Tuesday, October 8, 2013

Who Is Janet Yellen?

Janet Louise Yellen was born August 13, 1946.  She is the daughter of Anna (née Blumenthal) and Julius Yellen, a doctor.

She graduated summa cum laude from Brown University with a degree in economics in 1967, and received her Ph.D. in economics from Yale University in 1971.  She co-authored The Fabulous Decade: Macroeconomic Lessons from the 1990s (with Alan Blinder), published by The Century Foundation Press, New York, 2001.

Ms. Yellen is an American economist and professor who is the Vice Chairwoman of the Board ofGovernors of the Federal Reserve System.

Previously, she was President and Chief Executive Officer of the Federal Reserve Bank of San Francisco, Chair of the White House Council of Economic Advisers under President Bill Clinton, and Professor Emerita at the University of California, Berkeley's Haas School of Business.

The Wall Street Journal reports:

"The nomination would conclude a long and unusually public debate about Mr. Obama's choice which started last June when he said that Ben Bernanke wouldn't be staying in the post after his term ends in January.

"Mr. Obama gave serious consideration to his former economic adviser, Lawrence Summers, who pulled out in September after facing resistance from Democrats in the Senate."

The Times added:

"If anything, Ms. Yellen has wanted the Fed to take even more aggressive measures to lift economic growth, believing the risks of inflation are modest. But her views and Mr. Bernanke's appear close enough that markets have considered her potential ascension as a sign of continuity at the Fed."

Bloomberg reports:

“Yellen has made the case for maintaining highly-accommodative monetary policy for the foreseeable future. In 2012 speeches, she said the Fed could keep interest rates at historic, near-zero levels into 2015."

President Obama will nominate Yellen to replace Ben Bernanke as chairwoman of the Federal Reserve on October 9, 2013.  If confirmed, Yellen, aged 67, will be the first woman to head the American central bank.

Monday, October 7, 2013

Trading The Shutdown And Debt Ceiling?

The U.S. shutdown is seen as hurting the economy.  One of the by-products of the shut-down is that the Federal Reserve would likely delay its proposed tapering.  Most free-market capitalists would view the latter… as printing money (that is, the buying, not the proposed tapering).

Other factors resulting from the shutdown include:
-  The one-month T-bill yields rising; also because of market uncertainty about the pending debt-ceiling battle
-  The Fed has bought $3.15 billion of notes, due for the period 2021-2023
-  The Treasury, on the other hand, plans to sell $64 billion in 3-, 10- and 30-year debt this week

Regular readers of my blog would know that I trade equities, avoiding T-bills, notes and many other financial vehicles or instruments.  In fact, the liquid part of my investment portfolio is almost made up entirely of equities (or stocks).  Other larger assets include property (illiquid) and cash (liquid).

Primary asset: $0 debt

Zero debt also implies no outstanding mortgage, this being the only real way to view a residential property, as an asset.  If your bank invested more money in your residential home than what you did… the bank owns the illiquid asset, not you.  

Usually when I invest in a company, I – psychologically – intend to hold the position forever.  However, I also have a pre-determined exit strategy that helps me to mitigate investment losses, plugged into every equity position I open, post-investment.

Without an exit strategy, most small investors lose their way; resulting in them buying on the up and selling on the down.  This is simply the wrong way around and typically driven by emotion (or greed).

If one were to do a bit of research, follow the news, etc., it’s not too difficult to find undervalued companies for investment.  Ideally before you open a position, you should decide how much of your investment you would be prepared to lose, e.g. 5%. 

Plug in a stop-loss order, or preferably a trailing stop.  By doing this, you will eliminate the emotion of convincing yourself that a stock that had tanked, may bounce back up, soon.

If you’ve done some research and invested in a diversified portfolio, it’s unlikely that all your stocks will crash, although this is possible!  A single stock may suddenly drop due to e.g. poor results for the current financial quarter, or some other unique event you may read/hear about in the media, etc.  However, a 5% drop on the Dow would represent a crash of about 750 points for the entire index!

During the financial meltdown (2008-09), the Dow suffered a few horribly negative days, posting losses in a range of 600-700.  The largest single losing day (09/29/2008), saw the Dow crashing 777 points.  However, the volatility was mixed: On 10/13/08 the Dow closed +932 and a few days later (10/28/2008) +889 for the day.

Let’s revisit the boring stats above quickly.  If you were in stocks during the run-up to the 2008-09 market crash, you were likely already sitting on some really good gains.  But without stops plugged in – as mentioned above – your holdings (and gains) would have been subjected entirely, to the mercy of the market volatility during this period.

With e.g. a 5% stop order (limit order, trailing stop, etc.), your positions would have closed automatically on 29 Sept 08, and you may have cashed a nice gain.  Even if you had only just opened the positions the day before, with stops plugged in, you would only have lost 5% and been back into cash (awaiting investment).

