Unlike a Larry King interview, I wanted my chat with Derek Foster to be real, not staged.   Sorry Larry.

I’d like to say Derek shared many personal experiences with me over the phone a few weeks back but I’m not that naive.  Derek has shared his investment experiences (and some failures too) in many National Bestselling Books:

• Stop Working: Here’s How You Can!
• The Lazy Investor: Start with $50 and no Investment Knowledge
• Money for Nothing: And You Stocks for FREE
• Stop Working Too: You Still Can!  AND
• *The Idoit Millionaire (*Latest book, Fall 2010)

However, I think you’ll find a few nuggets from Derek that his books don’t cover by reading Part 2 below.  Even CTV missed some of the goodies I was able to get from Derek.  Now that I’ve got you curious about this TV interview, a link will follow.  Onto Part 2; more from Derek Foster, millionaire dividend investor and early retiree from the rat race…

* * * * * * * * *
My Own Advisor: Thanks again for the interview Derek.  It’s great to finally chat with you.  Ready for the long list of questions?

Derek:   Ready Mark.

My Own Advisor:  We talked before about your investment strategy, you’re still a dividend investor.  I’m curious to know what your portfolio allocation looks like?  I mean, do you have any bond component?

Derek:  Im 100% stocks, both Canadian and U.S. dividend-paying stocks. I have no bond component. Not that I think bonds are bad, simply, Im a forty year old Derek Foster and I dont see why I need bonds right now with my multiple income sources. The empirical evidence is overwhelming about how stocks beat bonds over the long-run, Im talking 20 or 30 years. Im working on growing my dividend portfolio over the next 30-some years so this is why I dont personally follow any conventional bond allocation protocol. Ask the seventy-five year old Derek Foster and hell probably give you a different answer about his bond allocation. Im just not there yet.

My Own Advisor:  Whats your take on index investing?

Derek:  I think index investing is very safe way to go. The problem I have with index investing personally (and maybe you can help me on this since I read your blog, you own some ETFs dont you?) is the cap weighting associated with some index funds or index ETFs. At one time, Nortel and JDS made up something like 30% or more of the TSX, thats major over-representation if you ask me.

My Own Advisor Yes, but you can invest in index funds or an index ETF like XIC whereby each constituent of the fund is capped at 10%, avoiding the overemphasis.

Derek – True, I know about those products but you are still overweighted in the hot sectors. But let me ask you this. Do you think your dividend-payers with your dividends reinvested, compounding over time, dividend increases plus stock price growth, stock splits, etc. will do better in the long-run than those capped index products or worse?

My Own Advisor I think my index ETFs will never hit the proverbial home run but I also know Im always going get market returns, on the equity side of between five to seven percent over time. Thats good. If my dividends get reinvested, dividends increase over time and I hold my dividend-paying stocks long enough I should get at least that. Thats provided I own the right companies though.

Derek – Thats precisely my point. Investors can. Not to discredit index investing, I think its a good strategy. I think its good for those who dont have or want to take any time to analyze stocks, but I like my strategy. Its worked out pretty well for me so far.

My Own Advisor:  Tell me your top three all-time favourite investing or personal finance books.

Derek:  Good question, wow, there are so many. Can I tell you my three favourite authors?

OK, well I love the Peter Lynch ones, his One Up on Wall Street and Beating the Street two of my all-time favourites and he pretty much covers everything in those books.

I also really liked The Future for Investors by Jeremy Siegel (who also wrote Stocks for the Long Run). I mean he says so many great things that just make sense and he backs it up with loads of empirical data. Have you read it?

My Own Advisor Uh, no.

Derek You should. I think its a must.  I guess the last one would be The Warren Buffet Way. What else can I say? Hes the greatest investor of them all.

My Own Advisor:  Have you learned more about investing from your successes or failures and why?

Derek:  Thats a good question.  For me, failures because I think I question myself so much more. As an investor you can take failure as an opportunity to reflect on what didnt work and what could be better next time. I think sometimes many investors are blinded by their success because they fail to recognize the degree that luck was involved with their result. That mindset can have painful consequences.

This interview was originally published on December 17, 2010 at thekirkreport.com

Charles Kirk: It is with tremendous pleasure that I offer my last interview of 2010 with Mark Minervini.

As with many traders I interview, Mark requires no introduction as he is one of the most highly-respected independent traders of our generation. His blog in recent years has instantly become one of the must reads out there as he often shares market commentary and analysis which shows why the respect so many have for Mark is so well-deserved.

Moreover, his experience and past history of savvy market calls is legendary. It is with little doubt that we can all learn a lot from him! We hope you enjoy and find this focus interview helpful in your own journey toward more success in the markets.

Kirk: Hi, Mark. First of all, thank you for taking the time to answer our questions. I speak for many members who have a great deal of respect for you and we sincerely welcome you to this interview series.

Mark Minervini: You do a great job, Charles, and Im honored to be a part of it.

Kirk: Please tell us a little bit about how you got interested and started in trading.

Mark Minervini: I dropped out of school in the eighth grade in pursuit of a career as a drummer. From the money I made working as musician, I bought my first stock in 1983, which was a few hundred shares of Allis Chalmer. Shortly after, I read Richard Loves book, Superperformance Stocks: An Investment Strategy for the Individual Investor Based on the 4-Year Political Cycle. Everything Ive created with regard to my trading approach since stems from Loves initial impression on me, specifically from his writings in chapter 7.

