GT Advanced Tech Announces Bankruptcy

It’s always interested when a company you are following closely suddenly goes belly-up. It should have been expected given that GTAT was not awarded production of larger screens on the iPhones and iPads but instead only producing tiny camera pieces – after investing huge amounts of money in a new production plant in Arizona. My suspicion is the one to benefit the most from this failure will be DOW CORNING, the joint venture between Dow Chemical and Corning. More news is bound to come out on the specifics of this company’s failure, most likely a mixture of production problems and lack of orders given its huge liability.

GT Advanced Technology Plummets Day After Apple Announcements

After falling almost 13% the day of Apple’s announcement of the iPhone 6 and Apple Watch GTAT stock dropped by another 14.5% today as investors dropped the ownership of the company speculated to be making sapphire screens for many or all do the new iPhones. Instead, GTAT will be producing screens only for the Apple Watch for the time being. This just goes to show how dangerous speculation can be – and how reacting to news quickly may say you a lot of money.

Regarding the future of GT Advanced, only time will tell if they will be included in the production of other device screens. The company already has business with the solar industry but the incremental benefit of sapphire over Gorilla Glass is disputed by Dow Corning and price conscious consumers. Perhaps the 6S will have these screens?

GT Advanced Technologies Falls 13 Percent After iPhone 6 Debut

 

Screenshot courtesy of Google Finance

Screenshot courtesy of Google Finance

 

After Apple showed off it’s new iPhone 6 and the Apple Watch the stock for GTAT, or GT Advanced Technologies rumored to be the producer of sapphire screens for the new phone plummeted 13%. The September 9th event was devoid of mention of the sapphire screen for their phones, however their watch seems to be using the sapphire technology. This makes sense since the Sapphire screen on the iPhones would have forced Apple to increase their price mark by about $100 per unit, and the screen size on these watches are pretty small. Unfortunately this means less revenue for GTAT and hence the huge price drop. I do see GTAT advancing in the moderate to long term as more manufacturers embrace the scratch proof material going forward, and the use in just the Apple Watch will keep GTAT from under-producing.

blue-sapphireAs GTAT is an American manufacturer, there is also a risk they will be undercut by cheaper foreign manufacturers – only time will tell.

Shorting the Stock Market

Most financial advisers will tell you to dollar cost average your investments especially retirement investments throughout your life. However, what you do with your investments is up to you and many folks are wary of the stock market given its multi-year rise, its all time high, and the winding down of QE from the Federal Reserve. I hope this article helps you understand how you can “short” the stock market without risking too much money, or how you can buy options to insure your long position in the stock market for this year.

For those that don’t know – if you short a stock you buy negative shares of the stock with the obligation to buy those shares back sometime in the future (unless the company goes bankrupt). Quite a few people now are advocating shorting the stock market, trying to time a large market correction. There are a few ways to in essence short the stock market – you can either buy some short positions in individual shares like Amazon or Twitter or any other stock that has a large P/E ratio (meaning the stock is overbought), or you can buy put options for those shares – which is buying an option to sell the stock at a certain amount in the future. Buying a put option is infinitely safer than buying an uncovered short position in a stock since your loss is limited to the premium paid for the option. You can also buy exchange traded funds (ETFs) that are managed funds that comprise a variety of short positions aimed at giving returns if the stock market falls.

One example of such exchange traded funds is DOG, which according to its description “seeks daily investment results that correspond to the inverse daily performance of the Dow Jones Industrial Average (DJIA)”. Such exchange traded funds do extremely well if the stock market falls, and might be a good way to “insure” your long stock positions. DOG went up 40% from May 2018 to late November during the financial meltdown.

A call option for a ETF like DOG could be profitable if you buy one with a good strike price. For example, DOG is currently trading at $26.10, there is a call option for 11/22/2014 strike price $28. The option is currently priced at $0.70 and each option is a bundle of 100 shares, so buying 1 option would cost $70. If DOG goes up 40% between now and November (like happened during the financial meltdown of 2008) the price will go up to $36.54 and your call option would be $8.54 above the strike price per share – which would be valued at $854, and after subtracting the premium of $70 you would have made a profit of $784. Your gross profit margin percentage would be 91.8%, versus the 28.6% profit margin you could get by simply buying a share of the ETF.

The last way to avoid stock market risk is of course to sell your stocks or if you have a 401k that only allows certain allocations to reallocate to a fixed income account or bond account. That being said, a market meltdown will also hit bonds.

*disclaimer I own a call option for DOG but do not have any short positions*

Crime Doesn’t Pay Unless Criminals Don’t Get Caught

You’ve head it before and today you hear it again – Crime Doesn’t Pay. Because it doesn’t! Today I read an article that seems as fake as flying frogs – a thug fired a shot at someone who was willingly giving up his possessions during a robbery and the bullet ricocheted of the crime victim’s face and hit and killed a criminal accomplice! Poetic justice at its finest. You can see the full story here.

Is it true that crime doesn’t pay? Or is it only true that stupid crime doesn’t pay? Take Bernie Madoff, for example – here is a man who was able to con some very rich and powerful folks into a pyramid scheme because he had confidence and had run his private company for 40 years before a large market crash exposed his lies and caused the stack of cards to tumble. Are there yet even more powerful players at play currently that are doing things that would be classified as crimes but don’t get caught because of their power or influence?

Today I encourage you all to think twice about how secure you think you are and be vigilant – not only against petty thugs who will rob you and shoot you while you are willingly giving away your possessions. Are you being robbed by folks you think you can trust? Think thoughtfully and carefully on this subject, leaving no stone unturned. You might have just saved yourself from being Madoff’ed!

