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Mark Twain used this in A Connecticut Yankee in King Arthur’s Court in 1889: “she was wise, subtle, and knew more than one way to skin a cat”, that is, what was meant is that there is more than one way to get what she wanted.

What this means in modern investment styles is that there are many unique ways to gain in the Stock Market - and what we will do is to find our own approach as to how we wish to invest. Some of us will invest our money one time  in a stock, mutual fund, bond, or CD and just hold on to that investment in what is called a “Buy and Hold” investment.  We do this for various reasons — most likely we do not wish to spend a lot of time in figuring out investments being a major reason why. Other of us will be more aggressive and invest in what is called derivative investments - options and futures, and monitor these daily, if not hourly, or by the minute.  The daily down load I do from TC2000 ( http://www.tc2000.com/) has at the end of a day a market summary from a technical point of view with a commentary from Don Worden, who has more Market experience than many of us have lived. He also accepts inputs from readers about their trading approaches. He may not even agree with some who submit their approaches, yet he publishes these from readers and welcomes them to the  Roundtable of Knights Who Think for Themselves as he is looking for submissions from those who are independent investors. Worden provides them Knighthood within the TC2000 community.I am lucky to be referred to as Sir Detail Stickler. He once referred to an early trading approach I wrote about involving selling a stock after either a 5% gain or 5% loss as this is ”Another way to skin a cat” - meaning ( by my interpretation) that this approach will make profits, yet perhaps there are other ways that may work better as well. Although I have since moved on from the 5% approach, what comes to mind is that each of us will find an investment style we are comfortable with, even passionate about. This is what is important — pick your style, yet be open to move on if you no longer connect with it. The message here is to invest in a style that fits your own personality, not someone else’s.

Don

Now you may ask, what does this puzzling title mean?  Thanks to this site being a personal blog, this provides some freedom to diverse, so here it goes. Several years ago, one of the great mutual fund managers of our time, Peter Lynch, of Fidelity Magellan Fund fame, grew his mutual fund to one of the largest of its time.  He has written a few books on his approach, “One Up on Wall Street,” being one of them. If you wish to study the Markets, this is a good read, along with “Beating the Street.” See Amazon’s site to buy either

http://www.amazon.com/Beating-Street-Peter-Lynch/dp/0671891634

What reminded me of Peter Lynch today was a financial comment on the business news about Apple, in that it was said that “Steve Jobs knows how to make money without trying” Why was this mentioned in the financial press?  It is because apparently Apple is earning about  $1M per day, on top of what ever they get from iPhones and MACs — and gues what, it is from the Applications that people are buying that go with the iPhone.  What Peter had wrote many years ago is to make the best money on Wall Street is to look around you as to what you and others are buying, and then buy the stock — “Buy what you Buy.”  I had thought with the few $4.99 applications I have bought for my iPhone, that this would be just a small addition in Apple’s earnings. Yet, how did I even realize that so many iPhone users were doing the same?  I had already added AAPL to my portfolio of stocks to hold for a TBD time as iPhones have been selling so well. Yet this was not the only criteria.  Just walking into a Palo Alto Apple store and seeing all the activity is enough to suggest they are on a roll (A friend in Michigan says the same). So I bought. Will I hold AAPL for ever?  Likely not, as competition is likely to come forward and if Apple does not continue with visionary products I will sell.  Should you buy AAPL?  If this company fits into your well diversified portfolio, not dominating, and if you feel like I do, then it may make sense for a small percentage of your investments. Just keep in mind that owning individual stocks can be a roller coaster ride, and I am sure AAPL will be one of them. To be fair, this is not necessarily a recommendation and AAPL is only an example here just to provide some learing on using your own buying tendicies to pick a stock.

Don

ps - GPS based movie theatres near you and another iPhone application for finding local restaurants have been my favorites. Hope to play Solitaire on my next flight as well.

As the Stock Market appears to be making a bottom (and certainly it is closer to a bottom than a top), it is looking like it is time to either consider trading some investments or adding new investments to your portfolio. If you have yet to select a brokerage to buy and sell your investments (or if you wish to consider moving your investments to a different broker), this would be the first step to make, that is selecting a discount broker from among the more than 50 firms available. Likely you want a firm that offers online trading, so the list pares down to about 45 firms. The most familiar brokerages are Charles Schwab, TD Ameritrade, Fidelity Investments, E*Trade, and Scott Trade. A few you may have read about are Bank of America Investment Services, Interactive Brokers, TradeKing, USAA Brokerage Services, Vanguard Brokerage Services, Muriel Siebert, and OptionsXpress, for example.

