China Digital Revieled

China Digital TV Holding Co., Ltd. (STV) is my spec play for 2008. Here is why:

• This is a recent IPO in the China market which has played out the initial hype (rise and fall)
• The company makes digital access cards (required to watch digital TV) and controls roughly 45% of the market in China.
• China is mandating that the entire country convert to digital TV by 2015...meaning lots of these will be sold in the next few years....especially with the Olympics coming next year.
  
• A great article was written back in October trying to forecast the forward growth of the company. It concludes that if the assumed growth rates hold as forecasted by the company then the stock price should be between $65 (conservative model) and $105 (agressive).
  
• The company then reported Q3 earnings in November...here is how they compared against the projections from the company in Oct...clearly great numbers:
• They also provided Q4 guidance of around $16M (again above the companies original projections).
  

Even if the stock only climbs to the conservative $65...from $28 that is nice 132% gain. It looks like the company is well positioned in a guaranteed growth market. As long as it can stay ahead of the competition...it should enjoy a nice ride for at least the next year or two. I am not betting the farm on this one since it is still a spec play at heart....but a little here could go a long way in this case.

'Tis the season

With the Holidays rapidly approaching it leaves very little time to think about finance...except for how much you are spending on gifts. Hopefully you had a budget to begin with so it makes it easy to figure out how screwed you are ;-)

For the record:

Sold: I sold MEMC (WFR) today as it hit $93 which was way over my target of $85. That locked in a 27% return in just under 2 months. I am sure that it will still climb....but I am willing to sit on the sideline for now since it is so far over the price targets.

I wanted to purchase more GLS and GNK which are both pretty darn cheap right now...but I have my funds tied up in a transfer....more on that later...

I also want to buy China Digital (STV) here at $28....but need to wait a bit. I will explain all the reasons I really like this spec play in the next week.

When enough is enough...

So unless you have been under a bus lately, you have noticed that all those November Blues are finally behind us. The market is back up to almost 13,800 from a low back in Nov of ~12,800. Most of this was due to the expectation that the fed lowers rates tomorrow. Ok, but then what? We are still seeing a lot of bad news come out of the banks, the projections for the housing market next year call for about a 12% correction (from the highs in 2006), oil is projected to go higher or stay around $90-$100 and people will be selling for tax reasons come the end of the year putting some pressure on the market. So let's assume that the market rides the news tomorrow to around 13,900 or even 14,000....the historical trend suggests that the market will fall back down and take another breather. So maybe it is time to lighten up a few of those holdings or at least set that trailing stop a little tighter on the ones we are worried about.

You gotta love it!

Who amongst us doesn't love this market? I think it is absolutely fantastic....as long as you have the fortitude to stick with the roller coaster. I sincerely think that if you try to time this market you will get hosed. That is why we stick with the plan...take our profits when we have them... don't get greedy!

Another great reason to love this market...where else can a comment like this one sent the market on a massive 5% tear (D.Kohn):

"The increased turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and in October," Kohn said in remarks to the Council on Foreign Relations.

Huh? At least the computers all interpreted that the same way...rate cuts on the horizon. Speaking of which, I am not so sure about this market after the rate cuts. Then we get into end of year selling and more bad news on the mortgage front...kind of makes you think it is time to start looking for that exit point on most stocks...pocket those profits and don't wait around for the next wave of bad news...and then buy the drop...hmmmm

Buy: Also, I should note here that I did go and buy Apple (AAPL) at $160. The price target is ~$210 so there is ~30% upside there. It is already at $185 so hopefully that won't take too long.

Hold: And what about GOOG...some analyst came out and put a $900 price target on that baaaad boy...jeez! The official price target has inched up again to $760...go GOOG!

Buy: I bought some Genesis Lease (GLS) here at $18. They specialize in leasing jets to airlines. It has about 35% headroom to target and has a whopping 11% dividend! I really like this airline lease story since the average age of their fleet is only like 4 or 5 years old. Kind of reminds me of Southwest, Frontier and JetBlue when they started...keep the planes young...minimize repair costs...more fuel efficient jets. All good. Also they are extremely diverse with planes all over the globe so it is not a local play. Even if we just hold...11% sounds good to me ;-)

I have more but am out of time...

GNK...is back!

So yesterday on the massive slide in the market (esp. in bulk shippers)....I snapped back up a bunch of Genco Shipping. The sector has experienced a pretty big correction over the past few weeks and now the stock is sitting back down around $64 with a price target of about $80. Plus, they have a dividend coming up for those who buy before the 14th. I still like the dry bulk shippers...their day rates continue to increase and the demand will not be going away anytime soon.

And how about that GOOG....still about $720...although it was at $740 just yesterday. But the price target has increased twice and is now at $755 so we can continue to hold with no moral issue.

GOOd Gravy

So today GOOG closed at $707. Just one week ago I discussed how the price target was $730 so our trigger to sell (5%) would be about $695. Well, that came and went...but in the meantime the price target had been updated to $740. Now we are even within 5% of that mark. My issue is that this stock continues to pour out great news....great growth...expanding into new markets...etc.

So I really struggle with selling this one. I guess the safe play would be to let it stay in the game but to set a automatic sell at a lower point....say $690. That way we can stay in the game (to wait for the price target to be increased again) with minimal downside risk. Even at $690 we would be cashing out with a 44% gain.......Done.

One that got away...

Last week I was looking at MEMC Electronic Materials (WFR). It was sitting at $60 and with a $78 price target (+22%), a +25% 1 year growth target and a PEG of 0.6. In addition there was a very compelling article in Kiplinger's about what this company specializes in.....providing silicon wafers to the semiconductor industry as well as the solar industry. As you may have seen from the INTC conference call, CPU demand is high (thus silicon too) and the solar industry is red hot with double and triple digit growth rates foretasted over the next 5 years. As such, one would think that WFR is uniquely positioned to supply all that demand....and as such blow past analyst expectations (which are already in great shape).

And then I waited....and on Friday it went up 20% to about $70. Based on the following news:

In a note to clients, UBS said MEMC signed a 10-year deal to sell $7 billion to $8 billion worth of solar wafers to Conergy, and expanded its original 10-year deal with Gintech by another $700 million, for a contract now worth $3 billion to $4 billion.

