Monday, November 05, 2007

24 Goals to Accomplish in 240 Days - UPDATE

It has been nearly six months since I shared my goals for the rest of the year. I have detailed the status of each of the goals below:

  1. Make the maximum contribution to Roth IRA by July 4th ($4,000/$4,000) - Complete
  2. Successful open up Hedge Fund account by June - Complete
  3. Hedge Fund account value greater than or equal to $10,000 by August ($13,136/$10,000) - Complete
  4. Hedge Fund account value greater than or equal to $20,000 by January ($13,136/$20,000) - Organic Growth, Yea!
  5. Roth IRA account greater than or equal to $9,000 by January ($7,092/$9,000)
  6. Have 150 blog posts by December (91/150)
  7. Create Fund website by July 4th - Complete.
  8. Read five books by August (5/5) - Complete
  9. Create two more portfolio's in my VSE league (2/2) - Done, dedicated my portfolio to EMA technical trading.
  10. Do 75 push-ups without taking a break (40/75) - Will measure this month
  11. Run 2 miles in 12 minutes - Will measure this month
  12. Increase my net worth by 80% this year (65%/80%) - Increased by almost 7%
  13. Play a set of tennis without double faulting - 4 double faults is still my average
  14. Achieve Certified Associate in Project Management (CAPM) certification - Deadline passed; goal failed
  15. Secure a full-time job - Still working it
  16. Convince five people to start investing (4/5)
  17. Establish and record 500 phone contracts (170/500)
  18. Establish and record 1000 email contacts (250/1000)
  19. Learn how to drive a manual transmission - No progress
  20. Achieve 1000 lifetime trades (435/1000)
  21. Complete my portfolio management spreadsheet and submit to sourceforge.net - No progress
  22. Attend a University of Michigan basketball game for free
  23. Master double-digit multiplication and division - I would say I have a good grasp of this
  24. Give blood - Complete
8 Goals down, 1 unreachable, and 15 to go.

Tuesday, October 02, 2007

24 Goals to Accomplish in 240 Days - UPDATE

It has been nearly five months since I shared my goals for the rest of the year. I have detailed the status of each of the goals below:

  1. Make the maximum contribution to Roth IRA by July 4th ($4,000/$4,000) - Complete
  2. Successful open up Hedge Fund account by June - Complete
  3. Hedge Fund account value greater than or equal to $10,000 by August ($11,608/$10,000) - Complete
  4. Hedge Fund account value greater than or equal to $20,000 by January ($11,608/$20,000)
  5. Roth IRA account greater than or equal to $9,000 by January ($6,975/$9,000)
  6. Have 150 blog posts by December (90/150)
  7. Create Fund website by July 4th - Complete.
  8. Read five books by August (5/5) - Complete
  9. Create two more portfolio’s in my Virtual Stock Exchange league (1/2)
  10. Do 75 push-ups without taking a break (40/75)
  11. Run 2 miles in 12 minutes - Still running, no timing
  12. Increase my net worth by 80% this year (58%/80%) - Increased by 5%
  13. Play a set of tennis without double faulting - 4 double faults is still my average
  14. Achieve Certified Associate in Project Management (CAPM) certification - Deadline passed; goal failed
  15. Secure a full-time job - Getting some interviews
  16. Convince five people to start investing (4/5) - Another roommate opened an account!
  17. Establish and record 500 phone contracts (160/500)
  18. Establish and record 1000 email contacts (240/1000)
  19. Learn how to drive a manual transmission - No progress
  20. Achieve 1000 lifetime trades (420/1000)
  21. Complete my portfolio management spreadsheet and submit to sourceforge.net - No progress
  22. Attend a University of Michigan basketball game for free
  23. Master double-digit multiplication and division - No progress
  24. Give blood - Complete
I think I can easily knock off #9, 11, and 16 this month! We'll see.

Saturday, September 22, 2007

Links for Friday

This Week's Links: CNN Money Addition!

Friday, September 07, 2007

Links for Friday

This Week's Links: CNN Money Addition!

A Post from the Past:

  • Understanding that stock price is determined not only by a firm's financial success, but also investor sediment. The intuition behind using of both of these factors is explained in June's Use Behavioral Finance When Picking Stocks.

Sunday, September 02, 2007

24 Goals to Accomplish in 240 Days - UPDATE

It has been nearly four months since I shared my goals for the rest of the year. I have detailed the status of each of the goals below:

  1. Make the maximum contribution to Roth IRA by July 4th ($4,000/$4,000) - Complete
  2. Successful open up Hedge Fund account by June - Complete
  3. Hedge Fund account value greater than or equal to $10,000 by August ($11,000/$10,000) - Complete
  4. Hedge Fund account value greater than or equal to $20,000 by January ($11,000/$20,000)
  5. Roth IRA account greater than or equal to $9,000 by January ($6,902/$9,000)
  6. Have 150 blog posts by December (87/150)
  7. Create Fund website by July 4th - Complete.
  8. Read five books by August (5/5) - Complete
  9. Create two more portfolio’s in my Virtual Stock Exchange league (1/2)
  10. Do 75 push-ups without taking a break (40/75)
  11. Run 2 miles in 12 minutes - I have been running, but still have not timed myself
  12. Increase my net worth by 80% this year (53%/80%) - Increased by almost 20%
  13. Play a set of tennis without double faulting - 4 double faults is still my average
  14. Achieve Certified Associate in Project Management (CAPM) certification - Deadline passed; goal failed
  15. Secure a full-time job - No progress
  16. Convince five people to start investing (3/5) - No progress.
  17. Establish and record 500 phone contracts (150/500)
  18. Establish and record 1000 email contacts (220/1000)
  19. Learn how to drive a manual transmission - No progress
  20. Achieve 1000 lifetime trades (410/1000)
  21. Complete my portfolio management spreadsheet and submit to sourceforge.net - No progress
  22. Attend a University of Michigan basketball game for free
  23. Master double-digit multiplication and division - No progress
  24. Give blood - No progress

I really need to start addressing my physical goals. Hopefully with school starting, I will be able to establish a more conducive schedule for these goals. The problem with this new schedule will be its potential impact on my net worth goal. Having a part-time job may only allow me to stabilize my current net worth. We'll see how it works out!

Friday, August 24, 2007

Links for Friday

This Week's Links:

A Post from the Past:

Friday, August 10, 2007

Updated Performance and Transactions

I sat down today and updated my performance and transactions spreadsheet (check out the right sidebar). It is pretty interesting how quickly the market has changed over the last month. With the S&P only up 1.71% this year, I am pretty happy with my current year-to-date performance.

Many of my readers can attest to my recent personal finance binge and the lack of investment posts. That currently does not mean I have stopped trading! I thought I would detail some of the transactions have I been negotiating in an effort to shield myself from this volatile market.

