End of 2010

Going into the end of the year, I'm holding:

21.68% of my portfolio in shares of PHK at a cost basis of $11.94 a share; 17.89% FEED at $3.99; 28.98% MGM at $10.16; 13.60% BAC at $14.80; and 17.85% in cash.

As of 12/30, I'm down 10.26% on BAC and down 32.55% on FEED. I'm up 5.11% on PHK, although I bought it for the 12% dividend, and I'm up 45.89% on MGM.

Happy New Year!

PHK

Bought 167 shares of PHK at $11.94. It's up 5%+ in a few days, but I'm holding it for the dividends. At $11.94 a share, it's paying 12%+ a share in dividends, annually. And I love that it pays out monthly. PHK is an ETF, the first one I've purchased in my discretionary account, but unless this thing goes to $14 a share in the short-term, I'm a long-term holder.

VMW Sold

I sold my shares of VMWare today at a 90% gain. It'll be a long-term capital gain on my taxes, just barely. I'm holding 40% cash as the market is at a 2 year high and I'm not sure where we're headed in the short-term. There's enough return and risk in my AgFeed, MGM Resorts, and Bank of America.

Verizon Sold

I had originally bought my shares of Verizon for the 7% dividend. I checked the other day (October 5th, the day before ex-dividend date) and I was up more than 20%, so I sold my entire position. I figured it was like getting three years of dividend payments early, so I got out. I'll wait to see if it falls a bit post-dividend (maybe not now that the iPhone is officially coming to Verizon's network).

Financial Accounting & Grad School

I'm applying to MSF programs right now and I'm getting pretty excited about the prospect of going back to school. I've chosen two part-time programs and one full-time program, although my preference is to keep working. I took a look at some of the prerequisite courses for the Carroll School of Management's MSF program and I need to have taken Financial Accounting before I can start. I requested a FA textbook (Weygandt, Kieso & Kimmel, 2nd ed.) from the Minuteman Library Network yesterday. I'll just read through it on my own and then test out of the requirement. I'm actually pretty jazzed about learning financial accounting since I've been trying to read through financial statements for 2 years now without any idea of what I'm doing. I've been piecing it together as I go, but it'll be nice to have some direction.

I'm up 8% YTD 2010. I hit a high for the year at the end of April, when I was up 30%+. Actually, in just the first few days of 2010, I was already up more than 8%. I didn't try to guess at the highs, but I've been putting more money in at the lows. I doubled the amount of money that I've contributed to my portfolio, so being up 8% now, versus 8% at the beginning of 2010, is a much larger number.

More invested -- Aug 27, 2010

I used my remaining cash to buy additional shares of Bank of America at $12.56. It's now 16.17% of my holdings, up from 3.3%.

Shunning equity?

From Friday's Wall Street Journal:

By KEVIN KINGSBURY And JOHN KELL

Money returned to long-term U.S. mutual funds last month after investors pulled holdings out in May in the wake of the stock market's "flash crash," the Investment Company Institute said in data released Thursday.

In stock funds, more money continued to be pulled than was added, continuing a trend in which investors haven't consistently added to stock funds even since the market bottomed in March 2009. Outflows, or selling, dropped to $5.41 billion in June from $24.76 billion a month earlier as money leaving domestic funds last month more than offset net inflows to those that primarily invest overseas.

Instead, the bulk of cash going to mutual funds since then has been bond funds. In June, they received a net $20.74 billion, said the industry group, up from $14.54 billion in May. They rose 58% for taxable funds to $18.79 billion but dropped 27% for municipal-bond funds.

Money continues to flow from money-market funds as interest rates for such instruments remain near zero. Outflows rose to $24.15 billion from $22.16 billion, putting the first half's total at $509.27 billion, said the ICI. That compares with outflows of $189.37 billion in the first half of 2009.

Meanwhile, for the latest week, assets in money-market funds jumped $3.57 billion as inflows into institutional funds more than offset a decrease in retail funds, according to the ICI.

For the week ended Wednesday, total fund assets grew to $2.802 trillion, according to the ICI. Earlier this year, the total funds tracked by the ICI dropped below $3 trillion for the first time since October 2007.