Embedded in that same Friday message were these two nuggets:

1. UBS estimated that MEMC still has enough polysilicon left to sign one more customer for a 10 year deal worth $2 billion to $3 billion.
2. UBS maintained its "Buy" rating and raised its share price target to $85 from $77

Having seen the new target at $85 (vs. the price of $70) that means that there is still ~21% room left...so I picked up some shares. It rose to about $75 but has settled in about $73 now. We will see where this one will take us....

Two stocks that meet the criteria...

Two stocks which will be getting the green light today are MNST and ROH.

Monster is the parent company of Monster.com and has a price target +23%, 1 yr growth of +31% a PEG Ratio of 1.5 but no Div. I am ok with no div given the fact that this is tech and they have a growth rate greater than 30%.

Rohm Haas is a very interesting story since it is an old school materials company specializing in Coatings, Monomers, Performance Chemicals, Electronic Materials, Salt, and Adhesives and Sealants. It makes the cut because it has a price target at +21%, 1 year growth at +15%, a PEG of 1.17 and a div of 2.8%.

Tracking overall performance to date

Trying to keep a simple sheet so I can keep things straight.

The APG column is simply a quick and dirty way to try and normalize the gains with respect to the time the investment was held. The interesting thing there is that GOOG is only the third best "return" when time the position is held is factored into the equation. But it should be noted that as of today...the Dow is still at the same value as when we bought GOOG...and the Nasdaq has gained only about 10% in the same timeframe. Not bad.

Whoah...how time flies

So it has been about 4 months since I have posted here....shame on me. The worst part is that I have actually taken a few finiancial steps without posting...double shame on me. So here is what has been happening:

First, I still own GOOG. As of this afternoon it is at $675...up 40% from our original entry 5 months ago at $480. I am seriously struggling with this one....should I sell and lock in these impressive gains. In the end I need to follow my sell rules:

1. If there is news representing a fundamental shift to the original assumptions
2. If the price reaches a level within 5% of the 1 year target price

Now, the news for GOOG simply continues to get better as they smash through their earnings reports with AAPL-esque talent...so that is no reason to sell. When we bought GOOG the target was only $600...but when the stock soared through $600 the price target had already been updated to $730! So now the 5% trigger is set at $695...not quite there yet. So I guess we hold.

Second, I still own my Indian friend TTM. Now that stock is at $20...only up 10% in the past 5 months but it did climb out of a 9% hole to get back to where it is today. The news still remains positive for the most part and the target is still way up at $26...so I guess we continue to hold on to this one as well and wait for the breakout.

Third, I finally sold my oil stocks (BP and GSF). Both finally reached my sell limit of reaching 5% of the target price. BP netted +16% and GSF netted +32%.

Fourth, I bought and sold a dry bulk shipping stock called Genco Shipping (GNK). That was a quicker trade that only lasted about 2 months but rose from $52 to $69 for a nice 30% gain. This stock also carried a 4% dividend at the time and I received one payment of about 1%...taking the overall gain to about 31%.

But as you can see...I have sold everything but my GOOG and TTM. So again I am faced with finding another Cavitation value entry-point. While I am finding those next stocks...my money is safely parked in my 5% online savings account ;-)

A bump in the road

I have to admit, I was pretty discouraged by the recent dip in the market. My TTM and GOOG were flying high...both were up about 5-7% in just two weeks...and then it hit. TTM is now down 9% and GOOG is holding on to a +5%. Being an idiot, I had not put a trailing stop in place for either stock ... violating one of my fundamental rules. If I had put the trailing stops in place, I would still own GOOG but I would have sold TTM at breakeven...costing my 9% at this time. I am not worried though...I still like my Indian friend and I have confidence that it will come back. I will definitely put trailing stops on both Monday morning though...enough is enough.

And way to go Intel. Posting an impressive 4.4% gain on Friday and up 25% in the past 3 months....I guess it always helps when your only real competitor falls on their face. The interesting thing is that AMD has done that in the past and INTC stock has gone nowhere....but I guess they are so overdue that people are finally starting to buy again...instead of just holding. Anyway...way to go.

So one week in and I still like my Indian friend

So the S&P500 has increased 1.2% since I got into TTM and GOOG. So how are they doing? GOOG is up 3.3% and TTM is up 4.1%. Not bad for a week...

I am really contemplating selling the rest of my IBM position...at $106 I can't see it doing much from here...hmmmm

Say hello to my new Indian friend

Today I put our money back into action. I made two purchases...TTM and GOOG. Here is the lowdown:

• TTM: Tata Motors based in India, a maker of commercial vehicles. My thinking: India is under construction and these guys are the local suppliers for that buildup. Comparing it to my rules: 43% difference in current price and 1 year target, 18% EPS growth forecasted for next year, 1.6% dividend, 7B market cap, PEG of 0.66, solid financial books. The only minus is that it has only been publicly traded for about 2 years but it has been in business since 1945. All good.
• GOOG: The Google. Now this one seems expensive but its forward looking financials makes it "cheaper" than YHOO and AMZN (PEG of 1.04 vs. 2.87). So to answer Flogger...yeah, I looked at this vs. AMZN and opted for the more solid company. Comparing this one to my rules: 21% difference in current price and 1 year, 27% EPS growth forecasted for next year, 150B market cap, PEG of 1.04 and A++ financials ($18.5B in assets, $1.4B in debt and $3.5B cash flow!!). The only drawback is the fact that there is no dividend but this one is a cash cow. Their EPS is $15 and as you have probably seen...they are putting that money back into buying up little things like YouTube and Doubleclick. Eventually I think that they will start giving some of that money back to the investors...so in the end you win either way as they appear to know how to spend their money unlike other companies.

Of course TNE went up today...that stock is hard to keep down ;-)

One last thing, way to go Northfield...their stock has dropped from $15 to $1.5...good thing ChaCha left a while back ;-)

Say goodbye to my Brazilian friend

Today my trailing stop triggered the sale of TNE. I set it at -5% and over the past two days it has gone down more than that. So this morning it sold it at $18.55...locking in a 41% gain. Closer to 40.5% after factoring in the $15 dividend and the commissions. Overall, not a bad trade. I am sure that the stock will probably continue to climb eventually but since I am out...I will wait for this one to take a breather.

