Entries You Missed

Monday, September 11, 2006

I’ve wanted to get into stocks for a long time, but never really had the financial muscle to dabble. Now thanks to the concept of “Dollar Cost Averaging” and opportunities to buy fractional shares at some online discount brokerages, I decide to jump in. I am more of a buy-and-hold strategist though won’t hesitate to sell if distress signals go off on a stock.

I do some research on stocks and exchange-traded funds (ETFs), set up my ‘fundamentals’ and Portfolio tracking spreadsheets and am ready to go.

Tuesday, September 12, 2006

The folio debuts with two stocks and three ETFs:

Procter & Gamble (PG) 20%
Microsoft (MSFT) 15%
Silver ETF (SLV) 15%
Natural Resources ETF (IGE) 25%
International Stocks ETF (EFA) 25%

PG: Other than its good fundamentals PG is a hedge on those annoyingly expensive Gillette Mach3 and Fusion blades I shave with

MSFT: Who wouldn’t hold MSFT?!! It has zero debt and is a global giant in a high-margin sector

SLV: My knowledge of the precious metals industry and the fact that Warren Buffet has stashed up on silver get me into this ETF. But I hear gains on Gold and Silver investments are taxed as collectibles at the max rate of 28%, rather than 15% on dividends and capital gains, so I won’t be bulking up on this puppy for a while. I decide to get indirect exposure to precious metals

IGE: This natural resources-centric ETF suits me just fine. A very nice collection of North American Oil and Gas, Oil Services, and Precious Metals firms. The long-term prognosis for the Oil Price is definitely up. Not too sure about precious metals. Anyway, get in while you can folks

EFA: Overseas is where the juicy growth is. This ETF offers exposure to developed markets of Europe, Australasia and the Far East

The investment strategy of the worst-known portfolio manager is to pick large-cap US stocks with sound fundamentals and international exposure, and to use ETFs to get exposure to regions or sectors that are too big to pick through.

The folio makes a gain of 5 basis points (bp) on its debut. Nothing compared to the 103bp gain for the S&P 500 though. MSFT gains carry the folio as PG and IGE dud. Phew! Long way to go as a portfolio manager.

Wednesday, September 13, 2006

The three major indices – Dow, S&P, Nasdaq - are on a mini rally for the week. But the rising tide doesn’t lift all boats. The folio gives up all of the previous day’s gains.

Thursday, September 14, 2006

MSFT takes a cue from Nasdaq and continues the week rally as the Dow and S&P snap. I hear on Bloomberg Radio that Q4 is seasonally the best for software sales. Maybe that’s what driving MSFT. The news tempts me to check out Electronic Arts (EA), the video games maker. But EA’s competitive environment is bloody. Gets me thinking about Small Cap stocks though. The folio duds for the second straight day.

Friday, September 15, 2006

TGIF. Don’t know why, but I always like to think of Friday as a bullish day for the market. Investors look forward to the weekend and this Friday feeling spills into some buying. This wishful thinking bodes well for the folio. It gains but not it’s enough to recoup the losses over the past two days. MSFT keeps a clean record for the trading week. Of the indices, only the Nasdaq and the German DAX do the same. German investors must love the new government and female Chancellor.

I definitely have to bolster and restructure the folio. Don’t like my position in SLV. Why hold both SLV and IGE? That’s “double-dipping” since IGE sports many producers of precious metals. The overweight in SLV and IGE combined is a drag on folio gains. I have to act.

No data releases to materially move the market this week.

Monday, September 18, 2006

Spruced up the folio spreadsheet over the weekend. They say if you can’t measure it then you can’t improve it. So I now track ‘declines’ and ‘advances’ each day for each stock and the overall folio. The aim is to catch any falling star before it hits the ground.

Also ran PG’s numbers through the spreadsheet. The ratios look good though the Gillette purchase has introduced a lot of long-term debt into the balance sheet. Does this bother me? No. PG’s management is efficient and margins are growing.

Today is lackluster for the market. Likewise it is mixed for the folio and the change in gains is flat. The week-long MSFT rally comes to an end.