Retail funds decreased $2.37 billion, to $980.36 billion in the latest week. Taxable government funds saw $990 million of inflows, putting assets at $173.58 billion, while nongovernment funds had $1.86 billion of outflows, lowering the money in them to $597.07 billion. Tax-exempt funds declined $1.5 billion to $209.71 billion.

Assets in the institutional class were up $5.94 billion to $1.821 trillion. Taxable government funds had $10 million of outflows, putting asset levels at $662.88 billion. Nongovernment funds had inflows of $7.56 billion, moving their assets up to $1.025 trillion. Tax-exempt funds had outflows of $1.62 billion, falling to $133.27 billion.

The original article

Performance YTD 2010

This is a chart of everything I've held in 2010. Everything I have in my portfolio I was holding on January 1st, except for Verizon. I didn't buy that until March. I've also put additional funds into some of these stocks (AgFeed and Verizon) during the year.

I only have one winner: VMWare. I still don't REALLY understand what they do. I don't need to, apparently. I'm completely emotionally invested in AgFeed. I'll hold it forever if I need to. That breaks two of Jim Cramer's rules. I shouldn't be emotionally invested in any of these stocks and I'm not supposed to throw good money after bad. Take a look at its performance: it's awful! It's lost almost half of its value since January 1st, and I ADDED money to it! What a moron! But I keep going back to the 10Ks and 10Qs and I get excited every time. This stock is going to go stratospheric. I can feel it. All signs point to no, however.

Portfolio Change

Added some money to my brokerage account. Spent half of it on additional shares of Verizon and I'm keeping the rest in cash.

Verizon ---------------- 24.31%
MGM Resorts -------- 24.07%
AgFeed Industries --- 22.19%
VMWare -------------- 14.48%
Cash -------------------- 11.66%
Bank of America ------- 3.29%

Excess Returns Again

Excess Returns are under or over-performance against a selected benchmark. For example, if after a year, the Dow Jones (I always use the Dow, but the S&P 500 is probably the better benchmark) is up 10% and I'm up 5%, my Excess Returns are -5%. Below, I've included a graph of my historical excess returns. The blue area is the daily rate, and the red bar represents my average for the whole period (Oct 1, 2008 to June 25, 2010)

My current excess rate is 19.84%, and I'm trying to figure out how much is too much. In the long run, I should only have returns at or near the Dow Jones. If I'm making more than the Dow, than it's only temporary and a correction might be coming. You can see in this chart that I peaked in at least two moments, at around 40% in June of 2009 and at 35% in April of 2010. I held the gains in both cases for less than two weeks. So the question I'm trying to answer this weekend is, how high is too high? If I get to 40% again, should I halve my positions or buy put options? Can I get higher than 40%? Is 30% a better limit? I don't want to bail out of stocks early (see Ford, Tata Motors, US Steel, Dr. Pepper, Leading Brands, Entravision Communications, etc;), but learning how to limit my losses seems like the long-term winning move.

If anyone know anything about this, please post a response and let me know. Thanks!

Thinking about AgFeed

Found an interesting paper on the Chinese cycle of pork prices. According to this paper, the cycle lasts 42.33 months (on average). Pork prices peaked in the summer of 2008, which puts us at the bottom of that cycle right now. I hope to realize substantial gains between now and 2012. AgFeed, even with pork prices as low as they are, has almost no debt and is still making a profit. Why is FEED so cheap? Am I way ahead of the curve or missing something?

The link to the paper won't work. See: www.prairieswine.com/database/pdf/39650.pdf.

Jim Cramer is Alright with Me

Jon Stewart may think Jim Cramer is an asshole, but he's alright with me. When I decided to open a brokerage account two years ago, it was his show that I watched everyday and it was he who got me excited about investing. I've read Real Money and Stay Mad for Life and I liked both of them.

I took a look at my excess returns for 2010 and there's some advice that he dispensed in Real Money: Sane Investing in an Insane World to which I should have paid closer attention.

