How to Spend Your Next Tax Return (Part 1)

Tax return time is nigh; by year end through the end of first quarter 2007, Americans or dwellers of this hood would be seeking out money back guarantees from Uncle Sam. This yearly ritual is a kill time for retailers and credit card companies. Consumers for the most part spend their tax returns to get that Patio they badly wanted, or that flat screen TV they couldn’t afford at Christmas but bought anyway on their high interest credit card which they pay back. But this strategy is hardly the best way to spend a hard earned return, which is basically zero interest money you gave to Uncle Sam for one year. The average tax return has risen by about $200 to $2500 annually in the last couple of years. This means a lot of cash in the hand of consumers that is either spent before it was gotten or is not planned for.

The danger of anticipatory spending or unbudgeted spending is usually the guilt that sets in the second quarter after a tax return is badly spent with the promise to do better next year. To scale this guilt trip, a simple rule of the thumb need be applied to tax returns. This has to do with what you should do and not do with tax returns. Indeed, if tax returns are a bad deal from government (since it is a sub inflation rate loan you gave to Uncle Sam), then it behooves on you to ensure you put the money somewhere it would yield a minimum of inflation plus some in the next coming year and ensue the one year capital gain loss is made up for rather quickly. The good thing of course is that there is no lack of good investment vehicles to put your money into, but first the rule of the thumb.

To get into the nitty-gritty of tax returns, we must first trace the source (more on tax credits read hyperlink). Fifty percent or more of annual tax returns is a direct result either education related credits (education spending/deductibles, Hope Credits, education loan interest deductibles) or real estate tax credits (mortgage interest credits, real estate investment credits). What this means simply is that tax benefits from primary home ownership and being in school constitutes a sizeable chunk of tax returns. This leads us to the rule of the thumb for spending tax returns christened “Cash in Hand Rule” by yours sincerely. It simply states that after 10% discretionary spending (which you can use to spoil yourself and your loved ones); half of your tax returns should be put into paying off the principal amount of your mortgage loan and another half into your retirement account preferably your IRA. Of course what you do with your money is still entirely your business; but be wise.

The reasons for this rule are obvious: paying down your principal mortgage amount will reduce your loan repayment term (see mortgage calculator to find out by how long). This in turn will reduce your long term loan interest amount which is the real cost of your mortgage and indeed your home. Hence, using the money you gave interest free to Uncle Sam, you buy down the interest rate of your home by reducing your principal. Indeed, in one fell swoop you have nearly recovered the lost annual investment in Bank Du Washington DC. The idea of investing in your IRA is very obvious: you are investing in yourself and your future; more on what to invest in, in the next contribution on this page.

For Those Who Plan to Retire Early

Often times young people express their desire to retire early: various ages are bandied around; for some it is 50, 45, 40 and even for the most daring 35! But hey, before you scoff at the idea it has been done and can be done. Think about Mark Cuban, the billionaire Dallas Mavericks owner- oh yeah! Kaching- he retired early. Yeah he was a business owner, he sold out at the height of tech boom - but he still did it. Aside from winning the lottery, hitting a jack pot on Wall Street, inheriting an estate or just being plain lucky it is still possible for young people to build quite a considerable fortune in twenty years (assuming they enter the work force at age 20 i.e. from those Internships) to retire comfortably.

Many financial advisors scoff at the idea of early retirement: they point at the greater number of seniors that are refusing to retire but are instead extending their days of welcome in the workplace. (Reality Check: If you plan to retire early, you might live longer and require a bigger nest egg)But they forget that this is a different generation. Most young people don't want to retire to sip wine in the Florida Keys, what they seek to do is build a nest egg that secure their future enough to pursue their other dreams - may be it is to own a business, engage in charity and humanitarian causes, get a new degree and have a change of career, do fun stuff like painting, pottery etc. or some might even want to join politics (No ideas please).

