stlplace

Category: Investing

  • All Ponzi’s disciples

    Reading Time: 2 minutes

    Madoff story continues to occupy the news these days (e.g., this one from NYTimes). Yesterday, Satyam, the No. 4 Indian IT outsourcer, broke the news with giant accounting scandal (BBC news, wiki: Satyam).

    But the story does not end here. In my mind, there are many other ponzi schemes in our lives, and sometimes people just ignore it for various reasons (don’t want to face reality; irrational exuberance etc).

    Big ones
    Dot com technology bubble: new stock holder (trader) bail out previous stock holder (trader);

    Housing bubble: new home owner (speculator) bought high from previous home owner (speculator).

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  • New Year Resolution?

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    Summary of 2008
    Aren’t we glad 2008 is finanlly over? I am sure most people (who are not hiding under rocks) are. On a positive note, most of us survived from the crash (so far). But we do learn a lesson or two on economy and market: live within means, don’t over extend yourself, and don’t borrow heavily and bet…I think those simple rules will apply in year 2009 and going forward too.

    On a personal note, I changed my job in 2008, right in the middle of financial crisis. While it’s definitely a comforting thing to do, I thought it was time to move forward, and I will try to make it successful. Also, I took CFA level I (twice) in last year. Like the financial market turmoil, the CFA test did take some toll on me. While the outcome is still unkown, I think in a way I already achieved something: a systematic approach to look at equity and bond.

    401k/IRA performance

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  • Who is doing panic selling?

    Reading Time: 2 minutes

    It seems to me the panic selling in the stock market never ends. I can think of the following sources of sellers:

    1) Hedge fund. Yesterday Congress has an testimony on Hedge Fund, and five famous Hedge Fund managers were there. Hedge fund industry has grown rapidly in last 10 years. Besides wealthy clients, they manage money for pension funds and university endowment funds, which in hindsight are not suitable investors for hedge funds. A recent example is T. Boone Pickens lost his $165 million endowment to his alma mater University of Oklahoma. How big is hedge fund? One source I heard is the hedge fund industry manages $1.3 trillion in the US.
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  • My take on this ugly market

    Reading Time: < 1 minute

    Well, I am not going to short. Two reasons:

    1) In order to short a stock, I need to open a margin account, which I dislike. Margin account means I have to borrow from the broker, which increased the risk quite a lot, and increases the “anxiety factor” which is something I dislike. A good example is: someone bought Berkshire Hathaway stock in its early days on margin could get wiped out, because the stock dropped 50% on the way. A more recent example is the CEO of Chesepeake Energy (NYSE:CHK), if we believe the story.

    2) So I can not short. Why not buy the puts (or sell the calls)? Welcome to the wonderful world of Options. Well, from my observations (both my own small experiment and others experience), Options are totally different ball game. Basically we are play against time. Options have its expiration dates. While I think in this bear market, the down trend of some stocks are obvious, I have no idea how much the stock price will be at a certain period of time. Remember the old saying “dead cat bounce”. While it’s unlikely a company will use precious cash to buy back stocks these days, it’s likely we will see something like we saw on Monday Oct 10: a 960 points pop on Dow.

    So what to do?

    Save. Retire some debt. Get some more sleep. Do some research. Buy some fundamentally good stocks at bargain price because I believe the world is not coming to an end πŸ™‚

  • What to DO and NOT_TO_DO in this market?

    Reading Time: < 1 minute

    NOT TO DO list first
    1) Watch CNBC and other financial news and got confused, and worse got panic. Same goes to checking your brokerage acct or 401k acct every day;

    2) Try to be the hero: pick up “cheap” financials, commodities, technology stocks simply because you think they are “cheap” compared to 2 weeks ago (without any own research);

    3) Sold all the stock fund postions in 401k, and put it to cash. The chance is you will not be able to buy them back at the bottom;

    4) Put the Greenbacks under your mattress πŸ™‚

    Things to do
    1) Have some emergency cash and credit line (credit card and HELOC if possible);

    2) Do the homework: reading words of Buffett and Munger (my list here). Find some quality name we can understand (or model using Munger’s word). I am thinking AMZN, RIMM now, not buying just watching. When the dust settles, and I have some free money, I will buy them at bargain price;

    3) Continue to contribute to 401k, IRA: depends on your risk tolerance, put it in bond or stock funds you have trust in management.

  • Wall Street’s Shadow Market by CBS

    Reading Time: < 1 minute

    I am a big fan of CBS 60 minutes. This weekend it explains the Credit Default Swap (CDO) market, and how it backfired and brought down the Bear, Lehman, and AIG. One nice thing about this CBS video (link here), is one does not need formal finance education to understand it. The video lasts 12 min.
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  • Stock lesson VIII: WaMu fiasco

    Reading Time: 2 minutes

    Think you are unlucky being US tax payer, paying $700 billion to bail out wall street. Think the poor Washington Mutual (NYSE: WM) shareholder and bond holder, they are left with almost nothing.

    And yours truely, after been in the US stock market for almost 5 years, is one of the WM shareholders. Looking back, this is a mistake largely self made and I could avoid it if I used more brain a bit more. Here was my rationale and how I did it:

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  • Perspectives on Bailout and Credit default swap CDS

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    Ron Paul had an interesting perspective on this topic.

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  • The great bailout of 2008: bail, baby, bail

    Reading Time: < 1 minute

    aig bsc fnm fre leh mer logo

    March 16: Bear Stearns, $29 billon

    Sept. 6: Fannie/Freddie, $200 billion

    Lehman Brothers: sorry baby no bail

    AIG: $85 billion

    Who is the next???

    Essentially Fed/Treasury are transfering the downside risks from individual companies to the fed/treasury/greenbacks. Note the money pledged to support Fannie/Freddie/AIG could exceed the original number if the problem worsens.

    I can only say: gold, baby, gold!

  • Thinking GOLD now

    Reading Time: 2 minutes

    With the Lehman Brothers discussion underway in its 3rd day, and Asian market is anxious waiting for positive outcome. I am thinking otherwise. Regardless Lehman gets sold (as a piece or in several pieces), continue its business with bankrupcy in mind, this Lehman thing is just a tip of iceberger we are going to see. What? You may ask we already see Bear Stearns, Fannie and Freddie bailout, and that’s only the tip of iceberger? The problem is not only AIG, WaMu: the next two in the line; the problem is now I am afraid the dollar and the world financial market will collapse.

    As we have seen from the difficulty of Lehman discussion, the key is US goverment is not going to provide any kind of finance support, as they did in the Bear, Fannie, Freddie deal (total $229 billion). For the goverment, they don’t want to do this due to two reasons: 1) Moral hazard; 2) The increasing debt on the US goverment and tax payers, and the the pressure on USD comes with it.

    If the worst happens, nothing will be spared, except the gold (Wiki: ways investing in gold). Because before the 1970s un-pegging of dollar and gold happened, gold was the central banks reserve/deposit to print paper money. And if we could go back history a bit more, we know gold is the most widely used precious metal for money.

    So, I am seriously thinking about the Gold ETF (GLD). Another way, if you are like my friend Sun, you can buy the gold bar from bullion direct.

    Bullion direct gold bar

    I am trusting the good old gold much more than the Lehmans, the wall street, the US goverment (treasury department, the federal reserve), will you πŸ™‚