Kirk: What was one of the most important lessons you learned early on?

Mark Minervini: That no one was going to do it for me; no one was going to make me rich except me. I learned that you must take responsibility for your results in the market and in life if you want to be exceptional. Secondly, I learned that in order to do well in the market you must be consistent; consistency is what separates the pro form the amateur. In order to have consistent success, risk must be managed in relation to potential reward as standard operating procedure. Youre not going to make just one trade, rather hundreds or even thousands of trades; its all about how much you make on average versus how much you lose on average over time. Lastly, I realized that I simply had to get to the bottom of what actually worked in the marketplace and ignore all the opinions and theories.

Kirk: Was there anyone out there who helped you greatly during your initial learning curve? If so, what did you learn most from them?

Mark Minervini: My Mother and my Father. I learned it was ok to do what I love; to go after my dream. I also learned it was ok to be unconventional. I was given the room to be creative. My parents trusted me. I always knew I was supported emotionally. Financially, we were poor but my parents supported my dreams.

Kirk: Indeed, it is so important to have a strong support structure in place. In a nutshell how do you currently approach the market and what is your primary trading strategy?

Mark Minervini: I approach the market from a risk first approach. My trading strategy is called Specific Entry Point Analysis or SEPA. We look to enter trades at low risk entry points relative to potential reward. Primary focus is not to lose money. Secondary focus is not to lose money. And, the final focus is to make more on average than I lose.

Kirk: You remind me of Buffett who said he had only two rules: 1) Never lose money and 2) see rule number 1! What do you see as the primary benefits from employing a strategy that focuses on both fundamentals and technicals?

Mark Minervini: The benefits are having all the pertinent information that is consistent with big winning stocks. We know what to look for both fundamentally and technically. I have seen stocks bought on pure technicals and the guy buying the stock doesnt even know that there was a cash offer or a proposed merger right at the price he paid. Refusing to look at fundamentals or any information that gives you an edge is usually because the individual just doesnt know how to use the info, or has some bias based on personal opinion or tradition.

Kirk: Why is this kind of trading best for you and, more importantly, why do you think it works so well?

Mark Minervini: My strategy works well because its my strategy. I know the strengths and, more importantly, the weaknesses of what it is I do. It also works well because I allow it to work and stick with it even when it runs into difficult times. Nothing works well if you keep changing your approach. To be a master you must be a specialist, not a jack of all trades.

Kirk: What do you trade mostly? Equities, options, futures, ETFs, currencies, etc.?

Mark Minervini: Only equities.

Kirk: In an average week how many trades do you make? What is your average hold time and how many positions do you have open at any given time?

Mark Minervini: During an average year I may make 400-500 trades. About half of that turnover is a result of taking small losses, which Im out of pretty quickly.

Kirk: What would you say are your primary strengths and weaknesses as a trader?

Mark Minervini: Discipline is my primary strength. And the willingness to admit when Im wrong and move on. My weakness is I usually sell early and often leave money on the table. But I dont really view that as a weakness, just something that could be improved upon. When you move in size you have to get out when the getting is good.

Kirk: In my experience it is often better to sell too early than too late Mark! How have you learned to mitigate your weaknesses and focus more on your strengths?

Mark Minervini: By not focusing too much on my strengths. If youre good at buying and bad at selling I would focus on selling; if you improve your selling you will have a complete game. Focus on making your weaknesses strengths and then you will have no weaknesses. Exploit your strengths and improve your weaknesses.

Kirk: What have been some of the most challenging lessons you have learned?

Mark Minervini: That you cant be everything. You must commit to a strategy and sacrifice other strategies. The problem with the market is its like playing poker however; you always get to see the next cards even though the hand is over. You always see what would have happened. This is very difficult to deal with for many people. To be successful, you have to understand that trading is NOT about picking highs and lows, its about making money.

Kirk: Very good. What are some of the key rules that you consider before selecting any potential trading opportunity?

Mark Minervini: How much am I risking is the very first concern. Also, does the stock meet all the necessary criteria? If the risk is acceptable and all the entry criteria are met, I enter the trade.

Kirk: What would you say is your average win: loss ratio for your trades?

Mark Minervini: I average 2 to 1.

Kirk: How has your overall performance been recently, as well as over the past few years?

Mark Minervini: Its been about the same as always. Im a consistent 2:1 trader.

Kirk: What would you say are your favorite kinds of technical and fundamental set-ups?

Mark Minervini: The ideal set-up is a stock emerging from a constructive consolidation with strong accelerating earnings and sales.

Kirk: Can you give us a recent example of a set-up you found to be very attractive and worked well in this market?

Mark Minervini: CML. Bought it on 11/24. Sold it on 12/7 for a quick profit.

Kirk: Have you noticed any trading set-ups more prone to failure than they have been in the past?

Mark Minervini: No. Not much has changed. Contrary to what many believe, its not different this time. LOL

Kirk: To help us understand your trading approach, can you talk about a recent successful trade from start to finish?

Mark Minervini: LULU. Supported by excellent fundamentals, the stock emerged from a double bottom pattern that formed from 4/15 11/04. I bought the stock on 11/05 the day the market topped just before a pullback of about 5% in the major averages. The stock was held through that market pullback because it acted normal and held above our stop. This gave me the conviction to add to the position as it emerged through its next buy point in November. I sold the stock (most likely too early) on 12/09 when they reported earnings up about +50% from the initial purchase from about a month earlier.

