Wednesday, June 10, 2015

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?

Anaylsis of stocks continued ..

Last time we saw the food sector in general. The conclusion was that at least at this point in May 2015, the valuations are high. The volatility is there. So this will be in the basket for now and I will revisit it when the sector is down or the market is down. In general, I would list food sector in the basket made of sector ETF + a few stocks that one is really comfortable holding into while emotions sway as the food industry is the  most visible industry out there.
Beyond food industry, one encounters the tech industry a lot. The apple, Google, AT&T phone industry, internet companies and social media are easy to spot. Like the food industry, they too are volatile but a bit more entrenched and have a stronger stability factor.
So I will create some portfolio - along the strategies .. such as bi low .. which will be a basket of stocks which I would buy only when they are in a low market. Think 2009. Another set of portfolio would be the zing list. This is something that I have done in the past too and used this list  for trading frequently or with in a medium term. I think this is a good strategy on a high market like now. Though a more efficient one would be to just stay put for now.
Meanwhile, the core portfolio compromising of stocks that are essentially a good one that you would hold for a long time, would be more like blue chip stocks, or maybe part of DOW or top S&P 100 stocks and so on. Though, belonging to such indexes by themselves mean nothing. C and BAC were also part of these when they tanked and were eventually removed from these indexes. Wonder where these indexes would be had these stocks not been removed.
A big reason I moved many of these materials from my personal blogs and notes to online blogs was to benefit the gen X and millenials and also more veteran stock traders as they could see the thought process, the evolution of the strategies over time and the ultimate evaluation. This is of course ongoing and it becomes difficult to keep track of various strategies and it is better if one sticks to one that one knows and more comfortable with. Rather than chase every existing or hot strategies of a moment. That is what is the key take away from more established investors out there. I dont believe in just buying indexes and then holding onto them. One has to sell them at some point. Just buying and selling indexes might be a lame exercise and I will do a testing of this one later down in the blog post. We have to essentially run a Monte Carlo simulations of the various scenarios.
Meanwhile, some of the stocks that come as evergreen for me is like Fedex or UPS. The reason being that it is a simple market, dominated by just two at the  moment. There are some tech startups which are striking to develop their own services. Chief among them is services like Uber or Lyft. If these somehow evolve to change to a short distance to medium distance courier service and when combined with the likes of Amazon and other local or national services with huge warehousing capabilities, we are looking at something that will give a strong competition for the likes of Fedex and UPSes. Easier said than done though as both these companies straddle Transport sector as they own aircrafts!, are global, can be categorized as a tech company apart from being the monopolized players in a saturated US market with extensive infrastructure and real estate holdings. Further they have very nuanced offerings like photos and printing amongst others. There are some emotional satisfactions in previous encounters in Kinkos too.
So dualities like FDX and UPS with tilt more towards UPS as they have a stable dividend is  a good deal. Same exists with other dualities such as HD and LOW or CVS and WAG and so on. Some of the retailers like WFM and KG could almost make that list. Point is take the top 2 or 3 and then stick with it. This is easily spotted in more matured and saturated markets such as the shipping services where Fedex or UPS operate but more difficult in other sectors such as say technology. Technology tends to be more diversified and though there are lines where Google and Apple are head on with each other, there are also integrated services where they are co-dependent. So I would stick to more neater categorization for now. Which also pretty much means that all these stocks in addition to the utilities and REITS will stay put in the may 2015 list for now.
TGT and WMT are the other stocks that shall also remain in the list. An interesting one is the COST .. as there are many costco followers out there just like some of the regional chains such as the wegmans/krogers/ralphs or trader joe kind. It is a good business and a standout has been the relatively low pay that the top executives take. Speaking of which, is there a service out there which lists down the companies with lower ceo pay or executive pays? Some has to do with passion for work than just more options.
MO is a standout and is an interesting holding stock. Though I am against cigar smoking I think most of these firms are just holding firms and pay rather pretty good dividends. Against MO we have PM, RAI and LO and a bunch of others with pretty decent dividends. I would put them in the bilo list given the high pe now and lower beta rate. These are core stocks once the market goes down.
Same with COST/TGT/WMT for now.
Disecting MO and abbot labs further, notice the random 50% drop in these stocks in the past. What to do in such cases? The more I dwelve and introspect about the markets and my experience with it, the more the realization occurs that it is not about a set of stocks but rather how you react to it that determines the outcome. At least to some extent. You can select a basket of stocks based on emotions, facts, numbers, statistical values, pure revenue and potentials, small town values, global appeal, entrenchment of said firms in a more developing country story or how well they are perceived in a particular sector or in the US. But a significant factor is also the behavioral dynamics of the investor. How much fees factors in .. in terms of commissions. How much does the time factor in .. what else could have been done during this time. The opportunity costs and so on. How would you react if the stock simply tanks and keeps tanking? What will you do if it keeps raising and raising? Is there any point in this? Or should it just emotionless and a math condition that a 20% uptick triggers a sell while a similar downtick triggers a buy? Would those models have fundamentally hold on when doing backtesting? Many instances says no. It depends on the gut. How much does a human truly discriminates between gut and emotion? Why need emotion beyond a point?
Back to baskets of stocks, Gilead seems to be the google of biotech industry. Which also means volatility. Same can be said of Abbot of which I am not aware much of but seems to be a bell weather in its industry similar to what JNJ or Pfizer does.
A good source to find the CEO pay is
Pretty nifty database with up to date numbers but if one goes by this most S&P 500 firms are going to be tough to get into justifiably. Most executives make a ton of money and some do okay work .. in the case of US, I think it is pretty much stick to the regulations and don't try something outsized or radical .. as long as one stays within a group, one should be fine.
Philosophically speaking, it mutes down the need for such exhaustive research and emphasizes the ETF or index fund line of thinking. Another justification to have the ETF or indexes as core of your portfolio in addition to cash! For individual stock picking, pick a few and focus on the behavioural analysis of yourself and how you are going to adhere by self laid out rules.  So what does one do mainly? I guess focus on one's own career and own a home/rental business and then own stocks/bonds mix via index funds as well as individual holdings but most importantly own your business. It could be anything from patented ones to any ideas or trade secrets or in these days something with huge data and scale which are managed by a software. But essentially, own a business. You may not want to be involved in it full time and want to do the nuts and bolts of it and then act as an adviser but it is essentially your own business is what will set you apart from the rest.

