Stock & Options Trading

Is It The Right Time for Mid-Cap?

Sun, 29 Apr 2007 19:48:35 -0800

Interesting WSJ article that pitches domestic mid-cap stocks for its timeliness. However, the PEG ratio comparison is quite misleading. Given that the economy has more downside risks than upside ones, it is prudent to assume the growth potential implied in these growing P/Es will not materialize. Disclosure: I'm still in favor of large-caps. There are still quite a few value plays.

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Vonage: IPO to Bankruptcy in One Year?

Sun, 22 Apr 2007 22:13:28 -0800

Vonage's invitation to partcipate in its IPO. Less than one year after, the VOIP company is seriously looking at bankruptcy as an option.]]>

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Foreign Markets Provide Better Diversifaction Now

Sun, 22 Apr 2007 20:55:28 -0800

WSJ reports that the correlation between US market and other developed markets is becoming weaker, suggesting exposure in foreign markets can achieve better diversification now.

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Finance Market Commentary, The UK Flavor

Sat, 03 Mar 2007 18:47:13 -0800

Finance Markets is one site you can get some fresh content of what's happening in London, another capital of financial capitals. Elaine Frei, the sole author of the site, regularly delivers 3-5 posts a day on various financial market topics since 2005. For example, recently she provided a day-by-day account of the volatile global markets, and shed light on many UK-specific financial events, like the transition away from salary pension scheme, the UK real estate market fever, the public worker pay raise stalemate, and Financial Services Authority (FSA)'s crackdown of excessive mortgage exit fees. While I should say most of the posts stop at an account of the event, and some more personal opinion will certainly fit into my taste more, it still provides a good reading for me from a US-centric point of view. (Hey, US is not lonely in having all the scandals; UK has its fair share too.) Plus, some of Financial Markets' report on individual UK companies are also quite helpful when I look at stock investment candidates. (While the above is a sponsored post, PFBlog is not required to provide a favorable review. Quality time was spent to study the subject website in completing this post.)]]>

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10 Tips for Value Investors

Tue, 13 Feb 2007 15:04:52 -0800

In 2002, Fool.com recommended some of Bob Olstein's wisdom on value investing. I am a huge fan of value investing and do believe in the right hands, it can be used to consistently beat the market. Despite the passage of five years, it is still worth reading:

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Managed-Futures Funds Available To Small Investors Soon

Fri, 09 Feb 2007 22:11:12 -0800

Want to play in the future market? Mutual fund innovator Rydex is going to launch an open-end managed futures fund next month, enabling anyone with at least $2,500 to have access to the future market.

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What Is Mortgage REIT?

Tue, 06 Feb 2007 12:06:54 -0800

Morningstar's analyst Erin Swanson masterfully explained what is Mortgage REIT, and why it is not a timely bet in today's market. I invested in one of the Mortgage REIT before (which later merged with an investment firm to today's Friedman, Billings, Ramsey Group - FBR) with some good gains, but that's back in 2003.

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Exxon Mobile Is Minting Money

Thu, 01 Feb 2007 22:04:01 -0800

$39.5 billion annual profit! That's more than $100 million a day and $1,252 per second. It will be hard to exceed, even by Exxon itself.

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The China Stock Market Is Red Hot

Mon, 29 Jan 2007 22:07:59 -0800

The China stock market is obviously a bubble that will surely burst. Two good examples: 1) More brokerage accounts were opened in one week in 2007 than the whole 2004. 2) China Life, a local life insurer, is trading at 200 times of P/E Since November, I have gradually downsized my exposure in the China market from a peak of $40,000 to about $5,000 now. It is always good to know when to call the stop.

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Common Misunderstandings of Stock Market

