The Performance Of Stock Picks By The Pros

Sometimes I wonder how stock recommendations by the professional pickers do. Recently, I came across the beta site TrackthePros.com which lists buy and sell recommendations by various investors, fund managers, newsletters, and analysts, showing the pick and relative performance versus the S&P 500. Unfortunately, the results seem to be open ended and do not show when a pro officially closes out a position.

However, I still found the data interesting. I have briefly skimmed through some of the results. Based on the limited data shared, I didn't see any pro that had recommendations I would be comfortable following on a regular basis.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Riding A Bear Market

That which does not kill us makes us stronger. ~ Friedrich Nietzsche

The month of June, 2008 has been pretty awful for the stock market. According to Dow Hits Bear-Market Territory, Signaling Woe For Economy in The Wall Street Journal, June 28-29, 2008, the Dow has fallen 20.2% from it's October, 2007 high. The article expects that the market has further to go before bottoming.

While I have been hunkering down and expecting the market to get worse, I take very little comfort in being right. Like many others who are retired, my financial situation is dependent on the stock market.

However, even though the bear market will be painful, there is a bright side on which one can capitalize.

Great buying opportunity. As I've written before, I prefer not to buy beaten down stocks, mainly because there usually is a good reason. However, a bear market lowers prices of all stocks, both the good and the bad.

To find the good stocks, I am updating my stock buy list based on a modified Unemotional Investor Growth system. I will publish my updated list on Monday, July 7, 2008.

Great shorting opportunity. In a bear market, the trend of most stocks is down, making it a great time to short individual stocks. For reference, going short means selling a "borrowed" stock and then buying it back in the future, hopefully for a lower price.

At this point, I think the best shorting opportunities are in financials, retail and consumer non-essentials. Hopefully, I will also have my list of stocks for potential shorting by July 7, 2008.

Finally, I plan to keep all funds (e.g. daily retirement expenses) needed for the short term (3-5 years) in cash or CDs. That way a bear market decline won't have a catastrophic impact on our short term standard of living.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Time To Short Stocks

According to Dow Hits Bear-Market Territory, Signaling Woe For Economy in The Wall Street Journal, June 28-29, 2008, the Dow has fallen 20.2% from it's October, 2007 high. The article expects that the market has further to go before bottoming.

I agree.

As a result, I will be modifying my trading strategy to include shorting stocks. For reference, going short means selling a stock and then buying it back in the future, hopefully for a lower price. If the stock should go down, one makes a profit. If the stock rises, one loses money. This is the opposite of going long, which means buying a stock and selling in the future, hopefully for a higher price.

Here is how I am going to short stocks:

Buy mutual funds or ETFs that short. Currently, I own the Prudent Bear (BEARX), which engages in shorting individual stocks, owning commodity stocks or treasuries. I first bought the Prudent Bear in the last bear market in 2002. I recently purchased some more in the last three months.

Since 2002, a number of inverse ETFs have been created that essentially enable an investor to short the market or a specific sector. I am not a big fan of shorting the overall market, since I believe the stock market has a long term upward trend. However, I am considering the Short Financials (SEF) or the UltraShort Financials (SKF) as a potential sector short.

Short individual stocks. In a bear market, hundreds of stocks will be setting new lows every day. While almost all stocks will fall, the worst business will fall even faster in a bear market.

As an initial screen, I have looked at the stocks ranked 5 in Value Line. These stocks are expected to have the lowest return in the next year. In a bear market, that typically means a negative return.

For perspective, I do not short bubble stocks that are going up, e.g. housing in 04/05 or energy in 07/08. I typically short stocks that are already in a downward trend. Therefore, I will also look at stocks with new lows as potential short candidates.

Finally, I expect further declines in sectors such as the financials, retail, and perhaps consumer non-essentials.

One example of stock I am considering for shorting is Las Vegas Sands (LVS). The casino industry is an example of a consumer non-essential that is has been hit by consumers spending less, on top of being in a bad housing market. Its 52 week high is $147.76 and, this past Friday, it hit a new low and closed at $47.10.

Although I've increased my cash position, I don't plan to sell off all my long positions at this point. I optimistically still believe market will be up in the long term, e.g. 5 to 10 years. I am only shorting stocks to offset losses from my long positions in the short term.

Disclosure: At time of publication, I only own shares of The Prudent Bear Fund.

For more on New Beginnings, check back every Sunday for a another segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Inflation Is Very Likely

If the price of oil remains over $140 a barrel, I expect that there will be significant inflation. That's because the cost of petroleum is a large part of the products we consume, from food to durable goods. Why? Not is the oil is needed to make and transport the finished products , but many of the starting materials for products that we use are petroleum based.