More on the food stocks ..

Today, I saw an interesting article about Shake Shack - for those who know a very popular burger joint in Manhattan area which is soon to foray into the LA area to take up the likes of IN N Out. On the culinary side, I am strongly on the Shake Shack side compared to In-n-Out. However, I got intrigued by the non culinary aspect of this companies. I got sucked into the food sector and soon I began comparing the Shake Shack with Habit Burger, Chipotle, the ever green MCD, and so on. Now, I am a big fan of Chipotle. And I had invested in the DRI - which has the olive gardens, DIN - apple bees, EAT and so on in the past.
Strictly speaking this list is easy to break down and really based on my food as well a the stock performance, I think it is better to stay with the biggies such as MCD. I am no fan of other places like Burger king or wendy or so on .. I like subway which is private. Among the chains, I like the pizza ones like Dominos or Pizza hut. When they go up, they can really go up and when they go down, they can stay there for a long time. Come bad news or Recession these are usually the first ones to go down. Hence, they bring up on this unnecessary stress to the investor as to whether to sell or hold on to these investments. Unlike say a MCD which like a WMT is a very diversified entity. On top of it, they are at all time highs at the time of this writing in May 2015. So for now, I would just hold off on this. Also, the food industry including MCD has the persistent problems about minimum wage increases, food preference changes in millenials, food quality, the chances that certain regions might not do well, real estate costs, unpredictable costs and simply plain old fact that a restaurant business is brutally competitive and you never know when a next truck is going to steal your business. Like on paper, I like the Potbelly more than the Panera breads more but it is the latter which has the better stock but no dividend yield and honestly does not correlate with the beta of 0.75 .. I see way more waivering and fluctuation of the graph. Add to this the higher forward PE. Investor psychology plays a role. For instance I like chipotle, shake shack, potbelly so might get emotional in buying and holding this stocks. Probably not needed for this. With MCD though, I never go there :D .. so maybe way less emotional about that.
Bottomline, even with MCD and the rest of the gang, I will just stay put for now. At max, these stocks might get added to a zing list. I will revisit them later in the down market.

The weeding of May 2015 list ..