Kirk: Now please tell us about a recent unsuccessful trade.

Mark Minervini: Shorted GMCR; shorted the rally in October and November after the big break on SEC news. Stock rallied and stopped us out

Kirk: One of the things I most appreciate about you is how much you stress proper risk management. If we can, lets talk a little bit about position sizing. Can you provide an example of a recent trade and explain your method for determining the size relative to your own trading portfolio?

Mark Minervini: I want to own as much as I can but generally no more than 25% of my portfolio (as liquidity permits). You are not going to make huge returns being too diversified. However, I only risk what I can get out of safely based on liquidity.

Kirk: Thats interesting. I think many would be surprised at the idea of having any position anywhere near 25% of an entire portfolio. Besides over diversification and liquidity concerns, what common mistakes do you think many traders make concerning position sizing?

Mark Minervini: They dont know what an optimal position size should be based on their own risk/reward and risk tolerance. For instance, if youre a 2:1 trader, your optimal position size is 25%.

Kirk: Ok. I think I understand what you mean, but please explain this position sizing formula more in detail so others can perhaps apply it in their own trading. Can you offer another example?

Mark Minervini: Ok. First, its important to understand that you are not going to achieve huge returns consistently being overly diversified or by relying on diversification for protection. You will only get a smoothing effect. When you own a bunch of stocks you end up with two problems: the first being that you just cant watch and know all you need to know about each of them. The second problem is that you will have a difficult time getting fully invested quickly when opportunity presents itself and more importantly, getting liquid if you need to raise cash in a hurry. In addition, the math just doesnt support it. Depending on the size and risk tolerance of your portfolio you should typically have between 4 or 8 stocks and for large portfolios maybe up to as many as 10 or 12 stocks. This would provide sufficient diversification but not too much. The Optimal-f formula can act as a starting place for you to understand optimal position sizing based on expectation. If Ken Heebner of CGM Funds can move around billions of dollars in just twenty names and still manage to beat the market, then a personal portfolio can surely manage sufficiently with 4-5 or 10-12 stocks. If you lose 5-6% on average and even if your position size is at 25% exposure, youre still only be risking about 1.25% of your capital per trade. Of course, if you dont have an edge, then you will lose no matter what your position sizing is.

Kirk: Good, thats helpful. So, do you use and set stops, Mark? If so, whats your stop loss method?

Mark Minervini: I always know where Im going to get out of a trade before I get in. I aim to lose no more than 5-6% on average over time on my losers.

Kirk: Do you ever average down into a losing trade?

Mark Minervini: Theres a reason Paul Tudor Jones had a sign posted on his wall that read Losers average losers, and that reason is because its true. I almost always only add to a position if it proves itself and then I may add to my position at a higher price, not lower.

Kirk: Do you scale up and into winning positions? If so, how do you know when to increase a position size relative to your overall portfolio?

Mark Minervini: Yes. I generally move money into the better performing names at subsequent pivot points or set-ups.

Kirk: All good traders dedicate a lot of time and effort to improvement and reducing mistakes. How has your trading method evolved and improved over the years?

Mark Minervini: It just becomes more and more crystallized because I continue to focus on the same timeless principles, which allows me to become more and more of a specialist. The power of a narrow focus is amazing. The key is to be a real pro at something. Know all you can about a style or a tactic. Then you can build on that foundation. Traders give up too easily and jump around too much when things get difficult. How good do you think Kobe Bryant would be if while he was developing his skills growing up every time he had a really tough game he changed to a different sport or played a different position?

Kirk: I couldnt agree with you more Mark. I see this problem among many. Can you provide an example of something you thought was true when trading early in your career and now believe is just completely wrong?

Mark Minervini: Yeah, everything. But I learned very quickly sound principles. It just took me many years to master the application.

Kirk: Why do you think most traders fail?

Mark Minervini: Here are 6 reasons:

1. Poor selection criteria; usually based on personal opinion, theory or tips and bad advice
2. They dont stick to and commit to an approach; style drift
3. Dont cut losses (#1 mistake made by virtually all investors)
4. Dont know the truth about their trading they fail to conduct in-depth post analysis
5. Treat trading as a hobby not a business
6. Want too much too fast; learning a skill takes time

Kirk: Please describe a typical trading day for you. How do you organize and dedicate your time?

Mark Minervini: Most of my work is done the night before. I already know what Im going to trade before the open. I watch the market all day long, never leaving my desk for more than a few minutes during trading hours.

Kirk: How much time and attention do you pay to others opinions about the market and/or stocks you are trading?

Mark Minervini: Zero. I avoid outside opinions like the plague!

Kirk: Are there any tricks of the trade that you use to help maintain a consistent successful approach over a long period of time?

Mark Minervini: Yeah, long hours, hard work, a sound approach and discipline. There are no tricks or big secrets. Again, is there a secret to having a good basketball shot? It starts with a good coach, proper practice, plenty of hard work, discipline and sacrifice.

Kirk: Amen. However, most traders I know have a set of rules that they have learned from past mistakes. What are a few of yours that you think most traders would benefit from?

