Thursday, June 30, 2011

On shorting

I do not want to argue with success of shorters, but shorting is not for most with the following pitfalls esp. to beginners.

* Could lose more than 100%.
* Need to pay dividends and interest.
* Need both fundamental and technical analyses.
* Your gains are subjected to short-term capital gains which are usually higher.
* Not all stocks can be shorted.
* Not allowed in retirement accounts. You can use contra ETFs for a group of stocks.
* Should avoid some sectors unless you have a good reason: drug, mine, bank (unless you know the quality of mortgages) and insurance.
* Timing. There is no perfect timing but perfect luck.

I find the best time to short is after the market plunge from peak and it usually lasts for at least half a year. Market peak could be the best, but it is too hard to determine the peak.

I try not to buy the stocks with short ratio over 10% of the float (= no. of stocks being shorted / No. of stocks available). The shorters have more rights than wrongs. I have seen some sound fundamental stocks lost most of the values by shorters like CROX. Unfortunately I was one of them and I doubled down.

Writing put options is similar to shorting a company with more advantages than disadvantages.

(c) TonyP4 2011. Written in 7/2/11. Updated 04/28/12.

Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.

Wednesday, June 8, 2011

Mr. Buffett

With utmost respect, Buffett's ideas may not be valid to us, today's common retail investors for the following reasons.

* We do not make big bets like buying most of a company.
* He cannot buy value stocks with small cap that proves to perform best.
* In many cases, his bets require him or his company to run the company.
* He has connections and sweetheart deals that most of us do not have access to.
* We can dump losers or winners any time we want without public opinions.
* Most of his bets require him to pay extra to get in and get out.

There are exceptions. If you follow him to buy Chinese Petro. (I did) and the Chinese auto company (I could not find any US exchange that listed it), you do good.

Contrary to Mr. Buffett's philosophy, I believe after 2000 buy-and-hold is dead. Most books/articles defending buy-and-hold based on data before 2000. The market changes so fast that a good company could not be profitable due to circumstances beyond its control.

I still buy the company whose technology I do not know, but learn its technology and its impact to the company's bottom line. I believe some companies will die eventually like Washington Post he owns unless they move out from the paper product. If I were him, I would sell it after we know internet will replace newspaper to a good extend. It is more fundamental than market timing.

He was doing great with Coke in the first 10 years he owned, but it has not been exceptional in the next 10 years.

He has about 50% of the profit from the insurance company. We should have better diversification than that. Insurance sector is a black swan to me - when something unexpected happens, it would spoil all the fun.

For the past 3 years, my largest account (based on 1/31/11, so a month off) beats Buffett by 100% - his cumulative profit is 22% and mine is 50%). It could be just luck. I just want to prove a point that we can beat Buffett easier as a retail investor today. We do have advantages as a small retail investor. I'm a nobody and remain so, so I do not do it for fame and glory.

If Buffett only handled a portfolio of $5 millions or so, he would beat me year after year by a good margin. No one including Peter Lynch can make a decent return with the huge size of Buffett's portfolio. Lynch quit and Buffett continues. We have to respect Buffett for that even he collects good salary. I also respect him for donating most his money to charities and how he taught his children on money and life.

However, there are many sound investing philosophy/ideas we can learn a lot from him and he has proven to be the greatest investor in our generation. He gets my respect by managing such a large portfolio that is hard to beat the market as he is the market.

From his own account, he could be very different as it would be small enough to achieve a higher return. Due to the conflict of interest, I do not think he can have his own account. I hope he would share his secrets in a book before he dies.

He did a great job raising his children to be independent. I do not agree his advice to the Chinese girl to be a business man instead of a doctor who would cure thousands.

Related links.
Debunking some of Buffett's preachings - some are duplicated here.

Efficient donation to charities.

(c) TonyP4 2011. Written in 7/8/10. Updated 7/8/11.

Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.

Sunday, June 5, 2011

The purpose of my blog

I'm interested in both investing and China. On investing, I use this blog as a personal note pad. If I used it to promote myself, I would use my real name and I need to have something to sell you. If I want to sell you investment ideas or manage your money, it is easier to use my broker statements for the last 3 years to gain your confidence than using a false name.

I would like to share my investment ideas and experiences (both good and bad). It is also used to remind me not to make same mistake and repeat what have been proven to work.

English is not my native language. If you want good English, this blog is not for you.

Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision. ou. You are welcomed to share investment ideas here.

Li Na won French Open

Behind this big win, there are many soul searching.

* Chinese training system will not do good for tennis and possibly for golf. Hitting a thousand balls a day is over-trained.

