Mad Money Machine

Holy cow, we gotta sell UNH

That little Google News Action Alerts Plus trick tells me that Jim sent out an email 2 hours ago saying, “Understand this with UnitedHealth Group (UNH:NYSE): If I was back at my hedge fund and didn’t have any trading restrictions, I would no longer own this stock. … ”

So just on the 19th of May he was saying BUY it, and today it is a SELL.

I will sell it right now from the Portfolio at $42.01. I will talk more about this on show #24.

Addendum: 6:27PM: If you are a regular podcast listener, you will know where to find the secret information. That’s where I talk about the trick… I’ll tell you on show #24 also about the trick and the secret information.

Let’s fill the Company You Know slot

Time for some bottom fishing… Our open slot in the Cramer Portfolio is called the Company You Know. And we will fill it today with a Company that Jim Cramer himself closely identifies with: He was known as Dr. UNH Esq. You will see them show up in the table this evening.

So we will buy as many whole shares we can get for $12,097 of UnitedHealth Group. Jim mentioned that he recently bought some for his Action Alerts Plus portfolio. So let’s get some too!

How to know when to sell a winning investment

It’s easy to know when to sell a loser from your taxable account… NOW! (Well, unless you believe it will go up significantly in the next 30 days.)

But when do you sell a winner? Harder one to answer because of the difference between short-term and long-term capital gains taxes. (Yep, the following doesn’t apply to tax-advantaged accounts such as IRAs.)

So let’s start with some assumptions. Long term cap gains are taxed at 15%. Short term cap gains are taxed at 31%. Note that these numbers probably don’t apply to you because I haven’t included state and local taxes or different income levels.

Next assumption is that our investment, 1000 shares in stock XYZ (which is presumably the Examine Your Zipper Corporation) is bought in January for $50 a share and because of the huge increase in demand for zippers in China and India (with the new style saris being zipped up I guess. Or maybe they have pockets, I dunno.), it goes to $100 per share within 7 months.

Then in August it looks like the whole market is in for a tumble as the Iranians are making noises. XYZ drops to $95.

You still believe in XYZ and think this Iranian thing will blow over. You think XYZ should be back at $100 by next January.

Do you sell at $95? How far down would XYZ have to go from $95 in order to buy it back and make the same amount as you would get by holding it until January?

First let’s look at the long-term buy and hold option:

Buy 1000 at $50
Sell 1000 at $100
Gain: $50,000
Taxes (15%): $7,500
Net Gain: $42,500

OK, so now let’s look at the short-term trading with short-term capital gains option. We need to make $42,500 just to stay even. Our stock is at $95. We sell hoping to buy it back lower. But we have to pay the additional tax.

Buy 1000 at $50
Sell 1000 at $95
Gain: $45,000
Taxes (31%): $13,950
Net Gain: $31,050

So let’s solve for a Net Gain of $42,500 and see where it has to go to buy it back…
Net Gain: $42,500 – $31,050 (our previous gain) = $11,500
Taxes (31%): to get at net gain of $11,500, we need $16,667 in gross gain. (x-11,500)/x = .31… just keep plugging numbers into a spreadsheet until you get x = $16,667

Sell 1000 at $100
Therefore,
Buy 1000 at $83

$83 from $95 means about a 14% decline from the current price in order to buy it back and recoup the additional taxes.
And that is JUST TO STAY EVEN. Ideally, you’d buy it back lower so that your effort is rewarded with more returns.

I’m searching for a more general rule-of-thumb-type answer to know when to sell a winner. If you have one, email me.

Caution: I’m not an accountant, nor a financial advisor, nor tax guru. Try these numbers and make your own assumptions. Do you have any comments about this? Email me feedback@MadMoneyMachine.com.

MMM-023: Da Cramer Code

GET THIS SHOW THRU ITUNES!

or if you must, listen right here…
[audio:MMM-023.mp3]

Corporal Mortification

Look me up in Second Life. My name is Douglas Cramer. I’m not there very often though.

Chapter 50 of The Truth About Money by Ric Edelman is How to Prepare for Economic Collapse.

The Portfolio Smackdown is reviewed. OUCH!

Our Tool in the Crib lets you Set it and Forget it!

What do all the clues mean?