For immigrants returning home with lower costs of living makes early retirement a real possibility. So retirement for this generation X might as well be a money spinning adventure but they are unwilling to take the risk until they have their million dollar Kaching in their bank account to do so. The thing to learn from the current generation is to avoid greed- many of the baby boomers lost money to the tech boom because they were too old to think like Cuban: oh the age long human problem of greed. It is my intention to teach you the early bird, a trick or two on how to save up quite a considerable fortune 15-25 years down the road enough for you to stick it to the man! But you will have to do it slow and steady- you can’t be greedy.

In short, there are no hard and fast rules to this. These are four simple elements to being rich enough to retire in 20 years time and they are:

1. Invest in your employer matched 401 (K) up until the limits or more (if you can spare more). Invest in 2-5 Index Mutual Funds Not, I repeat, NOT managed mutual funds. They are low cost out performers that will consistently compound your net worth year in, year out. That is the best kept secret on Wall Street...for how you can design your 401-k - read all the parts of this highly recommended article

2. Own your Home: When you own your home you are secure. I will advice you to seek a shorter tenured mortgage if you can- look into the 20, 15 or 10 years traditional mortgage and for a start, buy something small, tasty and affordable. Your home is your best investment. Along the way, pick up investable real estate portfolio that should include land, REITs and cooperative investment in rental properties with friends or partners that can become money spinners. In case of future emergency when you retire, you can always take equity off your home - heck- it is your money.

3. Save and Insure: It is always a good idea not to be penny wise, pound foolish. Save at least a hundred buck from every paycheck to an online high yield savings account. Emigrant Direct and HSBC offer some of the best option. You can make it automatic and get it deducted from your paycheck. Raise the amount you save when you get regular raises and promotions- because it will come in handy on the rainy day. Talking of rainy day, insure what you have today and later. Your Health, your car, your house - everything! Everything insurable should be insured to the minimum. But use your brains...thou shall not over insure. Skip the full coverage if your car is more than 3 years old. Use HOA specials instead of HOB for your home insurance if you are not in flood prone area. Use your brains.

4. Invest in an IRA: No doubt, aside from being a robot of mutual funds and your company match another way and a sure fire way to retire rich early is to build a nest egg in an IRA. You generally have a limit of $4000 annually i.e. $150 per pay check. Preferably a Roth IRA. This is because it is post tax and it can serve as an emergency savings account since you are not penalized for withdrawing for certain uses from this retirement account. What else? You have the choice on which kind of investments that will be contained in the IRA. The best way of course is to build your IRA with a series of 3-6 Exchanged Traded Funds (ETFs). These are basically low cost mutual funds trading as stocks. Next time we shall learn how to build this Kaching machine and how to optimize your returns. Till then, read this on what ETFs are.

One last thing – reduce your living expenses. The best way to have more to spend in the future is to spend less now. Premium cable, dining out and expensive vacation trips can be sacrificed for cheaper and equally exciting alternatives…if you want to know how, contact me.

Your Strategy Matters....

When investing, apart from style i.e. your sectoral expertise or preferences as the case may be the most important fact that will ultimately determine your success as an investor is your strategy. By strategy I mean a well planned or established pattern of trading securities which combines natural instincts with lessons learned. Lessons learned is ultimately what makes the difference: the difference between a good investor and an okay one is that the former keeps the lessons of his error to heart while the later just keeps getting by.

In the past 6-9 months I have stuck to a single strategy in my mock portfolio: which can be basically summarized as follows (and you could have caught it in the description if you checked earlier)

1. Hold between 25-30 stocks in leading sectors

2. Allocate not more than 5% in one stock; cut stocks that rise above this level

3. Invest in best of breed of every sector

4. Include a mix of gon-go penny stock to juice up portfolio

5. Minimize trading costs and commission hence buy in blocks of 3 on the downside

6. Do not anticipate sectoral rotation i.e. let your winners roll

7. Patience, Patience, Patience

This strategy has paid of handsomely; sending me 20% up in 9 months. But alas it came all crashing and here is why. Let me examine lessons learned.

1. The strenght of this strategy obviously is that aggregate risk is optimal while there is a reasonable more than average upside to the portfolio. Reduced trading also reduces overall fees.

