Saturday, January 30, 2016

On Barron's

Barron’s kept track of their recommendations in 2015. Their predictions from bullish articles were not that well but their predictions from bearish articles were fine. However, there were 146 bullish picks and only 17 bearish picks. If you picked stocks and betted evenly according to Barron’s, you lose big time.

They compared the performance of a stock to a specific benchmark. For example, you should compare Apple’s performance to a technical index (or an ETF simulating that index). It is really comparing apples to apples (no bunch intended) instead of comparing Apple to the general market (i.e. S&P 500 to most).

I disagree another comparison using stock’s total performance (i.e. appreciation + dividend) to S&P 500 without dividend. It is legal but not correct. During a flat market such as 2015, the dividend of about 1.9% for the S&P 500 index makes a huge difference. 

For example, the stock appreciates 1% and the S&P 500 also appreciates 1%, and hence it does not beat the market. Say the stock pays 2% dividend and so is the average of S&P 500 companies. The stock does not beat the market but it claims it beats S&P 500 by 200% as illustrated below:

  Beat S&P by = (3% - 1%) / 1% = 200% where 3% = 1% appreciation + 2% dividend  

This is how many investment newsletters fool us. Personally I love Barron's. At least 2015 was not a good year for their stock pickers. I do not want to speculate why the best minds in our industry cannot beat the market. It also reminds me of the benefit of top-down investing: invest when the market is not risky, and identify the best sectors and then the best stocks within the sector.


For more of my reasoning, check out the book described next. It has 800 pages (6*9) for $9.99. It could be the best $10 you ever spend.

The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.  

Friday, January 29, 2016


Will use this blog to keep track of the uranium.

Articles:  20150918  
Forbes article

Price chart. From 60 to 27 to the current 35. Should have bought it when it was at $27. Bad news for the industry (with Japan's problem) could be good news to investors. A lot of gut for contrary investing.

I have an interest on uranium for the long-term investing. China with 20 or so nuclear generators on-line by 2020 would boost the price of uranium. I have never invested in this commodity and at this stage I am gathering info. and trying to convince myself to pour some money on uranium. It seems little risk for the commodity. Mining could be a different story as they need to survive with the current depressed prices.

Update 2/1/16. Take a pass on this one now. The only ETF with over 100M is URA. It comprises of many miners. Will review it again in a year.

Trading Apple

·         I recommended AAPL (the only stocks in my book Scoring Stocks) at $55.72 (split adjusted) in April 19, 2013, the date my book Scoring Stocks was published.
·         I recommended selling AAPL in the next article (Apple, the company). In my blog, I asked the world to dump AAPL on 2/26/15 when APPL was at $132. It was also in a SA InstaBlog that was deleted. I should have shorted AAPL.

Today the price seems to be right I bought at about $94 with expected P/E at about 9. However, the market is still risky and I may unload it.

30th anniversary of the Challenger disaster

In order to make the shuttle project economically attractive, the decision makers had to dump the rocket technology in delivering satellites. Big mistake: no exit strategy when the shuttle did not work.

Now we dumped NASA. Another mistake. It also destroys the dreams of science and maths. students. Now, no one is left behind except the smart ones.


Ironically China could deliver the satellites for the US at the least cost and very reliably (they have no reported crash after the US satellite crash using the Chinese rocket long time ago. The problem was detected by a U.S. company and since then there is no crash.

China could not build a reliable bicycle in 1950. During the witch hunt of communists, the father of Chinese missiles went back with the working knowledge and their space program is progressing like a turtle and guess who is the winner in the turtle and hare race.

Xerox will be split

Apple and Microsoft copied a lot from Xerox's PARC including Window, mouse... without paying any royalties. Xerox should be split into two parts: bad management and good research.

Pillars of success

Toyota and VV both wanted to pass GM. They disobeyed at least one of the pillars of success that apply to people but also to companies.

They are hard work, persistency, innovation, honesty and social responsibility. Why luck is not one? Most successful folks do not attribute the success or lack of it to luck.

Successful folks also are humble to learn how and why others are successful. Successful folks make mistakes but they try hard not to repeat mistakes.

That's why I'm not too successful as I violate many rules from time to time and I never learn. LOL.

Wednesday, January 27, 2016

Hedge fund

Hedge funds have not been doing well since 2009 as there are nothing to hedge in a rising market. A few are doing great. Learn what and why they are doing great. The reasons are obvious by now. The successful ones unloaded energy stocks and Chinese stocks after the crisis but before the big losses. Some correctly shorted these problem sectors afterwards.

However, I still advise not to buy hedge funds for the average investor: 1. The better ones are not opened to new investors or ask for a king's ransom . 2. On the average (including the closed hedge funds), they're not doing good after the high fees. 3. Even the good one last year could be a bust this year as they're betting high. Examples abound.

To make money, you need to depend on yourself. To start, play simple market timing. Buy value stocks when the market is not risky. Be patient. Evaluate your bought stocks every 6 months or so and act accordingly. Following these simple 'techniques' (or common sense), you should at least beat the market (or SPY) in the long run. Proven and being practiced by many successful retail investors among us.