Now we have another issue...where to put all that money...we can't just leave it there in the bank after all ;-) Ones that I am currently looking at: GOOG, YHOO, TTM and GLS.

Making time for making money...

Sorry that this blog has kind of dried up recently...unfortunately life is consuming us lately and I have not had any time to devote to financial fitness...thank goodness that the stock market has been pretty well behaved. I have occasionally checked in on the GenX investments made to date and been pleased with the progress...up 23% in 2 months. Now I just need to get those 401K and IRAs into better shape...maybe next week when things start to settle down a little...

Invetment Idea...Har

So I was just scanning through a few small companies (read penny stocks) and I ran across this one. What do you think...a good investment ;-) ??

Stonebridge Resources Explorations Ltd. (SBRX.PK) BUSINESS SUMMARY

Stonebridge Resources Explorations, Ltd., a research exploration company, engages in the acquisition, development, exploration, and production of crude oil and natural gas in continental North America. Stonebridge Resources Explorations was incorporated in 2001. It was formerly known as Mr. Dude, Inc. and changed its name to Stonebridge Resources Explorations, Ltd. in 2004. The company is based in Toronto, Canada.

I am almost tempted to put just a few dollars into Mr. Dude...apparently he at least has a sense of humor.

All I want is the GAZOLINE! Just walk away....

Thanks to Lord Humungus for his brilliant quotation! But that brings me to my recent trip to CA where I was able to firsthand experience the cheap gasoline at $3.50...yowzers! Then I read this in IBD:

May gasoline shot up 7.37 cents, or 3.3%, to $2.2826 a gallon, its highest close since Aug. 7. Stockpiles fell 2.79 mil barrels last week, a much bigger drawdown than expected. At 194.2 mil, those supplies are 7.2% below their 5-year average and at their lowest since Oct. '05, when Hurricane Katrina ravaged Gulf Coast facilities. June crude rose $1.26 to $65.84 a barrel.

Kind of makes you think that maybe, just maybe, someone is going to make some money this summer ;-)

Has the market reached a top?

So a few posts ago Flogger asked the following in a follow-up comment:

Do you think it is time to start selling at these lofty levels again so that we have some cash on the sidelines?

The short answer... No. Use stop orders to protect those gains.

The long answer... There are several market factors currently at play which are worth noting:

• Positive Factors: Interest rates have stabilized, higher oil prices are already factored into the market, many good earnings reports this quarter (many due to international growth), the dollar is weak which makes US companies more competitive, the housing mess is slowly deflating (that sub-prime concern did not tank the market), China growth may be slowing but is still strong and Iraq is already factored into the market.
  

• Negative Factors: Inflation could re-emerge due to higher energy costs --> driving higher interest rates. ("On Wednesday, crude oil futures settled up $1.26 to $65.64 per barrel and gasoline futures rose to 8 1/2 month highs on the New York Mercantile Exchange, after the Energy Department reported a decline in U.S. gasoline inventories.")
  

So all in all, the market seems positive to me at this time barring the potential for some higher interest rates on the horizon. Using the analysis above this helps me to formulate my investing strategy:

1. Own oil and oil drillers right now. It serves as a balance against the negative exposure of oil prices continuing to increase.
   
2. Own higher dividend paying companies. It provides a little insurance against any downward movement...and everyone loves dividend stocks right now.
3. Have overseas exposure. Most of the growth being shown by the current earnings reports are being sourced internationally.
   

I am sticking with this market until something really starts falling apart. And using any dips (like the one back in March due to the sub-prime and China scares) to buy some of the stocks on my watch list.

Cancel your memberships and get $$

The going rate for an annual Sam's club membership is $40 in the greater Fort Collins Area. Since we are moving to a country with no Sam's club, we decided to see if we could cancel our membership and get a pro-rated refund. Well, much to our surprise the membership policy at Sam's is a 100% guarantee. As such, we simply stated that we wanted to cancel our membership and they refunded all $40 even though we have been using this years membership for about 7 months. That was a nice surprise...

Do something yourself ... #2

A few months ago my Mr. Coffee coffee grinder suddenly stopped working mid-grind. So I says..."crap!", cause you never really want to run out of coffee. As I sit there staring at the darned thing...and banging it a few times...the wife immediately chimes in and suggests that we go buy another one...seeing as they are only like $25. So I think about it and immediately say...nah, I can fix this.

So I whip out the screwdriver and start taking it apart. It only takes a minute to get the cover off and the thing is darned hot. Hmmm, this is probably why it stopped. So I look around for anything that resembles a fuse...aha, there it is, on the wire lead located just before the motor. That's gotta be it. So I get the soldering iron out and cut the fuse off and solder the wire back together...put the case back on and voila! 15 mins start to finish...which turns out to be roughly $100 per hour savings...not even factoring in the saved trip to the store to buy a new one.

Logic: it's already broken...what more harm could I do but waste a few minutes of my life with a soldering iron...which by the way is NEVER a waste of time ;-)

10 Percent

As I was sitting in Barnes & Noble last night reading an exceedingly boring book about high yield investing strategies, I sat back and thought about the golden 10% assumption. I always use it..and why not...historically it is been proven to be reasonably accurate over the long haul. But when taken a bit further, if you deconstruct that into monthly gains required...amazingly it is only a paltry 0.8% per month return! Honestly that stuck me as a pretty low bar to try and cross every month. I think that we can do better ;-)


Now I know that we won't always pick stocks that go up...but geez...on any given day the price of a stock can go up or down a percentage point or two. Even the 3 GenX holdings are already up about 1% from the last update post I gave...just 4 trading days ago.

Having said this...I have absolutely no desire to become a day trader, seeing as the commissions tend to eat you alive and make profits exceedingly difficult. BUT... it does stress the point that if you can pick some good quality stocks which are cheap, and be selective in your holding of positions...you will likely see them rise. And when they do, you need to be willing to cash in and sit on the sidelines for another great opportunity to present itself. If this is the case...then it would appear to be reasonable to assume that we could beat that 10% assumption in any type of market.

PEG Ratio

I am seriously considering adding PEG ratio to my list of criteria for selecting an investment. It embodies the sentiment of assessing how expensive a stock is in a forward looking way:

PEG Ratio: A stock's price/earnings ratio divided by its year-over-year earnings growth rate. In general, the lower the PEG, the better the value, because the investor would be paying less for each unit of earnings growth.