Deal Arbitrage:
I presented several opportunities mergers and acquisitions offer to investors last month. Some privatization deals are particular lucrative to small investors, such as the MCBF trade. While there are certainly some risks with these trades, deal break-offs and shareholder disapproval, statistically, these trades are pretty sure investments. If you are looking for stable returns in-excess of fixed income investments, these deals are a good place to start.

Aggressive Hedging:
I may do a more formal write-up detailing what hedging means, but for now I will simply explain the strategy individuals can implement in this uncertain market. The idea is simple, purchase a stock you feel is going to simply outperform the broader index, maybe it is undervalued or showing great technicals, and short the index that closely follows that stock. If the broader market goes down, your long position in your stock may fall, but your short position in your index will net positive returns. The reverse strategy can be implemented as well.

In short, risk-adverse investors should look for sure-things in this market environment. In order to appropriate protect yourself from this variable market, I would suggest taking both short and long positions. Good luck and happy trading!

Links for Friday

This Week's Links - Firefox Extension Addition:

A Post from the Past:

Friday, August 03, 2007

Links for Friday

This Week's Links:

A Post from the Past:

Wednesday, August 01, 2007

24 Goals to Accomplish in 240 Days - UPDATE

It has been nearly three months since I shared my goals for the rest of the year. I have detailed the status of each of the goals below:
  1. Make the maximum contribution to Roth IRA by July 4th ($4,000/$4,000) - Complete
  2. Successful open up Hedge Fund account by June - Complete
  3. Hedge Fund account value greater than or equal to $10,000 by August ($10,800/$10,000) - Complete
  4. Hedge Fund account value greater than or equal to $20,000 by January ($10,800/$20,000)
  5. Roth IRA account greater than or equal to $9,000 by January ($6,700/$9,000)
  6. Have 150 blog posts by December (82/150)
  7. Create Fund website by July 4th - Complete.
  8. Read five books by August (5/5) - Complete
  9. Create two more portfolio’s in my Virtual Stock Exchange league (1/2)
  10. Do 75 push-ups without taking a break (40/75) - No progress
  11. Run 2 miles in 12 minutes - I have been running, but no measurable progress
  12. Increase my net worth by 80% this year (33%/80%) - Increased by 8%
  13. Play a set of tennis without double faulting - 4 double faults is my new average
  14. Achieve Certified Associate in Project Management (CAPM) certification - Deadline passed; goal failed
  15. Secure a full-time job - No progress
  16. Convince five people to start investing (3/5) - Added my sister!
  17. Establish and record 500 phone contracts (140/500)
  18. Establish and record 1000 email contacts (240/1000)
  19. Learn how to drive a manual transmission - No progress
  20. Achieve 1000 lifetime trades (380/1000)
  21. Complete my portfolio management spreadsheet and submit to sourceforge.net - No progress
  22. Attend a University of Michigan basketball game for free - Potentially
  23. Master double-digit multiplication and division - No progress
  24. Give blood - No progress

Looks like the goal process is going well. Due to summer employment commitments, I have not been able to attack this list as much as I wanted to this month. So far I have managed to complete five goals, while only allowing one to slip away.

Friday, July 27, 2007

Links for Friday

This Week's Links:

A Post from the Past:

Monday, July 23, 2007

Links for Friday

Little late with these...

This Week's Links:

A Post from the Past:

Thursday, July 19, 2007

Arbitrage Trade

Oh, the privileges of being a small investor. It is really nice that big hedge funds are too occupied with million dollar arbitrage and currency trades to capture all available arbitrage. A couple thousand is insignificant in their books, but for many small investors, a trade of that proportion could add 10% to their net worth! As my risk tolerance diminishes, I continue to look for opportunities that provide substantial returns with limited risk. One such opportunity is Monarch Community Bancorp (MCBF).


Background:
Monarch Community Bancorp specializes in... oh wait a minute... it doesn't matter what they specialize in, what matters is what they are doing with their stock. In February MCBF agreed to execute a merger transaction in an attempt to reduce their number of shareholders in order to become a private company. MCBF calculated that in order to reduce the number of individual shareholders to 300, the maximum number of shareholders of a private firm, the company would need buy out shares from investors with less than 1,000 shares, at a price of 13.50 per share. The deal is scheduled to close sometime in the fourth quarter of this year.


Required Transactions:
The trade is pretty simple for this arbitrage opportunity: go long, right now, at any quantity under 1,000 shares.


Expected Results & Risks:
The only risk involved with this trade is merger abandonment. I have no reason to believe that the deal will fall through based on my initial research on the transaction. It appears that the company is progressing nicely toward privatization. So if the deal does finalize, investors could easily snatch up almost 10% in four months!

*Disclaimer*
The writer of this article currently owns shares in Monarch Community Bancorp. Investors should always do their own individual research before executing a trade.

Monday, July 16, 2007

Some Thoughts On Earnings Season

This week marks the first round of earnings reports. Companies expecting to report include Eaton (ETN), Merrill Lynch (MER), Coca-Cola (KO), Johnson & Johnson (JNJ), Intel (INTC), Yahoo (YHOO), Altria (MO), JP Morgan (JPM), eBay (EBAY), Google (GOOG), and Caterpillar (CAT). These reports will try to justify the great month that all of the major indices are having.

The only real earnings precursor came last week with reports from Alcoa (AA) and General Electric (GE). Both stocks boosted strong earnings results and investors responded nicely, but I am not entirely confident that the post-earnings rallies were due to the financial status of the firms. AA was down pre-market, but when an analyst suggested the buyout attractiveness of Alcoa, the ticker arrows quickly shifted direction.
GE had a really great report as well, but the total market was in the mist of a strong rally and GE may have simply rode the market wave last Friday.

Some final thoughts and a Bearish Warning:
Last season I suggested that investors would continue reacting well to earnings beats, even with the lowered yearly expectations. I am confident that if the beats continue, investors will once again ignore the lowered expectations and reward successful firms. I also predict that in-line reports will not be good enough to sustain the summer rally. A large part of this bullish run is unwarranted and not justified by earnings reports, leaving much of this month's run-ups susceptible for a pullback. I would encourage investors to wait a day or two and investigate the initial reports to better gauge the potential success for the rest of the earnings season.

Good luck all!

Friday, July 13, 2007

Links for Friday

This Weeks Links:

A Post from the Past:

Sunday, July 08, 2007

Book Review: The 4-Hour Workweek

I took a break from the heavy finance books to read Timothy Ferriss's The 4-Hour Workweek. The book has had excellent reviews from many respectable critics, so I thought I would give it a go.

Overview:
The book basically lays out a strategy to create automated income and free yourself from the dull life created from our 9 to 5 society. The basis of Ferriss's writing focuses on using DEAL (definition, elimination, automation, and liberation) to formally join the NR (new rich). Each chapter offers ways the reader can shift from a steady work-life, toward a life full of travel, leisure, and mini-retirements.

Personal Takeaways:
Honestly, the book is full of information. I am entirely convinced that all readers will find something of value embedded within Ferris's chapters. For me, the income via automation and comparison of travel costs vs. traditional costs were pretty compelling.