For more of my reasoning, check out the book described next. It has 800 pages (6*9) for $9.99. It could be the best $10 you ever spend.

The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.

Tuesday, January 26, 2016

Global Economies as of 1/2016

When I look at the East, Europe is burning. When I look at the West, China is burning. I’m still playing my mandolin (actually not looking at my statements from my broker). The majority of the global economies are connected. When one suffers, the rest suffer too. Let me review some economies briefly.

The U.S.

I have to postpone the secular bull market prediction to 2020 or even later. The market for 2016 is risky. The election year is the second-best year for the market statistically. I do not bet on this one as there are too many negatives. The only bright point is the Fed may postpone interest hike to reduce the risk of this market. In addition, we have produced a lot of jobs for the last four years even their median wage is far lower than the one in 2007.

I bet the market will be correlated with the economy finally next year. They have not correlation since 2009 due to the excessive printing of money. Obama did NOT save the economy as no one can by simply printing money. However, it creates more debts for the next generations to pay.

The tool has been copied all over the world and it is no longer effective. Our strong USD (less as of 5/2016), our huge war expenses, strict regulations, high national debts, generous welfare, taxes and entitlements dampen our competitive edge. The strong USD would reduce the profits of our most global companies. A heavy blow would be legalizing the illegal workers by politicians who want to buy votes.

China is suffering economically. Given enough time, China’s market-driven economy will work. The current downfall drags down many resource-rich countries such as Brazil.  After a taste of capitalism, no Chinese want to return to communism, which discourages folks to work hard – who will when everyone is paid the same?

Chinese are the greatest copycats. If you believe it is that simple to copy, there should be many copycats beside China or the U.S. invites the Chinese to copy. Japan, Korea and even the US (not paying Hitler for using their missile technology…) had been copy-cats at least once in moving to a developed country.

We need to protect our inventions and intellectual properties. I am not convinced they can copy our top-secrets such as the top jet fighter that easy. If they do, there is something wrong with us. Cybersecurity should be our priority for the corporations and the government. When the copycat improves their products and sells them at about ¼ our price, we are hard to compete.

Chinese has been dominated the world in almost everything for the last 20 centuries except the last three. It has saved them a lot by copying and stealing. Today, most of their big projects have a clause to transfer technology. They’re willing to pay handsome fees for technologies they want such as high-speed train from Siemens. Many companies including the U.S. give out the secrets which may be paid in large part by the U.S. tax payers to China for market access. Most of China’s military weapons imports are from Russia and Russia needs the cash to improve their weapons.

Japan is declining due to the ageing population and the poor relationship with China. Contrary to popular belief, India’s demographics do not help. The growing population with a lot of youths is consuming all the resources that are already proportionally small.


It will be hopeless for at least another year. Euro is a good concept especially for tourists. In reality, it does not work. There are too many free loaders such as Greece taking advantage of the unified currency and foreign loans. The influx of Syrian refugees is a big burden. Tens of thousands will help to reduce their labor costs but not a million of refugees. It is hard for the Catholics to co-exist with Protestants (evidenced by Ireland), so I cannot know how the Christians co-exist with the refugees with most are Muslims.

What should the we do

·        Not legalize the illegals.
·        Cut down entitlements.
·        Reduce taxes (both corporate and personal).
·        Reduce the role of the global policeman.
·        Invest in cybersecurity.
·        Think like a terrorist in order to fight terrorism.

The reality

Politicians will stay away from most of “What should we do” as they would hurt election. We have record-high exodus of corporations and the rich due to high taxes.

Today are we threatened by Vietnam of being a communist country? If some country does not like how we treat the minority, should they send soldiers to invade us? If their country men do not want to fight for their freedom, why we risk our young to fight for them?

With the state-of-the-art weapons, we still cannot win in the Middle East wars.  Re-think our options. One option is let them resolve their conflicts.

As of 2/2016, investors should be cautious on the market. However, we may have over-reacted to the problems in China and the falling oil price. Oil is usually in the opposite direction of the economy. However, today it flows in sync with the market due to Saudis and Russia’s dumping of oil via the Sovereign Wealth funds (SWF) to rescue their economies.

The U.S. unemployment is at 5% (virtually full employment from the government’s yardstick) although the median salary is still not comparable to the one in 2007. In 2007, the unemployment is huge. The recession could be spared at least for now as long as the oil price and the unemployment are stable. 


For more of my reasoning, check out the book described next. It has 800 pages (6*9) for $9.99. It could be the best $10 you ever spend.

The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.

I challenged to have the best-performed article in Seeking Alpha history, an investing site, for recommending 5 or more stocks in one year after the publish date. The concepts for that article are discussed in this book.

Friday, January 22, 2016

Chinese lost its dominance in the last 3 centuries, but

"reluctance to provide advanced weapon systems due to Beijing’s illicit reverse engineering activities". Beijing's reverse engineering is actually pretty licit.

Despite media kerfuffle no-one has brought a suit against China's adaptation of foreign technology that I'm aware of. I cannot even recall a single official complaint. The reason the author believes, above, that China is behaving illicitly is because he read it in our media. But it's not true, for several reasons.

