Interest rate hike

As anyone following the market must have seen by now, that the interest rates have been hiked by the Feds by about 25 basis points. Not bad for savers who were used to 0-0.25% to get that extra 0.25% likely in future. Expect to see some good hikes in the online savings bank world. The days of brick and mortar bank, just like radio shack or blockbuster or circuit city, are pretty much on the wane. Many of them, small and big, have right fully identified customer service as the key differentiator and one can see that only a handful are really surviving and rest are going to need a bailout in future if at all they make it. Anyhow, I think this will have broader impact on stock market. First off, today was a day of rally. Maybe the star wars: force awakens or whatever else is this temporary excitement, I think this is short lived. (Typical celebration in wall street maybe? ) Dont know what will be there in the long run but the indexes have pretty much tapered off and leveled off with the same ranges being breached repeatedly. If the sucker had to go up, it would have gone by now. Which means only one direction to go from here. Or maybe not. Who knows? :D.

Back to investment avenues, recently I had posted on having fixed set of investment avenues, bellweather pulses which help you identify them and create or augment them on the fly and maybe you can stick a range in which you are comfortable to buy, hold and sell them. I think that is a pretty good strategy for your ancillary holdings. Assuming your core holdings in index, this ancillary will be real turbo charge or not, and help you get some extra cushion. Various strategies here like dividend paying, growth stocks and so on, dual stocks, swingers etc can be employed for this space. But be very clear about the goals of this stocks set and how and when to convert them back to cash or index positions.

Avenues

It makes sense to go about in the market with limited avenues of investments. These tools are generally tied to the preferred mutual fund company such as American funds or vanguard or fidelity or t.rowe.price and so on. There are many small yet well performing companies too. Similarly, there are various aspects of these vehicles such as index funds or active funds or a balanced fund or target fund which are usually a mix of index and active funds. This post will try to give you a general sense of these tools.
Fidelity for instance is led by FCNTX and co. The rest of the funds are selected based on the prevailing factors. Similarly, Vanguard has VWELX, Wellesley and Wellington funds and general balanced funds on top of index funds. Note that many times, the vanguard funds do under perform active funds such as FCNTX but in the interest of diversification you never would want to stick to any one in particular. Similarly in stocks world, the pulse basket is good but you may want to whittle down that to just few stocks. Now, do not get attached to any one of them and hence it is good to blog in general. For instance, you may look at Pepsi vs coke but look deeper and you may be comfortable with Dr. Pepper. A home depot vs lowe might give you ideas about something else in this sector. Or just stick with REIT. Same with dual stocks such as CVS/WAG or AXP/COF or the famous, or rather the preferred one of this blog which is the FDX/UPS. They might give you a general sense of things. Most importantly, they will give you a sense of how to go about with these investments in the long run. That is very important. This gives you idea about how much to invest, when to get in and when to get out and when to stay put are the three most crucial decisions in the investment landscape. Now, most of us or many of us do not do this on a day to day basis for a living. We just want to safeguard and expand our nest eggs. So most important of all, this should be something that is very very low stress and low maintenance. Think of this as iphone or i* .. so your own iFund. That you are designing this iFund to take care of everything else. Some model is needed to better understand this. The upside of having this iFund would be you would become detached from it and look at it in whole as well as look at it in pieces. As with everything else in life this is a continous learning process. Finance as a whole is not as important as say health, or life, or relationships but they are all interconnected and better to have a stable one in all aspects rather than something that drags the rest down.

Case for Overheated market

The low market of August 24 is long gone. The market of November 2015 seems to be rallying back to dizzying heights though it is obvious that it is getting overheated in most parts.

Just take a look at the rallying components - for instance some of the bellweather stocks which measure the pulse of the market and it is obvious again that they are having greed written all over it. There is euphoria which reflects in the high and insane P/E for these stocks. Are these really justified at this point ? All the indicators - statistical ones seem to be pointing to an ok economy and ok numbers and revenues but certain companies seem to be simply going up for no particular reason.

Take Fedex for instance. It zoomed from 140 to 164 at the time of this writing. Why? Is there any really good news that came out from this sector or company? Oil got shellacked and yet XOM and Chevron and Conoco are doing rather decently well. Home Depot and Lowes are simply disconnected from the real estate market reports. Walmart got beaten up badly and compounded with Buffet selling stake on Walmart. Usually there are a bunch of followers who mimic what Buffet seems to do - hedge funds, individual investors etc. Does not make sense though. Target and Costco are up too though Target is closing stores. Apple is swinging and acting like a volatile startup rather than the biggest capped player in the market. Which probably explains the wild gyration of the market indexes. Same with Google and other tech stocks such as Facebook. MCD breakfast took it to the highest point it has witnessed in decades - which makes it even weirder. And some predictable news are bolstering some sectors and companies more than it needs to be.

Bottom line: stay put, hold on buying any new stocks or indexes or any kind of funds. Unless you are into swinging as the core strategy. But even then if for some reason the market were to turn suddenly downwards, you would held with the bag of stocks like the way folks were in 2007 upturn. The market is in heated to overheated mode - a widely held belief - and likely going to be in this mode until there is an anticipated change in interest rates.