Thu, 14 Dec 2006 23:13:37 -0800

Here is a list of some of the biggest misconceptions that the average trader believes. 1. There is a such thing as a perfect system. I assure you there is no perfect system. You may feel you need to convince yourself that technical analysis, trend following, fundamentals, options hedging, or any other system does not work, but there is always somebody somewhere making a lot of money using those very things. Simply find an approach that fits your personality and develop it. 2. Day trading does not work. Day trading absolutely works. Though I would not recommend it for most traders, those with the time, the resources, and a high level of discipline do very well. 3. You are using the proper time frame in your trading. This is a big one. Generally speaking, most people overtrade. If you are having little success with your trading, stop holding stocks for only days or weeks at a time. Consider holding your stocks for several months, or years. Use weekly and monthly charts instead of hourly or daily ones. This saves considerably on commissions and gives your trends time to develop. Is it boring? You better believe it. Is it profitable? Absolutely. 4. Rely on advice from others. If you find yourself looking to others for advice about your positions, then you should not be trading (unless your profitable system was designed specifically around advice from others). You are not confident in what you are doing. If you don’t know the probability of a trade working out, if you don’t know the percentages of trades that make you money, if you don’t know how much money those trades make you, if you don’t know the strengths and weaknesses of your system, if you don’t have a profitable entry or exit strategy, you should not be trading. Stop everything and develop a system. Then test if for free on a trading simulator. Don’t put your real money on a strategy that you are not confident in. 5. You will get rich quickly by trading. While it is absolutely possible to become wealthy very quickly by trading, it is not going to happen for the vast majority. Sit down with pen, paper, and calculator and write out your expected returns. Try to be realistic. If you have $100,000 to start with, and make 20% a year, write out your profits in one year, five years, ten years. Remember to include commissions and capital gains taxes. Unless you seriously plan on becoming a day trader or a money manager, you may not be able to trade for a living. My advice for those people? Find a legitimate wealth building system that is unrelated to trading and live off of that. It will free you of your day job and let you concentrate on trading. Plow that extra profit into your trading account. When you get around the million-dollar mark or higher (totally depending on your living expenses and your returns, though, of course), you can seriously consider just trading for a living.

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Bank of America Surpassed Citigroup in Market Cap

Tue, 28 Nov 2006 20:21:16 -0800

Bank of America (BAC) finally reached this milestone. I have both horses in my portfolio since last November and I cannot complain the performance so far: 22.5% return on BofA and 12.7% on Citigroup (C).

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Is Anheuser-Busch (BUD) A Buy?

Sun, 26 Nov 2006 19:22:05 -0800

Bob Frick at Kiplinger's Personal Finance argues Anheuser-Busch is a great value now. Although I drink Bud a lot, the current P/E ratio is too rich for my taste.

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How To Buy QQQQ Without Commission

Sat, 25 Nov 2006 15:11:54 -0800

QQQ Direct is NASDAQ-100's DRIP program, which allows you to buy into NASDAQ's top companies at as little as $10 a month without paying commission. Good deal for starters!]]>

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Kraft (KFT) Spin-Off At Altria (MO) Is Near

Thu, 16 Nov 2006 12:37:26 -0800

Today is a good day for Altria investors, myself included. Management of Altria (originally Philip-Morris) is now fully committed to spinoff the food maker Kraft Foods Inc., which will supposedly unlock lots of the value in both companies. Should I sell today, Altria will be my first double-bagger in stock investment.

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Stock Holdings By Our Congressmen

Sat, 04 Nov 2006 14:36:27 -0800

If only judged by stock holdings, I should probably be labeled as a pure Republican. I own Altria and Coca-cola outright, and also have a drug company (Pfizer, PFE) and an oil company (Conoco-Phillips, COP).

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What Does A Democrats' Win Mean To Your Financial Life?

Fri, 03 Nov 2006 15:17:30 -0800

The Winners: 1. Those who have student loans (Dem will reduce student loan rates) 2. Fannie Mae and Freddia Mac The Losers: 1. Defense companies (Dem = less military spending) 2. Drug companies (Dem = more Medicare hard bargaining) The Shakers: 1. Those who barely makes the national minimal wage (Dem will increase the minimal wage, but they can lose job too.)]]>

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Warren Buffett Loves Retailing

Wed, 01 Nov 2006 15:35:24 -0800

It seems Buffett is hedging his bets by investing in both Target (TGT) and Wal-Mart (WMT). We probably already missed the boat: TGT is already 20% higher than it was two months ago.

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Six Banks May Receive Triple-A Credit Rating

Wed, 01 Nov 2006 15:32:50 -0800

AAA credit rating is probably only of cosmetic value to the big banks, but I'm glad to see S&P reaffirms the financial soundness of my portfolio holdings in Bank of America Corp. (BAC), Citigroup Inc. (C) and J.P. Morgan Chase and Co. (JPM).

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The Cash Machine at Exxon

Tue, 31 Oct 2006 00:45:36 -0800

$10.8 billion quarterly revenue pale.]]>

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Wisdom from Value Investing Legend Christopher Browne

Tue, 31 Oct 2006 00:45:32 -0800

The man behind the success of Tweedy Browne speaks up. Yes, the truth is many can understand value investing, but it is the "emotional discipline" that completes the circle.

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Invest With Margin Loan? Use It At Your Own Risk

Sat, 28 Oct 2006 12:24:38 -0800

John Waggoner at USA Today reminds us why it is not wise to invest on borrowed money. You may lose more than you want.