Now, I'm paraphrasing, but Jim said amateurs worry about not making enough money, and professionals worry about making too much money. At first, that statement pissed me off. It seemed like the sort of formulaic advice that's hip right now: take something that everyone thinks is true and just say the opposite. Are you drowning in the sea? Don't try to swim, try to sink! Then, when you get into the details of the advice, you realize they're actually recommending swimming, not sinking. A lot of articles on the internet are set up like this, just to catch your attention. It's bullshit. However, in the context of excess returns, that's actually awesome advice. In May of this year, I had returns 25% greater those of the Dow Jones. That was an aberration. I'm not good enough at investing to sustain returns that high. Had I really understood the advice, I would have either sold out of a few of my positions and held cash, or gone long puts to protect myself against the inevitable correction. Too late on a smart play, AGAIN. Oh well, I have to learn these lessons to get better, right?

Excess Returns and crazy AgFeed volume

Relative to the Dow Jones, I'm still doing pretty well for the year. Had you invested $100 with me on January 1st, it would be worth $10.00 more than if you had put it in the Dow Jones.

I've also updated the look of the blog. Blogger now has some fancy pants new designs, so expect changes. I ditched the clunky Fidelity widget for Yahoo! Finance's and I'm going to change the program powering my comments.

Yesterday, 313,426 shares of AgFeed were traded. Google Finance lists the average daily volume at 642,000. Today, 4.82 million were traded. I have no idea what caused that. Other US-traded Chinese agri-stocks had similar jumps in volume, but not other Chinese ADRs. An appreciating yuan only helps these agricultural firms, but I don't get the jump. It seems excessive.

Update 06/15

I hope we can keep this rally going. I was down 7% for the year at one point, from a high of positive 18%. I added money to my portfolio earlier this month and doubled my position in AgFeed. I'm up 9% on that investment so far.

What does it mean to have such a strong rally on low volume?

Some honesty

I'm not having a good year. My fiscal "Year 1" (October 1, 2008 through September 30, 2009) was pretty good. I had a return of over 21%, easily beating the Dow Jones and S&P. Below is a graph of my YTD returns, "Year 2" (October 1, 2009 through May 24, 2010).
I've been posting my cumulative returns on this blog, so while I'm still beating the Dow Jones since October 2008, I would have been better off since October 2009 if I had put all of my money in an index. In fact, after the 11%+ plummet in the market this month, I'm down for the year.

Obviously, this market correction was an opportunity. After being extremely patient, last Thursday I moved some more money into my brokerage account and doubled my AgFeed position. I bought shares at $3.03, bringing my average cost down a full dollar per share (from $4.98 to $3.98). AgFeed started rallying today on good news out of China, ending the day up 6%+. I think I nailed that one.

Greece did that?!?

Investor A: "Good G-d! What is that unbearable whooshing sound?"
Investor B: "That's the stock market plummeting past us."
Investor A: "Was it pushed out of a window? It's falling so fast!"
Investor B: "It may have been, ask those guys over there."

CEOs of the Nasdaq and NYSE point accusingly at each other

I guess the past six days made for a useful experiment. I had previously estimated that my portfolio had a beta of 2. If the Dow Jones were to rise 1%, my stocks should rise by twice that. So now that the Dow Jones has dropped more than 7% in the past six days, my portfolio has fallen, as expected, about 14.5%. Math high five!

MGM asploded!

Thanks to my sizable position in MGM Mirage and its spectacular week (up nearly 23%), I'm up 10.43% in 5 days. Over the same 5 days the Dow Jones has risen 1.3%.

Only five mutual funds tracked by Morningstar have outperformed me this year: Birmiwal Oasis, Profunds Banks UltraSector Inv., Fidelity Select Banking, Rydex S&P SmallCap 600 Pure Value C, and Fidelity Select Transportation.

Now, all I need is for pork prices in China to stabilize.

Revised Alpha

My last calculation relied on an insufficient dataset. I took weekly returns instead of monthly ones, and found my alpha to be 0.61% (which includes the risk free rate of 0.16% or whatever), and my portfolio's beta to be 1.91.

