If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I sold 61.943 shares VIIIX at 100.1 on October 14, 2009, when Dow first settled above 10, 000 since October, 2008. I bought 481.028 shares DODIX at $12.89 using the proceeds. I paid no commissions or transaction fees for these transactions are in my 401K account. I generally don't like mutual fund. Please take a look at this post: Sell Your Mutual Fund! The following is my general view on index fund.
The case against index fund
After my speech on "Sell Your Mutual Fund", I was stopped by a fellow member asking my opinion on index funds. I didn't have time to contemplate and elaborate since I am usually very hungry after the toastmaster meeting. I am writing the following piece to give my viewpoints on index funds.
First of all, paying an index fund is against my moral principle. An index fund, by definition, is a fund holding all of the securities in the index, in the same proportions as the index regardless of market conditions. The manager of an index fund, therefore, spends no time or any other resources, adds no value but collects a fee. Since the manager has no overhead, puts in no efforts and adds no value, usually he or she collects less management fee percentage wise comparing to actively managed equity funds. Some argue lower fee is an advantage of index funds. However, to me, paying any fee at all for no effort, no value added is morally wrong.
Secondly, anyone in this room with enough money can easily outperform an index fund. Just buy everything in the index in the same proportion. Replace holdings whenever the index committee announces its decision. Since you don't need to pay yourself a management fee, over time you will do way better than any index fund you can find. Piece of cake. For those of us with limited resources wanting instant diversification, we are doomed to do way better. Just buy Berkshire Hathaway, or any other similarly managed conglomerate. We get solid business, strong balance sheet, skilled management and most importantly, the lowest paid CEO and Chairman in Fortune 500. Remember, you don't need to do all the profitable trades in the world to be rich.
Last but not least, an index fund gives you a false sense of security. An index fund is a basket of stocks. With so many stocks, it is unlikely you know any one of them very well. The big blackbox approach hides behind the diversification assumption most people accepts as gospel. People blindly settles for mediocre results. I don't know if any people needs 500 stocks to diversify. Furthermore, most index funds are cap weighted meaning they are more overvalued than general funds when index is at its highs.
In summary, I don't like index fund. I only buy an index fund when I don't have better options.
Thursday, October 15, 2009
Thursday, October 8, 2009
Stop raising taxes
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
The following is a piece I will talk at a local toastmaster club.
Thank you, Toastmaster! Fellow member and distinguished guests!
The current issue of Forbes carried a story on how taxes change human behavior! That got me thinking about the rising tax burden facing all of us!
Yes. We are all nice people. Who wouldn't want to provide high quality education for our kids, free healthcare for seniors living under poverty and fancy sport facilities for all Ohioans? All noble causes! And all these good deeds don't cost that much. The new Worthington school levy will only cost $530 more on top of the $4537 we are already paying a year. I mean, who doesn't have additional $500 flowing around in his house, or hers. The added city income tax will only cost $500 more a year. A little bit here, a little bit there. But if we add each and every tax up, the figure is staggering. Remember, every tax dollar collected by the government is one dollar you can't spend on your kid, your parents and yourself.
The ever increasing tax is supporting waste, duplication and other irresponsible fiscal behaviors in our government. It is impossible to list all the extravaganzas in 7 minutes. I will only list three examples. In Worthington school district, the enrollment is down and expected to continue, but the labor contract contains element guaranteeing an automatic 5% annual raise. Revenue is down, the need is down, but the cost is up. The trend is continue. How irresponsible! Another one, can anyone tell me why we have so many layers of government? We have state government, city government, county government and township government, school board, sport board and bill board! When a company gets bloated, it is wise to cut the middle layers to make the structure more flat, more effective. The same for Ohio government! Another one, trash removal. Aren't we going to save a buck if the city pay Waste Management to do it? If so, why not sell the equipment and personal to Waste Management? Cut the refuse division!
The ever increasing tax burden will also drive jobs out of Ohio! As communication technology advances, a lot jobs no longer require worker stay in a certain location. Working from home becomes more and more popular. Given a choice getting the same salary, performing the same function for the same boss from Florida where I pay no income tax or from Ohio where I pay 7%, I will choose working from Florida. Here is a more extreme scenario. I can stop working or work on less pay but more flexible jobs. My living standard will not go down. Actually, it will go up! Since I have more time, I can enjoy the sport facilities, public library and metro park more often. Those are funded by tax while I pay no tax or very little tax. Not a bad deal! Also, the state and local law subsidizing poor seniors regardless if they ever paid taxes before will only attract people around the globe to retire in Ohio, people who pay no Ohio tax or as a matter of fact, no US tax when they are working but enjoy the benefits funded by Ohio tax when they are not working.
In summary, raising tax will tempt both government and individual with unproductive behaviors. More importantly, we can't afford more taxes in Ohio!
1. Why I created this blog?
2. How am I going to operate this blog?
The following is a piece I will talk at a local toastmaster club.
Thank you, Toastmaster! Fellow member and distinguished guests!
The current issue of Forbes carried a story on how taxes change human behavior! That got me thinking about the rising tax burden facing all of us!
Yes. We are all nice people. Who wouldn't want to provide high quality education for our kids, free healthcare for seniors living under poverty and fancy sport facilities for all Ohioans? All noble causes! And all these good deeds don't cost that much. The new Worthington school levy will only cost $530 more on top of the $4537 we are already paying a year. I mean, who doesn't have additional $500 flowing around in his house, or hers. The added city income tax will only cost $500 more a year. A little bit here, a little bit there. But if we add each and every tax up, the figure is staggering. Remember, every tax dollar collected by the government is one dollar you can't spend on your kid, your parents and yourself.
The ever increasing tax is supporting waste, duplication and other irresponsible fiscal behaviors in our government. It is impossible to list all the extravaganzas in 7 minutes. I will only list three examples. In Worthington school district, the enrollment is down and expected to continue, but the labor contract contains element guaranteeing an automatic 5% annual raise. Revenue is down, the need is down, but the cost is up. The trend is continue. How irresponsible! Another one, can anyone tell me why we have so many layers of government? We have state government, city government, county government and township government, school board, sport board and bill board! When a company gets bloated, it is wise to cut the middle layers to make the structure more flat, more effective. The same for Ohio government! Another one, trash removal. Aren't we going to save a buck if the city pay Waste Management to do it? If so, why not sell the equipment and personal to Waste Management? Cut the refuse division!
The ever increasing tax burden will also drive jobs out of Ohio! As communication technology advances, a lot jobs no longer require worker stay in a certain location. Working from home becomes more and more popular. Given a choice getting the same salary, performing the same function for the same boss from Florida where I pay no income tax or from Ohio where I pay 7%, I will choose working from Florida. Here is a more extreme scenario. I can stop working or work on less pay but more flexible jobs. My living standard will not go down. Actually, it will go up! Since I have more time, I can enjoy the sport facilities, public library and metro park more often. Those are funded by tax while I pay no tax or very little tax. Not a bad deal! Also, the state and local law subsidizing poor seniors regardless if they ever paid taxes before will only attract people around the globe to retire in Ohio, people who pay no Ohio tax or as a matter of fact, no US tax when they are working but enjoy the benefits funded by Ohio tax when they are not working.
In summary, raising tax will tempt both government and individual with unproductive behaviors. More importantly, we can't afford more taxes in Ohio!
Tuesday, October 6, 2009
How to get seed money?
