SCHH, ASNA, MSFT

Today the market was generally up. I keep a set of ETFs from Charles Schwab because they are low cost in terms of management and from a Charles Schwab account they are free to trade, so you can make modest trades. This REIT ETF went down today more than any other ETF I have, so I tried to buy on the dip and picked up 10 shares at 30.30 per share.

More profit taking. I closed my position in Ascena Retail for two reasons despite the fact I think it is a well run company. One of my investing thesis for 2012 is that online retailers are going to continue to pressure brick and mortar stores. And the other is that this is really high priced I think. Opened the position Oct. 6, 2011, have an average unit cost of 15.64 and that is a 31.40% profit. Since some of the shares will be short term, I will have to select some lucky dog stock to offset the capital gains. Bought a CD that expires in 2015 with a whopping .85 interest.

In a fit of calculated insanity, I hopefully opened a position for Microsoft in the Es basket. MSFT dropped about .64 today to close at 28.00. I have a limit set for 27.50, we shall see.

Sprott Resource Corp

Uh Oh. I was closing out a few losers to make a tax advantage for the winners I have been closing positions on and I tried to close SCPZF and I could not. The website popped up a sign that said I could only set a limit order. I did that and then it said the charge to sell could be $150.00 or more. Since I only have about $1,500.00 I said no for the day. However, I think I am going to log back in tomorrow and call the online broker. If is a LOT better to get out with an extra $150.00 loss than to lose everything. Great reminder that when we invest, we invest with real money and accept real risk.

VEU, VBR, IWR

We have been in a long bull and while there is no possible way I can time the market, I can choose to profit take to stash some of the profits in CDs or other stable investment and also to put some money on the sidelines for buying opportunities.

Three candidates are VEU, VBR, IWR. Let's consider the merits of each decision.

VEU is all world ex US. I believe that international stocks are more of a value pick than US stocks. Therefore, after contemplating this for days, I have elected to stay the course and hold my investment in VEU.

VBR is small cap, US. While I think this is an excellent ETF, small caps tend to underperform in a long bull. Let's take our gains and put the money into a CD.

IWR is mid cap. I have the same thesis for a long bull market. Sell and invest the principal and interest in a short term CD.

What if I wanted to keep some of the money in the game? In a generally up market we need a compelling thesis.

Four or Five Tech Leaders?

My son bought Apple a couple weeks ago just in time to have the price drop fifty dollars while Google went up about that much. Is it temporary or is the shine off the Apple?

Some smart analysts from the Motely Fool just wrote an article on the topic.

Then Eric Schmidt there are four tech leaders that matter, Apple, Google, Amazon, and Facebook, leaving Microsoft out. I found an interesting article on Slashdot saying he was wrong.

Who is going to be tops? This Forbes blog says it is Google. I guess the next year will be interesting as they continue to "duke it out".

High Speed Trading

Mikko Hypponen, one of the greatest minds in security posted a link that asserts that 4% of all trades and 10% of all trading volume were the result of a test of a new High Speed Trading algorithm ( HST ).

This predatory practice really does not directly affect individual investors like me. I try to mostly adhere to a buy and hold strategy even though I do profit take successful stocks that I cannot believe should become core holdings. Since my world view is a year minimum, I really do not care if someone else gets to "queue jump".

However, it does impact me; and you, and everyone one else. The less faith in the free market system, the less investment. The less investment, the lower the stock prices. As an investor, I have been consistently taking profits from this lovely bull market and investing my principal and interest in safer investments such as CDs and Municipals.

When and if I am blessed to new money in the market, I try to make a value play ( not that I am against growth, we just are fairly far down the bull path). While I deeply understand I cannot time the market, my gut, my experience, tells me to *slightly* reduce my exposure, profit take, and get money on the sidelines for a buying spree if the market should tank. But, that does not mean I am not buying, just that I am buying with deep limit offers. I put two in my Value Basket FIk tonight, ALEX (limit 20.00) and JMBA (limit 2.20). Hopefully, these HSP crooks are not so smart that when the market is crashing they beat me to my limit offer.

Update October 20, 2012 Jamba closed on Friday at 2.31 Alexander Baldwin closed at 26.93

Ideas from Value Investing Congress

Someone tipped me to a Motley Fool post about the value investor conference. It was a lengthy post, but I had two takeaways.

ALEX Alexander & Baldwin is a Kauai and Maui company formed in 1870. The have both commercial and undeveloped land on their balance sheet. A lot of it, something like 25% of Maui. It would need to be a deep limit and mark your trading notebook that it is a long term play, i.e. your kids would do the profit take.