Automated income is very powerful and does not necessarily involve linking millions of databases together. Ferris details how to find your niche, use it to create a source of income, then automate it. The automation chapters explain that you can hire virtual assistants to do anything from responding to customer inquiries to sending your significant other flowers. Auto-response emails and a couple of outsourced resources can create a business with no maintenance. Amazing!

Ferris also busted the expensive overseas travel myth. In relation to the expense you are already paying now in the states, you could very well vacation as royalty practically anywhere else in the world.

Recommendation:
I recommend this book to everyone. It is informative and proactive (offering an array of activities to help achieve inner happiness) and will help readers uncover what is truly important in life. It is a quick read and will having you laughing more often than not.
And make this post finance related, consider borrowing this book from a friend or checking it out from your local library.

Friday, July 06, 2007

Links for Friday

This Weeks Links:

A Post from the Past:

  • Considering using a financial professional? Forget about it. Just consult May's Financial Calculators Galore for all of your financial calculation needs.

Tuesday, July 03, 2007

24 Goals to Accomplish in 240 Days - UPDATE

It has been nearly two months since I shared my goals for the rest of the year. I have detailed the status of each of the goals below:
  1. Make the maximum contribution to Roth IRA by July 4th ($4,000/$4,000) - Complete
  2. Successful open up Hedge Fund account by June - Complete
  3. Hedge Fund account value greater than or equal to $10,000 by August ($10,800/$10,000) - Complete
  4. Hedge Fund account value greater than or equal to $20,000 by January ($10,800/$20,000)
  5. Roth IRA account greater than or equal to $9,000 by January ($6,700/$9,000)
  6. Have 150 blog posts by December (74/150)
  7. Create Fund website by July 4th - Complete.
  8. Read five books by August (4/5)
  9. Create two more portfolio’s in my Virtual Stock Exchange league (1/2)
  10. Do 75 push-ups without taking a break (40/75) - No progress
  11. Run 2 miles in 12 minutes - No progress
  12. Increase my net worth by 80% this year (25%/80%) - Increased by almost 12%
  13. Play a set of tennis without double faulting - 9 double faults the last time I played
  14. Achieve Certified Associate in Project Management (CAPM) certification - No progress
  15. Secure a full-time job - No progress
  16. Convince five people to start investing (2/5)
  17. Establish and record 500 phone contracts (140/500)
  18. Establish and record 1000 email contacts (230/1000)
  19. Learn how to drive a manual transmission - No progress
  20. Achieve 1000 lifetime trades (342/1000)
  21. Complete my portfolio management spreadsheet and submit to sourceforge.net - No progress
  22. Attend a University of Michigan basketball game for free - No progress
  23. Master double-digit multiplication and division - No progress
  24. Give blood - No progress

Woo-hoo, I have completed four goals already! I still really need to start working toward achieving the fitness goals. Feel free to share how your goals are going!

Monday, July 02, 2007

Festival of Stocks #43

I am proud to be hosting this weeks Festival of Stocks! Enjoy all of this weeks articles!

This Week's Submission

Free Money Finance presents Low Cost Usually Equal a Better Investment (And the Various Costs You Need to Look for).
This article goes in depth about why lowering costs usually creates a better return and what costs are usually associate with particular investment vehicles.

Canadian Economy, Commodities And Mining Stocks Through a Fundamental Lens presents 5 Ways to Gauge Market Sentiment.
This article shares several important factors that help measure market sentiment.

Bankruptcy Lawyer's Blog presents Understanding Chapter 12 Bankruptcy.
This article details Chapter 12 bankruptcy concerning farmers and fishers.

Money Ning presents Taxable Account Portfolio Update - June 2007.
This article shares Money Ning's portfolio holdings at the end of June.

INTJ Personal Development presents Do You Get Money? and Grow Your Pile of Money
The first article details the basics of currency, economies, and meaning on money. While the second article offers ways to use an individual's pile of money.

Investment Jungle presents Stock Analysis - Respironics Inc.
This article evaluates RESP as a potential investment.

Dividends Matter presents Dividend Analysis - Wal-Mart Stores Company.
This article evaluates WMT as a potential investment.

Mad Money & Fast Money Fan Site presents Mad Money - Cramer on Buffett Stocks.
This article shares Jim Cramer's take on Warren Buffett's stocks.

Neutral Market Trends presents Backtesting the S&P Volatility Timing Model.
This article shows the back-tested results of a unique volatility timing model.

Wealth Building Lessons presents Is Sears the Next Berkshire Hathaway?
This article details the investment nature of SHLD, comparing it to Berkshire Hathaway.

The Skilled Investor presents How to Lie with Statistics: Investment Performance Charts.
This article address the dangers of following investment performance statistics.

Adventures in Money Making presents How Capitalism Really Works.
This article shares some comments on the Blackstone IPO.

The Credit & Credit Card Blog presents Boat Show Financing - Never, Ever Use It.
This article reminds use why cash in king when purchasing a boat.

My Estate Planning Career Blog presents Smart Estate Planning Strategies for the Average Joe.
This article reviews some of the most fundamental components in estate planning.

Personal Investing Advice presents Investing - Gold Shares - The Leverage Factor.
This article suggests investors exercise leverage via gold, leaps, & warrants.

My Deft Relief Plan presents Reduce Credit Card Debt Quickly.
This article suggests several chronological steps an individual should negotiate to reduce credit card debt.

Personal Finance Blog Articles presents Saving Money - A Top Strategy for Saving Money.
This article explains how individuals should re-evaluate their spending formulas.

Wealth Building World presents Wealth Creation - Don't Start with the Wrong Concept of Wealth.
This article explains the value and concepts behind establishing a wealth creation program.

Stock Value Finder presents Visa Initial Thoughts.
This article evaluates VISA as a potential investment.

HotStrategies.com presents Do Not Sell Your Stocks Randomly.
This article explains the importance of not letting emotions drive your selling.

Trader's Narrative presents Homebuilding Sector Merits Attention.
This article presents a potential inflection point for homebuilding stocks.

Sox First presents Subprime Fallout: The Bears Are Out.
This article explains the fallout from CDOs and how it could effect the global economy.

The Mad Money Analyst presents Why Invest in Stocks.
This article presents an argument why stocks are always the best long-term investment.

Political Calculations presents Fundamental Indexing in 18 Months.
This article tracks the current progress of a weighted indexing strategy.

The Dividend Guy Blog presents BCE - A Sell Gone Way Bad.
This article recaps a prior sell gone bad.

Investor Trip presents How to Investing in 2008 Beijing Olympics.
This article evaluates HMIN as a potential investment.

Wednesday, June 27, 2007

Off to New York

I will be leaving for New York this afternoon and returning Sunday night. Please sumbit your articles for the Festival of Stocks by Monday, July 2nd.

Have a great rest of the week!

Tuesday, June 26, 2007

Hurray for the Festival!