Mark Minervini: Hard work alone wont cut if you dont have a sound approach and if youre not doing the right things. You must be facing west if youre looking for a sun set. Approach each trade from risk first; ask how much can I lose. Dont risk more than you can expect to gain on average. Know the truth about your trading; study your results carefully. Never average down. Always cut your losses; keep your losses small. These are fundamental rules that should never be compromised.

Kirk: I suspect like all good traders you are working on improving your performance in some manner. Can you share what youre specifically working on right now?

Mark Minervini: Sticking to the rules. Always making sure we stick to the rules. We have a great approach, I dont like to get to tricky and over complicate something that requires a straight forward approach.

Kirk: Youve been trading for some time now. What would you say are the biggest changes in the markets and trading in general youve seen during your career, both good and bad?

Mark Minervini: The order handling rule change in 1997 has changed the way stocks move short-term because Market Makers dont really keep inventory anymore. Its a topic that would require a lengthy discussion; maybe we could talk about it another time. Other than that, not much has changed except more information moves faster than before.

Kirk: What advice would you give a person just now beginning to trade the markets?

Mark Minervini: Find a good mentor. Commit to a strategy. Cut your losses. Tune out the media. Take full responsibility for your results.
Kirk: What do you think are the greatest misconceptions beginning traders have about trading the markets and about trading systems?

Mark Minervini: Way too many to mention. Just about everything a beginner thinks is a misconception.

Kirk: A number of people who read my website desire to trade for a living and I receive a lot of questions concerning capital requirements needed to start and how to make the transition to trade full-time. Do you have any words of wisdom or rules of thumb to share along these lines?

Mark Minervini: I started with a very small sum of money and turned it into a fortune. Capital is not the challenge. Mastering yourself is the challenge. Discipline is the challenge. Persistence is the challenge.

Kirk: Do you think trading for a living is getting more difficult or easier for the average individual investor? Why?

Mark Minervini: Much easier. Tools for pros and amateurs are virtually identical. The pro has no edge. The individual has the advantage. No real liquidity concerns for the small trader versus the big fund manager. Its a fantastic time to be a stock trader!

Kirk: When all is said and done, in your experience, what is the best way to learn how to trade?

Mark Minervini: Trade. As Ralph Waldo Emerson said: Do the thing and you shall have the power. And then conduct post analysis. Learn to be objective. You could try and find a mentor. However, the chances of getting great advice are slim at best. Trading is just like any other profession, there are only a handful of really outstanding practitioners.

Kirk: Do you have any books, websites, etc. that you highly recommend beyond your own website?

Mark Minervini: The Kirk Report. Why is there anything else? LOL!!!

Kirk: You are too kind Mark. Although I know both of us share a love for the markets and trading, what are your long-term career plans and future for your website?

Mark Minervini: I honestly dont know for sure. My long-term plans are too stay healthy and be a good father to my daughter. This past year I started a pilot training program. Also, we now offer my research to the individual investor not just exclusively to the institution anymore. It feels good to help others achieve their goals. I think I may continue to develop that. Why hog all the good trades for myself? LOL!

Kirk: What are some of your personal passions beyond the market?

Mark Minervini: Ive been a drummer since I was 6 years old and I continue to play. I play tennis, train boxing and lift weights to stay in shape, and I play an occasional round of golf.

Kirk: Finally, if you had only one piece of advice to share with all traders, what would it be?

Mark Minervini: Believe in yourself and never give up. Persistence is more important than knowledge. Make an unconditional commitment to trading and you will not fail.

Kirk: Thank you so much Mark. I really enjoyed this interview and Im sure others will find it helpful.

1. Warren Buffett’s father was a republican congressman.

2. Warren Buffett is of Huguenot ancestry.

3. His first stock purchase was three shares of Cities Service Preferred purchased when he was eleven years old.

4. When he was fourteen years old, he filed his first tax return, which listed his watch and bicycle as a tax deduction of $35 for his paper route.

5. He was a capitalist at a very young age, not only delivering newspapers, but selling magazine subscriptions door-to-door, selling golf balls, and selling Coca-Cola (KO).

6. He owned a chain of pinball machines in various barber shops when he was fifteen years old.

7. In his high school yearbook, under his picture, it says ‘likes math; a future stock broker.’

8. He received his B.S. in Economics from the University of NebraskaLincoln when he was only 19 years old.

9. He paid $31,500 for the Omaha house he lives in today (although he bought it 52 years ago).

10. He owns a house in Laguna Beach, California

If you want to see a list of all the high yield stocks that Warren Buffett has invested in through Berkshire Hathaway, go to WallStreetNewsNetwork.com.

Stay tuned for more Buffett trivia.

Incoming search terms:

• buffett warren $31500 omaha ne 68102

Vineyards at Domaine St. Diego Bodega (winery), Mendoza, Argentina.

In my last post, I mentioned our vacation to Argentina has quickly come and gone, but not without many memories and experiences. In this post, I’ll wrap-up what we enjoyed about this fine country…and provide more pictures too!

Our vacation started in Buenos Aires and we stayed in BA for 5 full days. It was an amazing city and as my last post mentioned, full of culture. Beyond visiting and enjoying numerous cafes and restaurants, we also visited the city’s fine arts museum, their beautiful parks, watched some tango in rustic San Telmo neighbourhood, visited the botanical gardens in the heart of the city, the city zoo and also the Recoleta cemetery these latter three attractions certainly left an impression on us. The botanical gardens are filled with stoned paths that wind their way through spacious grounds, most of it filled with flora from around the world with over 8,000 plant species represented. Next door, the city zoo featured a diverse composition of indigenous birds and monkeys, giant turtles, llamas, elephants and bears. The Recoleta cemetery pays tribute to some of Argentinas most notable and important historical people. Created in the early 1800s, it is the citys oldest operating grave site and was really more of a necropolis.

