Thursday, July 28, 2011

A slow day in the market

Yesterday, the market lost about 2% and I had bought several stocks at 'bargain' prices (will find out in a month or so whether they're traps or bargains). Here are what I did to kill time, similar to what you're doing at the moment.

* Fishing.
When you do not fish (looking for good stocks to buy), you repair your net (revising better methods to evaluate stocks). Recently I found out the hard way that I really had to use two methods for evaluating stocks: 1. one for stocks I hold for longer than 12 months (for taxable accounts) and 2. one for stocks holding for an average of 4 months (for swing trades). I've about 2 years of real data from my trades to test out the parameters such as expected P/E. You may call it smart data mining or dumb data curve fitting.

* On political systems.
As opposing to popular belief, Canada is communist, US socialist, and China capitalist. It looks funny but is not far from reality. Here is my argument using health care.

Every Canadian has the same free health care (I do not know the availability and the quality) no matter how rich or how poor you're. Hence, you do not need to save and/or work hard to get better health care. This is the biggest fault of communism.

US encourages its citizens to buy health insurance, but provides it free when you're in emergency room, whether you're legal or illegal resident. That's one of the major reasons we have the most inefficient health care system.

In China, you do not pay, you die. Hence, you need to save and work hard. It is great for the rich and powerful, and a powerful way to control population growth :). I'm not saying China is a great country. The fact is there are more folks moving to US legally or illegally to US than to mainland China.

* To respond to a fellow blogger's praises with sarcasm.
I do not deserve all the flattering, but thanks anyway as it makes me feel good. It is the same feeling to hear the flatters from the prostitutes saying how great your performance is (just an observation). Do not be offended by my jokes as I do not take life seriously.

It is too late for me to make bigger bucks and I do not have a desire to do so. My secret weapon is: I do not need big bucks to be happy and my children would have no meaning in life by inheriting money (a great lesson from Buffett).

I do not see myself writing for WSJ (may be WSJunk) beside reading it, but would like to share investing ideas here and there. My work and hobby is developing a holy trail in investing. Many experts have passed same path and few succeed. Some 'succeed' due to dumb luck. This is my theory of a thousand monkeys banging on the keyboards to find good stocks. At least one monkey finds a great stock.

Buffett is very smart and he has a photographic mind. Like most 'mad' professors, he concentrates in works that are important to him. He made 10,000 times more money than us (at least than I), but he cannot be 10,000 smarter than us.

I've many theories how to develop the holy trail in investing but little time/data to test them out. There is a very high possibility that I'll find no such trail before I die, but I'll enjoy spending time in searching for one. I would die with a big smile for doing what I enjoy most, not due to fame and glory but for the chance to try something I've never tried before. It keeps me cheerful and hopeful similar to the days after I bought a lottery ticket and before the winner was announced.

If I do found the holy trail, I'll donate my life-long 'loots' to deserving (most US poor are not) charities (another lesson from Buffett) and win the Nobel Prize (please do not wake me up.) I would win it by saving/giving/working hard and Obama got his by spending. Who deserves it more? Be the judge yourself.

* On China's bullet train crash.
I hope we learn from our tragedies.

As in my previous posts, China sets the priorities wrong. It is great to be #1, but we have to consider many other issues like safety, quality control, image (esp. for China Inc), maintenance, operations, regulations, corruption (when big money involves, there is corruption naturally), pollution… You do not get promoted or get a medal for doing the above, but some could lose his/her job if something goes wrong.

There are so many past examples such as the fires on high-rise buildings, collapsing of bridges and roads... If we never learn, we will never advance. Hope it is a wake up call. If we prepare for the worst to minimize accidents, we should pad our shoulder for jobs well done, even there is no material gain.

To summarize,

A genius always minimizes accidents.

A smart man always fixes after the accidents happen.

An idiot blames the accidents on someone else and never fixes the problem.

* Your reward for your patience in reading all my garbage.
To prove how stupid I'm, I read it two times before I understand it.

In a nutshell, Mr. T defined the least expected events as black swans. It could be the reason for most of the scientific discoveries and also some investors' blunders.

Click here.

If the clicking does not work, try cut and paste.

Wednesday, July 20, 2011

Intangibles in evaluating a stock

A fundamentally-sound company may not move its stock price. I give a score for each stock I evaluate. Some with worst scores have great return while some with excellent scores have worse returns.

However, I still stick with stocks I score high and once a while change my scoring system to reflect the metrics that work in current market conditions. To illustrate, the bottom and early recovery phases of the market cycle favor value rather than momentum.

