The following is real except the names are withdrawn to protect the innocent.
Dear Guru, I followed your advices 2 times and both made me money. However, the last time you're totally wrong and I lost a lot. What should I do? John
First the guru did good with 66% correct. Investing is about educated guesses. 51% correct can make you a lot of money (try black jack and craps). Even 50% can make you a lot of money if you bet more on winners and less on losers based on reward/risk.
Fisher, considered to be the father of modern portfolio theories, made several good predictions and made a fortune. However, he bet most in his last major prediction and lost it all. If John bet evenly, he is far ahead of Fisher.
The moral of this true story (that happens many times) is: Do not bet it all as nothing is 100% certain. Even with 99.99% sure, a black swan event could happen and wipe out your entire saving.
When some one tells me he makes millions of dollars in a bet and this is his only bet for a long while, it does not impress me except his good luck and he has violated diversification rules in investment. The only exception is the congressmen / women and corporate CEOs who trade with insider's info.
Friends ask me what to buy and when to buy. I try to avoid the answers like a politician. If they are right, they will not share the winning with me. If they are right, I would be blamed mercilessly. Silence is proven here to be golden.
Monday, January 9, 2012
Do not follow Cramer
The ones who make money are Cramer himself, his brothers-in-laws and the crew who know what he is going to recommend before the show.
I read an article a while ago that he did not do well in his recommendations - Cramer and his beneficiaries must cash in already before the herd.
Buy low and sell high is my game. Buy high and sell higher is a fool's game except when market conditions favor momentum - not today's with so many deeply valued stocks.
By law, advisers do not have to include dividends in the benchmarks like S&P 500 but his holdings can, so hence make him look better. Different rules for mutual funds.
Related links.
Herd theory.
No investor heroes.
I read an article a while ago that he did not do well in his recommendations - Cramer and his beneficiaries must cash in already before the herd.
Buy low and sell high is my game. Buy high and sell higher is a fool's game except when market conditions favor momentum - not today's with so many deeply valued stocks.
By law, advisers do not have to include dividends in the benchmarks like S&P 500 but his holdings can, so hence make him look better. Different rules for mutual funds.
Related links.
Herd theory.
No investor heroes.
Sunday, January 8, 2012
Refining Dogs of Dow strategy
Dogs of Dow is quite popular and even some mutual fund managers are using it. In a nutshell, you buy the ten Dow stocks that pay the highest dividends and repeat the process every year. It does not perform well in last decade except the last two years. The better performance of the last two years could be due to the recent mild bubble on dividend growth stocks as described in at least two WSJ articles. Hence, watch out when the bubble bursts.
When a strategy becomes headline, it will not perform due to the herd mentality. Hopefully we customize the strategy so we will not pick identical stocks as others.
I have my own Dogs strategy. I'll disclose the concepts here. One version has an average annualized return of 15% (12% appreciation + 3% dividend) from Nov. 1, 2000 to Nov. 1, 2010. Buy 5 candidates on Nov. 1 and sell them on May 1 next year. If you have a historical database, try it out and share your findings.
Refining Dogs of Dow:
1. You can include S&P 500, so you have 500 more stocks to choose from.
2. You can adjust the time between Dec. 1 and Dec. 15 (a little earlier is fine) to avoid the herd who follows the same strategy and performs the same task at around the beginning of the year.
3. For non-retirement accounts or you have short-term losers to offset, try to buy on Nov.1 and sell on May 1 to take advantage of this normally favorable period.
4. Sort the selected top 10 with positive earnings by P/E and buy the lowest 5. A value play.
5. Avoid the following sectors as their problems/values are not shown in financial statements: lenders (on the quality of mortgages), drug (generic is OK) and miners.
6. Check any major lawsuits against the companies.
7. Skip the short % ( = No. of shares shorted/Total floating shares) higher than 10.
8. When we're in the second year of recovery, use stop loss or watch your portfolio every week as it is closer to the peak of a market cycle. This is the riskiest time of the market.
It is a lazy man's stock picking and market timing. I bet it performs better than selecting stocks with a hundred of monkeys throwing darts at stock listings, termed as the so-called efficient theory. Some received Nobel prizes on the theories which are proven to be wrong. It shows how out of touch the Nobel committees were/are. Well, they gave Obama one for doing nothing and nothing to Uncle Deng who saved millions from starvation and moved China to second economy.
Related links.
The best strategy that works best.
Is dividend stocks better deal?
-------
(c) TonyP4 2012. Written in 1/8/12.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
When a strategy becomes headline, it will not perform due to the herd mentality. Hopefully we customize the strategy so we will not pick identical stocks as others.
I have my own Dogs strategy. I'll disclose the concepts here. One version has an average annualized return of 15% (12% appreciation + 3% dividend) from Nov. 1, 2000 to Nov. 1, 2010. Buy 5 candidates on Nov. 1 and sell them on May 1 next year. If you have a historical database, try it out and share your findings.
