We have a discussion on how expensive is Netflix. LinkedIn could be more obvious than Netflix. Here are my thoughts.
* Reward / Risk ratio. If the probability is the same to move up a stock by 30% and move it down 50%, it is overvalued by 20%.
* The current P/E is 60 and the average for last 5 years is 30. Most likely it is overvalued by 50%. P in P/E is usually the expected earning. It is better fit to predict the future performance of a stock in general than the past data which is 100% accurate.
P/E has better meaning and easier for comparison such as to bank CD rate or AAA Treasury Bill if it is reversed E/P (i.e. earning yield EY). In addition, you do not have to consider negative earning in searching stocks.
* The fools who do not learn from the high P/E stocks in 2000 will part their money fast.
* When the market favors momentum (vs value), it is ok to buy stocks with prices higher than the intrinsic values by a small percentage. In long term, the prices will come back close to their intrinsic values.
* Buying such an expensive stock is like buying a hot dog cart in NYC for $100,000. He will sell many hot dogs, but the return of the investment is peanuts.
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Shorting is risky.
You cannot short in retirement accounts. Even with the best analysis in shorting Netflix, you can still lose a lot of money. You can lose more than 100% esp. when the herd is your opposite side. You need to pay cost borrowing the stock and the dividends.
(c) TonyP4 12/25/2010
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Tuesday, May 24, 2011
Monday, May 23, 2011
Munis for investment
Unlike Federal government, states and munis do have to balance the budget and we are getting more cities bankrupt as previously predicted. We have to bite the bullet somehow otherwise we can never service our growing debts. We're running out of suckers like China to lend up more money.
Most likely it will happen as followed.
* States will not bankrupt, but muni bonds will lose a lot of value. QEn will be used to rescue the state. Property and state taxes will be if not already raised.
* State/muni bonds together with Federal bonds will have the junk status, so in the future it is hard to raise money that are needed for any project.
* Cut state employees. It is easy to cut about half of the state workers and you will not notice any loss of service (as most of them work short hours and are not motivated under the union umbrella). I just get sick of the routine 'discoveries' how few hours they work as reported by our newspapers while we've about 18% real unemployment rate and we've folks begging for work.
However, the firemen, policemen, and teachers should be paid fairly.
* Then cut their pension and increase retirement age. Most state workers have just a little less than their regular salaries when they retire at a young age. Most big companies do not have pensions now.
* Cut the entitlements/benefits that encourage folks not to work like benefits to teenage mothers, no more free medical care for illegal’s... All expenditures
have to be a fair percentage of our GNP not how much we can borrow.
We do not need large government, but lean and mean government to provide us efficient services. All those taxes are not good for the economy and businesses (how can you compete with those foreign countries with minimal taxes). Without business expanding (not government expanding), we do not have real jobs.
-------------
Now, we need to set up a law to require the federal government to balance budget and not to be the world policemen which we cannot afford.
Joke of the day. Sell Alaska with Sarah P. as a required clause not a bonus to China. Sell California with the big-mouth governor to Brazil
(c) TonyP4 2/26/2011
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Most likely it will happen as followed.
* States will not bankrupt, but muni bonds will lose a lot of value. QEn will be used to rescue the state. Property and state taxes will be if not already raised.
* State/muni bonds together with Federal bonds will have the junk status, so in the future it is hard to raise money that are needed for any project.
* Cut state employees. It is easy to cut about half of the state workers and you will not notice any loss of service (as most of them work short hours and are not motivated under the union umbrella). I just get sick of the routine 'discoveries' how few hours they work as reported by our newspapers while we've about 18% real unemployment rate and we've folks begging for work.
However, the firemen, policemen, and teachers should be paid fairly.
* Then cut their pension and increase retirement age. Most state workers have just a little less than their regular salaries when they retire at a young age. Most big companies do not have pensions now.
* Cut the entitlements/benefits that encourage folks not to work like benefits to teenage mothers, no more free medical care for illegal’s... All expenditures
have to be a fair percentage of our GNP not how much we can borrow.
We do not need large government, but lean and mean government to provide us efficient services. All those taxes are not good for the economy and businesses (how can you compete with those foreign countries with minimal taxes). Without business expanding (not government expanding), we do not have real jobs.
-------------
Now, we need to set up a law to require the federal government to balance budget and not to be the world policemen which we cannot afford.
Joke of the day. Sell Alaska with Sarah P. as a required clause not a bonus to China. Sell California with the big-mouth governor to Brazil
(c) TonyP4 2/26/2011
#####
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, May 22, 2011
Preparing for a correction
First we need to define a correction: it is a temporary dip (about 5 to 20% down) but not a recession or a double-dip recession that will drag on longer and lose more than 20%.