Forced Withdrawals from Retirement Plans

A lessor known fact for folks that invest in retirement accounts such as IRA’s or 401(k)’s is that you will be forced to withdraw a certain percentage of your retirement accounts when you reach 70 and a half years old. Starting at a bit less than 4% the first year and reaching 15% per year by the time you reach 100. At 115 the minimum is more than 52%, since statistically most people do not make it that long. While this might not seem like a huge deal, it IS when you start to consider how many people are nearing that age – the folks referred to as “Baby Boomers”. Considering much of their money is tied up in these accounts they will most definitely be starting to withdraw this decade as the first of them hit their 70’s. This will put some negative pressure on the stock market, and definitely won’t be a positive thing for younger investors who invest in the stock market as a whole. My suggestion is to then plan on this situation accordingly, invest in solid companies that will continue to outperform as a huge number of people retire – and diversify your investments. Check out some of my other investing related posts for help on doing this.

How You Should Invest Based on Your Age

There are certain things people can do to maximize their expected retirement income while protecting themselves from utter destitution. The first step, invest early. A early portfolio means years of compounding and appreciation which resembles the following curve over time given a starting amount of $1.00 over 40 years.

This interactive chart displays the progression of $1 through 50 years of compounding at a modest 10% per year, around what the historical average return of the stock market is. As you can see the first few years are unimpressive, but eventually the savings grows past what you would have made investing $1 per year without interest! So instead of spending a dollar every year to save $100 in a non-interest account the one dollar invested in the stock market would equate to twice a yearly non-interest savings contribution.

The second point I would like to make is that as you reach retirement age your investments should become more conservative – after all, I am assuming you are using this money to retire on and another point to make is no one lives forever. It is suggested that younger folks should invest most if not all their money in equities while those approaching retirement should go more heavily on bonds, in the 60 to 100% range.

If you’ve been lucky enough to save more than enough for retirement, it might be worthwhile to invest in your children or grandchildren’s education – dependant of how magnanimous you are or how well they treated you. Other fine options include starting an expensive hobby such as sword collecting or medieval smithing, surprisingly enough Chrome spell-check doesn’t even know what the word smithing is or how to spell it so there is another great reason to take on that hobby.

Talk About Scary, GMCR drops over 40% in after-hours Trading

 

So today after hours Green Mountain Coffee plunged over 40%, I’m glad that I decided this was not a stock I was interested in holding. Perhaps now is a good buying opportunity? The reports announced that sales were the slowest in five years, largely due to competition in the Keurig compatible K-Cups produced by other brewers such as Starbucks.

 

*Disclaimer – I do not own any GMCR but may purchase shares within the next 48 hours.

Wash Sales

As investors prepare their taxes for 2011, it is important to keep in mind what a wash sale is and how it effects capital losses. A wash sale is when a security is sold at a loss and the same security or “substantially similar” security is bought back within 30 days. The important key word is “substantially similar”, and unfortunately the IRS is vague on its definition. The IRS has also imposed the wash sale on folks who sell a security and whose spouse or controlled company buys back the same security within 30 days.

Will Oil Keep Rising? How can you Protect Yourself?

From a macroscopic view yes, a finite resource will eventually disappear from the face of the earth and in that process while mankind is adapting to other fuel sources the price of this resource will increase. In the short term, the price of oil is largely dependent on what unfolds in the Middle East. Libya has been the main reason why oil has been experiencing these recent price spikes, although spikes can hardly be used to describe a price that has not yet receded. If Libya remains in a civil war Saudi Arabia is offering to increase production, although with the way the protests are spreading it is likely that more oil bearing countries will start to ferment unrest at being ruled by tyrants and dictators.

I wouldn’t bet too heavily on the oil price receding soon, unless an end in conflict in Libya parallels in increase in production from Saudi Arabia which would be two factors to lower the price. It is better, in my opinion, to be hedging ones bets. If you drive a car and spend lots on oil then you might consider (once the price of oil goes back down) buying oil futures or if you’re feeling adventurous oil ETFs such as UCO. UCO (ProShares Ultra DJ-UBS Crude Oil) aims to reflect twice the percentage increase or decrease of the price of oil. If you are planning on going on a long distance trip in the future that requires oil (either driving or flying) you might consider buying a substantial amount of oil related securities so that if the oil price fly’s you will also be able to.

Inflation Is Coming

Inflation, more than you have seen in the past ten years, is probably going to be here in less than three years. Why? Put simply, China is beginning to let the Yuan become a free floating currency. This will mean stocks will most likely rise and the value of the dollar will most likely fall. In the long term assets like gold and precious metals will continue to rise, even though currently it is quite likely they are both in a temporary bubble.

How to Invest in Oil Without Buying Futures or Specific Companies

Ever wonder how to hedge the unavoidable investment you make in oil to get you around every day? Sure, you may consider betting directly on the price of oil through futures trading – one other alternative is to buy stock of a company that refines, extracts, or even explores oil. There is another way to bet for or against oil which I have discovered recently that seems quite on the money – ETFs that aim to deliver a 200% return on a daily performance of an index (in this case an oil future index).

Ultra DJ-UBS Crude Oil (NYSE:UCO) will basically return double the daily increase of oil futures while UltraShort DJ-UBS Crude Oil (NYSE:SCO) will return double the daily decrease of oil futures, and before you decide on betting for or against oil see the prospectus for more information on these exchange traded funds.

Other options, which may be better suited and more safe for the casual investor, include buying into an energy company such as Exxon Mobil (XOM) or Cheveron (CVX) or simply buying oil futures . A more indirect approach at investing in energy prices is to buy other energy resource companies such as Patriot Coal (NYSE:PCX) which roughly follow (and in the case shown below outperform) the price of oil (See chart below).

Patriot Coal vs Oil Future