Proprietary terms:
Buy in stages
Best of Breed
En Fuego
Home Gamer
Two Thumbs Up
An Hour of Homework Per Stock Per Week
I’m not here just to entertain you but to educate you

Recommended time to buy a Cramer stock: 10:30 a day and a half after he features it.

Don’t think of them as losses, think of them as tax shelters.

Jim’s portrait is modeled upon this Rembrandt painting:

Rembrandt‘s Porträt des Kaufmanns Martin Looten

ACTION ALERTS PLUS: TENTACULAR SPOILS

A video of Jim Cramer on the Charlie Rose show from 1997

The SHOCKING TRUTH about the performance of Jim Cramer’s stock picks from the USA Today.

Why not trade stocks in your IRA? That way you don’t have to pay capital gains taxes.

Buy Or Own Yet Another Hopeful: BOOYAH!

MMM-023.mp3

Trades in the portfolio

On the Back to School show on May 16th, Jim said sell Southern Copper. So at 10:30 on the next day, the 17th, I did that. Got $93.79 for it. The stock had peaked at $109.93. But we still got a very nice 14.6% return on the thing. PCU was in our “Company You Know” slot. So I’m still hunting for a company that Jim knows. Wish I had thought to buy SHLD before the earnings! Why didn’t you say something Jim?

Also, today I bought for the portfolio Chico’s FAS like I said we would do and the 10:30 price was $30.13.

We found our secular softgoods

Last night’s Mad Money featured a stock so beaten down, we just gotta buy it to fill our secular softgoods slot.

Remember we sold Sara Lee (SLE) after running out of patience with the thing. Probably a good move. At least it is a lucky move, because we sold it and went into cash just before the big meltdown.

Jim says that Chico’s is best of breed and is down to $29 from $40 just a couple of months ago. He says the stock will likely come storming back. The catalyst will be improved sales. And once Wall Street sees that, there will be lots of analyst upgrades which should make the stock soar.

Let’s hope so, the Cramer Portfolio ain’t lookin’ so hot these days.

Any Parentheses or Horizontal Lines?

Time to take a look at your taxable account to see if you see any parentheses or horizontal lines. Go over to the $Gain/Loss or %Gain/Loss column and if you see any numbers that have parentheses around them like this ($1,000) or horizontal lines in front of them like this -$1,000, then it may be time to sell them.

Why?

Because when you do your taxes you can take the loss and deduct it from your gains (supposing you’ll have some gains that is!).

Only sell if you think the stock won’t go back positive within 30 days. If that’s not the case… SELLLLLL!

For example, today I sold Yahoo! (YHOO). I really like the company and the long-term outlook, but I was down 7% from where I bought it and I don’t believe it will climb 7% before June 18th. Even if things started to go back up tomorrow, I could just roll the money over into some other company in the same sector (say GOOG or EBAY) and try riding it back up that way. You see, if I were to sell YHOO and buy it back within 30 days, I can’t deduct the loss on my taxes. So I either stay in cash, buy something else, or wait 31 days.

Of course if your stocks are in an IRA acccount then I have one word: nevermind.

The harder question is…. when do you sell a stock that is going down but your $Gain/Loss column still is positive?????

Making Cents of it all

Here are today’s random but circular ramblings:

On show 22 I mentioned that with the Vonage IPO coming out soon, what will that mean for eBay? Well the answer came today…

Skype announced that through the end of this year, all SkypeOut calls are FREE. You can now call from your computer to any landline or cellphone in the USA at no charge. I tried it just now and it is fantastic. The only thing I wish it had was feedback from my microphone back into my headphones so I could hear myself talk (like a real phone). But the quality is much better than using my cellphone to call (I only get 1 or 2 bars at home).

In other news…

The Cramer Portfolio has taken a pummeling these last three days. Crystallex (KRY) and Southern Copper (PCU) are part of the Metal Meltdown and Cienna (CIEN) is part of the new Tech Wreck. CitiTrends is also down from its highs. Could THIS be the bottom???

and then there’s…

I am one of the 10,000 finalists in the Google Da Vinci Code challenge and received in the mail today one of the Cryptex replicas. The final game will happen this weekend and if I win (Ha, fat chance!) then I get a trip for four to Paris and other goodies. Keep your fingers crossed. And I see some of the other 9,999 entrants have already listed theirs on eBay. (Not me, I’m keeping mine!) Now we’ve come full circle.

and lastly…

Stu has sent in a new logo idea for the Mad Money Machine. Thanks Stu, nice work!

