What is your personal net worth? What is your families net worth? If you don't know this number off the top of your head, you probably need to look at building a personal balance sheet. No I'm not talking about getting all fancy and binning items into short-term or long-term assets and liabilities, but rather a simple format for knowing how much your personal net worth is.
Take your 401k, Roth/Traditional IRA balance, CD's, mutual funds, stocks, cash, bank balances, Personal Property (house, car, jewelry, electronics, furniture) and assign a current value for those items. These items totaled together will make up your asset side.
Now take all the balanced based debts you have and total those up. They would include, mortgage, car loan, personal loan, student loans, credit cards, and any other obligation that has a balance due on it. This does not include items like gas, electric, water, or cable. Those are expenses, and should not be included here.
Now when you have your total assets and your total liabilities, you just subtract assets - liabilities = net worth.
This number will help you determine how far away from or close to your financial goals you are. I do a personal balance sheet the first of every month and archive them to compare and contrast where I am and where I was.
Mutual Fund #4
Bridgeway Aggressive Investors 2
I really thought this was going to be my number one pick in January. With a 31.7% total return for the year to date, the Bridgeway fund has invested in my personal favorite companies this year, including: CROX, DECK, AMZN, and PCU among others, so they know how to find emerging growth companies. They summarize their fund best when their goal is to exceed total market returns. Isn't that what all mutual funds should be striving for?
At an IRA initial contribution of $2000 and $500 additional it will require slightly more cash to maintain the fund, but its 5-year annualized growth rate of 21.99% is enough of a sign that your money is going to the right place.
They sport a 1.19% expense ratio, and of course no load.
Friday, December 21, 2007
Thursday, December 20, 2007
2008 Contributions and a Look Back
As we wind down 2007 it is important to take a look back at what we as investors have accomplished in our personal returns from our various investments. Maybe now, we can spend a half day or whole day going over all those financial records and finding ways to lower our fees, and increase our returns.
Jesse Livermore, my favorite investor of all time, would spend the end of each calendar year in a bank vault going over all of his trades for the past year and performing a post mortem. It was this continual fine tuning of his investment strategy that made him successful. I recommend each of us spend some fraction of our time learning from our mistakes.
With a new calendar year, comes new levels of contribution limits for our investments.
401k/403b/Section 457 Plans Contribution Limits
Age 49 and Under - $15,500 (same as 2007)
Catch Up, 50 and up - $15,500 + $5000 (same as 2007)
IRA Contribution Limits
Age 49 and Under - $5000 (up $1000 from 2007)
Catch Up, 50 and up - $6000 (up $1000 from 2007)
Simple IRA Contribution Limits
Age 49 and Under - $10,500 (same as 2007)
Catch Up, 50 and up - $13,000 (same as 2007)
SEP IRA Limits
Max Dollar Allocation - $46,000 (up $1000 from 2007)
We also close out the year with a look at our 5 favorite mutual funds of 2007 that we believe will be strong in 2008 (maybe not as great as these returns)
#5 Spectra N
Commanding a 30.04% YTD return, the Spectra N fund has shown exceptionally high returns since inception. Designed to invest in companies of any size and any country allows this fund to be flexible enough to go where the money is. Bell weathers in this fund include GOOG, AAPL, HOLX and CMI. An IRA initial contribution is $500 with $50 monthly contributions thereafter. There is no load on this fund, or any of the funds I will be talking about, and the expense ratio of 1.5% while higher than most, is acceptable based on its performance. All together, that is what makes Spectra N, our #5 mutual fund of 2007.
Jesse Livermore, my favorite investor of all time, would spend the end of each calendar year in a bank vault going over all of his trades for the past year and performing a post mortem. It was this continual fine tuning of his investment strategy that made him successful. I recommend each of us spend some fraction of our time learning from our mistakes.
With a new calendar year, comes new levels of contribution limits for our investments.
