The Hitchhiker's Guide (2) to the Liquidation

Here are the steps to become liquidate in layman terms.

For Starters
Save Money in to saving account -> After it grow 5K -> Move to a money market account -> After MM account Grow 10K -> Move 5K to Mutual funds(step by step) -> After Mutual fund grows 25K -> Move to Stock market (Remember diversify) -> After stocks grows at least 100K -> Invest in real estate

For Pros
Sell second home for gain -> Move 50% to again Mutual funds -> Buy an other home at upcoming places(like Idaho, Montana) full or partial down payment(or internationally) -> When Mutual fund grows some move into stocks -> Sell stocks at 50% gain -> Buy 3rd home some where at North Carolina or Texas -

For Retirees
Sell all home -> buy a home at Big Island -> move all 401K to money market account -> NO MORE LIQUIDATION.

It was easy for me to draw the above map but it is really very hard to progress. The main issue is, we are all prone to unexpected expense. But I believe a solid plan and use of latest technology we can avoid all. I’m a super user of Quicken since 2000, on a single click I can render number of reports and n number of “What if” scenarios. The meticulous planning and not emotionally attached to anything are the key for anything.

TGIF-No-SGIF

“Thank god it’s Friday” is famous and happy phrase but not now, for bull investor it is “Save god it’s Friday” from bears.  All bear investors hibernating in first 4 days of week and collecting all information (I don’t know where are they storing information, but bull know source and why) and dumping stock like right, center and left on Friday. This Friday’s sell offs are very well coordinated, bears coordinated from all over world, it was happening very early in the morning. Most of the sell off are out of panic and with panic these bears loosing logic and thinking power, just take all news as literals and getting more panic.

So for a smart bull it is good time to jump on, I don’t think so, this is tempting to jump in. Very low P/E ratio, major indexes lost almost 20% on average this month alone, all panic sellers are done with their selling (still they are out??), in other words bears are gone for permanent hibernating. All reliable technical indicators, fundamentals and theory, are showing to return to the market. For example, Google is selling at 21 P/E which is unbelievable and highly attractive now.  

We are having following positive factors.

• positive GDP growth so far (which is why we are not officially recession yet),
• very low oil price (comparison wise now oil $2.78 per gallon is almost free),
• second stimulus package (hopefully)
• narrow timeline to election (find some concrete answer about who will be next president)
• positive existing home sales(just starting to turn as green)
• ASEN influx of $80 Billion into market
• Dollar value increasing against all other currencies. (Especially Indian rupees now Rs 50 per dollar first time in history, hence most of my Indian friends tempted to go back India, but Indian government don’t want to us to come because they can’t handle more population…just kidding).

The sole issue now is, some banks are run out of money to lend again to consumers. The money rotation stagnates and people unable to borrow money.  But I think it will time to reenergize credit market again, the $700 Billion bail out package would take some time to come into main stage. But real remedy should be government buying unsold house from buyers and hold it for sometime or help them to refinance toxic mortgages.  

But here I want to follow blatantly the 2000-2002 market pattern, which is S & P index fell to 700-750 points with economy was deep recession. We are not there yet at the current situation. Now S & P holding at 870 points, still 170 points to go, which is right time to jump in with aggressively towards stocks not mutual funds or ETFs?

2 chewing gum, 2 happy

(I should post this yesterday but due to NFL game i was not able to finish it, because my voice has been heard and now people stop selling stocks at low price)

Last 2-3 days people were extremely trepidation. Like any other average joe, I’m also loosing money from my 401K, ETF portfolio and Unit linked insurance etc. Oops…that really hurts. Guys and Gals it is not end of world, don’t press the panic button. Just have 2 chewing gum, I highly recommend Trident and chew until get tired. Just kidding…trying to be sang-froid.

I agree that bankruptcy by any company is very bad but that’s not end of everything. I think short sellers utilizing this situation to make more profit. One analyst said that this is not a usual bankruptcy like airlines, this is end of capitalist. I believe he just tries to cover up his short sell.

What happens to this market is an open secret. As usual, Fed Reserve started this mess, they started tighten interest rate to cool off inflation after 4 years. Due to series of interest rate hikes, home mortgage rate went up that obviously soften housing market and things start negatively impacted to housing market. Early days only government based banks, after strict review of loan requirements, was able to provide mortgage. So low income and bad credit history people can not get any loan but now due to market reform, any bank can give mortgage, which fuels heavy competition and various loan schemes such as adjustable rate, interest only, are created.

