Table content of this blog

Contrary to what you're thinking, my primary reason of blogging is not because of the plenty of free time in my early retirement. English is not my native language and being an ITer I have not written much during my career. I have never taken courses in social science and investment besides the required in college. It has to be the fun of trying something different and I enjoy it so far.

I find a lot of newspaper and on-line articles particular on China look right but are totally wrong. I try to use common sense to argue against them.

As I'm not using my full name, I'm not blogging for promoting myself and I have nothing to sell you. You may feel offended sometimes as I blog honestly and I do not care about political correctness and popular opinions (I'm not running for a political job).

Click the highlighted to access the blog. Hence, this blog serves as a rough table of content of the better blogs I wrote for last several years.

My contributions.
* The reason of secular stock market. As indicated by many articles, we've secular market about 20 years interval. My contribution is the cause. It is most likely due to wars for secular bear markets (Vietnam and the two current wars) or lack of for secular bull markets. The next, new bull secular market could start in 2015.

* Coconut Theory on why some natives are lazy naturally. So far no one objects or they're too lazy to defend themselves.

* Global Aging Demographics. I blogged years ago that India's explosive population growth is no good for India and the world. However, even today the popular belief of a larger and younger population is better for India including an article by a professor in a prestigious college.

* How Hong Kong gets so wealthy? A Stanford professor in a syndicated article (it means it has been published in most newspapers that Sunday) told the world that the British rule could make a poor country prosperous using Hong Kong as an example. I argued it was totally wrong and the primary reason for Hong Kong's wealth is its closeness to China then and now.

* Debunking some of Buffett's preachings. I only blog if my views are different to popular beliefs/opinions as I do not want to waste the bandwidth and electronic ink not counting  wasting your time.  Actually most investing heroes are not doing good recently.





Defending China.
The politicians cannot fix our problems and use China as a convenient scapegoat. Many newspapers, TV stations... want to sell their stuffs by giving what you want to hear/see by twisting the facts.

As a Chinese American, I am naturally biased but I'll not let my dumb nationalism to cover my eyes or yours. There are Chinese bashers and US bashers who do not convince us as they're not using facts. They promote distrust, confrontation, ... that I try to avoid.

Tibet. This comment has over 350 'likes' in an Economist's article. I estimate there are  3,500 reads (using 1 'like'  to 10 readers) on this long comment. Initially I faced many resentment from folks esp. from Tibetans in other articles.

Human Right. This blog has ignited discussions and scored some points for China. This one and the last one change the image of China for some.

China is a victim instead of an aggressor for last 250 years. A MUST read for Brits and Japanese.

Economy: Currency,  Rare Earth, Quality. Space Station, Tariff,
                 Wealth, 

Social topics:  Intelligence Property,  Environment, Africa, Hong Kong, Child Labor ,
                        India, Politics,

What China should do in next 5 years.



US and socially speaking.
A Nation of No Losers. Quite popular. You can laugh and cry at the same time.
Trade War with China.
Our trade with China
Conflict with China
 
Lessons from Wars.
US and Wars
Efficient charities.
How to solve the trade imbalance
Dear recent college graduates,
Socialism could lead to self-destruction.
Why the wealth gap widens
Is Social Security going to survive?

Should we blame all our ills on China.
Is China friend or foe?
Extremes of Two Nations
 

Fixing the economy.
Why China is so poor and US so rich.
Effective Health Care Delivery.
Education by example
iGeneration 
God of Gods
Defining freedom
Political parties and the economy
Corruption, American style

Our problems, solutions and implementations
Efficient Charities




Stock Market.
Market Top. My crystal ball in April is quite right.
Market Timing.  II
Spotting big market plunges
Market timing on asset classes
Strategies for secular bull and bear markets


Recovery or W-shaped recession?
A prolonged recession

When stock is over-priced


Invest Responsibly.
The mysteries of P/E.
Diversification.
Sell shorts.
Covered calls.
Should you hold a stock forever.

