Wednesday, January 27, 2010

Portfolio/Market Update - 1/27/10

Before reading, please see the disclaimer in the 'About Me' section.

Sorry it has been so long since my last post. It's that busy time of the year with CPA exams and work getting in the way. Apparently some people actually read this blog, so I am taking the time out tonight to update it. Here goes...

Today the Wilshire 5000 closed at 11,342.70, down from 11,715 since my last post on 1/15/10. The
Wilshire 5000 has lost a little over 3% since my last post, and is now hovering around 9% above it's 200-day moving average. It is worth noting the last time the index was below 10% above it's 200-day moving average was back in July, and the index was 20% higher than it's 200-day moving average last in the end of October.

The Investor's Intelligence Survey was released on Thursday night of last week, as it is every week. This survey is a measurement of the sentiment in the market. This week's reading was 52.2% BULLS, and 18.9% BEARS, for a spread of 33.3%. This is in comparison to a reading of 53.4% BULLS, and 15.9% BEARS, for a spread of 37.5% on January 12th.

The Volatility Index closed out the week at 23.14, up from 17.91 at the date of my last post.

Now for the portfolio...
1) Verizon at $29.87, down 9.84% for the year (ouch...still).

2) AT&T closed at $26.70, up .04% for the year, and flat since my last post. However, anybody who watched the Apple show today has to be encouraged.

3) GE closed the week at $16.30, up by 7.73% for the year.

4) Citigroup closed the week at $3.20, down by 3.32% for the year.

5) TBT, the doubleshort U.S. Treasury ETF closed at $47.77, down by 4.23% for the year. I have been following the Bernanke story, and while I am super-bullish on this ETF, I would be even more bullish if he does not get confirmed for a second term. Plus, it acts as a nice hedge for my two new additions to the portfolio...

6) FXP, the doubleshort China ETF, which was my latest addition a few weeks ago, closed at $9.91, up 14.97% since my buy.

Today I am going to go ahead and fill two more slots of my portfolio with GOOD, Gladstone Commercial Group, which is a commercial real estate REIT. GOOD is currently trading at $13.48, and I find the 11+% dividend to be quite attractive. The dividend has been a steady $.115/share for quite some time now, which I love. As I have looked at their balance sheet and statement of cash flows, I have become even more optimistic.

The final spot I am going to fill today is NLY, Annaly Capital Management, which is also a REIT but deals in mortgage backed securities. Their dividend was just increased to 17+%, and while it is a bit more fickle than GOOD's, I feel as though my TBT holding helps to mitigate that risk. I feel this stock has a bit more upside price-wise than GOOD, considering their strong profit history and cash flows from operations, not to mention the space they operate in. Furthermore, aAs the perception of the housing market improves, I feel as though this company is positioned in a manner that will allow the price to increase.

Overall, the portfolio is up by .90% (-.68% for the DOW Dogs), versus -1.35% for the Wilshire 5000. I still have two slots open in the portfolio, but I am going to be patient and take what the market shows in stride. Given where it is in relation to the 200-day moving average, and where the VIX currently is, I think it's almost time to fill the portfolio and let it ride.

As always, question and comments are most welcome.

Friday, January 15, 2010

Portfolio/Market Update - 1/15/10

Before reading, please see the disclaimer in the 'About Me' section.

Today the Wilshire 5000 closed at 11,715, down from 11,816.9 a week ago for a weekly loss of
.86% on the week. The close today also put the Wilshire 5000 at 14.02% above it's 200 day moving average, down two percentage points from last week.

The Investor's Intelligence Survey was released on Thursday night (on the public website, Tuesday if you pay for it) of this week, as it is every week. This survey is a measurement of the sentiment in the market. This week's reading was 53.4% BULLS, and 15.9% BEARS, for a spread of 37.5%. This is in comparison to a reading of 48.3% BULLS, and 46.9% BEARS, for a spread of 31.4% last week.

The Volatility Index closed out the week at 17.91, down from 18.1 a week ago.

Now for the portfolio...
1) Verizon closed the week at $30.58, down 7.70% for the year (ouch...again).

2) AT&T closed the week at $26.70, up .04% for the year, and basically flat for the week.

3) GE closed the week at $16.44, up by 8.66% for the year.

4) Citigroup closed the week at $3.42, up by 3.32% for the year.

5) TBT, the doubleshort U.S. Treasury ETF closed at $48.59, down by 2.59% for the year. I have no doubts that this one is coming back. Anybody that reads and sees the nonsense going on around us knows that interest rates cannot stay low, and thus bond prices must decrease.