Ting referrals

Ting is a pay as you go data and voice plan that is pretty popular these days with millenials and getting traction amongst masses. It is just ala carta menu instead of the buffet that the big carriers serve. It is a neat service, neat website and the cost seems less for folks who rely on wifi for most part but want the odd directions when then venture out. If you consistently go overage - which is industry term to denote that you go over 1 GB, then you are better off using a fixed plan such as AT&T which gives 2GB for $25 and there are myraid number of MVNOs - another industry term for secondary data providers .. which means these are private operators who offer the plans which run on the Sprint or AT&T or Verizon networks. Boost Mobile or Cricket or Metro PCS give $30 plan. There are a bunch more for $20 or so. These are better than the bigger ones such as T-Mobile.

My referral if you choose to use is https://zfhaib4h08c.ting.com/

This will give us both $25 each and now for a limited period of time, till September end, you can get a ting sim card for $5 with free shipping. The phone selections that they have is not half bad either!

Review of robo advisors

In this post, we will look at some automated rebalancers and robo advisors. These have exploded in the recent few years from 2011 till 2015, slowly picking up steam and investments. Many manage in the tune of billions. If you read my last post about tax loss harvesting, you will see that it is just a tool. A strategy which should be the side one and not the main or core one. It can be used to capture some value. But I would personally not pay a dime to get this in ETF. For stocks, I would stick to my algorithms and core values and beliefs and change them. The tax loss harvesting gives some money back from IRS to soften this blow and maybe serves as a reminder from them to diversify and not take this to heart. Instead, Uncle IRS is telling you to take a chill and maybe get a sandwich with that money and play it cool.

So here let us review all the available or leading players in the tax effeciency business and the final recommendations regarding it.

1) Wealthfront: free upto first $10,000

2) Betterment: 

It has dynamic pricing.

3) hedgeable: same as above, 0.35% - 0.75%

4) https://www.sigfig.com/site/#/home/am

First $10k is free. After that is 0.25%.

5) Wisebanyan seems free but I am not sure about their sign up process or investment strategy

6) Future Advisor: The most impressive in this list apart from Wealthfront. https://www.futureadvisor.com/content/pricing/retirement-advice .. their fees are free.

7) Charles Schwab Intelligent portfolios: Free. This looks good too.

8) Vanguard: New kid in the block and since most of the above funds leverage on Vanguard ETFs  anyway, it makes sense for Vanguard to look at their voyager clients, anyone with more than $50k in assets to use this service for 0.3% fee. I think this is an overkill and  might not be needed.

9) A whole remaining bunch: Personal Capital, Moneyfront?, RebalanceIRA, Liftoff, tradeking, motif?, what-have-you and so on. Even TD Ameritrade pitched me this about 8 years ago for some x% fee. 

Recommendations:

Split the amount between Future Advisor and Wealthfront. This is not a terrible investment to have and even might make you money. But make sure you put the taxable money in here since your IRAs are anyways tax -deferred and hence you might not really need to save the taxes there or take advantage of tax loss harvesting strategy. Second, in view of the tax loss harvesting do not lose sight of the fundamental strategy of buy low sell high. In 2015 the market is high and volatile. Be ready to sell quickly. It is fine to enter into the index funds in some way now and maybe exit if there is a popup. But still overall individual stocks or etfs, invest conservatively and in drops for now. Third, go all out 100% risk in such accounts. I mean, if you want to invest conservatively, you have your own bond funds or CDs where you can hold your money. There is also balanced funds which will do this for you. Vanguard Wellington and Wellesley funds come to the top. Apart from their balanced funds. So with this robo advisors - go 100% stock funds .. which basically is 100% stock etfs with Domestic and Emerging markets mainly.

Apart from the above two, go with the Charles schwab (https://intelligent.schwab.com/) if you want more assurance on the security front. In terms of loss harvesting strategy, basic rebalancing, I would not venture beyond the above three recommended ones. Maybe I will start with something small and gradually build up from there.

One cant fail to notice the way Schwab or Vanguard have structured their funds with minimum requirements of $5000 or $50,000 in their respective accounts. I think they might do a basic rebalancing along the lines of fixed time based or portfolio allocation based rebalancing. It is low fees to nothing for them. So just like at the outset of this research, I am not too sold on robo advisors. It is good to have some in your portfolio to optimize the tax loss harvesting in taxable account. But beyond that there are simply too many avenues out there to make this the core or central piece of your overall investment strategy.

The semantics of loss harvesting (continued, part 2)..

Betterment, wealthfront - ring a bell? A whole slew of automated robots have come off in recent years. They are basically a layer on top of the vanguard etfs typically that will operate on the "when" aspect. Like you, they also buy vanguard or ishares or what have you etfs. Typical investors mess with timings. They sell here and there, forget to rebalance etc. Enter automated trading which just sets the ratio to what you like say 50-50 or 70-30 and then forget it. It will automatically balance it periodically on said date or likely on limits getting reached and rebalance it. This is nothing but automation of the yearly or bi-annual rebalance that you may do or just spend 10  minutes per month or per weekend to check out the pie chart and then rebalance or better yet, get a balanced ETF and forget it. 