1. Accumulate cash. I just halt buying any stock and have been selling stocks for several weeks as of 5/19/2011.
2. Prepare the buy list. It is based on:
a. the good (from my analysis) stocks that perform reasonably well,
b. the stocks that have performed very well even they're not classified as good stocks,
c. stocks in my previous buy list that have lost a lot of value - very careful here as they could go to 0, and
d. IVE, commission-free from Fidelity, if you cannot find enough stocks to buy.
My logic is that if they performed well and plunged due to correction, they will climb back. One's opinion.
3. Buy contraETFs - place 3% less than the market prices.
4. Sell covered calls for some stocks I already own.
This article will serve as a preparation list for future corrections.
----
I also check the % they lose due to the correction. The more they lose, the better buy they can be. Again, one's opinion.
I've been right many times than times wrong in predicting a correction. I was wrong last time anticipating a correction. The recent best year is 2009 when I got about 80% return in my largest account. Every time there was a correction in 2009, I tapped into my house credit line and paid back after the correction. It is risky and I do not recommend leverage to any one.
The last anticipated correction had not been materialized. I missed some gains, but it is better to be safe. Market timing is not a science and market is not always rational.
There will be about 3 corrections a year. You cannot predict every correction correctly. However, you need to prepare for it and act accordingly. It is better to have a plan than no plan at all. In the long term, it pays off.
----
Status.
5-26-2011. Have over 30% in cash. The market has been down by only 2%, so my prediction is currently beating the folks with 100% in cash. I count ContraETFs as double cash. Sold two covered calls.
6-1-11. About 40% cash. Sold about 5 covered calls. 50% is my target for now to Nov. 1.
6-7-11.
Off my accumulating cash phase by about 2 weeks to achieve 50% cash.
1. I count ContraETF as 2 times for cash, but it should be 3 times.
2. The market has been down about 5% for last 5 weeks. It is now can be classified as a mild correction.
3. Enter a lot of buy orders. They're about 5% to 12% less than the market prices. Hence, I do not believe some to be executed unless there is a big drop.
4. 'Sell in May and go away' works so far.
5. June is usually the worst month. However, this is the third year of presidential election cycle and is usually a good month. Commodities should always be down by this period.
6. Most likely, politicians will find away to increase debt ceiling as no voter wants to bite the bullet.
7. Will take a look at the bank stocks which have fallen a lot. They are still risky but quite good valued.
7-1-11.
The good news:
All expired covered calls net me with cash without selling the stocks.
USAP was bought for a good profit.
The bad news:
The rally started and continues. It is still a risky market as EU has intensified their debt problems with the 'fixes'. Will start maintain 30% cash and continue regular trading.
Glad I did not move to 100% cash as some did. The market never is rational.
(c) TonyP4 2011. Written: 5/19/11. Updated: 6/7/11.
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
1. Accumulate cash. I just halt buying any stock and have been selling stocks for several weeks as of 5/19/2011.
2. Prepare the buy list. It is based on:
a. the good (from my analysis) stocks that perform reasonably well,
b. the stocks that have performed very well even they're not classified as good stocks,
c. stocks in my previous buy list that have lost a lot of value - very careful here as they could go to 0, and
d. IVE, commission-free from Fidelity, if you cannot find enough stocks to buy.
My logic is that if they performed well and plunged due to correction, they will climb back. One's opinion.
3. Buy contraETFs - place 3% less than the market prices.
4. Sell covered calls for some stocks I already own.
This article will serve as a preparation list for future corrections.
----
I also check the % they lose due to the correction. The more they lose, the better buy they can be. Again, one's opinion.
I've been right many times than times wrong in predicting a correction. I was wrong last time anticipating a correction. The recent best year is 2009 when I got about 80% return in my largest account. Every time there was a correction in 2009, I tapped into my house credit line and paid back after the correction. It is risky and I do not recommend leverage to any one.
The last anticipated correction had not been materialized. I missed some gains, but it is better to be safe. Market timing is not a science and market is not always rational.
There will be about 3 corrections a year. You cannot predict every correction correctly. However, you need to prepare for it and act accordingly. It is better to have a plan than no plan at all. In the long term, it pays off.
----
Status.
5-26-2011. Have over 30% in cash. The market has been down by only 2%, so my prediction is currently beating the folks with 100% in cash. I count ContraETFs as double cash. Sold two covered calls.
6-1-11. About 40% cash. Sold about 5 covered calls. 50% is my target for now to Nov. 1.
6-7-11.