Newsletters/subscriptions.
Hedge Fund 101
2011, when stock pickers die

Advice for retirees.
Dividend stock problems.
Sectors you want to avoid.
Stop Loss.
Refining Dogs of Dow Strategy.
Looking for a multi bagger


Technical Analysis.
Bonds.
Modern Portfolio Theories.
Investment Psychology 101. 
Retirees, take notice.
The evils of QE
Housing recovery?
Identifying Earnings Season Overreaction Opportunities
Different strategies
Volatility and Momentum
Distorting indexes




Fun and Jokes.
Even if you do not agree everything I said, hope some jokes would give you a laugh. If you get offended, you should check in your closest clinic esp. the humor department. It is not easy to write jokes that are totally unoffensive.

A + B
My day as a farmer.  A real story to be told to my grand children.
Diets that always work. Offensive to fatsos.
No Nativity Scene. Offensive to politicians.
Women.
Politicians and prostitutes

How to save the airline industry. PG 17.
My stupid name is Boris.
Celebration of Olympic Bronze.
Lady missing a fight.
Playing lotteries.
Lady missing a flight



Misc.
One paragraph could change your health and life
The best in life
Religion


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The following are the best blogs from my other blog. It is a collection of good articles/jokes circulated to me.

Jokes:
The new student from India. Very funny!
Break the promise PG 17
The 11th husband PG 17.
 Living in 2009
 Funny Acronyms
 Dear Employees

Graduation pictures from China, USA,Japan PG17. Does not work all the time.
Gift for mom
Bishop goes to Hollywood
Sex for seniors
How Staten Island got its name
How 'America' got the name
Who actually is Jesus. 

 

 

 

China:
The Yellow Flower Uprising.
Letter from a patriot

Health

6 Great Foods 

50 health hints (in Chinese)

 

 Misc. 

Amazing picture

 

(c) 2009-2013 TonyP4

Debunk the Myths in Investing

Buy the book to benefit your financial health. Check it out from amazon.com. The Kindle version is about $10 and the hard copy is about $20.

The recent reader feed back: I will close all my bond position after reading the A.B.C. on bonds. He is doing great with that decision.

I have posted many chapters from the book in web sites. However, the most important ones are not posted including the article on how to detect market plunges that could save you 40% loss of the portfolio and tell you when to move back in.

Subscription services

4         Newsletters and subscriptions

I've been using investment newsletters / subscriptions for years. Many are priced reasonably and some are even free. While a lot of them are garbage, some are very good.

When you have a lot of money to invest and you're not using a financial adviser and/or not subscribing any investment service, it could be a big financial mistake. You do not want to be penny smart but pound foolish.

You may need a computer, access to Internet and a spreadsheet in order to use most subscription services effectively.

I'm not going to compare specific systems / newsletters, but will include general pointers on how to select them. Yesterday’s garbage could be a gold mine today if the subscription improves and/or the market conditions fit what they recommend.

First, you need to find what you need and how much time you can afford to use them. If you have $20,000 or less to invest, most likely you just buy an ETF like SPY as your investment both in money and time will not pay off.

Here are some pointers.

·         Newsletters giving you specific stocks to buy do not require much of your time. However, if they're successful, there will be too many followers buying the same stocks to drive up the prices of the recommended stocks at least temporarily. The owners and his insiders will buy the recommended stocks before you. I have several of this kind of newsletter, and so far I have not renewed any one of them.

·         If I found the Holy Grail of investing, do you believe I’ll share it with you for $100 or so? I only will after I invest my findings first. My subscribers would push up the prices for me and then I unload them before the herd.

·         If the volumes of the recommended stocks are small, they can be manipulated easily either by the newsletter owners and/or by your peer subscribers. The first ones to buy the recommended stocks win and the last ones to sell lose.

·         I prefer systems that can find a lot of stocks by providing many searches (same as screens). However, it will take a lot of time to learn and test their performances that would require a historical database. Most likely, you need to further research on each stock screened. The service would select a limited number of stocks for further analysis, so it will save time.