Right now I am going to go ahead and fill one more slot with FXP, the UltraShort China ETF. As stated in a previous post, I do not like the prospects for the Chinese economy over the long run, and that is what I am building this portfolio for, the long run. At the current price of $8.62 per share, I am going to go ahead and add 116 shares to the portfolio. We'll see how I do.

Overall, the portfolio is up by .36% (.35% for the DOW Dogs), versus 1.89% for the Wilshire 5000. I am formulating ideas for what I want to do with the remainder of the portfolio, however, I believe there is downside in the market (in my opinion: the VIX has been below 20 for quite some time now, the Wilshire 5000 is still double digits above it's 200 day, and the investors intelligence indicates a level of bullishness not matched in over a month), so I am going to wait a bit and see if we don't get a pullback/correction. As of now, a few of the names I am kicking around are DUG, the UltraShort Oil & Gas ETF, GLL, and UltraShort Gold ETF.

Monday, January 11, 2010

Taxes, Politics, and America

Please see the disclaimer in the "About Me" section before proceeding.

As I was sitting in my CPA review class this evening (REG, for those of you familiar, is basically a crash course in the American tax system), a few thoughts occurred to me and bothered me. Since a blog is virtual soap box, I thought maybe I would share those thoughts, and see what others think, perhaps.

The thesis of this post is that the political system in America starts with the tax system. The government spends money, and politicians are in office, basically to decide how to spend it. Everything revolves around the spending of money, for the most part. Every new law or program that Congress enacts has an associated monetary cost with it. Think about it, it does.

I liken this to the way I conduct my life. I get a lump sum of money twice a month, and I decide how to spend it. Very few things in my life are truly free. I can't watch TV for free, read a book for free, read the newspaper for free, or procure any sort of food that is truly free unless I eat myself.

As you can see, there is an obvious parallel, and the basics of fiscal responsibility are the same for individuals, as well as governments. Individuals procure their money through jobs or investment, and governments procure their money through taxes. The only way that governments take in the money to pay for their expenditures is straight from yours and my wallets. When governments spend more money than they receive, that's a deficit. When individuals do so, that's called "on credit".

Now for my point. While sitting in class this evening we were discussing refundable tax credits. For those not familiar with what a refundable tax credit is, here is a link. Basically, a refundable tax credit allows a "taxpayer" to owe negative tax. Basically, the government pays you for meeting a condition it has set forth, like having a kid. Seriously. The $8,000 homebuyer tax credit is also considered a refundable tax credit. For those of you so inclined, here is a link to a list of both refundable and non-refundable tax credits here.

In my opinion, it is both wrong and counterproductive to pay humans money who are nonproductive and contribute nothing monetarily to the system. Being paid to be a citizen of the United States goes against both logic and the principals of a capitalistic society.

In my opinion, it would be much more productive for the government to limit the tax liability to $0 for individuals. That is, an individual who pays nothing into the system will do exactly that, pay nothing into the system and receive nothing more.

The current United States deficit is over $12 trillion. That is a lot of money, and most would argue unsustainable. The projected budget for government receipts in 2010, otherwise known as taxes, are budgeted to be a little over $2.3 trillion, up from just over $2.15 trillion projected in 2009. In addition projected government outlays are $3.997 trillion in 2009, and $3.591 trillion in 2010. In both years, the government is projecting a deficit. The data mentioned can be found here.

In my mind, common sense must takeover somewhere. No sane person would ever budget themselves to lose money. If we did, we would pick up a second job or simply cut spending. In my opinion, the government must first cut spending, as well as increase the revenues taken in. Reducing spending begins with reducing the payments made in the form of refundable tax credits. That means that everybody would have a tax liability (sort of), as opposed to being a liability to the government. Second, the government needs to increase revenue. The government must raise yearly revenue to the $4 trillion amount yearly at current budgeted levels of spending in order to begin to make a dent in the deficit.

Sorry for the long windedness of this post, that will be all for now. To conclude, while tax credits are not the fundamental problem, in my opinion they are a tiny piece of the solution. More to come later (maybe)...

Friday, January 8, 2010

$10,000 Portfolio Update

Please read the disclaimer in my "About Me" section before proceeding.

Today the Wilshire 5000 (the index I use to measure the market, as opposed to the DOW or S&P 500) closed at 11,816.9, up from 11,679 from the beginning of the week. These facts are come from the Yahoo! website.