Refining Dogs of Dow:
1. You can include S&P 500, so you have 500 more stocks to choose from.
2. You can adjust the time between Dec. 1 and Dec. 15 (a little earlier is fine) to avoid the herd who follows the same strategy and performs the same task at around the beginning of the year.
3. For non-retirement accounts or you have short-term losers to offset, try to buy on Nov.1 and sell on May 1 to take advantage of this normally favorable period.
4. Sort the selected top 10 with positive earnings by P/E and buy the lowest 5. A value play.
5. Avoid the following sectors as their problems/values are not shown in financial statements: lenders (on the quality of mortgages), drug (generic is OK) and miners.
6. Check any major lawsuits against the companies.
7. Skip the short % ( = No. of shares shorted/Total floating shares) higher than 10.
8. When we're in the second year of recovery, use stop loss or watch your portfolio every week as it is closer to the peak of a market cycle. This is the riskiest time of the market.
It is a lazy man's stock picking and market timing. I bet it performs better than selecting stocks with a hundred of monkeys throwing darts at stock listings, termed as the so-called efficient theory. Some received Nobel prizes on the theories which are proven to be wrong. It shows how out of touch the Nobel committees were/are. Well, they gave Obama one for doing nothing and nothing to Uncle Deng who saved millions from starvation and moved China to second economy.
Related links.
The best strategy that works best.
Is dividend stocks better deal?
-------
(c) TonyP4 2012. Written in 1/8/12.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Thursday, January 5, 2012
Defining freedom
Freedom is a funny term. It can be defined whatever you want. Ask any Iraqi, you will get an honest answer that seems our effort of fighting and all the fallen heroes in the wars for their freedom is totally unjustified.
When my classmate was a child in Hong Kong, he wondered why you westerners fighting to improve his job conditions while it meant it was his only meal for the day.
In many cases, people prefer to live under dictatorship and/or being exploited. Your yardstick is good for your society, and not mine.
When my classmate was a child in Hong Kong, he wondered why you westerners fighting to improve his job conditions while it meant it was his only meal for the day.
In many cases, people prefer to live under dictatorship and/or being exploited. Your yardstick is good for your society, and not mine.
Lessons never learned about wars
Why we need a carrier that is driven by TWO nuclear power generators?
Why we need to increase our offense capability when our capability is more than the rest of the world combined? We've the capability to destroy the entire world many times.
Have we learned from Vietnam war (and from the French who failed before us), Afgan. (and from the Russians who failed before us)...?
If the Middle East wars is about oil, shame on us. If it is about modern Crusade, shame on those who misinterpret the religion teachings. If it is about our leaders showing their power, shame on them. If it is about our offense companies, shame on them. If it is due to the Jews controlling our congress, shame on them too.
If we sent the children of our leaders to the front line, we would not have any war. Wars produce orphans, single-parent families, families with disabled veterans physically and mentally... When they return from the wars, do they become heroes with medals costing $20 each or the burden of the society? Be your own judge.
Fighting for ideologies is silly. Fighting for others' freedom appears to be noble but it is really stupid. If they do not want to fight for their own freedom, why should we? Ask any Iraqi and get an honest answer. I rest my case.
The generation before mine suffered from WW2. The US have not really experienced wars in their home land and most US citizens do not understand the suffering from wars. Most of our new soldiers do not know what the Middle East wars are all about. We cannot rob their chances to enjoy their best time of their lives and be educated.
Without wars, we will have a prolonged bull market that will benefit all. We need to protect us from terrorists and our interests overseas. However, we need to calculate the cost/suffering/life lost and benefits like any investment or project, even it is not possible to appraise a price on a life.
Why we need to increase our offense capability when our capability is more than the rest of the world combined? We've the capability to destroy the entire world many times.
Have we learned from Vietnam war (and from the French who failed before us), Afgan. (and from the Russians who failed before us)...?
If the Middle East wars is about oil, shame on us. If it is about modern Crusade, shame on those who misinterpret the religion teachings. If it is about our leaders showing their power, shame on them. If it is about our offense companies, shame on them. If it is due to the Jews controlling our congress, shame on them too.
If we sent the children of our leaders to the front line, we would not have any war. Wars produce orphans, single-parent families, families with disabled veterans physically and mentally... When they return from the wars, do they become heroes with medals costing $20 each or the burden of the society? Be your own judge.
Fighting for ideologies is silly. Fighting for others' freedom appears to be noble but it is really stupid. If they do not want to fight for their own freedom, why should we? Ask any Iraqi and get an honest answer. I rest my case.
The generation before mine suffered from WW2. The US have not really experienced wars in their home land and most US citizens do not understand the suffering from wars. Most of our new soldiers do not know what the Middle East wars are all about. We cannot rob their chances to enjoy their best time of their lives and be educated.