Off my accumulating cash phase by about 2 weeks to achieve 50% cash.
1. I count ContraETF as 2 times for cash, but it should be 3 times.
2. The market has been down about 5% for last 5 weeks. It is now can be classified as a mild correction.
3. Enter a lot of buy orders. They're about 5% to 12% less than the market prices. Hence, I do not believe some to be executed unless there is a big drop.
4. 'Sell in May and go away' works so far.
5. June is usually the worst month. However, this is the third year of presidential election cycle and is usually a good month. Commodities should always be down by this period.
6. Most likely, politicians will find away to increase debt ceiling as no voter wants to bite the bullet.
7. Will take a look at the bank stocks which have fallen a lot. They are still risky but quite good valued.
7-1-11.
The good news:
All expired covered calls net me with cash without selling the stocks.
USAP was bought for a good profit.
The bad news:
The rally started and continues. It is still a risky market as EU has intensified their debt problems with the 'fixes'. Will start maintain 30% cash and continue regular trading.
Glad I did not move to 100% cash as some did. The market never is rational.
(c) TonyP4 2011. Written: 5/19/11. Updated: 6/7/11.
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Anticipating a correction
Today is May 19, 2011. The market has been up and SPY is up by about 9% YTD. Both opposite camps on this correction have convincing arguments.
I have been selling stocks several weeks ago and move most Annuity positions to money market fund (Energy and Commodity sector funds to Health Care before the crash). My total cash is 25% and am still selling. I sold most stocks at 5 to 10% higher than the market prices. Hence, even there is no correction I'm making a handy profit for the stocks I sold and it is a good insurance policy when I see risk in the market.
Next week or when I have about 30% cash, I may play the 'buy one and sell two strategy' betting I can spot stocks better than others. I will sell the stocks I buy right away for a small profit.
* Arguments for no correction:
- QE3 will not be materialized (and gold, oil will not rise by a lot) due to the debt ceiling.
- Corporate profit is still rising.
- The economy is improving.
* Arguments for correction
- QE3 will not be materialized and no money to stimulate the economy and the stock market. Contradictory with above argument!
- The market is taking a breather.
- Slim chance for no 'stay away in May' for two consecutive years
- Global problems from China, EU, Japan, N. Africa.
- With tightening margin requirements, commodities, oil..., speculation buys will be reduced (good for the long term).
The above is a summary of what experts said. I do not do any research (as they're already available from the web), but summarize their opinions, select what make sense to me, and act accordingly.
I choose the middle road. Prepare for it as below but move stocks gradually to cash at higher prices. If I'm 90% sure, I will not move 90% of my stocks to cash as I may have 10% wrong.
Click here on how I prepare for this correction.
(c) TonyP4 2011. Written: 5/19/2011. Updated: 6/1/2011.
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
I have been selling stocks several weeks ago and move most Annuity positions to money market fund (Energy and Commodity sector funds to Health Care before the crash). My total cash is 25% and am still selling. I sold most stocks at 5 to 10% higher than the market prices. Hence, even there is no correction I'm making a handy profit for the stocks I sold and it is a good insurance policy when I see risk in the market.
Next week or when I have about 30% cash, I may play the 'buy one and sell two strategy' betting I can spot stocks better than others. I will sell the stocks I buy right away for a small profit.
* Arguments for no correction:
- QE3 will not be materialized (and gold, oil will not rise by a lot) due to the debt ceiling.
- Corporate profit is still rising.
- The economy is improving.
* Arguments for correction
- QE3 will not be materialized and no money to stimulate the economy and the stock market. Contradictory with above argument!
- The market is taking a breather.
- Slim chance for no 'stay away in May' for two consecutive years
- Global problems from China, EU, Japan, N. Africa.
- With tightening margin requirements, commodities, oil..., speculation buys will be reduced (good for the long term).
The above is a summary of what experts said. I do not do any research (as they're already available from the web), but summarize their opinions, select what make sense to me, and act accordingly.
I choose the middle road. Prepare for it as below but move stocks gradually to cash at higher prices. If I'm 90% sure, I will not move 90% of my stocks to cash as I may have 10% wrong.
Click here on how I prepare for this correction.
(c) TonyP4 2011. Written: 5/19/2011. Updated: 6/1/2011.
#####
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, March 16, 2011
Why US so rich and China so poor?
US is rich due to: 1. Very high resources (oil, mineral, farm land...) per capita, 2. Welcoming immigrants (actually all are immigrants once except the few natives), and 3. Geographic location isolated itself from WW2.
US is declining, but it is still #1 in many areas by many measures.
