Step3 Prophet

Buying Opportunity

With the DJIA  down almost 10% in the past few days, I'm taking this opportunity to buy some more stocks and mutual funds/ETF's. I'm currently favoring Sony (SNE) and Citigroup (C) in the individual stocks category, along with Rydex Equal Shares Index ETF (RSP) for broader exposure and Vanguard's High Dividend Yield mutual fund (VHDYX) in my Roth IRA. My total transaction value today is only about 2.5% of my investment portfolio, and that will leave about 1.5% cash remaining for future investments, unless I move more cash from non-investment accounts.

  Citigroup is an interesting pick at the moment. They are down about 30% in the past month because of the economy in general and because they have high exposure to European debt which is in jeopardy of default. My feeling is that these are short term setbacks and C's long term prospects (3-5 years) are still good. I've been buying C in small lots almost since the recession began, thinking once this recession is well and truly gone C's share price will pop back up again, but so far time is making a fool of me. C is about 1.5% of my investment portfolio.

  Sony is a more recent favorite. After the earthquake troubles and lawsuit troubles earlier in the year, I've been buying SNE while it's been slowly declining. The are down about 40% year-to-date, compared with only 10% for the S&P 500 index. Again, there is no reason the l can see that the long term outlook is that bad. Sony has a diverse product line up and profit losses should only be temporary as they get things going again after the earthquake.

Investing in Real Estate and Starting a Business

I'm a huge fan of the investing philosophy of "Buy low, sell high" (as are most investors), and I've come to a point in my life when I actually have some cash to do just that. Since real estate has been on the decline for a while now, I figure it's a good time to jump in to the real estate market. To that effect, a partner and I are buying an investment property with the intentions of renting it out for a profit. 

So far we are still in the early stages of negotiations. The property is a short-sale, which means we should get it for a very good price, but the bank that owns the mortgage has to be willing to take a loss on difference between what the seller owes and the sales price. The seller has accepted our offer this week, but we still have several months for the banks to make up it's mind about the disposition of the house.

Actually,the first step in the process was  establishing a Limited Liability Company(LLC). It is our LLC that will be buying the property, not my partner and I. Since we are the only two members of the company though, it is close to the same thing. The importance of the LLC is mitigate some of the risks of owning and operating the property. If a person were to be injured on the property and sue the owners of the house, the owners could end of losing everything they own to pay off any judgments against them. That includes the rental house, their personal houses, other savings an investments. In today's litigious society, this is a remote but very real risk. By making the LLC the owner of the house, we limit our risk so that only the house and property might be lost, not everything we own.

  Setting up the LLC was easy to do. Our state has a website where you can fill out the "paperwork" and submit the application in about 30 minutes. The fees were fairly reasonable at $200, and we didn't even need a lawyer. A few days later we got a letter from the Secretary of State confirming our LLC was created and a nice certificate to hang on the file (or file into oblivion). Once our LLC was confirmed we gave the name to our broker for the short-sale and the purchase-sales agreement was written so that the LLC will buy the house.

  When starting a business it's important to keep business and personal finances separate. The LLC will have to file it's own tax paperwork, which can get pretty complicated depending on what type of tax structure your company has. The easiest thing to do would be to have the LLC disregarded for tax purposes, but you can only do that if the LLC is owned and operated by a single person (or married couple filing jointly). If the LLC was disregarded, it would be taxed like a sole proprietor business on the owners own tax return.

Since our LLC is owned by two individuals, we have chosen to be taxed like a partnership. This means the LLC doesn't pay any taxes directly, but passes all the tax burden onto the members of the LLC. You still have to file many additional forms with the IRS and State on behalf of the LLC, but the Federal tax reckoning will be done at the member's level instead of by the LLC. There are state tax implications that I have not fully explored yet, so more to come on that.

Also, we have applied for a federal Employer Identification Number(EIN). This will let the IRS track our companies activities by the EIN, and let  us establish bank accounts and other financial services in the LLC's name. The EIN is used on all tax forms the IRS gets related to our LLC. The process was free and took about 10 minutes online at the IRS's web site (www.irs.gov). You just answer a series of questions about your business and give your contact information for your LLC, and you instantly get a EIN. We'll be on the look out for free business checking accounts in the next week to firmly establish separate finances.