Typically anything under 2 is considered good...but as always...we are looking for exceptional value. As such, I am always on the prowl for good solid companies with a PEG below 1.0 or even 0.5 if it can be found. Here are how the three GenX holdings stack up at the moment...

1. BP: PEG=0.94
2. GSF: PEG=0.19
   
3. TNE: PEG=0.51

As you can see, all three of these are still dirt cheap as measured by future earnings growth despite their recent run. It should be noted that the ENTIRE offshore drilling sector (GSF) is extremely cheap at the moment...all with very low PEG ratios due to the fact that they are all commanding great day rates on their rigs.

Easy way to stay on top of things...Part 1

This one will probably be pretty obvious to most everyone, but...

I thought I would quickly share the first method I use to keep a handle on my investments. This method monitors the daily performance and summarizes the news for my stocks. I use feeds from Yahoo Finance News in conjunction with Netvibes. This combination allows me to quickly scan the big news items for all my holdings in an efficient manner. This is obviously not where the research stops...but this will at least alert me to the big things that I need to watch for daily.

A move made a month ago...part 2

Now that we have discussed the selection criteria which I was employing last month...let's look at what happened.

Free up some cash: Get $27K to start.

• I sold $22K of INTC at $19.28. As I mentioned before, Intel does in fact meet my criteria as an investment. The issue is that I am extremely overweighted in Intel due to the fact that I work there. As such, I really want to diversify away from this position...aka, Enron-syndrome.
  
• I sold $5K of IBM at $94.20. IBM does NOT meet all my criteria (Market cap of $143B, been in business >5 years, current earnings $6.72, +9% earnings growth next year, 1.2% yield, +5% price target and a good balance sheet).
  

What I bought with the $27K:

• $12K was put into a 5% online savings account. Since some of the $27K was earmarked for "savings" I decided that it would be best to pay ourselves first.
  
• $5K was put into British Petroleum at $59.49 (price target of $73).
• $5K was put into Global SanteFe at $58.41 (price target of $72).
• $5K was put into Tele Norte Leste Participacoes at $13.19 (price target of $19.50)

Relative Success criteria over the past month: Beat the investments I sold as well as the indexes!

• Intel has moved up to $20.47 (+6%) and IBM has moved up to $95.16 (+1%). As such, the weighted average I need to beat is : +5.1%
• Dow is up +1.4%
• S&P is up +2.8%
  

Results:

• The $12K in savings only returned 0.4% for the month.
• BP is up +12.4%
• GSF is up +9%
• TNE is up +27.8%
• Weigted results: +9.3% ---> even with 44% "under the mattress".

Obviously this was a pretty good month...I do not expect things to go this well in the future.... but it does show how you can go with good companies and still make some money. Now the hard part comes...when to sell. My original thinking for when to sell was based on two things:

1. News which significantly alters the fundamental assumptions wrt EPS or EPS growth or
   
2. The stock has risen to within 5% of the 1 year price target.
   

On the news front: there was only one game-changing announcement and that was for TNE.

Moving higher on the ADR index were shares of Brazil's Tele Norte Leste Participacoes and Brasil Telecom Participacoes (BRP) . Stock in each company gained more than 5% following a local report that the government has given clearance for the two telecom services providers to merge.

I will poke deeper into the news on these three over the next week. I am not sure if news of a merger is enough to change my hold position on TNE. People do say "buy on the rumor and sell on the news"...but since TNE had so much headroom to begin and still has so much headroom to go, I am not sure that applies. I will have to think about this one over the weekend...any thoughts from the critics out there?

As for the second sell criteria: Getting within 5% of the target price...nothing is close yet. In fact, TNE still has the most room to target of the three despite a big run. For now I think I will wait out earnings season. I do not expect any huge negative news out of these three since they are consistent performers.

Dividend Terminology

I was originally confused by the three dates that we commonly see when it comes to dividends. Since the tax law changed (pro-dividend) the focus on dividends has become a hotter topic. As such, here is something I found on a forum board which helped clear things up in a jiffy:

EX DATE- anyone who has bought the stock up until the day prior to this date (whether the trade settles or not) is entitled to the dividend attached to the share. If a stock has an ex div date of 14th April, if you buy on the 14th, you aren't entitled to the div.

RECORD DATE- this is basically the date where the company registrars take a snapshot of their books and say "ok, whoever owns the stock according to what we see settled gets the dividend". As Don pointed out, this date is staggered after the Ex Date so that trades have time to settle and simplify the distribution of money and save us all passing the dividend on to the rightful owners in the case of unsettled trades. If your trade has not settled, for whatever reason, dont panic because you WILL still receive it as it is your legal right.

PAY DATE- Exactly what it claims to be i.e. the day the company distributes dividends to share owners.

That's all.

A move made a month ago...part 1

I was intending to post about this before I placed the BUY orders ... but I ran out of time with the Costa Rica trip...and thus no post. I will write about the experience anyway, seeing as how it demonstrates the new foundation which I have been using for picking investments. I am sure that I will make tweaks to it over time, but it definitely fits my current investing style pretty good. At the end of the day it makes sense to me...which is most important for keeping one's sanity.

Backing up... I have read numerous articles, books and online references attempting to find a good recipe for picking that next great stock. Just like everyone else I figured out that there is no secret sauce to make gobs of money...damn! I used to subscribe to the theory of ultra-speculative stock picking ... mainly in tech ... based on my experiences of the late 90s. Those days are long gone...and to be honest, I never ended up doing all that well in that vein anyway. So now what?

Since I am now in my early 30's, I can definitely still afford to be a high risk investor...and there definitely is a time and a place for that...but in general I find myself gravitating towards solid companies with proven track records. I also don't want to go the mutual find route since they tend to under perform after you take into account their true performance and expense fees. Index funds definitely have a time and a place for any sane portfolio but since our 401K and IRA already have exposure here...I figure my butt is already covered with my safe money. So out into the brave world of picking a small basket of individual stocks...

My stock selection criteria is very loose at the moment and still needs a lot of refinement. My basic guiding principles at the moment are:

1. Market cap >$1B: This one keeps me out of a lot of trouble and keeps me from thrill seeking with little stocks that tend to be more speculative.
2. Been in business for at least 5 years: I want something with a stable track record which I can research and analyze.
   