First, the Chinese have been the world's leading engineers for centuries. Cambridge University Press reminds us in its 27-volume 'Science and Technology in China', that Chinese engineers invented practically everything long before the West. China capitalizes on this native ability and invests billions in university and corporate grants for indigenous technologies.

Second, China spends big bucks licensing foreign intellectual property. For example, they shelled out $11.4 billion for High Speed Rail technology from companies like Siemans. Siemens professes to be delighted with the deal.

Third, foreign governments and corporations give their technologies to China. Strange as it seems, General Electric gave China all of its X-Ray and digital imaging technology. GE handed over a century of US taxpayer-sponsored research performed by thousands of US taxpayer-educated engineers. Why? Market access: “Over the next five years, China will be GE Healthcare’s most important growth market,” Rachel Duan, the China unit’s president and chief executive officer, said in Beijing. Another multi-billion dollar giveaway was GE's Avionics.

Fourth, China knows that stealing stuff is a long-term loser and the Chinese are long-term thinkers. To settle ambiguity around who owns what or what an export license specifies, they hold annual government-to-government compensation meetings. These are not legalistic; they're designed to air grievances and put a fair figure on any harm done. ("Why not?" as a Chinese friend said, 'We've got the money'). The last such meeting I heard of was in 2011 and the Russians walked away with $4+ billion. No doubt they were still grumbling, but they weren't suing. And they've sold billions more to China since.

I'm sure we'll hear more stories from our media about China's stealing stuff but China already leads the West in a dozen critical technologies, like supercomputing, and in future technologies – judging by its rate of international patent applications. Eventually the complaints will turn to grumbling and the grumbling will die away. We've already started licensing technology from the Chinese, anyway.

Monday, January 18, 2016

Oil price

My predictions:

Prediction #1. For the year, it will be in $25 to $40 per barrel. Personally I do not wait for $25 as it may never materialize.

 - Global economies have not  recovered.
 - Iran's oil will add more supply.
 - OPEC cannot trim supply.

Prediction #2. For years later, it will return to $50 and on its way to $120.

 - Global economies will recover (they always do). Do not know when.
 - OPEC will trim supply.
 - Supply will be reduced due to the current cutting down on drilling and exploration.
 - Global population growth.
 - Inflation (about 3% per year).
 - Historical price. In this decade we had oil price below $30 and then it went up to $120. Adjusted for inflation, the current price is down from the then $30.
 - As a rough estimate (depending on individual oil fields), it takes about $50 to extract, market and exploration one barrel of oil (i.e. the cost of goods). It is better to shut down the oil field at today's $30 range. OPEC cannot cut due to the payments to loans on many on-going ventures.

It is a supply and demand play.

It could also be a case of commodity dumping and the U.S. may try to protect its own energy industry – you hear it here first.

The Loser: OPEC. They tried to cut the price to bankrupt the shale energy ventures. You do not want to shake a baby too hard or drop a big stone on your own toe. Some countries may be able to profit from $10 per barrel. It is like spending all your money today with nothing left for your old age and your next generation. They are stupid but cannot be that stupid.  Many lose the jobs in energy fields.

The Winner: Investors who buy at low price now and wait patiently for the long term.

We may benefit from low gas prices. Airlines benefit too if they have not hedged on fuels or are forced to buy at fixed prices from foreign countries. However, the stocks tank with the fall of oil price, so the saving in driving for most is not worth it.

Some still argue that oil price will go to $10. If it does, I will keep on buying. As from today's $28 to $10, you lose about $18 or about 65%. However, it has the potential to go back to $120 that would be more than 400% return from $28 and 1,200% return from $10. If it happens, thank me for that. I'm buying OIL, an ETF (ETN if you want to be accurate) that is supposed to float with oil price.  Ignore the weekly fluctuations due to speculations by traders and look for the long term.

Update as of 2/8/2016: Barron’s predicts the price will fall to $20 by April, 2016 and return to $55 by year-end of 2016. Buy OIL when it falls again and do not panic to sell. If the prediction is right, one can make over 100% in 6 months.

Usually falling oil price would benefit the market in general. However, falling too much as today is not good for the economy. Usually the market is opposite to the oil price. Today it is an exception due to the oil producing countries including Saudis and Russia dumping foreign equities to meet their obligations. China cannot build storage fast enough. They need the oil as they're blessed with polluting coal but not with oil even oil is about 5% for generating electricity). I recommend China to buy the future of n years at y price. This will resolve the current fluctuation and bring back the market not to correlate with the oil price.

For more of my reasoning, check out the book described next. It has 800 pages (6*9) for $9.99. It could be the best $10 you ever spend. If you had acted on last Monday when this post was available, you many have gained 14% in 5 days. Partly luck and partly sound research.

For more of my reasoning, check out the book described next. It has 800 pages (6*9) for $9.99. It could be the best $10 you ever spend.

The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.

I challenged to have the best-performed article in Seeking Alpha history, an investing site, for recommending 5 or more stocks in one year after the publish date. The concepts for that article are discussed in this book.