Link'O'Rama is back and ready to melt your face!!!!! Buy, buy, buy! Sell, sell, sell! Any more obnoxious and we'll head to h#@l! (Hey it works for Cramer)
Six stocks to watch and buy later - Jim Jubak
Economy needs a bold massive jolt - Fareed Zakaria
McDonald's plans to add 1000 new stores - Anthony Mirhaydari
America's fear of competition - Eliot Spitzer (yes, the world's most famous disgraced governor is back and he actually has some decent insights)
Invest in Obamania - Karim Bardeesy (Slate's money gurus go up against Darth Cramer)
Tuesday, January 27, 2009
No Need to Rush?
For those of us like the four people in our investment club, we view this market like vultures waiting to strike a carcass in the hot desert.
We know there is tremendous value out there in the stock market, and we're excited to start investing with our club's accumulating funds. A number of logistical hurdles still need to be cleared before our club is ready to actually invest in stocks. Some of these hurdles include finalizing the General Partnership, beginning an account with an online brokerage, and perhaps even getting the club accounting software lined up and ready to go.
Some of us are getting restless, viewing this as the best time to buy.
Others of us see no need to rush.
With the recent giant day of layoffs, analysts are getting more and more sour on the 6 and 12 month outlook for the US economy. It can be hard not to when it seems like every other day you know someone who has lost their job. If this is true, there should be great value in stocks in the next 6 months to a year (at the least), and there's no need to rush in quite yet.
On the other hand, the stock market has made many fools out of "bottom timers", people who think they know the exact right time to buy stocks. The end result for these people is that they miss the most important part of the rebound (see mistake number 5).
In the end, I think it's good that our club has a mix of opinions on any subject, and this is no different. The important thing is to ready ourselves should we want to act, and I think we can all agree on that.
We know there is tremendous value out there in the stock market, and we're excited to start investing with our club's accumulating funds. A number of logistical hurdles still need to be cleared before our club is ready to actually invest in stocks. Some of these hurdles include finalizing the General Partnership, beginning an account with an online brokerage, and perhaps even getting the club accounting software lined up and ready to go.
Some of us are getting restless, viewing this as the best time to buy.
Others of us see no need to rush.
With the recent giant day of layoffs, analysts are getting more and more sour on the 6 and 12 month outlook for the US economy. It can be hard not to when it seems like every other day you know someone who has lost their job. If this is true, there should be great value in stocks in the next 6 months to a year (at the least), and there's no need to rush in quite yet.
On the other hand, the stock market has made many fools out of "bottom timers", people who think they know the exact right time to buy stocks. The end result for these people is that they miss the most important part of the rebound (see mistake number 5).
In the end, I think it's good that our club has a mix of opinions on any subject, and this is no different. The important thing is to ready ourselves should we want to act, and I think we can all agree on that.
Friday, January 23, 2009
Water, water everywhere, but not a drop to drink
After weeks of laziness, I'm finally getting around to reviewing the water industry. Unlike solar energy, which has been promised as the way of the future for several decades now, the water industry has been stealthily sneaking up on everyone and could be a major player in the next decade. Water stocks are typically in two forms, companies that will provide the infrastructure to deliver water to its customers (in the metro Detroit area, we get our water from the city itself) and companies that provide the treatment of water, such as desalinization or sewage treatment.
Some experts see clean, drinkable water as the next commodity to incur global shortages, potentially even scarcer than oil. While water might be something most Americans take for granted, happily sipping our VitaminWater and other bottle water products, in much of the world potable water is hard to come by. In any area where the climate is very hot or arid, clean sources of water are few and far between. And if they become contaminated, either by human waste or parasites in the area, typical in Africa, the quality of life in the region is severely diminished. In most third world countries there are frequent water shortages, and even in places like California, water is often at a premium. Costal cities have plenty of salt water, but current desalinatization technology is expensive and slow.
Enough doom and gloom, how can one profit from the need for clean, potable water? First, and probably the safest bets are on infrastructure companies (that could benefit by Obama being in office) that provide the water directly to the customer. Some examples mentioned in Men's Health BestLife are American Water (AWK), Badger Meter (BMI), Nortwest Pipe Company (NWPX) and the index fund PowerShares Water Resources Portfolio (PHO). The second is desalinization and treatment companies, such as Energy Recovery Inc. (ERI) (there are many more start-ups, but many are privately held at this time).
Note: Most of the information for this analysis came way of two magazine articles, Get Flush With Liquid Assets by Rana Foroohar in the November 2008 issue of Men's Health BestLife and Blue is the New Green by Adam Bluestein in the November 2008 issue of Inc. Magazine. Yes, these both are not finance magazines, but what our club is finding out is that to be a successful investors, you have to know what others don't. Outside reading is a great place to find that information.
Some experts see clean, drinkable water as the next commodity to incur global shortages, potentially even scarcer than oil. While water might be something most Americans take for granted, happily sipping our VitaminWater and other bottle water products, in much of the world potable water is hard to come by. In any area where the climate is very hot or arid, clean sources of water are few and far between. And if they become contaminated, either by human waste or parasites in the area, typical in Africa, the quality of life in the region is severely diminished. In most third world countries there are frequent water shortages, and even in places like California, water is often at a premium. Costal cities have plenty of salt water, but current desalinatization technology is expensive and slow.