3. Positive EPS (current year): A company that loses money just fundamentally does not work for me.
4. Positive EPS Growth: Future estimated earnings better be showing me at least 10% growth if I want my investment to grow at >10%.
5. Non-Zero Dividend: If the stock is making tons of moolah in today's market, then they should be returning some of it directly to the investors. If the growth rate is high then this can be low...but if the growth rate is marginal to my 10% bar then I want some $$ back as an insurance policy.
   
6. >20% Headroom To Price Target: It is very easy to find the 1 year price target for a company on most financial websites. Since most analysts are crooks and generally wrong...I want a comfy margin on price target so I land in positive ground. When combined with bullets 3, 4 and 5 above...this absolutely screams undervalued stock to me.
7. A good balance sheet: This one comes from reading Jim Cramer's Mad Money: Watch TV, Get Rich book. He does a nice section on how to read the balance sheet to ensure the company can pay off its near term debt obligations. If it can't do this...then it goes overboard.

So what type of stocks does this unearth? Well, I have yet to actually find a stock screener which lets me search all 7 criteria above so there is no easy button there. What I can tell you are the stocks which I was evaluating a month ago which met this criteria:

• British Petroleum (BP): Market cap of $215B, been in business >5 years, current earnings $5.88, 10% earnings growth next year, 3.8% yield, +25% price target and a good balance sheet.
• Globalsantafe Corp. (GSF): Market cap of $15B, been in business >5 years, current earnings $7.18, 27% earnings growth next year, 1.6% yield, +22% price target and a good balance sheet.
• Tele Norte Leste Participacoes S.A. (TNE): Market cap of $6B, been in business >5 years, current earnings $1.67, 17% earnings growth next year, 5.1% yield, +48% price target and a decent balance sheet (higher percentage of debt due to phone network expansion projects). FYI - these guys are the number 2 telco company in Brazil with huge cellphone growth rates.
• Intel Corp. (INTC): Market cap of $119B, been in business >5 years, current earnings $1.08, 24% earnings growth next year, 2.3% yield, +18% price target and a good balance sheet.

So what do you notice? Nothing too sexy to be honest...except for maybe the Brazilian ;-) All are good companies with solid performance and future promise to deliver. I would gladly stand behind any one of these companies...although the Intel has been painful for a lot of people.

Well, it's getting late so I will fill you in on the actual trade and performance tomorrow. Also, we will discuss my daily post-trade analysis and the exit strategy plans which I have laid out for myself...

Do something yourself #1

A few weeks ago, I started working towards selling my truck. I took it into the Dodge dealership to finally get that coolant leak taken care of. They informed me that they needed to replace the water pump and it would be about $550. I said...sure...seeing as it would be exceedingly difficult for me to sell my truck with a puddle of fresh green liquid underneath. They also informed me that they could fix that broken passenger side mirror for a mere $350. So I said to myself: "Self, huh? $350 for a mirror???". So I respectfully declined. FYI - I later found the entire motorized passenger side mirror assembly for a mere $35 ($44 incl. shipping) on Ebay auto parts.

Fast forward to last weekend when I was cleaning my truck... I managed to pull the rear view mirror off my windshield...oops! So for a few days I was driving around town with two out of my three mirrors out of commission. It was really driving me crazy so I stopped at Checker Auto and picked up some adhesive. By Wed afternoon I had reattached the rear view ($4 adhesive and 5 mins labor) and also installed the passenger side mirror ($44 parts and 23 minutes labor). Afterwards I sat down in the truck, admired all three working mirrors and basked in the glory that I had saved myself $306 in just 23 minutes...~$800 per hour. I wish I could find a way to sustain that level of return ;-)

What can you learn from Herb?

This morning I dropped my truck off at the Dodge dealership to have a small repair done. A nice old man named Herb drove me back to work. We started by discussing the terrible weather lately and then got into a conversation regarding his retirement oddly enough. Here is his story in a nutshell:

He has been retired now for 12 years. He spent the first 9 years traveling Central America. He settled in Guatemala due to a host of reasons (Panama/Costa Rica too expensive, El Salvador/Nicaragua too dangerous, nothing to do in Honduras). He started a NY Deli business and employed 5 locals to help out. Apparently he lost money on the whole endeavor. After 9 years in Central America the money ran out and he returned to Fort Collins to become a shuttle driver for the local auto shop. His reason for running out of money: I never planned to live this long.

Now he could not have been much more than about 77 by my guess which fits pretty well with the standard retirement age of 65. I was sitting there thinking...what? You really expected to be dead by 77? Hmmm...so I went out and checked the stats. Sure enough the average life expectancy in the US is currently running about 77 - specifically w/ white males at 75.7. More interestingly, I ran across this little nugget:

Life expectancy changes as one gets older. By the time a child reaches their first year, their chances of living longer increase. By the time of late adulthood, ones chances of survival to a very old age are quite good. For example, although the life expectancy from birth for all people in the United States is 77.7 years, those who live to age 65 will have an average of almost 18 additional years left to live, making their life expectancy almost 83 years.

I bet you Herb had not heard about that one....and probably would have planned a little differently had he known that fact. Now I am not advocating that you only plan to live to the average life expectancy...I would think most of us plan to live to be a 3 sigma event. The point is that we should not make the same mistake... Don't forget that if you live long enough to enjoy the retirement you are currently saving for, then you are likely to live an extra 5 years longer on average!

As a side note to all this conversation about retirement planning, Herb also made me laugh at 8am...something not very easy to do before the first pot of coffee sets in. Here was what he said:

Herb: "You want to make God laugh?"
Rob: "Sure"
Herb: "Make a plan."

Back to GenX

Sorry about the long break (just when things were getting going) but the family had a few minor life things to attend to. But now most of those are straightened out and we can get back on with the show...and the parody website will have more fodder...

(Re)-Definition of an asset

The other day I ran across an interesting article on The Simple Dollar. It was buried in a book review but it really stuck with me. Here is the excerpt from The Simple Dollar review of the book "Rich Dad, Poor Dad":

"...this chapter redefines the term asset. For most, an asset is something that has value. For example, your home is an asset because it is something you own that has value...