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I would like to tell my own story first. When I first landed on the most fortunate land on the world, I had $1, 000 borrowed money in my pocket. I was guaranteed about $1, 000 a month through a research assistantship. For the first two years, wealth building is simply not on my agenda. I improved my oral English, learned the culture and custom of the new land and saved. Saving money is part of my childhood training since there was never enough money flowing around in my family.
I began to realize I need to build wealth when I had a car accident five months after I landed my first job. I got a new car to transport me to work every day. My networth became negative between a car loan and a couple thousand dollars in my checking account. According to an old Chinese saying, troubles always follow one another while delight never comes in pairs. About four months later, my then employer lost a contract from a State government, rumors of layoffs flied around the workplace. I soon changed jobs.
The sense of insecurity and instability grabbed me. I lost several nights' sleep. I decided to establish my financial freedom. I saved more diligently and control my spending more rigorously. I had about $50K in 2003, five years after I came to the States. One year later, I have about $100K in saving and I began to buy stocks. By 2005, I had about $170K. Before the severe recession, I had about $400K in October, 2007. On the date of my writing this blog, I still had about $400K. Of course, I expect much more once the recession ends. Excluding taxes, I spend about $17K per year. You can see I no longer worry about layoffs since I can live on my savings until social security and medicare kick in.
As you can see, I got my seed money by saving. Saving is the most reliable source but may not be the quickest one. Now looking through the rare view mirror, I always wondered what if I used a little more leverage, LEAPs for example. I may have come to my current status quicker. But most people are risk averse when offered the opportunity to double his money or lose all of it. After two incidents I may lose my salary income (I had an experience I nearly lost my assistantship in the graduate school besides the layoff rumor), I became more risk averse. If I had known I would keep my jobs this long, I probably should have risked more money since my then salary should cover the potential loss easily.
For you, readers of my blog, how to get your seed money? I expect most of you should get through rigorously budgeting and saving. A small percentage of you may get it through gifts or inheritance. I expect extremely small percentage of you will get it through adding leverage in your portfolio.
1. Why I created this blog?
2. How am I going to operate this blog?
I would like to tell my own story first. When I first landed on the most fortunate land on the world, I had $1, 000 borrowed money in my pocket. I was guaranteed about $1, 000 a month through a research assistantship. For the first two years, wealth building is simply not on my agenda. I improved my oral English, learned the culture and custom of the new land and saved. Saving money is part of my childhood training since there was never enough money flowing around in my family.
I began to realize I need to build wealth when I had a car accident five months after I landed my first job. I got a new car to transport me to work every day. My networth became negative between a car loan and a couple thousand dollars in my checking account. According to an old Chinese saying, troubles always follow one another while delight never comes in pairs. About four months later, my then employer lost a contract from a State government, rumors of layoffs flied around the workplace. I soon changed jobs.
The sense of insecurity and instability grabbed me. I lost several nights' sleep. I decided to establish my financial freedom. I saved more diligently and control my spending more rigorously. I had about $50K in 2003, five years after I came to the States. One year later, I have about $100K in saving and I began to buy stocks. By 2005, I had about $170K. Before the severe recession, I had about $400K in October, 2007. On the date of my writing this blog, I still had about $400K. Of course, I expect much more once the recession ends. Excluding taxes, I spend about $17K per year. You can see I no longer worry about layoffs since I can live on my savings until social security and medicare kick in.
As you can see, I got my seed money by saving. Saving is the most reliable source but may not be the quickest one. Now looking through the rare view mirror, I always wondered what if I used a little more leverage, LEAPs for example. I may have come to my current status quicker. But most people are risk averse when offered the opportunity to double his money or lose all of it. After two incidents I may lose my salary income (I had an experience I nearly lost my assistantship in the graduate school besides the layoff rumor), I became more risk averse. If I had known I would keep my jobs this long, I probably should have risked more money since my then salary should cover the potential loss easily.
For you, readers of my blog, how to get your seed money? I expect most of you should get through rigorously budgeting and saving. A small percentage of you may get it through gifts or inheritance. I expect extremely small percentage of you will get it through adding leverage in your portfolio.
Monday, September 28, 2009
Last Investment Thought of September, 2009
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
This is a fruitful weekend. I watched Ken Burns' new spectacular – “The National Parks”. You have to admire the wisdom of the Americans designing such a wonderful system contrasting to the park system elsewhere. A friend just back from China told me the abusive fees charged by the Chinese parks. I also visited the Polaris Mall Sunday afternoon. I was pleasantly surprised by the traffic. I saw no signs of recession at the mall. Although the recession certainly was not over as I continued to see little traffic in the local casual dining restaurants, my spirit got lifted.
Will the rally continue? Should I buy now or should I wait for a dip? Those questions always get asked. For the first one, even the prominent investors I always admire don't have consensus. Last week, James Grant of "The Interest Observer" penned a piece on Wall Street Journal arguing that the harder the market falls, the higher the rebound jumps. Therefore, the loss of 2008 is so horrendous that it enable the bouncing of 2009 to keep propelling. John Hussman, among others, continue to hold that the current market is overvalued on his weekly comments. And Warren Buffet contends that while the businesses stopped getting worse, he doesn't see a quick recovery.
For the second question, it is a more practical one. As Buffet insists on no recovery, he is buying stocks on the same day. He buys regardless of the interest rate outlook, general economic condition or the likelihood of dips. As long as he feels he is financially flexible and he can find something cheaper than its intrinsic value, he buys. We should do the same.
Humans are always tempted by the unpredictable and the uncontrollable. Some want to find the most complex schemes to hedge. They believe US dollar will continue to devalue against Chinese Yuan. But if you earn US dollar and spend US dollar, why introduce currency risk? Even if you are right, how do you know the devaluation of US dollar against Chinese Yuan will be disruptive enough for you to earn satisfactory return? Are you going to use leverage to add more layers of risk? Some use the stop loss order at, for the sake of argument, let's say at 8%. I always wonder how we know if a stock drops exactly 8%, the next move it makes must be downward.
For me, as long as I have enough cash at hand, by "enough", I mean if I have 5 years' spending cash, and I can find attractive opportunities, I will keep buying.
1. Why I created this blog?
2. How am I going to operate this blog?
This is a fruitful weekend. I watched Ken Burns' new spectacular – “The National Parks”. You have to admire the wisdom of the Americans designing such a wonderful system contrasting to the park system elsewhere. A friend just back from China told me the abusive fees charged by the Chinese parks. I also visited the Polaris Mall Sunday afternoon. I was pleasantly surprised by the traffic. I saw no signs of recession at the mall. Although the recession certainly was not over as I continued to see little traffic in the local casual dining restaurants, my spirit got lifted.
Will the rally continue? Should I buy now or should I wait for a dip? Those questions always get asked. For the first one, even the prominent investors I always admire don't have consensus. Last week, James Grant of "The Interest Observer" penned a piece on Wall Street Journal arguing that the harder the market falls, the higher the rebound jumps. Therefore, the loss of 2008 is so horrendous that it enable the bouncing of 2009 to keep propelling. John Hussman, among others, continue to hold that the current market is overvalued on his weekly comments. And Warren Buffet contends that while the businesses stopped getting worse, he doesn't see a quick recovery.
For the second question, it is a more practical one. As Buffet insists on no recovery, he is buying stocks on the same day. He buys regardless of the interest rate outlook, general economic condition or the likelihood of dips. As long as he feels he is financially flexible and he can find something cheaper than its intrinsic value, he buys. We should do the same.
