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.

The Hitchhiker's Guide(1) to the Liquidation

As I said before, nowadays making money is very easy, if you aren’t then government gives you some [Just Kidding]. The point is, comparatively with earlier generations, because of global economy and free trade and so many things make money available to everybody now. As long as, we have a decent education with IQ over 100 can get a decent salaried job for most of the people in this world [An idealist statement though]. Now we have money and how to manage it and how to spend it wisely and what to buy and what to avoid and where to invest and how to liquidate and rebuild the wealth is big questions. A common average human doesn’t know that hence we need a intelligent MBA grads to manage our wealth. The last decade’s extraordinary demand for a top notch business school MBA grades also because of we don’t know how to manage our own money. The downturn and economical instability also because of us, each individual doesn’t know how to manage it properly. All money going to one direction for a long time and then stops is the main reason for recessions, in other words we are putting all of our eggs into one box and let other’s decide what to do with that with the pool of money.

As far as I know people loosing money because they don’t know how to build a wealth and then liquidate it wisely at correct time and rebuild it. We average human tend to become greedy when we involve with money, we try to emotionally attached with it, and we don’t know how to treat money as a commodity and work with it as professional manner. In capitalism, liquidate an old business and rebuild a new a business is common one. I’m not here talking about a compulsory liquidation or some sort business related. Just how we manage our portfolio and how to sell stocks, assets, or other investments at right time to rebuild our wealth.

130 Years ago my great-great grandfather bought some land for Rs 200.00.Now the land value is Rs 2 million (9999% growth). Are we a good investor? I would say no, Indian stock market soars from index 1 to index 17,000(19999%) with in the same period of time because Indian stock market was created on around the same period when my great-great grandfather bought the land. Either my great grandfather or my grandfather should have been sold some of the land (liquidate) to reinvest with stocks. Imaging my inheritance amount would be Rs 200 Million [I’m not greedy just proving my point]. Let’s see how to liquidate and some important points at next post.

Technical never wrong but not always…

DOW surprised most of technical indicators, because of double dipping within 3 months span. The last November’s low (~7500 and S & P ~750) was considered as low of this bear market but now again DOW down for second time. Historical perspective now this recession/depression is compared with 1873 great-great depression. But history for just reference point we can’t take it as is. As everybody knows we are going through an unprecedented tough time of our life time.

Investor’s usually ignore main street’s money spending, stimulus plans, mortgage relief’s, they are very curious about how this government going to fix credit market. So far no body from new Mr. Obama’s administration detailed out some robust plan to fix credit markets other than some stress test.  May be they are still brainstorming how to’s and other matters. But investor’s point of view they want to hear a solid plan from new administration. One message from lawmakers is, if stress test failed on a bank, then the bank would be a candidate of nationalization, which creates panic among major bank’s stock holders.

DOW’s 7300-7500 is the low for this bear market. Why we are very confident about it? Still investors has money and money waiting in sidelines to come into wall street, the high run of Gold price is great example of investor’s confidence about investing. But obviously they are looking for a super duper safe investing. The saving rate increase, gold price increase are the signs of early recovery period as per top economists. But now DOW index is down further to 7365 and may go down up to 7200. But the point to remember is Bank of America, Citibank and JPMC are the component of DOW and they are now new eye of this hurricane. So we don’t need to look into DOW index for time being.

So this is good time to investing into stocks. The answer is yes, if we are looking for a long term investment option then it is a golden time but for short term it is not a good market, still there are lot of “grey area” especially credit market. The initial indications from new administration is not so encouraging because they are also still don’t know how to fix it, until everybody clear with how to fix the credit market, we can see unstable market here in U.S and all over world, hence investors keep on invest in gold, bonds and some safe havens.

Source:

http://www.bloomberg.com/apps/news?pid=20601087&sid=agapqPsrRIEY&refer=home

http://www.cnn.com/2009/US/02/20/economy.history/index.html

http://online.wsj.com/article/SB123487180665799141.html

Obama and Global Economy

All set for election and Obama leading in all the opinion polls. His last night solo presentation on major TV prime time slot was great. His vision and articulative views are great, he is a clear next generation leader. But one thing he is failing on is Global Economy, he has shown protectionism from the start of this presidential campaign. I thought may be, i’m monomaniac with “One Human One World(OHOW)” concept, that’s why i disappointed with his protectionism and all others are agreed with his views. So i have decided to check with other’s pulse for this matter. As usual, i started my research with real person opinions, first target was my wife, as soon as i asked the question, she refuted immediately “what’s wrong with that, first their own country people and then others”.

There is one more OHOW monomaniac like me across the country (California), we used to talk this kind of prescient matters a lot, i decided to call him, he also sounded like my wife, i felt like a thunder struck on my head. [Of course pun intended]. So the point is, everybody overwhelmingly supporting Obama without knowing his global economy policy. He used all the following rhetoric “outsourcing”, “foreign cars”, “protect our workers”, during his speech all the time, it is funny that he wants to talk with Iran leaders face to face but not liking imported fuel efficient cars from Japan and South Korea. I’m thinking that we are all shortsighted with current economy crisis, hence we want a change, our brain taken over by heart and forgetting logic here.