 

A look at how my USO stock is performing - Part 1

  I 've held United States Oil(USO) for several years now in the belief that oil prices can generally only go up. I say generally because we all remember back in the summer of 2008 when gas prices sky rocketed, fueled by a mini-bubble in the price of crude oil, only to come back down again later that year. It was this bubble that peaked my interest. If a commodity is overpriced, eventually it's price will swing lower, and usually over correct. I thought this over correction would be a good time buy, and chose USO to be the investment vehicle. I haven't thought much about it since then, but recent events in the commodities market have caused me to doubt my USO investment. When values are going up and everything looks good, it's easy to ignore problems with and investment. I suspect that I haven't been getting what I thought I was from USO.  Some questions that I would like to answer are: how accurately has USO actually tracked the price of crude oil, how it compares to the general market, and how it compares to alternative oil plays. 

  A little background about USO: It was created on April 10th, 2006. It's a Limited Partnership ETF with "The investment objective of [...] changes in percentage terms of its units’ net asset value (NAV) to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract on light, sweet crude oil traded on the New York Mercantile Exchange (the NYMEX)." Quote source and image source is Google Finance. Basically what it means is that If oil prices go up by 10%, then the USO ETF should go up by that amount as well.

  Some Crude History: For some reason finding commodity prices is a little more difficult than a historical stock price, but I came across this Crude Oil Price History table showing week-ending prices from 2006-Present, which is good enough for my purposes. A brief review of the table shows December 30th, 2006 prices of $61.04, a high point on July 4th, 2008 with a price of $145.29, a low point on January 16th, 2009 $36.51, and a current price of $105.40 as of March 25th, 2011. This jibes well with what I vaguely remember from several years ago.  If you bought around the low price in 2009, you currently would be up about 288%. That would be pretty sweet! The graph shows the price history of crude and USO from 2007 to present.

Some even cruder history (mine): So I had this brilliant idea to buy after the oil price swings to the low end of the spectrum, but how well did the execution go? I currently have 70 shares of USO, with an average price of just under $31. Current share price is just over $42, which means my current gain is about 35%. The information my brokerage gives me supports that (37.03% by their calculations). That's not bad, but considering that I could have had 288%, what happened to my other 250%? 

  Maybe I didn't buy at the right time. Looking back at the price history it's very easy to see when you should have bought, but at the time you make the purchase it's hard to know. Here is my purchase history:

Date of Purchase	Shares bought	Purchase Price	Percent gain
2009-01-02	5	$35.47	19.40%
2009-01-07	3	$34.92	21.28%
2009-01-07	3	$33.37	26.91%
2009-01-13	3	$31.43	34.74%
2009-01-26	6	$32.65	29.71%
2009-02-04	14	$28.98	46.14%
2009-02-09	13	$28.50	48.60%
2009-03-06	14	$27.50	52.83%
2011-02-09	9	$36.65	15.55%

Holy mackerel of auto-complete! The bulk of my purchases occurred right around the low point in 2009. Another interesting thing you can see from the purchase history is that the price low point in USO appears to occur in March of 2009 vice January. A review of USO's price history shows the low point was actually in February, but there is not a huge discrepancy between prices.

A deeper look at USO vs Crude Oil. The graph of price history above clearly shows that USO does track crude prices. I took a closer look at several years worth of weekly data to figure out what is going on. Out of 200+ data points, I came up with this graph for Difference in the Percent Price Change of Crude Oil vs. Change in USO. A value from 0-1% means that for that week the change of USO's price was between 0-1% less than the change of crude oil. Less than 1% difference would mean it's tracking fairly close to the commodity. However, the majority of the price difference changes are greater than 1%, even as high as 19%! That is wildly out of sync with what USO's stated goal is. Looking at the numbers, we find that the value lag is greater than 1% over 50% of the time. For comparison I did the same calculation on SPY, which tracks the S&P 500 index. The difference was shocking. SPY deviated by more than 1% from it's index only 3% of the time, and the highest weekly deviation was less than 2%. By comparison USO is greatly under-performing (I know it's not an apples to apples comparison). Overall the standard deviation for USO is about 2%, which seems fairly small, except when you realize losing 2% a week is how you go from a potential 288% return to a 37% return. FYI, SPY's standard deviation is 0.30%  Also, USO is under-performing against the general market. A quick comparison between USO vs the S&P 500 on Google Finance shows that USO is lagging by about 13% since January 2009. I would have been better off just buying VOO(If it had existed at the time). 