...To Robert Kiyosaki [author], an asset is something that generates income, while a liability is anything that has costs. In other words, by this definition, your primary residence is not an asset but a liability. It may have cash value, but it doesn’t generate income. Instead, assets are forms of passive income that you control, like a rental property or intellectual property."

The reason this resonated with me was three-fold:

1. I always include the net value of our home as an asset when calculating net worth and this basically says you shouldn't....hmmmm. My take: I will continue to include the net value of our home in my net worth calculations since there is book value stored in a home. If the home has appreciated and you have been diligently paying down your loans then that counts damn it! But, one thing I did recently learn through the process of actually selling our home and "cashing out" that book value --> you need to not only subtract the amount of loans outstanding from the estimated market price, you also need to subtract the fees associated with the selling of your home...which can be up in the 8% range after everything is said and done. Seems intuitive, but I missed it...hope you don't.
   
2. Once I got past the assault on my home, I quickly realized that if you really think about it...this is true (appreciating homes excluded). You are not really going to become a millionaire if you do not have "assets" making money for you. In the simplest terms this ties directly back to investing...the more money you have invested and the better the return, the richer you will be...duh. But take it to the next level and you can apply this to every aspect of your life. With just some creative tweaking here and there why can't you turn a hobby or an interest into a revenue stream? And the more revenue streams the better...right? Just look at blogging...everybody always asks "why do you do it?". In the beginning I just wanted a way to share the little parts of our life with friends and family. While that is still the primary motivation, now it does actually pay a little (almost up to $50 now) every time someone clicks on the ads on the website. And I am still in shock that Jen is not selling her greeting cards...they really are incredible and I am sure if we did not have two kids demanding her time all day long, she would somehow find a way to make some moolah from her hobbies.
3. The last reason this resonated with me was simple...if you can displace your wage based income with other sources of asset based income...then you realize true financial freedom - plain and simple.
   

Now, clearly my blog ad revenue will not get me to financial freedom anytime soon ;-) but as we all find new and innovative ways to supplement our income, we all are working towards a more stable future, that is undeniable.

Rob's 401K Summary

I had a request to open up the Cavitation kimono and share with everyone my 401K performance. I have to admit, I have not done this in over 2 years so I was a little unsure about what I was going to find. Weeeellll, here we go:


So on average I guess this is just about right...10%. Now clearly this little exercise has shown me that there may be a little room for improvement. I am not sure why the US growth funds are doing so poorly but they appear to be something I should jettison...I will get on that when I return from CR. Also, despite what CherkyB claims (as he is hunting for more ad revenue) the European growth fund has been one of my top performers...maybe we should increase exposure there. Finally, the Russell 1000 Value fund has been another stellar performer - somewhat surprising to me.

There is one notable item missing from the table above...The Company Fund! As I mentioned in a comment somewhere else, I have never participated in my "Company" stock fund...seeing as it would be the equivalent of putting all my eggs in one basket (a decision I made back in 1998 - well before the Enron meltdown). As it turns out, that was a tremendously good move. That fund has a 1 year return of -17% and a 10 year average annual rate of return of a paltry 2.5%...not even keeping up with inflation!

Funded my 401K/IRA and Lost $$ but my investments went up...HUH?

Funded my 401K/IRA and Lost $$ but my investments went up...HUH?: So from the title I know that you are already scratching your head..."how does one lose money with a 401K/IRA if the investments have not gone down??" It's simple if you follow the Cavitation way ;-) ...let me explain... For the past ~10 years Jen and I have been putting money into both our 401Ks.

Rob: I contribute regularly to my work 401K which is matched generously by my company. For 2006, the maximum contribution allowed was $15K. I unfortunately do not do that...I only put in ~$10K (not including employer contributions), meaning I am losing out on both the tax deferred gains on $5K as well as the income tax deduction I could have gotten (lost $$ #1). The reason for not kicking in the extra $5K was plain and simple --> comfort. I am not quite yet willing to take the $400 per month bite that would be necessary. [I am sure that someone will point out here that not all $400 will show up as a net decrease due to offsetting tax benefits.] The interesting thing is that a one time contribution of $5K this year (age 32) would compound into $116K by age 65 (assuming 10%)...and that would translate into $5800 per year in dividends for every year after 65 (assuming a 5% rate of return on the $116K). Hmmm...that seems like a no brainer....

The reason I am not currently stressing about the $5K (well at least I wasn't until I I wrote the last paragraph) is due to the fact that my employer kicks in another ~$9.5K on top of my contributions...so in total I am actually putting ~$20K/yr into my retirement fund...and at age 32, I think that is pretty good...but we shall test that in a later post. For now, the money being lost here is tied back to the $5K shortage in my contribution levels.

Now for Jen: Ever since Jen stopped working a few years ago to take care of the kiddos, we rolled her employer 401K into a rollover IRA and continued contributing at the max rates. In 2006 and 2007 that max rate is $4000 per year. In 2008, that will increase to $5,000. So in the case of Jen, it is not a question of not putting in the max allowable...it is a question of timing! I tend to wait until the end of the year when I am pulling together my taxes and then I realize...oops...I forgot to put that money into her IRA back in Jan of the previous year. So I cough up the dough and fund the max IRA contribution for the previous year. Needless to say, that means I am losing on average about $400 in gains (assuming market average of 10%) just because I make the contribution later than I could have. And to make matters worse, then there is the subsequent impact of lost compounded gains due to the delta in the two start dates --> the delta on $400 invested 1 year apart (again assuming 10% market growth) equates to a delta of about $800 at age 65! (lost $$ #2)

So the moral of our story: Just because you think you are doing great by making the effort to plow lots of cash into your retirement account...chances are you can still do more. Just a little tweaking here and there can make a huge difference in the end!

Taxes and lost $$

[reposted from my other blog]

Last week Jen and I completed our 2006 taxes. For the record, I always use TaxCut because I really like the interface and it does a nice job handling special situations (like when we had dual residency in CA and CO). I originally used TurboTax, but it got the boot quite a few years back 'cause I once got two different results from the same data (I think it was using AMT on one calculation and not on the other). Anyway, as any normal human, I do not like the process of doing taxes. I try my hardest to maintain a folder of tax related activities through the year...but it always ends up taking me a few evenings and fetching lots of paperwork in between to get'r done. The interesting thing (or maybe not) is that I love completing my taxes. Not because I typically get a refund...but because you always have a much better understanding of your financial situation coming out from completing your taxes.

