Recent ups and downs

The lessons to be learned from the recent ups and downs in early 2016 - basically January saw a downswing and fears of a -20% drop followed by a huge surge up at the time of this writing as of March 10 2016. Let us see what future unfolds but for now, we can reflect on this period and the current thought process on what I would have done with the current tools and strategy matrices etc and what would that resulted in:

The overall fluctuations across market did not catch up to the heights of many of the stocks. The core of the rally is powered by fundamentally strong and big volume stocks such as Walmart, AT&T among others. So really this rally is a rather locale or isolated rally than across the sector rally which would have more legs in it. So, I think things are going to go down in the coming weeks again. If there is any uncertainty coming from any part of the world, this froth is going to go down big time. So I would rather wait and watch. But the truth is maybe there was some buy and sell opportunity in the broader ETF and select stocks such as Walmart. But all in all, I would say if you had say 10,000 then maybe about 500 of this could be something that you could put into stocks or etfs and maybe swing it a bit. But anything more than that is a risk. Honestly even this 500 is a risk .. more conservatively I would say between 100 to 400 on the liberal side. So that is pretty much it. Some of them did well and some did not. So again monkey business as usual. And if you did not buy or sell and simply hold on to what you have .. then you have not really missed any big action here.

March newsletter and no longer supporting bank of america/Merill edge platform

So what is the best word to describe the going ons in the stock market in the past couple months ? 

SEE-SAW

It went up and then went down and then went further down and then came back up and then went down  .. same thing is going on ... yeah, some people might think of this as a swing situation and do swing trading. As shown in the previous posts here: 

http://millenialfinanceblog.blogspot.com/2016/01/jan-2016-newsletter.html

that hardly makes any difference. I did a swing post back testing for the last 10 years when there was a good downswing followed by considerable upswing. That period gives us a refreshing course of how it works and not generally fall into what pundits say about stocks always performing better. In a way, it is a good test of risk tolerance and balance and understanding of stocks and economy as well as general human behavior. Without boring you with the data, there is hardly a correlation between faster trading - whether daily or over a few months or quarterly to periodic rebalancing to any concrete return in profits. In other words, too much of reliance in timing never works. At the same time, we know that those who did buy during early 2009 are sitting in some pretty good gains so of course, some timings does work.

Hence, in this blog we advocate doing a balance when it comes to different approaches. Never take any statement in absolute way. Only sith deals in absolute. So there will lots of gurus who will tell about do this or dont do this, dont do options, do options for hedging, invest only in index or vanguard or dont do that and invest only in invesco or american funds or active funds and so on .. the thing is in the finance world, there is no true point. Rather it is a big picture about possible true or better positions for your hard earned money. One works hard and essentially puts in some time early on to accumulate some money which is supposed to help oneself as well as one's family in future. Usual investment vehicles aside, diversification is the very first key. After that manage risk, do periodic rebalancing, maybe do some aflacku the duck style or any monkey/baboon style throwing in some money and holding it on for a period of time and using just plain common sense, selling it off after a time when you have made some decent returns. 

As for investment vehicles, choose the ones that you are comfortable with like stocks or bond or CDs or options ( though we dont advocate that or betting or derivatives or anything akin to gambling ) or just cash holdings ( yeah! that is fine too. Cash came out ahead in 2015). Choose your avenues - ira or taxable etc. wisely. Once you have some sizeable holdings, over 100k+, is when there is at least some strategy to play with. Now in one of the previous blogs, I had mentioned about the benefits of $0 trade fees for stocks and how merill edge and bank of america is a good case study on how to implement this. Well, I am rolling back my position on that after some experience. First of all, the data point that index trading is much better and effecient compared to individual stock trading. Secondly, there are players like Loyal3 or Robinhood which are way better than the Merril edge / bank of america combo with way less balance requirements. And most importantly, the rise in CD rates which I had sort of lost sight off. 