Humans are always tempted by the unpredictable and the uncontrollable. Some want to find the most complex schemes to hedge. They believe US dollar will continue to devalue against Chinese Yuan. But if you earn US dollar and spend US dollar, why introduce currency risk? Even if you are right, how do you know the devaluation of US dollar against Chinese Yuan will be disruptive enough for you to earn satisfactory return? Are you going to use leverage to add more layers of risk? Some use the stop loss order at, for the sake of argument, let's say at 8%. I always wonder how we know if a stock drops exactly 8%, the next move it makes must be downward.
For me, as long as I have enough cash at hand, by "enough", I mean if I have 5 years' spending cash, and I can find attractive opportunities, I will keep buying.
Saturday, September 26, 2009
How to generate new ideas?
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I always have more ideas than cash. It is my desire to turn this situation around. I believe once I have more cash than ideas, my struggle against poverty is near its end. But some of my friends rely on BBS stock board for ideas. It is an awful choice. BBS stock board is full of rumormongers, penny stock promoters and day traders. The stock tips on BBS stock board offer no concrete analysis but some conglomerates of fear, greed, anxiety and boast. If you are looking for ideas for your money, here are some places you can start your search.
1.Steal from prominent investors
Some prominent investors disclose their investments every quarter. Here is one area I like about US security law. Some of those investors are so convinced on their ideas that they take huge positions. Usually, it takes more than a quarter before the idea produces extraordinary returns. Let's say Warren Buffet takes on a big position at $X. Three months later I have an opportunity to buy the same security only 25% cheaper than Warren has paid. I usually will jump on the wagon for a ride. Some my friends are logical thinkers. The only fact that Warren takes a big position is not logical enough for them. The bad news is that Warren rarely comments on the securities he is buying or selling. But some other prominent investors do highlight some of their best ideas in their shareholder letters, sometimes in great details. I don't know why they are doing that. But I don't care. As long as the case is convincing and I have ample fire powder at hand, I will fire. However, be sure you are following the right one. I don't think a certain celebrity throwing chair on TV is a prominent investor. And some my friends are certainly going to disagree. Here are two of the website I visit periodically for ideas.
1. Baron's funds
1. Ariel funds
2.Read some good magazines
I go to local library every weekend. I can almost guarantee you that you can find Barron's, Fortune and Forbes in any US library you visit. This is another area I love US. You can easily find a library and the library is usually well equipped. For an article to show up in those high quality magazine, a lot of fact checks happen behind the scene. I am not saying that all the facts are 100% accurate. But I think the situation are way better than the anonymous world wide web. This is for some detailed account for current events. You can find enormous information on some spin offs and merger and acquisition activities. The most recent stories I read including: the failed attempt for EXC to buy NRG and CAH's spin off of CFN. I didn't act on either case but perhaps I should.
3.Read Joel Greenblatt's book
"You can be a stock market genius" listed more places you can look for ideas. But some of those are not free. I am a cheapskate with the belief “Free is the Best”. I only list free and simple things. Remember, you don't need all the profitable ideas to build wealth. If you have 20 good ideas and you act on them in your lifetime, you are going to have a very successful investing career. By the way, continue to read my blog may be another way to generate good ideas.
PS
It is close to the end of September, the only activity for the month is buying LUK.
1. Why I created this blog?
2. How am I going to operate this blog?
I always have more ideas than cash. It is my desire to turn this situation around. I believe once I have more cash than ideas, my struggle against poverty is near its end. But some of my friends rely on BBS stock board for ideas. It is an awful choice. BBS stock board is full of rumormongers, penny stock promoters and day traders. The stock tips on BBS stock board offer no concrete analysis but some conglomerates of fear, greed, anxiety and boast. If you are looking for ideas for your money, here are some places you can start your search.
1.Steal from prominent investors
Some prominent investors disclose their investments every quarter. Here is one area I like about US security law. Some of those investors are so convinced on their ideas that they take huge positions. Usually, it takes more than a quarter before the idea produces extraordinary returns. Let's say Warren Buffet takes on a big position at $X. Three months later I have an opportunity to buy the same security only 25% cheaper than Warren has paid. I usually will jump on the wagon for a ride. Some my friends are logical thinkers. The only fact that Warren takes a big position is not logical enough for them. The bad news is that Warren rarely comments on the securities he is buying or selling. But some other prominent investors do highlight some of their best ideas in their shareholder letters, sometimes in great details. I don't know why they are doing that. But I don't care. As long as the case is convincing and I have ample fire powder at hand, I will fire. However, be sure you are following the right one. I don't think a certain celebrity throwing chair on TV is a prominent investor. And some my friends are certainly going to disagree. Here are two of the website I visit periodically for ideas.
1. Baron's funds
1. Ariel funds
2.Read some good magazines
I go to local library every weekend. I can almost guarantee you that you can find Barron's, Fortune and Forbes in any US library you visit. This is another area I love US. You can easily find a library and the library is usually well equipped. For an article to show up in those high quality magazine, a lot of fact checks happen behind the scene. I am not saying that all the facts are 100% accurate. But I think the situation are way better than the anonymous world wide web. This is for some detailed account for current events. You can find enormous information on some spin offs and merger and acquisition activities. The most recent stories I read including: the failed attempt for EXC to buy NRG and CAH's spin off of CFN. I didn't act on either case but perhaps I should.
3.Read Joel Greenblatt's book
"You can be a stock market genius" listed more places you can look for ideas. But some of those are not free. I am a cheapskate with the belief “Free is the Best”. I only list free and simple things. Remember, you don't need all the profitable ideas to build wealth. If you have 20 good ideas and you act on them in your lifetime, you are going to have a very successful investing career. By the way, continue to read my blog may be another way to generate good ideas.
PS
It is close to the end of September, the only activity for the month is buying LUK.
Operating principles
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I have been contemplating on real estate investments for some time. I am not handy. If I want to do real estate without being ripped off by a contractor, I have to found some partners who are handy. It is really hard to find the right partner. The following is the operating principles I wrote for some potential partners. If you know a lot about how to fix houses and agree with my principles, email me and we may be partners.
1. Cost Control
Operating a business is simple but not easy. We want to increase revenue while lowering cost. However, growing revenue is a trial and error process. We are going to try many things but not knowing which one will produce the results we have wished. Cost control is usually more predicable. If we can reduce labor and use a less expensive brand of tools, we know what the saving will be. Buying, fixing and renting houses is a simple business. We will compete with numerous experienced veterans and a lot of would be investors. Being the lowest cost producer will give us competitive advantage helping us grow our business. Our goal should be to use the most durable, easy to install, simple material and process to fix houses.
2. Leverage
Leverage is risky. It runs two risks: default risk and interest risk. But in real estate, we have to use leverage to produce acceptable returns due to its inherent nature: heavy initial investment and low yield. We should use non-recourse and fixed rate financing whenever possible. We will use government subsidized financing whenever possible. And we don't overgrow ourselves. If we are wrong, we only lose what we can afford to lose. For example, if we have $1m funding (our equity and borrowings), we should not do over 4 projects at the same time (if each projects costs $150K).
3. Commitment
Building a business needs commitment. No matter what kind of equity we put in, sweat or monetary capital, it takes time before the investments yield satisfactory returns. We also need to prepare for drawbacks due to happen and build enough reserves to seize opportunities when they present themselves. Before we can enjoy the fruit of our investments, we must retain our earning for the minimum of three years. There are going to be clauses in our bylaws to ensure the commitment to the business, the company and our partners.