Enough doom and gloom, how can one profit from the need for clean, potable water? First, and probably the safest bets are on infrastructure companies (that could benefit by Obama being in office) that provide the water directly to the customer. Some examples mentioned in Men's Health BestLife are American Water (AWK), Badger Meter (BMI), Nortwest Pipe Company (NWPX) and the index fund PowerShares Water Resources Portfolio (PHO). The second is desalinization and treatment companies, such as Energy Recovery Inc. (ERI) (there are many more start-ups, but many are privately held at this time).
Note: Most of the information for this analysis came way of two magazine articles, Get Flush With Liquid Assets by Rana Foroohar in the November 2008 issue of Men's Health BestLife and Blue is the New Green by Adam Bluestein in the November 2008 issue of Inc. Magazine. Yes, these both are not finance magazines, but what our club is finding out is that to be a successful investors, you have to know what others don't. Outside reading is a great place to find that information.
Wednesday, January 21, 2009
The Virtue of Selfishness: Defending Ayn Rand in Tough Times
Cadillac likes to pick on me and instigated another fight. This time he asked me to defend Ayn Rand style deregulation in light of the times. Here goes.
Every individual is responsible for their personal livelihood. The strong prosper, the weak fail. Government must stand aside for the will of its people.
I am not only responsible for myself but also for where I place my money. If I choose to place my money with an entity that is irresponsible and that entity subsequently fails, I deserve to fail with it because I am the bank’s regulator.
Come again, you say? I’m saying banks can’t fail unless we give them money and then turn a blind eye to where it's going. If my bank begins lending a neighbor money at 14 times his salary to buy a house, I should be asking hard questions or moving my money.
Some banks saw the fiscal irresponsibility of the housing bubble and largely eschewed such poor lending practices (Wells Fargo). Those good banks should benefit from relatively prudent money management while the spendthrifts (Bank of America, Citi) should fail along with all who supported them. (www.ajc.com/business/content/printedition/2008/08/22/wellsfargo.html)
Individuals are responsible for regulating banks through collective scrutiny and common sense not tainted by "irrational exhuberance" followed by "helicopter drops" of cash (...thanks Alan, Ben).
And a “bailout” in any form would be facially offensive to Rand. Why? Well, what are we doing with the bailout money right now? Are we supporting the good banks like Wells Fargo so that the banking system arises anew through strength, not greed and irresponsibility? Of course not, let's instead support the weakest, most irresponsible (Bank of America, Citi) so they can buy their friends at Merrill Lynch and we can have a fresh crisis all over again in a few decades.
I believe Ayn Rand would say irresponsible lending practices, not only by banks to individuals, but more importantly by individuals to banks, caused the current crisis. The irresponsible entities on both sides should simply fail permitting better banks in our country to rise strongly and facilitate a more lasting economic recovery where true regulation is guided by citizens, strength, and common sense and not by a lobbyist-infested government. --Schlitz
Every individual is responsible for their personal livelihood. The strong prosper, the weak fail. Government must stand aside for the will of its people.
I am not only responsible for myself but also for where I place my money. If I choose to place my money with an entity that is irresponsible and that entity subsequently fails, I deserve to fail with it because I am the bank’s regulator.
Come again, you say? I’m saying banks can’t fail unless we give them money and then turn a blind eye to where it's going. If my bank begins lending a neighbor money at 14 times his salary to buy a house, I should be asking hard questions or moving my money.
Some banks saw the fiscal irresponsibility of the housing bubble and largely eschewed such poor lending practices (Wells Fargo). Those good banks should benefit from relatively prudent money management while the spendthrifts (Bank of America, Citi) should fail along with all who supported them. (www.ajc.com/business/content/printedition/2008/08/22/wellsfargo.html)
Individuals are responsible for regulating banks through collective scrutiny and common sense not tainted by "irrational exhuberance" followed by "helicopter drops" of cash (...thanks Alan, Ben).
And a “bailout” in any form would be facially offensive to Rand. Why? Well, what are we doing with the bailout money right now? Are we supporting the good banks like Wells Fargo so that the banking system arises anew through strength, not greed and irresponsibility? Of course not, let's instead support the weakest, most irresponsible (Bank of America, Citi) so they can buy their friends at Merrill Lynch and we can have a fresh crisis all over again in a few decades.
I believe Ayn Rand would say irresponsible lending practices, not only by banks to individuals, but more importantly by individuals to banks, caused the current crisis. The irresponsible entities on both sides should simply fail permitting better banks in our country to rise strongly and facilitate a more lasting economic recovery where true regulation is guided by citizens, strength, and common sense and not by a lobbyist-infested government. --Schlitz
Tuesday, January 20, 2009
Building A Better Taco
So Cadillac says it’s great I’m looking for stocks in emerging foreign markets (China, Brazil, Russia, India) but all the stocks I've mentioned are well-known and therefore priced into the market. Potentially good investments still but how can an average investor try and do a little better?
I think back to Peter Lynch in “Beating the Street” taking that first bite of Taco Bell. That experience led Lynch to Taco Bell’s balance sheet and then to Taco Bell's miserly corporate headquarters. Taco Bell would become a mega-bagger for Lynch in his Fidelity Magellan days.