As I have been doing some spring cleaning and weeding out and more importantly reselecting a new list of funds and stocks .. more so stocks, I will outline the process and data here. IT would be decidedly bad formatted or un-formatted but you would be able to pick up the gist.
First up the less interesting thing - the mutual funds and ETFs. This was fairly dominated by the big ones such as Fidelity and Vanguards and T.R.Price in the past. Now that I have more or less consolidated with Vanguard and some ishares ETFs, Vanguard pretty much will remain the core. Any data out there, the graphs with google finance or morningstar or any other charts pretty much point to the obvious conclusion that has been mirrored by lot of big names. The conclusion is that it is better off for a retail investor to hold on to the index funds or just do basic trading and re-balancing in them. Really there is nothing more to it or nothing that my experience in Finance as well as education in it has yielded. Part of the reason could also be that the index funds such as VTI periodically auto-rebalance themselves due to index changes or changes in weights of the constituents. Besides the graphs of several years point to this as a core strategy. Any back testing pretty much point to this. Add to that the human emotions and variables, I am pretty much doubling down on this as core holdings. Next to cash or treasuries, this is pretty much as safe and defensive and more offense-as-a-defense strategy as it gets.
Do you also want to hold some active funds .. just in case? In the past, FCNTX is the only fidelity fund and I am done with the rest of them. Vanguard has some good VWELX and balanced funds. I will stick with the vanguard ones here too. And no go with the rest.
That is pretty much it on the mutual funds and the ETF side. ETF in particular is interesting. I had good experience with them in the past when I put on various ETFs sectors in 2009 and booked some decent profits in 2010 thru 2011. I was convinced then that 2012 or 2013 could be a doom waiting to happen. But that is a timing problem and how to best deal with a rising market or how much to hold on too and so on .. that is a topic for a different day.
To the more interesting basket of stocks. Now stocks have different buckets in them. Dividend buckets such as REITS or utilities .. I think we can keep them on the side and subject to a different philosophy. Here we can simply divy them up into as many big stocks as possible and allot only to the very big ones. The ones from NY or NJ or OH or CA are so big in size that the chances of them going under are pretty minimal given the regulations maze that they operate under and the fact that they are being held by some of the biggest instituational investors as well as pension funds.
As mentioned earlier, some of the criterias that I had kept changing over time. Dividend was a big one and so was sheer performance once upon  a time. Some constant criterias were percentage of institutional investors - the higher the better as these guys more or less do their homework well. Fidelity in particular gives a pretty fantastic research tool ( bar none .. and leaves Vanguard way behind, TRP is a good second though I have not tried others but TD Ameritrade is decent too and so could be the likes of ETrade or TradeKing) which actually lists down the names of the institutional holders and the percentage that they hold of a particular stock as well as the changes over time. Pretty neat actually and a seriously handy tool and information set for people who are a bit more involved in trading and researching stocks. Given long time duration, beta is not that much of a draw. PE could be a slight thing to consider among other things. Remaining things more or less are out of the window though I do keep an eye of the location of headquarters, board of directors, number of employees and current dividend yield.
From the past, I culled out this list:
NASDAQ:WFM  NASDAQ:COST  NYSE:TGT  NYSE:WMT  NYSE:HOT  NASDAQ:MSFT  NASDAQ:GOOG  NASDAQ:AAPL  NYSE:RHT  NYSE:V  NYSE:MA  NYSE:WAG  NYSE:CVS  NYSE:HD  NYSE:LOW  NYSE:AXP  NYSE:COF  NYSE:DIS  NYSE:GE  NYSE:BBY  NYSE:CI  NYSE:EAT  NASDAQ:NFLX  NYSE:HOG  NASDAQ:CMCSA  NYSE:XEL  NYSE:PEG  NYSE:DPS  NYSE:KO  NYSE:PEP  NYSE:TJX  NYSE:AEO  NYSE:PFE  NYSE:MRK  NYSE:T  NYSE:VZ  NYSE:MCD  NYSE:JPM  NYSE:DD  NYSE:DPZ  CVE:FO  NYSE:RSG  NYSE:CVX  NYSE:XOM  NYSE:BA  NYSE:CAT  NYSE:UTX  NYSE:IBM  NASDAQ:DTV  NASDAQ:AKAM  NASDAQ:ADBE  NASDAQ:AMZN  NASDAQ:BBBY  NASDAQ:BIIB  NASDAQ:CHKP  NASDAQ:GILD  NASDAQ:SPLS  NASDAQ:SBUX  NYSE:WFC  NYSE:MMM  NYSE:ABT  NYSE:ALL  NYSE:MET  NYSE:BMY  NYSE:ETR  NYSE:EXC  NYSE:PM  NYSE:MO  NYSE:JNJ  NYSE:LLY  NYSE:ANTM  NYSE:AET  NYSE:BSX  NYSE:DE  NYSE:AEP  NYSE:ED  NYSE:D  NYSE:DUK  NYSE:FDX  NYSE:UPS  NYSE:LUV  NYSE:AWK  NYSE:BKS  NYSE:YUM  NYSE:TM
Add to this, the jcp/macy/kohls/garmin/JWN and so on .. all of which I have decided to stop investing in.
Another criteria that I had was not to bother if the size of the company is say less than a 5 billion range or maybe 10 billion range in similarly peer sized industry.That weeded out a lot of companies. While having an scillinating dining experience gives me an overdrive to invest in those companies, I think the food industry is too crowded though it is predictable. But I might keep them to ETF list too. I mean, I am interested in the DIN, EAT, MCD, YUM, DPZ, SBUX and so on .. and I think a lot of them are tech companies as well as food companies. So I am a bit interested in them and want to hold them. But I think strictly speaking, if the criteria were that "not to pay attention to these things over a long period of time", then these stocks dont make the cut. Because they fluctuate at times. Companies like Chipotle are relatively new but they fluctuate very wildly.
Just like Netflix in the video sector or the Directv or Dish TV and so on. To be clear, many of them have a sure shot role in a "zing" list but maybe I would just put them in this list and not really put them always in the core list. I dont want to be too reactive with such stocks.