2. The weakness of course is its very strenght. Due to lack of trading you pay less attention to daily trends hence you can end up in the hole if the market moves downwards or sideways against you as it has done in the past 30 days. While patience and allowing your winner roll is an okay strategy you can get clobbered badly if market sentiments are firmly against your positions. The lack of concentration in definite bulls also makes it harder to pull up when you crash down badly. (30 stocks are too many to follow up on part time basis).

In the last 30 days, all but 3% of the gains of the past 9 months have been wiped out. I did allow this to happen intentionally to illustrate what the downside of this strategy. However, I am trying something new as I always do. From now till the end of the year, I have a new strategy. Go with me:

1. Invest in 15-20 best of breed stocks

2. Allocate not more than 10% to a stock; however don't cut any freewiller if they rise

3. Use specific securities to invest in a sector that is favor

4. Use the advantage of fewer stocks to rotate out of out of favor sectors

5. Trading rules are liberalized but are anticipated to continue to be on the low side

6. Own 3-5 forward looking stocks and invest big in them. Stake your claim.

7. Research, Research, Research

I don't know where I will be in December when we do a spot review; neither do I know if the Feds would have clobbered the economy. All I know is that next April I will remember that cash is king and that May, August and September are the market's worst month. I hope you took some metals off the table the last time. I however think that they were oversold now is the time to jump in. BHP, TRE and MEE are still my best picks. I shall explain in the next posting.

Till then: keep on keeping on.

Taking Stock

In the world of investing, result speaks louder than voice. That is why we at Stockyarns will do a little peak back into our picks (no pun intended) for the past three months. Let us imagine this is a quarterly earnings announcement. How did we do? How did our picks do? Is this just a bluff or you would have been making more money hiding them under your mattress than reading The Wall Street Affairs. Below are the results people. The name of the stocks, and how they have done since we picked them are indicated.

Recommended January
CVS: Up 15%
HSY: Up 1%

Recommended February
CBI: Up 13%
UNH: Down 17%

Recommended March
TGB: Up 77%
NSU: Up 40%
YHOO: Down 0.5%

On the net we are up on a percentage average by 18.5%. That is astounding considering the market was only up 5% in the same period. But here is my take, thou shall not lose money. Most of the gains have being from two penny stocks that have participated in the materials boom caused by the hot markets of CRIB (China, Russia, India and Brazil). I don't think the hotness is done, but I think it is time to take some gains off the table. Sell 25% of your holding and book the gains at this point. Ride the rest up another 20% and sell in mid July before a new round of earnings announcement up to 50% of your remaining holding. Bulls make money, Bears make money and Pigs (Hogs) get slaughtered. Don't be greedy.

Indeed, I will ask that you buy eBay if it ever comes below $30 and also buy RTP when materials sector shows its first sign of slow down, because many will panic and then it will be on its way up there again . The CRIB show no sign of slowing down, and the only thing slowing down now is the housing sector which you should be far away from; may be next year we shall go bargain hunting.

For now, stick with me and keep coming back. It is hard to thumb your nose at 19% gain in 3 months, isn't it?

**The Article of the week is 8 Common Investing Mistakes you should avoid....read here at Motley Fool

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

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

Still Searching

The market is open for one less day this week - closed for President's day. Generally, a shorter trading week indicates a lull to robust upcoming trading week since 5 days money will become 4 - depending on the market's mood.

CBI is up 10% from last week's recommendation, while XMSR is down 12% after it and SIRI announced a wider lose. I say buy more XM - it has been over sold and you can make an easy killing. The competition is just so well defined that it is too tempting to ignore this buying opportunity. Remember that the objective of a business enterprise is to make money and kill competition- XMSR is doing a better job at it than SIRI.