These funds charge you another few percentage points over your expense ratio for this service. I think you are better off doing this on your own. But here is the key differentiator. Many of them tout automatic Tax loss harvesting. Many say these fees are worth the free time and no need to worry about rebalancing or tax loss harvesting etc. So this post will dwell more on tax loss harvesting. 

To continue on what we said in the last post, tax loss harvesting is a simple principle of softening your losses by "harvesting" the loss and claiming this loss in your tax returns. Meanwhile, you continue to hold on to your investments and hope that it would go up significantly. Automated robots to etf level tax loss harvesting and get this additional value. While you can do the same at stock level too. To continue with the example  that I gave  previously, why would you want to hold on to a loser stock in this case? To some extent it colludes your ideas, clouds your thinkings and judgements and maybe compromises objectivity ? Why ? Take for instance you had C at 50 and then it went down to 5, you can of course hold on to it and then harvest this big huge loss down the line. Or you could keep harvesting it as it keeps going down. Which is in a way a fool's game. You are paying commissions here unlike the ETFs. Speaking of ETFs, I think this is good for maybe a 2 billion or 10 billion pool in an investment running into trillions of assets under management. If this was worthwhile the big houses of Vanguard and Fidelity would be all over it. In practice, this is not feasible or optimal. In theory it does not lead to effecient market hypothesis and maybe undermines other investors. Maybe the small investor can get some value but it harms the overall market interest or even the individual stocks due to constant selling pressure. So for ETF perspective, I dont think this trend would be widely adopted. But the likes of wealthfront might adopt this to differentiate themselves in the market and add that few values. Not to be harsh but back to the C example, instead of going down on it, if you are so determined, why not short this stock ? You can gain a ton by shorting it or maybe go the options route. I agree that options is more betting. While this is more objectively harvesting the loss and realizing the value. But then if you sell, you exited, you are out. Why not take this C position and put it in say WFC. That would have given you more money that the value can ever give you. 

My point is simply this, in a straightforward world, you put say 100 in stock A which went to 50. You sell half your position here and put it in B which is at 50 now and is going to 100 in next two years. At the end of two years, you have made your loss and are essentially at the same principal amount. Your capital gains from B is offset by capital loss or tax harvesting of A. Simple as that. What is being sold these days is hold on to A and keep harvesting the loss. You will never exit this position then.  But assuming you manage to separate all this out, the net gain or value you are talking is , subjectively speaking , not much. Why? Let us look at hedge funds. Many use this strategy already. You can call it loss harvesting or just focusing on a stock and buying and selling on a daily basis no matter what. Say there is a theoratical stock - like BAC or C which have huge volume and everyone trades it. Any daily trader would go for such stocks given the liquidity. Since there is volume, any small gain would help realize a huge margin. Similarly, a small loss means you get a huge red. Which you can promptly write off against your profit. You can do this ad infenitum on huge amount of money. In fact, there are many "market makers" and a huge pool of money which does such things. Many might go on the dark side too .. they notoriously call it "dark pool" just like "dark web" . Many are legally sanctioned for large institutions but not for individuals. All that aside, in market people just hold on, I mean even if you buy and sell like a computer to a buy and sell approach of a human that holds on for 10 years - in either case, you hold. That is the predominant position. One essentially is on waiting period. This holding period. And this is where one thinks. People like John Bogle said, ignore this, buy etf and let market do its own. If not, go the buffet way. Buffet says, do your homework well and hold on. But buffet does sell his investments too. He probably uses tax loss harvesting but I doubt on a daily basis. Maybe periodically when he sells a turd and landed a good capital gains on another. I dont have info on that. But you get the gist, the academic and good view of this is not to abuse it. What if IRS closes this loophole, will tax loss harvesting work in that case? So in this holding period, some other get nervous, they sell. Some hold on till x years. Some sell - it is just a mix of emotions from fear to greed to "I have hard earned money, I will just keep mine and not lose it and keep it fair and straight" to really anything in between. Tax loss harvesting is the guy who says, hey life gave a lemon, might as well make a lemonade.  So fundamentally nothing wrong but it should not be core part or strategy. Maybe put a few bucks and see how it works. So it is basically not core strategy. It is one of the tools you have. More than ETF level, I am more concerned about the stock level. Except that the strategy here would be once you sell a dog, do not repurchase the full dog. Go for half dog, half cat. Because once a dog cant be trusted, lets not confuse further. 

