Tuesday, May 12, 2009

Well, it seems Ford, (F), is taking a hit today because it plans to issue 300 million new shares of its common stock. Dilution usually causes some existing holders to sell, driving down the price, although occasionally the effect is countered by optimism over the company's intended use of the capital raised. In this case it is to add funding to Ford's retiree health-care trust. That's good news for the retirees but its nothing to warm the cold hearts of Ford shareholders.

I'm sorry if some of you out there have lost some wealth because of my previous bullish opinion on Ford. I doubt the stock will recover much until the results of the stock sale are in -- but I was already wrong about the shares once so I could be wrong again. I intend to sell my F call options for whatever I can get since they expire at the end of the week and that is too little time for me to hope for a bounce.

Longer term, Ford's prospects remain good and buying in using a dollar cost averaging strategy strategy over the next few months will likely turn out well for the longer term investor. My problem is that as an option buyer I am a speculator, (the sellers are hedgers). As such I take my chances on unanticipated random events that won't matter much to the long term investor. Where I hope to gain is that a few very profitable winners will gain more for me than I lose on the more common losers. At the moment, I am doing well with some puts on Saks (SKS). Join me if you care, but only if you understand the risks of speculation and do some of you own research to confirm, or not, my opinion.


  1. Hey Adam_Smith.

    Clever name for a blog. Sorry about the Ford stock. I saw it take a hit this morning and was wondering what was going on. I got it at $2 back in November or December, so I’m still doing OK. I think I may hold it long term and just see. I dumped GM at $1.70. They’re screwed IMO. I was optimistic at first, but from what I have seen and heard over the last few months I just as soon lose $2 bucks a share than to lose it all.

    Good luck with your blogging. Byw, as far as pure speculation goes, what do you think about Freddie Mac? No way a Democratic Congress and President let it go under, right? And when the real estate market comes back, all those worthless properties are not so worthless.

    The question is, do they screw shareholders in the meantime?

  2. Its all politics. You put your finger on the problem, shareholders are a vulnerable class. Try to find out who the major holders are. If they are teacher's pension funds and the like, perhaps they will get a break. Personally, I would rater look elsewhere.


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