Google (GOOG) is back but I think Yahoo!! ( YHOO ) has a better valuation and lower expectation hence a better upside. Imagine GOOG at 360 as 36 dollars, YHOO is 31 + . While GOOG can easily get to 430, I see YHOO getting to 42. There is a difference between 11 up and 7 up- Go for YHOO. YHOO is GOOG most formidable enemy yet GOOG is arrogantly focused on Microsoft - bad business buddy, no one incurs the wrath of Mr. "Softie" and gets away with it. Stay posted

Be a Contrarian

Three things can work for a great investor playing the stock market- these are : spotting trends , spotting momentum, knowing the fundamentals and being a contrarian. Most of the stock recommendation on this blog have been based on strong fundamentals : CVS, UNH and HSY. While CVS and UNH have since moved up 3 and 2 points respectively since they were recommended (especially for those who caught UNH at 56 on Tuesday - that was a sale!), HSY is still a little bit sluggish but in the long run (as always is fundamentals) , this stock will definitely outperform. Today, I have two stock recommendations based on being a contrarian. The momentum chase is easy to play since you are basically moving with the crowd, but you also can get hurt- e.g. you bought GOOG at 560 (you must feel like a pig now) or APPL at 76 (waoh- you suck!). However, by far the hardest is being a contrarian.

Being a contrarian involves going against the grain. It involves being able to predict that the market is either under valuing a stock or have sold off a stock too much to the downside and you feel it is now on a garage sale! Garage sale goes on everyday on wall street you know- like when BHP was selling for 21 dollars last year May, today it is 35 or BRCM at 29 in April it is near 70 today. last year, these stocks were on sale! But it is hard because you will going all out against the smartest guys in wall street- these guys get paid to read the market and you are betting that they are wrong? You must be out of your mind, you think. No. In wall street, there is what we all know as the "bandwagon" effect. Everybody buys and sells thesamething- since you are not everybody, then you better be picking up these two stocks that I think are on sale this week.

- XM Satellite Radio (XMSR): Can there be a better story than this? XM is one of two satellite radio offerings in continental united states. It's only competitor, Sirius (SIRI) is no match in my opinion. Far from the fact that XM have more subscribers and more connects in the auto world - last week XM got a good deal. In fact, may I say the best deal! Oprah for 50 million dollars? Sirius paid tons to my man Howard Stern- Stern deserves every worth of his money, but Oprah deserves more! Okay, Oprah brings in the women, Stern bring in the nasty men! Who makes the decision on which car to buy mostly in houses across America? Women! So SIRI is screwed and XM is a buy! When you put these stocks head to head in terms of valuation you will see Wall street have it all wrong. SIRI even with lower number of subscribers have more market cap than XMSR (7.6 to 5.6 Billion). Meaning XMSR is cheaper! XMSR revenue quadruples SIRI and may be it is not growing twice as fast, but SIRI is just the Howard effect that will soon be erased by my girl Oprah! XMSR is set to breakeven quicker than SIRI and it is far more profitable with a higher operating margin that quadruples SIRI. Its debt management is superior to SIRI but it has more shorts as a percentage of float, meaning a little amount of short squeeze will send you sweet cash! The risk in being in a single digit stock is also incredible- which makes a double digit valuation for XMSR a better risk than SIRI trading as a five dollar stock that can get shot off the mutual fund list if it deterirorates below the 2-3 dollar mark. Simply put, XMSR will make it to 30 dollars in a minute- I might be wrong but not for too long - it is the best of breed not Sirius which just happens to have a more colorful and media savvy CEO that the likes of Cramer and the mutual fund heads happen to like- who cares? Just make some money.

-Chicago Bridge and Iron (CBI): This company is not located in Chicago and it has nothing to do with Bridge and Irons. In fact, it is a Netherlands based company, that is in the EPC (Engineering, Procurement and Construction) business. This company lost about a third of its valuation last week. The problem was it cancelled guidance and fired management. It will be rash to call a bottom now but I will say put this on the watch list. This company has a compelling valuation story- it is mainly in the oil and gas industry (offshore and onshore, gas) support which is in boom. If big oil doesn't want to get taxed then they have to look for those hard oil and the way to do it is to unload some cash to CBI! CBI is an international firm and is definitely hard to keep up with it, but it is worth way more than $21 while spotting a 31% earnings growth? And a debt management that Buffet will even envy! While some very smart guys have started pumelling the company for bad book keeping, I sincerely think it is over earned. See, DRL another fallen angel like this have made me more money than any other stock on my mock and real life portfolio (click right bar) than any other but one. The only one that made more money? FMD - another fallen angel that lost 50% of valuation into my hands. The easiest way to make money is to predict bottoms at the right time and run with it- because, you can hold on to it for the longer run until it levels off at former level where the old pigs were slaughtered and then you can free yourself. It doesn't get better than that. You ask JUBAK