Why USO lags the price of Oil. What separates USO from SPY is that USO cannot directly hold the commodities it wants to track, while SPY, which is based on large US stocks, can easily buy and sell equities to maintain parity with the general market(I won't go into details of how SPY works here). USO, on the other hand, plays the oil market by buying futures contracts, which are promises to pay a certain price for oil delivery at a future date. Since USO does not want to store oil, they must sell their oil contracts every month before the contracts are due. If the price of the oil contracts for delivery next month is higher than the actual delivery price(and it frequently is), this means they lose money every month just selling and buying contracts. The term for this unfavorable price difference is contango. This is actually spelled out in the USO prospectus, but I don't think I would have realized the impact of what that paragraph implied without seeing the results in action for myself. Here are some links with some more detail on why this is the true: How Contango Affects Crude Oil ETF's and ETN's (USO, OIL, DBO), and Commodity ETF Basics.

This post is running long so I'll do a Part 2 shortly. Next time week look at other alternatives.

2010 Contributions to Roth IRA

Earlier this year I contemplated spacing out my Roth IRA contributions over the course of the year, looking for the lows and avoiding the highs. Sadly, the execution of that strategy did not go so well because this year has been a pretty steady climb for my preferred IRA investment, Vanguard's REIT index (VGSIX). I like it for my IRA because REIT's throw off a lot of dividends, and the IRA keeps those dividends tax free for now. Looking back now I would have been better off to just invest all my IRA money in January and collect the extra dividends and appreciation, but it's too late for that, so it's time to come up with another strategy. I've still got the bulk of my 2010 IRA contribution remaining, and since VGSIX has gone up so much this year, I'm going to diversify into something else (1 yr growth for VGSIX is 31%, whereas the S&P 500 index VFINX is only up 9%).

I've had my eye on some of Vanguard's Dividend funds. This wouldn't really be diversification actually, since I hold so much S&P 500 stock any way, but it would be a concentration of potentially higher quality stocks. Solid companies + Reinvestment of Dividends = high returns. Two fund that fit the bill are Vanguard Dividend Appreciation Index Fund (VDAIX) and Vanguard High Dividend Yield Index Fund (VHDYX). They both have high dividend yields, and expense ratios are the same as well. They are also both at a 52 week high right now, which make me reluctant to buy. Since everything is on a high right now, I'm going to hold off on my contribution a while longer. Thanks to IRA rules, I have almost 4 more months to decide.

Maybe it's just the engineer in me, but I love the way the IRS spells everything out on their website. IRS publication 590 covers IRA's, and it says:

You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).

 

You can make contributions for 2009 by the due date (not including extensions) for filing your 2009 tax return. This means that most people can make contributions for 2009 by April 15, 2010.

So I have until April 15, 2011 to make contribution for my 2010 IRA. I'll give the matter a little watching.

 

Test run of Zecco Options Trading

A few weeks ago I signed up for Options trading privileges from my brokerage, Zecco.com, and today my options access was granted.

The basic idea is simple. I have shares of a company in my regular trading account that I'm willing to sell and make some profit on. In the mean time, I intend to sell "covered calls" so that I earn money from the shares until they get sold. Basically, it means that someone will pay me for the right to purchase my shares of stock if it rises to a certain price. The risk is that the stock will rise the call will be used by the buyer. One of the nice things about Zecco is that you can have a pretty girl explain this and other investing techniques to you. Another explanation can be found here: http://www.mindxpansion.com/options/sell-calls.php .

I logged in today full of excitement, and then discovered I had no idea how to actually execute the sale. There are something like 11 fields to input information into, and I need to learn the right way to do it.

  

My starting point is the Zecco.com education section. I know basically, what I want, I just need to figure out how to tell that to Zecco. Sadly, zecco was less than helpful on the specifics of executing the trade. I was able to figure it out with an hour of experimentation and internet research, but it should have been easier.

My trade type options are: BASIC, COVERED CALL, LONG/SHORT ROLL OUT/ MARRIED PUT.  I'm trying to sell a covered call, but it looks like when I select that option it forces me to buy the underlying stock at the same time, which I don't need to do. I'll stick with basic for now.