The tomb of Eva “Evita” Peron, Recoleta cemetery, Buenos Aires, Argentina.

The cemetery covers numerous city blocks and you can literally spend hours touring the tombs. Like most tourists, we visited the tomb of Eva Evita Peron, who was largely responsible for women receiving the right to vote in Argentina and used her political power to build hospitals, schools and playgrounds for lower-class Argentine citizens. Overall, an amazing experience – this cemetery is a must-visit in Buenos Aires.

Other Buenos Aires highlights worth mentioning:

-Our Bus Tourista tour, it gave us a great overview of the city.
-Tartas at Ninas (near Juncal and Bustamante) in the Barrio Norte neighbourhood, for $18 pesos ($4.50 CDN) we got one of the best lunches (and deals) in Argentina. (Tartas are best described as a small, baked pies filled with various meats and veggies. When done right, these things are amazing…)
-Shopping in Palermo, my wife got some amazing deals, I like deals!
-Beautiful plazas and districts, including Plaza de Mayo (the political heart of the city), Puerto Madero (the port, waterfront district) and Plaza San Martin (in the nucleus of the city amid flowering and towering jacaranda trees).

Trees nearing bloom in Plaza San Martin, Buenos Aires, Argentina.

After our stay in Buenos Aires, our LAN flight took us northeast for 3 full days to Puerto Iguazu, a small city near Paraguay and Brazilian borders. As my last post mentioned, we went here to visit the spectacular canyon of waterfalls that were shaped some 120 million years ago from geological upheaval. This UNESCO World Heritage Site is in our opinion, another must see if you go to Argentina. Although the national park in Iguazu can be seen in one very full day, we took our time and made two days of it. Our first day was quite adventurous. Not only can you hike and walk various circuits to get some up-close, breathtaking views of over 250 falls, you can also pay 100 pesos (about $25 CDN) per person and take a high-powered motor boat right into the falls! We did this and it was thrilling. We just hope our waterproof camera pictures turn out! The second day we explored the parks tropical jungle on a 10 kilometer trek that took us through huge cupay trees (South American hardwoods) with our hike ending at a small waterfall and pond. We both took some time here to have a small picnic and a swim simply time to soak in our surroundings. We had some other neat experiences in Iguzau, such as a visiting a lookout point where you can see both Paraguay and Brazil (separated by only a river) but the national park in Iguazu was the reason for our visit and rightly so!

Just a few of the huge falls in Iguazu, Argentina.

After a few days in the park, including an afternoon of sun helped by some very big beers at our resort-like bed and breakfast (B&B) we boarded another LAN flight to take us from Iguazu to Mendoza, via Buenos Aires (there are no direct flights, BA is the hub).

Round # 1 of our 1 L Quilmes beer by the pool, Los Troncos, Iguazu, Argentina.

Our travel day behind us, we spent 4 full days in Mendoza. Like Buenos Aires, Mendoza has many things to do for one, visit wineries, LOTS of them. Within a radius of a couple hundred miles, there are well over 1,200 wineries (bodegas) – from very big enterprises who produce tens of millions of bottles per year to small, boutique, family-owned wineries that produce a few thousand. We had the luxury of visiting (and tasting) a bit of everything on our private wine tour, bodegas big and small; Malbec, Cabernet Sauvignon, Cabernet Franc and Merlot just to name a few. Another highlight for us in Mendoza was Parque San Martin. Under the direction of French architect Carlos Thays, the park was completed in the early 1900s which was adorned with many beautiful sculptures and a rose garden. Also within the parks grounds, there is a stadium, a zoo, some university buildings, a monument that commemorates the crossing of the Andes by Jos de San Martn and his army, and a large lake which has The Regatas Club on its shore. Simply put, its a great way to spend a day, and we did.

Parque San Martin, Mendoza, Argentina.

Last but certainly not least, our other major experience in Mendoza was our Alta Montana tour (high Andes mountain tour). As the name suggests, a small tour bus took us up, way up, into the Andes mountains from Mendoza and back again. The entire trip was long, about 400 kilometers in total but well-worth every climb and turn. Starting from the wine region and the foothills, our journey took us into the Andes to over 10,000 feet, right to the Chilean border. On our way up, we visited the Aconcagua park entrance, where skilled mountain climbers (not us) begin their 15 kilometer journey to climb the highest mountain in the Western hemisphere. At almost 23,000 feet, it is a very big mountain indeed, the biggest weve ever seen and one of the Seven Summits.

The top of Aconcagua, from our view down below, at 10,500-feet.

Other Mendoza highlights worth mentioning:

-The five plazas in Mendozas city center, great to stroll through, people-watch and simply relax and enjoy amongst the water fountains.
-Dinner at Azafran amazing food and you can bring your own wine. You can have a five-star, three or four course meal for $80 CDN per couple!

My petit filet at Azafran, Mendoza, Argentina

I could go on, but thats probably more than enough. Besides, this is a personal finance and investing blog, not a travel blog We have tons of stories about the people we met and our B&B owners in particular all great people whom we owe a huge thanks for making each night in each city, comfortable and safe. Thanks to Tesorito, Los Troncos and Plaza Italia B&Bs!!!