Your choice for a broker usually starts with how much they charge for stock commissions. Years ago, before discount brokers, a stock trade could easily costs you $100 in commissions. Now with so much competition, commissions have come way down. Bank of America even offers zero commissions with a $25K bank deposit. 

My main brokerage account is with Fidelity Investments and with work related accounts, such as 401K’s, I also have accounts at E*Trade and Vanguard. I originally selected Fidelity as they have a very large group of Mutual Funds to select from and I wanted to trade these on a periodic basis. Thus by having an account with Fidelity I had a large universe of funds to select from without having to pay transaction fees through another broker. They also have a large list of non-Fidelity mutual funds you can purchase, either with a zero transaction fee, or for some mutual funds at a small cost of $75, the later of which I try to avoid since there are plenty of funds with no fees. Once I started trading stocks I stayed with Fidelity as their commissions for those who do a lot of trading in small lots is only $8 per trade. A final reason for keeping my accounts with Fidelity is service — first by way of a nearby local office, plus 24/7 available agents to talk to.  An investment group I belong to did a broker survey recently and besides Fidelity, the group members also utilized Schwab and TD Ameritrade. From what I see, once you narrow down what you expect in a brokerage house, the choice becomes somewhat personal. For example, if you are a day trader, besides low fees, you would want fast execution. In a recent survey, USAA ranked first, with Fidelity next.

As a side note, if all you want to invest in are mutual funds, you can buy these funds directly from the source, although I dropped this approach years ago as it wasn’t convenient and I had to keep track of statements from 4 mutual fund companies.  I like the one statement option from a single broker.

Don

With a major family vacation to Scandinavia to visit my Swedish relatives and to introduce many cousins and second cousins to our children now behind me, I can pick up again on this Blog. My gosh, does the US Dollar do poorly in Europe. It seems a hot dog and coke is easily equivalent to $10. I recall our son paying over $80 dollars for a couple of rounds of drinks. There is an interesting side to these high prices though as to where our currency is now with respect to the rest of the World. While in a hotel in Central Oslo, Norway we observed a hotel worker ordering (or bidding) for items on Ebay.  Her comment was that she could buy slippers for $10 USA dollars on Ebay, whereas they would be over $40 equivalent in Oslo stores. This kind of suggests that our currency is most cheap now and based on that exchange alone, we should expect a rally in the USD — we sure need it.

There are really two issues with the question proposed for the title of this Blog. The first is for those who have new money to invest and the second is for those who have been holding investments and are wondering whether to hold or sell them. This is a difficult one to answer for any individual as we all have different risk levels and some of us are willing to jump in at what appears as a bottom and others are ready to pull out of the market and go with CD’s. So to answer this, once again look at your own comfort level of being able to sleep at night with what ever investments you have.

I personally am not one to do a single sell or or buy all at once into investments, but to gradually move into or out of the market. This year has been no exception. I have sold off many mutual funds to raise a higher percentage of cash, but yet have made new investments in selected ETF’s or individual stocks. You may ask, why have I not put more money into just different Mutual Funds — like selling an Emerging Market fund and putting the proceeds into a Large Cap Fund?  Taking a look at a list of over 8000 Mutual Funds from the down load service of Telechart2000 Funds, I see a fund with near the best YTD gain as of July 25th is one called Grizzly Short (GRZZX) with a gain over 32% YTD. It obviously shorts the stock market. Is it worth a long term hold? I likely would not think so — 2003 saw it lose over 30% and subsequent years of 2004-2006 saw it to continually lose $$ as the overall stock stock market was rising.  Bear Markets tend not to last too long as the fear factor in people will direct them to sell out quickly when they sense a Bear, whereas they are more cautious to move into a rising market — except near the top, when everyone (the classical cab driver effect) of “Do I have a stock for you” jumps in. This example of GRZZY is on purpose to show that investments will have good seasons and bad seasons, a reason to examine your holdings on at least a yearly basis, perhaps more frequently with the fast movement of today’s market.  I would suggest if you have an investment in mutual funds to take a look at how well that fund is doing compared to its peers, both on the short term and on the long term. Then make a decision to sell, or to use any free cash to buy more.