This week I will be hosting the July 2nd edition of Festival of Stocks! Investors from all around will be sharing their insights right here on this blog! Check out Value Investing News for the complete details on what this festival is all about. To submit an entry to the festival, simply click here and fill out the Blog Carnival form.


Last week, my Behavioral Finance article was featured on Fat Pitch Financials and The Digerati Life. Student Load Consolidation Lowdown also shared my article on Asset Allocation.


Hurray for the Festival!

Sunday, June 24, 2007

Load Up on Dividend Stocks

It has been a tough month for most investors as the DOW and S&P have fallen almost 2% each. Are there still buying opportunities, or is it time to sell and run? What fascinates me most about this recent sell-off is the significant pull back of large dividend stocks. PNG, PFE, and AEE all dish out more than a 4.5% dividend, but have fallen more than 4x the major indices. Intuitively, these stocks should not sell-off in this environment and buying these companies could quickly become a great hedge in an falling market.

So why are these great buys?
There are two main reasons why these are great buys. The first reason is the failed correlation between the major indices and dividend achievers. The ability for these companies to perform and adhere to their targeted profits has nothing to do with the movement of the DOW during the last couple of weeks. It is very likely that these companies will perform as promised and pay the expected dividend no matter what their investors want their shares to sell for. The second reason to buy is because of the pure increase in the value of the dividend yield with the recent decrease in share price. Dividend yield percentage and stock price share an inverse relationship; so as long as the price drops, the dividend yield grows. If the dividend payments are paid as promised, shareholders will get the same payout for cheaper!

So why did these stock sell-off then?
Predicted volatility showed his face again and scared shareholders. Analysts were big on dividend stocks early in the year when the market was fluctuating and investors had little certainty in the direction of the market. Dividend stocks became every investors go-to, causing these stocks to not only show dividend gains to investors, but capital gains with increased buying pressure. This month, major indices have sold off leaving these dividend holders a reason to take profit on their unwarranted share price gains.
I hope to share some of my favorite dividend buys later in the week.

Friday, June 22, 2007

Links for Friday

This Weeks Links:
  • fivecentnickel shares excerpt from Andrew Tobia's The Only Investment Guide You'll Ever Need presenting the value of savings. In short, saving a dollar contributes more to your bottom line than earning a dollar.
  • Everyone knows that sales happen at certain times of the year. Well ConsumerReports has crafted a sales calendar so individuals can schedule purchases.

A Post from the Past:

  • Check out some important amendments I made to my earnings strategies in March's post: Lessons Learned.

Thursday, June 21, 2007

Use Behavioral Finance When Picking Stocks

Richard Thaler incorporated behavioral finance into money management by claiming that stocks not only react to information, but to noise creating from buying and selling trends. In short, investors cannot ignore the psychological state of fellow investors when pursing a potential trade.

I am a behavioral finance trader. In order to identify the psychology behind a stock I consult technical indicators. If a stocks technical indicators are strong, I consult their financials to insure its a good trade. If company revenues are rocketing, I look to see if investors have already priced in these expectations by looking at technical trends. While Wall Street is covered with analyst running valuation models, the market is still a supply and demand market driven by investor's willingness to pursue a stock at the current price. This market may sell-off on rumors of interest rate hikes, but will show equal losses when individuals take profit after a recent run-up.

What is an Investor to do?
Diversify your research like you diversify your investments. If you only look at three month chart, your going to get killed. If you look at last years books, your going to get killed. If you happen to notice that the company is expecting an financial sound acquisition sometime in the next several months, and the stock has shown a shift from selling pressure to buying pressure, it may be a perfect time to go long.

In the next few weeks, I plan on sharing several fundamental and technical methods of research. Feel free to share some of your favorites!

Tuesday, June 19, 2007

Goldman's Hedge Fund... Not So Golden

Forgive the not-so-original post title, but I thought I would share an interesting article written by the Tom Taulli of the Motley Fool. The article describes Goldman's ailing hedge fund business, specifically commenting on the fund's two year decline of over 12% and the inability for the fund to secure any new investments. Goldman has sustained the credibility of being one of the finest banking powers, but its asset management business appears to be losing its luster. I would not be surprised if Goldman acquires a more successful private fund to complete with Merrill's 2005 BlackRock acquisition.

These stories about hedge funds fascinate me because they often use zero sum trading instruments. Many times these funds are simply taking strategic "bets" and it appears that Goldman may have been on the losing end of the bet. The more these funds drive away from equities, the more volatile the returns will be. The fund that I am running is attempting to stabilize returns in any market environment by utilizing equities and fixed income. I thought that's what a hedge fund is supposed to do, provide stable returns in any market environment.

Monday, June 18, 2007

Performance and New Features on the Way

The performance table on the sidebar was taking too much space so I will simply be sharing my recent trades and their results several times a month. Feel free to check out the Excel or html file detailing my transactions and month-to-month performance. I am happily back atop all of the major indices, which puts me several steps closer to achieving several of my 24 goals!

With that being said, I hope to dedicate the next several posts to individual stock recommendations. I spent about a month getting the personal finance tips off my chest, but it's time to get back to good ole investing!

As a side note, I would like to thank everyone who continues to read and contribute to my blog. I am hoping that this site will not only serve as a motivation tool for myself, but also a source of reference and knowledge for others.

Friday, June 15, 2007

Links for Friday

This Weeks Links:
  • Free Money Finance shares an awesome way to get a double tax deduction. What you basically do is sell your losing stocks and use the money to contribute to your IRA.
  • Ask the Advisor describes the different retirement options for the self employed. I found this to be pretty helpful since I may be starting my own business someday.

A Post from the Past

Monday, June 11, 2007

It's Really All About Asset Allocation: Part 2 of 2

I negotiated the CNN tool with the following known variables (well some are assumed because I don't really have a job yet):
  • Current Age: 22 (My age when I start full time employment)
  • Desired Retirement Age: 65
  • Life Expectancy: 85
  • Current Income: 65,000 (I hope that is somewhere around my potential starting salary)
  • Typical Annual Raise: 4% (I believe that is a fair average)
  • Desired Annual Income @ Retirement: 65% of current income --> I figure I already will be saving 20% toward retirement and 10% toward housing expenses
  • Expected Benefits from Social Security: $0 --> Social Security will fail
  • Age Payments Begin: 65
  • 401k Balance: $0
  • Contribution %: 10%
  • Company Match: 25%
  • IRAs: $10,000 in my Roth
  • Annual Contribution: I plan on maxing it out $4,000
  • Tax Rates: Whatever CNN said
  • Portfolio: Aggressive ---> But this is the unknown!

The results were great! In order to achieve my goals, I only need to yield 5.06% on my investments throughout retirement, which suggests I can be pretty conservative if I maintain my current contribution rate!