From my experience, the best performance comes from the stocks that have been screened by more than one search especially in shorter term (less than 6 months). My theory is that they've been identified by more folks and the buyers jack up the prices. You need to buy them and sell them before the herd.

·         We all get promotional mails that they can triple the return of your investment. Just ignore them. If it is that good, most likely they will keep them for themselves. Same for seminars to boost some penny stocks. Sometimes the recommended stocks will rise initially to lure you for more money as more suckers move it. Watch out!

·         A ‘guru’ told me that he made a big fortune in silver a month ago. Guess what? He also recommended selling it two months ago and lost a lot of money in doing so. He is always right but he will not advertise the times he was wrong. We call it a double talk technique.

·         When you have subscribed an investment newsletter or take advantage of the trial subscription, keep track of the performance yourself. It is better to do paper trading before using it with real money.

·         Subscribe the newsletter to fit your style of investing. If you're a day trader, newsletters on long-term investment are not good for you. Some subscriptions handle all kinds of investing styles and you need to find the strategies and recommendations to fit your style.

·         Newsletters on penny stocks are most likely too risky for most of us. I define penny stocks as less than $2. However, I do buy stocks around $2. Actually I bought ALU at $1 but ALU’s market cap is about 2 B. The stocks with prices between $1 and $10 represent the most volatile and some are real ignored gems as most analysts do not do research on them.

·         There are many sectors like drugs, mines and banks that we cannot evaluate effectively ourselves. It is better to seek expert advices.

·         Remember there is no free lunch in life. The higher potential return of a stock is, the riskier the stock is.

·         Some newsletters / subscriptions save us time by summarizing the financial data like a value rank and a growth rank. When the market favors growth, you use the growth rank (vs. a value rank).

·         Be careful on the commercials particularly from Radio in selling to peoples' fears and their greed by overstating without necessarily telling the whole story. There is no free lunch. It is not possible to make 25% in covered calls consistently or making another gold rush from $400 to $1,800.

·         As a retail investor, most of us cannot afford to do any extensive research. Many researches and market opinions are available in the internet free.

·         Do not trust the performances of the newsletter providers. There are many ways to manipulate their performances. See next chapter.

·         Most compare their performances with S&P 500. It is legal for investment newsletters to inflate their performance with dividends while comparing to an index without dividends. To illustrate, for the last 10 years, S&P 500 has an average annual return of 1% on appreciation and 1.5% on dividends. Your same return of 2.5% (1% appreciation and 1.5% dividend) beats the index return of 1% even they perform the same.

·         The performance of last 10 years is more important than that of 25 years. Their method of stock evaluation / ranking hopefully has been improved.

·         Ensure they change their strategies according to the current market conditions. For example, for some years ADRs (U.S. listed stocks of foreign countries) perform better than some years.

·         Few if any use real money for their portfolios, as they cannot cheat with real money. That’s why you never achieve the compatible performance by following what the portfolio trades. Do not trust any performance claims even from reputable monitor services unless the portfolios are in real money and can be verified.

Many sample portfolios trade excessively and they many not fit your investment strategy not to mentioning the broker commissions. See next chapter.

·         When a subscription service has several strategies (say 10 for illustration), it will advertise the best returns of its top strategies (say 2) for a specific time period. See next chapter.

As contrary to not recommending investment services, here are very low priced or even free. By opening a small account with a broker, you can access their research. Check your current broker’s website on evaluating stocks. AAII is a low-priced subscription with on-line stock research. Yahoo!Finance is very popular among investors. Seeking Alpha is a good web site.

For the most updated financial statement of a company, try to log on the company’s web site.    

Afterthoughts

·         My friend told me he saw an ad that would show him how to make $500 a day for working a few minutes before the market opens. He is nice enough to share his ‘discovery’ with me. If it is for real, I would be the first one to sign up. If it really works, it will not work very soon. When a strategy is over-used, it will not work. Unfortunately, a fool is born every minute as the same ad has been there for a long time.