So this year I completed our taxes and we did in fact get a large refund this year (about $15K). The driving factor behind the big refund is simple, I still have my W-4 deductions set to my bachelor days. Now this is quite obviously a waste of potential money, seeing as I let the government keep about $1250 per month of my money thus I lost out on all the interest. Assuming I had placed this $1250 per month into a MMA acount making 5% interest, I figure I just lost out on ~$350 (a free 2.3%) ... ok, so now I am sure Jen is a little upset with me! Here is the table I used to calculate the loss:

Now one thing to point out here...one must be disciplined enough to actually save all $1250 per month and put it into the MMA. If you don't and instead spent anything more than ~$350 then you are break even or even lower. In the end, is $350 a huge price to pay for a "zero interest savings account"? OF COURSE IT IS! Instead, this year I plan to change my deductions and direct deposit the extra money into a separate high interest savings account like AmTrust Direct which earns 5.36% (just don't go over the 6 transfers per month or the fees will get you)!

Financial Fitness - FREEDOM!!!

[reposted from my other blog]

Back in February I wrote a piece regarding financial fitness for gen-X/Y/Z. In general, I wanted to continue to benchmark our personal performance through time. While I have not had time to recompute our numbers lately (too busy with B-Day parties and getting ready for the upcoming move) what I can say is that Jen and I have officially kicked all of our non-house related debt!!! That's right....we now own both our cars outright (got the title for our Nissan Maxima just a few weeks ago) and have completely paid off all our student loans (we payed off Jen's back in 1998 but mine hung around a little longer). It feels absolutely great to know that those monthly payments will now be moving into the savings account instead of heading out the door (~$750/mo)! Since Jen and I have always harbored strong negative feelings about carrying credit card debt, we have never had to deal with that common ailment thankfully. So all in all, the only remaining monthly payment we will be making from here on out will be our house (which we hopefully will sell in the next few months). Note: if we were staying at our current residence, our next move would be to refinance our mortgage and put even more monthly $$$ into our pockets.

Something I should point out here: Up until 2006 the interest rates on my loans have been very low (~4%) but so were the interest rates on safe investments like CDs, MMAs and savings accounts (~2%). This meant that there really was no incentive to either pay off my loans (as they were already cheap) or to put my money "under the mattress" (to make no money). This really only left one option: to put our money to work in the equities markets with some risk to principal. Consequently, that is where a lot of our savings have been - in the equity markets. To be honest, that has payed off relatively well seeing as how our index funds have gone up ~10% each year for the last 4 years. As most of you are aware, over the past 1.5 years interest rates have been steadily moving up. Thus the incentive to take the risk in the equity market has been dwindling. Option 1: I can pay off my loans and make a sure 7%. Option 2: I can put my money "under the mattress" and make 5%. Assuming the market holds course at 10%, the incentive to be in the market has dropped from ~6% to only about 3%. Now, how much risk are you willing to take to realize that last 3%? My vote was to take the 7% and run...and sleep well at night.

Now that our debt is all cleared out...and we have cashed in our 7% gains...we have more money each month to "put back to work". This time the math is not quite as easy, seeing as the equity market premium is now at 5% (10% Equities vs. 5% MMA). So here we are again, at another fork in the road... I will write more about this decision process over the coming weeks...

Debt leaving college: Ready....Set....GO!!!

For the record, when the Mrs. and I left college and headed out into the real world we had a debt load of roughly $30K. Jen's edumacation hangover was only about 4K since she went to NMSU and got in-state rates. Mine was the remaining $26K. Seeing as how my school at the time was ~$24K per year (~$96K total), I figure $26K in edumacation hangover was actually a pretty good result...

I did own my truck outright at the time which was worth about $13,000 and we had a little cash tucked away to get a start in the real world...so I would say that we started our post edumacation life together with a total net worth of $0!!! Could have been a lot worse ;-)

Moving forward I plan to discuss our net worth through time...hopefully someone can learn from our mistakes and our successes!

The college years...all 5 of them....money well spent!

Upon completion of high school I decided to head on out to RIT for a little edumacation. The school was recommended by a family friend (Mr. Dillman) who's daughter was attending RIT at the time. She had heard of this engineering program called "microelectronic engineering" (uE) and touted that the placement into industry was ~100%...basically you just had to have a pulse. So I said to myself "Self, I have a pulse!!" and off I went.

After the first year of indoctrination, I mean edumacation, my head was spinning so I did what any self respecting 19 year old would do...head back home and take up a graveyard shift at the local Frito-Lay plant. Ironic that this move landed me in my first "chip" business job ;-) Working graveyard meant I got some extra bones for the effort. One additional benefit was it allowed me to take on a few odd jobs during the days to supplement the income ... no not drug pushing but instead painting houses. I started my own "business" and set out to paint the world a brighter tomorow (and to paint a brighter financial picture for myself)! That was a rough summer but I banked enough to tell those devils (a.k.a. parents) that I did not need their $$$ anymore...this kiddo was going to make it on his own (with loans and scholarships). In hindsight, I should have let them pay a little longer ;-)

Anyway, I went back my second year and that was when it all clicked. First, I was sure that I was in the correct major as I absolutely loved uE ... but more importantly two life changing events happened at the end of the year. First, I was offered a Co-op job at this little chip company called Intel (to be further called "the company" ) in New Mexico. Back then they didn't have the cool swirly logo like they do today, so it was a hard choice. In the end I went to Albunukie anyway ;-) Second, whilst in Albunukie I laid my eyes on the pertiest girl I ever did see...the future Mrs. But I digress...

My co-op at the company ended up being my "life" sentence. They paid really well (twice what I was making at my previous chip job) and the opportunities to apply one's intelligence was unbelievable. Hence, I was hooked. Not to mention I got to take lots of coffee breaks as apparently nerds are quite fond of their coffee...the start of my second life sentence...the java! Anyway, the remaining 3 years at college were 6 months in Crapchester and then 6 months in either Phoenix or Albunukie (hence why it took 5 years vs. 4). The major dough made during the co-op months was great enough to significantly offset what would have been a terrible debt. Not that I got out unscathed...but the scalping could have been mucho mucho worseo! As it turns out, that original job interview for the co-op position was my last. Every summer I returned to the company without fail and after graduation the offer was already in the mail...