Tell me what you think.

[Personally… I think I look really scary. 🙂 ]

Another sale in the portfolio

Jim said on his Real Money radio show yesterday that he was selling Altria (MO). So we gotta sell the thing from our Portfolio Smackdown. I’ll take the bid right now at $71.65 and sell all 134 shares. That leaves us with a loss in MO of about 4%. But we did get a dividend of $107.20 in April at least.

Now we have two gaping holes in the portfolio that need filling. MO was the Brand-name Blue Chip and Sara Lee (SLE) was the Secular Soft Goods. The Blue Chip might be easier to fill. Think Dow Jones stocks here. The Secular Soft Goods is in the midst of a bear market right now, it is hard to find something attractive. I wonder if you think Hanson would fit in the category? Perhaps we’ll look for an uptick in HANS to get in on it? Let’s put a bid in for HANS at $165 and see if we get filled, OK?

As for the Brand-name blue chip, how about General Motors? Wow that’s a real contrarian play. He says play GM for the trade and Toyota for the investment. Let’s do it! GM at $26.50. Sold to me.

MMM-022: How Now Dow?

Best way to play: get Mad Money Machine show thru iTunes

Or, if you must, play show #22 Right Here:
[audio:MMM-022.mp3]

Will EBAY rise because of the Vonage IPO?

Mutual fund investors can expect tax increases. Not ETF investors though!

How much more do you have to make in a short-term gain to match a long-term gain?

Hey Jim, why not buy the Defense & Aerospace index fund? See below. Or try the iShares Dow Jones US Aerospace & Defense Fund (ITA)

Our Guru winner has the prestigious 00 spot on the wheel.

I read all 30 Dow stocks to you. Yes, be glad I didn’t feature the S&P 500.

Dow Power to 3000. Dow 36,000. Dow 40,000.

Fishing for Cramer Stocks Under Water:
3/30/6 Movado Group MOV -12%
3/31/6 Glenayre Technologies GEMS -37%
3/31/6 G-III Apparel Group GIII -15%
4/11/6 Avanir Pharma AVNR -30%
4/11/6 Openwave OPWV -25%

More recently: stocks in May. Everything’s up, except: (and I don’t know WHAT Gazprom is doing)
5/4/6 Cano Petroleum CANO -4.6%
5/8/6 Nucor NUE -1.5%
5/8/6 Foster Wheeler FWLT -2.4%
5/9/6 Northrop NOC -0.8%

Play Pick the Cramer Pick.

Play in the MMM Investment Guru challenge and try to beat the ETF Portfolio!

My Hail Mary pass attempt.

Call me or email me.

Next week: Da Cramer Code!

MMM-022.mp3

???? 8.44% United Industrial Corp. UIC
BULL 7.85% Boeing Company, The BA
BULL 7.67% Armor Holdings, Inc. AH
BULL 7.59% Alliant Techsystems Inc. ATK
???? 7.35% Rockwell Collins, Inc. COL
BULL 7.26% General Dynamics Corporation GD
???? 7.08% Stewart & Stevenson Services, Inc. SVC (Possible merger with AH)
BULL 7.03% Raytheon Company RTN
BULL 7.02% DRS Technologies, Inc. DRS
BULL 6.93% Lockheed Martin Corporation LMT
BULL 6.77% L-3 Communications Hldgs. LLL
BULL 6.74% Northrop Grumman Corporation NOC
BULL 6.19% FLIR Systems, Inc. FLIR
BULL 6.08% EDO Corporation EDO

First new logo entry

Hey, finally a submission for a new logo design. Stu Webster of Vancouver, British Columbia sent this in. Thanks Stu! I looked at the photo in the dollar bill and wondered “How did he get my picture?” But on closer inspection it is JC himself.

So what d’yall think, should I redesign MMM around this theme? Either post a comment here or email me at (feedback AT MadMoneyMachine.com).

Nice work Stu! Thanks for the submission! I love the little leaves accenting the letters.

Oh here’s more info for anyone else wanting to submit a logo: The upper left corner of the website has an image that is also used in the podcast file and that is the key logo I’m talking about. It is 300 by 300 pixels, the iTunes standard.

Also, I’d like to figure out something that plays up the Machine part of the name.