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!

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!

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.

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.

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!

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.

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.

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

• Learn even more about assessing the success of your investments in April's post: Evaluating Investment Performance: Part 2 of 2.

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!

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!

Links for Friday

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

This Weeks Links:

• The Businesspundit writes a really good article comparing one of my favorite movies, The Shawshank Redemption, to being a successful entrepreneur.
  
• Get Rich Slowly offers a great series of arguments around the argument between prepaying on your mortgage or investing the extra income.

A Post from the Past:

• Learn more about assessing the success of your investments in April's post: Evaluating Investment Performance: Part 1 of 2.

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!

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.

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!

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!

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:

• Learn how a dividend reinvestment plan can exponentially grow your account with little to no maintenance.