The Wilshire 5000 so far this year has posted a gain of 1.80%. The Wilshire 5000 is now 16.01% above it's 200 day moving average of 10,185.97. The 200 day moving average is calculated by taking the average closing price of the equity (or index, in this case the Wilshire 5000) over the past 200 trading days. As time goes by, the average follows, that's why it is called a moving average.

The Investor's Intelligence Survey was released on Thursday night of this week, as it is every week. This survey is a measurement of the sentiment in the market. This week's reading was 48.3% BULLS, and 16.9% BEARS, for a spread of 31.4%. This is in comparison to a reading of 51.1% BULLS, and 15.6% BEARS, for a spread of 35.5% last week. As you can see, investors are slightly less bullish this week.

The Volatility Index closed out the week at 18.1, the lowest close since May 30, 2008, and the 5th straight day it was down.

Now for the portfolio...
1) Verizon closed the week at $31.75, down 4.17% for the year (ouch!), however, we got in early enough to get the dividend which will be paid in February (NICE!).

2) AT&T closed the week at $26.69, down .52% for the year.

3) GE closed the week at $16.60, up by 9.72% for the year.

4) Citigroup closed the week at $3.59, up by 8.46% for the year.

5) TBT, the doubleshort U.S. Treasury ETF closed at $50.60, up by 1.44% for the year.

Overall, the portfolio is up by 3.00%, versus 1.80% for the Wilshire 5000. As the year goes on I will look to add positions to the portfolio, as there are 5 spots left. However, the time has not come for that yet.

Tuesday, January 5, 2010

The Chinese Economy

As I have been perusing the internet today, I have noticed there are a few articles out there questioning the legitimacy of China's economy. This is in stark contrast to the various media I have seen over the past few months that have been saying China is booming. Here is a recent article from BusinessWeek detailing the risks facing China, as well as another article detailing real estate prices in China. When you take into account that China is a communist state, it's all very interesting...

The articles are definitely worth a read, and it will be interesting to see what happens in 2010 and beyond in China.

Using Bond Prices To Predict Future Stock Returns

Here is a link to an interesting article I discovered in Forbes over the Christmas holiday while sitting in the Philadelphia Airport.

The article in question discusses the investment strategy of former junk bond trader Peter Anderson. For a full synopsis, please read the article, but I will give the basic overview here. Basically, Anderson seeks to find a disconnect between how a company's stocks and bonds are trading, and looks to exploit the oversights of the "stock" guys, in favor of the research of the "bond" guys. As a company becomes less credit worthy, the price of their bonds decrease, and correspondingly, the cost of the debt (interest rate) that they have to pay to entice people to lend them money must increase. The inverse of this relationship is also true.

In theory, as a company becomes more financially sound, the price of their bonds should increase (they would also pay a lower interest rate), and their stock price would also be increasing. Anderson's theory, however, seeks to find bond prices which are performing well, and match them to company's whose stock prices are underperforming. Anderson believes that bond analysts are usually ahead of the curve in relation to their equities counterparts, and looks to exploit this fact.

I must say, I think this is an interesting theory. Furthermore, I think this is a good exercise to find stocks which are yet on the radar of mainstream media and stock analysts. When picking a stock, I never want to get in after somebody has published a headline listing the stock as a "buy". I want to already be in when I see those headlines, but that's just me. In researching after I read this article, however, there is no way to perform an easy screen of Anderson's criteria.

Sunday, January 3, 2010

Herv's $10,000 Portfolio!

As stated in my blog from yesterday, today is the day that I will be setting up my fictitious $10,000 portfolio. I feel like this will be a good way to share my investment ideas, and to have others comment and track my progress.

To begin with, I am going to put 50% of the allocated fictitious $10,000 to work right now in stocks that I believe have little downside. Since I am of the opinion that the stock market is working its way toward a correction phase, this seems like the prudent thing to do, and I will put the other $5,000 to work at a later time. I am going to fill the portfolio with 10 equal slots of $1,000.

1) VZ, ATT, and GE - All of my Dow Dogs. See my post from yesterday. As of right now, the portfolio purchased 30 shares of VZ at 33.13, 37 shares ATT at 26.69, and 66 shares GE at 15.13.
2) C - I think this stock is priced for indefinite government ownership/screw-up. The federal government has announced that they will be dwindling their stake in Citi over the course of the year. Furthermore, I think the financial sector is poised to start posting some profits. The portfolio purchased 302 shares C at 3.31.
3) TBT - This is the double short 20 year US Treasury ETF. This is basically a play on rising interest rates. The government is not only going to have to raise rates to combat inflation, but I feel they are going to have to sell bonds to soak up some of the excess liquidity. The laws of supply and demand tell us that the more bonds they sell, the lower their prices, and conversely, the higher the yields need to be. The portfolio purchased 20 shares TBT at 49.88.