Wednesday, May 6, 2015

Diving in to Case studies

So, here in this blog post, we will dive head first into a different tract for the blog in general. We will start crushing numbers and do case studies on funds. Primarily on Vanguard funds since that is what I am going to have as my core or base funds. All other funds as well as stocks .. a small basket of them will be measured against this. 
The aim of this study is to verify the fundamental soundness behind the idea of having the index funds and get a handle on what constitutes the timing and range for a buy and sell trigger or whether to simply not sell them .. in which case when does one sell it? So essentially we will be looking at all this. And we will do some stock comparison. Based on this we will address the core asset allocation model. And then comes the rebalancing criterias, the timings for buying and selling, this idea of a tool that I have developed for some time now.
Historically, I have dwelved on smaller stocks or medium level stocks. There have been some gains made and some losses too. Over time, this matured to holding only utility/REIT/Dividend paying stocks and few stocks which I characterized as having the zing. This zing bucket mainly had the chipotles, netflixes of the world. All sound businesses which I would have hold anyway. Such stocks also give the necessary zing to your portfolio over a short to medium time. But they can also have a very bad effect on it should they tank a quarter or report some earnings under investor expectations. 
I would put Fidelity et. al below Vanguard for now mainly because the I have always invested with Vanguard more than Fidelity as well as there are more sector specific ETFs with Vanguard compared with the iShares. There are few cost differences here. 
So we would compare Vanguard ETFs and mutual funds at times on one hand and then the stocks of mostly DOW stocks or S&P 500 stocks and at max. we will stop at the category leaders. A criteria  that I have often employed is the institutional investor share. It should have a higher degree of this share. So is with beta. Though over time this and similar other technical indicators have found to be less worthy. Same with PE though PE does give a good idea about the cost of the security vis-a-vis its peers and overall stock market. There are similar indicators but as outlined early, we will not follow them deeply at the moment.
The vanguard indexes are the VO, VOO, VTI, and then the mid-cap, small-cap ETF, VNQ, sector ETFs.
Some of the active funds roster includes the VWELX and VBINX and other balanced funds. I have had funds in windsor and primecap before and they were not exactly kick ass performers in 2009. Same with Fidelity funds like contra. FCNTX is the only fidelity fund which I think needs any mention. Rest all, I did not find the jam in them.
In the stocks roster, market cap is definitely one criteria. So anything below say a 5B or 10B is not needed. Utility/REITs can be easily spread out and the risk managed. For the main stcoks such as the WMT and TGT or FDX and UPS, notice the pairings and split the money. Same with the CVS and Walgreens or in the tech world, GOOG and AAPL. Though being a techie, they are vastly different. Tech is also my main work sector as well as the stocks fickle though they have started to pay dividends since 2010. So maybe some money can be alloted to the tech sector. I was big on Finance early but drastically low there and will stick with only few but even WFC or AXP still have ups and downs. I am not a GS or regionals bank person. Same with industrials. Though at one point, I looked hard into the DEER stock, I think that time has passed and maybe instead of focussing so widely, it is better to focusing on the few. The concentration and attention and more importantly, the time is a critical factor and there is simply no leeway in putting attention to so many sectors and stocks. Better know a few sector and stocks and just invest in them. There are folks who are just public and private sector investors in just technology and they rake in much better performance while relying on just sector ETFs or a broader ETF - mutual fund combo for the rest. IT is also tough to look into the macro and micro economic factors in other sector, let alone the sector where you are earning your bread and butter. Over time I realised it is the money that you bring to the table, the one that you earn, your saving power that determines how much you keep rather than how much you invest or make money off other people's fees. Hence the popularity of the index funds. 
To be continued ..

Random thoughts on trading ..

It is better to do a strong, basic research similar to a big company before diving into the world of stock markets. I would suggest allotting some time for a few months in R&D. Call it your own R&D department and clock yourself in to learn about various stocks and funds. Now, generally speaking, investing in funds is known as defensive. With investing in index funds being at the core of your portfolio, it is also prudent to put in some money in actively managed stock funds or bonds funds with low expense ratio. My initial understanding of the mutual funds world was that the mutual manager would be the who books profits on your behalf based on his research. Also, 2008 proved this notion so wrong. And it seems you are the one responsible for the rebalancing which pretty much makes it obvious that you are better off holding an index funds with low expense ratios and self re-balancing features. However, buying into mutual funds is still overall a defensive strategy and we shall focus more on creating your own index or creating your own mutual fund or creating your own hedge fund. We will not dwelve too much into the risk management aspect. Honestly, the best risk management tool out there is diversification and if you are risk- averse to x%, better take and put that x% right away into a bank CD or treasury so that you will never be held up with the losing bags. In fact, it is never good to be all in on stocks. No matter what. Unless you have a very safe net and you are holding an external account on money which you can totally afford to lose and it is most likely stocks of your own firm that you founded or acquired. So as you go about writing this notes down into a checklist, you can also put them into a document and run this criteria or checklist everytime you make a buy/sell decision. 
As you enter into the actual trade stage, let this checklist and your research output be the main guiding light and not fad, on the spur moments and decisions, not a new technical indicator or what buffet says or whatever media or any other hedge fund manager says. Essentially your conviction and temparement is the one that is being tested by the market. As long as you ace in this department, there is a good chance that you will pass the patience test and other things the market will throw at you. 
A well defined checklist should ideally have entry points and exit points and buffer points built just in case you feel at the moment that maybe it is better to hold off for a few more days to book more profits. Such intuition comes as you become a more seasoned trader.
Some buffet speaks that I have collected over the years:
"Buffet speaks:
Buy the business and not the stock
Value investors, he said, "search for discrepancies between the value of a business and the price of small pieces of that business in the market." Hence, the only thing they are bothered about is "how much is the business worth? He's not looking at quarterly earnings projections, he's not looking at next year's earnings, he's not thinking about what day of the week it is, he doesn't care what investment research from any place says, he's not interested in price momentum, volume or anything. He's simply asking: What is the business worth? While they differ greatly in style, these investors are, mentally, always buying the business, not buying the stock.
and finally theories are there - just do it .. and learn on the way - hard or easy!
There is a thin line separating investment and speculation: The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.
After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities -- that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future -- will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands.
You might be surprised to hear that he thinks you can succeed at stock investing without giving your whole life over to financial statement analysis. He's outlined a method whereby the total research time to find a stock "equals a couple hours." And he doesn't think you need to check back on your stocks but once a quarter. Doing more than that might lead to needless hyperactive trading that wears down your portfolio with transaction costs and taxes.
Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.
also, i would say less diversification and concentrating on a few stocks are better
after all for diversification purpose mf is always there
a lot of good securities wont do much good..but they are good as a holding option.
maybe i can track and when they are undervalued then i can go and buy them.
i would also be clubbing etfs-ishares with stocks."
Having read some investor classics, this is what I culled out from them:
"stock picking questions: add it to the checklists - done.
profits, sales, earnings, assets, products, competition, growth potential
intuition says?
how much dividend hav they declared in the past?
long term prospect
mgmgt quality-can be seen in the co. website - board of directors, mgmt team
is it undervalued - this i cannot determine but can find from net