The folio is about to get a new look. Here’s a look at the prospective newcomers and proposed weights:

eBay 4% (EBAY): I trade on EBAY and like the business model. Plus it has a global presence and an intuitive growth strategy. Yet to run the numbers though

CostCo 8% (COST): I was looking for a consumer discretionary with international exposure and/or ambitions and found it in COST. Would have picked Target (TGT) instead but it currently has no ambitions outside the US. Plus I hear that the many of COST’s club members are actually above-median income folks, contrary to popular belief. Any firm that serves a lot of rich people is worth holding! To be sure, I have to run the numbers to really know what am getting into

US Small Caps 4% (IJR): Small Caps have outperformed large-caps over the past few year so why not. This is no guarantee of future performance but a little exposure shouldn’t hurt. This ETF tracks the S&P SmallCap 600 Index

US Mid Caps 8% (IWR): Another ETF to gain exposure to a sector that is too big to monitor closely. IWR tracks the Russell MidCap 800 Index

Clean Energy 4% (PBW): I’m a firm believer in the long-term prospects for renewable energy, in particular solar, and any technology that lessens the dependence of American motorists on gasoline. This ETF is a carefully crafted collection of firms engaged in all sorts of clean energy technologies. It tracks the WilderHill Clean Energy Index. I didn’t even know there was a clean energy index

Emerging Markets 12% (EEM): Did you know that emerging markets have outperformed developed markets for much of the last decade or more, even with all the volatility? I believe emerging markets will continue to outperform mature markets for years to come. This ETF is heavily weighted in South Korea, Taiwan, Brazil, South Africa, China, Russia and Mexico; 20 emerging markets all told. Seems well diversified to me.

As a result of the newcomers, here’s what the folio will look like soon:

eBay (EBAY) 4%
US Small Caps ETF (IJR) 4%
Clean Energy ETF (PBW) 4%
CostCo (COST) 8%
US Mid Caps ETF (IWR) 8%
Emerging Markets ETF (EEM)12%
Natural Resources ETF (IGE) 12%
Procter & Gamble (PG) 12%
Microsoft (MSFT) 16%
Intl Large Caps ETF (EFA) 20%

Tuesday, September 19, 2006

Oh my goodness!! Everything is red in the market today and only the strong survive. The market awaits the decision tomorrow of the fed on the funds rate and discounts a rate unchanged. But inflation fears creep in and the market unwinds. PG and MSFT prove their mettle but their gains are not enough to save the folio from shedding gains. It remains in negative territory.

I often hear that the market seasonally bottoms out in September; or is that October. Anyway I eagerly await a bottom so I can buy. Is today the bottom? I don’t buy today so maybe I’ve missed a good chance to buy! Damn.

Wednesday, September 20, 2006

Feds funds rate is expectedly left at 5.25% and the market signals its approval. Stocks rise and the rising tide lifts all folio stocks. Well, almost. The falling oil price drags IGE down, which in turn keeps the folio from moving into positive territory.

Thursday, September 21, 2006

The market rally yesterday is short-lived as the Conference Board’s (CB) index of leading economic indicators falls for August. Suddenly the market sentiment turns negative and the talk of recession and “hard landing” permeates the air. All the major indices give up yesterday’s gains but the folio moves into positive territory, buoyed mainly by EFA and SLV gains. This uncorrelated movement of the folio to the market gives me some confidence that the folio is reasonably diversified. I hope the new folio will be just as resilient.

Friday, September 22, 2006

US stocks fall again and the malaise has spread overseas as European and Asian indices take hits. The folio erases some gains but remains in positive territory. PG is the star of the week, having maintained its rally despite the unfavorable market data from the CB.

It hasn’t been a good week for the market. Meanwhile overseas, Australian stocks extend their losing streak for a fourth day. What is going on down under?!

Monday, September 25, 2006

Over the weekend, I introduce an early warning system into the model (spreadsheet). Now, a distress signal goes off whenever declines double advances for any stock at any time.

After last week’s bloodbath on Thursday and Friday investors regain their composure today amid talk now of rate cuts by the fed possibly starting as early as December. In addition, oil prices ease due a combination of factors both fundamental and political. So there is euphoria on Wall Street and stocks gain across the board.

The folio moves deeper into positive territory, shrugging off an oil price-induced decline in IGE, and brings uneasy smiles to my face. A little nervous because am yet to buy, and it seems I really have missed a chance to get in on a low.

A friend describes the movements of the folio as ‘vague’. Well, I note gains and losses for the folio relative to cost, not by absolute amounts unless the change is significant. For instance, if folio cost (or total cost of all shares) is $20, then the Folio closes in positive territory if its market value at the end of the day tops $20.