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Basics of Option Trading

Fri, 27 Oct 2006 22:13:26 -0800

In For a Dollar or a Dime One of the most important options trading terms a beginner needs to completely understand is risk capital. Most reputable brokers will advice you to invest in options with risk capital. Risk capital is that portion of your total investment capital that you can afford to lose. Long term bonds, savings accounts, mutual funds are the places for your retirement income, and your landlord's checking account is the place for the rent money. A beginning investor in the option market needs to know exactly how much he is willing to invest, and once this amount is established, he needs to stick with it. There are practical reasons for this. One of them will be investor's personal financial security concerns. If you are overly worried about loss, you would not be able to make decision with a clear head and in a confident manner. Determine what amount you are going to invest, and set it aside, and stick with it. Do you Speak the Language Calls, puts, strike price, margin, leverage, long position, expiration date, bid, and ask are all Option related terms. If you are unsure of the meaning of any of them then you need to go to Option's language school for awhile. Investing has its own unique terminology, and you can not afford to be confused. Take the time to learn what everything means. It is going to be important to give yourself a bit of education in quite a few different areas of trading. You are not going to be able to evaluate Broker's websites, or decide on a personal method of analysis until the basic framework is in place. And the basic framework is terminology. Start in First Gear You have to crawl before you can walk. Learning to invest your money in any market, and even more so the complex Option Trading market is not the kind of thing that is best served by jumping into the deep end of the pool right at the start. You are almost certainly going to drown. Experience is very important here, and experience is only gained by the actual doing. Start slowly and make a few small investments. It is good to have a sample option trading strategy in place. It should be on a rather small scale involving only a small percentage of your available risk capital. Once you gain a little confidence, you can increase the amount of your investments. How long this takes is going to depend completely on you. Remember that there is no magic formula here. The beginning investor should not be too nervous. There may be a lot to learn and it may seem a bit confusing, but it is learnable. In the end, it is going to be his own intelligence, and his own instincts that are going to determine his success or failure. Most people would ask for nothing else, but to have their financial fate in their own hands. Remember the words of a wise old investor who once said, "Every Option Trader was a beginner at one time, even if for some, it was only a few minutes."]]>

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What Is Buy-And-Hold?

Thu, 26 Oct 2006 22:28:39 -0800

Investment analysts say that buy-and-hold is the best investment strategy for the average consumer. But do you really understand why? After all, the idea of a fast dollar on a stock is appealing. Buy low and sell high. Do this enough and you should come out on top, right? Well, not exactly. Timing the market is almost impossible to succeed at. Eventually, you will lose. There are some that win using market timing, but you have a good chance that it won't be you. A study by the Financial Analyst Journal compared the results between market timing and buy-and-hold strategies. The authors looked at data from 1929 to 1999. They looked at all six major US asset classes to see if market timing is effective when compared to buy-and-hold investing. The study looked at several different market timing methods. And what they found was that sometimes it does work. Two people out of every 1,000 will come out on top with market timing. Ninety-eight percent of buy-and-hold investors will come out on top. The trick to making money in stocks is not really found in buying and selling. It is found in investing for the long term. Do you know what your chances are in making money on a stock. You have a 70% chance that an investment in stocks will make money in any given year. If you leave your money in for the long run, you have a better chance of coming out on top. However, I'm not saying invest and forget. You need to know why you invested in the first place. Before you invest, know what your objectives are. You need to make sure that your investments are goal orientated. You sell investments that become inappropriate for your portfolio and goals and buy ones that fit in. This is buy-and-hold in action. If you want to protect an investment, don't look at the individual stock price. Set yourself out points on the high and low side. You sell if it reaches this high or if it goes this low. If you don't set these guidelines and realize a loss, what are you going to do? Do you wait it out or take the loss? You start over with the money you have right now and choose a new investment. This time you will set yourself out points. There is nothing you can do about the money you have lost, but you can prevent losing even more. Don't hold onto stocks just to be stubborn. Realize when you made a mistake and start over. Change what you are doing so that you don't return to this place again. Set goals. Know why you are investing. Know your top price and your low price. And don't try to time the market, you have a 99.8% chance it won't work.

