China vs. Japan

The market vale of all Chinese and Hong Kong listed stocks is now equal to that of Japan ($10 trillion). The sheer numbers (10x more poeple) and growth potential in China is far greater than anything Japan has ever seen. Is there any doubt the total value of all stocks in China cannot jump to $50 or $100 trillion in the next 10-15 years? In my opinion, China is cheap based on their population (1.3 billion) and land mass. The addressable market for workers, businesses & consumption is enormous for as far as the eye can see.

Conviction!

Conviction tells the story. On Tuesday the McDonald's CEO said U.S. business still has "huge upside potential." That is the kind of conviction I am searching for when looking for new ideas. Listen for this when companies report earnings the next few weeks. The best stocks are usually when the CEO has strong conviction and imagination about the future. Listening, watching and then interpreting key phrases and trends are keys to becoming a great trader/ investor. It is not just crunching numbers or watching charts. Case in point, the Google and RIMM CEO’s both have super strong conviction and imagination about their future potential worldwide.

Why you should buy momentum.

Life is all about momentum. Momentum trading sometimes gets a bad reputation…like it is somehow foolish, ill advised or just following the herd...and therefore not smart. I strongly disagree that there is anything bad about momentum investing and want to discuss how we all follow momentum in nearly every activity in life.

Below are specific examples of momentum:

• You go to the best and most popular restaurant you can find (at home or on vacation).
• You support, praise, and reward you child for getting good grades. The best students go to the best colleges and then get the best jobs.
• You throw a party when your favorite sports team goes to the Super Bowl, World Cup, or World Series.
• You buy every Beatles or U2 CD when they are already #1 on the charts.
• You watch the # 1 TV show or go to the # 1 movie of the year.
• You wear black or wear longer shorts to stay fashionable and not look like a dork.
• You name your child Jacob or Emily (most popular names in 2006) instead of Billy or Beverly (popular in the 50’s).
• You take the #1 selling medication in the world to lower your cholesterol (Lipitor).
• You use Google search when looking for something.
• You get a mobile phone with a camera while everyone else is getting one and you could not even imagine such a device 20 years ago.
• Making your 2nd million is far easier than the 1st million.
• You drive a Japanese or German car even though we were in a World War with them just 64 years ago. Proof things really do change.

Trading with the trend (another word for momentum) is one of the smartest things we can do as investors. We do it in nearly every other aspect of our lives so I see no reason to be a major contrarian when recognizing important business trends... and thus picking good stocks. If we just recognize important trends, we can understand how stocks like Google (search), Research in Motion (smart phones), many solar names (alt energy), Crox (hip shoes), Nintendo (user friendly game), & Apple (iPods) can be such great momentum stocks.

Solar shines

Solar still shines bright. The solar stocks continue to be the hottest group in the market and I expect this to continue for the balance of 2007. While Trina Solar (TSL) & First Solar (FSLR) have been my focus in recent months, I initiated a position in SolarFun (SOLF - $12) today with the December $15 calls at $1.35. I am giving this plenty of time to work by going out 6 months. This is another Chinese solar name with a market cap of just $600 million. Revenues are expected to surge to $1.8 billion this year (from $630 million in 2006) and explode to $3.6 billion next year. Earnings estimates for 2007 are $1.52 and a whopping $4.18 next year. Even if they miss earnings by 50% (not likely) and only make $2 next year, the stock looks like a great value selling at just 6x earnings. I can see SOLF getting to $20+ in coming months as investors and green oriented growth funds continue accumulating solar names.