This high risk loans were bundled up to create mortgage based bonds and sold thru market which usually gives high yield than traditional bonds. After 5 years, this subprime and ARM interest rates went up that obviously the reason for defaults and foreclosures.

Now government’s backed off from Lehman’s bail out is showed that there are several more mess out there. Until Friday evening, nobody knows that Merrill also in trouble and AIG. There is some more negative news we have to deal with, I guess.

Even though we are very negative side of this mess, here are some positive points

1. There are millions of millions of people around the world able to find their sweet home because of this sub prime. Even though some of them filling foreclose, most of them able to keep their home, and working hard to keep up the interest rate.

2. This was the real test of market, banks and brokerage firms withstand this fall are great place to invest and get prosperous.

3. This is really a chance for us to revisit our beliefs that too much competition is good for consumers. But here both consumers and company affected a lot.

4. Inflation now becomes history and oil price coming down very faster than expected.

5. People like McCain will not buy more than 1 or 2 house, which would save some trees, it make some green concerned people happy.

As a note, it is very emotional that a company’s headquarters destroyed in Sep 11, 2001 attack but survived but not able to make it till the end.

Source :
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1812
http://www.iht.com/articles/ap/2008/09/15/business/NA-US-Lehman-Brothers-Profile.php
http://money.cnn.com/2008/09/16/news/companies/barclays_lehman.ap/index.htm?postversion=2008091617

Taking off again

Freddie and Fannie rescued action by government was considered as end of “tenebrous” period. The final lingering issue of Lehman also will be resolve and then we are fine. So are we learned any lesson from this episode? Are we ready for next boom cycle? This time it won’t be technology, real estate, banking, energy and transportation. What else we have now to boom? We tried all and there is nothing left for us to try and boom. But don’t be pessimist; there are still lots to do in this mysteries world.

Next big thing could be from agriculture to health care revolution. We have to feed our growing number of population and to invent more life saving medicines. Next growth, (i believe) will be for a good cause like all others, such as end poverty, reduce killer diseases etc. There are many drugs patent expire on 2010 onwards that helps other countries to produce and use the medicine, fuels some growth.

Technology side there won’t be any uplift, because technology revolution is now subsiding and what we have now is superfluous. Apple did a good thing on last event ("lets rock") that they didn’t introduce any new products, rather focused on new features and stable updates for iPod, iPhone etc. SaaS and cloud computing, Web 2.0 will continue to flourish in coming years.

From 2001 episode we learned how to not greedy about stocks, buy and sell more regularly, and 2006-2008 episode we learned how to not greedy about real estate. In future, if there is a burst that is all because of our greediness, just an admonition.

How to make money from stock investment Part 5

Return on Investment (roi) is the key for all investment. On average, stock market gives 10-15% roi for any year. My personal goal is 50% roi for any given year. Did i achieve that first time? Answer is no. I couldn’t make it, in fact my first investment year, it was 2001, was massive distress. I lost almost $6,000 on one stock and total lost was almost $12,000. I used Las Vegas roulette style to make money from stock market, result is big lost of money. I was novice at that time. But i never quit, until today i invest some portion of my money into some investment, i never ever accumulate money in saving account.

I believe each one is different, making money from investment depends on one’s personality. If someone is pessimist in nature, how can he/she make money from stock investment? For those, real estate is good option. If someone is optimist and flexible then stock market is cash cow for them. As i said, always remember nuclear war can only make stock market to disappear, in that case, we won’t survive either.

What worked well for me after bad start, DIVERSIFICATION. Diversification is the single success element. Here i’m going to separate case by case, basic investment options,

Case 1: $10,000 Start, Goal 15-25%
For those who want to start with $10,000 for investment at 15-25% roi, Mutual Fund is best option. I believe, we need at least $25,000 to start stock investment. I used INGDirect for mutual fund investment, their international fund was really awesome and US small cap also great. But there are many mutual funds available, just carefully review hidden cost. Vanguard also good but i don’t know about service and hidden charges. But INGDirect no service and hidden charges.

http://www.ingdirect.com/
http://www.vangurad.com/
http://www.morningstar.com/ (Mutual fund research/analysis site)

Case 2: $25,000 Start, Goal 40-50%
5k per stock for 5 stocks. The stock selection is really important. Diversification is key. I started with stocks, but i did feel that stock is not working as per our [single investor] expectation. The main reason is hedge fund’s aggressiveness. I switched over to ETF and it is really good, already well diverse and same or better roi as stocks.
For current scenario, i think following are good diversify portfolio.