Like I mentioned in my last post, while its great to travel its also great to be home. In a future post, Ill discuss what we learned or re-learned about travelling; when youre over 6,000 miles from home, every day is literally an adventure and sometimes you can’t be careful enough. There are always things you can do to protect yourself and beyond that, make your trip most enjoyable. Stay tuned for those tips and learnings, hopefully they can help you in your next adventure.

Anyone have a trip they were especially fond of?
Anyone have a trip planned?

Cheers,
Financial Cents

Many of these warnings are very disturbing, featuring such pictures as dead bodies, a man blowing cigarette smoke out of the hole in his throat, a mouth with lip cancer, etc. If you want to see a slide show of about a dozen of the proposed warnings, click HERE. Although the implementation isn’t for a couple years out, it is bound to have some effect on future US sales.

Some tobacco companies offer incredibly high yields. Part of the reason for this is due to the stock trading at what I call the ‘bad stock discount.’ This discount comes about because many individual and institutional investors avoid the so-called sin stocks, also known as vice stocks. These companies can include such industries as gambling, alcohol, and adult businesses. But tobacco and cigarettes seem to be on top of the vice list. With fewer potential buyers of the stocks, the stocks trade lower that what other stocks would with similar financials and similar dividend payouts but non-vice businesses. The lower stock price causes the payout to reflect a higher yield. In addition, tobacco companies need to pay a higher payout in order to attract investors who would initially not look for a cigarette company stock.

Of the ten companies involved in tobacco in some way, eight of them pay dividends ranging from 2.7% to 8.4%. One of those stocks is Lorillard, Inc. (LO), a cigarette manufacturer with 41 brands including Newport, Kent, True, Maverick, and Old Gold. The company has been around since 1760; that’s 250 years. The stock pays a yield of 5.1% and trades at 12 times forward earnings. The company’s primary market is the United States, so it may be more affected by the upcoming warnings.

Philip Morris International, Inc. (PM) sports a forward price to earnings ratio of 14 and a yield of 4.3%. The company’s brands include Marlboro, Merit, Parliament, Virginia Slims, L&M, Chesterfield, Next, and Philip Morris. The new US cigarette warnings shouldn’t have any effect on the stock as its market is outside the US, including Canada, European Union, Russia and Eastern Europe, the Middle East, Africa, Asia and the South Pacific, and Latin America.

Universal Corp. (UVV) is a company that is not often mentioned in the financial press. The company, based in Richmond, Virginia, is a leaf tobacco merchant and processor which operates worldwide. The stock has a PE ratio of 8 and a yield of 4.3%. Its tobacco is used primarily for cigarettes, but also for cigars and smokeless tobacco products.

You can access a free Excel list of all the high yield tobacco stocks, which can be downloaded, sorted, and updated, at WallStreetNewsNetwork.com.

Disclosure: Author didn’t own any of the above stocks at the time the article was written.

By Stockerblog.com

In my October 8, 2010 commentary, I warned that attempts to sell overbought conditions as a trading strategy can be risky business. Since then, short sellers have learned this lesson the hard way. Most traders that expected an overdue pullback since mid-September have been confounded as the market has marched considerably higher with little pullback or breather.

Since September 20, 2010 I have focused my commentary on the fact that the markets refusal to pullback in the face of an overbought condition is a positive, and that strong bull markets always begin with such a condition. More recently on October 13, 2010, I pointed out a particular overbought condition that has had a perfect track record as a forecaster of future stock prices (see October 20, 2010 Market Commentary http://is.gd/gJq8W).

While this commentary may sound redundant keeping with the strength begets strength theme; what has changed since our risk model turned bullish on September 9, 2010 is the market continues to be overbought and thats a good thing.

The markets continued strength has now triggered our long-term indicators to the buy side. Based on our work, this simply indicates the odds favor a continued bull market advance. Pullbacks over the near-term should be contained to 4-6%, give or take a percentage point or two.

Based on our models, the primary trend of the market is up.

Mark Minervini

Ken Fisher Interview Part 2
Please note: Interview took place on Wednesday, October 27, 2010

Stockerblog: I’m going to get back to the bunks shortly but I read recently that you’re moving your offices or some of your offices to the State of Washington?

Fisher: We have 325 people in the state of Washington., and we started moving people into Washington three years ago. We’re building a building in Washington because traditionally we like to own our own real estate and not to be in leased space. At this point in time, we now have about a third of our employees in Washington and we are not doing anything that I consider as very radical.

Stockerblog: What this was leading to was, I was wondering what you think is the future of California, not from a political standpoint but a financial standpoint in the next couple years.

Fisher: In the next couple years, California will largely continue on the trend that is has been on. Let’s just think that through. Forgetting about other things, the driving feature in California for some period of time now, forgetting about budgets per se, has been to slightly lose population While shifting the demographic of the citizenry and the voter base, away from productives towards non-productives.

That becomes a momentum unto itself because the productives move out of the state of California and the non-productives into California, the non-productive become dependant, if you will, on the professional political class, which provides more support for more big government which requires more spending which requires more taxes and/or bigger deficits., either way, which again drives more productives away. Until you break that cycle, which is not easy to do, and if not done quickly, California continues down the same basic path.