4. Cash flow
We are going to focus on cash flow. We are a small operation with limited resources. To ensure the viability of the business, we must only do deals with safe positive cash flow from the very beginning. Bigger companies sometimes do long term project without positive cash flow for the first several years and reap the handsome return later. We don't have that luxury. Some smart firms have one subsidiary produce positive cash flow to support long term strategic investments in another subsidiary. When we become bigger, we may do something like that. But for now, we must focus on the projects which can produce positive cash flow in the first 6 months.
1. Why I created this blog?
2. How am I going to operate this blog?
I have been contemplating on real estate investments for some time. I am not handy. If I want to do real estate without being ripped off by a contractor, I have to found some partners who are handy. It is really hard to find the right partner. The following is the operating principles I wrote for some potential partners. If you know a lot about how to fix houses and agree with my principles, email me and we may be partners.
1. Cost Control
Operating a business is simple but not easy. We want to increase revenue while lowering cost. However, growing revenue is a trial and error process. We are going to try many things but not knowing which one will produce the results we have wished. Cost control is usually more predicable. If we can reduce labor and use a less expensive brand of tools, we know what the saving will be. Buying, fixing and renting houses is a simple business. We will compete with numerous experienced veterans and a lot of would be investors. Being the lowest cost producer will give us competitive advantage helping us grow our business. Our goal should be to use the most durable, easy to install, simple material and process to fix houses.
2. Leverage
Leverage is risky. It runs two risks: default risk and interest risk. But in real estate, we have to use leverage to produce acceptable returns due to its inherent nature: heavy initial investment and low yield. We should use non-recourse and fixed rate financing whenever possible. We will use government subsidized financing whenever possible. And we don't overgrow ourselves. If we are wrong, we only lose what we can afford to lose. For example, if we have $1m funding (our equity and borrowings), we should not do over 4 projects at the same time (if each projects costs $150K).
3. Commitment
Building a business needs commitment. No matter what kind of equity we put in, sweat or monetary capital, it takes time before the investments yield satisfactory returns. We also need to prepare for drawbacks due to happen and build enough reserves to seize opportunities when they present themselves. Before we can enjoy the fruit of our investments, we must retain our earning for the minimum of three years. There are going to be clauses in our bylaws to ensure the commitment to the business, the company and our partners.
4. Cash flow
We are going to focus on cash flow. We are a small operation with limited resources. To ensure the viability of the business, we must only do deals with safe positive cash flow from the very beginning. Bigger companies sometimes do long term project without positive cash flow for the first several years and reap the handsome return later. We don't have that luxury. Some smart firms have one subsidiary produce positive cash flow to support long term strategic investments in another subsidiary. When we become bigger, we may do something like that. But for now, we must focus on the projects which can produce positive cash flow in the first 6 months.
Sunday, September 6, 2009
Update: a controversial choice
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 200 shares Leucadia National Corp (LUK) at $23.45 on September 3, 2009. I paid additional $4.95 for this transaction. During this downturn and previous Katrina disaster, I have bought BRK.B, BAM and L that have business models similar to LUK. I still have others on my watch list. In its 2008 annual report, LUK summarized its business model:
"We tend to be buyers of assets and companies that are troubled or out of favor and as a result are selling substantially below the values, which we believe, are there. From time to time, we sell parts of these operations when prices available in the market reach what we believe to be advantageous levels. While we are not perfect in executing this strategy, we are proud of our long-term track record. We are not income statement driven and do not run your company with an undue emphasis on either quarterly or annual earnings. We believe we are conservative in our accounting practices and policies and that our balance sheet is conservatively stated."
As management suggested above, I believe book value is the best proxy of LUK's intrinsic value. From its 2nd quarter 10Q, I easily calculated its GAAP book value per share to be $14.86. I am paying almost 60% premium on its book value. I don't believe, its management, brilliant as it is, deserves such a huge premium. It is in the hidden assets not showing up in their balance sheet. First, it has a Tax Loss Carryforwards of about $5B meaning if it has earnings of $5B, it doesn't need to pay the tax on the $5B. It perhaps worth $1.8B if LUK can generate earning of $5B in 2009. Of course, LUK can't, at least not in 2009. Therefore, the current value of this asset is perhaps only $1B. That brings its adjusted book value to $18.89. I would certainly not buy it at 25% premium on its book unless, yes, unless, I thought its book value was still way understated.
Second, let's look at its public listed holdings. IMN rose 25.47% since June 30, FMG rose 12.13%, JEF rose 5.8%, ACF rose 20.75% and HOFD rose 17.95%. Just for the securities listed above, I can raise the current book value per share to $19.95. It is harder to estimate its non-listed investments. If I believe they rose similar to the public listed investments, LUK's book value is close to $21. Furthermore, LUK usually picks up assets from the corporate junkyard. While those assets being fixed, they won't produce positive cash flow. But once they are fixed and sold, usually they generate big gains. The management has done this many times. I believe its operating business is also understated in its balance sheet. I don't know how much though. Anyway, I am not paying a big premium over LUK's adjusted book.
LUK is a controversial stock. But even the critique hinges on its book value. It is highly exposed to real estate and resources. From its most recent proxy statement, Cummings and Steinberg jointly own close to 23%. Its management's interest aligns nicely with shareholders'. Another prominent investor, Bruce Berkowitz and the organization he controls, own 7.5%. By the way, Bruce commented that he was a buyer when LUK was in 30's. Another big institution, Morgan Stanley owns a big block. Therefore, about 40% is owned by insiders or management friendly big institutions. You have to wonder where all the sell pressure comes from.
Among its peers with similar business model, BRK.B and L can use float (unpaid insurance premium) with close to 0 cost. That is a huge advantage. BAM and LUK have to access the capital market from time to time. LUK financed its portfolio through high yield debt. The positive is that the earliest maturity of which is in 2013. But LUK is way smaller. Its manager, poorer and therefore, hungrier and meaner. It made a couple of mistakes recently including relying on others to do the heavy lifting. But now, with networth halved, I guess Cummings and Steinberg will work harder for themselves and for me. Recently, LUK worked with BRK.B bought Capmark out of bankruptcy. I hope this is the good omen for a glorious new start.
“Fortress Leucadia” is the management's draconian look into the future and a basis for defensive planning. It assumes LUK will not make any more investments, continue watching its expenses, keep only assets that are promising and slowly turn everything into cash which will be used first to retire or pay down debt, while always maintaining at least $500 million in cash or liquid assets. Management acknowledged that in the current recessionary environment, earnings from its operating businesses and investments do not presently cover its overhead and interest. But it believes LUK has cash, liquid investments and securities and other assets that it expects to turn into cash that should carry it through these difficult times. And I believe LUK's management.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 200 shares Leucadia National Corp (LUK) at $23.45 on September 3, 2009. I paid additional $4.95 for this transaction. During this downturn and previous Katrina disaster, I have bought BRK.B, BAM and L that have business models similar to LUK. I still have others on my watch list. In its 2008 annual report, LUK summarized its business model:
"We tend to be buyers of assets and companies that are troubled or out of favor and as a result are selling substantially below the values, which we believe, are there. From time to time, we sell parts of these operations when prices available in the market reach what we believe to be advantageous levels. While we are not perfect in executing this strategy, we are proud of our long-term track record. We are not income statement driven and do not run your company with an undue emphasis on either quarterly or annual earnings. We believe we are conservative in our accounting practices and policies and that our balance sheet is conservatively stated."