A little backstory: long time ago, there was a company called Zecco and they had a $0 commission fee in exchange for ads. Many other companies before and after tried that and eventually got acquired. The current roster of loyal3/robinhood is pretty much the continuation of the same strategy of acquiring user base and then selling off to bigger rivals. Banks like Wells fargo with their wellstrade program or Bank of amerca with their merill edge platform are rich enough to absorb some of these fees if there is volume. But most importantly they want some balance with them which will generate margin fees. No free lunch there. So back in the day, I had calculated this in the back of a napkin and justified that online banks ( like discover or amex ) will come out ahead with their better interest rates coupled with low cost stock brokers such as Tradeking or really anything under 10 bucks per trade if you do limited trade per year which is what is recommended in general whether it is a swing market, up or down one. Now with merill, I justified to keep 25k on the side or put it low interest cd or just periodically put that in an account and maybe do periodic trading. That does make sense but honestly it is more of a hustle  than a strategy. It is more something  that will be a distraction and hence given that and more importantly the fact that if you have stock trading in say a basket of 10 stocks vs you trade for free in an etf with Fidelity, you are likely coming out ahead with less stress and less costs and almost equivalent or even better performance with effecient risk management in the case of ETFs.  The current list of banks with IRA CDs worth considering are again mostly in online space or credit unions - such as Alliant credit union or Penfed credit union among others; Ally bank or Discover bank among others .. Nyat sure if barclays or Amex offer similar products but that would be worth a look. The point is, an online savings bank or credit union for your IRA cd with ETF from the providers and a low cost brokerage ( under 5 bucks ) comes out still ahead of the bank of america merrill edge program. Muh math on the latter was a bit off given that there is a 25k requirement in the bank of america deposit which currently yields about $5 if I were to generously round it off. The same with ally to discover will yield about $375 to $300 at the minimum. Those are safe and more convenient to bank of america. Not to mention, you are getting $300/5 = 60 trades for an year.  Now do you really that many trades in a given year? With a corpus of 100k+ to about 500k or so, it is doubtful that you are going to find that many quality trades. With a good financial advisor by the side, you are looking at about 10-40 trades at the maximum for that kind of amount per year. If someone advises more than that, fire them regardless of market conditions. So in a nutshell, I am going back on my last lesson that merill edge/bank of america is a good program and essentially dont recommend it all. On the contrary, stick to less trading and more thinking. Use etfs. They are free. Use better and cheaper platforms. Trade less. Park some on CD. That is something that I definitely stand by from my previous post.

What Tires to buy ?

So 2016 just started and we thought that we should take a different direction on this blog and not just write about finance and investments but also other things that are intricately linked with finance. Now, the top things that are non monetary but yet related to financial well being are a) Health b) Sleep quality c) Driving quality if you drive d) work quality.

Of these, the points a, b and d are for some other day. Here we focus more on c. Which is the quality of your drive. Now, the car one owns by most accounts should be rather minimal unless you are into cars. So that translates to getting a basic Toyota or a Honda or a Ford. If you are into electric then again Toyota or Tesla seems to be the top options. Once you get a car, it depends on how  comfortable you are with new vs used cars. For most parts, a used car is pretty good especially if you are relatively new driver or does not have much experience. A good car dealership or mechanic can vet your car and assure you of any internal rumblings. Then periodic oil changes and maintenance is all you need to make sure that the car easily tops the 200k mileage range that most cars post 1995 are capable of doing. But one thing that will require some annual check is the tire. If you do tire pressure check and constant air fill up, it should be good but there is also the whole tire rotation, re-balancing, winteriz-ation and summeri-zation and all seasons for the rest of the seasons. Now most people either go with all seasons tires or those with extreme weather take precaution to winterize the tires. That is entirely upto your local environment and it is not a bad idea to invest in these extra set of specialized tires to help you navigate the roads well. As a general thumb rule, if you are buying a set of tires or rather a pair or 2 pairs - go with something from different name brands and ideally go with 2 at a time. This gives some much needed diversification to the tires for your cars. However, there are also often advertised specials which cleverly give you 1 free tire if you purchase 3. I was always against such deals .. why not just distribute it evenly amongst the tires. Which is why I tended to stay away from brands which do such sneaky advertising practices. The top brands or rather their dealers do this very often. Of course the margin is very well built in:) . 

