The Crash on October 10 2008.

I just saw my first experience in a bear Market on the week ending in October 10, 2008. It was crazy, everything was like a fire sell. Government go panicking, Hedge fund manager goes crazy, and my portfolio drop more than 50% (luckily I sold half of it earlier in the week). It was sad watching the portfolio I thought was cheap become even cheaper. The entire fundamental was throwing out of the window; people are driven by margin call and fire sell. Everything you study does not mean a thing. It’s all about cash preservation. Par non, Let point the finger at the government, the people that took out those loan, idiots whose parents paid for prep school, Yale, and then the Harvard MBA – (Quote from Andrew Lahde’s letter), and Wall street itself. The government who allow a 4 to 1 leverage, people lost themselves to greed of the rising home market, top end CEO that never learned to think for themselves, and greed from Wall Street. Is it wrong for people like Andrew Lahde’s to take the bet and took advantage of the idiots? No, they didn’t do anything wrong, but took advantage of their opportunity and cash in. So the result is a mess that will take years to clear, people will be send to jail. But the one that will suffered most, are the people who is about to retire and saw their 401K go down the drain.
The magnitude of this event was huge enough to cause the entire bank to stop lending to each other. A global crisis on the financial industry that caused a global governmental capital infusion to the banks to kept it from falling apart. I sat and watch and amaze by it. People are force to sell, stock prices plummet by each minutes. No sector was safe, no strategy was safe, and nothing could stop it. So it bottoms and here I’m waiting to put some more money to catch a ride up. While the unfortunate people looking for the 401k to retire. Yes the world is very unfair but that how it is. Unpredictability, so the one that capable of reading it best will end up on top. WALL STREET AT IT WORSE!!!!!!!!!! ; (

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Failure of Investing is Preventable

I have mentioned before that the stock market is recovering from the mortgage crisis. After further reasoning and data research. It seems like we haven't reached the bottom or we haven't begun the recovery yet. So, I take this time to talk about how to prevent yourself from being that person who lost his life's savings, his house, and go bankrupt. It is true that for every person that makes millions of dollars through the stock market there are almost the same amount of people that have gone broke. You are in a world where you are buying paper, but sometimes it is not even paper (a transaction online). First stand back and look at the whole thing and not the stocks itself. You see that it is a game for the smart, for the people that think 10 fold before what is going to happen. Just don't put yourself in the same category because you are probably dealing with people that are a lot smarter and who are trying to make the same money. So to prevent yourself from being outsmarted, don't try to beat the market, instead follow the flow of the market. Set greed aside, it is your worst enemy. Invest what you can afford, there are times where the apple is too ripe for the harvest. Take it step by step, it is tough when you can see yourself being a millionaire overnight. Why not gamble for it? “The percentage is high , I did my research!!!” Well if only the market would go with your research, if only there were not any Market Movers running the market. Wonder why after every time you buy a stock, it goes down, every time you sell a stock, it goes up? This is the market mover's effect who moves the market price to make their own profit. Put instability into your mind, always second guess yourself. When you stop second guessing yourself is when you lose money. You either rethink what you are going to do or keep feeding a dying stock . If you could cut your losses, admit you are wrong when you are wrong, stay with your gain, protect your investment by diversifying your account, and invest with money you could live without. Then there is no fear of losing in the stock market. Technically, you are investing to better your living, not to put it in jeopardy. For those who are investing for a living, try to fund yourself well enough where you could handle a tough period. Hedge your account, protect the losses. Keep a balance between long term investment and quick hitters. Stay within the plan, pull the trigger on all gains to protect your profit. You are not trying to get rich from the quick hitter, you are trying to pay the bills until your long term investing is ready to cash in. Same as with the normal investor, don't try to skip steps. It may be hard because you are watching the market everyday and temptation is always there, but remember you can't lose the money you are trying to live with. Wealth is built over time, be patient and success will be almost guaranteed.

Here is a list of things to tell/ask yourself:
1.I'm Happy with my gains.
2.What am I risking?
3.Is it worth that much?
4.Why am I greedy?
5.What is the hurry? I have plenty of time.
6.Am I really that smart?
7.Why not stay with what works?
8.The stories of people that lost everything for no reason are not made up.
9.Do I want a lose everything?
10.Lets take the safe route, it is better to be safe then cry about it later.