And always remember, this whole thing - investing etc. might get you that extra push but it never is going to literally make a millioinaire out of you unless you own it. You own your business and you have bought it low and then you sell it high. Literally, the wall street ones are the ones making money off commissions and legal structures rather than a super bet of seeing the stock going from 100 to 200. Anyhow, I distracted from the topic. At an individual level, it makes sense to use some services of automated advisors or robo advisors. But overall, at a stock level, I would still stick with focusing on market and not on tax loss harvesting. Unless you are a full time trader which by the way would be alarming if you are one and reading this blog :D

Brokerage firms as of 2015 September

As September begins I thought it would be a good idea to scan the landscape of brokerages to see how is charging how much. Rather who is not charging at all. August was a lot of upheavel. Went down and went up and again now back to where it was. September started by another round of downturn. Now for the scope of this discussion, like this site, I will eliminate options, derivatives, forex and the likes. Mutual funds are assumed to be bought from the source directly so are any bonds or some such. Even ETFs. But many people tend to regards ETFs as stocks too and prefer to have them in their brokerage account. TD Ameritrade and many other brokers have it for free - not all but the vanguard ones among others. Focusing on stocks, for long timers, they might have known about Zecco. I was active in that platform and it was good while it lasted before they put on fees. But for many, this firm will be the first which started the $0 brokerage commission. Honestly, the clearing firms being common, it is not out of world idea to offer $0 commissions. There is often Penson clearing firm used by many brokerage firms. The trading technical costs have gone down. Many firms make money on cash that regular people keep after selling. That itself adds to a lot.

So among the current roster of free stocks, there are lot of firms lilke Interactive Brokers and some other firm which I forgot that allows you to buy in smaller quantities per month or so. I would avoid firms like that and percentage based firms. I will focus on firms exactly like TD Ameritrade but that would give us $0 instead of $10.

Firms are in no particular order:

1.Robinhood: Just in March 2015, they opened up their app to all so that anyone with a smartphone can buy any stocks for $0. Dont know how long this will last as this is exactly same as Zecco model. They have kept is super simple though and as far as I know there is no IRA account type here. One can maybe put $1000 or so if so desires and then test it out. But then better with market down or swinging like it does these days. The downside is the ease with which such apps are there in your phone, you are likely to binge trade or trade frequently making you likely to lose your capital.

2. Loyal3: Same as above with a limited basket of stocks. Most big names are there and in a way it is not a bad idea to hold an account here. Like robinhood, I would keep this account for taxable account trading and not for IRA. 

3. Merrill Edge: This is an offshoot of erstwhile Merrill Lynch - for those who know this was a big name traditional brokerage which got bought over by Bank of America in recession and since have come with this $0 stocks - 30 limited. As long as you have more than 25 grand lying in their account. This makes it a strategy account. As in at one point, I did not want so much money lying there. Especially given that since 2007, we are having practically nil interest earnings in savings. Simply does not makes sense. One can as well keep this 25 grand in an online savings account at 1% APY and take this interest and trade it in a regular firm. But often times, in life, one comes across a point where one realizes that it is better to put some money aside. No matter what. Maybe a stock comes which is uber promising and a sure shot. Even then I would suggest just keep this in. Maybe it is inheritance or maybe you just banked a good stock profit or maybe you have been playing this game for about 10 to 15 years and you just want to put a 10 grand or 25 grand on the side. I remember reading or watching this billionaire mention that once he made his first million, the first thing he did was take that amount and put it in bonds. Simple safe bonds. He just wanted them to be in treasury or TIPS or something very very basic and rudimentary and ordinary. The point being that this was the first million and no matter what just keep this million in a safe place. Even if the rest of the money goes away in a war, this money will be always there. For hard working and studying people like me, it makes total sense. All in all, I am also sold on this idea and that it is better to keep at least say $25k in a IRA CD. Maybe it wont earn much. But that is fine. That Rollover IRA CD is from my hard earned money. And am sure lots of folks in this world also have similar hard earned money - borne out of years of education and savings and hard work that you just want to keep it savings. This gives you a peace of mind. A certain calm that can be used as a ballast or stepping stone. So I am too going to open a rollover IRA CD that maybe at 80 or 90 years old will always be there to let you know that some time ago you made it. Made a small amount of money by yourself. 

I chatted with the Merrill Edge folks and like always they are a delight to speak like the fidelity customer reps. 

Here is the highlight:

---

To qualify for up to 30 online $0 stock and ETF trades per month, you must meet one of these criteria:

1. Maintain $25,000 or more in cash in your Bank of America deposit accounts: checking, savings, and CDs.

B: 2. Maintain $25,000 or more in cash balances in your Merrill Edge self-directed account.

For the purposes of the above two qualifiers: You would need to maintain a cash balance $25,000 either in personal Bank of America checking, savings, CDs, or FDIC insured bank IRA deposit accounts, OR $25,000 in settled cash within the Money Accounts portion of the personal Merrill Edge self-directed brokerage account(s).

Securities (stocks, bonds, mutual funds, etc.) in your Merrill Edge account do not count towards the $25,000 balance. The $25,000 qualifying cash balance would need to be either in Bank of America deposit accounts OR in the Money Accounts portion of the Merrill Edge account(s); it cannot be split between the two firms.

B: 3. Enroll in the Preferred Rewards Program which requires you to maintain a Bank of America personal checking account and maintain at least $50,000 as a combined balance in your Bank of America deposit accounts and/or your Merrill Edge brokerage accounts.