My transactions options are BUT TO OPEN, SELL TO CLOSE, BUY TO CLOSE, SELL TO OPEN. Once again, I'm not sure so I'll look it up. It turns out that each option transaction has an opening and closing phase, unlike a stock which you can hold indefinitely. Since I'm writing a covered call, I want to SELL my option contract to OPEN the transaction. 

The rest of the fields aren't quite as obscure.

• Contracts: The number of options contracts you are writing or buying. One contract is generally for 100 shares of the stock, so I only want to write one contract.
• Symbol: is the stock ticker symbol.
• Expiration: is the last day on which the options can be exercised. 
• Strike: is the price you will sell (buy) the stock at.
• Order Type: Limit or market. Market means you will pay the best asking price around, Limit means you will only pay a certain price or better. I prefer limit orders because it is easy to know what you will pay.
• Limit Price: Is the maximum you are willing to buy/sell a stock or option for. 
• Duration: Either Day, meaning you will only buy/sell at that price for one day, or GTC, good till canceled, meaning you have to explicitly cancel the order.
• AON: All or none; if you check this all of your order must be executed at the specified price.

To actually execute an options trade I found you had to look up the options chains for that stock, which is step 1 circled in the picture below. You just enter the stock symbol and select the "options chain" link.

 
 

Step 2 is to select the option date and price you want. The default is the closet to expiring options, but you can select future months/quarters. I chose 19Jun2010. As you can see, the higher the strike price, the less money people are willing to buy the option for. Also, as you get closer to the expiration date, the cheaper the options sell for. Once you click trade, most of the boxes are filled in automatically at the top. I couldn't fill in some of the boxes on my own, so it makes me wonder how generic contracts get written.

Step 3 is to enter the type of transaction (Sell to Open) and the number of contracts. I'm only selling one for now, to make sure I really do understand the process and don't make a huge blunder.

Finally I previewed the order:

 

Expected Proceeds of $56.00. Nice. Now I just hope that F doesn't quite hit 13.00, and so I can sell it again next quarter.

Dabbling in Options

I've been catching up on a number of finance blogs that I used to read quite regularly, and came across and interesting article from DoughRoller called "A Simple Yet Profitable Call Option Strategy". Much like DoughRoller, I haven't really considered dealing with options until now. Normally they are only good for two things:

• Managing risk in a portfolio.
• Wild Speculation.

Options are basically a promise to buy or sell stock (or other goods) at a certain price by a particular date. You have the option to buy or sell at that price regardless of the current value of the stock.

When used to manage risk, you can do things like preserve value of your assets even if the market takes a steep dive. This is good for someone who has a short term need to persevere value such as an estate executor maintaining an inheritance for someones heirs or a trust fund for a minor. Since options used in this manner generally limit your upside gains and cost money that you usually will never see again, I have avoided them.

You can also use them to increase your leverage by making promises to buy or sell stocks that you don't actually own. Wild speculation like that gets many people in trouble with options because if you make good bet, you can win lots of money with very little down but if you bet poorly, you can lose more than you would think possible. For that reason options trading accounts have a little more stringent rules than your normal stock brokerage accounts. Anyone considering options trading should put more than due diligence into their research to understand the risks and rewards. This article on investopedia has a good overview of why people use options, but don't let their talk of rewards and risk management cloud your judgment. Options are not a long term strategy. 

I still remember and episode of "Saved by the Bell" where the class plays with stock portfolios during a lesson and Zack ends up selling the stock and buying potato futures on margin. When the potato market crashes, somehow he is left with a parking lot full of potatoes.

The third thing options are good for is generating extra income by selling options contracts on stock I already own aka, a "covered call". Basically I'm letting someone buy the right to purchase my stock at a particular price before a certain date. Since I'm inclined to sell some of my current stock anyway, I think writing options contracts and making a profit on the income is a win-win for me. Whatever happens I get the contract price. If the options expire without being exercised, I still have my stock. If the options are exercised and my stock gets sold, then I make a profit( or maybe take a loss?) that I was going to take anyway.

My preferred stock broker is Zecco.com because of their free trades. They don't have as many features as some of the more expensive brokers, but I don't really need those features for my basic stock trades. To make things simple I'll keep my options account with them as well.

  At Zecco

• Options fees are $4.50 + 0.50 per contract.
• You must complete an options agreement form, which is basically a risk assessment form followed by 2 pages of legalese, and mail it in to Zecco. You can do this anytime during or after account opening. 
• You will be given a level of 1,2,3, or 4 based on what you want to do and the risk Zecco feels comfortable taking on you. For my basic purposes I only need a level 1 clearance, but I'll apply for level 2 to "keep my options open"(haha).