The way I invest in the Market with Mutual Funds is to hold a group of diversified mutual funds as the bottom of my investment pyramid . At the end of each year I look at the list to see if I wish to make changes.  I will share the list with you shortly, but wish to continue that as the pyramid of investment options move up I next use a monthly rotating trade of up to 10 Fideltiy Mutual Funds. This is sometimes referred to as upgrading. To be honest this approach has worked well for over 10 years and yet this year it really sucks in performance. Looking at the bigger picture, only 450 of the 8288 funds have achieved a gain of over 1% YTD — definitely not a good sign for investing new money at this time — or is it? 

Next investments, but mostly I use as a model only is a group of diversified Exchange Traded Mutual Funds or ETF’sas they are called. These are funds that you can buy through any broker and are traded just like stocks, unlike the standard mutual fund which usually is traded at the close of the day and has penalties if sold withsome time period, like 30 days for example, ETF’s are bought and sold throughout the day, just like a stock.  More on this approach in another Blog installment. I have made good investments in ETF’s in previousl years, especially those that have been targeted to specific countries, like Brazil for example. This year it has been energy related ETF’s like one that invests in Natural Gas, which I sold recently. I like ETF’s as there are many optional asset classes. You can find commodity ETF’s for example which have been good performers so far this year.

Then on top of this I trade stocks, the real money winners for me this year. This takes a little more effort as the buys are on a weekly basis and the sells can be one day later or 100 days or more later, but require daily marketing. Again more later, but the group of 10 maximum rotating stocks have performed as a group over 20% YTD

Since I am a semi-retired engineer, this means I need to be cautious so I hold a high percentage of my investments in laddered CD’s or corporate bonds (some risk here with  bonds, so be careful)

Here is a list of diversified (everything from Large Cap Companies to Small Cap to Foreign to Emerging Countries to Bond Funds) that are the basis of my investment pyramid.  I will leave up to you to check out the symbols as to what the fund invests in. Keep in mind this list doesn’t require in any year to have an individual fund be at the top, but over several years the fund should outperform its siblings.

AMAGX, FMIEX, JSVAX, JORNX JMCVX FLPSX MRSCX, RYTRX, GABSX, JAOSX, HIINX, FIGRX, PRPFX, FEMKX, FCVSX, EGLRX, PSPFX, BTTNX, LSBRX, FNMIX

This group, for the year is down a little over 8%, certainly outperforming the overall market which is down a few percentage points below this result.  The prize has been Pernament Portfolio, PRPFX, which has never lost money in any given year. It invests in Gold and Swiss Franks for example. A looser has been EGLRX, which invests in Internation Real Estate — and we all know what has happened here. If you wish to follow this group, which will be updated again at the end of this year, I would move slowly into any one of these funds, either with the $$ amount or with the number of buys. 

Well it is time to sign off — hope to update more soon.

Don

Likely a major reason for investing is for your future financial security.  This would perhaps be when you decide to retire at the time when your income stream from the working environment goes away. Let’s take a look forward first and identify just how much you would need, say at age 65 and then I’ll work backwards to come up with a $$ amount you would need to be contributing to an investment program now. The first assumption is that there are two of you together which is likely the case for most of us. Your yearly income needs will depend to a certain extent on where you retire and the associated cost of living there. For example, here in Silicon Valley (i.e. San Francisco Bay Area), the costs are high, whereas in states with low taxes (like Nevada), your costs would be lower. In the Bay Area we have not only a California State Income Tax, but also a high, over 8% sales tax. Then if you purchased a home recently, you have a high property tax as well. Just going out to dinner here can be more expensive than say, North Platt, Nebraska. In your later years, medical insurance and expenses will be a significant portion of your expenses. Then if you wish to enjoy your active adult years with travelling, you want your income stream to be able to afford this luxury.  