* Chinese do not have enough good coaches in tennis. Using badminton or table tennis training techniques most likely do not hold well. The next generation of coaches will be from the retired tennis players of today, so the future is bright.

* Chinese fans have a lot to learn and should not be the ‘amateur’ coaches that have a lot to do with the loss of Australia Open and some blame on the Olympics game for Li Na.

We depend on foreign training, system and coaching today. They’re constructive criticism. We’re in a learning stage and if we do not learn, we will never go to the next level.

* She should have won it easily if she went to 4-1 instead of 3-2 in the second set.

* She should be in the top 3 world rank with two Grand Slam finals and one win.

* Her last losses since Australia Open indicates that tennis is more a mind game.

* The next win will not be easy: 1. she should have passed her prime for her age, and 2. currently most top rank players are either injured or just retired.

* It seems Chinese female players esp. in tennis and golf are better adapted than male counter

Friday, June 3, 2011

Classify Chinese immigrants in US

By their behaviors at Walmart.

Last Generation. My mom's friends change price labels (to their advantage) or ask for a full refund on dresses they bought for last night's banquet. They admit nothing wrong and need to save for the next generation.

This Generation. My wife suddenly lost her voice when the cashier forgot to charge an item. She assumes that sometimes the stores cheat her knowingly or unknowingly. Hence, she still would go to heaven. In addition, her spouse may buy the stock of this company, and hence she could be the owner of the company. Good logic!

Next Generation. My honest daughter drove miles to return the $1 to the cashier that she was under charged while she spent extra $5 on gas. No wonder we have energy crisis.

They react according to their wealth and education.


By history:

1. Thousand years ago.
First Chinese immigrants are native Indians and Eskimos. They have the same genes as Chinese. Both lack a kind of enzyme that allows us to be drunk easier besides same color of the hair, skin, body… They must be some drunk Chinese losing their way to walk across the frozen strait between the two continents. There is a good chance that they escaped from wars.

There was a Time article about a Chinese expert in old Chinese language. He could read some old text in Columbian artifacts.

2. First wave. About 200 years ago when China was bankrupt after the wars with 8 devilish nations. Semi slaves to dig gold and build the railroad. They’re uneducated labors with not much education. Most did not marry (as the US immigration law against Chinese bringing female in) and few children from this generation (some returned home and got married).

3. Second wave. The descendants of first wave and some buying false IDs. Worked in restaurants, laundry houses, sweat shops. Uneducated. The second generation is more educated.

4. Third wave. Hong Kong and Taiwanese students. Most Taiwanese students came for graduate schools.

5. Fourth Wave. Students from mainland China and were allowed to stay after TSM.

The children from third wave and fourth wave are highly educated.

The current wave could be termed as #6 in my classification. Very crude and arbitrary classification.

Disciplined investing

I would like to find out how disciplined investing performs on swing trading (i.e. the average holding period of a stock is about 4 months). Will keep the info/performance on this blog as comments. We all have bad trading habits. I like to check whether I can beat S&P with disciplined investing in the long run.

*It will be real-life instead of simulation.

* Will be disciplined on how I trade following the procedures below.

* Buy. Will place a buy order about one stock per week usually on Monday or Tuesday except vacations, holidays and a down market.

Will have a position from $10,000 to $25,000 per stock depending on how attractive the stock and the market conditions.

Will buy it at .5% to 2% less than the market price and will buy it at market price if I cannot buy it with my limited price. Skip the buy order if it explodes in price. I missed a lot of good buys before. Over 90% of the buy orders should be executed.

* Sell. Will place a loss of 25% and sell it at a gain of 15%.

* Market correction. Will sell all stocks at 2-10% higher than the current prices when I predict a correction is coming.

* Market Recession. Will act accordingly. Will tighten stop orders at the last phase of the market cycle or when the market is risky.

Market timing is not a science. However, it is better than with a plan than without one. Hopefully, in the long run, we can guess correctly more times right than wrong.

The above is a very simple market plan and all investors should have one but it should be more complicated. It should include how you select a stock and your objective like beating S&P 500 by 2% at least risk.

Stocks will be screened from many sources. Some are free and some are at low costs. Will evaluate each stock using fundamentals. Select the best one to buy.

Just updated the scoring system for stocks. Now I've two: one for taxable accounts (holding it for 12 months) and one for swing trade (4 months). Will include stocks I just bought. Do your own research as no one will be responsible for the performance other than yourself.



(c) TonyP4 2011. Written in 6/3/11. Updated 7/26/11.

Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.