So if you look at this year, which is on a national basis, is a year that is aiming towards more fiscal responsibility, supposedly, or more conservative people being elected, House of Representatives almost certainly going to Congress, governorships shifting heavily away from Democrats towards Republicans, California isn’t going there at all. California is going to elect or in a sense you could say re-elect Jerry Brown governor. [Ed. note: Interview was Oct. 27] The legislature is going to remain heavily Democratic. The same dilemmas that Arnold Schwarzenegger faced as governor Jerry Brown is going to face as governor.

If you look for example at it from a different way and this is somewhat telling, if you look at the House races across the country that are thought of as toss-up races, the ones that could go either way, not a one of them is in California.

California isn’t shifting so its basic problems will remain the same. Its socio-political world has continued to tilt away from productives a little bit each year toward more unproductives a little bit each year, which maintains and establishes the voting populace at a little more dependant on the professional political platform.

Stockerblog: I think the fear from investors is, could the state go bankrupt, is that even a possibility, and if that did happen, then what?

Fisher: You asked about the next few years. The state is not going to go bankrupt in the next few years. The state’s going to have severe budget problems in the next few years. Might the state eventually go bankrupt? Yea, but not in the next few years.

I will make one point, that’s an observation that so far does not seem to get the light of day. In November, I turn sixty, and in my lifetime, my adult lifetime, there has never been a November election in California that did not have multiple bond issue initiatives on the ballot. For the first time in my adult life, there are no bond issues on the California ballot and nobody seems to notice that. The San Francisco Comical hasn’t written about it, the LA Slimes hasn’t written about it. That’s an interesting sign. It’s a sign to me that California isn’t going bankrupt anytime soon, but that’s also a sign that’s good that they can’t sell any bond issues anyway.

End of Part 2

The Debunkery book is available at Amazon.

Ken Fisher obviously doesn’t give individual stock recommendations in his interviews, but some stocks he likes that were mentioned in his recent Forbes columns are available in the form of a free Excel list at WallStreetNewsNetwork.com.

Part 1 of this interview is available HERE.

By Fred Fuld at Stockerblog.com

Disclosure: Interviewer doesn’t own any of the stocks mentioned in this interview series at the time the article was written.

Copyright 2010. All rights reserved. Reproduction of this interview prohibited without permission. All opinions are those of Ken Fisher, and do not represent the opinions of Stockerblog.com or the interviewer. Neither Stockerblog nor the interviewer nor the interviewee are rendering tax, legal, or investment advice in this interview. If you want tax, legal, or investment advice, contact the appropriate professional.

Ken Fisher Interview Part 1
Please note: Interview took place on Wednesday, October 27, 2010

Stockerblog: I’d like to first ask you about your new book Debunkery. Why don’t we start out with you giving a description of what debunkery is and how you came up with the name?

Fisher: The name popped into my head. Debunkery is the process of what I talked about in my first question of The Only Three Questions That Count book, which is ‘What Do You Believe that is Actually False’. In Debunkery, the game, if you will, is to take things that are widely accepted and see if you can subject them to some catechism that shows that they are not true. That which is thought of as conventional wisdom is exposed as actually false, and therefore bunk, and therefore the process of debunking or debunkery.

Debunkery is a game that I try to convey in the book by using some techniques that aren’t necessarily terribly complicated, some of which are easier to learn than others but pretty much anyone can learn if they wanted. So part of it is not just showing the 50 things that people often believe that are bunk, but teaching them how to do the debunking themselves so that when they finish reading the book, they can do their own debunking.

Stockerblog: Let’s talk about Bunk #2 which is ‘Well Rested Investors are Better Investors.’ Now I think what you mean by that is the classic conservative type of investments like bonds or bank accounts, that type of thing, is not really the way to go; you really have to go into stocks to get the returns you are really looking for.

Fisher: Well you can view it that way, and that is one way to view it, but you see a lot of people on different web sites saying that you need a sleep-at-night factor, or sell down to the sleeping point; you hear all these things about sleeping and conventional wisdom. Or people say things like, “Well I’ve gotten out of the market and I’m not going to get back in until I’m more comfortable with things,” “I don’t think I could sleep if I owned category X now.” And the fact is, capital markets, in all their aspects, are ones where comfort is a very expensive item.

If you are prone to be comfortable based on what you own, you better reconcile yourself to low or negative returns. Most of the time when people buy the things that are most comfortable, they actually end up getting negative returns. The history of buying comfort is very expensive.

So if you think of any asset class, doesn’t matter whether it is stocks, bonds, commodities, anything, the time people are most comfortable with it is mostly really close to the peak. When people think they have the clearest future, it’s close to the peak. When they think they can’t see a clear future out there at all, that’s more often, close to a bottom.

Stockerblog: I know that some investors feel comfortable with municipal bonds, they are looking at possible increases in capital gains taxes, they are wondering, well if I can get 5% tax free versus nine or ten percent on my stock portfolio, which is going to be taxed at the state and Federal level, maybe that’s what I should be in.

Fisher: One of the things that they don’t think through in the way capital markets work is it’s not about whether you’re rational, and it’s not about whether your smarter or more rational than the guy down the road, the reality is capital markets discount that which everyone has been digesting for some time, and it’s virtually impossible to think that a concept such as the ones you just articulated isn’t exceptionally, widely digested by a very large number of people, who processed it and pressed it into securities at current prices.

