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.

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…

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.

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.