As management suggested above, I believe book value is the best proxy of LUK's intrinsic value. From its 2nd quarter 10Q, I easily calculated its GAAP book value per share to be $14.86. I am paying almost 60% premium on its book value. I don't believe, its management, brilliant as it is, deserves such a huge premium. It is in the hidden assets not showing up in their balance sheet. First, it has a Tax Loss Carryforwards of about $5B meaning if it has earnings of $5B, it doesn't need to pay the tax on the $5B. It perhaps worth $1.8B if LUK can generate earning of $5B in 2009. Of course, LUK can't, at least not in 2009. Therefore, the current value of this asset is perhaps only $1B. That brings its adjusted book value to $18.89. I would certainly not buy it at 25% premium on its book unless, yes, unless, I thought its book value was still way understated.
Second, let's look at its public listed holdings. IMN rose 25.47% since June 30, FMG rose 12.13%, JEF rose 5.8%, ACF rose 20.75% and HOFD rose 17.95%. Just for the securities listed above, I can raise the current book value per share to $19.95. It is harder to estimate its non-listed investments. If I believe they rose similar to the public listed investments, LUK's book value is close to $21. Furthermore, LUK usually picks up assets from the corporate junkyard. While those assets being fixed, they won't produce positive cash flow. But once they are fixed and sold, usually they generate big gains. The management has done this many times. I believe its operating business is also understated in its balance sheet. I don't know how much though. Anyway, I am not paying a big premium over LUK's adjusted book.
LUK is a controversial stock. But even the critique hinges on its book value. It is highly exposed to real estate and resources. From its most recent proxy statement, Cummings and Steinberg jointly own close to 23%. Its management's interest aligns nicely with shareholders'. Another prominent investor, Bruce Berkowitz and the organization he controls, own 7.5%. By the way, Bruce commented that he was a buyer when LUK was in 30's. Another big institution, Morgan Stanley owns a big block. Therefore, about 40% is owned by insiders or management friendly big institutions. You have to wonder where all the sell pressure comes from.
Among its peers with similar business model, BRK.B and L can use float (unpaid insurance premium) with close to 0 cost. That is a huge advantage. BAM and LUK have to access the capital market from time to time. LUK financed its portfolio through high yield debt. The positive is that the earliest maturity of which is in 2013. But LUK is way smaller. Its manager, poorer and therefore, hungrier and meaner. It made a couple of mistakes recently including relying on others to do the heavy lifting. But now, with networth halved, I guess Cummings and Steinberg will work harder for themselves and for me. Recently, LUK worked with BRK.B bought Capmark out of bankruptcy. I hope this is the good omen for a glorious new start.
“Fortress Leucadia” is the management's draconian look into the future and a basis for defensive planning. It assumes LUK will not make any more investments, continue watching its expenses, keep only assets that are promising and slowly turn everything into cash which will be used first to retire or pay down debt, while always maintaining at least $500 million in cash or liquid assets. Management acknowledged that in the current recessionary environment, earnings from its operating businesses and investments do not presently cover its overhead and interest. But it believes LUK has cash, liquid investments and securities and other assets that it expects to turn into cash that should carry it through these difficult times. And I believe LUK's management.
Tuesday, August 25, 2009
If you only want to buy one book and buy it cheaply
If you are visiting my blog for the first time, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
There are many great books competing for the best ever investment book title. But if you only want to buy one book and one book only, you have to buy “You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits” by Joel Greenblatt.
If you want to pick stocks not to buy an index, you believe you can explore the inefficiencies of the market. We all know the market is fairly efficient. Inefficiencies does happen but rarely. At each transaction table, one side is the buyer and the other is the seller. It would be arrogant to assume the seller is uninformed or stupid. In most circumstances, today's seller has followed the security longer and more closely than the buyer has, has previously been a buyer. How can you be sure you are buying a really undervalued stock from the seller?
This book is a practice guide. Joel wrote a book to teach us to buy in special situations in which undervaluation of securities happen by design. It is all about event driven investing: spin-off, merger, bankruptcy, restructure, recapitalization and LEAPs. The best part is that you don't need to finish the whole book before you can try your hands in the market. For example, once you finish reading chapter 3, you can begin to tiptoe into some spin-offs. After you get the handle on spin-offs, go on to another approach that interests you.
It is easy to read. The book's format is well organized: each chapter explains the how and why of investing in one particular corporate event, and then give examples to drive the point home. The examples are so interesting that I feel like reading a novel. The tone is lighthearted and endearing throughout with frequent hit the mark jokes .
And it is not long. Other great books, such as Ben Graham's “ The intelligent Investor” and “Security Analysis” are long and the reader needs some determination to finish them. It doesn't make them less great. Actually it is probably better to have a sound framework built this way. But remember our topic is you only want to buy one book and one book only. Only reading Ben's classic without “Common Stocks and Uncommon Profits” gives me a sense of incompleteness. And if you only finish one of the three, you'd better not to try your luck in the market without finish the other two.
Now let's talk about how to buy the book cheaply. Let's buy used. For example, a brand new “ You Can Be a Stock Market Genius” from www.Amazon.com costs $11.70 and a used one costs $1.97. Remember, new printing offers no new information. And a new edition may not be as good as the old one. The used book vendors at www.Amazon.com, www.pricegrabber.com and www.Alibris.com usually give very good indication of the condition of the books. I bought over 10 books from those sites and I found the conditions were usually better than my expectations. Last but not least, it is greener buying used!
1. Why I created this blog?
2. How am I going to operate this blog?
There are many great books competing for the best ever investment book title. But if you only want to buy one book and one book only, you have to buy “You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits” by Joel Greenblatt.
If you want to pick stocks not to buy an index, you believe you can explore the inefficiencies of the market. We all know the market is fairly efficient. Inefficiencies does happen but rarely. At each transaction table, one side is the buyer and the other is the seller. It would be arrogant to assume the seller is uninformed or stupid. In most circumstances, today's seller has followed the security longer and more closely than the buyer has, has previously been a buyer. How can you be sure you are buying a really undervalued stock from the seller?
This book is a practice guide. Joel wrote a book to teach us to buy in special situations in which undervaluation of securities happen by design. It is all about event driven investing: spin-off, merger, bankruptcy, restructure, recapitalization and LEAPs. The best part is that you don't need to finish the whole book before you can try your hands in the market. For example, once you finish reading chapter 3, you can begin to tiptoe into some spin-offs. After you get the handle on spin-offs, go on to another approach that interests you.
It is easy to read. The book's format is well organized: each chapter explains the how and why of investing in one particular corporate event, and then give examples to drive the point home. The examples are so interesting that I feel like reading a novel. The tone is lighthearted and endearing throughout with frequent hit the mark jokes .
And it is not long. Other great books, such as Ben Graham's “ The intelligent Investor” and “Security Analysis” are long and the reader needs some determination to finish them. It doesn't make them less great. Actually it is probably better to have a sound framework built this way. But remember our topic is you only want to buy one book and one book only. Only reading Ben's classic without “Common Stocks and Uncommon Profits” gives me a sense of incompleteness. And if you only finish one of the three, you'd better not to try your luck in the market without finish the other two.
Now let's talk about how to buy the book cheaply. Let's buy used. For example, a brand new “ You Can Be a Stock Market Genius” from www.Amazon.com costs $11.70 and a used one costs $1.97. Remember, new printing offers no new information. And a new edition may not be as good as the old one. The used book vendors at www.Amazon.com, www.pricegrabber.com and www.Alibris.com usually give very good indication of the condition of the books. I bought over 10 books from those sites and I found the conditions were usually better than my expectations. Last but not least, it is greener buying used!