* I double or triple my stack on stocks with high scores. In longer term, they are consistently better winners from my data.

* Watch out stocks with outrageous metrics like P/E of 5 or less. It could be a big lawsuit pending, expiration of some drugs...

* The technology patent of a tech company cannot be ignored even the company's P/E is high. The recent case is IDCC rising about 40% in 2 days. There is a rumor that Google is buying the company and/or Apple is bidding on it too for their mobile technology.

* The opposite is Netflix and Chipotle. They are over-priced by any measure. However, the shorters are having a tough time.

* It was quite easy to select CISCO over Apple by fundamental data (or Microsoft over Google) in 2007 but now by 2011 it was the reverse. However, the market is acting just the opposite.

* Some events the retail investor just does not know until it happens like ATSC dropped 15 or so % due to losing its second primary customer.

* After a quick run up, TZOO plunged due to missing some negligible earning expectation. It seems to be the original climbing prices had the perfect earning built-in.

* The financial data could be fraudulent or manipulated. Cash flow cannot be easily manipulated. It is a good info whether the company survives but it does not prove to be a good indicator for the performance of the stock price.

* The following are not found or are easily found in financial statements: patents, good wills, market shares, competitions, product margins,  management quality, pension obligations, advertising icons...

The conclusion is the fundamentals do not always work: 1. especially in the short term. 2. many metrics are intangible. 3. Market is not rational at least not all the time.

(c) TonyP4 2011. Written in 7/20/11. Updated 7/20/11.

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

Why Japan should win the Women's soccer world championship

Glad Japan won the girls’ world soccer championship for the following 5 reasons.

5. US citizens are spoiled. Dumb nationalism is just dumb.
4. Too much misery in Japan. Give them a break!
3. Why US always wants to be #1 all the time. We should behave like a first class citizen. It is not Pearl Harbor as indicated in twitters and the comments of the ignorance.
2. Japanese are shorter, so they have to try harder to be even. They should change the rule on how to break the tie by the average height of the players.

#1 reason. It is God’s decision otherwise the ball would not bump into the pole that many times.

No matter what the outcome was, we all enjoyed a great game with fun and excitement. We would have a better world if we only care to fight for #1 in sports.

Monday, July 18, 2011

Low capital gain tax for 2011 and 2012

The long-term capital gain tax (the stocks you have them for over 12 months) could be the lowest in 2010, and continue similar savings in 2011 and 2012. Now it could be the best time to sell these profitable stocks and you can buy them back right away.

If your adjusted income is $67,900 or less for joint return, you're in the 15% bracket in 2010. Then your long-term capital gain tax this year is 0 according to Wikipedia I glanced thru briefly.

Personally I sold big gainers and I virtually payed 0 tax on the gains in 2010. I've the accountants from Yahoo! Group to confirm it. At first I thought my gains would push me to higher tax bracket, so most gains would be taxed higher. However, it does not turn out that way.

My strategy: Sell long-term gainers in 2011 and 2012. Sell losers in 2013 and convert 401K to Roth in 2013. In 2011 and 2012, try not to have any incomes that would move up my tax bracket.

Transfer some profitable stocks to your children (ok to transfer them to me :)) if they can take advantage of this with the no tax rule. Watch out for kiddie tax implication.

You can transfer a limit of $13,000 this year. You and your wife can transfer $13,000 each to each child tax free. If you have more children and grandchildren, you have more to transfer. The limit is on cost basis, so if you bought the stock at $13,000 and now it is $26,000, it is ok to transfer all the stocks. Check the minor clause if your children is under a certain age.

If you are above this income limit, you should still have a break this year. Consult Wikipedia under US income tax for details.

It sounds rosy, but it may not. First, if your transfer money to your children and s/he is a full-time student, his/her tax rate could be the same as yours. Second, if you have a large long term capital gain, the capital gain is not added to your adjusted gross income. Hence you still enjoy the low/no Federal L.T. capital gain. However, it affects the tax in your social security income.

More info from Wikipedia, click here.

Consult your tax lawyer to confirm. Please verify.

Tax for the rich!
I would like the rich to pay more, but not unfairly. They have only one vote each, so the politicians would give them a hard time. However, we do not want to kill the goose that lays the golden eggs. We do not to drive them out of the country. We
like to encourage them to invest with reasonable taxes for taking the chances.

(c) TonyP4 2011. Written in 7/20/10. Updated 7/20/11.

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

Friday, July 15, 2011

Making fun of Bill

I agree that Microsoft is a fundamentally sound company with the huge cash flow from Windows and Office updates. For the last 10 years, they do not have much show for that could be larger than Google and Apple combined. However, the stock is very under priced with all the metrics.