To track my portfolio, I will compare it against the overall market, that is, the Wilshire 5000 index which is currently trading at 11,497.41. At least once a week, and maybe every few days I will update this blog with the progress of the portfolio, and certainly every time a trade is made.

Saturday, January 2, 2010

The Dow Dogs! My Spin On An Old Investment Strategy...

Many of you who are investment savvy are familiar with an old strategy known as "The Dow Dogs". If you are currently unfamiliar with this strategy, see the Wikipedia definition here.

The basic idea behind the Dogs of the Dow is to take individual stocks from the Dow Jones with the highest yields. Yield is the percentage of the stock price which the company pays out in yearly dividends. As the price of the stock declines, theoretically, the yield increases. The idea behind this strategy is that stocks in the Dow with the highest yields indicate that these stocks are currently undervalued.

A few years back, I ran across an article on MSN Money that had an interesting spin on this strategy. Here is a link to the article. I will not bore you with the theory of this strategy in this space, if you're interested, please read.

In the past few years, I have used my own spin on the Dogs of the Dow. The strategy that I use is to setup a stock screen (I love stock screens, and since switching to E-Trade always use theirs. In the past, I used the one on MSN, which you can find a link to under the "Links" tab of this blog.) with the parameters: 1) Component of > "DJIA", 2) Price/Cash Flow (TTM) > "Below Industry Average", and 3) Insider Activity Over The Last 1 Month > "Net Accumulation".

Let's go through the screen step by step. First, Dow Jones Industrial Average (DJIA, or DOW) membership is comprised over 30 stocks, seen to be as significant. These stocks, for the most part, are large cap growth companies, and seen as safer investments than smaller cap stocks. Second, the price to cash flow ratio provides a measure of relative valuation. Cash flow refers to the actual cash generated per share of stock outstanding, and is a superior measure than price to earnings (PE), because it removes non-cash transactions from the equation which sometimes cloud the valuation picture. Finally, the most interesting piece, Net Insider Accumulation. The theory behind the inclusion of this metric is that insiders of the company know the company best, and can recognize when the stock price is undervalued. This is a similar play on the "New Dow Dogs" theory which I posted the article to above. Furthermore, the screen in E-Trade keeps this metric more up to date (it uses the past month) than the screen talked about in the article (which uses company buybacks over an ENTIRE YEAR).

As of the first of the year, the screen returned three stocks, AT&T (ATT), Verizon (VZ), and General Electric (GE). The yield on the three stocks, as of this writing, are 5.97%, 5.73%, and 2.64%, respectively. To go one step further, I like these stocks for the following reasons: ATT - increased market share due to the iPhone, VZ - gaining market share on Comcast in the cable spectrum, and I believe they will get the iPhone sooner rather than later, and GE - I think will become more profitable as credit conditions and conditions in the financial sector continue to improve (GE is a big player here).

In a subsequent post, I will be setting up a fictitious $10,000 portfolio of investments which I think will perform well. I think this will be a fun exercise for both me and my reader, and will update on the progress of this experiment frequently. I will be including my three "Dow Dogs" in this portfolio when I start it, so you can all see what type of returns such a strategy can produce related to other investments and the market as a whole. As always though, do your own research and due diligence.

Until later....


Hello, my name is Chris, and thanks for checking out my blog. In this space I will blog about personal finance, economics, politics, and other random things that I find interesting. Some of the information on this page will be my own ideas, some will be information I have found elsewhere, and some will be a combination of the two. Please feel free to comment on my posts and to add your own ideas.

This is my first blog ever, and hopefully we will learn a lot together through this website. I will post a few times today (January 2, 2010) in order to kick off the blog, and hopefully at least once a week thereafter. Thanks for visiting, and have fun reading!

About Me

DISCLAIMER: I started this blog as a way for people to exchange ideas relating to investing and finance, primarily. I am in no way a professional in these areas, merely a student of the financial world. The thoughts expressed on these pages have no connection to my employer in any way. Anybody reading this blog should do so with caution, exercise their own judgment, and do their own due diligence on any financial undertaking. About Me: I reside in New Jersey with my wife and my two dogs. I have a B.S. degree in Accounting with a minor in Finance, as well as an MBA in Accounting. Currently, I am employed as a forensic accountant, and am pursuing my CPA designation. I love the stock market, and picking stocks. I spend a great deal of time analyzing market data, as well as individual names.


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