Oh, is it obvious by now that I am tremendously in favor of a quarter based co-op education? Beyond the financial benefits and the increased odds of landing a full-time job upon graduation, there is the sometimes overlooked advantage...you get a sneak peak at the rest of your life...for better or worse. My kiddo's will hear this story someday...I promise.

One last and significant financial lesson I accrued in college: shop around and find your ideal bank with the greatest benefits you can extort!! I began by plunking my hard earned Frito-Lay/Painting money down into the closest bank I could find. It just so happened to be Key Bank. The service was absolutely terrible, the rates were terrible and they did not even have this new thing called online banking....holy crap batman! So I started to shop around and ended up choosing a little bank known as Citibank. Now, they didn't have the cool red umbrella on their logo at the time so that was not the reason for going their way. Instead, it was three main factors. First, the service was second to none. Second, they allowed me to upgrade to Citigold status (many perks involved) despite the fact that I was WAY under the requirement of having $50K in the bank. Third, they had online banking. Now this isn't the glamorous / slick web stuff we have now. It was a program on my computer which actually dialed directly into the bank and established a connection! It was awesome (despite looking terrible) since it meant I could do all my banking from anywhere in the country without the need to keep toting my monies around. Nowadays this is commonplace for any Tom/Dick/Harry bank...but back then it was cutting edge and that is the reason I still hang with the Citi today!

Oh, I almost forgot to mention...all that slick online banking saved me so much time, that I ended up developing a bad habit of watching Seinfeld with my roommate...Mr. Cangemi...which took years to finally break!

High School...rubber meets the road!

In high school, the rubber really starts to hit the road with respect to finances. All of us want an awesome car to cruise around in but (unless our parents are filthy rich) we quickly realize that our options are limited by our often meager savings account. Unfortunately, for many of us who grow up in a rural area...it is kind of difficult to make moolah without a vehicle. As such, many of us turn to an age old argument: "I can't get a job without a car" in the hope to land some time with the famdamily car. Once we have successfully made the deal with the devil (a.k.a., our parents in those prime teen-age years) we start the search for the "dream" job.

My "dream" job landed me squarely at the nearest McDonald's. I know it is not sexy...but where I grew up, the closest McDonald's was about 20 minutes away...and there wasn't much else around except the "country store" in town which wasn't hiring. And thus began my illustrious career...literally flipping one burger at a time ;-) Now to be fair to McDonald's...they provided my exactly what I needed: I could generally chose my hours and I got paid relatively well for the area - just slightly over minimum wage if I recall correctly ;-)

I stayed with McDonald's for the rest of high school and quickly worked my way through the ranks. By the time my senior year rolled around I was opening the store and managing the inventory/books/money. I can painfully remember how much of a slog it was to get to the store by 5:30am on school days, especially during sports season (oh wait that was all year: soccer/basketball/track). BUT, it was during those drives into work that I really had a chance to think about what I wanted to do when I grew up. While I did not know the exact thing I wanted to do, I definitely knew that I did not want to work like this!

I often look back on those years and thank my lucky stars that I was fortunate enough to go through that experience. First, I was (and still am) humbled by the fact a minimum wage job could be so difficult. Second, had I not pushed myself so hard and felt the "pain of progress" then I may never have built that foundation upon which I would continually draw through college. Lastly, I should thank those devils (a.k.a., parents). They were open minded enough to let a teenager "rent" their car and pile a 5:30am job on top of school & sports. I know that they were carefully watching to help if I slipped...

[I will insert a random thought here: Today I wish I still had that first paycheck I ever brought home - seeing as it was so huge (~$75). It is funny how almost every kid goes through the same experience of disappointment when they see the bottom line and ask themselves..."Self, why is this check so small?". That is when we all first really learned about TAXES and social security! When my kiddos are old enough to have their own first job, I will absolutely make sure to scan in their paycheck before we head down to the bank.]

In The Beginning...

A very-very long time ago (when I was about 13) one of my math teachers, Mrs. Fox, decided to play a little "game" in an effort to get us involved with numbers and graphing. The game was your typical "stock pick-em" game where you started with $100K and after two weeks you had to chart all your gains and losses. The one with the biggest gain won. I was not the winner....not even close. I ended up losing a lot of money...

Looking back, while this was a great math/graphing lesson, it was a terrible lesson in investing. Mission accomplished Mr. Fox! Clearly, a two week horizon was too short and the reason I lost ;-) I recall that the winner just randomly chose a stock and got lucky. One of my major holdings was this company called IBM because I was already into computers. Well, unfortunately in the late 80's IBM was not the rocket I desired (that did not happen until about '93). So I ended up shuffling around a bunch of stocks chasing the high fliers and generally doing nothing more than losing money to transaction fees...hmmm...come to think of it, this might have been a pretty good lesson in investing --> in how NOT to invest!

All I remember was being terribly frustrated with my current "holdings" but always being able to build scenarios where I could have made a killing...only if I knew which stocks were "good" and which were IBM ;-) And thus the seed of interest in personal finance was first planted.

I do have another blog for more general family stuff, but I found very quickly that I liked to write about money topics...a personal passion. So, I decided not to bore my family to death with finance posts and decided to move my financial diatribes over here. I will be exploring the path that led me to this point in my life and writing about financial interests/decisions moving forward. Hope you enjoy the ride...and feel free to commend/ask questions along the way...seeing as that is a big part of blogging....

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GenX Finance Disclaimer

First and foremost: I am not certified in any field of finance. I am an engineer who is just trying to make sure that my family is happy and well taken care of. All thoughts posted on this website are just that...thoughts. There are no guarantees made with respect to investment performance. Ok, lawyer types, is that enough or do I need to tell everyone a few more dozen times that I am not a financial adviser??

Ok, now that we have that completed...please enjoy the show. I hope that it will be entertaining whilst provoking your own thoughts about maximizing your personal finances. After all, we ain't gonna be gettin' any social security (despite the many years of contributions) so we better all be prepare to shoulder the load now for the old geezers and then turn around and take care of ourselves.