**Last week predictions of a turnaround in the managed health care sector was correct. Aetna reports uplifted the whole sector . This week, I expect the NASDAQ to sizzle and that includes the new age tech plays like STX as well as the biotech plays. My mock portfolio was resized to hold my Dec-Jan gains and get ready for the ides of March/April as well as sell laggards like MSFT and MRH. MRH is a good buy now but I am down 17% on it, cos I predicted the bottom too early but anyone picking up the stock now is buying it for a cheap. I will replace this stock with AIG to flatten out in the sector. See you again next week.
***Click HERE if you wonder about how much money you can make from high yield dividend stocks by just doing regular dividend re-investing.

This Week In Review (AUDIO)

Stake Your Claim

Picking stocks is very exciting, picking the wrong ones can be hypertensive. Believe me, a sudden drop of 20% in your stock pick can cause you myriad health problems. Ask those that had investments in Worldcom or Enron- life was hell. In this short piece my aim is to help us pick our 5 stock- which I want to call the Beginner's Portfolio. There are two rules in stock picking that you need to know. The rules are simple: Know the company. The second rule is : Thou shall not forget the first rule. This rule allows you to avoid picking the dogs of the show on one hand eg. a DRL or GM or Ford, but also prevents you from selling dirt cheap a damaged stock eg. AIG. If you know a company and how it makes it money by doing your research, then you will not buy and sell at rabid market movements. You will allow dollar cost averaging and dividend yield work in your favor all the way. Above all, you will know when to sell.

For any beginner, there are two stocks that should make your list automatically. The first stock is your bank. Your local bank will make you heck lot of money. There are few banks out there that don't make money- ever wondered why the financial sector makes up over 20% of the S & P 500? Ever wondered why they don't lose money? Heck! You keep money with them. So if your bank is Bank of America buy BAC, if yours is Citi buy C, if yours is JP Morgan buy JPM and if you are sitting on a great mowback with Buffet buy Wells Fargo. The second stock you want to own is either your favorite retailer e.g. Walmart, Target, Kroger etc. or your uitility e.g. TXU Energy, Time Warner, Excelon - which are by the way great investments with commonly comfortable yields.

After choosing these two stocks, you still owe me three more. Any balanced portfolio must have a small cap stock and an international stock. Small cap stocks are historically known to outperform the larger market simply because that is where you find growth, but like international they are volatile. The world is a global village and if you dont want to be punished for living and investing in a mature market you need some ChinoIndia plays. I will never advice you to go out there and buy just one stock. Instead, buy an ETF. ETFs are great ways to play the market- in these past yeat many of them just seem to defy the law of gravity. Simply put, Exchange Traded Funds are mutual funds that you can trade on the market like stocks- most of them have dividend yields that commonly pay off the expense ratio and some change! ETFs are best of both worlds- in one ETF you are effectively insulated from the shock of owning stocks while being diversified same time and capturing the gains of one particular sector. Small cap ETFs include PBW or DSG or PWT - you can get some picks here. Foreign play is best for emerging markets like Brazil, Mexico, China, India or Japan. You have to make a choice - though I like the exposure of Australia or Honk Kong ETFs like EWH and EWA since they trade stocks in the whole wide region from Taiwan to South Korea to even the booming malaysian or indonesian economy.