B: 4. To qualify for up to 100 free trades per month- Enroll in the Platinum Honors Preferred Rewards Program which requires you to maintain a Bank of America personal checking account and maintain at least $100,000 as a combined balance in your Bank of America deposit accounts and/or your Merrill Edge brokerage accounts.

Jamie B: For the purpose of the above two qualifiers: This aspect allows you to open a Bank of America account with as little as the minimum account requirements, as long as you maintain at least the minimum amount that the checking account needs to remain open and intact- your securities would count as qualifying for free monthly trades.)

---

As you can tell it is a pretty nifty account and has good features. They are a very big firm backed by Bank of America and they have the $25,000 cash that is sitting in your account to cover the 30 free stocks. 100 free trades is a bit too much and the balance is a bit too high. But if you are up for it and I am sure many of the readers here have a higher set aside amount and for those, it makes sense to go with this account. 

So all in all, I would say Merrill is the way to go for IRAs and taxable followed by Robinhood and Loyal3 for the taxable ones.  Thanks!

The semantics of loss harvesting

Tax loss harvesting. The very name sounds frightening. At this point, you have a loss in your portfolio. The big red bolded sign. The dreaded signals and that negative sign which indicates that your idea and thought failed. It is the opposite of the rush that people can get when investing in stocks and seeing one's 100 bucks go to 200 bucks or 300 or so on.

So what is tax loss harvesting? Well, you have already lost money, got into wrong positions. It is red out there. So why not make some lemonade off it? Rather, why not make some money off it? How do you make money. Let us say you have bought something for 1000 dollars and it is now 500 dollars. You are at an unrealized gain of 500 bucks. Now if you sell your position now, you can claim this 500 dollars in your tax return this year and likely next or the one after that - upto 3 years or so. Now, this step is admitting defeat that your idea was wrong. But then it is also a reminder that market is objective and unemotional. There is nothing personal about all this. You are just trying to maximize your investments. So is this really a defeat ? Well, say you have this 500 bucks on Stock A. You had high hopes of A and their company and employees were the best in sector and were world beaters. It is just that B came out of nowwhere and A is now simply struggling. Holding on to past glory, declaring dividends and just waiting for that project which might take it back to its glory days or at least move it out of the current stench. Sounds all familiar in the technology sector which shifts rapidly. Or the finance sector if you had witnessed that in 2008. Or really any sector where shifts are happening in a global scale. So, now you have two options. You sell your position in A and buy B. Or you still have belief in A and want to hold on to it. Or you learnt your lesson and decide that some A, some B and possibly some C as insurance is the way to go.

Let us look at each case individually.

A: You buy the dog again. You have grudge against it. Normal since you just lost 500 bucks on it. Maybe tax loss in IRS will net you like 60 bucks but still it is a loss. A bigger hurt to your ego and knowledge and pride. That spring in your feet is gone. But still you buy some portion of it or maybe decide to put all in. A goes up or down. Down means you really lost nothing from your original position. It is just a continuation of the same. Same with up. A could even go back to 1000 in say 10 years. Which is fine by you. You are a long term investor. In which case, you just pay the capital gains. So really nothing here.

B: Now this is a risk and admittance of your loss. Maybe B goes crazy up and you recover your loss that you had with A. That is a good out come. In a way market is rewarding you  for your emotionless and detached behavior. B craps heavily and you now hate B as much as A. Maybe C has come now and you feel like a monkey on a musical chair who is just holding other people baggages while they make merry.

Buy some A, B and some C if you could identify C: Really that C is just your ETF or index fund. Unless it is very clear and you can sense that C has a market changing product. Usually it is recommended to go with this option.

To be continued...

Bellweather stocks

In your day to day grind there is hardly any time to look at the stocks. The dow and s&p and all these indicators blare at the top of the sirens from various outlets like news and social media and what not. But often times many of these indexes or forumlaes are also trending based on various micro and macro factors. For instance, tech goes up and down based on what say a google or apple reports as earnings. While you may be more interested in say cisco or intel or something more hands on and more you know, in the core of things. Or it must be something that you think that matters like say Fedex or Alcoa or CSX.

The concept of bellweather stocks is nothing novel or new and had existed from the beginning when few consumer stocks were given index weightage and observed as a general trend for the whole market or sector. You may want to include your favorites, the ones that you want to buy or lead you to a market sector among others. 

So for me, I created a list of such bellweather stocks and have included a long range rather than just 5 stocks or 10 stocks . I think markets and sectors are way too complex for that. Honestly, someone out there could do a better job to get into granularity of this with various factors baked in. But complexity and simplicity have a way to be only as complex or simple as it gets. Hence I created this list, though by no means it is indicative.

In google finance, create a new portfolio and copy these over:

FDX  UPS  XOM  COP  HD  LOW  CVS  WMT  TGT  COST  AAPL  GOOG  MCD  LUV  KR  WFM  RHT  WFC  BRK.B  SBUX  COF  AXP  DIS  NFLX  VZ  T  MO  DPS  KO  V  MA  GE  CAT  JNJ  MRK  BMY  PFE  LLY  BA  UNH  AET  ED  PEG  AEP  DUK  D  SO  SRE  EXC  CMCSA  NKE  LMT  CSX

Thanks and Enjoy!