Sunday, August 23, 2009
Sell Your Mutual Fund
If you are visiting my blog for the first time, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
Here is the speech I gave at a local Toastmaster Club. It is more inspirational than theoretical. But it can serve as the reminder of the danger of the unsuspecting minds. Some details have been altered to protect the privacy of the people mentioned.
Thank you, Toastmaster! Fellow member and distinguished guests!
Professional management is the biggest selling point for mutual funds! And here, I am going to pick on my little brother. First, he is not in this room. Second, there is a long enduring sibling rivalry between us. Last but not least, he makes a lot of more money than I do. He recently became a fund manager at one of the best selling mutual fund family -- Waddle Incorporated, focusing on Asian Pacific market.
Don't get me wrong. My little brother is a mathematical genius. When he was 8 years old, a group of John Hopkins researchers announced that only one of 20 million has his minds to handle high math. I believe, if my brother sets his mind to do search engine, we would not have "Google" or "Bing", we will have something better, perhaps called "Wang".
The problem, my little brother works at Waddle, is that it does not take a math genius to invest successfully. The successful investors, Warren Buffet, Larry Tisch and Carl Icahn, none of them know how to do calculus, linear algebra and matrices! On the other hand, those geniuses, the Nobel Price winners at long term capital, the world bridge champion at Bear Stone and the Quants at Lehman brothers, lost their shirts! Successful investing only involves discipline, persistence and common sense. If the professional doesn't have those qualities, the smarter he is, the more he eventually loses!
But the mutual fund industry keeps hiring those geniuses, and showers them with obscene amount of money out of shareholders' expense! Can't you believe after the fiasco of the long term capital in 1998, the same genius got funded only to be wiped out again ten years later! In 2008! And before long term capital, this guy ruined a perfect good party at Smith Barney. Sell your mutual funds!
Second. Let's talk about internal conflict of interest between the shareholders and fund management.
Even if the fund loses shareholder's money, a lot of money, the fund management still has the audacity to charge the shareholders a fee! And as a shareholder, you will not notice the fee because the management will never tell you. Image this! For our outstanding effort of 2008 reducing your portfolio from $700, 000 a year ago to $400, 000 today, we will only charge you $8000! No, if you want to figure out how much you spend on your mutual funds, you will in the footnotes of the financial statement, find the total expense, divided by the total shares outstanding and times the shares you own. Then, if you add transaction cost, taxes and many other small items, you will be surprised at how much you pay for the privilege having someone else managing your money. The results, the management gets rich along with its employees, and you will be shocked how little staff those companies employ, and the shareholders lose! And I have not even mention all the scandals: market timing, soft money and Ponzy schemes! Sell your mutual funds!
Here is a true story. CY Lewis, before he became one of the biggest success in Wall Street, was a shoe salesman. Once he sold two, not one, but two pairs to a widow for her husband. Talking about something we will never need. I guess a dead man doesn't need two pair shoes.
Last but not least, we can do better. Anyone who ever goes to Las Vegas knows this game. Sometimes you win, sometimes you lose. The house always wins by design the odds and payout. Now let's say it is the stock market. Sometimes you win, sometimes you lose. But odds and payout are in your favor. Do it through a mutual fund is like giving money to a gambler, if he wins, you share the profit. If he loses, you bankroll him. Bad deal! I am always wondering why 40, 50, 60 years old gentlemen and ladies, well to do, doctors, lawyers and accountants, give their money to a twenty year old, fresh out of school, even the suit he is wearing is a rental. If you yield your responsibilities of managing your own money, why do you think someone never make a nickel out of his life will manage your money responsibly. Sell your mutual funds!
Let's summarize. 1st, the mutual fund industry always hires the wrong people. 2nd, the fund management is always working against your. Last, a common person will always do better to take the responsibility of managing his own money into his own hands. Get some self confidence! For your long term security, for the benefits of your retirement, your heirs, sell your mutual funds! When you go home tonight, you don't want to eat dinner, you don't want to talk to your spouse, you don't want to play with your dogs, you turn on your computer, log on to your account, you sell your mutual funds! And never, ever buy another mutual fund!
Thank you.
1. Why I created this blog?
2. How am I going to operate this blog?
Here is the speech I gave at a local Toastmaster Club. It is more inspirational than theoretical. But it can serve as the reminder of the danger of the unsuspecting minds. Some details have been altered to protect the privacy of the people mentioned.
Thank you, Toastmaster! Fellow member and distinguished guests!
Mutual fund becomes part of our lives. People rely on mutual fund to secure their long term financial perspective! Not owning a fund is shocking to the unobservant minds! Originally I was thinking of giving a speech on how to choose a mutual fund! I filtered the entire mutual funds universe with some simple criteria. We have tens of thousands mutual funds out there, as a matter of fact, we have more mutual funds than the listed securities the mutual funds supposed to buy. I am shocked to find only a handful funds passed the filter. That got me thinking about the entire mutual fund industry. Eventually, I changed my topic to: sell your mutual funds!
There are three reasons for this action: people, organization and us.
Professional management is the biggest selling point for mutual funds! And here, I am going to pick on my little brother. First, he is not in this room. Second, there is a long enduring sibling rivalry between us. Last but not least, he makes a lot of more money than I do. He recently became a fund manager at one of the best selling mutual fund family -- Waddle Incorporated, focusing on Asian Pacific market.
Don't get me wrong. My little brother is a mathematical genius. When he was 8 years old, a group of John Hopkins researchers announced that only one of 20 million has his minds to handle high math. I believe, if my brother sets his mind to do search engine, we would not have "Google" or "Bing", we will have something better, perhaps called "Wang".
The problem, my little brother works at Waddle, is that it does not take a math genius to invest successfully. The successful investors, Warren Buffet, Larry Tisch and Carl Icahn, none of them know how to do calculus, linear algebra and matrices! On the other hand, those geniuses, the Nobel Price winners at long term capital, the world bridge champion at Bear Stone and the Quants at Lehman brothers, lost their shirts! Successful investing only involves discipline, persistence and common sense. If the professional doesn't have those qualities, the smarter he is, the more he eventually loses!
But the mutual fund industry keeps hiring those geniuses, and showers them with obscene amount of money out of shareholders' expense! Can't you believe after the fiasco of the long term capital in 1998, the same genius got funded only to be wiped out again ten years later! In 2008! And before long term capital, this guy ruined a perfect good party at Smith Barney. Sell your mutual funds!
Second. Let's talk about internal conflict of interest between the shareholders and fund management.
Even if the fund loses shareholder's money, a lot of money, the fund management still has the audacity to charge the shareholders a fee! And as a shareholder, you will not notice the fee because the management will never tell you. Image this! For our outstanding effort of 2008 reducing your portfolio from $700, 000 a year ago to $400, 000 today, we will only charge you $8000! No, if you want to figure out how much you spend on your mutual funds, you will in the footnotes of the financial statement, find the total expense, divided by the total shares outstanding and times the shares you own. Then, if you add transaction cost, taxes and many other small items, you will be surprised at how much you pay for the privilege having someone else managing your money. The results, the management gets rich along with its employees, and you will be shocked how little staff those companies employ, and the shareholders lose! And I have not even mention all the scandals: market timing, soft money and Ponzy schemes! Sell your mutual funds!
Here is a true story. CY Lewis, before he became one of the biggest success in Wall Street, was a shoe salesman. Once he sold two, not one, but two pairs to a widow for her husband. Talking about something we will never need. I guess a dead man doesn't need two pair shoes.