·         Currently I spend about $1,500 for my all my subscription services. I believe $300 should cover the basic. To start, you can use your broker’s web site for tools. Some have a lot of research for evaluating stocks and some even include searches. Try the biggest broker’s research as they spend more on this topic. Even if you do not trade with them, use their research by opening an account with the minimum balance pays off.

·         If the offer is too good to be true (like making $500 every day with little effort and little investing money), it probably is not. If they give you a free 50” TV for spending $299, most likely it is a trap with bait. Remember there is no free lunch.

However, some baits are good like the free 30-day trial offer for an investment service or the free dinners I attended for seminars on estate planning. It is part of the business cost. If I do not attend more than two dinners, eventually I will pay two free dinners for someone I do not even know. This book could be the best deal for your entire investment life if you invest time to read it, digest it and use the ideas that are applicable to you and to the current market.

·         How to monitor the RECENT performance of a subscription service.

Do not trust their claims and the past performance may not have anything to do with the current or future performance unless they are from reliable sources.

Most subscription services have a free 30-day trial offer. Take advantage of it. Before you sign it up, ensure you have enough time to test it out. If you do not have time, you can sign it up again using your brother-in-law’s name.

To illustrate how to monitor their recent performance, if they give you 20 stocks every week, save the prices and check their performance in the same period you usually hold the stocks. It has busted many well-advertised and very popular subscription services. I prefer to compare the performance to S&P 500 index. It is better to compare it in an up market and a down market as some strategies amplify the common market by selecting riskier stocks.

·         On 5/2013, I received an ad boosting how great its portfolio performs from a well-known paper on investing. The cumulative return from 2001 to today is an impressive 308% beating the S&P 500’s 43% by a huge margin. However, if you read it again with an open mind (Chapter 11), most of the big gains are made before 2009.

To prove it, I used their data and input their returns from 2009 to today. Their accumulative return is 37% while the S&P 500 is 66%. The more current data has better predicative power than the older data. Why they advertise this way is beyond my belief, they try to insult my intelligence or the want to avoid future lawsuits from their potential clients. If they just listed 308% and compare it to the S&P 500’s 43%, it could have fooled me.

However, from my own testing using their composite score, it predicts pretty well for long term (12 months) and short term (6 months).

The morals of the story:

1.       Read any claim with skepticism.

2.       The recent performance has better predictive power than the older data.

3.       When a strategy is over-used, it will become less effective.

4.       The market conditions change. Some strategies work better than others in different conditions.

5.       Most likely the 308% includes dividends while the 43% does not.

6.       Test it yourself than listen from others’ claims.  

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My e-book Debunk the Myths of Investing could save you a lot of money in investing. The above is one chapter out of 105 and some important chapters will not be included in the blog.
  http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html

Sample portfolio for the book.
  http://stockportfolios.blogspot.com/2013/03/welcome.html

(c) 2013 Tony Pow

Disclaimer. I'm not responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.

How a subscription service cheats

4        How the newsletters ‘improve’ the performance.

There are two major ways:

1.       Cheating the results.

2.       Only show you the portfolio among several that performs.

Cheating the results

They do not cheat if they use real money for the portfolio. Here are some ways they can cheat:

Do not trust the performances of the newsletter providers. There are many ways to manipulate their performances:

·         They buy at the lowest prices of the day and sell at the highest prices of the day. To illustrate, a stock shot up by 25% in the afternoon, and the newsletter could use the open price of the day to buy. A stock can rise by more than 10% on encouraging earning report, an upgrade by a famous analyst, or being acquired.

·         I just discover another way to cheat by changing the sell date 2 days (3 due to holiday on Friday) earlier than today Monday. The gain and the sell price do not change, but the annualized return change favorably for gains and unfavorably for losses.

Trading with the closing prices has less chance to cheat. However, some stocks can be traded off hours and morning futures can indicate the direction of the market for the day.

·         Survival bias.