general rules/tips and blogs and what not:
1. Tenure: long term in general, like 1 yr plus,short term if there are some logical gains
2. look for large goood cos for parking money aka index fund
3. the maximum cap on stock purchase - like max 15 or 20 stock
4. sensex and bse100 compromise the general universe of stocks, of course u can add more, rate them in order so that u know which when to buy in what order
5. finally dont take all the rnd and other collaterals too seriously ... after all there were ppl who did better without all these. and do it rather than seeing all this things from the side.

we might get some stocks in bse and sometimes for a given quantity in nse.
should each fund have its own indivi cycle and processsees , then if u have 15 stocks then 15 cycles ?  yes, this will be taken care by r&d
should we go for a mf like approcah - for classification index and flexi cap fund makes sense rather than large cap etc. index is a man made statistics do not get overwhelmed.
or no need to classfy stocks since we are going to pick from our own universe of stocks
so shall we call this universe as shailesh's index? or shailesh's 20 stocks? whatever is the solution needed for the r&d, these are just some of the various approaches in the r&d
have low number of different cos for cleanliness-but dont go too much into it just like uncleanliness, so ideally something like 60-40 clean-unclean is good enough-in fact these attributes should be automatic and natural -> ambiguous?yep. but again this is one of the approach as part of the r&d review process.
i am more a investor than a trader
dont take unnecessary extra tensions and this is not life on the whole but try to make sure that u dont lose money if not gain
when to think and when no think?"
Related to lifecycle of stock investments:
lifecyle:
so i go thru screeners and put them in a list
i go thru indiv stocks and handpick them just like i did cof. wmt. grmn etc etc...
then the screener list is changing frequently - as the screeners criterias mostly remains same but the stocks satisfying them would be diff at diff points and hence based on that the list will change...
my list the ones i handpick i generally put my comments in the sectors-industry and the co-analsyst... that is sort of my analysis and my take on them and then i just put on them ... so the next time i will again thru the fid list of stocks and simultaneously search if i have any doubt on this text that i have already prepared to see what i think of a particular stock in the past. 
finally this is just a initial stage of the stock selection. the next stage is the faster one where i just take this sub-list of stocks and then just blog about them and get a fastrac document wehre i say i am going to buy this and thsi and maybe sell them for this - all this data....
once this list is there it pretty much functioned as my own screener and from there on just use this list to hold on the stock for 1 to 3 months and then sell. for the roth short term stocks -the screener will have  a period of 1 month. and for the long term we will keep it in place for 2 to 3 yrs at max.