China in last 250 years is poor due to: 1. Less resources per capita, 2. Semi colonization from the West/USA/Japan about 250 years ago, and 3. Poor governance in Mao's era. To be fair, Mao had contributed a lot to China.
Even if it may be #1 in GNP in our generation, GNP per capita which is more important to me is just the average.
Basically US is resource rich per capita. China has about 4 times the population of US, but US's arable land doubles that of China. GNP per capita has similar disparity.
It could be that a civilized nation like China, India, Greece, Egypt, and Italy has extracted too much national resources through out her long history. US has been 'discovered' and populated only in last hundreds of years. Even with limited history, US influences today's world in technology, music, movie, military... more than any of the described civilizations.
China is improving. when you compare the HSR, airports, infrastructure, you can easily see China is catching up and in many cases passes US. It is a matter of time that US will wake up and concentrate in the economy and end to be the world policeman.
China is a long way from the Tang period when Chinese had the highest living standard/culture/science compared to the rest of the world. At one time, China wore fancy clothes made in silk and lived in well-built houses while the westerners wore animal skins and lived in caves. When we do not improve, others will catch up and pass us.
China has been dominant in last 16 (some argues 17) of the last 20 centuries. For the last 3 centuries, they're down until the last 30 years, but they are waking up and will roar and shake the earth as Napoleon predicted.
Judging from the progress and the education, I do not believe it will take more than one generation for them to catch up. They also learn the tough lessons on defending themselves from foreign invadors (Brits, French, Russia... and Japan), understanding the world (missed the last industrial revolution started in Britain), governance... They also have a determination to succeed to a more prosperous country.
Along the way, they will have problems and I do not bet against them as many past problems have been fixed.
The joke of the century: the richest country (US ) borrows money from the poorest country (China at one time).
The world is getting smaller and we should achieve a better world without trying to be #1.
(c) TonyP4 2010. Written in 2/05/11. Updated in 7/10/11.
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
US is declining, but it is still #1 in many areas by many measures.
China in last 250 years is poor due to: 1. Less resources per capita, 2. Semi colonization from the West/USA/Japan about 250 years ago, and 3. Poor governance in Mao's era. To be fair, Mao had contributed a lot to China.
Even if it may be #1 in GNP in our generation, GNP per capita which is more important to me is just the average.
Basically US is resource rich per capita. China has about 4 times the population of US, but US's arable land doubles that of China. GNP per capita has similar disparity.
It could be that a civilized nation like China, India, Greece, Egypt, and Italy has extracted too much national resources through out her long history. US has been 'discovered' and populated only in last hundreds of years. Even with limited history, US influences today's world in technology, music, movie, military... more than any of the described civilizations.
China is improving. when you compare the HSR, airports, infrastructure, you can easily see China is catching up and in many cases passes US. It is a matter of time that US will wake up and concentrate in the economy and end to be the world policeman.
China is a long way from the Tang period when Chinese had the highest living standard/culture/science compared to the rest of the world. At one time, China wore fancy clothes made in silk and lived in well-built houses while the westerners wore animal skins and lived in caves. When we do not improve, others will catch up and pass us.
China has been dominant in last 16 (some argues 17) of the last 20 centuries. For the last 3 centuries, they're down until the last 30 years, but they are waking up and will roar and shake the earth as Napoleon predicted.
Judging from the progress and the education, I do not believe it will take more than one generation for them to catch up. They also learn the tough lessons on defending themselves from foreign invadors (Brits, French, Russia... and Japan), understanding the world (missed the last industrial revolution started in Britain), governance... They also have a determination to succeed to a more prosperous country.
Along the way, they will have problems and I do not bet against them as many past problems have been fixed.
The joke of the century: the richest country (US ) borrows money from the poorest country (China at one time).
The world is getting smaller and we should achieve a better world without trying to be #1.
(c) TonyP4 2010. Written in 2/05/11. Updated in 7/10/11.
#####
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, March 4, 2011
Rare Earth
China has the right to reduce rare earth export to its advantage, just like OPEC controlling oil. China has been giving a free ride to the world at the expense of its environment.
China uses it as a weapon against the dispute with Japan and/or other countries. Despite the mutually beneficial trade, Japan has been brutal to China in the last 250 years. The role in Opium Wars and the criminal acts in WW2 are just some examples. The two A-bombs should be dropped on the imperial palace, not for the innocent folks.
With the restriction of importing weapons from US, should China do the same in restricting the rare earth that helps US weapons?
Rare earth elements are available in many parts of the world. They are not mined due to the cost and the environment damages. It is about time China cares about its own environment and charges its minerals as much as the market can bear – it is a free market after all.
