Thursday, March 30, 2006

Add Some Sizzle to Your Portfolio

With every risk comes the potential of great gain. Yeah, yeah - the same can be said of great pain. Risk is good, but managed risk is even excellent. In the world of 7-8% average annual returns, investors always look for the multiple bagger. One to ten baggers i.e. 100 - 1000% gains. Most of these multiple baggers, are often as a result of great risks - while others are simply as a result of positive surprises (i.e. takeovers, earnings news, addition to an investable index, mergers or even rumors of them). The third reason for a multiple bagger can be a very good knowledge of how Wall Street operates (this I will touch on in my next posting) . It is usually a bad idea to speculate on positive surprises, but taking some managed risk should be considered.

Wall Street is a casino, no one makes money by betting against the house. Do you realize how much Wall street rakes in for just exchanging your money hands over fist? Heck, but you too can make some money by speculating in a very smart way. This smart way is what I call Below Radar Penny Stock Investing . Penny stocks are generally stocks below $2 in absolute pricing. One caveat, your speculative position for any given portfolio must not and should not exceed 20%. Remember, the bottom can fall off anytime- if you get slaughtered due to your greed, remember you are a sinner!

Penny investment is risky. First the downside: Mutual funds can't generally buy stocks below $2. This means the easy money cannot be made by you and I - when fund managers turn positive or negative on such stocks. This also means that their volumes are usually negligible and we can easily bid them up unnecessarily. Remember, the fact that they penny stocks also mostly means they are expensive. That is counter-intuitive but it is true. The relative cheapness of a stock is measured in its Price per Earning (PE) multiple not its pricing. However, no stock gets to $2 because it is making money. Since most stock often enter the stock market at the average price of $12 or above, that means they are at $2 for a reason- losing money! This means an over bloated PE multiple or even a negative one for that matter.

The Upside: They can make you a lot of money if they go up. Simply put, assuming you bought a penny stock at $1.50, you can afford to have more of that unit. Meaning, you can easily buy 1000 shares of Firm X and become a sure fire part owner. Often times, penny stocks usually increase in price on unusual days when idle money is seeking bargains - that is a sure opportunity for this our penny stock X to move up to $2.25 - that is a monstrous gain my friend. You just had a winner! A sure 50% overnight gain. But imagine this...Next day, Mutual Fund B manager runs his screen and suddenly stock X is above $2- you know what? He buys more! And what next, limited volume equals increasing price acceleration (Econs 101), this means he buys more and his Fund Y can't be beaten he too buys more- end of day 2 you Stock X is at $3 - that is a 1 bagger. The end to this can be seen, this stock can easily hit $5-6 in one month. And then, if I were you I will take half off the table. Trade your gains, don't be a pig!

The scenario painted above has been tested by yours truly and I can testify. NSU and TGB are the stocks. Well run mining companies, dealing in Gold and Copper. In the world of mineral mining and the present bull market in materials I found them the best speculative stocks around because of CRIB (China, Russia, India and Brazil) . CRIB needs materials to build dis and dat and NSU and TGB has the stock that can make me some money. I put them in my Fantasy portfolio 3 weeks ago, now they both rank 2nd and 3rd after the other monster on there (FMD- of fallen angel fame). Indeed, no one makes money panicking and if you don't have stomach for ups and down please stay out of speculation.

To select penny stocks to speculate with ensure that they:
1. Belong to a sector that currently in favor e.g. materials, mining
2. Have good management that understands PR in place . Eew! NSU knows what am talking!
3. Have balance sheet that is healthy- check their debts and if they have enough money in hand to pay off in case the environment becomes unfavorable.
4. Check for their take over viability.
5. Company is not in the cross hairs of any analyst. Make sure it is not being covered by anyone on Wall Crackers!

If you keep these rules in mine- then you are on your way to the House of Pleasure!

P.S. The unusual penny stock Article- How to make money on un-speculative speculation

Sunday, March 05, 2006

Your Networth

Often times this blog is dedicated to discussing stocks and company related securities. Indeed, it is dedicated to helping young people make a fortune from the financial market. Beyond and above all these is the issue of your networth. Wall street is a big casino- money is made and money is lost, and it will be insane to leave your financial health to the topsy turvy of this gargantuan operation of geniuses, mavericks and con men. That is why the issue up for discussion today is your networth.

Simply put - securities i.e. bonds, futures, options and stocks; should just be part of the many bits and pieces of your networth. Building a fortune requires hardwork - but keeping them is even harder. It gets harder if all you are worth is on Wall Street, which makes such wealth allocation preposterous at best and downright foolish at worst. Other parts of your networth that should be worth considering are:

Real Estate: There is no better investment than your own house the cliche goes; and it is true. Forget those rent vs. buy comparison calculator. What a rent amounts to is paying another man's mortgage for him. Any fresh graduate can easily afford owning a home in many of the tame markets today without taking a risky credit profile. With 0-10% downpayment options, you can afford a small house for 100-150k financed over 30 years. In the future, you can easily consider refinance or trading your small home in for a bigger one if you have to. At least all your rent didn't just go down the drain for say $100 extra. With the possibility of reverse mortgage, you can easily spend your equity if your retirement calculations was way off point afterall u know. The earlier you build this equity remember, the better for you. Over the past years, real estate have reasonable outperformed the stock market. While it is not going to remain so, it is still going to trump the huge casino because livable land is continually shrinking and population is expanding. Period. You might also consider an investment property for rent or sell- it is often better to share the risk of such investments with others - so forming a small group of real estate investors for this purpose will be very smart on your part.

Antiques and artwork: This is quite an Avant Garde area. But you sure can cash in on the craze sooner than later. Buy that popular artistic piece and hope that 30 years later when you retire it is gonna be rare, and you might have made the best decision of your life.

Precious stones and jewelry: The resource crunch and the growth of CRIB (forget BRIC- China, Russia, India and Brazil) have unleashed a new lease of life for stones and other precious metals. The sooner you stock up on this the better for you. They are good hedges on inflation as well.

Your Personal Business: Simply put - be your own boss. When you are not at the mercy of your boss you just discovered the sure path to living a prosperous life. Most self made millionaires are business owners. Do not think this is a far fetched dream- just think simple, do what you like doing most and sell yourself. It has worked for generations of immigrants that came to this country and it can work for you. The time to start is now- just do eBay for a starter and you will not be the same again.

Other forms of alternative investments include dog/horse full or part ownership for racing - which can be a very lucrative form of business as well as timeshare certificates.

Remember, your networth is your confidence and your security. Peace out.

**Article Spotlight- Saving Your Retirement