Tuesday, September 26, 2006

Today is spectacular for the market. The CB's Consumer Confidence gauge for September increases more than expected from August and all indices build on yesterday’s gains. It must be the fall in gas prices for consumers. The talk on Wall Street is of a “soft landing” in ‘07 rather than a hard one. More “experts” predict a cut in interest rates by year end.

Good Lord! EBAY, a candidate for the new folio, rises more than 5% after an analyst reiterates a buy on the stock based on a forecast of stronger performance in Q1. This pushes the stock way above what I hope to buy it for, which is somewhere in the $26 - $27 range. I pray for the stock to come down to earth soon.

The folio has been on a positive territory rally since Thursday and the gains pile up. PG has performed even better. Its rally is now a week old. Most analysts believe that the integration of Gillette, purchased in October 2005, has been remarkably fast and successful. Though I agree the acquisition is a major coup for PG, I’d rather wait and see the numbers when the next annual report comes out. I intend to buy more shares of PG though. It’s an excellent defensive play for any folio.

Wednesday, September 27, 2006

These days, the government and private “research” outfits inundate the market with data on the health of the economy. It’s hard to know which ones to take seriously. I’m not too fond of government data, partly because there is often a huge margin of error associated with these data, and partly because I’ve chosen to take cues from just a few sources. The CB is one such primary source.

So a rash of mixed economic data emerges from ‘secondary sources’ and sends the market into schizophrenia. Wild upswings and downswings characterize the market as bulls come out to play and bears come out to slay. Finally the bulls win and the Dow flirts with its all-time closing high, set in the heady days of the tech boom back in January 2000, before it closes up.

Investors overseas have got in on the action from yesterday and all the major global indices close up. Japanese stocks do particular well as the NIKKEI index puts in a stellar performance. This reflects in a 76 basis points (bp) rise for EFA, which is heavily weighted in Japanese and British stocks. An unexpected rise in the oil price boosts IGE by 169bp. However, SLV, up 205bp, is the strongest performer today. Can’t really put my finger on why; must be partly related to the performance of IGE since these two ETFs are quite correlated.

Needless to say, the folio hits its highest level ever and I hope it will find a new base in positive territory to break out from. On the downside, I’ve definitely missed the best chance to buy before year-end so will have to get in with the new folio at higher than anticipated prices. This means the number of shares I’d be able to buy, based on dollar cost averaging, will be fewer. Too much of a good thing can be sometimes bad for you.

Thursday, September 28, 2006

The market seeks direction in a mixed economic news environment and finds none. But the Dow closes nearer to its all-time closing high. Where are all the profit takers?!

Anyway I find the fuss about the Dow’s push for an all-time high purely psychological. It is only 30 stocks, while the S&P 500 is a much broader index. The S&P is a better gauge of the economy.

EBAY shines again, putting in a 476bp gain on a respectable volume of almost 22 million shares. Its PayPal unit settles consumer protection lawsuits with regulators. Such settlements always benefit a stock. Who wants to engage in legal wrangling when there’s money to be made?

PG and MSFT, two stalwarts of the folio, take breathers to close with marginal retreats. The folio ends the day flat. Tomorrow is the last trading day of the week, the month, and the quarter – a rare coincidence.

To buy or not to buy before Q4: this is the question. I’ve already missed several opportunities in the market to buy. My patience is wearing thin but I need to act on reason not on emotion.

Later, I dig into Yahoo! Finance, a great resource, to research historical prices. Over the past five years – 2001-2005 – average prices have been highest in Q4 for COST, EBAY, MSFT and PG, with few exceptions. Wonderful! Have to put this information in a table as a quick reminder in future:

Year Highest Prices Lowest Prices

COST

2001 Q1 Q2
2002 Q1 Q4
2003 Q4 Q1
2004 Q4 Q1
2005 Q4 Q2

EBAY

2001 Q4 Q1
2002 Q4 Q3
2003 Q4 Q1
2004 Q4 Q1
2005 Q4 Q2

MSFT

2001 Q2 Q3
2002 Q1 Q3
2003 Q3 Q1
2004 Q4 Q1
2005 Q4 Q1

PG

2001 Q4 Q2
2002 Q3 Q1
2003 Q4 Q1
2004 Q3 Q1
2005 Q4 Q1

Prices are quarter averages.