So where's my taco? Some ideas:
(1) Visit Brazil. Perhaps this summer. I’ve always wanted to go and I think it’d be fun to learn Portuguese. Better yet, I’d get a ground view of where newly discovered Brazilian wealth is being spent.
(2) As an engineer, I love to understand cutting edge technologies and generally have a sense of what makes them valuable. I especially like oil, cleantech/nanotech, and biosystems research. So what companies worldwide have the potential for a lasting competitive advantage in any of these areas? Do any of these prospective companies hold an intellectual property edge to restrain competition?
I’ve started some technology research online and I'm also looking at historical trend analyses. More on finding a better taco later. --Schlitz
I think back to Peter Lynch in “Beating the Street” taking that first bite of Taco Bell. That experience led Lynch to Taco Bell’s balance sheet and then to Taco Bell's miserly corporate headquarters. Taco Bell would become a mega-bagger for Lynch in his Fidelity Magellan days.
So where's my taco? Some ideas:
(1) Visit Brazil. Perhaps this summer. I’ve always wanted to go and I think it’d be fun to learn Portuguese. Better yet, I’d get a ground view of where newly discovered Brazilian wealth is being spent.
(2) As an engineer, I love to understand cutting edge technologies and generally have a sense of what makes them valuable. I especially like oil, cleantech/nanotech, and biosystems research. So what companies worldwide have the potential for a lasting competitive advantage in any of these areas? Do any of these prospective companies hold an intellectual property edge to restrain competition?
I’ve started some technology research online and I'm also looking at historical trend analyses. More on finding a better taco later. --Schlitz
Monday, January 19, 2009
Renting Vs. Buying
What does renting a home or apartment instead of buying have to do with investing?
First of all, buying a home is one of the biggest "investments" people make with their money. They pay a mortgage, taxes, and upkeep to not only provide themselves a place to live, but to hopefully have a tangible asset that can be borrowed against or sold at a profit.
Second of all, from childhood all of us as Americans are taught that owning a house is the American Dream and that if you rent, you're merely throwing your money down the drain.
What if this was just a misconception?
"Renting Makes More Financial Sense Than Homeownership" by Jack Hough brings to light the other side of the argument. According to Hough, renting costs less and thus allows the remainder of the money to be invested in a historically 7% return (factoring in inflation)- the stock market. Meanwhile housing investments return a shocking 0% after accounting for inflation.
Hough makes a strong case for renting. What does everyone out there think?
First of all, buying a home is one of the biggest "investments" people make with their money. They pay a mortgage, taxes, and upkeep to not only provide themselves a place to live, but to hopefully have a tangible asset that can be borrowed against or sold at a profit.
Second of all, from childhood all of us as Americans are taught that owning a house is the American Dream and that if you rent, you're merely throwing your money down the drain.
What if this was just a misconception?
"Renting Makes More Financial Sense Than Homeownership" by Jack Hough brings to light the other side of the argument. According to Hough, renting costs less and thus allows the remainder of the money to be invested in a historically 7% return (factoring in inflation)- the stock market. Meanwhile housing investments return a shocking 0% after accounting for inflation.
Hough makes a strong case for renting. What does everyone out there think?
Sunday, January 18, 2009
The Investment Vig
I'm a numbers guy at heart, a statistical process control engineer, and a poker player who likes to roll dice occassionally. The one thing I hate most are taxes. In casino speak, taxes are called "vigorish" or "the vig." The vig is what casinos take out of your winnings to keep for profits.
Analogously with investments, the vig would be called "broker fees." With that in mind, I chose to open an account with Scotttrade where each trade costs me $14.00. No...$7 you heard. But consider that the only way to get your money back is to sell the stock you bought which costs an additional $7, right? So for me, I discount any investment by $14 on the assumption I'll eventually want to sell. Scotttrade also has a nearby office and great customer service so it's worth the slightly higher vig in comparison to Trade King.
In keeping the vig on my portfolio as low as possible, I figure I need to buy at least $1000 of a single stock at a time. Why? Because buying $100 worth of stock means I gave my broker an enormous 14% of the investment value. At $1000 minimum trades, the vig is reduced to 1.4%, a tax rate I can stomach.
Recent books by Jim Jubak and Peter Schiff have introduced me to agriculture/metals commodities and foreign companies, particularly in Brazil. In starting a personal investment portfolio, I'm looking at the following candidates in no particular order:
(1) BHP Billiton: An Australian mining company heavily ingrained in China's growing infrastructure.
(2) GE: A domestic mainstay banged up by the financial crisis yet ready to support infrastructure initiatives by Obama.
(3) Petrobas Brasiliero: A Brazilian oil company doing amazing stuff with technology that's fun to read about as an engineer. Their NYSE symbol is "PBR" so a must have anyway.
(4) Central European Distribution: Largest vodka producer in Poland and a Jubak selection. Yeah, yeah I've heard it already...do the vodka company before the PBR or the portfolio may get sick.
(5) Vale: Brazilian. Large producer of iron with a great Chinese market share. Other precious metals.
