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