Just for fun. Every box of Windows should include the following:

1. This software could lower your productivity.
I do not know why the old version of Windows just read any of my spreadsheets without hesitation, but not the current ones.

Sometimes we like to control your keyboard. At least the intention is good. At worst, you just reboot and lose your current work. No big deal to us.

2. This software could crash any time.
The old version crashes once a year, and this one once a week. Gates will give you the ignorant folks a new term: progress in reverse.

3. This software could screw up your files.
Do not be too alarmed as you can pay us to fix it and major credits are accepted.

4. Your OS may not be able to bring up.
My 3 year old hit a certain key to crash the system when it was being brought up.

5. This software will upgrade by itself automatically and it will be lengthy. Hence, do not use it for important presentations unless you like your attendants to take a coffee break in the middle of it.

6. For corporate communication, try 1-800-BillGate or 1-800-BadSoftware.

7. To prove the point that a sucker never learns, update our software once every two years so to keep your IT dept busy and your managers to blame some one other than themselves.

Not to mention the bonus money for our managers who use it to stimulate the economy and helps our great country to reduce deficit and balance the budget.

The Federal, state and city employees will gladly point out the reason why they need 10 instead of 1 to do a simple job.

Friday, July 8, 2011

Identify Asians

Today is a slow day in the market and I am inspired by the article Being Asian.

Actually you can identify where they come back easily.

1. By their public behaviors.
Japanese bow all day long, so their spinal cords are permanently damaged.

Singapore youngsters will not come close to any car as they have the image of a flogging experience of a teenager (of course from overseas).

Taiwanese folks always line up.

Chinese from Mainland will never line up and will cut you off when you do not pay attention.

2. By the way they cross the streets.
Japanese and Taiwanese always wait for the traffic lights.

Chinese from Mainland treat it as a sport or a chess game. The poor foreigners will never cross the street in Beijing or Shanghai unless they buy life insurance to the max.

3. By the hand bag they carry.
Japanese always buy the real ones.

HongKongers carry the fake ones.

Mainlanders carry the real ones even it costs them 3 months of salary to buy one.

When you max out 401K contribution

It is a nice inconvenience. You do not have many options at this stage. The following could help, but you need to research further and be responsible for your actions.

* Variable annuity. It allows you almost unlimited contribution and tax-deferred. I have one with Fidelity (which is supposed to be one of the lowest costs). It returns over 400% over 20 years - it is just the average if you consider compound rate of return.

Fidelity has a wide choice of sector funds that I use to play market/sector market timing.

Disadvantages. 1. Fidelity still makes money on fund fees (it is OK if they're performing better than ETFs). 2. All annuities will pocket part of your money at their own spec when they pay out (i.e. annualization).

* You should consider donating appreciated securities to your children (to me if you do not have) and charities, which Fidelity has a nice vehicle.

* You should consider your potential tax rate when you retire. In my case, my tax rate could be higher than my working years due to some good investments. I could be forced to be in the highest tax bracket when I am required to withdraw my 401s.

* Paying taxes is a patriotic task, esp. if the government used the taxes wisely. Click here for evidence.

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

Market today

It is a very decent article by Brett Arends at MarketWatch.

What should we do?

* As in my previous predication, the market is still risky and it may not be our normal recovery in market cycle.

* At least for the coming year, I expect corrections of 5% are common (i.e 3 times a year instead of 2). So, accumulate cash for bargains (i.e. take profits when they're due). Should have about 30% in cash. If it does not work, it is a insurance.

Buy on value (i.e. fundamentals) and sell on momentum (i.e. a mirage).

The aging of the world population is one reason that the market will not rise. The debasement of the currency is one of my takes (in a separate post) why the market has risen so fast recently.

* PIIGS will be a problem for a long while. The politicians learn from US to spend to buy votes. When Spain and Italy's bubbles burst, we will have big problems to US as they're far bigger economies than Ireland and Greece.

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

Market timing from a fellow blogger

Varan says at seekingAlpha:

If, at the beginning of each quarter, you had switched from SPY to TLT and vice versa depending upon which of the two yielded higher return during the prior quarter, you would have ZERO down years during the period 2003-2010, with only a dozen switches in the eight years, and a CAR of 14%.

Of course who knows if this will work in the future, but at least this year it has yielded 7.45%, pretty respectable.


Here are the results of this strategy for you to verify.
First column is the symbol (+ indicating a switch). The two dates are the first days of the week at the close of which the trading occurred, followed by the return. The last three numbers are the adjusted close data and the return for the prior thirteen week period on the basis of which the trade was made.

