Was it that the Fed’s quantitative easing was becoming reality, or that the electoral sweep swiped the markets? Regardless of the reasons, the last month has been a tale of two halves as, after climbing to new bull market highs in early November, the stock market took a serious nose dive which erased recent gains.
After weeks of investor bullishness, risk aversion sentiment returned as the focus turned once again to overseas issues such as inflationary worries in Asia and renewed debt fears in Europe. The net effect was that most markets sold off, from stocks to commodities, to energy. About the only things higher over the last couple of weeks are the U.S. dollar and interest rates. The financial media is screaming for a treatment for cystic acne, but to keep matters in perspective, the drop from the rally highs is still in the single digits and therefore only qualifies as a mere pullback. For the month since our last update, the broad stock market is essentially flat with the S&P 500 index up 1.10%.
Still, after the strong and uninterrupted run up since early September the market was in need of a rest and despite Thursday’s strong rebound it would not be surprising to see the current pullback last a while longer or even develop into a correction. In the context of a still intact bull market uptrend, we view any weakness as great buying opportunities.
Gored by RINO
You can read about many winning stocks from investment newsletters, but seldom about the ones that did not go according to plan. We take this opportunity to present a lesson in risk management with our most recent speculation gone bad: Rino International (RINO), the very high flyer we highlighted in our last update for having gained the most!
We are pleased to quote from our original recommendation “For all the stated risk elements, and the fact that the bears may prove to be right after all, we are classifying this stock as speculative and, accordingly, we recommend placing a protective stop loss. Instead of the traditional 30% from entry price, we will set the stop at $11.18, the June low, as below this level our RINO investment thesis would clearly be invalidated.”
The short version of what happened next is that after being up encouragingly RINO shares got savaged by a damning analyst report. We got stopped out at our preset $11.18 level limiting our loss to some 26%. Not so bad, considering that the shares continued to drop to finally be halted at $6.07 as of this writing.
All the facts about RINO are not yet clear as the author of the report has himself come under criticism of fraud and class action law suits being filed for stockholders. From the safety of cash we will watch what unfolds and, if noteworthy, update you on the subject.
A small victory
The republican sweep of the midterm elections dominated the news and set the tone in the markets, yet one bit of rejoicing news, not just for green investors but for all humankind, went almost unreported: the defeat of proposition 23 in California. This was an ill-conceived initiative sponsored by big oil companies aimed at suspending the landmark Global Warming Solutions Act (aka AB32) and its massive defeat by California voters is a clear vote in favor of clean and renewable energy.
The impact, not only to California’s renewable energy markets but to the movement nationwide and internationally cannot be understated. This decision literally saves over half a million jobs and tens of billions in private investment in California’s clean energy industry. With California’s traditional leadership status in clean-air regulation and renewable energy, the bigger impact is the growing public support for climate change regulation and sound and sustainable energy policies.
With the end of the year fast approaching we are reminded that great benefits can be gained from sound portfolio management techniques. In particular, we want to identify any used lawn tractors which have delivered solid long-term capital gains for profit taking in a lower tax bracket, and conversely seek any loss leaders for tax-loss harvesting. Be sure to read this feature article in the December issue of the newsletter which applies these simple portfolio management techniques to rebalance the Portfolio.
The Portfolio update and recommendations
It must have been fate that made us write “Keeping short-term gains/losses in perspective” last time as some of these gains have now turned to losses… With a flat broad stock market over the last month, the Portfolio is down 4.04% and the S&P Global Clean Energy Index dropped 7.75%.
Since inception a little over a year ago, the Portfolio returned an aggregate 27.22% versus a loss of 30.13% for the S&P Global Clean Energy Index.
A big part of the recent losses can be attributed to the RINO debacle but there have been major hits to other holdings. In fact, the volatile solar sector was the big loser over the period with an average loss of 13.15%. Other notable losers included Vestas Wind Systems (VWDRY.PK) which continued to frustrate investors with another 19.91% drop.
On the flip side, in order to keep the portfolio’s loss to only 4%, there were some very solid performers as well and we will feature one in particular, our preferred Asian play on efficient transportation. The company has been quietly executing their plan and is delivering growth in key Asian markets like India and China, and the shares are appreciating nicely, 10.83% this month.