Breaking Down a Stock...

One of my major investment currently is the holding of Etrade Ticker Symbol (ETFC). Let begin breaking down this stock with a history background. In June of 07 the stock was trading between 24-25 dollars a share. From July to November due to the mortgage crisis and write down on it portfolio the stock decline to 9 dollars a share. On November 12, after analyst from Citigroup's Prashant Bhatia report rumors that there a possibility of E-trade going bankrupt. This led the stock to decline to 4 dollars and as low as 2 dollars a share. Now it currently trading at 4 dollars a share. That is basically a historical price and background. Breaking down it company E-trade, consist of online trading brokerage, banking, and Investing. It core business is it strong standing platform in the Online trading brokerage. Banking and Investing portfolio was very messy upon the mortgage crisis. This is the basic of investing getting to know a company by checking any financial web site such as GOOGLE FINANCE, Yahoo finance , MSN money ect ...
Now is doing the homework why should I invest in this stock. Breaking down it numbers and earning. This is a lot work it take dedication. I recommend you read the book MAGIC NUMBERS for Stock Investor by Peter Temple(how to calculate the 25 key ratios for Investing success). This book basically teach you how to read numbers in earning report and stock prices. I don't want to confuse people reading this blog by throwing number at them that they don't understand. I'm not going to try to explain them either because it too long for a blog. But I'll give you some info on what you trying to look for. Most important thing is Value! Like in my previous post I keep stressing about stock price being under value and over value. ETFC is way under value if you breaking down the numbers. P/E ( stock price divided by earning per share) this is very simple I think you all should know this. This allow us to compare the company with it competitor. For example TD Ameritrade stock price as of Friday closing is $17.32 and it earning is $1.30 so 17.32 divided by $1.30 you get P/E 13.26. Now compare that with ETRADE trading at 4 dollars a share and it earning. Now of course you cannot use the current earning because it still saving money to clear it Balance sheet . But you could estimate it future earning, which is around 80 cent . Which is reasonable for ETFC to obtain once it reserve for the write down is complete. So $4 over .80 cent is about P/E 5. What does P/E number mean? you paying $5 to earn 1 dollars for E trade and you paying $13.26 dollars to earn 1 dollar for AMTD. You don't really get the earning unless the company decided to pay dividend back to you. But that is what P/E technically mean. There are a lot more number similar to this that help compare the value of stock in the Book Magic Numbers I mentioned above. The number are easy to calculate it nothing special as long as you understand the reason and what it's trying to compare. Try to look for company that have Positive earning, low PE compare to it competitor( what I mean is not to compare a tech company like Apple with a financial company like Goldman Sach, try to compare it to IBM , HP instead ect...) and look for reason why the earning should increase. After doing the homework on those number now figure out why the stock price of this company is going up. 3 Things that pushes stocks price up or move it pass it daily trading price range, Earning Growth, M&A( Merger and Acquisition), and New production. Obviously a number that in the negative will have a huge earning growth potential Currently E-Trade in negative .20 Cent per share, why well because It reserving money for potentially losses in it HELOC portfolio. So technically speaking the company is not losing money it just reserving money incase the portfolio go bad. Once the saving is complete the number will go back to positive earning. Or when the market have a reversal then those Reserved money is consider and increase in earning growth. Of course that is not guarantee so we just have to set aside and just look at what it is for what it is. Look at it revenue in it brokerage business and determine the earning number once it done saving. Remember you want to be safest possible when you investing so you trying to put a low number(high cap on expenses). After all the calculating I found that there is no reason E-trade can't post a earning of 20cent a share each quarter. Now look at it M&A potential, At the current condition it is very likely anyone would buy a company. Potential buyer are Charles Schwab and TD Ameritrade, both of those company CEO had in the past said that it would love to acquire E-Trade it a right price. Potentially I wouldn't put a lot thought in this because, They had their chances when E-trade needed it cash infusion in November and December. If they didn't capitalize at that time, I doubt they would now when it more stable and the price probably is a lot more now. Could someone else with a lot money like Warren Buffett company Berkshire Hathaway put a bid for it? Of course, but that percentage is very low. Now let look into new production, this is a lot trickier to break down since it is a financial company. Financial company don't really have a product like apple I phone . Instead it provide services , funding , and investment. In any cases, I don't see any services , funding, or investment ideas due to current situation. Everyone is just trying to save up at the current condition and protect it capital. The result of my analyzing is I put a target price of $10 dollars on E-trade. Which is pretty good consider it only cost $4 dollars a share. That more then double your money. Why? It earning growth will jump from -20 cent to 20 Cent, Cost on the stock market of one of it competitor TD ameritrade is .31 cent earning and it price is around 17 dollars a share. I disregard it M& A potential and New production, because both are very slim and unlikely for the period of a couple year. That is how I pick a stock to invest in.