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The Difference Between Full Service and Discount Brokerage

Wed, 25 Oct 2006 22:27:04 -0800

When it comes to choosing a brokerage, you will have to decide between full service or discount. The difference is basically in the amount of money you pay and the amount of help you receive in making decisions. A full-service brokerage firm will offer you every imaginable financial service. You will find everything from professional advice to even tax preparation. But you will pay for it. All of these services cost money, which you pay in high commissions. A discount broker does not offer you all of the extras. Therefore, you pay significantly less in fees. Many people do quite well with discount brokers, and manage to save money as well. Many people out there are cautious when dealing with a broker. I think that this is good. You should always be careful when handing your finances over to anyone. Make sure that you choose the right broker for you. You should feel as if the broker is acting in your best interests. That means that you don't feel pressured to make trades that you don't want to. One of the best ways to start a relationship with a broker is to be upfront from the start. Remember, you are the boss here. Tell the broker your financial goals and make sure that your instructions are followed. Watch your account for excessive trading, which can cost you. Watch to make sure that you are making money. That is the number one sign of a good broker. When you use a broker, you should see a return equal or better than the return on the S&P 500 Index. If you aren't, you would be better off cutting out the commissions and investing directly into a S&P index fund. If you are already a good customer with a full-service broker, you can always ask for a discount on your fees. The worst the broker can say is no. If your account is a good one, many brokers are more than happy to adjust their commissions for you. Most full-service brokers feel the competition from discount brokers and are willing to compete. You have to look at what you need out of a brokerage. If your financial situation is one in which you would really utilize a full-service brokerage, then that might be the right decision for you. But the key is making sure that all your needs will be met by the brokerage. You want to get your money's worth. When you first meet with a full-service broker, you should ask a few questions: How much do you charge to invest my money? Ask about wrap accounts, commissions and fee-based accounts attached to asset size. Do you have a good research department with a good track record? Do you monitor your brokers? You can always ask ot see the conduct record of the brokers to see if they are disciplined. Do they provide on-line services? Can I see a sample statement? You want to make sure that the statement is easy to understand. Keep in mind that discount brokerages don't mean that you will make less on your investments. You simply pay less because there are fewer services. In some cases, you will pay 90% less. Discount brokers do not give investment advice, though many do provide research reports from experienced analysts. They are available to contact 24 hours a day and many have a strong Internet presence.

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What Is P/E Ratio?

Wed, 25 Oct 2006 22:13:35 -0800

One of the most common stock valuation methods is the Price Earnings Ratio or often referred to as PE ratio. The definition of the PE ratio is quite simple just as the name indicates: Take the current stock price and divide it over the earnings per stock. So, as an example suppose stock A is currently at 15$ and its earnings mount up to 0.56$. The calculation of the PE then is: 15$/0.56$ = ca. 27. It’s now important how to interpret this number. What does it tell me? What you will almost never read anywhere is what kind of unit this PE has. Most of the authors simply present us the bare number of the PE calculation. In order to know which unit you get at the end it’s important to know what you use in the beginning of the calculation. And that is: The price of the stock: unit: $/stock Earnings per stock and year: unit: $/stock/year If you divide $/stock over $/stock/year you will only get “year” as the unit of the calculated number. So 27 means 27 years. In other words: If company A continues to earn 0.56$ per stock each and every year it will need 27 years to reach the current stock price. That’s why it’s better to choose those stocks with a lower PE as they don’t need so much time to reach their current stock price. Thus, the decision to make is: Buy those stocks with a low PE ratio. That is ok, but what does “low” mean? Low, compared to the average PE of the same branch. Therefore, the only thing you have to pay attention to is that you can only compare stocks of the same or similar branch when deciding to buy a stock based on the PE ratio alone. The problem with the PE ratio is that the company must already earn something in order to use this PE figure. When it only generates losses (mostly the case with start-up firms) you can switch to the Price/Sales ratio because every company has at least a certain amount of turnover.

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Profitting From Penny Storys