Calculating Alpha

Using 0.16% as my risk-free rate of return for March, I was able to calculate 18 months' worth of my excess returns. I found these by calculating my monthly rates of return (geometric returns for months in which I added money to my brokerage account) and then subtracting from those totals the rolling 3 month T-bill rate. I plotted the Dow Jones' excess returns against my own, and then took a linear regression to find the Security Characteristic Line. The y-intercept of that line is my portfolio's alpha. It's around 2.5%. So, 2.5% is the value of my active management. In an efficient market, the y-intercept should be at the origin, implying an alpha of zero. This is because in an efficient market, there is no value in active management. Everyone is perfectly rewarded for the amount of risk taken. Having a positive (or negative) alpha means that my portfolio is earning 2.5% in excess of what it should be, given my level of risk. I'm not sure what an industry average alpha looks like, but it should trend toward zero, if markets are efficient...

Update 03/14

I'm quite disappointed with my performance. I mean, I've done pretty well, but I don't think I'm a stock-picking guru. I'll have to look for proof of my genius elsewhere.

I've been invested for a year and a half now, and my geometric return is 20%. 6 months ago, however, I was up more than 40%. So, I think my market timing was good, not my ability to pick stocks. For comparison, the DJIA is flat since October 1, 2008. If I hadn't sold anything after my initial purchases in 2008, I'd be up 178%. I was holding a stellar portfolio of Ford Motor Company (up 662% since mid-Nov 2008), Tata Motors (up 444%), and US Steel (up 84%). I also had three duds: MGM Mirage (down 22%), Bank of America (down 29%) and Freddie Mac (down 31%). I also would have avoided paying short-term capital gains in 2009 if I had sat tight. Not my best ideas.

For the year-to-date, I'm not doing so badly. I just checked Morningstar and the best performing funds of 2010 are two Fidelity Select funds, with returns of around 18.70%. The average YTD return for the 16,384 funds that Morningstar tracks is 3.27%. I'm up 13.17%. So, I'm killing it. But, my 1 year return is 129%, and that doesn't look so impressive when compared to the top ranked fund on Morningstar.com, which has a 1 year return of 241%. Again, had I kept my original portfolio, I would have outperformed every single professionally managed mutual fund tracked by Morningstar. That would have been pretty spectacular.

Here's my assessment of my risk: MGM Mirage might go bankrupt. The company has $13 billion in debt, and while its management has reached an agreement to extend bond repayments by 2 years, Las Vegas is still down and out. Convention bookings are up, but room rates are very low. VMWare is profitable and growing, but Microsoft is going after its virtualization business. I don't understand the technology well enough to say whether Microsoft will be able to grab market share or not. I can't even read Bank of America's balance sheet. I'm just praying that it'll be able to turn its business around. Investors hate China. AgFeed just had a great year, but you wouldn't know it by looking at its stock price. It bounced 20% on Tuesday and steadily lost value over the rest of the week. I've very positive on the company, but there's going to be prolonged weakness in Chinese pork prices. Especially now that China is opening up its market to North American exports again. Profitability will be low. Verizon is my rock. I've got my 6.5% dividend, and Verizon has the cash flow to sustain it.

Verizon purchase

I finally feel like an investor and not like a speculator. I bought common shares of Verizon today, making my portfolio 17.25% Verizon, 36.7% MGM Mirage, 25% AgFeed, 15% VMWare, and less than 6% Bank of America. The Verizon investment is practical. The company is paying a 6.5% dividend and that's better than anything I can find in the money market. AT&T is going to lose its exclusive right to sell the iPhone and Verizon has the better network. I see long-term capital appreciation, and a good dividend until then. Isn't that the way you're supposed to do this?

Plus, Verizon still owes me $260.00 and I'm going to get it one way or another.

Returns to 02.12.10

I'm still holding shares of AgFeed Industries, MGM Mirage, Bank of America, and VMWare. I've moved some more cash into my brokerage account (on the chart above, every time there's a break in my returns it's because I added cash to my account) and I'm thinking about correlation. Diversified I am not.

Geometric return since 10/01/2008: 14.06%. A geometric return corrects for money withdrawn or deposited over the life of an investment. So, if you had given me $100 to invest for you back in October of 2008, it would be worth $114.06 now. If you had invested that $100 in a Dow Jones index, it would be worth $93.24. Although, as you can tell from the graph above, I haven't really made any progress since June.

VMW 4Q

I can't wait to get to work tomorrow and listen to VMWare's 4Q 2009 conference call. Up 18% in after hours trading, VMWare killed it this quarter. In the worst recession since the 1930s, revenues are up 8% YoY!