(6) Schlumberger: This amazing French company is trading near it's 52-week low due to slumping oil prices. It's available for less than 9 times earnings. Unreal. I wanna buy SLB right now but I don't know enough about investing yet.
Before I start buying Brazil, there are some dangers to evaluating foreign companies that requires additional research for me. I'll share what I learn in the future. -Schlitz
Analogously with investments, the vig would be called "broker fees." With that in mind, I chose to open an account with Scotttrade where each trade costs me $14.00. No...$7 you heard. But consider that the only way to get your money back is to sell the stock you bought which costs an additional $7, right? So for me, I discount any investment by $14 on the assumption I'll eventually want to sell. Scotttrade also has a nearby office and great customer service so it's worth the slightly higher vig in comparison to Trade King.
In keeping the vig on my portfolio as low as possible, I figure I need to buy at least $1000 of a single stock at a time. Why? Because buying $100 worth of stock means I gave my broker an enormous 14% of the investment value. At $1000 minimum trades, the vig is reduced to 1.4%, a tax rate I can stomach.
Recent books by Jim Jubak and Peter Schiff have introduced me to agriculture/metals commodities and foreign companies, particularly in Brazil. In starting a personal investment portfolio, I'm looking at the following candidates in no particular order:
(1) BHP Billiton: An Australian mining company heavily ingrained in China's growing infrastructure.
(2) GE: A domestic mainstay banged up by the financial crisis yet ready to support infrastructure initiatives by Obama.
(3) Petrobas Brasiliero: A Brazilian oil company doing amazing stuff with technology that's fun to read about as an engineer. Their NYSE symbol is "PBR" so a must have anyway.
(4) Central European Distribution: Largest vodka producer in Poland and a Jubak selection. Yeah, yeah I've heard it already...do the vodka company before the PBR or the portfolio may get sick.
(5) Vale: Brazilian. Large producer of iron with a great Chinese market share. Other precious metals.
(6) Schlumberger: This amazing French company is trading near it's 52-week low due to slumping oil prices. It's available for less than 9 times earnings. Unreal. I wanna buy SLB right now but I don't know enough about investing yet.
Before I start buying Brazil, there are some dangers to evaluating foreign companies that requires additional research for me. I'll share what I learn in the future. -Schlitz
A review of Crash Proof by Peter Schiff with John Downes.
I can remember Peter Schiff being laughed at on CNBC for his alarmist warnings of American consumerism and the impending housing bubble. This book (Crash Proof) sat on bookshelves with specific warnings of debt securitization and the looming housing crisis before it happened. The principles Schiff teaches in this book are now difficult to ignore.
Schiff’s book details the effects of inflation, U.S. conspicuous consumption, and consequential results in plain speak. He also uses frequent analogies to help the reader along in understanding his viewpoints on inflation and why we as Americans should be paying attention to it.
When Schiff speaks about “inflation,” he’s not talking about the inflation figures that Wall Street and the U.S. government publish. Instead, he’s referring to the continuing devaluation of the U.S. dollar through rampant printing of money by the government to satisfy our unrestrained consumption of goods and increasing debt levels.
Why do we have a national debt and why does it matter? Simply, it’s because Americans like to buy things and say “I’ll pay ya back later.” Countries such as China and Japan are now holding this exploding bag of I.O.U.’s. What happens when China and Japan want to be paid back by people who have no personal savings, large debts, overvalued real estate, high unemployment, and a terribly devalued currency (yeah, that’s us)? The answer can’t be good.
If you’re the SUV guy currently paying a mortgage larger than the value of your home while watching a planet sized plasma TV all bought on credit, this book may not appeal to you or stereotypical notions of what makes the “American Dream.”
If you’re like me, I just wanna protect myself from the SUV guy above who doesn't care and this book is a great starting point even if you don't agree with all of Schiff's ideas. I'll look to contribute more foreign investment opportunities to the group although they may be more complex to evaluate.
Shhh!! Here’s a secret. We can still have the “American Dream” but we actually have to produce and pay for it. --Schlitz
Schiff’s book details the effects of inflation, U.S. conspicuous consumption, and consequential results in plain speak. He also uses frequent analogies to help the reader along in understanding his viewpoints on inflation and why we as Americans should be paying attention to it.
When Schiff speaks about “inflation,” he’s not talking about the inflation figures that Wall Street and the U.S. government publish. Instead, he’s referring to the continuing devaluation of the U.S. dollar through rampant printing of money by the government to satisfy our unrestrained consumption of goods and increasing debt levels.
Why do we have a national debt and why does it matter? Simply, it’s because Americans like to buy things and say “I’ll pay ya back later.” Countries such as China and Japan are now holding this exploding bag of I.O.U.’s. What happens when China and Japan want to be paid back by people who have no personal savings, large debts, overvalued real estate, high unemployment, and a terribly devalued currency (yeah, that’s us)? The answer can’t be good.
If you’re the SUV guy currently paying a mortgage larger than the value of your home while watching a planet sized plasma TV all bought on credit, this book may not appeal to you or stereotypical notions of what makes the “American Dream.”
If you’re like me, I just wanna protect myself from the SUV guy above who doesn't care and this book is a great starting point even if you don't agree with all of Schiff's ideas. I'll look to contribute more foreign investment opportunities to the group although they may be more complex to evaluate.