once i have the list in my analysis docs - the 2 ones currently + the stock ticker in the goog portfolio - then just fastrac finish it. fastrac induces action so just take action.
This is more handy checklist, mental process and tool for a daily trader than a more patient long term investor/trader.
At one point, I got too much sucked into the Fast Trading Algorithms fad and researched and found some of the following data points:
for the fast trading, the stocks should be part of the dow/nasdaq/s&p/russell. 
.look the indexes in cnnmoney.com - daily performers, monthly performers etc. - basically for getting the stock names and symbols and all data
.put them in google finance in sallu.fin, now sallu in gf has some good stock mini-universe. put them in different portfolios. arrive at sallu portfolio by elimination.
.look at some of the stocks there and put the shortlisted ones based one of the algorithms below in idli portfolio
.final stage/then they go to our stock excel software
.final stage/then they are directly executed trades
As this process matures, one finds in taking a more toned down approach towards trading and rather than churning decides to increase the period of time from a day or few days to more along few months. Here is where the trader matures.
Some more data points from this time:
.fast, but not blind fast. point is dont be afraid to buy or sell. trade sensibly. short term trading is not hyper-active trading.
.the sallu.fin has the stocks culled from the leading indices like nyse, dow etc. these stocks only will be looked apart from of course tips. the hot tips will be cooled over the weekend and then sal invests in them.
.taking cue from the long term strategy, go for those stocks which are generally in the 10s or 20 or maybe 30s so just in case something like c happens we dont lose too much. the whole point is to sell them when it goes down and cut loses if we dont make profit. case in point again bby, went to 45 then 25. i could have sold it at 45 and booked profits. same with cof went to 56 and then back to 35.but then it is long term account.
.wilder the swings the better, so you can buy lo sell hi
.for stocks with less price and volatility, maybe a sell trigger makes sense
.so i will avoid bad news stock or invest less in them. similarly avoid stock graphs already on high. volatile is good.
.for big stocks like goog, no sell trigger as the wave is quite high - it goes up 50bucks a day and gets up another 50 the following day
.break the total amount into smaller manageable chunks - equally and then join the chunks if the investment is larger. so 10k - will be 10 chunk of 1k each and you need 3 chunk to hold a berksire share.
.the problem is we have some chunks and 10 trades pm at a total cost of 50 bucks, so how do you maximise revenue?
.idli represents the sallu list - basically a sub list which matches the above criteria of stocks for trading and which have potential for upside. 
.so periodically i can look at idli and buy/sell stocks.
At this point, you need some sort of feedback or a way to close the loop. Typical data points here are the result checks of your investment strategies.
result check:
short term yield target is 50% - good, above 60% - fabulous
with bonds you get like 5 or 6%
with stocks mutual funds like 8 to 10%
so look at stocks directly - it should be definitely greater than 25% other wise no point at all. now 25% is annualized for lt so there could be super big drop like it is there in 07/08 for financials but when it should be high when you decide to sell.
Feel free to add your own result criteria. Many people have higher aim for investment returns while some are more contended with beating the index.
Some final thoughts to close this blog:
some thoughts:
going one more time over it, we have view the holdings as mf. so we have zecco mf or index fund, some other fund, we can break all the holdings are fund. the purpose of this is to easily manage pieces. a mf with 100% holding in one stock is that stock's mf. or you can just hold these stocks and sell them. the point of fast trading is that you are not afraid to book profits and proactively book them and in fact work towards that. you may or may not induldge in fast trading but the whole point of this exercise is to set and meet the money deadline. so maybe for a given year, you will start with x and you want y amount at the end of year. so whatever strategy works. you can also do just 2 really fantastic trade and reach y. now to set y, we can have y at good level and y at fabulous level. either way no need to stress things out. whatever helps in managing this in the time you have. typically as minimum time as possible it should take. if you have 100 bucks then break it into 10 parts - easily manageable and then 10 parts or units will go in different directions pursuing different strategies. so all this aimed at starting in 2008 end and in 2009 begin. in roth or an ira to help on capital gains taxes. so for 08, i have roughly 1500 or so and for 09 5k, so that is around 6.5k to strategise on jan 1 09.
also, zecco account is better off for now.
well sometimes the procastination does work. u laz around and do not put money in a market which is going down and down. after all shorts work only in up market or maybe volatile but in down - i mean right now the stock market is whatever stock you put money the next day it is going to go down. that is it. it just goes down. what to do when it goes down. except invest in bonds. even that is going down.
technically we are looking at those stocks that will swing wildly and be volatile .. so the biggest gainers of the day is what we want daily or during a period of time. 
an aapl stock with buy at 100$ and going to 200$ in 6 months is much better than smaller trades costing much of your time and brokerage commision. so think slowly and act.
Don't let taxes considerations overshadow the quality of an investment.
update: zecco suspends 0 10 free trades for balances less than 25k, so that affects me but still at 5$ a trade, it is a better alternative. finally my model should not depend on constraints like 10 trades per month (since they are free) or 25 trades (since 10 will be free then) or trying to come to maintain a net balance of 25k - that way 10 free trades and so on. if i have to be serious about this, i need to put in a good strategy and model and make it work rather than simply blogging about it.
finally the stock gives profit or not. when not there is a whole bunch of theories on why not, same when it gives profit. some thing is down and can potentially rocket up or simply go to 0. something is at high and may go higher or go down. nothing predictable. technical indicator could only give probab number. probab is not certainity. you should know that. 
and there is no need to be ultra meticulous when it comes to processes and algorithms. ad-hoc works some times too.as in dont go over board on any thing. some time like in software u just need to lay down the deadline. going live in two weeks and none thinks and writes blogs. just like that 1 week for stock and 4 week for home finalization. stuff like that. things like horoscope matching etc. not in my hands and cannot put deadline to that. 
WSJ::The bottom line: Leveraged ETFs are for day traders. You can't manage long-term risk with a short-term tool -- especially not with one that can blow up in your face - i dont think so .. there was dug and fxp/srs which if held for a month would have given good returns, better than anything else in the current market. i think this is all about timing. buy timing and sell timing is all that matters. but is true that leveraged etfs are not long term stuff.
for stocks like c or any finance, there has to be hope and timing here is long term. now it looks like that is a 10 yrs period or even more than that.
for others like bby or wmt, it shud be more like 3 yrs or so.
for shorts it should be a month or 2 ...
so everything depends on timing.
FASTRADER2:
as the name suggests this is a short term trading strategy which captures the small swings.
roth is the target
zecco or bac is the account
jan 1 2008 is the starting date