401k/403b/Section 457 Plans Contribution Limits
Age 49 and Under - $15,500 (same as 2007)
Catch Up, 50 and up - $15,500 + $5000 (same as 2007)
IRA Contribution Limits
Age 49 and Under - $5000 (up $1000 from 2007)
Catch Up, 50 and up - $6000 (up $1000 from 2007)
Simple IRA Contribution Limits
Age 49 and Under - $10,500 (same as 2007)
Catch Up, 50 and up - $13,000 (same as 2007)
SEP IRA Limits
Max Dollar Allocation - $46,000 (up $1000 from 2007)
We also close out the year with a look at our 5 favorite mutual funds of 2007 that we believe will be strong in 2008 (maybe not as great as these returns)
#5 Spectra N
Commanding a 30.04% YTD return, the Spectra N fund has shown exceptionally high returns since inception. Designed to invest in companies of any size and any country allows this fund to be flexible enough to go where the money is. Bell weathers in this fund include GOOG, AAPL, HOLX and CMI. An IRA initial contribution is $500 with $50 monthly contributions thereafter. There is no load on this fund, or any of the funds I will be talking about, and the expense ratio of 1.5% while higher than most, is acceptable based on its performance. All together, that is what makes Spectra N, our #5 mutual fund of 2007.
Tuesday, December 18, 2007
Pennies from Hell
“In two days his stock skyrocketed from 2¢ to 24¢, he made $24,000” In some form or factor, we have all heard these same stories from friends and co-workers on how to get rich on what are commonly called penny stocks. What is the fascination with them and why do we as financial planners advocate against them so much.
Reasons for buying those lovely investment “steals”
In reality the term steal is reflective in the hard earned money you invest into these stocks being stolen from you. So many people invest in these stocks because they believe, that if the stock goes up from 2¢ to 3¢ then they have made a 50% return on their money. While this is true on their returns, the likelihood of that return is near improbable. These stocks are devalued for a multitude of reasons.
Ever think about these
1.) The stock was $120 a share and now its trading near $12. A perfect example is JDS Uniphase JDS While the stock is not trading at pennies or fraction of pennies it is 90% below its previous higher. In order to see that stock return to its glory of $120 a share, it will need to soar a whooping 1200%. How often do we see a stock with negative cash flow and a weak prospectus improve that much. Not very often!!!
2.) The bid and ask price are not in your favor. In 2005 I heard a lot of buzz concerning SmarTire SMTR.OB With a stock trading at 14¢ a share it seemed like a steal, with a growing company, with negative cash flow, but a promising product. I looked it up myself, and the bid price was 13¢ and the ask price was 15¢. At this point, if I buy the stock and sell it within a minute (assuming no price movement) I am already down 15% on my investment. Compare the bid and ask prices of a healthy $20 stock, and at the most you are down 1% from your initial purchase price. Note, this stock is now trading at a fraction of a penny.
3.) No institutional investors. As we all know, the market revolves around the actions of mutual fund managers, and hedge fund managers. They control 75% of all stock price movements, and they own less than 0.1% of all penny stocks. Why invest in something the pros won’t even look at?
4.) The fundamentals are just not there. I cannot stress this point enough, penny stocks are at their price, because they are generally a company on the downward spiral, with negative sales growth, no earning potential, and are operating with a lot of debt. Think of it as lending money to your Uncle Monty who has already filed for bankruptcy and is defunct on loans he made with other family members. If you want to lend money to Uncle Monty knowing you will never get it back, then feel free to feed to bottom dwelling stocks.
Now I beat penny stocks up for a reason. In the age of email and fax machines, we are inundated with “investment firms” recommending penny stocks that have risen from 1¢
to 10¢. They are simply hoping you will buy the stock and then they will sell some of their shares to make themselves a profit and devalue your investment. I know this from experience, as back in 1997 I invested in a Telecom called “Global Technologies” GLCO I bought about $500 worth of stock, and watched my stock move from .07¢ a share down to .0002¢ a share. Avoid one of the biggest rookie investing mistakes even the pros make, don’t buy penny stocks.