Shhh!! Here’s a secret. We can still have the “American Dream” but we actually have to produce and pay for it. --Schlitz
Saturday, January 17, 2009
Link'O'Rama (not to be confused with Obamarama)
Calculating Intrinsic Value
* http://www.stock-investment-made-easy.com/calculate-intrinsic-value.html
* http://answers.yahoo.com/question/index?qid=20061120165707AAFjmuf
* http://www.investopedia.com/terms/i/intrinsicvalue.asp
* http://www.streetauthority.com/cmnts/hps/2006/05-12.asp
Dividend Yield for S&P 500 Greater than Yield on 10 Year Treasuries
http://www.fool.com/investing/dividends-income/2009/01/12/the-worst-investment-in-50-years.aspx
Security Analysis
* http://www.fool.com/investing/value/2007/07/23/security-analysis-101-margin-of-safety.aspx
* http://www.fool.com/investing/value/2007/08/01/security-analysis-201-intrinsic-value.aspx
* http://www.fool.com/investing/value/2007/08/21/security-analysis-301-look-for-a-wide-moat.aspx?terms=security+analysis+301&vstest=search_042607_linkdefault
* http://www.fool.com/investing/value/2007/08/23/security-analysis-401-calculating-intrinsic-value.aspx
* http://www.investopedia.com/university/stockpicking/stockpicking1.asp
Discounted Cash Flow
http://www.investopedia.com/university/dcf/default.asp
Many of these articles are from Motley Fool and Investopedia, both great sites for more detailed information on stock picking.
* http://www.stock-investment-made-easy.com/calculate-intrinsic-value.html
* http://answers.yahoo.com/question/index?qid=20061120165707AAFjmuf
* http://www.investopedia.com/terms/i/intrinsicvalue.asp
* http://www.streetauthority.com/cmnts/hps/2006/05-12.asp
Dividend Yield for S&P 500 Greater than Yield on 10 Year Treasuries
http://www.fool.com/investing/dividends-income/2009/01/12/the-worst-investment-in-50-years.aspx
Security Analysis
* http://www.fool.com/investing/value/2007/07/23/security-analysis-101-margin-of-safety.aspx
* http://www.fool.com/investing/value/2007/08/01/security-analysis-201-intrinsic-value.aspx
* http://www.fool.com/investing/value/2007/08/21/security-analysis-301-look-for-a-wide-moat.aspx?terms=security+analysis+301&vstest=search_042607_linkdefault
* http://www.fool.com/investing/value/2007/08/23/security-analysis-401-calculating-intrinsic-value.aspx
* http://www.investopedia.com/university/stockpicking/stockpicking1.asp
Discounted Cash Flow
http://www.investopedia.com/university/dcf/default.asp
Many of these articles are from Motley Fool and Investopedia, both great sites for more detailed information on stock picking.
Review of The Little Book of Value Investing by Christopher H. Browne
If The New Buffettology is like Omaha Steaks (everyone knows that is supposed to be good and it is but nothing more), The Little Book of Value Investing is like a steak from Costco (pleasantly surprised as it is way better than what you expect from a place like Costco). A discipline of Benjamin Graham and highly influenced by Warren Buffett, Browne shares his investment philosophy in an easy-to-understand way without coming across as heavy-handed or a pompous jerk. As I understood, he uses Graham's definitions of intrinsic value and margin of safety for investing in value stocks. Here are some main points:
What do you think of these methods? Have you read the book and have a differing opinion?
- Margin of safety is defined as stocks offered at 2/3rd (preferably 50%) of intrinsic value, company has a low debt to net worth (1:2 is ideal), and diversify your portfolio with a minimum of 10 non-correlating stocks.
- You want a low P/E ratio as earnings drive stock price.
- You can define intrinsic value using advanced statistical methods (such as discounted cash flow analysis) or by determining what the company would be sold at in a leverage buyout.
- You want a share price that is lower than the book value per share. Even better is a price below the net cash balance.
- Look for companies with consistent profit margins, high liquidity and a high return on capital.
- Get stock ideas by looking at what the top 10% of mutual fund managers are investing in.
- Be sure to invest globally but watch out for differences in accounting practices.
- Look for insider buying (as opposed to selling) as it is a more consistent way to tell if the executives think things are looking up for their company.
What do you think of these methods? Have you read the book and have a differing opinion?
Required Reading
The members of our club have spent quite a bit of time in the past two months reading to increase our rather limited knowledge of investing. Here are some books and magazines we have read and feel are valuable to the learning process:
Books
The New Buffettology by Mary Buffett and David Clark - great book to get an understanding of how Buffett picks his stocks. This book includes specific examples and equations which are more helpful than the fluff in many investment books out there.
The Little Book of Value Investing by Christopher H. Browne - I wasn't expecting much but this was recommended on Amazon. Man, was I in for a pleasant surprise. This book is excellent! Browne goes into great detail with his investing philosophy (citing Graham and Buffett many times over) but keeping it simple enough for a newcomer to understand. Highly recommended!
Magazines
Inc. and Fast Company - both magazines talk about the inner workings for small to medium size businesses. Great for learning about trends and new industries.