Now the top of the heap is the Michellin, Goodyear etc which are pretty good and also expensive. But if you are going to drive in a bumpy road with nails, it really does not matter much as to which brands you go for nor does the bumpiness get any smoother due to some extra quality rubber padded on the wheels. Next up there are the Fuzion and Sumohito - both from same companies and a myraid of other brands in this segment. More or less they are all same. Just like computers in similar 250-500 range, they are just slightly different specs with not much variations so to speak. Then there are newer entrants such as Lexani or Veento and many others who price in the 40s-70s because they are new and want to capture market. I would not overlook them just because. I had used Fuzion in the past with mixed results. Twice my cars got nails on them and the tires had to be replaced. The best process would be just call up local tires and get quotes from them for 2 or 4 and keep them all ready. And go with what ever makes sense but in the tire business cheap does not mean less quality nor does expensive brands like Michellin automatically guarantee better ride experience. Of course for the extra money you pay the thread guarantee is there for 90,000 or 70,000 miles instead of 40,000 miles. But choose wisely. Either way does not matter much. There is a lament here that the tire dealers do not give a test drive for different drive experience which would have given the consumers a better chance to experience before making a decision just like cars or electronics or anything else these days.

An adjunct factor for this decision is also install. Now with mount, balance, environmental disposal fee and this and that .. usually the per tire cost is about double the initial quote. Now most of these are standard and mandatory. Except installation fee. Here Walmart quotes are way better compared to others. Here is a quick comparison per tire installation across various places:

Walmart: $12 

Costco: $16

Sams Club: $15 with emergency assistance thrown in for free which is pretty valuable.

Average dealership: $12-$18 but these can be good and the quality and speed is often better than the above warehouses and you also get to know the mechanic better for oil changes and other work in future. With Walmart and Costcos do not expect a friendly service .. it is just assumed that you know what you are getting into.

The tires cost higher in Walmart and more so in Costco where they start in the 60s and 70s. Walmart and Sams carry from 50s. The others such as Sears typically fall in between. The install is higher with Sears at about 20 bucks but the quality is pretty good. I have had 4 tires brought and installed there in a specials promotions which Sears runs often. With that it is easier for Sears to beat its competition rather well. And in general they are very friendly and knowledgeable. 

Some better online tools help you compare such as Yelp, Google Maps or really any online maps, bbb or better business bureaus, auto repair shops which do not change tires also have good info on reliable stores. Then it is just cold calling them and getting quotes in advance and then just getting it fixed.

Jan 2016 newsletter

So 2016 came in swinging! Late 2015 had all the set ups with volatility, the late august downswings and then continued volatility thru last quarter. But 2016 just surprised everyone with no analysts out there predicting anything remotely close. Led by oil, global fears about various things etc. the first three weeks of Jan 2016 saw about 1500+ points downsizing of the DOW. Similar losses across the board in various sectors and indices followed. Now this blog had mentioned about some quality stocks, all American ones, like Fedex or MCD or WMT etc as core holding in the stock portfolio. These very stocks got burned just like the rest. XOM or AAPL or utility stocks-all of them had suffered. No fundamental, no CEO reassuring similar to what happened in 2008, no sector really performing well above expectations. 

A study done internally for the last 5 years showed that ETFs and low cost funds were better performers compared to individual basket of stocks - big or small .. we focussed on the big and blue ones but they fell short. A mix was a debatable option and overall some stocks are okay to hold in your portfolio but by and large, there is no point in holding too much of them or trading frequently. The study was done to also determine the usefulness of Bank of America Meril Lynch Edge brokerage program which gives $0 commission fee if you have more than 25,000 USD in assets with them. Basically, the idea was to stash 25k as solid winnings or core from so long and keep them on the side. But it fell short too and there are other CDs out there which give better interest rates, negates the need to have 30 free stocks per month. At max, I think one needs to cap free trades to about 10-20 or so per year. Anything more than that and likely you are wading into hedge fund territory from individual investor territory. Again these are numbers and different people have different strategies and limits and numbers so nothing wrong if you trade more than that and turn in a good return. But keeping in the basic philosophy of the blog about Vanguard/Bogle/Buffet and others from similar background, we would limit trading in stocks or etfs or mutual funds. Holding in Buy and hold has a reason and it is better to hold off for a longer terms and then sell in higher ranges and buy in lower ranges with new money flowing into cash positions. I think fundamentally the buy low sell high algorithm is the only sound strategy. Rest everything are just additional tools in the toolkits and salts on your algorithms which also test your resolve and patience. 

Oil is at multi year low and it could go lower than this or bounce back but certainly this qualifies as lower ranges and hence it is better to buy oil commodities or services. VDE from vanguard or XOM/COP etc are all good buys. XOM is still a tinge higher at 70s and could go lower to 60s at which point it would be a decent bargain. 

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.