1. Walmart (WMT) – Second round stimulus package talk already started and upcoming holiday season.
2. Energy Conversion Device (ENER) – Renewable energy – i think this one is coming down to 55-60 good bet to take position.
3. Apple (AAPL) – I don’t want to tell anything about it. I can see $200 near future.
4. Chardan South China (APWR) – again an energy company. I might add ENER or APWR. APWR has added advantage that it is US based and China market concentrated.
5. Central Euro Distribution Corporation (CEDC) – alcoholic, sin stock but no emotions. Good balance sheet and long term growth is good [my stock subscription keep on sending this one to buy] but wait for little downward.
6. GE/MO/PM – I might choose one stock from this blue chip line up, these provides high dividend. I might go with GE because i don’t want to add one more sin stock.
7. SIRI – I want to take some risk on this stock. Anticipating upcoming holiday season, merger with XM and upcoming football season.
8. Qualcomm Inc (QCOM) – one of my fav. stock and price now good for take charge. 53-50 is good entry point. Choose either Apple or QCOM.
9. AMR – Airline, risk either AMR or SIRI.

So i added 2 multinational companies with bellwether US retail and energy stock with 2 risk taker stock. I stay away from oil and defense, more US based stocks for now.

Case 3: ESPP
One of the main kicker of my portfolio is my previous 2 company’s ESPP stocks. The point to remember is, ESPP stock already discounted for 15% before delivered to us. I always invested full allowable salary deduction to ESPP stock options.

Case 4: Real Estate investment
Even though, i’m always lean towards new school thoughts, some time my dad’s old school thought also makes lot of sense. Home, sweet home, everybody should own a home. Home is not a wanted rather it is needy thing. The second home can consider as investment, if we are able to pay at least 50% down payment. Based on my research, i bought my second home at Bangalore India 3 years ago, with 100% down payment[pay as build model, ofcourse i sold all 100% ESPP, 100% mutual funds and 50% of Stock/ETFs]. My first inherit home is on my home town NagerCoil, India [I love that place]. I have no words to say the growth of India’s real estate market.

I used all 4 cases and invested $10,000 mutual funds, $25,000 stocks/ETF, and 15% of my salary to ESPP. Last 6 years, my average roi is 50-60% [excluding real estate] consistent.

At this time, i want to talk about US real estate market. US real estate market is saturated. We have lot of time to own a home here. Who is smart? Paying $2200 for mortgage [property tax + PMI + high utility cost] or paying $1100 for rent, almost same location and same space?

Enjoy, use my guide and let me know if you have any questions. I will help all of you to beat inflation and make you rich or richer [for those who are already rich] or richest (for those who are already richer!!!).

How to make money from stock investment Part 4

Happy Friendship day. “Every person is a new door to a different world” a famous quote. So be friend with everybody, learn, enrich, and collaborate with each other peacefully and meaningfully until they prove otherwise.

Bull and Bear are one’s perspective about stock or overall market condition. Bull means full of optimism, take charge now. The bulls usually drive market to acme. Bear means cautiously optimist, don’t want to take decision now, slow down and usually drive market to nadir. For further reading
http://ibloggergeek.blogspot.com/2008/06/optimism-vs-cautiously-optimism.html http://www.sastwingees.org/2007/08/24/optimistic-or-pessimistic-which-is-better

The point to remember is, we should transmute bull mode or bear mode time to time. An investor who plays always bull or always bear means he/she tend to lose money and called pig. So how to become bull or bear based on conditions? Prediction is the key element of transmute. Here are points to predict market well before to take charge or wait in sidelines.

1. Always follow bellwether company news and their announcements. For example, DOW 30 index companies are bellwether to their industry. A caveat from bellwether company means, we can sell their competitor stock without hesitant.