Readers(Author is holding ETFC, Advise a buy rating on ETFC. I would like to say I'm not a professional investor or money manager, so Buy under your own risk)

“Let the Investment Grow”

In my last posted , I talked about staying focus and remaining focus On the big picture. This post is pretty similar but more details on being an investor. One of the biggest problem for young investor faces is what to do after you have chosen a company to invest. Investing for wealth is not accomplish overnight. It could take months or even years. Take a look at the Big picture, we invest because we have abundant of money sitting there doing nothing but declining due to the annual inflation. So we decided to put this pot of money into work to gain wealth and for our future. Everyone has a different reason, but the bottom line is increasing it value over time. We first must realize that this process go on and on until we die. It always better to have money making money for you. The whole ideas is to tell us time is always on our side and it not the other way around. We keep our money in a company that continue to growth thru our life time and we definitely will be better off then selling it for a small profit now or a small lost to switch to a company for a quick gain. One of the best investor warren buffet is a great example of this ideas. He own company like Coca cola and Geico Insurance for about at least 20+ years and he still own them now in his portfolios. Why because they are strong standing company. Thru those 20 + years coca cola probably had a couple down turn, but it always end up growing bigger and bigger. Once you chose a good company to invest relax and do your homework every week. Average about an hour of research on a stock a week is needed to make sure that the company isn't going down the drain and it growing. Sound very simple, but why many investor choose to take losses and keep trading actively. Simple reason greed. This tend to get a lot beginner into a lot trouble. Investing with borrowed money, investing with quick expectation, investing for short term success. Ask yourself these questions before you decided to sell, Am I going to end up making this much when this company in 2 years from now going to double up or triple up? Why do i need to make these quick couple thousand? What are the percentage of me making the quick cash? Am i certain that this company will jump as soon as i buy it? Is this company better then the company I'm owning right now? Am I willing to own the new company for the long haul? Why did I chose to own this company in the first place? After going thru all those questions and it still led you to switching company then go for it. Most likely 90% of the time you will not be switching after asking yourself these questions. Why because you probably is investing in a company that you have total confident in or else why would you put money in it!!!!!! Of course there always cases where other company that arrive unexpectedly and if there is 100% profit why not take it, hehehehe :)!!! All in All remember investing is a continually process that go on and on till the day you die. It like planting a seed or a plant in your back yard, give it sometime, waters it , nurtures it, and let it growth into something. Sometime you find something great that will always be growing forever and turn in harvest every year like the coca cola company that warren buffet own.

How to stay Focus? “The Goal of your Investment”