Without wars, we will have a prolonged bull market that will benefit all. We need to protect us from terrorists and our interests overseas. However, we need to calculate the cost/suffering/life lost and benefits like any investment or project, even it is not possible to appraise a price on a life.
Political parties and the economy
Republicans are usually pro-business, but the democratic presidency has better track record for the market.
As for the stock market, the Dow index is up 56% (from 7,949 to 12,418) in the less than 3 years since the day that Obama took office. If you still collect unemployment or your house has been foreclosed, you're still in deep trouble.
The S&P500 performance under Republicans vs Democrats since 1926:
Annualized return under Democratic presidencies: 13.74%
Annualized return under Republican presidencies: 6.25%
Mitt could trigger a trade war with China, and we would be back to the recession.
The president's appointees for the economy are the ones to watch as they set up the policies. Today interest rate is not a factor as it cannot go much lower. The cut in military expenses is good for the economy.
The problem of two major political parties is they do not agree with each other, so they have to make too many compromises and waste a lot of time and effort. To illustrate, if Obama is re-elected, he will have a hard time to deal with the Congress that is controlled by a party opposite to his.
For a joke, click the differences between a prostitute and a politician.
----------
It is easy to measure how the market does during the presidency. However, it is not easy to measure the economy. Here is one effort:
Alan Blinder, the Princeton economist, had a great article in the NYT back on August 30, 2008. It pointed out that in the 60 previous years, Republicans held the presidency for 34 years and the democrats for 26. Growth in the economy averaged 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats. Professor Blinder pointed out a second fact: Over the entire 60-year period, income inequality trended substantially upward under Republican presidents but slightly downward under Democrats, thus accounting for the widening income gaps over all. Growth in inequality is an obvious drag on overall economic growth, for if the middle and lower classes don't have the spending power, growth in demand will lag.
As for the stock market, the Dow index is up 56% (from 7,949 to 12,418) in the less than 3 years since the day that Obama took office. If you still collect unemployment or your house has been foreclosed, you're still in deep trouble.
The S&P500 performance under Republicans vs Democrats since 1926:
Annualized return under Democratic presidencies: 13.74%
Annualized return under Republican presidencies: 6.25%
Mitt could trigger a trade war with China, and we would be back to the recession.
The president's appointees for the economy are the ones to watch as they set up the policies. Today interest rate is not a factor as it cannot go much lower. The cut in military expenses is good for the economy.
The problem of two major political parties is they do not agree with each other, so they have to make too many compromises and waste a lot of time and effort. To illustrate, if Obama is re-elected, he will have a hard time to deal with the Congress that is controlled by a party opposite to his.
For a joke, click the differences between a prostitute and a politician.
----------
It is easy to measure how the market does during the presidency. However, it is not easy to measure the economy. Here is one effort:
Alan Blinder, the Princeton economist, had a great article in the NYT back on August 30, 2008. It pointed out that in the 60 previous years, Republicans held the presidency for 34 years and the democrats for 26. Growth in the economy averaged 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats. Professor Blinder pointed out a second fact: Over the entire 60-year period, income inequality trended substantially upward under Republican presidents but slightly downward under Democrats, thus accounting for the widening income gaps over all. Growth in inequality is an obvious drag on overall economic growth, for if the middle and lower classes don't have the spending power, growth in demand will lag.
Tuesday, January 3, 2012
Our problems, solutions and implementations
This recession is the longest from my memory. Usually we have two to three years at most and then we recover. Some recent college graduates have been out-of-work for over 3 years. It could be all the stimulation, printing money, bailouts do not fix the problem. If we do not do the above, it could be either a deeper recession or a faster recovery. 2012 hopefully could be the year we finally recover.
US problems are easy to fix. I can think of many easy solutions, so the politicians who are hundreds times smarter than I must have many solutions already.
Identifying problems and finding solutions are the easy part, but implementing is hard as the agenda of all politicians is simple: Get reelected. They have to satisfy the special interest groups who finance their campaigns and the voters who do not want to bite the bullet.
To illustrate, why gun control is not an issue in both parties? You have to ask your congressmen/women how much money they receive from NRA.
I wrote the blog titled 'A nation of no-losers' to reflect the current state of our nation. It appears to be funny, but there is some truth in it.
US problems are easy to fix. I can think of many easy solutions, so the politicians who are hundreds times smarter than I must have many solutions already.
Identifying problems and finding solutions are the easy part, but implementing is hard as the agenda of all politicians is simple: Get reelected. They have to satisfy the special interest groups who finance their campaigns and the voters who do not want to bite the bullet.
To illustrate, why gun control is not an issue in both parties? You have to ask your congressmen/women how much money they receive from NRA.
I wrote the blog titled 'A nation of no-losers' to reflect the current state of our nation. It appears to be funny, but there is some truth in it.
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