Wed, 25 Oct 2006 16:19:21 -0800

Penny stocks, as the name suggests, are shares that are available at extremely cheap rates. Being available literally for pennies, you can purchase such stocks for as low as $2 per share. These stocks are usually of very small companies, which have a market capitalization of less than $500 million. They are not traded at the major stock exchanges like NASDAQ or NYSE, but are listed in the pink sheets or the OTCBB (Over The Counter Bulletin Board), because these stocks are of companies that are unable to meet their listing requirements. They are also referred to by other names such as pink sheet stocks, nano stocks, small caps, micro caps or juniors. Investing in penny stocks is considered very risky as they are traded without any regulatory or listing requirements, which provide security to shareholders. There are no accounting standards, and the shareholder gets no information about the change of ownership of shares etc. This makes it a potential source of fraud. However, with proper research, investment in penny stocks can be a tremendous earning potential. Not all companies listed with pink sheet stocks should be considered fraudulent. Some of them represent good companies, which are too small to meet the requirements of the NYSE or NASDAQ. Many such companies have a bright future. Unlike blue chip stocks, penny stocks have greater volatility; hence, they have the potential of sometimes reaping rich dividends in a relatively short span of time. Thus, investing in these startup companies at rock bottom prices can end up in making investors very wealthy. However, finding these companies requires research. The number of shares that the company has on ‘float’ is one indicator that needs to be ascertained. ‘Float’ is the technical term for the number of shares of the company being traded. Since penny stock companies are unregulated, they are not bound to report these details to the public. The information, however, can be found in TV interviews, and the like, given by the representatives of the company occasionally, and are sometimes archived on their websites. There are forums on these websites where stock brokers chat with each other. You can also get the information on the message boards. Find and read the articles and reviews written about the company, which will give you a good idea of the float. For instance, if a company’s float were very high, it implies that it is merely issuing extra ones to keep afloat, hence would not be worth investing in. Companies that have five million to one hundred million shares are considered fit for investment. The product of the company also needs to be scrutinized. For example, it is important to find out if the company would face obstacles in selling its products for various reasons, or whether patent issues would allow some other company to introduce a similar product in the market, all of which would affect the value of the stocks. Another important consideration would be whether the product is going to find appeal with the target consumers. While investing in penny stocks may be more perilous than putting your money in bonds or the shares of established companies, the chances of striking it rich is also a strong possibility, which makes it a risk well worth taking.

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Go, PPD, Go!

Mon, 23 Oct 2006 08:01:12 -0800

Pre-Paid Legal Serivices, Inc., one of my longest holdings, reported terrific results today, and its stock jumped over 11% within the first hour of market opening. It seems that management is executing a cash-cow strategy to keep membership growth in control and extract more cashflow to return to shareholders. Good job! (Full disclosure: I currently own 580 shares of PPD, including 280 shares bought in 2002 and 300 shares bought in August 2006.)

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Should Microsoft (MSFT) Buy Yahoo (YHOO)?

Sun, 22 Oct 2006 22:09:42 -0800

Now that MSFT is at multi-year high and YHOO is at multi-year low, it makes perfect sense for the Bill/Steve Co. to buy out Yahoo even with a premium. How can Microsoft unseat Google (GOOG) otherwise?

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The Priceless Heart Attack

Sun, 22 Oct 2006 19:26:57 -0800

legal background of the Judge's decision.]]>

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Berkshire Hathaway And Its $100,000 Stock

Sat, 21 Oct 2006 23:26:21 -0800

As Berkshire Hathaway's class-A share (BRK.A) is approach a six-figure price, MarketWatch briefly reviews Warran Buffett's success. We might never see Berkshire Hathaway to break seven figures ... it is more a value play than a growth story, and the law of large numbers has already hit the stock (thinking about Buffett's $40 billion cashpile). (P.S. I hold six shares of BRK.B in my portfolio. Nice gain of 14% in about a year's time. It is a keeper!)

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The World's Biggest IPO: Industrial & Commercial Bank of China (ICBC)

Fri, 20 Oct 2006 06:04:55 -0800

It is wise for the Chinese government to unload most major national banks before it has to open its financial market later this year due to its WTO obligations. (Disclosure: The last time I had an ICBC bank account was over a decade ago. I'm currently enjoying excellent service from China Merchants Bank.)

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Bill Gates' Successful Drug Investment

Tue, 17 Oct 2006 19:46:33 -0800

Bill Gates is making a killing in Icos (ICOS). I have no doubt he is the sharpest men in this world and he will be as successful in his charitable efforts as he is in Microsoft.

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Is BofA's Free Trading Program A Good Deal?

Sat, 14 Oct 2006 15:34:25 -0800

BofA's latest foray into brokerage business. His conclusion: only active traders will benefit from the free trades associated with $25,000 deposit. ]]>

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What Is A Unit Investment Trust (UIT)?

Wed, 11 Oct 2006 04:49:04 -0800

UIT is the invention of Morgan Stanley.

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Visa Is Contemplating IPO

Wed, 11 Oct 2006 04:49:02 -0800

First Goldman Sachs, then Mastercard. Now Visa is planning to put itself for sale too. As a good franchise, it may be a nice investmen at the right price.

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Google Docs & Spreadsheets: Word and Excel From Google

Wed, 11 Oct 2006 02:11:00 -0800

While the offering is certainly interesting, I couldn't imagine too many people will love to work on documents online.

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