Current trends of August 2015

Now this is a section of this blog that would be novel and more in line with a free analyst letter. But rather than recommendations, I would just outline the macro trends and put them out here .. we are not analysts and do not have their means of getting the CEOs on chair to talk. We dont attend the earnings call or look too deep into stats measures. However, we do notice the macro trends and maybe take some positions accordingly. The whole idea is to steady the strategy boat of investing. That means things could be fast or slow or steady depending on what it warrants. But never wavering. Never confusing or filled with anxiety. While analysts get a good closer look, the rest of us are not burdened by tunnel vision and can have a fresh perspective backed by numbers. We could be more reactive compared to them but we are also less bias prone and more diversified. From this vantage point, we can be closer to the truth and reality that on one's own dime there is little that any manager can do to actually beat the market substantially. However, on other people's dime you can make bank by drawing on expenses, commissions and brokerage and that is where essentially the meat is. From this vantage point, you are free to create. Create stuff or create money or create projects that are really useful and world changing.

So current trends indicate a worsening of oil prices. Hurray ! (Except for gas drivers from california where you continue to pay high:( ). This is reflecting in low prices of XOM, CVX and COP and similar stocks. Is this the low ranges and a good time to buy ? Maybe . Not to get to much into timing lest we worry about whether it will go down further or will it go up suddenly next month? Since we dont have answers to this, let us look at the stats measures. The pe is low for the sector. It seems good buys and no matter what we could hold it for some time. 

Maybe we need sector bellweathers so that we look at xom for energy and then based on this we can take positions in 2/3 stocks in this sector.

A quick look at the sector for this month from the google fiinance:

Energy: seems to be going down.

Finance: still looks awry and stinks of 2008

Tech: better off with the tech etf here .. too many changes

Industrials/Basic Materials/ Conglomerates etc: Nothing much to write about .. same old same old.

Utilities: Now here there could be some interesting buys .. but like real estate I would do some etf buy and hold off.

Then the August last week happened. The stock market saw some extreme volatility on account of Chinese stocks. Good time to buy some. Then there was a 1000 points downturn!! Nice opportunity if you had put some limits on stocks. But better off holding for now .. since these are testing levels. It recovered and then again sank and then again up and down. I would recommend holding positions in cash till august end. Sooner or later, this domino will fall. And even if it goes up , there is less room to expand signficantly unless someone tweaks the formula and gives more weight to certain stocks and pushes them high.

Thoughts on statistical points

Some stats measures like revenue or pe or institutional holdings are good measures to be used. For instance, if a company is small or medium and getting huge revenue that is an indicator that this is going to blow up quickly. However, if a large or established blue chip is getting revenue .. it is just a continuation of trend and nothing exciting and most likely the volume is high and hence margin on per sales item is usually low. Unless you are talking of an Apple where it banks hundreds of dollars on each of its products. Point is each and every measure has a statistical life, anamoly and a context in which it makes sense. After which it stops to make sense. In the rarified world or post distillation of all such measures in a stock, it is pretty much back down to the basics of business... what are you selling, how much are you making money and how much is your profit? Further, how much are you going to share that profit with your lenders and owners? Analysts from banks have a more direct and true view of things than bloggers and outsiders have. No matter which great letter you subscribe to or how much great of a stock picker, the analysts hear it directly from the horse mouth and the fund managers act based on that. There are then individuals investors like buffet who control the company holdings rather well but the core advice of this blog is to go the bogle way of indexing. Once you do indexing of say 50-60% assets diversified and decently timed thru the troughs of lower ranges buy and holdings and then sell thru the higher ranges to make modest gains and continued holdings, it is the remaining 20% that this blog is telling what to do. Hold the rest in cash. So that you have a good 60-20 holdings-cash split and 20 on stocks that you can identify with or want to get that extra few percentage points.

FDX FEDEX FDX!!!

So fedex fedex fedex ! 

Daily we see a host of brands that influence us subtly. In the case of US big brands or franchise stores, it is easy to get intimidated by the sheer size of MCD or FDX or UPS or clothing lines like TGT or Sears and so on. Remember, Sears about a 100 years ago was invincible and had the tallest building for a time in Chicago. Till they got eclipsed by Walmart which was another firm which dominated all lists out there. But it seems it is getting stiff competition from onlline as well as grocery stores or niche stores. Then there are zing stocks such as Netflix or Chipotle - two other brands which are top favorites among millenials so much so that it seems hard at the moment that anyone can go up against Chipotle in the fast casual segment or the utter domination of Apple or Netflix in their market means it is hard to fathom anything going down for this firms. Yet, we know that Samsung came up with some good products to counter Apple. For Netflix, there are tons of content companies and distribution companies with products that are pretty strong. And somewhere there is an unknown startup with boot capital from some venture capital firm that is sowing the seeds of being a giant killer in this segment. Thing is it is tough to get detached from brands. I got attached to Fedex by seeing their planes parked on a runaway. Seeing their cool vehicles and awesome customer service every time I visited Kinkos or just received a fedex package. The way their planes do the distribution which is not there in USPS or DLH or matched only to some extent by UPS led to me to believe that FDX is the bell weather for a lot of things including the manufacturing and can be called as a pulse. Rightfully so, many analysts look at this stock that way. So fedex is where this blog all started. I like Fedex and had them in sub 100 range and sold them once they hit 100 only to see that it went all the way till 180. 