All of the below assumptions should be evaluated for your own conditions and the results below can be scaled accordingly. With these considerations, let’s start out with a post retirement income need of $75,000 per year in today’s dollars (keep in mind inflation will require this number in your later years to be even more. A portion of this may come from Social Security if you were in the work force and the remainder comes from your investments. With significant contributions to Social Security for a working couple, I’ll assume this amount to be $25,000 per year, leaving $50,000 to come from taking money out of your investments. If you do not qualify for Social Security (or if SS disappears) you can adjust the total investment portfolio accordingly. Then the question is how much should be in your retirement portfolio?  There have been lots of studies on this in terms of what percentage to take out each year so as you will not deplete your resources for the remainder of your living years. If you remove too high a percentage, you may come up short, forcing you to perhaps sell your home and downsize or move to another location cashing out some of the value of your home.  From the studies I have seen, about 5% seems to be about right for most people. What this means then is if your are removing 5% per year from your portfolio, you will need about $1,000,000 in your retirement account - wow, seems large doesn’t it?  You can get there however, by starting an investment program at an early age that will grow, compounding each year until the time you decide to retire.

CASE A — No Inflation

If you have access to a spreadsheet such as EXCEL, there is a financial function, named PMT which will help you determine how much to invest each month. PMT falls in the category of annuity type calculations. By entering a few values it calculates what you would need to invest on a monthly basis to reach your goal. So far we have the amount you wish to have many years from now and you just need a few more items to enter into PMT.  Here is a list needed for the PMT function. I’ll provide some examples shortly

Starting Age for Investments = SA

Retirement Age = RA

Desired $$ at Retirement = R$

Investment Growth Rate = IGR

In your spreadsheet, then you enter PMT ( (IGR/12) , (RA-SA)*12 , 0, R$ )

Now here are some examples. You already have R$ at $1M and lets say your retiring at age 65, the RA number in the formula. IGR may be questionable as some years the stock market may go up 20% and other years down that much although in the long run the overall market achieves around an average of 10%, I thought it best to be a little conservative and selected IGR as 9% per year for your investment growth rate. So with RA=65, R$=1,000,000, and IGR = 9% (.09 mathematically), here are some monthly investment amounts for different starting ages (SA) in order to achieve your goal:

AGE     (MONTHLY INVEST AMT)

25         $214

30         $340

35         $546

As you can see, the longer you wait the more you need to invest each month in order to achieve your investment goal. By investing young, you have the power of compounding on your side so less is needed each month to go into your retirement investment account.

If you are a little Geeky like I am, here is the actual formula used by EXCEL:

PMT = i*FV/(1+i)^N -1) where FV = R$, N = number of months invested and equals (RA-SA)*12 and i = IGR/12 (remember monthly %, not yearly)

In the next BLOG report, I’ll take a look at what happens with inflation in terms of your monthly investment as inflation will mean your future $1M nest egg will need to be larger. In your favor though will be that your salary will grow as well. The equations become more complex and it has taken a few hours recalling College Calculus to come up with some results. Stay tuned

Many Investment Rewards to you,

Don

The decision to start an investment program is very important for a worry free financial future, whether to fund a retirement, kid’s college expenses, or just to have extra funds for great holiday vacations. The best place to start is through a company’s 401K investment program ( or 403b if it is non profit). If 401K’s are not an option, then setting up your own IRA account ( Roth type IRA’s are a good way to go ). Because the financial markets have their up’s and down’s your investment timing is best if done on a regular, monthly or quarterly type contribution. Maxing out your contribution is the best way to go, along as there is sufficient funds available for you other financial needs. In some cases, companies will match a percentage of your contribution — this is the one to really max out on.

So you make the decision to put some of your hard earned income into an investment program and you are presented with many options of where to place your contributions. It was real easy when I first made 401K contributions, as my company had only 3 options — a stock fund, a bond fund, or a money market fund. The choice was easy for a beginning career to place contributions into a stock fund to allow for maximum long term growth. In later years some of this money would go into bonds and near retirement more into fixed income type investments. Being a technical kind of guy, I looked at the long term growth charts the company provided and did some once a year moving of funds into bonds as there were time periods lasting up to 10 years when the stock market never gained anything (from 1972 to 1982, for example).

In today’s investment option list, there are usually many options to select from, and this can become confusing at times. This is where diversification comes in. There has been a lot written about Modern Portfolio Theory (more on this in later blogs) which points out how diversification of your investments can not only reduce your risk to market variations, but also provide a more stable growth of your assets.