Since all are unable to fathom the issue, i decided to go with Google, just typed “Obama and Global Economy”, i was astonished with results. There are some results but none of them from trusted sources. 

Global economy (free trade) serves a better tool to trickle down wealth from top to bottom in other words rich countries to poor countries, and rich is already rich, they don't need any support but poor countries need rich countries support other wise they can't survive. Any ways, we have to wait and see who is going to win. 

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 2

There is important element to cover before buying stocks that is, reading the chart, by using simple moving average. This is straight forward and no brainier, but i’m not sure that this is correct, as per professional standard. Any way i used it for last 8 years and most of the time, it worked ;-)

For example, Apple stock, it is very hot stock right now and many small and individual investors want to buy it. In my opinion, Apple is paradise for long timers, meaning buy and hold for next 2-3 years, you might get more than 100% profit. So the question is, is it right time to buy? Let’s see the chart.

Step 1:
Go to following URL
http://finance.yahoo.com/q/ta?s=AAPL&t=1y&l=on&z=m&q=l&p=e50&a=&c=
To get there by clicking links, go to Yahoo.com -> Finance -> Enter AAPL -> Click on Basic Tech. Analysis link -> click 1 year -> click Moving Ave. 50 link

If you want more control, try Yahoo’s interactive chart and click Simple moving average from Tech. indicators drop down and leave 50 days as default value.

http://finance.yahoo.com/echarts?s=AAPL#chart1:symbol=aapl;range=1y;indicator=sma+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Step 2 :
The red graph line is smooth 50 days average of Apple stock for past 1 year. There you can clearly see that peaks and valleys. The blue one is day by day stock price variance for last 1 year.

Step 3:
Based on the chart, Apple’s stock’s high value is 180 and lowest value is 120. Now Apple’s price is 156.

Step 4:
There are 2 lows [120 and 140] and 1 high [180] and current moving ave. graph suggesting me that, Apple’s stock attained 2nd peak and ready to fall for 3rd low. I can point 3rd low is anywhere between 150-145.

Step 5:
It is good to start buying Apple’s stock for 150 and then complete all by 145. What i mean by start and complete here? There is the golden rule of stock buying, never buy all at once. Let’s say, if you are planning to invest 10k for Apple stock, first create 4 limit orders

2.5k for 150
2.5k for 148
2.5k for 146
2.5k for 145

This is like fishing, wait and wait for price drop and patience will prevail.

Now question is what will happen if the price not coming down and i waited for long time??, what is the time limit? i would say, daily check for market conditions, adjust your limit order based on that. I usually wait for 2 weeks to fill up one order and i think optimum time line is one month, having said that we carefully watched moving ave. charts. Since i’m not professional and i might read chart wrongly, to cover up that i usually wait for 2 weeks.

More tips:
1. You can’t find this kind of smooth peaks and valleys for old blue chips companies, because they offer generous dividends, hence stock price variance is almost nil. Good examples are GE and Altria (MO). GE offers 4.50% dividend and MO offers 5.50%. Altria is the stock to buy now, after Philip Morris span off, now it is good entry point now. GE, MO and PM are paradise for conservative buyers, since you can make 5.50% return on investment regardless of stock prices up/down. But most of the investors feel that MO is a sin stock, since it is dealing with tobaccos, but point to remember is no sentiments and emotions for investment business. If you feel that way, you can make some donations to cancer foundation with your profit or offer a gift to guys like me who quit smoking. ;-)

2. There are sometimes, even though chart suggested that stock is ready to fall, it may go upward for sometime. This is because of current market condition. In this situation, we can fill up 25% of our order by market order [buy it immediately] or adjust limit order price to upward.

3. If you are interested in one stock but not sure whether to buy or not, add it in your watch list and daily morning before market opens check the latest news, most of times 50 days SMA alerts might delivered from some professional.

Next post, bull and bear make money but pig always lose why? And how to stop lose like Las Vegas's bust style ;-)

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

Heat on Outsourcing

Outsourcing/off-shoring is the 21st century modern global economy trends. It is something, sharing some work with other partner or company or an entity, which perhaps located other country/state from the main business location. The main purpose of outsourcing is to increase finance utilization and get more things done with less money. The main driver of outsourcing is currency inequality between two countries. After 2001/2002, tech bubble burst this outsourcing trend increased to several folds and more and more companies wants to “share” their work with foreign entities.

After 6-8 years, outsourcing IT industry losing steam for the first time, this company’s stock price and value started plummeting. Why is that? This should not happen? Is there something fundamental wrong?