Reasons for buying those lovely investment “steals”
In reality the term steal is reflective in the hard earned money you invest into these stocks being stolen from you. So many people invest in these stocks because they believe, that if the stock goes up from 2¢ to 3¢ then they have made a 50% return on their money. While this is true on their returns, the likelihood of that return is near improbable. These stocks are devalued for a multitude of reasons.
Ever think about these
1.) The stock was $120 a share and now its trading near $12. A perfect example is JDS Uniphase JDS While the stock is not trading at pennies or fraction of pennies it is 90% below its previous higher. In order to see that stock return to its glory of $120 a share, it will need to soar a whooping 1200%. How often do we see a stock with negative cash flow and a weak prospectus improve that much. Not very often!!!
2.) The bid and ask price are not in your favor. In 2005 I heard a lot of buzz concerning SmarTire SMTR.OB With a stock trading at 14¢ a share it seemed like a steal, with a growing company, with negative cash flow, but a promising product. I looked it up myself, and the bid price was 13¢ and the ask price was 15¢. At this point, if I buy the stock and sell it within a minute (assuming no price movement) I am already down 15% on my investment. Compare the bid and ask prices of a healthy $20 stock, and at the most you are down 1% from your initial purchase price. Note, this stock is now trading at a fraction of a penny.
3.) No institutional investors. As we all know, the market revolves around the actions of mutual fund managers, and hedge fund managers. They control 75% of all stock price movements, and they own less than 0.1% of all penny stocks. Why invest in something the pros won’t even look at?
4.) The fundamentals are just not there. I cannot stress this point enough, penny stocks are at their price, because they are generally a company on the downward spiral, with negative sales growth, no earning potential, and are operating with a lot of debt. Think of it as lending money to your Uncle Monty who has already filed for bankruptcy and is defunct on loans he made with other family members. If you want to lend money to Uncle Monty knowing you will never get it back, then feel free to feed to bottom dwelling stocks.
Now I beat penny stocks up for a reason. In the age of email and fax machines, we are inundated with “investment firms” recommending penny stocks that have risen from 1¢
to 10¢. They are simply hoping you will buy the stock and then they will sell some of their shares to make themselves a profit and devalue your investment. I know this from experience, as back in 1997 I invested in a Telecom called “Global Technologies” GLCO I bought about $500 worth of stock, and watched my stock move from .07¢ a share down to .0002¢ a share. Avoid one of the biggest rookie investing mistakes even the pros make, don’t buy penny stocks.
Monday, December 17, 2007
Percentages can be very tricky
Ever read a prospectus that states 15% average annual return. Sounds great right?
Actually, better than what we identified in our last three examples. If we were to assume a 15% return, we could expect our $10,000 investment to turn into over $20000 in 5 years time.
Example #5
Assumed 15% return (cents have been removed and not rounded)
Year 1: $11500
Year 2: $13225
Year 3: $15208
Year 4: $17489
Year 5: $20112
Our investment would double!! That is, if we assume and let the fund work for itself.
But, let’s take a closer look at those percentages taken from that same prospectus. Even then the numbers look great, but lets see what our money does over that 5 years, using the given percentages.
Fund XYZ
Annual Return
Year 1: 23%
Year 2: 22%
Year 3: 9%
Year 4: -15%
Year 5: 36%
Average Annual Return: 15%
Example #5 using the real rate of return (cents have been removed and not rounded)
Year 1: $12300
Year 2: $15006 (We’re way ahead already!!!)
Year 3: $16356 (Still way ahead)
Year 4: $13903
Year 5: $18908
What happened in year 4? We were way ahead of our investment and then one bad year knocked that return off what we believed was going to be even better than the 15% increase each year as told in the prospectus. In year 5, we had a gain greater than any listed on here, but because our base (Year 4 money of $13903) was smaller then on the previous example that steadily earned 15% each year, we fell behind the assumed 15% return.