So for someone to think, “I can get a better return off of something like that,” whatever it is, it’s very hard for people to get but it’s an arrogant statement. It’s saying my rational observation is somehow unique compared to all the other people confronted with the exact same phenomenon.

That’s one of the hardest concepts that people have is that markets are discounters of all known information. And while markets are not perfectly efficient, they are relatively efficient. So something as simple as taxes, millions of people have forever made decisions based on tax rate changes, and there is actually a very clear and demonstrable history which people don’t want to hear about, which is tax rate changes don’t end up having facts that people would predict because they are priced into the market long before those tax changes ever come to pass.

Stockerblog: I remember that was in one of your bunk chapters.

Fisher: One of the things you hear people say all the time are things like “Stocks will do well or badly, bonds will do well or badly,” you pick a category, it doesn’t matter to me, “because capital gains rates are going up or down, or because income tax rates are going up or down.” They somehow seem to forget that, and this is one of the points I use in Debunkery, is that history is actually very useful for debunking, because we’ve had a lot of times in the past where interest rates have gone up and own, and tax rates have gone up and down, and so if something as simple as that were to have the effect that people think it might, they would see those changes when those simple changes occurred in the past, and that’s easy to demonstrate.

I tell people all the time, stop and go back and check things. And very few people do, because what most people do is they go into simple observation of the way they think it out to work and they don’t go any further than that. This is Bunk #7, which is Go With Your Gut. Your intuitive reaction to things, again everybody else’s reactions which are not that different than yours, unless you think you are really unique which is a really arrogant statement, they are already priced into the market already.

End of Part 1

The Debunkery book is available at Amazon.

Ken Fisher obviously doesn’t give individual stock recommendations in his interviews, but some stocks he likes that were mentioned in his recent Forbes columns are available in the form of a free Excel list at WallStreetNewsNetwork.com.

If you missed last years interview, you can check it out as follows: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6

By Fred Fuld at Stockerblog.com

Disclosure: Interviewer doesn’t own any of the stocks mentioned above at the time the article was written.

Copyright 2010. All rights reserved. Reproduction of this interview prohibited without permission. All opinions are those of Ken Fisher, and do not represent the opinions of Stockerblog.com or the interviewer. Neither Stockerblog nor the interviewer nor the interviewee are rendering tax, legal, or investment advice in this interview. If you want tax, legal, or investment advice, contact the appropriate professional.

Over a hundred years ago, TransAlta (TA) was launched as a small, local power company in Alberta. Today, its a massive energy company, Canada’s largest publicly traded generator and marketer of electricity and renewable power. With approximately $3 billion in annual revenue, more than $9 billion in assets held in power plants across Canada, the US and Australia, TA means serious power.

It also means powerful dividends…

I bought a bunch of TA shares earlier this year around $20. As of today, TransAlta is only trading a bit higher. Thats a good thing. Im hoping it stays that way, for a very long time actually. Confused? Wouldn’t I want stock prices to rise? Nope…

Earlier this year, I received almost two (free) shares of TransAlta stock because of my synthetic DRIP. In the end, I only got one. You know this story well; set up the DRIP for free with your discount brokerage; tell them you want all stock dividends paid to you to buy as many whole shares as possible each quarter; tell them what’s not reinvested into stock(s) to be deposited as cash into your brokerage account for future purchases; yada, yada. Well, as a dividend investor, I want TransAlta prices to stay low or go lower because when dividend payment time comes around (every quarter) it gives me the chance to buy more shares. High TransAlta prices never do me any good because I cant buy as many whole shares via my synthetic DRIP. On the other hand, the better hand, Im hoping for low TransAlta prices because that gives me an opportunity to buy more whole shares.

What happened when shares stayed closer to $20 this past month? I got those two new shares, unlike the one share from the previous quarter. Thanks to moderately low TransAlta prices this year, my TA compounding machine is starting to run faster; dividends paid during lower stock prices bring in more shares; more shares bring in more dividends; more dividends continue to work to bring in more shares over time…you see the cycle.

I like owing TransAlta because the way I see it, you can put off buying a car, a computer or a new pair of shoes. Frankly, I doubt most of us will keep our lights off tomorrow after we come home from work, keep our TV off, or keep our stove off. Most of us want to see things so we don’t trip over them, some of us might watch a hockey game on the tube and I’m sure most of us are going to want to eat. Based on those needs or wants, I bet some of you, somewhere, are using TransAlta power to do that

How about you, do you like seeing your stock prices drop?

Cheers,
Financial Cents

With Gold (GLD) reaching all-time highs again this week more investors are putting cash into anything precious metal related but I am here to caution you on doing so. There are far better opportunities than gold right now and chasing this trend is not the formula for generating short-term growth. We have traded GLD call options 8 times this year (7 profitable) in the ETF TRADR portfolio but now its time to step away. Of course, what type of tradr would I be if I failed to offer a better alternative.

First off, it would be very difficult to find a long-term chart more strong and persistent than the Gold chart its nothing short of amazing (and at the same time scary for the future of the dollar). That said, even as Gold has made new highs in recent days there is a better place to focus your trading capital. The semiconductor industry has lifted off in recent days and I expect it to continue. Heres the performance chart between the headline-making Gold (GLD) rally and the Semiconductor ETF (SMH).

read more

by Andrew Hart ETFTRADR.com