JMBA Jamba Juice. The big point for me is that the stores, which have a small footprint average $700k year. This is a bad management turn-around. I like the Jamba Juice concept. If you have looked at my Sumner WA analysis, they have two smoothie shops on Main St and I do not think either of them have a moat. This would be a fun way to open a retail business.

Vanguard ETFs

I am in the process of profit taking and doing two things with the proceeds:

Putting some money on the sidelines because I expect some great buying opportunities with the Fiscal Cliff

Putting some money into short term CDs and similar investments for increased safety and I expect bonds and CDs to start creating a higher return a year from now

Profit taking with XPH (SPDR), VTV, VIG, VBK. These Vanguard ETFs have performed very well and it there is a major drop in the market and it is over 30 days from today, I would strongly consider re-establishing a position.

VEU and VBR don't have their birthday until October 13, 2012 so I set a Google reminder to put in a sell order on Sunday the 14th. But I am not sure I want to sell VEU, it is Vanguard's all world ex US and it has performed well and I think there could be more room to climb.

I know we tend to view ETF vendors as commodity, all the same, but I have watched Vanguard over the years and I am pretty impressed. I tried opening an account, but could not see a way to open a trust account, maybe I will try again tonight.

BRK.A sold BRK.B Es

Update January 10, 2013 Just for grins, BRK.A closed at 140,000.00 down 1k for the day, up 4.57 for the past 90 days. I am still glad I sold it though, that is too much for me. BRK.B closed at 93.32 up 4.55% for the past 90 days. I am much more comfortable with the smaller stake in BRK.B.
Update Oct 20, 2012 I am never, ever, going to make a bet like that again. I am so glad I got out and even ahead. Friday, the stock went down about $1,559.00 in a single day. Wow!


10/8/2012
Buying a share of BRK.A is the riskiest investment I have ever made, but I sold it today with a 22% profit. Berkshire Hathaway is a wonderfully run company and certainly firing on all cylinders financially, but if something was to happen to Warren Buffet, I think it could easily drop 30% in an hour. You have to take some risk to invest in the stock market, but I am glad that principal and interest is now in a one year CD at 0.55 interest on a coupon.

Core Holdings

What are core holdings? I honestly feel that most people including myself are better off buying ETFs first and build a solid base of several asset classes, commodities, consumer, technology etc. But eventually you will probably want to buy individual equities. Core holdings are stocks that you have done your research on. You hold them for years. You know the company and track its performance. I have watched Ford and Wal-Mart for years. Ford just has too much debt for me to hold that stock in any great measure, but every time I see a Mustang or an F150 truck on the road I salivate. At one point, Wal-Mart was a core holding for me; then I started reducing my position several years ago as established stores started selling less every year and in August 2011, started adding to that position again. How many core holdings should one have? I don't know. My core holding basket has a rule of a maximum of 12. I was up to eight at the start of the bull run, but have been profit taking as the value of a holding crossed over 20% increase and spent the money on CDs and Municipals. Right now I have three, Google ( GOOG), Apple (AAPL) and Berkshire Hathaway (BRK.A). If the market will keep from crashing on Monday, I will be down to two and that means really looking at my watch list. Berkshire Hathaway has been good, really good, but I am concerned that they are really dependent on Warren Buffet. The watch list concept When I was a boy, I used to take the Sunday paper and read the stock tables. I kept a paper portfolio. This is a watch list. Even before you have the money to invest, start trying to find the companies you want to partner with. Read about them, do business with them. If you have more disposable income, you can open up a small position and watch them rise and fall. Core holdings are stocks you want to hold for a very long time unless you think conditions are changing. One of these for me is Google (GOOG). I think Google has a moat. They do not just do search, they have the Android phone, they have Gmail, they have a tremendous amount of marketing information with location services and DoubleClick. If Google suddenly drops a lot, I am not going to panic, instead, I will look at my finances and see if I can add to my holdings. Of course things can change, but right now it looks like I will be holding Google a decade from now. I am not going to sell either equity for a mere 20% gain, I am just curious which one will cross the thousand dollar per share mark first. These days, my watch list is my mutual fund basket Ts. I have an online broker that charges less per trade than most and I trade a lot usually in $500.00 increments. The rules of that basket are: - The initial lead can come from any source - < debt to asset ratio of 20 - No big moves, $500.00 increments - If it doesn't look like it can become a core holding and it crosses 20% increase and it is past its one year birthday, sell it and buy a CD or municipal bond. This way I do not have a ton of skin in the game, but I lose money or gain money depending on how it performs. This helps me pay attention. If you are still working, consider not taking dividends in cash Also, try to find a system that will allow you to add to your investment commission-free, usually with a Dividend Reinvestment Plan (DRIP). The goal is to follow a few different companies that are in sectors that will be in demand, have healthy balance sheets and use these to comprise the core of your equity investment. My suggestion is to try to find at least eight equity sectors for diversity and find the solid companies that are likely to be around for a long time. Then, set Google Alerts for those companies. Do business with them, do whatever you can to know a little more about the companies you pick than the average Wall Street trader. When there are dips in the market, buy more of the companies you have grown to understand. Let me try to make this plain for you. Maybe you have heard Apple is a great stock and it has served many investors and investment clubs well. January 2011 - January 2012 it is up 22.35% and you have the iPhone 5 and iPad 3 still to come, so 2012 should be a good year for Apple. However, if you have a Windows PC, an Android phone and don't own an iPad, this is probably not a stock you want to own as a core holding. Without Steve Jobs, things may start to change and if you do not have your finger on the pulse, you may miss the change. UPDATE October 6, 2012: The maps thing really concerned me as does the purple tinge on the iPhone 5 camera. I will be keeping a close eye on Apple. But I am sure not going to bet against them in the current situation.

