SELL EARNINGS (GOOD OR BAD)

Talking about the difficult market. LMS announced a great quarter: exceeding, great growth in all three segments, guidance for both Q2 and 06 increased, and the stock sold off significantly. In the conference call, I thought the management went to a great deal of length to emphasize that the guidance is rather conservative, and there's potential to increase after Q2. The valuation is very cheap, trading at approximately 12.8X of its 06 EPS, when visibility is very strong. I have no explanation for the sell off today other than the overall weakness of the market. But I am not selling. As a matter of fact, I would not mind to add here if my position is at a fairly large size. I believe this one should be traded at least 15X of its 06EPS, which will result in a 30 stock and it should be there soon, probably at Q2 report, if management beats and increases its guidance again. Similar stories for BTUI, WFR, ALDA, to name a few (not to mention UNH). All very strong quarters and very strong guidance, all sold off, to a very reasonable valuation level. While it is not fun to endure these declines, I am confident that these stocks will continue to move upward in the next few quarters.

RAISE IN MAY AND WAIT TO SEE

Future is catering in the early morning. A couple of bad misses, Big Ben is on deck, and China is raising rate (a potential slow down in China?). What's wrong with all these big oils, missing badly. How could they? Home builders are also weak and guidance low. Could be a rough day. The only position I am a bit of concerned is BTUI, which could be down a bit more today. Should I get out here and wait on the side line?

What a day! The market reversed, thanks to Big Ben's comments of "Raise in May, and Wait to See" However, I still feel this market is not behaving as it should be. I am turning to cautious here. I would like to raise more cash and add more defensive positions.

SELLING EARNINGS

I continue to see a lot of "selling earnings" going on, regardless good or bad earnings, which should not be a total surprise, given the run-ups most stocks had in the first quarter. Selling SCSS in front of its earnings turned out to be the right call. The fact is the upside report and guidance are fully discounted, and the valuation is definitely not cheap here. The question is" would you buy this stock here?" Is this a compelling story? The answer for both questions are "NO".

I continue to look trim ALDA in front of its earnings tonight, although I intent to retain a small position. I expect a strong earning report tonight, but not an increase of guidance. I expect the stock will fall a bit after, as it usually does. But this is a much better story because it remains under-covered and less known, hence valuation much reasonable. Sold some ALDA at 33.80 for a 7% gain (since March 6, 06). (p.s. Results are out and they were huge. EPS of 0.76/sh for Q1/06. I hope the market does not notice tomorrow morning, and gives me an opportunity to buyback my shares).

BTUI has fallen by more than 10% since it made its all time high of $22.79. The earnings were actually really good. Strong top line and bottom line growth, strong cash flow, decent backlog, clean balance sheet, management confident, outlook strong. Valuation is more than reasonable and there's no earning risk as it has reported. Investors have made a lot of money on this name over the past year and they are sitting on a lot of profits here and you can't blame them for taking some off the table. The issue is really the direction of the overall market, which has been direction-less for the past few weeks. Having said that, I am considering to open a small position here. Opened a small position at 19.40.

WAIT AND SEE

SCSS

The market is really not behavioring here, despite strong earnings across the board. I guess it probably will also apply to SCSS as well. There are a lot of anticipation of a strong earning report, and more importantly, strong guidance, that support this stock in the last few days. I am not as confident though. The stock is not cheap here, and can only be supported by a strong guidance. Anything short of it will send it downward. A so-so guidance will not do. Given that, my inclination is to take profit in front of earnings and wait and see. Sold SCSS at 41.7 for approximately 12.9% since late March, not too bad. (SCSS resuts out and they were good).

I found the market is extremely difficult for longs, and my confidence is a bit of shaken. The strong earning thesis has not fully panned out and we have seem some weaknesses, other than commodities. The market continues to focus on the FED and high commodity prices do not help. Strong C$ also gives me quite a headache. I have raised about 10-15% cash recently and would like to be less aggressive now. Once thing is for certain, I got to be more aggressive in taking profits and cutting losses.

ALDA

Similar to SCSS, I would like to trim a bit of ALDA in front of tomorrow's earnings, unfortunately, the market does not provide me with any opportunities. I have to wait to tomorrow.

EARLY THOUGHTS

SILC

Great earnings. Looks like it will gap up a bit. Is this a good entry point?

SCSS

Gap up in front of its earnings tonight. Should I take some off the table and wait to see the earnings tonight? It going to be good, but will the market response positively?

