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ROBERT RUBIN JULY 11, 2007 Proven Money Making Tactics Part II.

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Presentation on theme: "ROBERT RUBIN JULY 11, 2007 Proven Money Making Tactics Part II."— Presentation transcript:

1 ROBERT RUBIN JULY 11, 2007 Proven Money Making Tactics Part II

2 Buy Chinese ADRs Before The Chinese IPO Many Chinese companies issued ADRs outside of China without issuing stock in China Early discomfort with capitalism The Chinese exchanges are rushing to catch up Shanghai and Shenzhen IPOs in China for stocks already traded here Chinese IPOs create huge new demand for stock Chinese eager to invest, so IPOs oversubscribed Caution – Chinese government raising taxes and interest to lower liquidity Prices soar after IPO, despite new shares Example: GSH (Guangshen Railway Company) 12/15/06 - Last day before IPO – closed at 27.81 1/3/07 closed at 35.24 – a 26.7% gain Price began rising two months before English version of Peoples Daily for Chinese business news

3 Buy Stocks After Special Dividends When stocks issue special dividends, they usually return to the pre- dividend price within 6-12 months Special dividends are large one-time dividends Dispose of cash the business can not profitably use Acquire debt to make themselves unattractive takeover target Buy stock on ex-dividend date When stock price adjusted down to reflect the special dividend Price rise after dividend announced lowers profit, so wait for ex-dividend Make sure the company is a stock you want to own Not liquidating or lacking future plans Sell when the stock returns to its pre-dividend price Example: SKS (Saks) went ex-dividend 12/01/06 Price fell from 20.52 on 11/30/06 to 16.88 on 12/01/06 after $4 special dividend Price closed at 20.67 on 7/05/07 (back to pre-dividend price) – a 22.45% profit

4 Short Stocks Before IPO Unlocks Lock-up Agreements stop insiders from dumping their stock after an IPO Commonly for 180 days Prices fall and volumes rise before and after unlocks Average prices start to fall before unlock Start to fall 1-2 weeks before, continue for 1-2 weeks after Short or buy puts 1-2 weeks before unlock Example: FSLR (First Solar) 28.50 on 1/3/07 69.63 on 5/7/07 64.126 on 5/16/07 (unlock date) a 7.9% drop 62.03 on 5/21/07 another 3.3% drop 96.29 on 7/6/07 Free subscription to Dynamic Market Alert includes IPO unlock dates with every days issue

5 Find and Buy Acquisition Targets Early Companies often sweeten executive compensation when they receive unsolicited bids Extra bonuses protect executives who might have to go Companies must report new compensation SEC Form 8-K, Section 5.02 Learn about likely mergers before announcement Example: OO (Oakley) On 5/31/07, Form 8-K, Section 5.02 says Long Term Incentive Plan payments after Change of Control will be twice normal On 6/20/07 Oakley and Luxottica announce OO sale for 29.30 OO at 25.42 on 5/31/07 OO at 28.45 on 6/21/07 – an 11.9% gain

6 Buy (the right!) Options Instead of Stocks Invest a fraction of what you would for stock Lower your cost, not your potential profit Buy deep-in-the-money long-dated options instead of stocks In-the-money options give you gains and losses close to the underlying stock Deep-in-the-money options likely to stay in the money despite volatility of the stock Long-dated options give your investment time to mature Example: GOOG (Google) 539.40 close on 7/6/07 so $53,940 for 100 shares 284.70 Ask for January, 2009, $280 calls so $28,470 for 1 contract If GOOG rises 100, you would make the same $10,000 profit on both Do the same with puts if you expect the price to fall

7 Buy Dividend Stocks With DRIPs Stocks returned 10% per year in the 20 th century 6.7% after inflation = 4.6% dividends + 2.1% capital gains Dividends have been 68.7% of total returns Growth stocks often underperform over time Seldom pay dividends & must beat exaggerated expectations Old Economy stocks often excel over time Pay higher dividends & easy to beat low expectations Dividends often do more than share price over time The price you pay for dividends is critical – old idea that still works Use Dividend Reinvestment Plans (DRIPs) for buy-and-hold Dividends automatically reinvested in stock, so they compound Buy stock from company, bypassing brokers and commissions Automatic purchase plans available for dollar cost averaging Some companies offer a 2%-10% discount off the market price Source: "The Future for Investors" by Jeremy Siegel

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