Last but not least, we can do better. Anyone who ever goes to Las Vegas knows this game. Sometimes you win, sometimes you lose. The house always wins by design the odds and payout. Now let's say it is the stock market. Sometimes you win, sometimes you lose. But odds and payout are in your favor. Do it through a mutual fund is like giving money to a gambler, if he wins, you share the profit. If he loses, you bankroll him. Bad deal! I am always wondering why 40, 50, 60 years old gentlemen and ladies, well to do, doctors, lawyers and accountants, give their money to a twenty year old, fresh out of school, even the suit he is wearing is a rental. If you yield your responsibilities of managing your own money, why do you think someone never make a nickel out of his life will manage your money responsibly. Sell your mutual funds!
Let's summarize. 1st, the mutual fund industry always hires the wrong people. 2nd, the fund management is always working against your. Last, a common person will always do better to take the responsibility of managing his own money into his own hands. Get some self confidence! For your long term security, for the benefits of your retirement, your heirs, sell your mutual funds! When you go home tonight, you don't want to eat dinner, you don't want to talk to your spouse, you don't want to play with your dogs, you turn on your computer, log on to your account, you sell your mutual funds! And never, ever buy another mutual fund!
Thank you.
Why I created this blog?
I created this blog to measure my own progress, show ordinary people with limited resource how to build wealth and publish a tractable investment record.
1. Measure my own progress.
I take investing seriously. As pursuing any other serious matters, I don't want to kid myself. Since 2003, I began writing a review every 6 months against my stated financial goals. I have been keeping my records private. By putting my records under public scrutiny, I want to be more honest with myself. After all, there are more eyes to find inconsistencies in my thought process and more mouths to tell me these inconsistencies. I welcome my viewers to comment on my investment and my investment process. You can either leave a comment for everyone to see or email me directly.
2. Show ordinary people with limited resource how to build wealth.
I am disappointed at the financial service industry as a whole. After the massive bailout by tax payer's money, I found the industry little changed. However, a lot of people feel trapped since they find no alternatives. I believe at least for the asset management need, ordinary people with limited means have other options.
I came to US in 1998 with $1000 borrowed. While still in school, I paid back the $1000 and saved $10, 000. In June 2001, I began my first full time job with a annual salary of $50, 000. In November, a car accident wiped out all my savings and some. I never had a high paying wall street job and I only invested part time. I never had anything an ordinary American won't have access to. And I paid $7, 000 immigration expense most ordinary Americans don't need to spend. After the disastrous 2008, my net-worth stands at around $380, 000 comparing to median net-worth of $8, 525 at my age group(1). It also bests the median net-worth at my income group but I don't think that comparison logical or meaningful.
My YTD return (August 23, 2009) is 27.2%(2), beating S&P 500 and the majority of the mutual funds with a wide margin (3). My one year return is -6.66%, beating S&P 500 and the majority of the mutual funds with a wide margin. And that's the combination of all my investments including my 401K plan and Ohio529 plan only having mutual fund options. I believe my own investments beat the mutual fund industry as a whole for the last five years hand over fist. Since my past record is not audited and published, the real measurement of the performance is in the future.
Since I believe my past performance stands up to the industry's, I believe almost anybody can do the same if he/she sets his/her mind to the task. And in my blog, I will share some experience and lessons learned. I will also share some of my thoughts on how the industry failed us beginning with my next post: Sell Your Mutual Fund!
3. Publish a tractable investment record.
One way to fight the bad practices of the industry is to show it how to do it right. I want to publish my records going forward. And the record is tractable and verifiable.
That's it. I can sacrifice some of my privacy to achieve the above goals. Let's keep our fingers crossed to see if I can achieve those goals. And dear reader, since you have already read this far, Thank you! Please move to the post “How am I going to operate this blog?" which will give you an idea how the blog will strive to reach my goals.
Thanks.
Tom
(1)Source: www.CNNMoney.com.
(2)Reported by Microsoft Money Plus.
(3)Source: www.morningstar.com
1. Measure my own progress.
I take investing seriously. As pursuing any other serious matters, I don't want to kid myself. Since 2003, I began writing a review every 6 months against my stated financial goals. I have been keeping my records private. By putting my records under public scrutiny, I want to be more honest with myself. After all, there are more eyes to find inconsistencies in my thought process and more mouths to tell me these inconsistencies. I welcome my viewers to comment on my investment and my investment process. You can either leave a comment for everyone to see or email me directly.
2. Show ordinary people with limited resource how to build wealth.
I am disappointed at the financial service industry as a whole. After the massive bailout by tax payer's money, I found the industry little changed. However, a lot of people feel trapped since they find no alternatives. I believe at least for the asset management need, ordinary people with limited means have other options.
I came to US in 1998 with $1000 borrowed. While still in school, I paid back the $1000 and saved $10, 000. In June 2001, I began my first full time job with a annual salary of $50, 000. In November, a car accident wiped out all my savings and some. I never had a high paying wall street job and I only invested part time. I never had anything an ordinary American won't have access to. And I paid $7, 000 immigration expense most ordinary Americans don't need to spend. After the disastrous 2008, my net-worth stands at around $380, 000 comparing to median net-worth of $8, 525 at my age group(1). It also bests the median net-worth at my income group but I don't think that comparison logical or meaningful.
My YTD return (August 23, 2009) is 27.2%(2), beating S&P 500 and the majority of the mutual funds with a wide margin (3). My one year return is -6.66%, beating S&P 500 and the majority of the mutual funds with a wide margin. And that's the combination of all my investments including my 401K plan and Ohio529 plan only having mutual fund options. I believe my own investments beat the mutual fund industry as a whole for the last five years hand over fist. Since my past record is not audited and published, the real measurement of the performance is in the future.
Since I believe my past performance stands up to the industry's, I believe almost anybody can do the same if he/she sets his/her mind to the task. And in my blog, I will share some experience and lessons learned. I will also share some of my thoughts on how the industry failed us beginning with my next post: Sell Your Mutual Fund!
3. Publish a tractable investment record.
One way to fight the bad practices of the industry is to show it how to do it right. I want to publish my records going forward. And the record is tractable and verifiable.
That's it. I can sacrifice some of my privacy to achieve the above goals. Let's keep our fingers crossed to see if I can achieve those goals. And dear reader, since you have already read this far, Thank you! Please move to the post “How am I going to operate this blog?" which will give you an idea how the blog will strive to reach my goals.
Thanks.
Tom
(1)Source: www.CNNMoney.com.
(2)Reported by Microsoft Money Plus.
(3)Source: www.morningstar.com
Saturday, August 22, 2009
How am I going to operate this blog?
Dear Reader;
Please read this post carefully as it lays out the guidelines on which I am going to operate this blog. I also encourage you to keep it as one of your reference links since I will update it if I changed some of the guidelines.
1. Portfolio.
This is a long only portfolio aimed for long term investment. Most of the holdings have been held for more than three years now. I generally only sell a holding if it rises way above my calculated value or if I realize I make a mistake calculating. In very rare situations, I will sell a holding below my calculated value to buy something else much cheaper. I don't think I have done that so far, but I can't rule out the possibilities.
I will not use stop loss orders or some of the fancy trading techniques. And I think I have no clue on how to get rich quickly.
This is a real portfolio and all the transactions recorded are real. Besides some home equity and cash operating my household, this portfolio is all my investment. I will not make major investment outside this portfolio.
