Knowing what you own
Many wise investors of the past have always said it's important to know what you own. Today I'm going to talk about the final stock currently in my portfolio and it's one I feel I truly know - John Deere and Company (DE). John Deere is primarily known as a farm machinery maker although it also has streams of income through construction equipment and smaller equipment like lawn tractors. It's a company I feel I have a strong understanding of because my childhood background is from farming and since it's a part of my family's livelihood, I still keep an eye on Agriculture as well as some of the interconnected industries.
Deere is my newest addition to my portfolio and so far it's one piece of work I'm most proud of so far. When I was first looking to get into the market, prices for DE were at $90 or more. It just seemed too high for what I was willing to pay and that I had missed the run. It almost reached $100 before macro economic factors took hold on the market. The tsunami in Japan, then the US Debt ceiling debate - and other related issues over the time took a strong bearish hold on the market, making people talk about a double dip recession and fear was running amok. I had watched as ag prices dropped sharply and I could tell things weren't done. All the talk, all the fears and soon all the realities of the market were appearing as though we were going to revisit the lows of early 2009 and I used the action of the "first dip" of this supposed double dip recession as my guide. I first surmised the drop that happened during the market crash of 2008 and then related this to what I thought would happen based on the fear and reaction I was seeing in the market this time, coupled with how much this wasn't the same as the market drop in 2008. I set some price points - wide scales so I could buy more each time the price went down. I had a pretty good idea where I thought things would hit and thought the bottom price was unlikely. So if it hit my bottom price, I decided I would double down for a trade, but the rest of my spots filled my position. I don't think I could've called things any better either. My second to last price point was just about the lowest the stock went as I guessed was the case, however, I didn't execute my plan like I said I would. When it reached those lows, it was when the European Crisis was at some of its worst so far. Meetings were going nowhere, new temporary fixes were going nowhere and the market was throwing out everything. The stock went just below my prices, but once again fear and greed set in. I figured the macro made it too difficult to buy at the time and instead was waiting for some sort of sign that things were going to come to a resolution. That still hasn't happened, however, in the face of those ominous issues over European sovereign debt, the market has climbed higher. I missed my chance to fill my position. Guess if anything, that's a high quality problem to have, however, I should've realized the market couldn't keep selling off when companies were providing good numbers despite what was happening in Europe. At some point, the fear had to be priced in. Now we're on the rise and I'm in the green.
A lot of people who follow this stock seem to think everything is based upon how they're selling equipment in China and Russia, that their profits are so strong from other countries. I see this through a different lens, I guess. This stock isn't about international growth (although it is a factor in accelerating growth for the company), this is really about North and South America and grain prices and grain production. Although I can't say with total certainty for South American core countries such as Brazil and Argentina, I feel I can really speak to the NA farmer and why John Deere's equipment is doing so well right now. For a little color, look at the last 20-30 years of grain prices. When inflation was high, grain prices were high and then they came down and came down hard. There were many years where corn was around $1.50 a bushel. On top of that, supplies were growing, not shrinking. The need for the grain just wasn't there, so farmers had a hard time making any profit on the cost it took to plant, grow, and harvest the crop. Then in 2006 and 2007 oil prices sky rocketed and the consumption of grains from number of other countries grew. This increased demand for grains greatly for food and biofuels and prices rose - and rose quickly. Finally, farmers were starting to make money off of their crops and land and still be able to accommodate for an increase in prices for the product they needed for the next season. Believe it or not, farmers are not much different than business people - when there's low profit, you can't do much to grow or improve. You just try to keep things running. I'd say generally speaking, those kinds of activities were going on for around a decade. Put some profits into a company's hands where they couldn't make improvements or afford to replace equipment for things that were now better and more efficient and the business man will invest! THAT is really what I see happening here at this stage of the game. You're seeing a strong cycle of equipment cycling from farmers that couldn't afford to do that previously And as long as corn prices stay above $5 per bushell, I think that will continue for the next few years. That doesn't mean other factors won't hurt the stock - that's why the stock pulled back so I can buy it, so you need to stay aware. However, if Europe turns itself around and America's economy continues to show improvement, I think you're looking at a stock that goes to $`120 before 2014.
In summary, don't fully discount things like European Debt crisis or China's growth - they'll affect the stock price and you might even see some sort of hiccup in sales. Those types of items will help you determine when the stock has risen too much, too fast and you should trim and re-buy after a pullback. Outside of that, this is a growth trend that will continue for awhile as we are in the very early stages of a period of time where farmers profit from their work. Even if the cycle of replenishing equipment fades, there's plenty of demand for grain to keep businesses pouring more investments into their companies - and a big way that is done is by buying better equipment.