But, adding the percentages in both examples averages out to
The goal is not to let someone take over your investments and not worry about them as time goes on. Your goal should be to taken control of your investments and make them grow. You wouldn’t bear a child then hand them over to a professional for the next 30 years would you? So why would you do that with your money?
The object to investing is not to be right all the time, but rather 60% of the time. Learn from the other 40% and improve upon your skills each year.
Actually, better than what we identified in our last three examples. If we were to assume a 15% return, we could expect our $10,000 investment to turn into over $20000 in 5 years time.
Example #5
Assumed 15% return (cents have been removed and not rounded)
Year 1: $11500
Year 2: $13225
Year 3: $15208
Year 4: $17489
Year 5: $20112
Our investment would double!! That is, if we assume and let the fund work for itself.
But, let’s take a closer look at those percentages taken from that same prospectus. Even then the numbers look great, but lets see what our money does over that 5 years, using the given percentages.
Fund XYZ
Annual Return
Year 1: 23%
Year 2: 22%
Year 3: 9%
Year 4: -15%
Year 5: 36%
Average Annual Return: 15%
Example #5 using the real rate of return (cents have been removed and not rounded)
Year 1: $12300
Year 2: $15006 (We’re way ahead already!!!)
Year 3: $16356 (Still way ahead)
Year 4: $13903
Year 5: $18908
What happened in year 4? We were way ahead of our investment and then one bad year knocked that return off what we believed was going to be even better than the 15% increase each year as told in the prospectus. In year 5, we had a gain greater than any listed on here, but because our base (Year 4 money of $13903) was smaller then on the previous example that steadily earned 15% each year, we fell behind the assumed 15% return.
But, adding the percentages in both examples averages out to
The goal is not to let someone take over your investments and not worry about them as time goes on. Your goal should be to taken control of your investments and make them grow. You wouldn’t bear a child then hand them over to a professional for the next 30 years would you? So why would you do that with your money?
The object to investing is not to be right all the time, but rather 60% of the time. Learn from the other 40% and improve upon your skills each year.
Wednesday, December 12, 2007
Watch for Winners on Down Days
If the market is in an uptrend, as we currently are down days can be great indicators of emerging leaders. Yesterday the market tumbled 2+% after the fed cut the interest rate by 25 base points. Investors were hoping for 50 base points, thus the market tumbled. What investors found was a lot of stocks on their watch list in the red. But, for investors that kept current watch lists they might have found some stocks were positive despite all the bearish news on Wall Street.
Three such stocks that soared yesterday were GROW (15% gain on unusually high volume) SNCR (10% gain on unusually high volume) and PRGO (7% gain on unusually high volume).
So, next time the market has a hiccup, do yourself a favor and find the winning stocks with strong fundamentals that reversed the trend of the market, and note that this will only work in an up trending market.
Three such stocks that soared yesterday were GROW (15% gain on unusually high volume) SNCR (10% gain on unusually high volume) and PRGO (7% gain on unusually high volume).
So, next time the market has a hiccup, do yourself a favor and find the winning stocks with strong fundamentals that reversed the trend of the market, and note that this will only work in an up trending market.
Tuesday, December 11, 2007
Is diversification the best thing for you??
We are always told to diversify to protect our portfolio, and it sounds like good advice, after all, if everyone knows about it, then it must be true right?
Let’s dig into that time-tested piece of investment advice using a few examples.
Example #2:
$5000 invested over 5 separate stocks. Figures shown with annualized returns.
Investment Goal: 11%
Investment #1 – (+28%) $1280
Investment #2 – (+31%) $1310
Investment #3 - (-21%) $790
Investment #4 – (-12%) $880
Investment #5 – (+1%) $1010
Your return on investment is $5270 or 5.4%
So even though you’ve had some big winners that outdid your losers, you came nowhere near your goal of 11%
Now lets look at tightening your investments and see if less is more.
Example #3
$5000 invested over 3 separate stocks.