Commodities: Watch and be careful.

COPPER, COPPER, COPPER

AUR

I know, I know, this is not the right way to invest (sounds like Larry Brown), but I remain very nervous of this commodity rally. On the other hand, you would be certainly underperform if you do not have sufficient exposure. At this point, my tactics is to have a limited exposure, but be ready to run for exit. With that, I would like to add some AUR this morning. It has corrected more significantly than others, and the relief of its CFO caused some concerns among investors (Is there an accounting irregularity coming?). I would not know, but this to me appears to be an opportunity. Bought at 16.16 this morning.

I may also buy HBM back this morning. (Stop lecturing me please). Bought at 12.95 this morning.

Did some selling as well. STX stoped out. This is a record. I have never been able to make any money on this one. Also sold my entire position of CF.UN as sentiment is against this one. Moreover, interests in the entire trust sector, particularly business trust, is fading fast. Also sold half my position on ADS. It has gone up for more than 50%, and it's time to take some off the table here, despite the strong earnings and upgrades. I kept the remaining half position. Next target is $60, and the near term catalyst is a continuing strong quarterly result.

BEGINNING OF COMMODITY CORRECTION?

HBM

Sold my HBM today on this morning's sell-off. I am very nervous of this tremendous rally in the base metal stocks and I am determined not to hold the bag. If a correction ever occurs, it will be severe. I can always add on in the future.

HGRD

I added some HGRD today. It continues to show strength in last few sessions and I believe the risk/reward is favorable. $4.0 level provides solid support and I believe it will soon test its resistance at 4.75 level. I still believe $5.0 is a near term target and very much achievable. Nonetheless, I must be careful on this one that if it breaches $4.o, I have to dump them all.

The sell off of the commodity provides a gleam of scenario of a real severe commodity correction, where large amount of fund will come out of commodity trade and rotate into, in my judgment, laggers, i.e. healthcare, and large caps, as it occurred today. Commodity sold off, large caps moved up. I believe commodities, including crude oil will correct. It is only matter of WHEN.

DOVE RALLY HAS LEG?

XRTX

My thesis continued to pan out and my portfolio continued to suck, how depressing! Today's party popper was STX which fell by almost $2.0, after a so-so quarter with a light guidance. This one could become a "chicken rib" (a direct translation of a Chinese expression, which means "it's tasteless to chew, and wasteful to dump". There's a story behind it, but maybe for another blogger) as I do not see near term catalyst. Earnings for the next few quarters are unlikely too exciting either.

Having said that, I have to be truthful to my thesis and continue to add positions as I believe this rally have legs throughout this reporting season. Therefore, I added XRTX today. This one has been on my watching list since 25, unfortunately for me, I did not pull the trigger, until 7 points later. But valuation remains reasonable and it is likely to go up with the overall market. I can see 35 before the season finishes.

CKCM

I also added some CKCM today. The stock sold off after last quarter (weak guidance, what else is new?) and the chart is also a bit damaged. It has started to reverse its downward trend in the last couple of sessions and it could test its resistance at 24 area. If it overcomes its SMA with decent volume, it could go far. Otherwise, I exit.

PARTY PUPPER

My thesis appeared to pan out today, I, however, is very disappointed with the performance of my portfolio, because UNH ruined my party. Every time I tried to average down, it has turned out to be a disaster, and I have to learn from these costly mistakes. NEVER AVERAGE DOWN, even on the quality names such as UNH. As far as I could see, UNH delivered a fantastic quarter. Its 07 guidance may be a bit light, but it always does so at this time. It is way too early for it to provide such guidance in any event. But the stock continued to fall, proving even quality company, and good results may not be sufficient to overcome the over whelming sales. You could feel it today. Every time UNH tried to rally, it was met with waves of selling to bring it down. What should I do? At this level, I believe the downside risk is truly limited, while the upside potential is much greater. Moreover, if I abandon the ship now, it would be against all my investing philosophy and methodology. I might as well give up now. I still have a lot of time. I just have to endure the pain. One day, it will turn. I still believe $55 is achievable near term target. However, it may go to visit $45 first.

While I am disappointed and somewhat depressed, I should not give myself too hard a time. In fact, I have done alright so far this year, despite mistakes (who don't commit them?). WFR jumped 12% today, and UIC recovered and went up for 5% plus, and most of others also did pretty well. Had I not had UNH, I would indeed have a decent day, at least in lock steps with the indexes. Given the small-cap nature of my portfolio, it is not surprising that I may under-perform the overall market in a day like this. Despite today's under-performance, I am still up by about 9.4%, handily beating all indexes. I should be proud of myself for job rather well done. Stop dwelling in the past, look at future.