I believe three years is a very minimal test of performance. And any reasonable time frame should be at least a whole cycle including both bull and bear markets. I will use S&P 500 as my yard stick and I will only buy securities ordinary person can easily get in US.
While I want to update you as soon as possible, I can only try my best to post my transaction and the reason behind it within three weeks after the fact. For obvious reasons, I will not post my thinking on impending transactions. I am not a full time blogger. If this status ever change, I may shorten the lag time. Therefore, I don't encourage people to duplicate my portfolio. The most important thing is to show people how to fish not to fish for them.
2.Advertisement.
Ads are provided by Google/Adsense. I would like to raise some money so that I can home my blog in an independent website one day. Because of the matching techniques Google is using, I am afraid that some of the Ads will be contradicting the goals set up in my “Why I created this blog? “. And some of the Ads will be irrelevant. Once I have my own website, I can better control the Ads. But certainly I will remove any of the Ads are harmful to my readers using the Google filter. Please inform me any offending Ads and I will remove them within a week of reporting. I don't want my reader be ripped off by any of the Ads.
3.Other topics I may cover.
I will update my blog two or three times a week. Since I don't do a lot of transactions, I will post some topics relevant to my investment process, such as: the bad practice in the financial industry, where to learn good investments and which broker to use. I may also post some book reviews on the books I read. I am an active reader reading thirty or forty books a year. I will also tell you how to buy good investment books cheaply. If any of the readers want me to comment on something, as long as it is relevant and I have some knowledge on it, I will comment. Please email me.
That's all for now. Enjoy my blog!
Thanks.
Tom
Please read this post carefully as it lays out the guidelines on which I am going to operate this blog. I also encourage you to keep it as one of your reference links since I will update it if I changed some of the guidelines.
1. Portfolio.
This is a long only portfolio aimed for long term investment. Most of the holdings have been held for more than three years now. I generally only sell a holding if it rises way above my calculated value or if I realize I make a mistake calculating. In very rare situations, I will sell a holding below my calculated value to buy something else much cheaper. I don't think I have done that so far, but I can't rule out the possibilities.
I will not use stop loss orders or some of the fancy trading techniques. And I think I have no clue on how to get rich quickly.
This is a real portfolio and all the transactions recorded are real. Besides some home equity and cash operating my household, this portfolio is all my investment. I will not make major investment outside this portfolio.
I believe three years is a very minimal test of performance. And any reasonable time frame should be at least a whole cycle including both bull and bear markets. I will use S&P 500 as my yard stick and I will only buy securities ordinary person can easily get in US.
While I want to update you as soon as possible, I can only try my best to post my transaction and the reason behind it within three weeks after the fact. For obvious reasons, I will not post my thinking on impending transactions. I am not a full time blogger. If this status ever change, I may shorten the lag time. Therefore, I don't encourage people to duplicate my portfolio. The most important thing is to show people how to fish not to fish for them.
2.Advertisement.
Ads are provided by Google/Adsense. I would like to raise some money so that I can home my blog in an independent website one day. Because of the matching techniques Google is using, I am afraid that some of the Ads will be contradicting the goals set up in my “Why I created this blog? “. And some of the Ads will be irrelevant. Once I have my own website, I can better control the Ads. But certainly I will remove any of the Ads are harmful to my readers using the Google filter. Please inform me any offending Ads and I will remove them within a week of reporting. I don't want my reader be ripped off by any of the Ads.
3.Other topics I may cover.
I will update my blog two or three times a week. Since I don't do a lot of transactions, I will post some topics relevant to my investment process, such as: the bad practice in the financial industry, where to learn good investments and which broker to use. I may also post some book reviews on the books I read. I am an active reader reading thirty or forty books a year. I will also tell you how to buy good investment books cheaply. If any of the readers want me to comment on something, as long as it is relevant and I have some knowledge on it, I will comment. Please email me.
That's all for now. Enjoy my blog!
Thanks.
Tom
Tom's Portfolio in September, 2009
If you are visiting my blog for the first time, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
1. Why I created this blog?
2. How am I going to operate this blog?
Account | Symbol | Last price | Qty | Mkt. val. |
IRA | ||||
aib | 5.96 | 400 | 2384 | |
coh | 28.75 | 100 | 2875 | |
DEO | 63.81 | 100 | 6381 | |
dfs | 13.51 | 500 | 6755 | |
fce.b | 8.02 | 100 | 802 | |
ge | 14.21 | 200 | 2842 | |
lm | 28.63 | 200 | 5726 | |
MHP | 29.67 | 200 | 5934 | |
mhk | 47.45 | 100 | 4745 | |
pfe | 16.64 | 700 | 11648 | |
sny | 33.88 | 300 | 10164 | |
$5,619.72 | ||||
$65,875.72 | ||||
ohio 529 authority | ||||
vdmix | 9.05 | 473.15 | 4282.03 | |
vwnfx | 21.89 | 114.92 | 2515.53 | |
$6,797.56 | ||||
Roth IRA | ||||
axp | 32.85 | 100 | 3285 | |
coh | 28.75 | 200 | 5750 | |
INTC | 18.89 | 200 | 3778.02 | |
kft | 28.81 | 100 | 2881 | |
$5,277.56 | ||||
$20,971.58 | ||||
ScoTTrade Investment | ||||
aib | 5.96 | 400 | 2384 | |
axp | 32.85 | 100 | 3285 | |
aauky | 16.41 | 200 | 3282 | |
bac | 17.46 | 182 | 3177.72 | |
bcs | 23.47 | 400 | 9388 | |
brk.b | 3329.5 | 3 | 9988.5 | |
bam | 21.03 | 300 | 6309 | |
kmx | 17.14 | 400 | 6856 | |
cx | 12.86 | 312 | 4012.32 | |
CHEUY | 12.79 | 800 | 10232 | |
coh | 28.75 | 200 | 5750 | |
COP | 44.2 | 100 | 4420 | |
crh | 26.95 | 300 | 8085 | |
dfs | 13.51 | 400 | 5404 | |
faf | 31.19 | 100 | 3119 | |
fce.b | 8.02 | 100 | 802 | |
ge | 14.21 | 500 | 7105 | |
gsk | 40.03 | 300 | 12009 | |
hog | 22.21 | 100 | 2221 | |
igt | 20.79 | 600 | 12474 | |
jpm | 43.66 | 300 | 13098 | |
lm | 28.63 | 200 | 5726 | |
ltd | 15.35 | 400 | 6140 | |
L | 33.15 | 200 | 6630 | |
lvmuy | 18.78 | 100 | 1878 | |
MHP | 29.67 | 100 | 2967 | |
MDT | 37.8 | 100 | 3780 | |
mco | 26.05 | 100 | 2605 | |
NVS | 45.49 | 200 | 9098 | |
rai | 46.12 | 100 | 4612 | |
sny | 33.88 | 200 | 6776 | |
SYY | 25.2 | 200 | 5040 | |
var | 40.04 | 100 | 4004 | |
zmh | 47.24 | 100 | 4724 | |
$13,380.34 | ||||
$210,761.88 | ||||
UHG Employee Stock Purchase | ||||
UNH | 28.92 | 510.93 | 14776.08 | |
$1,378.63 | ||||
$16,154.71 | ||||
United Health Group | ||||
DODIX | 12.7 | 123.09 | 1563.18 | |
viiix | 94.3 | 366.49 | 34559.9 | |
$776.17 | ||||
$36,899.25 | ||||
$357,460.70 |
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