As the stock market still wondering if we are in a recession or a depression. We could try predicting the end of it but no one really know until we out of it. These are hard turbulence time for investors. It is also a very good time for feasting on undervalue stocks. Remaining focus on key evaluation of your investment goal will keep you on the right track. During this duration you will face with challenges such as should I switch company or turning yourself into volatility trader. The influx of stocks that randomly move up and down is very tempting for investor that is watching there portfolios stagnant thru the months. To be successful during these time, we have to remember some of the key why we invest in the first place. We invest to earn wealth for the future(Try seeing thing as long term perspective or a bigger picture). We invest in company that we evaluate as strong and fundamental sound that will be able to sustain a recession or a depression. We invest when opportunity serve itself. Rather focusing on the stagnant portfolios, try focusing on looking for opportunity during these time instead. The are many stocks that is undervalue or is in a recession. Capitalizing on these opportunity will definitely help your portfolios grow. As I will tell you when people are not buying, you should be buying. Why? Remember my earlier post where I describe you what a stock is, Price of stock are determined by the sellers and the buyers, if there more selling and less buying then the price go down vice versa. So the likely hood you buying something overvalued during a recession is very low. This doesn't mean we have to go out and buy any stocks. Even during a recession or depression there are still certain sector that are doing really well and probably have a bunch of overvalued stock because everyone is moving to this sector. For example the gas and mineral sector are just booming like crazy. You still have to go and look at some of the company that you think was strong fundamentally and it stock price is declining due to the recession. There no easy way to being successful, you always have to do your homework(Listen to quarterly earnings conference call, Every earning report is file to UNITED STATES SECURITIES AND EXCHANGE COMMISSION is available on www.egar-online.com for you to research, and our own analyzing of the company). When it come down to it, these homework is the reason successful investors confidently stay focus and remain calm when there a recession or depression.

Being a Speculative Investor

Last week stock market review, It wasn't much of a week in term of trading for me. There was another .25% rate cut by the fed to an all time low 2 %. Bankruptcy filing jump 47.7% in the month of April from last year, and a 7% increase from March. While the U.S labor department report a number of 20,000 jobs lost in April which is far fewer from 81,000 in March, 83,000 in February, and 76,000 in January. In term of highly speculative news between the merger of Microsoft and Yahoo, it was reported that Microsoft up it bid another 5 billions from initial $31 a share to $33 a share. The bid was rejected and by the end of the week Microsoft decided to withdraw it offer to acquire Yahoo. I'm expecting Yahoo stock price will drop to between $17-$19 range this week. I'm not big fan shorting stock. I just don't feel like watching a company go down the drain as good karma. It would be a very speculative buying opportunity if yahoo drop below $15. Which could happen if people started to panic on Monday morning. Even tho yahoo has decline over the years, it still has the second best search Engine behind Google. There is no way the company is not going to get another buyer down the road. Maybe Jerry Yang come to his senses and call up Steve Ballmer to see if the 47 billions dollar bid is still on the table when he can't get a better offer. If you buying yahoo on Monday you'll be consider a speculative Investor. It's buying the company stock because you feel the value its stock will increase due to something big is happening. It has nothing to do with the fundamental, growth, and the successfulness of the company. I personally wouldn't recommend building a portfolio on speculative companies, but having one of these companies does make the joy of investing a lot more fun. It like that lottery ticket with better odds. Sometime it just give your portfolios a jolt just overnight. It is nice to slowly build your wealth with 5% here,10% or even 20% over a period of months and years, but nothing better then getting a 100%+ gain in one night. I always do recommend having one of these company once you got a nice chunk of capital in your account. If you have Less 50K to invest then I wouldn't recommend it. Why ? It very simple one word, “CAPITAL” . As investor that is a very important word, because you making money with money. There no time to waste putting money in a dead zone with speculative stock that just doesn't grow over time as comparing to stock that will increase over time. I felt that beginner tend to have a whole portfolio with speculative stocks that never growth. As a beginner in 2005, I have experiences this first hand. I could tell you why I did it too. When I started out, I didn't know where to start with. You basically looking at 10,000 + companies to invest in but you have enough money to pick what 2 or 3 stocks? All you do is read the newspapers!!!!!!!!!!. Everything in the news is speculative!!!!!! Technically not everything but most things in the newspapers are speculative. Second who would want to make 5% when you could make 100%. Then again I didn't know how to choose a stock that would increase 5%. Another thing is I think I know the price value of a stock , but I really didn't know. Looking back at those days, I would just smack myself in the head. I was lucky that I even came out of it on the positive side of thing. Then again it a learning experiences that I assumed most young investor go thru. If you reading this post and wanted to start investing, “ Go grab a couple books about investing”. All in All, don't be a speculative investor unless you got the money to play around with. It is definitely something that will give you a boost into investing and looking forward to the next big dream. I always will keep one of these stocks in my portfolios just for fun. Hoping it'll make my dream come true a little faster or help me increase my capital a little faster :).