1. Big mistake with human resource: The main asset of outsourcing company is brain. Unfortunately, nobody can make brain “out of the box”. It is naturally embedded with each human. So human is the main asset of outsourcing companies. How soon a programmer/engineer grasping new design/code and how soon he/she converting into meaningful document and how soon he/she transfer the knowledge to their peers and how soon they can deliver a work is the fundamental success of an IT outsourcing company. They all are young smart brainier professional, but as soon as these professional crossed ocean, out of their main work location for on site projects, their touch with HR would be reduced, literally no HR policy. No body cares about them, several HR violations; nobody asks some basic humanity needs; they are out of sync with their company. As a result, they try to jump in to other companies, de-motivated and always looking for other opportunities.

2. Business or domain knowledge: Growth is the main ingredient for business success but at the same time, domain knowledge is the main catalyst for sustainable business success. Lot of time outsourcing companies wants to capture market, they make lot of moves, didn’t allow people to be in same domain and allow them to become master of that domain. The excuse would be, hire a lateral domain knowledge candidate for that position, but reality is, that lateral candidate would take lot of time to adjust with culture to provide some value, by the time competitor take all business.

3. Politics: Workplace politics is okay, as long as all politics are for positive purpose. But with in outsourcing companies, politics range from state, language, color, region, religion, direction, social status, history, geography etc. None of these are positives, all are negatives and unbearable and highly unprofessional.

Yahoo,Microsoft and Google

Again Microsoft and Yahoo deal drift away and Yahoo going to join with Google as planned before. I have no idea why Microsoft targeted Yahoo, it is beyond our comprehension, especially technician like me. Microsoft has brain, products, track record and mainly power, as friend of mine pointed out, Microsoft wants a big presence in bay area to directly compete with Google, so they targeted Yahoo. Microsoft can build a new software facility and hire scientists within 3-6 months in bay area to ramp up their presence. But I think Microsoft really self-doubting themselves about their competence against Google, again it is all beyond our comprehension.

Google's strength is cloud computing and Yahoo doesn't has one neither do Microsoft. I think Microsoft without cloud computing is biggest drawback moving forward. So without improving Microsoft's cloud computing capabilities, acquiring other big company will ends up in disaster. If Microsoft strategy is to just kill Yahoo products, so that they can become the only one competitor for Google, will not get support from public, media and technicians.

Optimism Vs Cautiously Optimism

These two words very often used in finance articles, particularly to describe investor’s thoughts about current market condition. I confuse with these and which context or situation we need to use these or follow these. In my mind, cautiously optimism was as equal to pessimism, which is totally unacceptable by capitalist’s thoughts. Capitalist and investors should not be pessimist, if they are then the whole progressive growth and world’s economy will melt like iceberg in artic.

But later on I realized that these two are equally same meaning but the main differentiator is time to take a decision. If an investor is “cautiously optimist” means they are not willing to take any decision soon, such as invest on one company’s stock, they are analyzing the situation very carefully and closely, exploring various options etc. Where optimism means we tend to take decision on the feet, we think that this is the right time to invest, don’t delay, go for it and seize the opportunity.

It is very hard to change the context between optimism and cautiously optimism in terms of thinking. It is all depends on how our “decision making skills” shaped up during the course of our life time. One of the hardest thing is our life is decision making, when to make decision, how to make, can I make decision based on my instinct or need an experienced people’s advice etc.

In business scenario, making decision is really tough. For example, latest fall of Wachovia and Bear Sterns. Both of these companies were very optimistic about sub prime market, they didn’t exercise cautiously optimism rather they want to make decisions on the feet. What happened now? The later made JP Morgan Chase rich by giving Manhattan skyscraper/ and their employees, clients for almost free.

Here is one good article about decision making http://edis.ifas.ufl.edu/he691. What I’m thinking about decision making are,

• We should not jump into conclusion based on newspaper articles, news clips and videos. Sometimes media’s would influence or test our decision making abilities.
• No decision is a bad decision – take a decision and move on whenever required.
• Family value and their inputs are the most influential factor of making decisions – I would say 90% of our decisions based on what is good for our family.
• Once you made a decision, stick with it - if it is reversible (in my mind, other than career decisions all are reversible) do it quickly, if not, continue with that, until you feel happy about it or search for happiness from it.

Bloodbath from Dalal Street to Wall Street.

Today early morning DJ future index fell almost 500+ points and NASDAQ index fell more than 100 points and all across world stock markets crashed. I would say it is a free fall. For example, Australia’s largest online broker firm CommSec site crashed due to high volume of transactions. Indian stock exchange BSE halted trading for 30 mins since the grid overloaded with 10 percent drop with in first hour of trading. Being flat world has one drawback of this kind of ripple effect particularly in finance market. All this fear and chaos happened because of US economy which is world’s largest economy (21% of world’s GDP share) going to slip in recession. At last today morning Fed cut its leading interest rate to .75 basic points to 3.50 to rescue US market. Otherwise we would have witnessed a free fall in Wall Street also.
But as an optimistic investor it is good time to invest some “investable”(means saving and profit from last year investments) money into stock market. It is good time for bargain hunters. We can pump 10-15% of our “investable” money into market now and wait and see for remaining, and increase 401k contribution and ESPP to a little high to accumulate funds/stocks at low price. If you are pessimistic, just get out of this market and wait for sunny summer days.