Arriving Soon:
Harvard Business Review
Financial Times
Conde Nast Portfolio
Forbes
Fortune
Tell us what your favorite business and investing books and magazines are below.
Books
The New Buffettology by Mary Buffett and David Clark - great book to get an understanding of how Buffett picks his stocks. This book includes specific examples and equations which are more helpful than the fluff in many investment books out there.
The Little Book of Value Investing by Christopher H. Browne - I wasn't expecting much but this was recommended on Amazon. Man, was I in for a pleasant surprise. This book is excellent! Browne goes into great detail with his investing philosophy (citing Graham and Buffett many times over) but keeping it simple enough for a newcomer to understand. Highly recommended!
Magazines
Inc. and Fast Company - both magazines talk about the inner workings for small to medium size businesses. Great for learning about trends and new industries.
Arriving Soon:
Harvard Business Review
Financial Times
Conde Nast Portfolio
Forbes
Fortune
Tell us what your favorite business and investing books and magazines are below.
Tuesday, January 13, 2009
2008 in review, 2009, and random thoughts….
The following is a guest post from Bob Costello (not his real name), a financial consultant in Michigan.
Much could be written about the events of 2008 but in a broad sense, an economy fueled by debt met its limits. As reported in the Wall Street Journal, GDP grew 5.9% annually since 1983 while total debt grew 8.9%. Disturbingly, GDP increased $10.9T and debt rose $45.9T. At the least, a period of adjustment is in order. A new approach to growth will have to be found. Thus far, Washington’s response has been to pour on record debt.
Who knows what the long-term consequences will be, but some thoughts for piece of mind: Currency values are based upon relationships with other currencies. The U.S. is not the only government throwing money at their flailing economy. Also, if Asian currencies appreciate in value relative to the dollar, it will make Asian goods and services more expensive, which is good for U.S. industries.
All things considered, long term, I side with Warren Buffet and agree that we have a tremendous long term opportunity.
In the short term it should be positive for gold, a traditional alternative to “funny money” and financial trickery in general. Precious Metals funds jumped over 70% since November 21 as investors may have pondered the same long term implications.
Most pundits and professionals agree that a well managed portfolio should have at least 10% in non correlating assets. Whether that is REIT’s, commodities, or interest rate plays, take a page out of the Ivy League Endowment playbook and add some non correlating assets.
All the negative aspects aside, odds strongly favor the bear market ending in 2009. After the technical washout that occurred during this past October and November, it would be desirable for stocks and commodities to gradually build a base over the next three to six months in preparation for a sustainable advance. Any improvement in the economy
later this year could help to establish new uptrends that result in meaningful gains before year end. I believe that the worst might be over for stocks and commodities for now—and that worthwhile opportunities could appear later this year.
With the amount of money being distributed by the world governments, a positive reaction seems almost certain. It’s like a man taking an entire bottle of Viagra and then nothing happening…
But you never know!
Much could be written about the events of 2008 but in a broad sense, an economy fueled by debt met its limits. As reported in the Wall Street Journal, GDP grew 5.9% annually since 1983 while total debt grew 8.9%. Disturbingly, GDP increased $10.9T and debt rose $45.9T. At the least, a period of adjustment is in order. A new approach to growth will have to be found. Thus far, Washington’s response has been to pour on record debt.
Who knows what the long-term consequences will be, but some thoughts for piece of mind: Currency values are based upon relationships with other currencies. The U.S. is not the only government throwing money at their flailing economy. Also, if Asian currencies appreciate in value relative to the dollar, it will make Asian goods and services more expensive, which is good for U.S. industries.
All things considered, long term, I side with Warren Buffet and agree that we have a tremendous long term opportunity.
In the short term it should be positive for gold, a traditional alternative to “funny money” and financial trickery in general. Precious Metals funds jumped over 70% since November 21 as investors may have pondered the same long term implications.
Most pundits and professionals agree that a well managed portfolio should have at least 10% in non correlating assets. Whether that is REIT’s, commodities, or interest rate plays, take a page out of the Ivy League Endowment playbook and add some non correlating assets.
All the negative aspects aside, odds strongly favor the bear market ending in 2009. After the technical washout that occurred during this past October and November, it would be desirable for stocks and commodities to gradually build a base over the next three to six months in preparation for a sustainable advance. Any improvement in the economy
later this year could help to establish new uptrends that result in meaningful gains before year end. I believe that the worst might be over for stocks and commodities for now—and that worthwhile opportunities could appear later this year.
With the amount of money being distributed by the world governments, a positive reaction seems almost certain. It’s like a man taking an entire bottle of Viagra and then nothing happening…
But you never know!
When analysts get it wrong
One of the analyst's our club often reads is Jim Jubak from MSN Money. Here he discusses why his portfolio did so poorly in the second half of last year. Unlike Buffett, Jubak is a very active trader. He made bets based on what would happen to the economy and was slightly off, losing a good chunk of change. According to the site, he is supposed to be the most read money writer on the web. So I think this confirms that analyst picks are a crap shoot. Also I think it is a good warning to everyone to really do our homework and not get cocky about stock picking. Right now with everything so low, it will be pretty easy to make money for the next year, and one shouldn't get overconfident and continue to learn and invest in an intelligent manner.