Now our stocks are four.: Your Bank, Your Retailer or utility, Small Cap ETF, International ETF. The last breed of stock you should own is a speculative play. Before you choose this breed, you will need to do your research. This is your opportunity to either break the bank or lose money. Either way you cannot have more than 20% of your net portfolio in this baby even though making money over the short term will tempt you. Your speculative stock must meet certain criteria of future worthiness, for more on this go here. In this day and age it can be a biotech stock, or a nano tech play. You know something of the future. But the key is knowing when to buy or sell. With this sort of portfolio you can reach for the sky and smile to the bank. Take care- pick carefully, but act swiftly because the most money is lost when you dont act on your instincts.

You Heard it here First!

In the world of investing there are three people I have enormous respect for. I admire them because of their ingenuity, their record for making people money and the fact that they are each different from each other. The first is of my grand dad's generation: he is the the world most famous and most successful investor - he is often called the Oracle of Omaha, Warren Buffet. His style? Value Fundamental approach. The next is Peter Lynch - creator of the world most succesful families of mutual funds: he is the ultimate stock finder and he is of my dad's generation. My own generation have our Warren or Peter, his name is Jim Cramer! Yeah Jim represents the ultimate growth guy - savy, quick yet intensely dedicated to the fundamentals.

This week, I beat Cramer to his game. You heard about CVS on here first, and this week we are three points up on the recommendation, and you know what? Cramer was on it on Thursday. I don't claim to be better than Cramer, but I claim to be close enough to read his mind before he sends the faithful to make us some money! CVS is a 6 months hold for me not a trade, the greying population is a plus for this stock ride it up until 34 after which you will sell and wait for a mow back..I'll keep you posted.

The market was very interesting this week and the month. It started rather crummy- but a deluge of good earnings reports on Thursday and Friday lifted the market. I am up on CVS, MSFT, and even what? Google! Anyway, it is earnings week again next week- I can't predict what will happen , all I know the earnings will decide the dance steps of the market. An interesting article to help all beginners in the market can be found here - enjoy!

Put Your Money Where Your Mouth Is: INV 101

Investing is very easy! Hush! Most people consider savings in other words a very difficult proposition. But I have learnt that it is not very hard afterall. In fact it is easy. Often, it is making that momentous decision of just sitting on the sideline to join in the game that is hard. Once you are in, and you are just the common competitive homo-sapien then you always just want to beat your benchmark (which for me is S & P 500- more of that later). Indeed, if you want to beat that benchmark then you have to understand the market, the tricks and then you get hooked. Investing to you then becomes a piece of cake- it becomes just another visit to the mall, a dope you buy from the side of the street. And you see stocks you just wanna buy! That is why my task today is getting you to leave the fence and get into the market.

There are many gospels out there to 'would be' younger investors telling them to be invested and why. But consider this: On an average day I wake up - I brush my teeth and take my bath and get ready for work or school (Procter and Gamble -PG). I then get into your my car and drive to work(ExxonMobil and American Int. Group :AIG). After the day is over I stop over at your local retail store to pick up some food (Walmart- WMT) and then go home to cook. If I need more money for the week I may stop at my Bank (Bank of America- BAC) and head home. After cooking, I settle down to enjoy my meal and doze away with my TV on (Time Warner -TWX). The point in telling you all of these, is that i own every single stock I just mentioned! You see, I am patronizing myself each and everyday of my life. I am here to stay whether you like it or not- while you might be looking at me thinking I am spending, I am only beefing up my bottomline cos I am a part owner of these companies. You see? Do you want to be a consumer or a owner? I mean I don't really mind being both.

Having said this, when and how much do you need to invest. What all writers agree about is that the time to start investing is now. Your next hundred dollars can break the jinx. Open a very simple investment account with either Sharebuilder or BuyandHold and you can invest for as little as $2 per stock - in fact with that hundred dollars alternatively just buy two companies and you are on your way to success. What companies do you buy ? You might ask- that question we shall tackle next time. So long - will see you shortly.

**Additions: Here is a very interesting article on saving, investing and priorities- check it out

Mavericks don't pay, Geeks do!