MONDAY MORNING QUATERBACK

LAKE

Revenues a bit of light, up only 3.6%. Margins impressive. Gross profits up by 17%, operating profits up by 24.1%, margins up meaningfully. EPS up by 12.5%, although it might be a bit of light of expectation. Balance sheet is clean, and valuation is modest. Chart decent. Need a bit more growth for investors to get excited. Guidance for FY07: revenue: 8-12%, and EPS 12-16%. The stock is OK to buy here, but not compelling though. Man, you never get a real feeling of the volatility, until you own it. I low-balled some at 19.50 and I did not think it would get filled. Not only did it get filled, it went all the way to below $19, after a rather decent quarter! I am not too concerned and happy to own it at 19.50.

HGRD

I also picked some HGRD at 4.10. The market continues to fall, and I am continuing to pick up stocks. My simple thesis remains that one of these days, some really blow-out quarters will move the market higher. Thus far, my thesis has not panned out. Actually, opposite has been true. The market has been selling the decent numbers. I could be wrong.

The market is so difficult that I start to question myself again. Tomorrow is a big day. If things are not working out, I don't know that I will do.

TRUST LOST

SIF.UN

I sold my entire position of SIF.UN today. The trust sector has lost its luster and the entire sector is not participating in this rally. SIF.UN Performance has been very weak and it has failed to deliver its promises. Given the low yield and unexpected volatility, I decided to exit with a small loss. With the dividends received, I probably even. An even trade is not a bad trade.

The market improved a bit today, although I am not being aggressive here, given it is a short week and tomorrow will likely be very slow. I am contemplating to add some biotech here. Given the complexity of this sector, I pretty much decide to go with ETF's. The whole sector has been declining significantly, despite decent results and announcements from a number of large ones. For that matter, the entire health care sector has not participated in the Q1/06 rally and I believe a potential rotation (I wish I know when) could prompt it up. HMO got a bid today, which is a good sign. Biotech may follow a suite.

PAIN AND UGLY - TIME TO BUY

The market is extremely ugly for the past few days, even when the indexes were up. I now confirmed that when I felt giddy on last Monday (04/03), I should have sold more and taken more profits off the table. Now I felt a great deal of pain, I guess I should start to add on positions, which was exactly what I did today.

HBM

First I add some HBM at 11.60. I come to the party late, but better late than never. Copper and zinc are simply too strong, and I have no positions in the metal sector. Large caps are rather pricy, even though they may not from valuation point of view. This one is traded at reasonable valuation, and its earnings will likely exceed, particularly given the strong metal prices. There is a piece of news today that I could not comprehend very well. A group of firms bought 1.4 million shares at 13.75 in a private placement deal. That is about $2.0 above the current market price. I wonder why. It sounds too obvious and too simple, but I have noted that simplility usually works. I assume these investment bankers are way smarter than me. If they are willing to pay this company at 13.65, I believe $11.60 is a good deal for me.

MVCO

I opened a small position of MVCO this morning. This is a micro-cap, however, it is simply too cheap to ignore. It earned $1.01 in FY05. I conservatively estimate that it will be able to grow 10% in FY06, i.e. $1.1/sh, which gives it a P/E of 10.5X. It is cheap due to (a) micro-cap with no following; (b) a part of its business may relate to the housing market, causing some concerns with investors. Having said that, a number of large players have recently pre-announced with positive earnings surprises. I bet MVCO will deliver a strong Q1/06 as well, which will result in both multiple expansion, increasing interests, and increasing earning estimate, if any. This is thinly traded, but I am willing to wait on this one.

UNH September 50 Call

I also bought some UNH September 50 call at 5.30. The entire healthy care sector is out of favor now and they are all sold very hard, and UNH is one of the worst. I sensed some panic this morning, a lot of towel throwing. I took the chance, and bought some in-the-money call. I believe UNH would easily go up to $60, which will result in these calls to double at least. I am not even that greedy. I am looking for a 30%+ return. If UNH is traded at $55, I believe this trade will be done at $7.0 range. While confident, I have to say this is a rather aggressive trade and I have to be a bit of careful.