Saturday, January 3, 2009
Trading Fees & Online Brokerages
An extremely important, but often overlooked area of investing involves trading fees. The best way to view fees associated with your investment is like a tax, and the easiest way to eat up your profits is by exposing yourself to excessive or unnecessary fees. Don't let yourself overpay for common services, and don't let yourself be nickel and dimed. This priciple is talked about extensively in John C. Bogle's book Common Sense on Mutual Funds. Bogle, by the way, is the creator of the Vanguard mutual fund family which is known for its low fees.
One area I've personally seen a good chunk of my profits eaten up is through trading fees. Long ago when I set up my personal investment account, I picked eTrade as my brokerage based solely on the positive things I had read about it. Now don't get me wrong, I love the speed, ease of use, and all the extras on eTrade, but since I recently began investing the money in that account, I've found that trading fees are rather high. At $12.99 per trade, I need to clear $25.98 on any transaction before I even make any profits. This wouldn't be a huge amount if I was dealing in larger amounts of shares and/or money, but at the levels I'm currently trading it is just too much.
As an investment club, we've spotted this as an area that we want to target. We want to minimize the amount of 'taxes' we're exposed to, so we can maximize our profits. I was personally tabbed with comparing a number of the online brokerages that are out there. I initially looked at eTrade, Scottrade, Charles Schwab and TD Ameritrade. Any of these well known online brokerages could have been good choices, but their trading costs ranged between $7-$12.99/trade which would mean we'd need to clear anywhere between $14-$25.98 on any transaction before making a profit. That still seemed a bit high, so we looked at other options. That's when we stumbled across Zecco and Trade King. Zecco offers trades for $4.50 while Trade King offers $4.95 trades. That puts the break even point down at $9-9.90/trade... that's a huge difference when your dealing in relatively small amounts of money or low numbers of shares. While we're currently leaning toward using Trade King due to the positive feedback we've read and away from Zecco due to the mixed reviews we've seen, we haven't yet decided which one we'll pick. It mostly depends on which brokerage may be offering a bonus or other promotions (somebody will be blogging on the topic of bonuses and checking accounts very soon). Zecco might still be an option considering the new promotion for $0 trades with a minimum $2500 balance (http://hello.zecco.com/landing/search/search2/?gclid=COO6u5HJ8pcCFQHHGgod0wcEDg). We'll keep you posted when we decide.
One area I've personally seen a good chunk of my profits eaten up is through trading fees. Long ago when I set up my personal investment account, I picked eTrade as my brokerage based solely on the positive things I had read about it. Now don't get me wrong, I love the speed, ease of use, and all the extras on eTrade, but since I recently began investing the money in that account, I've found that trading fees are rather high. At $12.99 per trade, I need to clear $25.98 on any transaction before I even make any profits. This wouldn't be a huge amount if I was dealing in larger amounts of shares and/or money, but at the levels I'm currently trading it is just too much.
As an investment club, we've spotted this as an area that we want to target. We want to minimize the amount of 'taxes' we're exposed to, so we can maximize our profits. I was personally tabbed with comparing a number of the online brokerages that are out there. I initially looked at eTrade, Scottrade, Charles Schwab and TD Ameritrade. Any of these well known online brokerages could have been good choices, but their trading costs ranged between $7-$12.99/trade which would mean we'd need to clear anywhere between $14-$25.98 on any transaction before making a profit. That still seemed a bit high, so we looked at other options. That's when we stumbled across Zecco and Trade King. Zecco offers trades for $4.50 while Trade King offers $4.95 trades. That puts the break even point down at $9-9.90/trade... that's a huge difference when your dealing in relatively small amounts of money or low numbers of shares. While we're currently leaning toward using Trade King due to the positive feedback we've read and away from Zecco due to the mixed reviews we've seen, we haven't yet decided which one we'll pick. It mostly depends on which brokerage may be offering a bonus or other promotions (somebody will be blogging on the topic of bonuses and checking accounts very soon). Zecco might still be an option considering the new promotion for $0 trades with a minimum $2500 balance (http://hello.zecco.com/landing/search/search2/?gclid=COO6u5HJ8pcCFQHHGgod0wcEDg). We'll keep you posted when we decide.
Friday, January 2, 2009
Paul Woodcreek's Personal Portfolio...
With this post I'm opening the books and giving you some insight into what I currently own, my thoughts about these particular stocks, and some insight into the performance to date. So, without further ado, and in no particular order, here we go...
1. Wal-Mart (NYSE: WMT) - Wal-Mart is a good stock in a sector that currently terrible. Retail stocks have been a bust over the last year, but Wal-Mart was one of the few that actually fared well. Aside from McDonald's (NYSE: MCD up nearly 6% in '08) Wal-Mart was the only Dow gainer for '08 (http://online.wsj.com/article/SB123085827075747869.html?mod=googlenews_wsj) with an 18% gain for the year. I see Wal-Mart continuing to flourish in '09 due to a continuing deterioration of the economy. Consumers will continue to seek low priced goods and Wal-Mart fits the bill better than just about any other retailer. Since purchase in early Dec. '08 I've a 6.64% gain on WMT before fees.