Sunday, June 10, 2007

It's Really All About Asset Allocation: Part 1 of 2

One thing I learned at Merrill Lynch was a great system for retirement planning. The system is much like any Algebra course where you simply solve for the unknown. There are several main variables that go into the retirement planning equation: current age, desired retirement age, life expectancy, current income, expected annual raise, desired annual income in retirement, current retirement savings, and retirement portfolio. At Merrill Lynch our clients new their desired end of the retirement equation (desired retirement income). What they wanted to know was how to make the retirement variables achieve their goals. In order to do this, we simply established the rest of the knowns and found what mix of investments would allow them to reach their goals.

I have a beef with Fidelity's myPlan because it simplifies the retirement equation too much and gives no advice on an investment direction. The calculator asked what my desired investment style was, and I thought to myself, well that depends how close to my retirement goal I was. See this is how most people should think we planning their retirement investments; what asset mix gets me to my goal.

CNNMoney's retirement calculator is far superior to Fidelity's because it takes out all assumptions and offers an appropriate asset mix. I will share my retirement check in Part 2 of the series!

Saturday, June 09, 2007

Links for Friday

I am a little late with these, but they are still quality links!

This Weeks Links:
A Post from the Past:

Thursday, June 07, 2007

Boosting up My PR With Viralink

In an effort to attract more readers I am going through with this connection idea:

Below is a matrix of 120 stars, I have already added a link to my blog onto one of the stars, all you need to do is copy and paste the grid into your blog and add your own link to one of the other spare stars, and tell others to do the same!

Viralink

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New Addition: When I receive a ping back once you have added the Viralink to your site I will add your link to this grid, and each person who copies the grid from here will also link to your site!

Wednesday, June 06, 2007

Book Review: Investment Titans

Jonathan Burton's Investment Titans does a really great job covering some of the smartest minds in the investment community. Each chapter in the book is dedicated to a well known investor and articulates that investor's particular niche. While I have taken an extensive portfolio management course at my university, the book still managed to share many unique strategies that I had never heard of!

Overview: I almost guarantee that everyone will learn something new after reading this book. I found myself skimming over the first two chapters because I already new about the Capital Asset Pricing model and using the Long and Hold investment strategy, but I was really interested in Jeremy Siegel's argument about Equity Premium. Readers will also get a heavy dose of index fund praise and asset allocation. In short, the book covers everything an intermediate investor should know when investing.

Personal Takeaways: I thought I would simply share some passages to cover my takeaways
  • "Bonds and cash simple don't retain their purchasing power once inflation takes its toll."
  • "... asking whether you should keep a stock... is whether you'd be willing to buy it."
  • "Behaviorists combine psychology and finance - contending that preconceptions and cognitive errors lead investors to misinterpret events and to overlook opportunities."
  • "Value stocks around earnings announcements outperform growth stocks... by four percent."
  • "The better an investment has treated you, the more you should think about distancing yourself. The stock doesn't know you own it. It owes you nothing."
Recommendation:
I recommend investors of all skills levels at least flip through the chapters and find something new. Investment Titans has certainly given me a few tag lines to keep in mind when evaluating an investment and I am confident that the insights have contributed to my overall investor education.

Tuesday, June 05, 2007

New Look

I have tinkered with the html a bit to offer a more RSS friendly blog. In doing so, I also decided to switch my template to a more neutral arrangment of blues. My net worth entry has also been updated and my performance charts will be updated soon.
Thanks for reading!

Monday, June 04, 2007

24 Goals to Accomplish in 240 Days - UPDATE

It has been nearly a month since I shared my goals for the rest of the year. I have detailed the status of each of the goals below:
  1. Make the maximum contribution to Roth IRA by July 4th ($0/$4,000) - Rollover to Roth IRA conversion in process - contribution to by made by end of the week!
  2. Successful open up Hedge Fund account by June - Account to be open by the end of the week!
  3. Hedge Fund account value greater than or equal to $10,000 by August ($0/$10,000) - No progress
  4. Hedge Fund account value greater than or equal to $20,000 by January ($0/$20,000) - No progress
  5. Roth IRA account greater than or equal to $9,000 by January ($3,500/$9,000) - No progress
  6. Have 150 blog posts by December (41/150)
  7. Create Fund website by July 4th - Initial planning has started
  8. Read five books by August (3/5)
  9. Create two more portfolio’s in my Virtual Stock Exchange league (1/2)
  10. Do 75 push-ups without taking a break (40/75) - No progress
  11. Run 2 miles in 12 minutes - No progress
  12. Increase my net worth by 80% this year (14%/80%) - Increased by a little more than 2%
  13. Play a set of tennis without double faulting - No progress
  14. Achieve Certified Associate in Project Management (CAPM) certification - No progress
  15. Secure a full-time job - No progress
  16. Convince five people to start investing (1/5)
  17. Establish and record 500 phone contracts (130/500)
  18. Establish and record 1000 email contacts (220/1000)
  19. Learn how to drive a manual transmission
  20. Achieve 1000 lifetime trades (280/1000) - This is going to be tough!
  21. Complete my portfolio management spreadsheet and submit to sourceforge.net - No progress
  22. Attend a University of Michigan basketball game for free - I went to an arena football game for free!
  23. Master double-digit multiplication and division - No progress
  24. Give blood- No progress

I have made substanial progress on nine of these goals, but I really need to start working toward achieving the fitness goals. Feel free to share how your goals are going!

Friday, June 01, 2007

Links for Friday

Every Friday I am planning on sharing two great links that I stumbled across during the week. I will also share a previously written article to ensure new readers can still use great tips from the past.

This Weeks Links:

  • The Money Blog Network pulls great personal finance articles from popular financial articles and blogs. I added it to my RSS feeds and have already discovered a whole bunch of great articles.
  • Student Cook is a great site offering meal suggestions for any income level. As a student, I am always looking for a way to balance my budget while still indulging in great food.

A Post from the Past:

Tuesday, May 29, 2007

What You Can Do Today To Be Rich in the Future

I was looking in the archives of one of my favorite blogs, The Simple Dollar, and I came across a great post detailing 18 tips that can save the average person over $4,000 a year! A great deal of these suggestions are new to me so I thought I would share the link.

To take this post one step furthur, I calcuated the benefits of living by these tips and depositing the average savings into a Roth IRA retirement account and assumed a 10% return on the account. The results are outstanding:

You would have almost $2,607,000 in your account when you retire at 65. This value is created simply by depositing the money you saved through the years.

Saturday, May 26, 2007

What to Do With The Rest of the Money That Is Not in Stocks

Throughout history stocks have certainly proved to be the best investment vehicle, performaning significantly higher than other assets. While I strongly suggest that readers implement the 120 Solution when allocating their investments (subtract your age from 120 and you get what percent of your avaiable capital should be in stocks), I understand that some money should be saved for emergency and liquidity needs. Now it is time to ask yourself, are you really making that money work?

