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.

Bull Ride

Definitely bulls are out there but hid to come out because of continuous sober news from recession hit market place. Yesterday’s a simple memo from top bank official made the bulls out of hidden places. The bull market extended to world markets and today also. So the million dollar question is, are we out of woods? In my opinion, no we are not yet. Still some companies want to cut cost during Q2 and Q3 of 2009 and housing market is not finding enough buyers to stabilize market and foreclosure not yet completely done.

The top level, first line of investment professionals are out of woods for now, this is exactly happen when we are at bottom or close to bottom. First indication was, oil price didn’t touch psychological barrier of below $30 and bullish FOREX dollar value and gold price/U.S Treasury bond value up. These all are indication of bullish mood slowly returning to market. U.S employer’s cut almost 4.4 million jobs, if we use 20 jobs save 1 million calculations, U.S companies going to save $220 billions in coming quarter plus the various cost cutting could save other $200 billions. So future earning per share going to improve a lot, stocks will look like lot of cheaper and it will be viable option than Oil, Gold, and Treasury bond investment. We are all set for prolong bullish market from Q3 2009 and overall economy from Q1 2010.

But as Warren Buffet said don’t believe technical nowadays, it is very hard to plot future graph and predict this market. Jon Stewart taking direct hit with Jim Cramer about his predictions. But if we believe the same business contraction and expansion cycle pattern repeated 18 times since 1872 including 2 great world wars and great depression, what is difference at this time?

Source:

http://online.wsj.com/article/SB123676922949993593.html

http://www.cnbc.com/id/29592831

http://www.huffingtonpost.com/2009/03/10/jon-stewart-slams-jim-cra_n_173738.html

DOW : Below 7000

Good way to start March madness. Now it is time to buy and read “Even Buffet isn’t perfect”, he is one of the reasons to sink DOW below 7000 mark. AIG is other reason for today’s melt down, they lost 60 billion dollars during Q4 2008, which means they lost each day 652 million dollars (I did count on thanksgiving/xmas holidays and 92 day per Q4 calculation). This is really hurts, now AIG is 77% government organization, U.S tax payers has significant amount of stake on AIG. Actually Credit Default Swap is unregulated $60-40 trillion industry hence losses from AIG are not surprising and more to come. The U.S government should concentrate on AIG and Citigroup for now, they are the one required special attention.

DOW now trades below 7000 which is 1997 level and S&P trades at 1996 level. The positive point of view is, we have once in a life time opportunity to buy stocks at 11 years backdated price. Imagine that we are in a time machine and that takes us to 1997 to buy as much as possible backdated priced stock. But the question is, can we wait more? So the time machine takes us to back to 1992 or 1988 or even 1982. It is very hard to predict and it perhaps stops here. Any way, this is lucrative market for long timers, especially technology stocks are really trading at low level, they are taking hit just because of they are in U.S stock exchange.

The consensus is, DOW could go down to 6400 because of series of divided cut from blue chip companies. Actually we shouldn’t obsess with day by day market fluctuation. Stock markets are leading indicator of economy health for foreseeable future. Now market trades with Q3-Q4 of 2009 expectation, hence it is clear that recovery is not at sight during 2009. But as soon as, spring started/after tax period, we can see some bull market, get ready for firecrackers folks.

As a side note, tomorrow is U2’s new album “No Line on the Horizon” release, enjoy the songs.

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

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 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

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.