2. Visit http://www.intrade.com/, for prediction market update. Yes folks, we are living extreme capitalist era, we can buy/sell prediction also. As per prediction trade currently most of the investor’s thinks Obama becomes president and before Dec 31st US congress lift complete ban on offshore drilling.

3. Express/collaborate our predications with our friends, even though, that are foolish or utter blunder. This would help to enhance our prediction or get more pointers. For example, I expressed one prediction almost 2 years ago, when I read it again, I wrote something important and today people are talking about it.

4. There is information spread across all over place in net. Just we need to connect each point to get clear picture.

Now, I’m predicting something, at end of it, I will be bull for one stock.
Step 1:
From intrade.com, it is most likely that Obama might be next president.

Step 2:
From TV talk shows, news articles, and http://www.barackobama.com/issues/energy, I know that he is against nuclear power, clean coal energy etc. He is big favor of Go Green concept.

Step 3:
From Barack Obama site, “Obama will invest $150 billion over 10 years to advance the next generation of biofuels and fuel infrastructure, accelerate the commercialization of plug-in hybrids, promote development of commercial-scale renewable energy” I think renewable energy is now Hobson’s choice.

Step 4:
Go to http://www.ishares.com/ and search renewable energy.

Step 5:
Click on S&P Global Clean Energy Index Fund and browse top holding from main fund screen. I’m now in favor of ETF so I might stop here and try to buy some funds from ETF trading. If you want to buy a stock, please continue.

Step 6:
Click on view all holding click and see all the stocks. I like a stock ENER from the list. Because I had a position on this stock, this is solar cell manufacturing company and why buys somebody using it rather buys a manufacture.

Step 7:
Go to Yahoo and follow the http://ibloggergeek.blogspot.com/2008/07/how-to-make-money-from-stock-investment_28.html tech. analysis and creation of limit orders.

How to make money from stock investment – Part 3

Sukumar raised an important question from last post, about when technical chart doesn’t work and pitfall. I explained by using Freddie Mac [FRE] example. I think i need to spend some time here about FRE and decision making process when technical and market conditions are not favorable to us.

The 5 year, 50 SMA [Simple Moving Average] charts for FRE is scary one for us. The chart just fell south from 60 to 7, over last 7-9 months. The investor who followed basic ‘double armor’ rule, that is, one limit order with 15% below buy price and other one with 50% above buy price, are not losers, in fact lot of people made good amount of money from FRE for long time.

Now it is million dollar question whether to buy or watch FRE, we don’t have favorable technical analysis and market condition. can we take risk? If yes, how much…

FRE is a government based enterprise and it will always take care by federal government, no matter what happens to it. Latest fall was obvious that US real estate melt down and foreclosures. So the fall would be well predicted by experienced investors a long ago, i would say last summer itself.

In these conditions, we have to use best case and worst case analysis, this is very good exercise before buying stocks.

Best Case Analysis
1. President Bush today signed Home mortgage relief law (http://news.yahoo.com/s/ap/20080730/ap_on_bi_ge/mortgage_relief_q_a_5), which is favorable to almost 400k home owners, who are in the blink of foreclosures.

2. FRE business depends on long term treasury bonds also, a long pause of interest rate cut by Feb reserve and strong dollar are good for FRE.

3. Continue sliding oil price and slightly improving labor market is also good for future home sales and FRE.

4. New government and both McCain and Obama are in favor of consumers and ready to make some more laws and relief’s.

5. Iraq war winding down and all factors are pointing to withdraw from Iraq slowly from next year, and budget deficit may improve next year, if Obama become president.

6. FRE can raise money by liquidity.

Worst Case Analysis
1. First home mortgage write off was estimated as 100 Billion and then 500 Billion and now 1 Trillion. Heck..it is lot of money. It is 8% of US GDP. At this point of time nobody knows whether we reached bottom or not.

2. All foreclosures will impact FRE directly or indirectly, because they are monopoly, market share is 70% of mortgage businesses in US, i mean they can’t share profit lose with anybody other than government. But point to remember is, US fundamental is capitalist, how long government provides this socialism support.

3, New government, new laws and war are long way to go to become fully take effort and time line is indefinable now.