Online savings accounts are a great way to make this money work. I current have an ING Direct savings account that yields around 4.5%. I was actually given a $25 promotion so the account has actually yielded me around 6.5% last year. The account is great because it allows for automated transfers between my accounts. I know that every month I have to pay rent. I have simply set ING transfer the rent amount to my checking account (yields 1% a year) a few days before rent is due and then write the check. For small account values like mine, this process only really earns me $40 more a year, but 40 bones is 40 bones! This account also encourages me not to spend money! I usually only have about $150 in my checking account, the rest is in my ING savings account. The automatic transfers force me to be frugal by reducing impulse purchases. The very act of manually going to ING's site and withdrawing the money before I spend it usually takes too much effort, so I end up not buying the product. ING also offers a paper checking account with a lower yield, but if your interested in the savings account, feel free to post a comment and i'll share the $25 promotion link.

There are an array of other products offering higher yields than the typical savings accounts. I know that HSBC offers a higher rate than ING, but I calculated that the $25 promotion was a better deal for me. Another interesting account is Schwab's new checking account. This account offers traditional paper checking as well as 4.25% annual yield. I would personally be very interested in this account but I am concerned about the impact on my credit score from opening too many accounts soon after I opened up my ING account.

In short, individuals should really consider these higher rates of return. Given that inflation is sitting around 3% a year, you are actually losing a significant amount of money on those accounts that are giving you 1% or less.

Friday, May 25, 2007

Ahhh The Hedge Fund...

Many of you may have read my 24 Goals in 240 Days post detailing my desire to build my Hedge Fund's account value. Wait, Hedge Fund? That's right. One of my career objectives is managing my own alternative investment firm so I thought now would be the time to go ahead and make that career dream a reality... well sort of.

My friend and I have recently filled out paperwork to open a new account with our brokerage firm. This account will be the temporary location of the new fund. I figured opening up the account now would allow the fund to establish a record of performance so we will be able to use that as a pitch when we actively seek investors. The fund will utilize the same investment vehicles as any typical hedge fund like the ability to short securities and utilize derivatives and other forms of leverage for enhanced returns. While the brokerage is finalizing the account set-up, my friend and I are working on detailing the specifics of the fund including the overall strategy and asset allocation, risk profile, goals and objectives, promotion and investor commitments.

I will keep readers updated on the progress of the fund, but for now I will simply share the layout of the webpage I plan to maintain in order to facilitate interest in the fund.

Wednesday, May 23, 2007

Book Review: Come Into My Trading Room: A Complete Guide to Trading

Wow. I cannot believe how much I enjoyed this book. Before I detail how great this book is, I think it is important to note the type of person I am. I am a college student hungry to learn how to maximize my investment account values and overall net worth. I also get very excited learning about new investment strategies and vehicles. If you match these characteristics, I encourage you to finish reading this post and start reading Dr. Alexander Elder’s Come Into My Trading Room.

Overview:
So I definitely took three full pages of typed notes and created a whole Excel workbook with four worksheets all in an effort to better replicate Elder’s strategies. I do not consider myself to be a big note taker, so be prepared to get a lot from this book. The book is basically divided into three parts: characteristics of a trader and an introduction to the trading game, money management, and technical analysis techniques.

Personal Takeaways:
Elder details the typical make-up of a trader and the different environments traders operate in. He explains that there no such thing as a typical trader, but often times successful traders have muted emotions, above-average mental math skills, patience, and a drive to make a lot of money. If you feel you meet the mold then Elder encourages the reader to read on as he describes the types of markets, where to trade, and the time frames one should trade. Once you select your ideal trader make-up you are ready to learn about technical analysis and making money on the psychology of investing.

The technical analysis section is certainly provides the deepest content by informing readers about indicators and oscillators as well as offering strategies for trading once readers understand the basics. I could really go on forever, but I will just give you a taste of what Elder offers. Elder suggest that before trading do the following: identify your favorite time frame and move to the next broad frame (if you like weekly trading, move to monthly charts) and use the indicators to locate a trend, move back to the intermediate time frame and wait for an entry point based on your oscillators, set your profit target and exit strategy, and set what you are willing to loss on the trade by setting a stop.

The final section discusses money management. The core of this section highlights the importance of sticking to your main goal of maximizing your account value. Elder preaches that an individual should never risk more than two percent of his/her account value on a trade and never have more than six percent of the account value at risk during a given month. Traders should also keep diligent records helping traders notice where they are succeeding and which strategies need to be modified.

Recommendation:
I recommend investors interested in active portfolio management seriously consider reading this book with pen and notebook. The book has help diversify my investment strategy and I am eager to use more technical analysis in my quest for wealth.

Book Review: All About Index Funds: The Easy Way to Get Started

All About Index Funds: The Easy Way to Get Started by Richard A. Ferri was the third book I read this summer, and I must say, it was a bit of a laggard compared to the other two. I am not very to motivated to write about this book because readers could find the same information on Wikipedia and other common investment sites, but I write on in an effort to convince readers to seek other pieces of financial literature.

Overview:
The book has several sections that introduce mutual and index funds, offers some notes about asset allocation with these funds, evaluates fund performance, the array of different types of funds, and the future of these investment vehicles.

What a typical investor may gain from this book is a better understanding of the difference between mutual and index funds. A mutual fund is run by a manager who sticks to an asset selection strategy, as specified in the fund's prospectus, and is evaluated on the fund’s overall performance. An index fund tracks an index, or collection of a particular set of securities, and is evaluated on the accuracy of imitating that index’s returns. An investor who wants to target a specific group of stocks may want to look into investing in an index fund who tracks that particular group of stocks. If an investor is looking toward achieving above average returns, may look into investing in a speculative mutual fund.

Personal Takeaways:
I think the most important takeaways from this book relate to asset allocation and fund fees. An investor should use asset allocation to achieve his/her return goal. This investor could use a variety of funds to achieve his/her unique asset mix ideal for the investor's target return. In addition to using allocation to address investment goals, an investor should consider fees when choosing an investment vehicle. Index funds are almost always cheaper than mutual funds, which means that they actually give you better overall returns (on average). Many times, these funds are also more tax friendly, another important part of assessing your overall returns. Still, these benefits are highlighted all over the web; no need to read these chapters to uncover potential secrets.

Recommendation:
I think a potential financial planner may enjoy this book if he/she does not have his/her facts straight already, but my overall opinion on the book directly correlates with my positioning of this post. Readers can appreciate that I strategically wrote this review on the third book I read this summer before the review I am going to write for the second book I read. This position will allow readers to simply pass over this post, much like they should pass on this book.

Thursday, May 17, 2007

New Blog!

I have begun to trade based on my recent education in technical analysis. All traders agree that good record keeping is one of the most important keys to success. So I decided to keep my trade records very public, and record them in my new blog: Rick's Proprietary Trading Log.

As I stated in my new blog's header, the purpose of blog is to help document my technical stock selections. My plan is to record the trade in this blog right after I execute the buy or sell order. I have developed a comprehensive excel spreadsheet that tracks my trades as well. I will also post any entries or modifications to my spreadsheet as well.