Deere is my newest addition to my portfolio and so far it's one piece of work I'm most proud of so far. When I was first looking to get into the market, prices for DE were at $90 or more. It just seemed too high for what I was willing to pay and that I had missed the run. It almost reached $100 before macro economic factors took hold on the market. The tsunami in Japan, then the US Debt ceiling debate - and other related issues over the time took a strong bearish hold on the market, making people talk about a double dip recession and fear was running amok. I had watched as ag prices dropped sharply and I could tell things weren't done. All the talk, all the fears and soon all the realities of the market were appearing as though we were going to revisit the lows of early 2009 and I used the action of the "first dip" of this supposed double dip recession as my guide. I first surmised the drop that happened during the market crash of 2008 and then related this to what I thought would happen based on the fear and reaction I was seeing in the market this time, coupled with how much this wasn't the same as the market drop in 2008. I set some price points - wide scales so I could buy more each time the price went down. I had a pretty good idea where I thought things would hit and thought the bottom price was unlikely. So if it hit my bottom price, I decided I would double down for a trade, but the rest of my spots filled my position. I don't think I could've called things any better either. My second to last price point was just about the lowest the stock went as I guessed was the case, however, I didn't execute my plan like I said I would. When it reached those lows, it was when the European Crisis was at some of its worst so far. Meetings were going nowhere, new temporary fixes were going nowhere and the market was throwing out everything. The stock went just below my prices, but once again fear and greed set in. I figured the macro made it too difficult to buy at the time and instead was waiting for some sort of sign that things were going to come to a resolution. That still hasn't happened, however, in the face of those ominous issues over European sovereign debt, the market has climbed higher. I missed my chance to fill my position. Guess if anything, that's a high quality problem to have, however, I should've realized the market couldn't keep selling off when companies were providing good numbers despite what was happening in Europe. At some point, the fear had to be priced in. Now we're on the rise and I'm in the green.
A lot of people who follow this stock seem to think everything is based upon how they're selling equipment in China and Russia, that their profits are so strong from other countries. I see this through a different lens, I guess. This stock isn't about international growth (although it is a factor in accelerating growth for the company), this is really about North and South America and grain prices and grain production. Although I can't say with total certainty for South American core countries such as Brazil and Argentina, I feel I can really speak to the NA farmer and why John Deere's equipment is doing so well right now. For a little color, look at the last 20-30 years of grain prices. When inflation was high, grain prices were high and then they came down and came down hard. There were many years where corn was around $1.50 a bushel. On top of that, supplies were growing, not shrinking. The need for the grain just wasn't there, so farmers had a hard time making any profit on the cost it took to plant, grow, and harvest the crop. Then in 2006 and 2007 oil prices sky rocketed and the consumption of grains from number of other countries grew. This increased demand for grains greatly for food and biofuels and prices rose - and rose quickly. Finally, farmers were starting to make money off of their crops and land and still be able to accommodate for an increase in prices for the product they needed for the next season. Believe it or not, farmers are not much different than business people - when there's low profit, you can't do much to grow or improve. You just try to keep things running. I'd say generally speaking, those kinds of activities were going on for around a decade. Put some profits into a company's hands where they couldn't make improvements or afford to replace equipment for things that were now better and more efficient and the business man will invest! THAT is really what I see happening here at this stage of the game. You're seeing a strong cycle of equipment cycling from farmers that couldn't afford to do that previously And as long as corn prices stay above $5 per bushell, I think that will continue for the next few years. That doesn't mean other factors won't hurt the stock - that's why the stock pulled back so I can buy it, so you need to stay aware. However, if Europe turns itself around and America's economy continues to show improvement, I think you're looking at a stock that goes to $`120 before 2014.
In summary, don't fully discount things like European Debt crisis or China's growth - they'll affect the stock price and you might even see some sort of hiccup in sales. Those types of items will help you determine when the stock has risen too much, too fast and you should trim and re-buy after a pullback. Outside of that, this is a growth trend that will continue for awhile as we are in the very early stages of a period of time where farmers profit from their work. Even if the cycle of replenishing equipment fades, there's plenty of demand for grain to keep businesses pouring more investments into their companies - and a big way that is done is by buying better equipment.
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