2. Caterpillar (NYSE: CAT) - See my Caterpillar post for insights on this stock. Since purchase in early Dec. '08 I've seen a 22% gain on CAT before fees. Not too shabby!
3. Chesapeake Energy (NYSE: CHK) - This stock was one that came recommended to me as a speculative value play and I didn't do much homework on it prior to purchase. Consequently, I bought it at $16.90/share right before some bad news came out and Cramer bagged the stock on his show and my supposed great value plummeted nearly 70%! Not to fear though, CHK is back on the upswing and recently got some good news with changes in how the SEC counts unproven natural gas reserves (http://uk.reuters.com/article/rbssEnergyNews/idUKN3028354420081230). This stock continues to have a huge upside, but it isn't for the faint of heart. Since I bought this one in early Dec. '08, I've seen it down around $9/share and up near $18/share. Currently it is at $17.20/share giving me a 6.9% gain before fees.
4. General Electric (NYSE: GE) - See my General Electric post for insight on this stock. Since purchase in early Dec. '08, I've seen a 6.92% gain on GE before fees.
5. Coca-Cola (NYSE: KO) - Coca-Cola seemed like a good stock to buy during these rough economic times since it offers a fairly recession proof product. No matter how bad things get, people can always find a buck for a soda. So far, that logic has served me alright. Since purchase in early Dec. '08, I've seen a 3.75% gain on KO before fees. Not a huge hitter yet, but still nothing to sneeze at.
6. Skyworks Solutions (NASDAQ: SWKS) - Purely a speculative play based on Cramer suggesting it as such on Mad Money. The stock was beaten down despite being the chip provider for Apple's (NYSE: AAPL) successful iPhone. After doing a little homework on the company I decided to roll the dice and shoot for a nice rebound. Since purchase in mid Dec. '08, I've seen an 18.43% gain on SWKS before fees. I still have this one pegged for at least a two bagger and maybe as much as a two and a half bagger depending on the rebound. I'm planning to sell this one as soon as I get what I want out of it.
7. Manitowoc Co. (NYSE: MTW) - See my Manitowoc Co. post for insight on this stock. Since purchase in early Dec. '08, I've seen a whopping 33.52% gain on MTW before fees!
Total portfolio: All purchase made early Dec. '08 or later. Total return to date is 12.74% before fees.
1. Wal-Mart (NYSE: WMT) - Wal-Mart is a good stock in a sector that currently terrible. Retail stocks have been a bust over the last year, but Wal-Mart was one of the few that actually fared well. Aside from McDonald's (NYSE: MCD up nearly 6% in '08) Wal-Mart was the only Dow gainer for '08 (http://online.wsj.com/article/SB123085827075747869.html?mod=googlenews_wsj) with an 18% gain for the year. I see Wal-Mart continuing to flourish in '09 due to a continuing deterioration of the economy. Consumers will continue to seek low priced goods and Wal-Mart fits the bill better than just about any other retailer. Since purchase in early Dec. '08 I've a 6.64% gain on WMT before fees.
2. Caterpillar (NYSE: CAT) - See my Caterpillar post for insights on this stock. Since purchase in early Dec. '08 I've seen a 22% gain on CAT before fees. Not too shabby!
3. Chesapeake Energy (NYSE: CHK) - This stock was one that came recommended to me as a speculative value play and I didn't do much homework on it prior to purchase. Consequently, I bought it at $16.90/share right before some bad news came out and Cramer bagged the stock on his show and my supposed great value plummeted nearly 70%! Not to fear though, CHK is back on the upswing and recently got some good news with changes in how the SEC counts unproven natural gas reserves (http://uk.reuters.com/article/rbssEnergyNews/idUKN3028354420081230). This stock continues to have a huge upside, but it isn't for the faint of heart. Since I bought this one in early Dec. '08, I've seen it down around $9/share and up near $18/share. Currently it is at $17.20/share giving me a 6.9% gain before fees.
4. General Electric (NYSE: GE) - See my General Electric post for insight on this stock. Since purchase in early Dec. '08, I've seen a 6.92% gain on GE before fees.
5. Coca-Cola (NYSE: KO) - Coca-Cola seemed like a good stock to buy during these rough economic times since it offers a fairly recession proof product. No matter how bad things get, people can always find a buck for a soda. So far, that logic has served me alright. Since purchase in early Dec. '08, I've seen a 3.75% gain on KO before fees. Not a huge hitter yet, but still nothing to sneeze at.
6. Skyworks Solutions (NASDAQ: SWKS) - Purely a speculative play based on Cramer suggesting it as such on Mad Money. The stock was beaten down despite being the chip provider for Apple's (NYSE: AAPL) successful iPhone. After doing a little homework on the company I decided to roll the dice and shoot for a nice rebound. Since purchase in mid Dec. '08, I've seen an 18.43% gain on SWKS before fees. I still have this one pegged for at least a two bagger and maybe as much as a two and a half bagger depending on the rebound. I'm planning to sell this one as soon as I get what I want out of it.
7. Manitowoc Co. (NYSE: MTW) - See my Manitowoc Co. post for insight on this stock. Since purchase in early Dec. '08, I've seen a whopping 33.52% gain on MTW before fees!
Total portfolio: All purchase made early Dec. '08 or later. Total return to date is 12.74% before fees.
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