Three keys to safe(er) investing

This is modified and updated from my earlier financial blog. There are many strategies, with ours there are three keys to help you be efficient with both your time and money. Investing by low cost, commission free index ETFs is the first key. Think about it. If you invest in a number of obscure individual equities, say: MRCY, JNJ, KELYA, JNPR, SNY, MELI, AFAM, they may all be great companies - in fact, at the time of this writing, they are. However, after you own them, you get busy and X, Y, Z happens, and suddenly, they are not as good of a deal. Now what? It has been 30 days since you visited your account and one of these lovely equities is now down by 50%. That could happen with ETFs as well, but because they are broadly based, they tend to fall a little less and a little slower than some equities though they may also rise less and slower. Since we do not have armies of analysts and computers that never sleep monitoring our investments this is a little safer. After all an Exchange Traded Fund ( ETF ) show not totally go to zero, with an individual equity, if the company goes bankrupt we are at the back of the creditor line. You can be an active investor even if you do not move beyond index and specialized ETFs. Take a minute to check out this incredible resource, finance.yahoo.com. If you go to their ETF page, they have a browser that allows you to compare and contrast hundreds of ETFs by type. For instance, I might want to achieve some diversification based on the size of companies. A common categorization is "small cap, mid cap, large cap and mega cap". Cap is short for market capitalization, the amount of money the outstanding shares of stock are worth. More or less, small cap is 300 Million to 2 Billion, mid, 2 - 10 billion, large above 10. Why do you care? Well if you look at the ETFs that I selected from finance.yahoo.com, RZV - small cap value, CZA - mid cap value, CVY - large cap value, you can easily see that RZV is more volatile. It had lower lows and higher highs in a this three month period. TIP: the less you pay for your ETF, the more money you can invest. Two things to consider:

What is the trade fee to buy the ETF? This varies by online broker, but many online brokers will let you buy some ETFs with no trade fee, check out the deals at Charles Schwab and Ameritrade for starters.

What is the management fee? Charles Schwab brand ETFs have a low management fee and so does Vanguard. After that, it is up to you to research. The second key is to recycle your trading ideas. In another blog post we will talk more about that. Go to the store, buy one of those cheap composition books, or even better (since this is real money we are talking about), invest in a Moleskine Legendary notebook. Create a table of contents. Give every equity you want to follow at least four pages. Make observations and predictions. Establish a thesis: "I believe this equity will go up (down) because...", then list as many reasons as possible, and see what happens. As you mature as an investor and move from index based ETFs to also add individual equities to your portfolio, you will want to establish a position in eight to twelve companies that you understand. As you grow even more, you may have small positions in candidates that may one day become core holdings. The third key is to have an online portfolio, or even several. A great place to start is Google Finance, but if you prefer a different web site, more power to you. The idea though is to have one place where you can look at ETFs and individual equities you are interested in to see how they are doing at a glance. Although I set time aside during the year for deep study, week to week, I try not to spend more than fifteen minutes in the evening, Sunday through Thursday, looking at the market. I know what I am interested in. I have my portfolio showing on Google Finance, I bring up the online broker basket* that I have allocated some money to and I start making my decisions. Even though I am busy and need to go fast, I often make my decisions one night, sleep on them, come back the next night and if it still makes sense, execute the trade.