All the companies in mining these minerals will enjoy appreciation in the short term. However, it is the riskiest investment by now as we do not know what is the next move by China.
Chinese want to use this strategy to improve foreign investment and advantage in its industries that use these rare earth like hybrid cars and turbines. WTO cannot accuse China in limiting export of these rare earths as there is no such precedent.
China should and should charge these rare earths at 10% below the closest competitors. If they are more than 10% less, the local governments will step in to protect their industries and/or take actions.
China has at least 3 years before these foreign mines are ready - as of this writing some mines on rare earth are ready now. By then, China will decide the prices again based on whether they want to capture the rare earth market and/or their products that use these rare earth elements.
(c) TonyP4 3/8/11
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
China uses it as a weapon against the dispute with Japan and/or other countries. Despite the mutually beneficial trade, Japan has been brutal to China in the last 250 years. The role in Opium Wars and the criminal acts in WW2 are just some examples. The two A-bombs should be dropped on the imperial palace, not for the innocent folks.
With the restriction of importing weapons from US, should China do the same in restricting the rare earth that helps US weapons?
Rare earth elements are available in many parts of the world. They are not mined due to the cost and the environment damages. It is about time China cares about its own environment and charges its minerals as much as the market can bear – it is a free market after all.
All the companies in mining these minerals will enjoy appreciation in the short term. However, it is the riskiest investment by now as we do not know what is the next move by China.
Chinese want to use this strategy to improve foreign investment and advantage in its industries that use these rare earth like hybrid cars and turbines. WTO cannot accuse China in limiting export of these rare earths as there is no such precedent.
China should and should charge these rare earths at 10% below the closest competitors. If they are more than 10% less, the local governments will step in to protect their industries and/or take actions.
China has at least 3 years before these foreign mines are ready - as of this writing some mines on rare earth are ready now. By then, China will decide the prices again based on whether they want to capture the rare earth market and/or their products that use these rare earth elements.
(c) TonyP4 3/8/11
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Defending China on Intelligent Property
You may be surprised US was the intelligent property violator. US copied/stole ideas from the west without paying any royalty in the colonial days. Even at the end of WW2 US did not pay royalties to Germany in using the atomic bomb technology.
There are phases of a country moving from undeveloped to developing, and then developed country. Their major characteristics are listed. One's theory.
Phase 1. Low labor cost. Copy/steal. Low-quality consumer products.
Phase 2. Moving up the value chain. Good infrastructure. Higher quality.
Phase 3. High-end products. High quality. Innovative. Protect intelligent property rights.
China is moving from Phase 2 to Phase 3 now. Around 16th century, about half of the inventions and their derivatives were from China and no one paid royalties to China. This is the time when China was in Phase 3 relative to the rest of the world. After the semi colonization about 250 years ago, China was bankrupt and moved back to Phase 1.
China has intelligent citizens to be innovative and could churn up intelligent products like Facebook, Google... However, as long as there is no law in protecting IPs, they will not be materialized. It may take about 10 years (hopefully less) for China to protect IP.
------------
Should IP be protected in developing countries?
Most citizens in developing countries cannot afford to buy DVDs, software..., so there are no real heavy losses to Hollywood, software providers...
New drugs are copied by China and India illegally and also distributed to poor countries. Haitians and most Africans cannot afford to buy the drugs at the asking prices. Should we let them die? No, we can treat them as charities to developing countries.
(c) TonyP4 2/1/11
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
There are phases of a country moving from undeveloped to developing, and then developed country. Their major characteristics are listed. One's theory.
Phase 1. Low labor cost. Copy/steal. Low-quality consumer products.
Phase 2. Moving up the value chain. Good infrastructure. Higher quality.
Phase 3. High-end products. High quality. Innovative. Protect intelligent property rights.
China is moving from Phase 2 to Phase 3 now. Around 16th century, about half of the inventions and their derivatives were from China and no one paid royalties to China. This is the time when China was in Phase 3 relative to the rest of the world. After the semi colonization about 250 years ago, China was bankrupt and moved back to Phase 1.
China has intelligent citizens to be innovative and could churn up intelligent products like Facebook, Google... However, as long as there is no law in protecting IPs, they will not be materialized. It may take about 10 years (hopefully less) for China to protect IP.
------------
Should IP be protected in developing countries?
Most citizens in developing countries cannot afford to buy DVDs, software..., so there are no real heavy losses to Hollywood, software providers...
New drugs are copied by China and India illegally and also distributed to poor countries. Haitians and most Africans cannot afford to buy the drugs at the asking prices. Should we let them die? No, we can treat them as charities to developing countries.
(c) TonyP4 2/1/11
#####
Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
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