as with anything else, short trades and long ones are two sides of the coin. i am not going for options/shorting/ or go long/short or whatever that is for now. neither am i putting anything on the futures or derivatives market. so just stocks and maybe etfs. now when you do long term investment after reading articles of some big investors, there is not complete analysis because the information on which you base it is incomplete. so lt makes sense but there are deals rather than investments when ppl get "perpetual prefered " stocks etc.. bullshit things which will give them fixed 10% APY in a dumbass market and 10% premium and warrants and all bull shit. ppl like buffet go to these deals and they get done because money is in billions here and not like 100s or 1000s of the small investor. from that perspective it makes sense to go lt. hell if i had that kinda money. i would have gone lt too.
but for small amounts it makes more sense to go short. so essentially have both strategies and dig deeper into short term trading strategies and models and come up with something cool. now again everything is flux. so no one stop solution for all the markets and sectors. use ur brain/gut/intuition and create custom solution for custom problem.
strategies - more like junits ... so have various test casese running parallely ... the one that is working, start alloting some money to that model ... and see - i mean when you are doing short trading, then there is no option but to monitor constantly. like small individual projects or tasks or assigments .. which have their targets or goals to achieve ... like small jars and apps which do their stuff. you know what i mean?. good.

goals: 
    you need to identify the list of the stocks which can be "tradable" - a lot will overlap with the already existing long term strategy.
    what is the buy price range?
    what is the buy time for a particular stock?
    what is the sell price range?
    what is the sell time for a particular stock?
    what is the "destination" or "final" state? As in have everything in cash?

as a matter of fact, if there is a good deal then maybe ... maybe i will transfer that into the long holding stock and keep it like the rest of the C, COF and BAC for 10 fucking yrs.
also what do you mean by short term? anything that makes sense when you buy it. so maybe you buy something now in the hope that it goes up in 4 months. it does you gain else you book losses and exit. 
MARKET TYPES:
van has not ok and trp has ok
fid again seems to have good types and detailed.

http://eresearch.fidelity.com/eresearch/goto/markets_sectors/sectors/companies_in_sector.jhtml?tab=investments&topic=companies&sector=45&companySortBy=PriceChange1Yr&companySortDir=D

http://eresearch.fidelity.com/eresearch/goto/markets_sectors/sectors/companies_in_sector.jhtml?tab=investments&topic=companies&sector=45&companySortBy=PriceChange1Yr&companySortDir=D&numRows=15&startRow=90

really good. and sufficient too.

dec 09:
we are looking without the performance or any graph..just the names of the companies
SITEMAP AND WORKFLOW:
first link: click on sector
-industries in this sector, 
-invesment in this sector tab shows the cos and the etfs - so good link there
-View Another Industry in This Sector dropdown is also good.

few minutes in - there is lot of data, etf is better option, make a list instead of those cos which u will hold still like  c or cof etc.. atleast these cos have untill 09 vindicated my faith in them. i guess it is bette to hold cos like fedex etc. and bank more on hold-off-on-negative-territory than be "active" and book losses etc. and spend more time on selecting some obscure stock and running down all the waay with it.
i looked at only tech area - even there the scenario is not all bleak. but still like reading books or just surfing net. it is a goal to revisit this sector/industry page and browse for likely candidates - that can be good fit ... dont look at performance. or share price or beta or for that matter any technical indicator. think from a wealthy manager point of view. u browse thru a sector, maybe chose good cos with good products and good management in it. later on evaluate the stock aspect. for example they might not be too keen abt dividend or stock price. then in that case chuck it. similarly now auto is boring. finance is shaky. but some tech is good. oil is well oily.
so basically this persona is using this fidelity tool. he as noted above has lotsa moolah to put. not looking into statistics since he knows statistics. he wants to try more folksy approach. browse thru a list. get some good cos and talk to them and then just invest in them periodically.
NOV09:

it is also kinda hard to make lotsa money using trading. the ppl who make money are usually thru salaries. they might make money for their funds - but again they are playing with lot of money to begin with - which is not even theirs -so even removes the emotional aspect of the biz. so better to focus more on coding or whatever ur full time job. just because mf is doing crappy that does not mean u have to devote more time to trading. having said that i am not devoting more time to it. it is mostly automated for now. even on coding realm - i am kinda right to make the call on java flex etc. and then sticking to it. the focus there was on deliverables. so no second guesses now on coding or trading - fulltime or the part time biz kinda structure that i have been putting but expect more coding time during the days so that there is no distraction. hence the above strategy work is to prevent the additional time that might be seeping out of my day to day work and furhter automate the trading.

dont have handle on bond yet. understand it but ..eh kinda 50 50 for now .. so hold off on that for now
forex - still black box - will see during the rest of 09..
nothing else for now ..
so back to equity strategy...

as with anything else this is an ongoing strategy - gets tweaked adn changed on the way...i means the stocks and investing strategy in general 
many things from past are coming back like in mf etc... mf was previoslys  strictly long term - but let us analyze the potential it has a short term investeent along with the etfs

view at 401k as something of ongoing rather than something that stops at 60 or 65 - so have a strategy there adn strictly follow evalauate it. that is why i feel it should be easiest. similar to the roth iras where u get to manage the stuff. 
for the taxable account only performa matters - so u can invest in etf or stock or bond or cash or leveraged etf as long as it is yielding the desired results.