This is my first footnote since I started this little blog. Through this medium I will from week to week give you my take on the market. This is the market's take. The Dow was down largely due to disappointing earnings from GE and Citigroup. NASDAQ was terribly wounded due to badluck in Google (GOOG) due to spar with the Dept. Of Justice - broadly tech stocks were disasters - Motorola (MOT) and Intel (INTC) disappointed. Internationally the Oil crunch began again squeezing the markets crisis in Iran and Nigeria were largely responsible as well as terribly cold winter in the Tundras of Russia and South East Asia. In addition to all these, the Nikkei Stock Index (Japanese) crashed largely due to allegations of book fudging at Livedoor ran by maverick CEO, Mr. Horie. The story of Horie is one of maverick, maverick, maverick. That is why that is my new rule for the week.

Thou shall not invest money meant for retirement in companies ran and controlled by mavericks. In short, buy maverick stocks not maverick companies. Okay, confusion? Non. Maverick companies: Google (GOOG), Microsoft (MSFT) and Apple (AAPL). Maverick stocks: Livedoor, Enron and Worldcom. These companies have one thing common: big mouthed, ill educated CEOs that can hardly match their promises round after round yet was able to warm themselves to the media. If you have mad money to play with, you are allowed to invest - but please know when to get out. When the trading columns expand beyond average for two days straight that is the first tell tale sign, when the stock become the darling of even the most bearish wall streeter all you should be seeing is sell, sell, sell! GOOG, MSFT and AAPL have amazing products that we all see and use everyday, they dont need to proove profits to me, I know it! Moreover their CEOs either look geeky or are known smarts- not big mouths. On wall street, remember GEEK pays.

For the coming week, my bets are on three sectors outperfoming the rest: the stocks of UNH and co, the health care managers have been overbeaten, so are the internet stocks. If you are not yet on the GOOG or YHOO train (you can only own one of a kind) this is a unique ops to jump onboard. Lastly, oil will continue to outperform and the best way to edge your bets are either natural gas or coal stocks: FDG/BTU (coal plays) or CHK/ECA are my picks for both hedges. Stay focused, cos this week is gonna be a ride. We will largely be flat however unless we get some really extraordinary news.

Additions**: This week I am buying CVS and HSY for my simulation portfolio. CVS is buying some 700 Albertsons store and it is down today (Monday) so I am taking advantage of the meltdown- I consider CVS a value-growth company with great potential upside. With a relatively low PE multiple to its pure peers like Wallgreen (WAG) and an above par operating margins and quarterly revenue growth of 14% if one uses the rule of thumb that you should trade twice of your revenue growth that means this company is trading 7 points below current fair market PE and 10 points below the next (PE for next year is 17). The new medicare bill and the gale of patent loss that will hit Big Pharma is good news for stores like CVS that make more money from relaxed medicare and generic drugs. Imagine this also - this company just inched up their healthy dividend as they have always done. This company will pass the Warren Buffet Test anyday, its debt-equity ratio is about 30% exactly just where the master is comfortable with. As for me I like what I see. As for Hersheys (HSY) this is a true global growth play, expanding rapidly in S. America I see China with it new affluent middle class consuming more candy and what better growth player will take advantage of this than HSY. Moreover, it is down from its 52 week high after a terrific quarter before the chocolate crazy halloween, this Valentine is another chocolate craze that will add 5% to the company's bottomline and to America's waistline. Don't say I didn't tell you - I simply love HSY one of the best all time managed companies that will rank with MO, JPM and GE anyday for over 75 years on the stock exchange and it is the best of breed where it plays even though you can hardly call this turf a growth business.

Why Do You Invest?

Investing can be a very cumbersome process. Research shows that on the average, you must spend one hour per week for each stock you own. For average diversification, let us assume you have a portfolio of ten stocks (as I do, I will get to that later), that means you are required to check those stats up on Yahoo! Finance, do some homework on Moneycentral and listen to those conference calls for 10 hours! That is more time combined than your average person spends in church, in shops or even driving per week (if you are not a junkie). But those ten hours are necessary to insulate you from the critical ups and downs of wall street: basically you have to do your homework. But that gets me to the subject of discourse today: why do you invest?