The evidence is strong enough. Buy. Buy! Buy!!

Friggin tired of hearing about HP’s spying probe; really. Does anyone understand the whole thing? Now politicians are getting involved. Anyway, I don’t hold HP so don’t care.


Friday, September 29, 2006

Good news from the land of the rising sun. Japanese unemployment remains near its lowest level for eight years. This could benefit EFA, which is almost 25% weighted in Japanese stocks. Hope the new government can keep things rosy in the world’s second biggest economy.

Another assortment of mixed economic data hits Wall Street. The consistent theme to all these data is that the housing market is in trouble. Consumer spending accounts for two-thirds of the economy, so the market frowns upon an indication that it slowed in August. Stocks snap a four-day rally and the three main indices close marginally down.

To position for the seasonal run-up in prices in Q4 I jump in to buy and the new folio debuts. However, folio stocks, except IGE, take cues from Wall Street and give up some gains of the last four days. Nevertheless, the new folio closes in positive territory.

For the week - 09/22/06 to 09/28/06 - the old folio beat the S&P by 1bp:

Index Return
S&P 1.83%
Dow 1.83%
Worst-known Manager 1.84%
Nasdaq 2.30%

Overall, it’s a very good week, month and quarter for Wall Street. Overseas, Aussie stocks shine as the All Ordinaries Index keeps a clean slate for the week.

Brazilians elect a new President on Sunday. EEM is 11% weighted in Brazilian stocks. Not a huge chunk. But Brazil is a so-called BRIC (Brazil-Russia-India-China), the bellwether for emerging markets sentiment. So I don’t want a political deadlock like the one we had in Germany a few months ago or even like the sour grapes scenario that plays out in neighboring Mexico.

My thoughts on the health-care sector refuse to go away. Baby Boomers (1946-1964) will start retiring soon. It’s time to position for a boom in demand for health-care. However, I don’t want to mess with pharma, biotech, or even health-care services stocks since am not well versed in how these guys make money. Luckily, I get tipped off on health-care real estate investment trusts (REITs).

I keep hearing about Web 2.0., apparently the next generation of internet-based services. I wonder if MSFT and EBAY, the two large-cap techs in the folio, are already in on this.

Monday, October 2, 2006

Over the weekend the new folio restructures to account for the weight of SLV, which was omitted in the last reorganization.

First trading day of the week, month and quarter is a dud. The batch of economic data released only reaffirms the ‘soft landing’ in ‘07 consensus on the Street. The major indices close flat though technology-laden NASDAQ takes a comparatively bigger hit. Actually, the market may not budge much this week until Friday’s unemployment numbers.

In market action EBAY sheds just over 3% on rumors of an exit from China. Everybody is entering China. Why EBAY would want to exit beats me.

Actually, there is a dilemma with EBAY. By most measures of profitability and efficiency, fundamentals are on the right trajectory, just about. It carries no inventory, of course, and is debt free as of 2005. But which competitor(s) to compare EBAY’s numbers with? Amazon? Yahoo? Google? These guys don’t do much of what EBAY does.

These days one can’t rely just on fundamentals though. Accounting numbers can, and do, get manipulated. On Yahoo! Finance the regular checkup on background news and insider transactions (or Directors’ dealings) raises no red flags on any stock. But the short interest - number of shares shorted – shows a sizeable increase for PG in September. This bearish market sentiment portends a fall in PG prices moving forward. Maybe the short sellers have got it wrong. I’ll wait for the October sentiment.

Tuesday, October 3, 2006

Oil comes to the rescue of the market as the bottom comes off futures prices. Uncle Sam’s decision to suspend the filling of the Strategic Petroleum Reserves (SPR), a little-known weapon often wielded to influence crude prices, and a forecast of no major hurricanes this season, induces a gang-up on oil. The market sentiment continues to shift towards domestic and international large-caps, such as MSFT, PG, EBAY and EFA. The Dow closes at a new all-time high. I yawn.

IGE, which houses producers of petroleum and precious metals, and SLV, which is a hedge on inflationary pressures induced by rising oil prices, are crushed by the collapse in oil prices. As a result, the folio is dragged into negative territory for the first time in two weeks. I have to keep my composure. Oil should regain its footing as it gets colder.