Buy some ? Hold some ? Sell some? Low ranges and some high ranges? Yeah. I should have done that. Right now it is at 160s ... buy it ? Maybe sell some? Maybe stop timing? Which means just hold ? Go the passive route ? Which negates the purpose of this blog to go beyond the passive strategies .. as much as this set of studies is cool about passive strategies and its realm, somewhere out there, even if you are not a founder of a firm in which case you create the stocks from 0, you gotta have that analytical insight - whether science or art - something that takes you from 100 to 200 or like in apple case from 200 to 700 or google 100 to 1000 or something like that. That conviction and insight needs to be there. Since this is a product of a concentrated mind, it should be as a result of strong analytically oriented skill and conviction which differentiates the sell buy and hold points.

Fedex is in my buy low and sell hi list. I think at 170s it is high priced. A measure of P/E of 40 and above means it is highly priced. But then that is just a measure. The reason it was given this high valuation by wall street is because they saw something worthwhile in it and hence hedge funds and institutional investors are pouring money into it. It is 80% owned by them. So in all it is a good stock but at current price it is not much good. Maybe I can buy some - 10 bucks * 10 times out of 10k principal , which means shell out 100 bucks over time for this stock. Better yet, mark another 100 bucks when it goes down to sub 100 range. It stayed in the 80s a lot.

So that is my fedex template. No matter how strong the emotions. reel it in. It is common in life to get delighted by various products and services offered by various companies and get overwhelmed by their brilliance, great people who work there, seemingly endless supply of brains that are being hired by HR no matter what, and delight and fan boyism and cult and what not. But at the end of the day, like one Mr. Buffet, stay calm. He did not go with Fedex or Google or Apple or star bucks and so on .. so the same way, no matter how optimistically motivated you all. stay put. stay put for a long time. Even in the best case scenario, you are making some few hundred bucks so for that stick to your usual boring routine of low ranges and high ranges identification and then like a humpback whale, buy some and sell some and book the profits which would frost your main cake of index funds holdings. 

I am going to go further in the same vein and have similar conclusion on the less cool stock in this sector which is UPS though you will hear during holiday season how UPS is going to rake it in because of exclusive contracts with amazon and so on. Speaking of which, amazon did not deliver a profit in 20 years history from 1995 - 2015 .. it is a good service though. Will I invest? Super high prices and volatility prevent me from doing that. Same goes for chipotle and netflix. At 200 + P/e. just ignore it. 

Reflecting again, maybe if one holds on statistical measure and holds true to it, there is then a better chance of success. Case in point, just look at beta or p/e. Then buy hold or sell based on p/e only. nothing else. period. for p/e 8-16 keep buying. 16+ keep selling and holding off. That is a pretty good algorithm right there. Same with beta. I used to look at beta stocks and had a ladder of beta values. So anything less than 1 would be core stocks. Greater than 1 but less than 2 would be buy sell candidates and anything over 2 is in the basket known as zing stocks. 

At the time of this writing, xom is at 13, with cop and cvx following the route. Now might be a good time to buy the energy stocks. 

Starbucks- long lines in front of stores almost in every block in Manhattan and in prime areas in big cities and small towns leads one to believe that this stock will be ever green. One tends to forget the mundane coffee chains, people who might just prefer to take their own coffee and stiff competition in this sector. High p/e of 30s, near historical highs - stay away from it!

AT&T / Verizon at all - all good holdings stocks, nice dividends , att surprisingly has lower pe compared to vz. Look at the way this stock in stuck in the 30-35 ranges. 

MCD is another blue chip good stock for long term, there are noises that their sales are down and I almost see no millenials ever hanging out in mcd. Personally, I never go to that place but I can see how some might like it. 

DPS: Dr. Pepper is another favorite drink among many millenials and college going kids. Same pe range as coke and pepsi but less market cap, high institutional content means this is a good buy. Is this the right time to buy ? I will hang in there given the run up in prices in recent times. 

Starwood: HOT, I liked this a lot. There hotels are nice. The 1 year trend of this stock shows ups and downs which are ideal for the swing and day traders.  It is more stable compared to its peers, insti is high just like its beta. Maybe 50s is the range to swoop in.

Usually I avoid airlines but Southwest is an exception. They have been doing rather well. But the market is super stiff and notoriously low on profit. Wont buy this stock though. 

Kroger vs Walmart vs Target would be interesting. This is a good hold stock. For now it is expensive like the rest of the market. Target at 80 or costco at 150 not worth it.. while walmart is at 68 .. it shows the sector is going down a bit and it is just a matter of time before the party is over here. Like fedex these are also bell weather stocks. 

