be purchased or considered for investment purposes. For now don’t waste your time.
6. Get a biography of the artist. Get as much documented information about the artist as possible. Most artists will provide you with information about themselves, where they studied and where their works have been shown. THIS IS A MUST, and it should be accompanied with the art. If they don’t have a biography or basic information about themselves go to another artist. Move on!
7. Talk to the seller of the art. Try to verify that the work is an original and not a copy of an original. There are many talented artists who are able to duplicate the works of well known painters. The obvious copies you will be able to identify yourself (such as an oil of the Mona Lisa), others are more difficult. Ask questions and purchase only when you are satisfied with the answers.
8. YOU DON’T HAVE TO PAY THE ASKING PRICE! This is the fun part. Bargain, haggle and try to get it below the asking price. Prices are not set in stone. You just may be able to get it 50% or more below the asking price. You never know, some artists are truly starving artists. There is always room for negotiation.
9. Keep your receipts, cancelled checks and any other written information that accompanies the purchase. This is often overlooked yet it is a key part of serious collecting, regardless of the value of the piece. It is a good idea to write down where you purchased the art and the reasons why chose that particular piece. These records become part of the history of the art. Keep them in a safe place, I cannot stress enough how important this is for future valuation.
10. Take care of your collection. Keep the art out of direct sunlight, damp places and out of reach from unruly children and pets. Use common sense. Have proper insurance on valuable pieces and frequently update your records on various artists you are collecting.

Now you have the ten basic tools of collecting art for profit and pleasure. The Internet is a phenomenal resource. All kinds of information is available at the click of the mouse. It is also a good tool to share and promote your newly discovered artist. Keep in mind that the reason artists are famous is that they are well known. The more people you tell about the works you acquired the more they will get to know the artist. Don’t be shy, share your discovery with others. Everyone will benefit.

Finally, don’t procrastinate, go out and start collecting. There is only one way I know of to become an experienced collector and that is to start as a novice. Everyone has to start somewhere. Don’t get discouraged. It’s true that everyone is a critic, but the only critic that matters is YOU!

Trade Like an Insider, Legally By Ivan Cavric

Granted legal insider trading may not be as profitable as illegal insider trading, but it will keep you out of jail and enable you to enjoy the benefits of your profits. Company insiders are required to report any trades made in their company to the SEC within 2 business days of the trade. This is information is available to the public through various internet sites. The trick is to sift through the enormous amount of data to select a company that has the most potential to make you money. Easier said than done! Well in fact it is actually quite simple and it doesn't take up too much of your time.

In order to simplify the search a few parameters have to be set before you consider an investment. Once you have this in place you will be amazed at how quickly you will identify a potential investment and eliminate numerous others. There are five main points that have to be met before you consider the company for investment purposes. Once you have chosen your stock then we will use a money management technique to maximize profits and minimize losses. More on the money management part later after we discussed the five points that comprise our search criteria.

After you selected a free insider trading report site your first criteria is to consider only BUYS. There is a good reason for this. People sell shares for various reasons such as college tuition for the kids, divorce, vacation, buying a house and many others. However there is only one reason people buy shares and that is to invest and make a profit. Since it is our intention to make a profit we will only consider the recent INSIDER BUYS, those made within the past 2 weeks.

The second point to consider is only BUYS made by senior officers such as CEO, CFO, EVP etc. Directors and owners have a different agenda sometimes for buying shares whereas the senior officers are employees of the company and are close to day to day operations. They are the ones on the front line, they generally have a feel as to how the business is doing. The lower their rank, the lower their pay scale, hence all the more significant is their purchase of shares.

Third, and this is subjective, however for our purposes we will use a general rule of thumb. Only consider purchases that appear to be an investment and represent investment dollars. Purchase of 30 shares at $9.00 is not what we would call a significant investment, or for that fact a serious one, especially for a senior officer. However, a purchase of 1500 shares at $9.00 made by the same officer carries more weight and considers our attention. As a rule of thumb the investment should be over $10,000 and be at least a reasonable number of shares.

Fourth, only consider company's whose shares trade over $5.00 per share and are on a major exchange. Stay away from penny stocks. A definition of a penny stock is any stock whose shares trade below $5.00 per share. There are times when large companies will fall below $5.00 per share but they are still on a major exchange and usually the circumstances are extraordinary. It is best to wait till they are back over $5.00 before considering an investment.

Last but least is to only consider those company's whose shares are trading near where the insiders made their purchase. If the insiders bought shares substantially lower than the current market price then the stock should be eliminated from the list. Once again this is subjective but 50 percent below the current market price would be considered as substantially lower. On the other hand 15 percent to 20 percent is tolerable. You are looking for value, so be patient.

Once you have finished with the fifth and final step you should have two or three good potential candidates to consider for investment purposes. While this is not part of our main criteria to narrow the field and choose the best investment you need to consider liquidity. If you have two or three to chose from pick the stock with the highest daily volume average. Daily volume is a measure of liquidity and the more liquid a stock is the easier it will be to purchase and sell.

Now that you have your pick don't rush out yet and make that investment. Remember we were going to implement a money management system. This is a good idea no matter what system you are using for choosing your investments. The money management technique is simple by effective. For demonstration purposes I will use a fictional company, symbol ABC trading at $9 per share. An Executive Vice President of Marketing purchased 2,000 shares at $8.15 four days ago. We are willing to invest $9,000 by purchasing 1,000 shares. However, rather than buying it all at once we divide our investment into three tranches of $3.000 each.

An initial investment is made by purchasing 333 shares at $9 per share for a total of $2997.00 before commissions. Immediately a stop loss is placed at 15 percent below the purchase price or $7.65. A stop loss is where you will get out should the price of the stock drop. At the same time you will make another purchase if the price of the stock drops to $8.10 per share or 10 percent below the initial purchase price. At this time you will purchase 370 shares at $8.10 for a total of $2997.00. Now you have a total of $5994.00 invested and 703 shares at an average price of $8.52. Move your stop loss to $7.24 and make another purchase should the share price drop by 10 percent from your average cost of $8.52 which is $7.66. The trade keeps going against us and drops to $7.66 at which point we invest our last tranche and purchase 391 shares for a total cost of $2995.00.

As you can see you have a total of $8989.00 invested and own 1094 shares at an average cost of $8.21. Now you place a final stop loss at 15 percent below $8.21 or $6.98. At this point should the stock trade this low your position will be liquidated and you will be out of the market. Do not enter again. You have suffered a 15 percent loss but still have sufficient capital to invest elsewhere. On the other hand if the price of the stock never gets near your stop loss but keeps rising follow it weekly with a trailing 15 percent stop loss from the high of the week.

This simple method allows you to maximize profits and limit your losses. It prevents you from falling in love with a company and leaves little room for second guessing. It allows for timing since stocks have a tendency to go down after you make an initial purchase and it preserves you capital. In short it's a great tool.

One final note, for insider trading reports do a search for free insider trading reports and go to the most comprehensive and easy to use site. You will be surprised how quickly you will find a user friendly site.

Ivan Cavric is the president and managing director of PrimeQuest Capital Corp. Mr. Cavric is also managing consultant of Associated Financial Corp. For over 20 years Mr. Cavric has been involved with venture capital and start up companies. During this period Mr. Cavric has been on advisory boards of several public, private and start up companies providing management services and personell.