Levels 3 and 4 require margin accounts, which is basically a line of credit or loan used for purchasing stock. It's another form of leverage. Level 4 requires a minimum account balance of $250,000 and allows the riskiest trades such as uncovered equity(naked) options where you do not own the stock you are promising to buy or sell.

I'm mildly annoyed that I have to snail mail the form in but I remember having to do that for my inital account opening as well. I guess I'm spoiled by the interent age and want instant gratification.

IRA 2010 decisions

I've been giving a lot of though over the past two weeks to what I should invest my IRA money in this year. Last year I did pretty good investing in the Vanguard REIT fund, but this year the fund is up quite a bit, just like everything else. With pretty much all asset classes rising phenomenally in the past year, it's hard to find what is undervalued. Granted, bonds didn't rise as much as stocks, but they are not really expected to. I'm not that confident in my bond assessments yet anyway. Headlines like this could give anyone pause " Mamas & Papas To Streamline Recruitment Process With Applicant Tracking Software Bond Talent. " WTF mate? So I've decided to let my asset allocation strategy be my guide. Currently here is where I stand:

	Current	Goal
S&P total	28.28%	25.00%
Loans	8.73%	10.00%
Small Cap	5.85%	10.00%
International	19.58%	20.00%
REIT	11.89%	15.00%
Stocks	19.81%	10.00%
Bonds	5.85%	10.00%
SUM	100.00%	100.00%

As you can see, the allocation is grossly out of sorts. I'm not going to try and force the numbers to match my allocation exactly, because that usually incurs extra fees and taxes. I'm going to pour a little more of my investment money into certain areas, namely small cap, loans, and REIT, and sell a little bit of my individual stock holdings. I won't touch bonds for the moment because I only invest with them through TSP, and I don't want to change my allocations there just yet. For the small caps stocks, I'll look at adding a small cap fund to my vangaurd IRA, or maybe using their brokerage services and getting an ETF. An ETF would probably offer lower expense ratios, and because I'm making a big one time purchase the brokerage fee would not be as big a factor.

Since I think stock prices in all areas are still overpriced, I'm not in a rush to make changes right away. I predict we'll see a drop toward the end of January and into February. My goal is to have all my IRA money invested by the end of the first quarter, so I have a little time to research funds and to time when I put my money into them and my current REIT. Loans are good to invest in any time, but I'm not going to use them in my IRA just yet, although I probably should since they are high interest generators.

Maximizing Savings Through Your Work

One of the best ways to save for retirement is through your work. If your company offers a 401K or similar program, it's hard to beat the tax advantages that saving that way can offer. I've been contributing regularly to the governments TSP(Thrift Savings Plan) program for years now, but never in any great way. They don't offer matching contributions for military members, so I've been more interested in investing in a Roth IRA and limiting my TSP contributions.

This year however, I've already made my full annual IRA contribution. That means more money each paycheck for me! Alternatively, I could take the extra money that I would have invested in my IRA and switch it to TSP. Of course, there is the holy grail of retirement saving: Maxing out my TSP contributions. For 2009 that limit would be $16,500 (the same as a 401K). That is quite a chunk of change. It comes out to $1,375 per month. Can I possibly afford to save this much? Currently I'm saving about $500, and combined with the money I'm not contributing to an IRA that would be about $900. That means I'd have to devote an additional $475 each month to long term saving.

It's tempting, and I'm pretty sure I could pull it off, but right now my entire life situation is in a state of flux since I'm moving to another country. There are a few unknowns that could come back to bite me, so I'll be a little careful here. I'm definitely increasing my contributions, but not quite to the max. Once I'm settled in my new local, I'll reevaluate my situation.

IRA Bonanza

I sold my Acura last week and the check finally cleared my bank account, so now I've been figuring out what to do with the proceeds.

The first thing I did was pay off the remaining balance on my first 0% APR credit card. This is the portion I wasn't able to transfer over when I switched to a new 0% APR card. I also setup automatic payments on the new card so that I wouldn't forget to make a payment and incur horrible penalty payments and interest.