For each order I plan to write the following in this blog:

  1. Overview of the pattern created by the stock
  2. Decision to go long/short
  3. Strategies for entering the trade
  4. Strategies for exiting the trade

Most of my trade decisions will be derived from weekly trends and executed based on daily opportunities. That is my favorite time frame. If you wish to follow the same strategies but want to use a different time frame, simply draw out (or in) the same strategies to your desired time frame.

Friday, May 11, 2007

Some Thoughts for Students Entering the Job Market

As some of you may already know, I am going to be a Senior this fall at the University of Michigan, Ross School of Business. While technically my concentration is in Finance, I have had really great experiences with my current summer employer, Electronic Data Systems (EDS). This summer is my fourth summer working a project management role with the technical consulting firm and I really enjoy the leadership opportunities that a full time position would offer.

I thought I would use some nifty calculators to find the financial benefits of a full-time Project Management job with EDS in the Detroit area, verses working as a Financial Analyst in a big city. I used CNN's Cost of Living calculator to analyze the expenses associated with living in a particular city. After speaking with some of my co-workers, they suggested that I could maybe get a starting salary of almost $70,000 in Detroit. For my calculations I assumed a salary of $65,000 with a 5% bonus, totaling a true salary of $68,250. The calculations below suggest I would need a salary of at least $137,085.56 in New York City, and $90,761.44 in Boston, to maintain the same lifestyle as offered by the EDS position in Detroit.

I also explored what my true hourly wage would be given my two potential career paths: a Financial Analyst of some sort and a IT project manager. I used instacalc's Salary to Hourly Wage calculator to find how much I would need to make as a Financial Analyst to match the hourly wage offered from the Project Management position. I used the same base salary and bonus for the Project Management wage and from my conversations with co-workers, I learned that the typical workweek is 40 hours and entry level positions are allowed three weeks paid vacation. After some brief research on a typical Financial Analyst position, I discovered that these positions usually only get two weeks or so of paid vacation and average 60-hour workweeks. The data also suggests the average bonus for these Analysts is a bit higher, let's say 10%. From the calculator I found that in order for the Analyst to match the hourly wage of the Project Manager, the Analyst would need a base salary of $95,000!


Have fun with these calculators.

I am Selling Some CHCG at These Levels

In case anyone bought into CHCG a few days ago, I would suggest taking some profit at these current prices. I managed to sell about 40% of my stake at $7.20/share, but anything about seven dollars is a nice profit (almost 15%).
Congrats to all and good luck longs!

Thursday, May 10, 2007

A Recap of Prior Plays

I felt obligated to share the performance of the trades I proposed on this blog. I went all the way back to my November posts (which apparently I was doing my best work) and found how each pick turned out.
The table below shows the performance of my November 10th picks. I simply assumed the investor would have bought shares at the closing price on November 10th and sold the stock after the week was over, sometime around November 15th.

The table below shows the success of my IPO evaluation on November 15th. For these stocks, I assumed the investor initiated a market order when these stocks started trading and sold the stocks at the end of the day.

The table below highlights my most recent round of earnings plays. Like all earnings plays, I assumed the investor bought the stock sometime after the post or around the close before the earnings report and sold the stock the next day sometime around the close.

The last table is my recently recommended "technical analysis" stock. I will try to add more of these as I learn more about TA.

You can interpret these tables however you like, just thought I would throw them out there.

Monday, May 07, 2007

I Like Marvel Going into Earnings

There is nothing wrong with chasing momemtom, so I am chasing Marvel (MVL) going into the company's earnings report on Tuesday. The stock is slightly off its 52 week high and has a slightly higher P/E ratio compared to its competitors, but the potential earnings this new Spiderman movie could bring in is amazing. This weekend Spiderman became the highest grossing opening-weekend movie ever. Marvel not only makes money from the movie, but also from the action figures, clothing and trading cards. All of these outlets translate into Marvel royalities. Earnings Whispers expects a four cent beat, but I can only suspect that Marvel will raise its guidance with the recent success of Spidey.

I am looking beyond the fundamentals and trading on a good feeling. Hope this works out.

I'm Buying CHCG at These Levels

I am currently reading a book that suggests traders follow five to ten stocks and understand how they swing over time. One of the stocks that I have been following and trading since October is China 3C Group (CHCG.OB), an electronics retailer in China. The stock recently had a significant run-up to $7.50 and it appears that several shareholders have been profit taking over the last several weeks. The stock is currently trading around $6.10, still above its 50, 100, 200 day moving averages.

I think I have made almost 15 trades on this stock and I confident that this stock has room to run. I do not pretend to know anything about technical analysis, but I usually buy this stock after three or four consecutive down sessions. I think this strategy has worked because the stock has great fundamentals and growth prospects. The company stated in its last earnings release that they would announce several more store openings sometime in the second quarter. I noticed that anytime a press release comes out on this company more analyst cover the stock and start to appreciate how great the growth prospects are.
There is a good chance that this stock may retreat a bit more from these levels, but I am confident that as soon as the company releases some news, the stock will soar back to the 7s. Good luck!

Sunday, May 06, 2007

Financial Calculators Galore

I stumbled across yet another financial calculator website today. Hugh's Mortgage and Financial Calculators is a great site offering traditional finance calculators (IRA and house one can afford), as well as several really unique calculators (sack lunch savings, gas savings and beverage savings). After picking through Hugh's site a bit, I thought I would share other great financial calculators I found on the web:

I ran the beverage savings calculator and found that I could save $208/year and $3,315 after 10 years if I order water every time I go out to eat, assuming that my beverage usually costs $2 and I go out to eat twice a week. I also ran the retirement savings now vs. later and found that a person my age would have to pay $254 more each year to have the same ending balance if they choose to wait a year to fund a retirement account, assuming a $2,500/year contribution.


Feel free to share your favorite calculators...

24 Goals to Accomplish in 240 Days

After reading the simple dollar's 101 Goals in 1001 Days post I felt inspired to document my own list of goals. I used Trent's same strategy of establishing specific, quantitative goals that may be poised for failure. I was a little impatient with Trent's time frame, so I made these goals good until the end of the year. I plan to write an update on these goals every couple of months or so. I have italicized all finance-related goals.
  1. Make the maximum contribution to Roth IRA by July 4th ($0/$4,000)
  2. Successful open up Hedge Fund account by June
  3. Hedge Fund account value greater than or equal to $10,000 by August ($0/$10,000)
  4. Hedge Fund account value greater than or equal to $20,000 by January ($0/$20,000)
  5. Roth IRA account greater than or equal to $9,000 by January ($3,500/$9,000)
  6. Have 150 blog posts by December (25/150)
  7. Create Fund website by July 4th
  8. Read five books by August (1/5)
  9. Create two more portfolio’s in my Virtual Stock Exchange league (0/2)
  10. Do 75 push-ups without taking a break (40/75)
  11. Run 2 miles in 12 minutes
  12. Increase my net worth by 80% this year (30%/80%)
  13. Play a set of tennis without double faulting
  14. Achieve Certified Associate in Project Management (CAPM) certification
  15. Secure a full-time job
  16. Convince five people to start investing (0/5)
  17. Establish and record 500 phone contracts (120/500)
  18. Establish and record 1000 email contacts (200/1000)
  19. Learn how to drive a manual transmission
  20. Achieve 1000 lifetime trades (200/1000)
  21. Complete my portfolio management spreadsheet and submit to sourceforge.net
  22. Attend a University of Michigan basketball game for free
  23. Master double-digit multiplication and division
  24. Give blood

I encourage all of my readers to set their own goals and let me know how they go. Remember, be specific with these goals and do not be afraid to set yourself up for failure.