By the way, for companies that give you their stock as matching funds to a 401K program, we have all learned about Enron and how that stock crashed, thus being careful about how much of your retirement assets are connected to your company is very important to not allow this to be your main source of assets (although I’m sure if you are lucky to have Google or Apple as your contributor, you may question this — yet look back at what happened to SUN (symbol now JAVA) when the bubble collapsed in the 2000-2002 time frame)

Now you are looking at investment choices for investing your 401K dollars. The usual way is via a selection of mutual funds offered by either your company’s 401K program or a brokers list of mutual funds for IRA’s. Starting out with your investment dollars, usually a good way is to used Open Ended Mututal Funds or Exchange Traded Funds (called ETF’s). There will be more the differences in upcoming chapters, but for now look at these as an instant way to diversify your investments as these investment vehicles will purchase a broad basket of stocks, bonds or hold cash in an interest bearing account. These funds have associated with them what is called “Style” and along with this “Size.” Below is a box for a Mid-Cap Blend fund, found on Yahoo’s Financial Website when a “profile” option is selected for such a fund.

Mid-Cap Blend [View Category Definition]

This Category box basically suggests that not all mutual or ETF investments are created equal. The Style Value, for example indicates a company with solid earnings, whereas a Growth style indicates a company that is growing in size, but may not have great earnings. Blend funds are a combination of the two. Companies are also categorially identified by their sizes, smal to large. Size is defined as the number of outstanding shares times the price per share — Google being one of the largest, for example.

Now you ask, how is picking a mutual fund by style and size so important? To answer this, first go to this link,

http://www.callan.com/research/institute/download/?file=periodic/free/256.pdf

which is a periodic chart of investment results from 1988 to 2007. Looking just at 2007, the chart shows that the group of stocks represented by the Russell 2000 Value Index (small stocks with value orientation) did the worst and the best performers were foreign stocks represented by the MSCI EAFE (Europe, Asia and Far East) Index did the best. Notice though that over the years, there is no consistency — 1988 was great for Large Growth Stocks, but then by 2000 this same group was near the bottom.

This is why diversification for investments is important. You do not want to be the person who put all their investment eggs into a category right at the top (perhaps foreign stocks now?) only to find a year later that you lost 20 or more percent of that investment. This is why you not only spread your investments out over time, but also into many categories.

All for now — happy investing,

Don

Hello Financial Website Searchers,

I certainly had not expected to have my own Blog, however a very tuned-in son, Kevin, creates these in such an easy way for him that it was an easy choice to say “Yes.”

The first thought was, “What should I write about that is not already covered in the many sites out there?” You can read all about Google’s (GOOG) great earnings or Washington Mutual’s (WM) tailspin down due to the mortgage crisis in many other postings. In this blog you will see in the future comments about real and model portfolio’s based upon my over 20 years experience investing in the Financial Markets. You will not see statements to buy any investment, but you will see results of portfolio’s I have put together, either personally or though various models. You will also learn of my concerns for risk and how I deal with them. Risk is important, not only for keeping your portfolio from having wild gyrations, but for how you sleep at night. These should be connected together — risk in the market and your own comfort level. For starters a look at a web site may help you to evaluate your current mix of investments. If your investmens are similar to the overall market as defined by the SP500, then your risk is 100. You can reduce your risk by investing in more conservative investments.

http://www.riskgrades.com/

Here is right from their site…

ARE YOUR INVESTMENTS TOO RISKY? TOO CONSERVATIVE? NOT SURE?
	Risk Analyzer evaluates the potential risk of your individual securities, your overall portfolio or your watch lists to help you make confident investment decisions.

“Input your portfolio for grading… and analyze the results against a host of benchmarks. What-if scenarios let you see whether… [certain trades] would improve your risk/return and diversification profile. You can also run your portfolio through events like Black Monday and Sept. 11 to see how it would have fared.”

In the next blog posting I’ll chat a bit about diversification of investments and how a balanced approach could lead to less volatility in your overall portfolio. For example this year has seen a Bull Market in Commodities (We all know about Gas prices — then there is even the cost of rice). Yet, these will pass in time, just as the hot Dot Com stocks of the late 1990’s did.

Then I’ll present some portfolio’s I track that do offer diversification through either Mutual Funds or Exchange Traded Funds (ETF’s).

Don