Home Depot is cool and both it and low move in tandem, similar pe etc. It is amazing how organized US industries are fedex and ups, hd and low, cvs and walgreens, you get the gist? If you have 100 bucks for each sector, put 50 in index and 25 each in such pairs! Another such pair is Master card and visa - again both good but high pe and cost.

Similar analysis for cvs, walgreen ,walmart and costco.

Tobacco stocks are slow moving but good dividend stocks. Right now highly priced but stay put. This is one sector you dont want to get in now. Consumer stocks such as HOG is good.

Rounding up on the tech side, the three main stocks are google, apple and msft for now. msft has been rolling in the mid 40s for a while. It is a stable stock is all. high pe, decent dividends but dont buy. google came up like anything few months ago when it jumped 70 bucks overnight. It is  massively over valued. high pe/near all time highs and has been a pricey stock all the times. Besides, you are holding it anyway thru index funds. And if you are in tech sector, why put your money in this? Apple, almost similar logic but has good moves and is coming back to 100s now .. then maybe a good buy. 

So that is all there for now. I think have rounded up a good point for investment here. This can be used as a core strategic point when devising the overall investment strategy.

Some endpoints...

There is always a shift towards "new" stuff .. new ideas and new transformations and new goals and new accounting methods or new  shift in paradigms or global trends or global business and so on .... so this "new" is one of the main constructor and driver for change and hence the market and market prices. There are new categories and business and segments and trade secrets in various abstractions and changes which did not exist earlier. This presents a major challenge to any automation. Hence even if you have an algorithmic approach or a mostly automated trading system, the underlying components will always require some or other  changes and tweaks.

Refer my earlier post on CEO pay, http://www.aflcio.org/Corporate-Watch/Paywatch-2014/CEO-Pay-by-Industry# and essentially these are executives that get paid to manage change and make sure that the company stays relevant, abreast of change and floating in a new world. The stock rewards are essentially a form of compensation.

Further dissecting my list of stocks: I think Directv is pretty good but will put it in a backburner mainly because of lack of dividends but it does have good growth points so I can just put them in the "more research needed" basket. The AXP and COF are good holds for long draw. Same with CAT or SBUX and MET. Continuing on the duality mode, T and VZ or KO and Pepsi are some that are also good as long as one holds on the down market. They are okay holders for the long term but good for the medium term. This is kind of vague statement but I will explore this more in the coming blogs.

Back to focusing more on the strategy and not the basket of stocks for the moment, I think some of the main reasons behind a non-free approach towards trading is the commission fees - now you can have a set amount aside and get some free commission trades .. there are apps like Robinhood or zecco at one time and Bank of America Merill lynch which are all decent brokers. Minus the commission factor, the basket of stocks can be traded a finite number of times. Without getting sucked into the whole quick trading scheme and thus letting your valuable mind space be occupied by such things as trades, shares, securities or investments - the real question is your staying power.

How far are you willing to stay put when the market goes up or down. Really it all boils down to the three action - buy/sell or hold. Buy and sell is easy. You can even set a target and be there. The hold and continue to hold is the key factor and when you are not in holding pattern you are either buying ( selling cash to buy stock ) or just plain selling your stock. In theory, if you have full confidence in this basket of stocks and if there are good ones which are more than making up for the bad ones maybe you can stay put. What do you do in this case- sell the good ones? Hold on to the bad ones? Or sell the bad ones and hold on to the good ones? What if the good ones go bad this time around and the bad ones are the ones that eventually performed well? Maybe something like that does not happen as market eventually rectifies itself - or maybe or maybe not. Frankly, the experience of 2008-09 financial crisis kinda left this aftertaste as to not overtly trust any particular company.

So one weapon in the hands of the retail investor or the small investor is the diversification. No matter what, do not get suckered into any particular stock no matter how much great it is going to perform in future. With the core being the dividend and utility players which are seen as more safe, there is a room for more along zing stocks and the bigger movers - along the lines that I have been building the stock basket of. Now assume we somehow construct this portfolio with a nice approximation of the stocks from various sector. Now, it is never possible to have an accurate weight-age so lets settle for an approximation.

Now, what do you do? If the stocks perform as per expectation for some time, giving dividends and making some decent upswings in growth - we hold on to it. Now comes the ride factor. Eventually all markets go up and go down. These things are not clear cut. They can happen suddenly and in case of individual stocks giving the investors very little time to react. Or they could happen over time. One may not be always glued to the news channel. AS there is life which is a bigger thing to attend to. Which is why the index funds are touted as an advantage since there is an automation factor already figured in the way the index funds buy and sell leaving the investor with focusing on the bigger picture instead. Or at least the big news events.

But I am still thinking about how best to strategize for stocks such as Fedex or UPS and how to handle them? Now, I am clear that this is not the algo to make a killing or something. But a few decent amount can be added, the core preserved and thus make the proverbial "make money work for you". Have to think about all this even more. Any ideas from anyone out there?