Based on the above analysis, i would recommend wait and see for FRE. If we have say 3-5k or so, sitting in extra cushion, i think we can take some risk with FRE now.

How to make money from stock investment – Part 1

Caution:Stock price movement is totally unpredictable by anybody. Please use it at your risk.

15/50 Rule: From various investment suggestions, I used 15/50 rule, which is sell if price goes down 15% or sell if price goes up 50%. As an individual investor, we have to minimize our loss at same time take off some profit.

For example,
If we buy Apple (AAPL) stock for $100, create two limit orders as soon as we bought the stocks,

1. Sell all if price is $85
2. Sell all if price is $150

This is very straightforward; this works most of the time, but when the market is volatile, we may want to use advance feature called stop-limit order.

Stop limit order is same as limit orders but more precious control than limit orders. Stop-limit order executed as per order, first stop on one price and then execute limit on one price.

We can use the above same example, because Apple stock price now very volatile nowadays, hence 15/50 rule may not work well. Better solution is stop-limit order for this scenario.

Same as above example, we can create 2 stop limit orders,
1. Stop at $85 and sell at $80. (This gives more margin of $5 drop)
2. Stop at $150 and sell at $160 (This gives more margin of $10 gain)

So, how to determine the stop sell prices, my advice would be read the chart. By using simple mathematics, we can assume peaks and valleys by using charts and simple moving average.

Oil Price – where are we heading?

August contract expired as of yesterday, New York crude future trade started for September contract from today onwards. Officially summer travel season ends on September and we are moving towards low demand months of oil consumption. Oil price slides to $127 (and today $124), that is, almost 20% drop from peak, that means, a prolong bull run have been ended. The main factor of oil drop is President Bush’s executive order of lifting ban on offshore drilling, which was approved by most of the US people.

I personally liked Al Gore’s 10 year, 3 trillion dollar investment to transform all energy need from oil to electricity. His views from Sunday’s “Meet the press” really good, but caveat is, he want to do it aggressively and on one go, no baby steps. He is not willing to join any future government position and doesn’t want to advice future president also. I think he want to convenience US business people to make his plan become reality.

There are several talks and brainstorms about future energy needs. This all take years to achieve. But my opinion is, we can’t see a substantial oil price drop and inflation would shoot up year by year for infinite time line.

My dad usually say, “Make more money, spend less, save more, accumulate money in saving account or under mattress”, I was always against to it. New school thought is “Make more money, spend high, invest more in stocks, bonds, mutual funds”. The old school thought is now obsolete. The money in saving account yields 0.5% growth rate per year, which is well below current inflation rate. In order to beat inflation, at least we have to make 5%-15% growth depends on where you live, 5% for developed nation and 15% for developing nation.

When ever I start discussing with my friends about stocks and investments, they always replied with negative tone. Most of them are thinking that stock investment is same as Las Vegas casino, which is not true always, but sometimes yes, when you are not prepared to face the market. One thing I learned from stock investment is, we have to work hard to find out which company to invest, market trends and follow-up with our portfolio at least 8 hours per week.

Greedy: Greediness is first enemy of investments, we can’t expect, invest $100 to grow $1000 within 1 month. On average S & P index yields return on investment of 10-15% per year.

Emotions and sentimental: There is no emotions and sentimental when we try to invest and make some money. Logic and reasoning are the best for investments. Unless there is a nuclear war between US and Russia/or China, we are all safe and sound. A good investor never presses panic button rather he/she buys when others sells out of panic and sells when others are buys.

Collaboration: Regularly communicate with other investors, and learn from others. But i think based on our interest we have to select stocks by ourselves. Make mistakes and learn from mistake.

Learn about new investment options such as ETF, FOREX, Commodity future trading.

Categorize investment style as “aggressive”, “moderator” or “conservative” and based on that we can start invest. In my opinion, normally a good investor starts young age 21-30 would consider themselves as aggressive and 31-45 moderate and above 45 conservative. Based on that we can allocate our funds to various investment options. Aggressive is 100% on stocks. Conservative is 30% on stocks, and 40% on mutual funds and remaining would be in govt. funds.