No need for crystal ball here but of course it is back testing.

You get still better results if you switch between VTI, EFA, and TLT.

All data based on Yahoo adjusted close data.

SPY+ 6/30/2003 TO 9/29/2003 5.11% 98.22 100.30 11.09%
SPY 9/29/2003 TO 12/29/2003 8.09% 100.30 110.10 1.62%
SPY 12/29/2003 TO 12/29/2003 0.00% 110.10 110.10 6.61%
SPY 1/ 5/2004 TO 4/ 5/2004 2.12% 111.69 114.46 6.87%
SPY 4/ 5/2004 TO 7/ 6/2004 -1.94% 114.46 112.37 2.36%
TLT+ 7/ 6/2004 TO 10/ 4/2004 5.48% 84.57 87.00 -0.82%
TLT 10/ 4/2004 TO 12/27/2004 1.90% 87.00 88.33 4.89%
SPY+ 1/ 3/2005 TO 4/ 4/2005 0.02% 121.56 117.36 8.26%
TLT+ 4/ 4/2005 TO 7/ 5/2005 7.52% 89.28 94.35 1.93%
TLT 7/ 5/2005 TO 10/ 3/2005 -1.86% 94.35 91.79 8.18%
SPY+ 10/ 3/2005 TO 12/27/2005 4.65% 122.96 126.96 1.84%
SPY 1/ 3/2006 TO 4/ 3/2006 1.26% 125.19 130.07 4.65%
SPY 4/ 3/2006 TO 7/ 3/2006 -1.82% 130.07 127.43 1.49%
TLT+ 7/ 3/2006 TO 10/ 2/2006 5.97% 83.90 89.10 -0.13%
TLT 10/ 2/2006 TO 12/26/2006 1.29% 89.10 89.45 6.93%
SPY+ 1/ 3/2007 TO 4/ 2/2007 3.04% 142.25 142.16 5.48%
SPY 4/ 2/2007 TO 7/ 2/2007 6.51% 142.16 150.87 1.44%
SPY 7/ 2/2007 TO 10/ 1/2007 2.36% 150.87 152.60 4.74%
TLT+ 10/ 1/2007 TO 12/31/2007 7.68% 88.69 92.78 7.13%
TLT 12/31/2007 TO 12/31/2007 0.00% 92.78 92.78 5.64%
TLT 1/ 7/2008 TO 4/ 7/2008 1.56% 94.18 94.62 8.48%
TLT 4/ 7/2008 TO 7/ 7/2008 -2.97% 94.62 92.07 1.06%
TLT 7/ 7/2008 TO 10/ 6/2008 4.48% 92.07 98.74 -3.06%
TLT 10/ 6/2008 TO 12/29/2008 22.57% 98.74 121.43 6.07%
TLT 1/ 5/2009 TO 4/ 6/2009 -8.44% 115.60 103.54 22.57%
SPY+ 4/ 6/2009 TO 7/ 6/2009 3.08% 83.34 88.94 -4.74%
SPY 7/ 6/2009 TO 10/ 5/2009 22.52% 88.94 102.90 5.24%
SPY 10/ 5/2009 TO 12/28/2009 4.46% 102.90 112.90 17.07%
SPY 1/ 4/2010 TO 4/ 5/2010 4.35% 112.37 118.25 4.46%
SPY 4/ 5/2010 TO 7/ 6/2010 -9.26% 118.25 103.64 2.83%
TLT+ 7/ 6/2010 TO 10/ 4/2010 6.09% 100.83 104.62 14.40%
SPY+ 10/ 4/2010 TO 12/27/2010 8.47% 114.37 125.13 6.73%
SPY 1/ 3/2011 TO 4/ 4/2011 4.95% 126.71 133.43 8.47%
SPY 4/ 4/2011 TO 7/ 5/2011 1.66% 133.43 133.78 5.18%
TLT+ 7/ 5/2011 TO 7/ 5/2011 0.00% 94.04 94.04 5.36%

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

Monday, July 4, 2011

Advisors' opinions

If you believe in stock analysts, you believe in fairly tales. They have their own agendas for their own benefits, not yours.

Use Fidelity's Consensus as they sort them by the past predication accuracy.

Aside from Fidelity's Consensus ratings, analyst's best rating means a Buy, and the rest means Sell. They have too many mutual benefits not to be biased.

From my experience, advisors are more wrong than right at market bottom.

(c) TonyP4 2011. Written in 7/4/11. Updated 7/4/11.

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