Investment Goal: 11%
Investment #1 – (+28%) $2133
Investment #2 – (+31%) $2183
Investment #3 - (-21%) $1317
Your return on investment is $5633 or 12.6%
Now let’s look at those three investments following our 25/8 rule
Example #4
$5000 invested over 3 separate stocks.
Investment Goal: 11%
Investment #1 – (+25%) $2084
Investment #2 – (+25%) $2084
Investment #3 - (-8%) $1534
Your return on investment is $5702 or 14%
In this case, you didn’t have to find that 30% gainer, and you still came out ahead of Example #3, because you followed a clear sell rule.
Let’s dig into that time-tested piece of investment advice using a few examples.
Example #2:
$5000 invested over 5 separate stocks. Figures shown with annualized returns.
Investment Goal: 11%
Investment #1 – (+28%) $1280
Investment #2 – (+31%) $1310
Investment #3 - (-21%) $790
Investment #4 – (-12%) $880
Investment #5 – (+1%) $1010
Your return on investment is $5270 or 5.4%
So even though you’ve had some big winners that outdid your losers, you came nowhere near your goal of 11%
Now lets look at tightening your investments and see if less is more.
Example #3
$5000 invested over 3 separate stocks.
Investment Goal: 11%
Investment #1 – (+28%) $2133
Investment #2 – (+31%) $2183
Investment #3 - (-21%) $1317
Your return on investment is $5633 or 12.6%
Now let’s look at those three investments following our 25/8 rule
Example #4
$5000 invested over 3 separate stocks.
Investment Goal: 11%
Investment #1 – (+25%) $2084
Investment #2 – (+25%) $2084
Investment #3 - (-8%) $1534
Your return on investment is $5702 or 14%
In this case, you didn’t have to find that 30% gainer, and you still came out ahead of Example #3, because you followed a clear sell rule.
Monday, December 10, 2007
Rules of Risk
The Rule of 100 – Take your age from 100. The remainder is the percentage of investments that should be in stocks.
Example #1
Take a 50-year-old woman
100-50 = 50% of your investments should be in stocks
The remaining 50% can be in securities such as Bonds, CDs or Money Markets
The rule of 25/8[1] – Any investment that makes 25% of your initial purchase price should be sold. Unless the run up is within 1 month. In that case, hold onto your investment for a few more months, watching it closely. Any investment that loses 8% of your initial purchase price should be sold immediately.
[1] http://www.investors.com/learn/S02a.asp
Example #1
Take a 50-year-old woman
100-50 = 50% of your investments should be in stocks
The remaining 50% can be in securities such as Bonds, CDs or Money Markets
The rule of 25/8[1] – Any investment that makes 25% of your initial purchase price should be sold. Unless the run up is within 1 month. In that case, hold onto your investment for a few more months, watching it closely. Any investment that loses 8% of your initial purchase price should be sold immediately.
[1] http://www.investors.com/learn/S02a.asp
Friday, December 7, 2007
Find the Winners Among the Winners
Earlier this week I recommended ATVI (+18% for the week) and I mentioned how bullish I was on the video game industry. Yesterday gave another strong indication of how bullish you should be on the industry. GME is a retailer of video games across the country. I am sure you have seen their GameStop locations at strip malls. What separates GameStop from all the other's is their strong fundamentals and management team. They have found a way to make the business model work in the face of competition and prior company launches.
When you combine strong fundamentals, with strong earnings, strong management team, and a produce the public demands, you have a winning stock on your hands.
Have a great weekend everyone!
When you combine strong fundamentals, with strong earnings, strong management team, and a produce the public demands, you have a winning stock on your hands.
Have a great weekend everyone!
Thursday, December 6, 2007
Don't be a bottom feeder
I remember hearing from my investment guru friends 5 years ago "you need to buy Ford stock, its a bargain at $11". You have to understand where I am from the auto industry drives and dives our economy, and by the mere fact of a stock falling to some magical price, it made the stock a good investment, because it was Ford in their eyes.