My other major decision was to max out my IRA in one big lump sum this year. In previous years I've thought this was a bad idea for a number of reasons. First, I didn't have the cash to do it. Second, I wanted to take advantage of dollar cost averaging for my contributions.  [In retrospect, with a continually rising  market like we had for the past 6 years, buying it all early would have been better]. Dollar cost averaging is certainly easier on the check book.

So this year I find myself with the cash and a yearning to invest while the market is down. Granted, the bottom could still be lower yet, but I'm not good enough to call it and investing now has some advantages. I've been wanting to increase my REIT holdings for a while, but since that fund is held in my IRA I've been limited by the annual contribution limits for 2008. So this January has seen a nice confluence of factors and I bought into the Vanguard REIT fund VGSIX.

I like this fund because it, like all Vanguard funds, has low cost and low turnover. REIT funds also have impressive dividend returns. In fact, the most recent dividend payout for my REIT fund was greater than from my S&P 500 fund even though the S&P fund has significantly greater assets. Because of the higher dividend payouts, it's a good idea to keep REITs in a tax sheltered account like an IRA. Buying at the begining of the year means greater dividend payments throughout the year.

On a side note, I just found out that bonanza means an exceptionally large and rich mineral deposit (as of an ore, precious metal, or petroleum). Hopefully this IRA turns out to be a dividend bonanza!

Is it time to buy American?

A few weeks ago I posted my thoughts on the financial sector as part of an instructional guide on what I look for in buying an ETF. I actually ended up buying 4 shares of VFH(Vanguard Financial Sector ETF) for about $33 a share. It looks like I timed it to well for my own good, because it has gone up to $41 a share and now I don't want to buy it any more. So what next?

Well, I saw an article on Yahoo! Finance called "Will Ford and GM Run These Funds Off the Road?". The gist of it is that US Auto makers have taken a beating on the stock market recently, and funds that own them may also perform poorly. Poor performance! Thats just what I'm looking for!

Down on their luck

Looking for poor perfromance? I'm sure you think I'm crazy, but I'm a contrarian investor. That means I look for stocks or sectors that have been punished for no good reason ( or for temporary reasons) and whose stock value has been driven lower than it probably should be. That is the time to buy. The highs and lows of a stock are unpredictable, and choosing which startup company will be the next Starbucks or Google is pretty darn tough. But seeing that an otherwise good company is down on it's luck is not that difficult right?

Well, there are somethings to watch out for. No company it too big for bankruptcy. If bankruptcy is coming up or being talked about, don't buy! Stock holders have about as much claim in backruptcy court as obese teenagers suing Mcdonalds. But seriously, stock holders are pretty much last priority, and most likely the stock will be entirely reissued.

Also, it's impossible to call the bottom. I learned this with Moneygram International (MGI). I noticed their stock when it had lost about half it's value. I bought 6 shares at $15. Now the stock is about $1.70. I decided to keep buying on the way down. They were hit pretty hard due to the credit crisis, but I think they still have good prospects for the future. Because I buy in increments of $100, I now own over 300 shares with an average price of $2.13. I'm also a long term investor, so I can wait years for the company to recover its finacial footing.

Buying in small increments helps protect you from losing too much at any one time. Sometimes, you lose out on more of the upside like I did with VFH, but I sleep better knowing that I bought 6 really expensive shares of MGI, and a lot of cheaper ones. Of course, if the company is going down, the shares are expensive at any price.

Down, but not out

So back to American auto makers. They've had a bad quarter. Actually, looking at the charts, Ford's stock has been sinking since 2000, so they've had a bad decade, and this past quarter is just the iceing on the cake. So why an I optomistic.

I can see several senarios that work in my favor. First, gasoline prices. They were high, but now are coming down. This will have two effects. The auto companies got a shock when people stopped buying big SUV's and trucks. Therefore, they will work to make better small cars in the future to regain market share. Also, after a while people will forget about how high gas prices and start buying trucks and SUV's again.

Second, the losses this quarter shocked investors. This means people irrationally sold the stock without evaluating long term trends. Therefore, the stock should be undervalued. Value is difficult to determine when profits are negative, but I don't believe profits will be negative forever. Also, the losses this quarter include a number "special charges". I think the auto companies are taking their lumps all at once, and future quarters will not be so bad.

I'm still new to investing in individual stocks, so hoping that auto makers read the signs and shift gears may be in vain. However, I'm an optimist. That's why I'm going long on F and GM.