During such volatility, you sit on your cash, pay attention to the news, media and markets, creating your watch-list of stocks to buy as soon as things return to normal.

Over time – actually for more than 100 years – Dow stocks have grown by around 6-7% annually.  If you also reinvested the dividends, the compounded effect of this growth rate would have allowed you to mathematically double your original investment capital every 7-8 years or so.  If you were able to achieve e.g. 15% growth, you would literally double your money, every five years!

The above is not rocket science, just simplified investment information that can work for anyone. 

On Friday I visited my banker at J.P. Morgan ($JPM), who offered to park some of my cash in their high growth CD… 2 years at 1%.  Ironically $JPM stock is up almost 20% YTD, and that includes the losses suffered during the current political turmoil.  That's how they can afford to pay you 1%!

You may well be happy with the safety and return on investment of this CD – if offered to you – but the opportunity cost lost of having cash on a fixed-deposit in the bank is incredible. Imagine parking cash in a CD when even the stodgy old Dow is up almost 15% YTD!

Invest wisely!

Currently longs include: $ABBV, $AMTD, $BLK, $C, $CLB, $CRM, $FB, $HD, $PFE, $QCOM, $V & $WFC

Sunday, October 6, 2013

The Mylie Cyrus of Investing

Miley Ray Cyrus (who was christened Destiny Hope Cyrus when she was born November 23, 1992) is 20-year-old a marketing genius. 

She is the daughter of another marketing genius, Billy Ray Cyrus. He took a catchy tune called “Achy Breaky Heart” – previously recorded and released by The Marcy Brothers in 1991 – and re-recorded and released it in 1992, propelling him to international fame. 

And yes, I also sang along to Achy Breaky Heart, tapping my thumbs on the steering wheel while driving in my car, as a 30-year-old, in 1992.

There are two lessons embedded in the three paragraphs above.  You may agree that Myley is perhaps not the greatest dancer, prettiest female superstar, or even the most talented singer.  Yet, last night she hosted Saturday Night Live, and we didn’t. She’s arguably a far more accomplished marketer, than singer/dancer (and newly-crowned queen of “twerking”).

The second is the value embedded in copying, rather than always innovating (or trying to, anyway).  In Isaacson’s book “Steve Jobs,” he references a quote from Jobs: “Picasso had a saying – ‘good artists copy, great artists steal’ – and we have always been shameless about stealing great ideas.”

While copying and stealing is common in business – think of anything from pens to toothbrushes to cellphones to cars – it’s most often the marketing that separates the winners from the losers.

This blog is about investing and most of the time I don’t copy or imitate.  Sometimes, I take heed of someone suggesting a particular stock is a good buy, or that it may be time to sell.  However, I don’t follow other investors’ advice and most often act counter-intuitively to experts and pundits, who are often readily dishing out advice.

I don’t twerk, will probably never host Saturday Night Live, I no longer perform publicly and it’s highly unlikely that I will ever have a country-hit song like Achy Breaky Heart. 

But, my investment returns are quite stellar, and I have managed to beat ‘the market’ consistently.  You can copy many of my methodologies by reading my other blog postings, especially the ones related to trailing stops, like “Boeing, Boeing, Gone…

At the most basic level, I research many equities.  It takes time and I view this as one of my part time jobs (I have several).  I look to buy dips, like last week when Friday morning represented an eleventh day of tracking, that included nine days of market losses, and a correction of -5% (lower than the Dow’s high point, achieved in September). 

The market had largely shrugged off the shutdown, and no one seriously believes that the Government of the U.S.A. will default on its debt (re. the pending debt-ceiling battle/debate).

Then, on Friday morning, from a previously-researched list of stocks on my watch list, I triggered 11 equity calls – i.e. I went long, buying early Friday morning, with a mix of limit- and market orders, including ABBV, AMTD, BLK, C, CLB, CRM, FB, HD, PFE, QCOM and V.

Worst performer was HD -0.13%.  Best FB +3.78%.

You can look these up if you feel energetic – I’m not making recommendations, nor advising anyone for a fee, only providing information so that you’d be better positioned to manage your own investments. 

Or interrogate your financial advisor, or both!

My average gain for the day exceeded 1%.  At the end of the day, before the closing bell, I plugged in trailing stops to prevent losses.  If the market ‘tanks’ on Monday, I have little downside risk.  If the market achieves more gains, I ride the gains until there’s a pull-back, causing my trailing stops to become market orders, selling my equities on my behalf… usually cashing/banking my gains, for reinvestment.

Genius? No. 

Simple? Yes.

Copy that.

Twerking not required.  Best of success!

Other major long holdings include BP, GE, MCD and WFC