I am here to tell you that buying a stock because you think its a good price is not like buying a piece of real estate. You don't look for the cheapest price. In stocks you look for companies stock prices reaching the 52-week high.
Why is that?
Well when a stock reaches a new high it has broke past a point of resistance in its price target. There was some force of the market (psychological or otherwise) that kept the stock from breaking out to a new price high. When the stock breaks to that new high, there is no ceiling to how high it can go, and that is when you want to buy, not some price that you and your buddies think is too cheap to pass up on.
I mention Ford stock because its ironic that today, some 5 years later, Ford is now trading between $7 and $8 a share and those that invested in the company either lost a chunk of money, or even worse, had their money just sitting in a losing company when they could have been making money on companies like TTM or CAT. Two companies in the same business as Ford, but with a much better business model for growth of the stock price. If you bought these stocks at 52-week highs you could have netted 100% - 200% gains, as opposed to a 38% of Ford shares.
I am here to tell you that buying a stock because you think its a good price is not like buying a piece of real estate. You don't look for the cheapest price. In stocks you look for companies stock prices reaching the 52-week high.
Why is that?
Well when a stock reaches a new high it has broke past a point of resistance in its price target. There was some force of the market (psychological or otherwise) that kept the stock from breaking out to a new price high. When the stock breaks to that new high, there is no ceiling to how high it can go, and that is when you want to buy, not some price that you and your buddies think is too cheap to pass up on.
I mention Ford stock because its ironic that today, some 5 years later, Ford is now trading between $7 and $8 a share and those that invested in the company either lost a chunk of money, or even worse, had their money just sitting in a losing company when they could have been making money on companies like TTM or CAT. Two companies in the same business as Ford, but with a much better business model for growth of the stock price. If you bought these stocks at 52-week highs you could have netted 100% - 200% gains, as opposed to a 38% of Ford shares.
Wednesday, December 5, 2007
Investing has not changed in 100 years
Having just completed my bi-annual reading of "Reminiscences of a Stock Operator" by Edwin Lefevre it struck me that the market corrects and rallies the same as it did in 1900. Why is that? Human emotion cannot change the way the market reacts. After all the computer technology, the SEC regulations, the global economy, you cannot pin-point any one event that has made the stock market any more different today than it was 70 years ago.
It is because of that that I highly recommend reading anything you can get your hands on from some of the greatest traders of all time: Jesse Livermore (My Favorite of all time), Bernard Baruch, Nicholas Darvas, Bill O'Neil, and Stan Weinstein. Between these traders their strategies are 20-80 years old and I put much more weight into what they say then what Jim Cramer spouts off in Mad Money. Take a look at some of the key points they talk about and apply them to your trading strategy. You will be surprised how valuable their information will be your trading skills.
It is because of that that I highly recommend reading anything you can get your hands on from some of the greatest traders of all time: Jesse Livermore (My Favorite of all time), Bernard Baruch, Nicholas Darvas, Bill O'Neil, and Stan Weinstein. Between these traders their strategies are 20-80 years old and I put much more weight into what they say then what Jim Cramer spouts off in Mad Money. Take a look at some of the key points they talk about and apply them to your trading strategy. You will be surprised how valuable their information will be your trading skills.
Tuesday, December 4, 2007
Video Games are HOT!!!!
Ever play Guitar Hero? I haven't but if Pro Athletes have to go on the disabled list from playoff games, its a sign of the times. Guitar Hero by Activision, is but an example of the video game manufacturer's capitalizing on the new video game consoles on the market. What do investors do in these situations? They take advantage of the situation and make money.
ATVI is a favorite of mine, now that the market has decided (temporarily) to move upward. We are in a see saw market, so I recommend to tread lightly on any purchase you make at this time of the year.
ATVI is a favorite of mine, now that the market has decided (temporarily) to move upward. We are in a see saw market, so I recommend to tread lightly on any purchase you make at this time of the year.
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