Thursday, May 03, 2007

Buying Companies You Like

I watched an interesting program Monday night on CNBC detailing how four successful entrepreneurs made their money. Phil Town was one of those entrepreneurs and he made his money in stocks. Phil suggests that individuals invest in companies that make products that they like. He reinforced this point by stating that if a particular audience member bought shares in the company that made her purse (Coach) several years go, she would have more than tripled her initial investment.

I thought I would try this strategy myself and bring some of my earnings passion into the mix. The day after the program I bought some shares of Buffalo Wild Wings (BWLD). The Bloomberg printout looked pretty attractive; returning an average gain after the earnings release of 8.63%. While BWLD showed a great Bloomberg report, there were still several stocks that showed a greater string of successes. These stocks, however, were not companies that made products I liked, or even heard of for that matter. So I went with Town’s advice and played the stock that makes tasty-wings.

The company beat the street and raised guidance and I was happy to make more than 14% on my initial investment. I will try to incorporate this strategy a few more times and keep everyone updated on how these plays shake out.

Happy Trading…

Tuesday, May 01, 2007

Book Review: Running Money

One of my summer goals is to read a massive amount of investment and personal finance books. I plan on giving a quick overview and detailed recommendation on each book I read this summer. The first book I read was Running Money by Andy Kessler.

Overview:
Kessler documented his five years running a Silicon Valley hedge fund detailing his struggles raising money, dealing with high-flying technology boom, and surviving during the market downturns. Kessler's hedge fund sought tech stocks with valuable intellectual property and demonstrated the potential to double or triple in the near future. The fund, in fact, was a primarily long-only fund that usually kept its holdings for more than a year.

Personal Takeaways:
One particular aspect of the book that I liked was how Kessler articulated hedge fund price manipulation during conference calls. He pointed that funds with a strong short position often ask management utterly ridiculous questions to simply drive down the after-hours prices down half of a percentage point. I also liked the simplicity of his fund. The fund was run above an art studio and employed only one additional employee. Unlike the sexy funds run by Soros and others, Kessler was able to yield an average run of 50% without massive overhead.

Recommendation:
I really liked several parts of the book including the series of chapters documenting the accumulation of capital and his personal take on achieving money in any type of market, but many parts of the book ran on offering only tidbits of concrete content spanning across several chapters. In short, I think this book is ideal for the long-term investor really interested in Silicon Valley. Personally, I enjoy short-term investing and doing so across all of the different industries not specializing on an isolated market segment. Go ahead and read the spark notes on this bad boy, they should give you the whole story in a couple pages.

Straddle Time!

I mentioned before in my series on options trading how to make money if you are unsure which way the stock may go in the future. I also pointed out that options are a zero sum game, making them inherently riskier than stocks. With that being said, I feel that investors have a significant chance of making money by using a straddle on Affiliated Computer Services (ACS) going into earnings.

Let's review the key elements of an attractive straddle. One of the most important aspects of a good straddle is the current price of the stock. The closer the price is to strike price of the call and put you are going to purchase, the better the straddle play is. The second most important part of the straddle is the costs to straddle. The cost is cheap if the break-even future prices are significantly less than your predicted future movement. The third most important part of a straddle is the time value of your option position; the longer you have to sell your call and put the less risk you are taking on.

Given these elements here's how ACS stacks up:
- The current price of the stock is only 9 cents away from the $60 strike price.
- I managed to pay $1 for both the call and put, meaning the stock would only need a 3.69% increase or a 3.46% decrease to be in the money given my broker’s options trading fees. As you can see from the Bloomberg image below, this straddle would have been in-the-money five out of the last six sessions after the earnings report.
- If you do take this position, you have the luxury of waiting until the 19th of May to liquidate your positions; a long time given this volatile market.

So why is this so cheap? There have been significant buyout talks driving the price of these options. I feel that this is insignificant because these talks have lasted for several months and it appears that shareholders are ultimately unsatisfied with these offers. In fact, I feel that this release will have a great impact on the bid price of this buyout firm, ultimately allowing for significant share price volatility.

Monday, April 30, 2007

Evaluating Investment Performance: Part 2 of 2

In a couple days I will be sharing my year-to-date investment performance (oh yea) but before I do so I want to finish up this series on investment performance indicators. In Part One of the series I discussed different ratios that measure excess return from the amount of risk you are taking on. The key point with these ratios is that investor A may have a higher return than investor B, but investor B may be more talented because he/she is taking on significantly less risk than investor A.

Another performance measure I want to introduce measures an investor's ability to time bull/bear runs successfully. The main concept behind these measures simply state that an investor should bear more risk (have a higher beta) when the market is doing well and bear less risk when the market is doing poorly. This standard equation used to measure timing ability:
Ri,t – RF,t = ai + βi,M (RM,t RF,t) + βi,MM (RM,t RF,t)2. Where the left side of the equation signifies the excess return of the portfolio, the yellow text shows the market's excess return, and the green text signifies the squared market premium. The equation simply shows that if your squared market premium (green factor) is positive, you are doing a good job.

Here's a quick example. Let say the market went down 10% this year and investor A shorted the market with a beta of .5 and investor B went long in the market with a beta of 1. Investor A would have a positive timing component because he has a negative beta by going short in a market with negative returns, while investor B would have a negative timing component because he has a positive beta in a market with negative returns.

There are an array of other ways to measure performance, but I think these two are the most widely used. Again the goal of this series of posts was to instill the point that talent in investing is not solely measured in your percentage return, but how you are performing in the face of risk and how you are performing in the current market climate.

EMR and NMX for Monday

I like Emerson Electric (EMR) going into Tuesday morning's report. Like last Friday, I wanted to find a company with a history of earnings success, and Emerson fit this mold. The company has beaten the estimates each of the last six quarters and averaged a next day gain of almost three percent. The company's P/E of 20.46 is only slightly above the industry's standard, giving the stock some downside support should the company miss estimates. Also, Earnings Whispers projects that the company will beat the street by three cents.

It's important to note two dangers of the stock. The first is that the stock is trading a little bit below its 52 week high. I argue that many stocks have hovered around their 52 week highs going into earnings, and these stocks were able to explode past these technical barriers. My second concern is the sell-off going into earnings. Many stocks do sell-off going into earnings and I feel that investors are simply being risk-adverse and are not willing to take on the risk that comes with an earnings announcement.

As I mentioned in an earlier post, I also like NMX today.

Good luck!