In simple term, the stocks will not be included if they lose all the value like the many penny stocks. For example, Lehman Brothers is not included in most data bases after 2008, so it makes your searches look better than they really are. Penny stocks have higher chances of being out-of-business. The spin-offs and mergers could do opposite to survival bias, but there are more bankrupt stocks than the spin-offs and mergers combined.

To illustrate, you have two stocks 10 cents each. One stock gains 100% and the other one loses all the value. Your portfolio should have zero gain. However, if you use a historical database that does not take care of survival bias, the bankrupt stock is not in your database and your search shows you have 100% gain instead of 0% gain.

·         Most compare their performances with S&P 500. It is legal for investment newsletters to inflate their performance with dividends while comparing to an index without dividends. To illustrate, for the last 10 years, S&P 500 has an average annual return of 1% on appreciation and 1.5% on dividends. Your same return of 2.5% (1% appreciation and 1.5% dividend) beats the index return of 1% even they perform the same.

·         The performance of last 10 years is more important than that of 25 years. Their method of stock evaluation / ranking hopefully has been improved.

·         Ensure they change their strategies according to the current market conditions. For example, for some years ADRs (U.S. listed stocks of foreign countries) perform better than some years.

·         Few if any use real money for their portfolios, as they cannot cheat with real money. That’s why you never achieve the compatible performance by following what the portfolio trades. Do not trust any performance claims even from reputable monitor services unless the portfolios are in real money and can be verified.

Many sample portfolios trade excessively and they many not fit your investment strategy not to mentioning the broker commissions. See next chapter.

Only advertise whose strategies or funds that perform well

When a subscription service has several funds or strategies (say 10), it will advertise the best return of its top fund or strategy for a specific time period. They have too many obvious examples.

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My e-book Debunk the Myths of Investing could save you a lot of money in investing. The above is one chapter out of 105 and some important chapters will not be included in the blog.
  http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html

Sample portfolio for the book.
  http://stockportfolios.blogspot.com/2013/03/welcome.html

(c) 2013 Tony Pow

Disclaimer. I'm not responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.

Selling short

68  Sell short

Recently there are big losses for shorting Netflix and Tesla. I still do not like Tesla and they can only succeed depending on the $10,000 subsidy or rebate from the government for each car they sell.

Shorting is better to be avoided for most:

·         Could lose more than 100% of the investment.

Actually, in theory, there is no limit. If the shorted stock price rises by 10 times, the loss is well over 10 times money invested.

·         Need to pay dividends and interest for the shorted stock.

The higher the dividend rate for the stock, the more you have to pay. The experienced would avoid high-dividend stocks to short.

Need to pay interest for ‘borrowing’ the stocks to sell. Brokers charge interest rates differently and it could be a huge saving to shop around if you short stocks a lot.

·         Need both fundamental and technical analyses.

From my experience, a technical analysis is more important in shorting.

·         If successful in shorting, gains are subjected to the short-term capital gain taxes which are typically higher than long-term capital gain taxes.

·          Not all the stocks can be shorted.

·         Selling short is not allowed in retirement accounts as of 2013. However, you can buy contra ETFs for a group of stocks to bet against the market or a sector, but not on a specific stock.

·         The following sectors are riskier: the drug, mine, bank (unless you know the quality of mortgages) and insurance sectors. A single drug approval could drive the stock price up by more than 25% in one day.

·         There is no perfect timing. Some stocks fluctuate a lot with no rational reasons. Some stocks may be manipulated.

·         Watch out for short squeezes when the short percentage approaches over 30%. In a nut shell, the stock is running out of shares to be shorted. As a result, it would rise in price especially on any good news.

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

-------

My e-book Debunk the Myths of Investing could save you a lot of money in investing. The above is one chapter out of 105 and some important chapters will not be included in the blog.
  http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html

Sample portfolio for the book.
  http://stockportfolios.blogspot.com/2013/03/welcome.html

(c) 2013 Tony Pow

Disclaimer. I'm not responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.