Category Archives: Investing

Update, Finally!

I’m finally going to start updating my blog again. Issue number 1 was dealing with the tons of tabs on dividend investing that I had open. I curated those down to two new pages on investing.

My Investing Approach and Dividend Income

My Investing Approach will remain relatively static and will only be updated as I purchase new stocks, ETFs, or mutual funds. Dividend Income will be more dynamic, showing the amount of dividends that my portfolio is bringing in each month.

Buy American Stocks

Below is a snippet from an Op-Ed piece that Warren Buffett wrote:

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now. …

Continue reading Warren Buffett’s opinion editorial, Buy American. I Am.

17,530% on Google on Friday

Options traders who predicted Google Inc. would beat estimates earned as much as 17,530 percent on their investments today, the most-profitable bet among all U.S. equity derivatives.

Contracts giving the right to buy Google shares for $530 before the close of trading today jumped as high as $17.63 from their 10-cent closing price yesterday. That gain almost matched the 18,760 percent advance in the Dow Jones Industrial Average since the beginning of 1900, according to Bloomberg data.

Source: Bloomberg (Google Earnings Gave Options Traders a 17,530% Gain)

There’s a good Google Group’s discussion about this here.

Wow!! As soon as I get some disposable “play money,” options trading looks like it could be fun or at least the closest thing to Vegas without actually being there. I wonder if there’s a conservative way to trade options? Would that be buying puts and calls? (At this point I only know enough about options to know that those things exist…for what purpose yet I don’t know.)

Rogue French Investor

This sounds like the making of an exciting stock market movie (if there could be such a thing.)

By Friday, January 18, Jérôme Kerviel, a junior suit in the banking world, was on the hook for €50 billion – the equivalent of about half of all the gold and currency reserves held by France. The sum also exceeded the entire value of the bank at which he worked.

The 31-year-old trader at Société Générale, one of France’s most prestigious institutions, had secretly set up a series of deals that were going horribly wrong. So wrong that they threatened the survival of the bank and the health of global financial markets.

The directors faced a stark choice. They could let Kerviel’s trades – essentially bets that the market would rise – run in the hope of markets recovering. But that risked even greater losses if shares continued to fall. Or they could close the positions and take the hit.

It was no choice really. The potential losses if shares continued downwards could destroy the bank. “I did my duty and decided to unwind these positions,” said Daniel Bouton, the chairman. The bank later accepted a lifeline from two big American banks to escape the financial black hole.

The timing could not have been worse. Fears of recession and the debt crisis had sent shivers through the stock markets. On Monday morning the Asian markets were already falling by the time trading started in Paris. Soc Gen was a forced seller in plummeting markets – during that day leading shares in London collapsed 5.5% and in Paris 6.8%. This only compounded Soc Gen’s losses.

By the time it had managed to close out all Kerviel’s positions, the bank was down almost €5 billion. And Kerviel was being blamed for fuelling a stock market nosedive that spurred the American Federal Reserve into the biggest cut in interest rates for 25 years. He was described by the governor of the Bank of France as “a genius of fraud”.

Continue reading…

General Electric DRIP

Back in October 2004 I invested the proceeds from the forced sale of a mutual fund into a General Electric DRIP. I wanted a company that was large and well-established but was still focusing on innovation and growth. General Electric fit that profile and they have increased dividends for the past 31 consecutive years. That’s ultimately what I was looking for… a stable stock with a great dividend history. To boot, they have a number of great products. (However, I’m really bummed about NBC dropping iTunes support. Rather than restricting online support to just one service, it should be available as widely as possible. But that is another post…)

So I put that $993 into GE. I did the initial purchase with the help of NetStockDirect, which merged with Sharebuilder, which now is part of ING. Fortunately, I now can directly purchase my shares through BNY Mellon. I believe it cost something like $7.50 to set of the account. Dividends are reinvested automatically for free. Additional shares can be purchased for the low commission fee of $1. I have since added enough to bring the account up to $3000. And, since I have to pay for medical school, that is where it will stay until I start getting an income. I set up a Google Documents spreadsheet to keep track of how my investment is doing. My average cost per share is 34.46. In 3.14 years of investing I have earned $214.32 in dividends (am at about $97 a year right now) and have a profit of $260.46 (with the stock at 37.45). My compound annual growth rate is 2.68%, not too terribly good, but I’m in it for the long run.

I also put together a dividend growth calculator on the spreadsheet. GE for the last few years has averaged a 12% annual dividend growth. I assumed a 4% annual stock increase (very modest for GE since the the 10-year Average Annual Total Return is 10.70% for the year ending 12/31/2006). I then allowed the stock to grow with quarterly dividends being purchased. The good news is that if these variables hold for the next 20 years, my investment of $3000 will grow into $25,000. From there it will just continue to get larger and larger. Below is the chart that shows the hypothetical growth of GE Stock assuming these variables.

My goal now is to just forget about it and be pleasantly surprised when I’m 44 (wow, that seems a long ways away!)

Hypothetical Growth of GE Stock

Good resources:
Motley Fool: Drip Portfolio
Buy stock one DRIP at a time
the moneygardener: to DRIP or not to DRIP

Stock Spam: Any Hidden Gems?

I get a lot of spam telling me about the next hot stock pick. It always tell me to act quickly so that I “DON’T MISS Ride this stock rocket.” Below I will analyze how these stocks actually performed compared to what the spam email promised. I doubt the companies themselves send this spam, but who knows. Therefore, do not buy these stocks without doing the proper research! Unfortunately, I only have data back to November 7th, 2006, but I’ll try and keep this updated as I receive new spam. The price listed will be the stock’s price at the close of the business day after I first received the spam (or the opening price of the next business day if the spam-advertised stock was received on a weekend or after market hours). The target price, if given, is the price that is quoted in the spam as the incentive to buy the stock.

Before even looking at the results I’ll make the guess that you will not make money on these stocks. If, for whatever reason, the stock price does go up, the volume on these pink sheet or over-the-counter stocks is so low that it would be difficult to sell (or even buy in the first place!) For example, the amount of money that is exchanged on the average day with these stocks ranges from less than $4,000 to about $500,000 (for WEXE). In comparison, on average over $800 million exchange hands with General Electric, $1.7 billion with Microsoft, and $3.3 billion with Google. It is much, much easier to buy and sell shares with high volume.

My opinion is that these stocks are something that you definitely do not want to buy-and-hold. In the very short-term, it may be possible for a few people (namely the spammers) to make some money…a few of the stocks have a small upswing immediately following the spam-advertisement of a stock.
Continue reading

Larry Kudlow on First Quarter 2005 GDP on NRO Financial

Larry Kudlow on First Quarter 2005 GDP on NRO Financial

Three months ago the first government estimate of gross domestic product for the fourth quarter of 2004 came in at 3.1 percent at an annual rate. At the time, the market consensus expected 3.5 percent growth. Immediately, the mainstream media started talking about an economic slowdown. Turns out, that 3.1 percent was finally revised up to 3.8 percent.

This past week, the Commerce Department reported its initial estimate for first quarter GDP at 3.1 percent. The consensus forecast was 3.5 percent. Immediately, newspaper headlines screamed about a soft-patch and the likelihood of further economic decline. Sound familiar?

Well, history is repeating itself — even though, if you look under the GDP hood, you’ll find that the country’s economic engine is humming along. (Read more…)