Resource: There are millions of sites, guide, TV shows and resource for investment, learn them. Before getting into market, you have to be master of investment strategies.

http://www.mymoney.gov/ - The best and unbiased information about stock investments and mutual funds.
http://www.sec.gov/investor.shtml - Security and Exchange commission for accurate and detailed information.
http://www.marketwatch.com/ - Wall Street Journal network, all news and commentary and latest market information.
CNBC TV Show – Mad Money by Jim Cramer and http://www.thestreet.com/investing-a-z/index.html

Wasting of Powers.

      As everyboby knows India has man power and US has money power. Are they using it properly? The answer is big NO. US banks are loosing money even a basic home loans collection, such a big country and finance power house of entire world, struggling to collect their own money from own people, as a result all over the world chaos and confusion in banking system, finally US government had to interfere into banking system to clear up mess. What a bad example set here? So you can do any mistakes and finally government will rescue you, rather than changing law to strict bank loan outflow and monitor system to regulate banking systems. This is all because US has money power hence wasting something from it doesn't matter now.

     In other side of world, India has man power and India is wasting man power on agriculture, which is, highly unregulated. The whole agriculture contributing 18% of country's GDP but 60% of population working in agriculture field. So almost 40% of indian people not contributing anything to Indian economy, even though they are working very hard. Here India can waste something since they have lot of man power, as long as everybody getting food. But the problem is future growth of India, India has to convert every people's work directly towards development otherwise we can't achieve projected growth in coming years. But India is always slow in transforming, but once changed, it would be solid and robust. 

   As compare this two great wastes, money waste is something recoverable and it won't hurt much as compare with man power waste. So if you have something more than enough than what you need, you might waste it since it doesn't matter much now.

Microsoft bids $45 billion for Yahoo

Checkmate to Google. From CNN "Microsoft Corp. made an unsolicited $44.6 billion cash and stock bid for Yahoo on Friday, a deal that could shake up the competitive and lucrative market for Internet search."

Here are more informations.
Fun Facts

• Yahoo and Microsoft working on this deal since late 2006, their top executives met at undersea, deep inside Amazon forest and Sahara desert to keep this top secret.
• If the deal goes thru, Microsoft said that they will keep Yahoo as a separate entity and will not interfere it's operation. But based on Microsoft's history and creditability they might sunset Yahoo products just to promote their own MSN after 2-3 years. So stop using Yahoo Mail, Flicker and other Yahoo service from today.
• Microsoft also said that they would announce a bid soon, after Google stock hit bottom like Yahoo, and they are saving money for that by adding more bugs in Windows Vista OS.

Real Facts

• The timing of this announcement is really boosting for some pessimistic who suffering from recession blue in wall street. (from Marketwatch)
  
• This M&A fuels other companies to buy their competitors because Microsoft can foresee market ahead of time compare with their peers. (from CNNMoney)
  
• If you love graphs here is detailed analysis of MSFT,YHOO and GOOG and clearly MSFT+YHOO is next EXXON+MOBILE.
  
• Antitrust is always an issue for this kind of deals, but Microsoft lawyers knows that how to resolve it because they have lot of experience with it.
  

What's Next?

Fed reserve cut interest rate again and this is second cut in last 10 days. The stimulus package was approved at congress and heads it's way to senate. So all the move has been done to curb the recession. This time all are acting very fast and timely manner. Because a recession is inevitable in coming months if not a slow down. As always Fed reserve released a statement after meeting, this time something is different that they didn't confuse people with complex sentences. From the statement, "The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully." So question is how come inflation is still an issue because we are expecting a slow down, perhaps this was added because of one member opposed the rate cut. So it is looks like we would be again on track for economic expansion, that is, positive GDP growth before fall, well before election.

Real Estate burst or natural phenomenon.

The way of life should be includes homeownership. Homeownership is each individual’s dream and must have one. But the current trend thinks me twice to make home buying decision. The matter of fact is already 69% American household are homeowners so we have 31% potential buyers out there to join this American dream. But last week I did read an article in Chicago Tribune that 38 Million American living insecure food intake range, which means, 38 Million American living very low income and they are a generation away to join homeownership club. If you subtract this 38 Million people from potential buyer list then we have only 20% of potential buyers.The future house market will be driven by upgrades, like town home owner moves into single family house and single family house owner will move into some bigger house. So on and so forth…..Here now real winner is whoever already sold house at higher prices in last year peak.