It will be foolhardy for anyone to spend 10 hours weekly of their precious lives weekly without having a good reason for doing so. The reason you invest will be directly related to your stock picking strategy and your horizon for holding on to your investments (short, intermediate or long term). The manner you invest will also be affected by the reasons you are investing. In my opinion you can invest for a number of reasons. One fellow said he is investing to leave his children a great deal of inheritance: I don't blame him, but my friend then the stock market is not for you! Simply buy life insurance for less than 12 dollars a year and you can be very well assured you successors will have a very good life after you sucker is thrown in the grave!

The first market type people invest simply to generate cash for daily living. If that is you then you need to be looking at terrific growth stocks like Google (GOOG), Broadcom (BRCM), Seagate (STX) , Genentech (DNA), Amgen (AMGN) or Apple (AAPL). Basically the best place you want to be is technology or biotechnology. Those are terrific growth sectors. Utilities and transportation as well as Oil and Gas also offer significant opportunities in this day and age though they might be one step too far in 2006 in my opinion. This profile is very risky, it is a boom-burst cycle. You have to chase growth and that means taking investment as a full time job: mutual funds can never be a very nice way to play this so you either put in the ten hours multiply by four or you are screwed. Cos Jim Cramer will game the market like you trust me, and the guy is a genius- how you beat him still beats my imagination.

However, some people also are trying to game the market so that they can be comfortable in retirement. The name of the game here is asset preservation and right sizing. Depending on how far you are away from retirement, you want you portfolio to be rightly sized in growth, value , international and bond holdings. This spread and asset diversification will allow you to hedge the market appropriately and avoid being caught up in an Enron like mess when you are 5 years away from retirement. Any one that has 5 years to retire and was caught in enron by the way was playing with fire and they knew it. Enron was an unbelievably hot growth stock working wonders, about to be retirees go value and bonds not growth: don't be greedy!

And to you my young friend that will like to retire early like me, we have a new game in town. This group of people are young and fresh minds, lucky one that have a good paying white or blue collar job in their twenties. If you want to stop working at 45-55 to go travelling or build that your dream home in the desert of mexico or coast of florida then you need to get into my head! The way to go is simply two words: dividend reinvestment. This means you need to get into dominant market players like ExxonMobil (XOM), MO (Altria) or Bank of America (BAC) all which I own, with terrific dividend yields and invest in them one step at a time applying the lessons of dividend reinvestment and dollar cost averaging. What will make you money is disciplined approach to investing in select group of what Jim Cramer calls Best of Breeds. Just pay up and watch it grow with dividends payment above 2% (inflation adjusted) much better than any money market yield for that matter, and then you use it to buy more. With couple of little additions yearly, you are on you way to Hawaai baby!

Can I Afford to invest? How do you pick the stock ? Where do I do it? You might ask- I am here to help, next time I will use my own personal nest egg of 10 bullet proof (or you can say ridden) stocks to show you what is going on in my wacky brains! It is a simple step by step methodology that will show you a poor student can start early as well- remember that for every year you don't invest 2000 dollars between the ages of 18 and 25 you are losing quarter of a million dollars twenty five years down the road.

It is time to say good bye today. Always remember you will lose more money thinking a good stock is expensive than buying an expensive stock thinking it is cheap. That is from experience. See you next time..and stay in brain wave mode!

Welcome

Hello peeps,
Welcome to my mind. I have a problem. What can i do about the voices I hear in my head? I have an idea, but i can't execute. What do you suggest i do? What I will do is why you are reading me. I am here to vent- I am here to say what I think about the market. It is for you to read and digest, it is for me to tell and tell it all.

I am an immigrant. Life can be very hard in a country with a totally crazy economic system like America. Life can be deeply confusing in the jungle of free market capitalism. The words are Free for madness, Market for Confusion and capitalism for greed. But I get you. You just want to make some money. Then you need to pay those bills- no one makes money just paying bills! Get into the market. You got to be hungry and I am here to feed you appetite.

Mine is an opinion. Ours is a cause. A cause for a richer more deepening bloging experience with the market pundit who happens to be an immigrant. You like the look on my face...then you gotta love this!