BUY ON CONSOLIDATION

Man, that was not fun Friday. I had the biggest drop this year, losing 1.5% in a single day. I probably lost about 1.0% from my portfolio. Currency and others lost another 0.5%. Excluding currency and other factors, I was pretty much in line with the indexes, which is an acceptable result. You have to accept that there were, and there will continue to be days like these when everything is dropping and there is not much, particularly for small, long-oriented investors, you can do. While it is not a fun experience, it is important to review the overall market, as well as my portfolio to see if there are real weaknesses. I am not too concerned about the overall market. In the near term, it probably will continue to consolidate a bit. But I believe the strong first quarter will likely lift the market.

Examining my portfolio, there are a few weaknesses. One, the lack of commodity is a mistake in the first quarter and I should have retained more of my energy holdings. Having said that I would not want to chase the energy and metal market here. Better to be patient and let it cool down a bit. Secondly, healthy care sector has not performed well in the first quarter and my holding in the sector is rather significant. Again, this is not the time to dump though. It is a good defensive posture and I do not mind to hold them here. Trust sector has not performed well due to apparent lack of interests in this once red-hot sector. I believe I should trim some on strength in the next few weeks.

If consolidation continues next week, I shall selectively add some names, particularly those that are likely to meet or exceed their quarters. I may also add some energy names, particularly nature gas names (ECA, UPL) if they continues to fall. Also pay attention to SOX which has been lagging thus far in the first quarter. I also plan to pick some ETFs on biotech, which has been universally hated.

NO STICK CHAVEZ

PFC

Selling energy early this year appears to be a mistake as oil price continues to ramp up. Being an individual investor, I have to be flexible and ready to change. I will gradually add my energy positions from here, starting PFC which has started to ramp up after a recent piece of news. I believe this one could go up to $3.0 easily, political risk notwithstanding. I nibbled some at 2.15 this morning.

PEAK?

First, EICU came out with a bang! up by almost 50%. Needless to say that I was unable to get my hand on it even though I have a well-thought plan to do so.

I feel really uneasy about this market. First of all, it has gone up a lot, although rather reluctantly. Secondly, I sensed a lot of optimism out there, even some performance anxiety. Third, I screen a lot of stocks daily and while there is no shortage of good stocks, valuation is rather stretched. Fourth, I am also have a hard time to figure out which sector is currently out of favor, other than the obvious large pharms. Put these factors all together, you have a near term correction in place. However, when and how much is another question. The pre-announcements have not been wide-spread, and Q1 earnings are expected to be robust. This may be the set up for a near term peak. If my scenario pans out, I have to start to take some profits (LMS, UIC, WFR), and dump some losers while I have an chance.

INTENSIVE CARE

EICU

EICU is coming out tomorrow and I really like this one, despite the fact that I normally do not like IPOs. I like the product, addressable market, low penetration, business model, backlog, cash flow, management and potential growth. It was originally priced at 10-11 range and has been bumped up to 13-15 range, indicating a healthy demand. Provided that it does not gap up too much, I would like to take a small position here.

LMIA

Took a small position in LMIA. I have gone through all stocks in the aerospace/defense sector and I found this one rather attractive. It is small, profitable, clean balance sheet, good management, and large blue-chip-type customers. It is a bit on the expensive side, which I believe is somewhat compensated by its very strong outlook and growth visibility. I also believe it will have a very strong Q1/06 which will provide near term catalyst. Based on my back of envelop calculation, I thought this one might be able to achieve north of $1.0/sh in 2006, which will make this one reachable valued. My near term target is $20, and it could be achieved if its Q1/06 results exceed.

I also like TDY in the same sector. This one is more reasonably valued, but with a relatively lower growth rate. I may buy some on weakness.

APRIL FOOL

QUARTERLY REVIEW

Despite a number of atrocious mistakes, I have a decent first quarter. My portfolio gained a decent 12% compared to about 4% in S&P and Dow, 6% in NASDAQ, and 13% in Russell 2000. The performance mirrors Russell 2000 as my portfolio focuses largely on small caps. I am particularly satisfied with that I was able to deal with a number of very difficult situations, reasonably decisively so that no material and long-lasting impact to my return. I was calm, logical and decisive. What boosted my confidence is the fact that had I not committed these atrocious mistakes, my return would have been exceeding 15% in the first quarter! While it is absolutely impossible to avoid mistakes, the most important skill in investing is not picking stocks, it is managing risks. In other words, to reduce investment mistakes to the minimum.