i tend to repeat that best way it put in 1 bond fund, 1 us stock fund, 1 international stock fund. the manaagers wheteher index or active have a job to manage these on behalf of you.
the other is that does not happen really. in that case maybe look at graphs and then see - goog finane graphs that u contributed during say 2007 - 2015 and the graph at 2019 is substantially higher than that then maybe sell it. and move to some different holdings. the questions is should i just move a portion to treasuries or safer? should i be chanellising all money to stocks first and then after every interval whenever i am going to sell the stock funds - sell them and have them move over to bond funds? what say? that sounds a good plan.
or maybe just invest in 1 fund and then alternate between that and cash. kind of like what you are doing with the taxable stock accouts? dont know cos even the bond funds get canned regularly just like stock funds. so let us keep with the existing process of - look at good funds - having good m* ratings - and more emphasis on lower expense ratios and funnel money into them.
at fid i diversified across lot of mf - still all were down. same with van too. at trp i just put on 1 fund - initially had 2 funds there - yet all 3 were down at a time...so really contribute well and on retiring go to india (so that money travels further and hoping that 1$ = 50rs) and also have a lot of sum in it diversified across - that way it would be fine.

now over to the taxable account - just go thru the sector list and then u will be able to decide.
for roth - same strategy as taxable and medium term trading - if time permits then we will switch over to some different strategy.
the long term taxable accounts at zec and td - well let us reduce the term of long term from 10 to maybe like 4 or 5 yrs.. it started in 2007 - so that means - i guess its easy to calculate and also have the return calc determine it. though i do feel like stocks like C can come up sometime soon - many banks now are repaying by the ton.
over to the roth mf holdings in trp and fid - well - wait again till the mfs come back... there is lot of patience and humility involved in life now.
it would have been really better if all this were in instead held in us treasuries yielding like 5 % or something but then again in 07 when the mkts were hi i guess it looked like real genius to hold on and all that shit. looking strictly as a math i would say having fixed interest cd or treasuries works much better. u know give a yield of like good % but swinging back and forth like see-saw.

Monday, May 4, 2015

Random thoughts on trading ..

It is better to do a strong, basic research similar to a big company before diving into the world of stock markets. I would suggest allotting some time for a few months in R&D. Call it your own R&D department and clock yourself in to learn about various stocks and funds. Now, generally speaking, investing in funds is known as defensive. With investing in index funds being at the core of your portfolio, it is also prudent to put in some money in actively managed stock funds or bonds funds with low expense ratio. My initial understanding of the mutual funds world was that the mutual manager would be the who books profits on your behalf based on his research. Also, 2008 proved this notion so wrong. And it seems you are the one responsible for the rebalancing which pretty much makes it obvious that you are better off holding an index funds with low expense ratios and self re-balancing features. However, buying into mutual funds is still overall a defensive strategy and we shall focus more on creating your own index or creating your own mutual fund or creating your own hedge fund. We will not dwelve too much into the risk management aspect. Honestly, the best risk management tool out there is diversification and if you are risk- averse to x%, better take and put that x% right away into a bank CD or treasury so that you will never be held up with the losing bags. In fact, it is never good to be all in on stocks. No matter what. Unless you have a very safe net and you are holding an external account on money which you can totally afford to lose and it is most likely stocks of your own firm that you founded or acquired. So as you go about writing this notes down into a checklist, you can also put them into a document and run this criteria or checklist everytime you make a buy/sell decision. 
As you enter into the actual trade stage, let this checklist and your research output be the main guiding light and not fad, on the spur moments and decisions, not a new technical indicator or what buffet says or whatever media or any other hedge fund manager says. Essentially your conviction and temparement is the one that is being tested by the market. As long as you ace in this department, there is a good chance that you will pass the patience test and other things the market will throw at you. 
A well defined checklist should ideally have entry points and exit points and buffer points built just in case you feel at the moment that maybe it is better to hold off for a few more days to book more profits. Such intuition comes as you become a more seasoned trader.
Some buffet speaks that I have collected over the years:
"Buffet speaks:
Buy the business and not the stock
Value investors, he said, "search for discrepancies between the value of a business and the price of small pieces of that business in the market." Hence, the only thing they are bothered about is "how much is the business worth? He's not looking at quarterly earnings projections, he's not looking at next year's earnings, he's not thinking about what day of the week it is, he doesn't care what investment research from any place says, he's not interested in price momentum, volume or anything. He's simply asking: What is the business worth? While they differ greatly in style, these investors are, mentally, always buying the business, not buying the stock.
and finally theories are there - just do it .. and learn on the way - hard or easy!
There is a thin line separating investment and speculation: The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.
After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities -- that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future -- will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands.
You might be surprised to hear that he thinks you can succeed at stock investing without giving your whole life over to financial statement analysis. He's outlined a method whereby the total research time to find a stock "equals a couple hours." And he doesn't think you need to check back on your stocks but once a quarter. Doing more than that might lead to needless hyperactive trading that wears down your portfolio with transaction costs and taxes.
Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.
also, i would say less diversification and concentrating on a few stocks are better
after all for diversification purpose mf is always there
a lot of good securities wont do much good..but they are good as a holding option.
maybe i can track and when they are undervalued then i can go and buy them.
i would also be clubbing etfs-ishares with stocks."