For example, Dow Chemical just raised its prices by as much as 25% for the second time in a month, which impacts other companies, such as consumer products (e.g. detergent, shampoo, diapers) maker Procter & Gamble. P&G recently announced that the cost of its products may rise by over $2 billion in the next fiscal year, due to rising energy and raw material prices.

While many manufacturers have minimized price increases to date, the higher cost of oil will have to eventually trickle down to the end consumers, resulting in higher prices for everyday goods.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Test Driving A Maserati

A couple weeks ago, I received an invitation to test drive a Maserati. Normally, a Maserati would not be part of my set of cars under consideration, but I guess that's why "marketing" exists:-) Besides, since I retired in my forties, I have extra time for extracurricular activities like these. Also, a gift certificate for Omaha steaks was offered in return for doing a test drive.

I arranged to do a test drive within a week of receiving the information. For convenience and to save gas, I scheduled the visit around other errands I was doing in the area. Here's what I learned on the test drive of a Quattroporte:

Price - The MSRP was about $120,000. I knew the Maseratis were expensive, but didn't realize how high. Of course, this is way outside my price range and made me wonder how I made the list for receiving an invitation.

Test drive - I was a bit nervous taking out a car of this value. Fortunately, the dealership had already identified a low traffic country road to use. The car handled very well and I even briefly tested the 400 HP engine when accelerating from a stop.

Sales people - They were very courteous even though it was apparent we were not prime candidates. My friend and I showed up in shorts on our way to a golf course. In addition, they knew I was doing the test drive due to a promotion.

While I enjoyed the test drive, I won't be buying one in the near future. Although the Quattroporte is a very nice car, $120,000 is still too expensive for me to spend on regular transportation, especially since I prefer to pay cash for our cars.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Free Summer Entertainment - Sprinkler Time

I'm sure many readers have experienced a child receiving a gift and then having the child more interested in the box than the present. I have a video clip of our daughter doing exactly that with one of her first presents. The present was a colorful, activity rich stroller attachment to made rides less boring. After briefly looking a the toy, she focused on the package and began inspecting it in detail.

Recently, I had a similar experience with a summer activity. Our daughter loves water. She enjoys baths, playing in the sink and being in the rain. This summer, we purchased an annual membership at a local water park, thinking it would be the ultimate in activities.

However, I soon learned that there are alternate, and inexpensive, forms of outdoor water entertainment. Earlier this month, I was watering our lawn and I asked our daughter if she wanted to play in the sprinklers. Of course, the answer was yes and we put on her bathing suit. She played for over an hour in the sprinklers and had every bit as much fun as at the water park. The only cost was the water, which was going to be spent anyway.

Although I'm sure we'll get our money's worth from the water park membership, it may be one we let expire next year.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, family or entertainment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Figure Out The "One Thing"

Curly: You know what the secret of life is?
Mitch: No what? ...
Curly: One thing. Just one thing...
Mitch: That's great, but what's the one thing?
Curly: That's what you've got to figure out.
~ City Slickers (1991)

Often, I find there is just too much information. There are thousands of books on personal finance. There are millions of personal finance blogs. And we all have colleagues, family and friends with their perspectives. In my experience, I am most successful when I am able to focus on one thing and do it well. Of course, it's important to find the right one thing.

For personal finance, our "one thing" has been living below our means. As noted in Is There Anything Really NEW In Personal Finance?, our #1 personal finance principle is spending less than we earned. Living below our means made it easier to implement some of the other principles such as #2, saving and investing, and #3, using debt sparingly.

Also, living below our means became a virtuous cycle. By consistently living below our means, only a portion of each raise was used for spending. Thus, with each raise, our standard of living increased and more was being saved. As a result, our emergency and retirement savings grew steadily over time.

How did we know we had the right one thing? Honestly, we only knew in hindsight after retiring in our forties. In retrospect, here are some aspects that helped us know we had identified an appropriate "one thing" for us :

Consistent with our values. Both my spouse and I grew up in families with lived frugally and we have a modest lifestyle. Although we may spend a little more on a home and healthy foods, we are not extravagant with cars, clothing or other expenses. For example, I will drive my 2003 truck at least 5 more years, and perhaps 10 years, barring any mechanical issues. We eat at home since my spouse enjoys cooking and I do a number of home maintenance items myself.

Sustainable over a long period. Without too much sacrifice, we have been able to live below our means for 13 years, as a family, and up to 25 years by ourselves. Simplicity was part of the reason we were able to follow this principle.

Delivers the desired result. My spouse was able to quit working in her thirties and I was able to retire in our forties. For me, results are the ultimate validation of a choice.

Of course, the "one thing" may vary for different people and YMMV. So everyone needs to figure out their own "one thing" and then evaluate if it is working for them.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Free Family Movies At Regal Cinemas

Throughout the summer, Regal Cinemas is hosting the Free Family Film Festival with local sponsors. Every Tuesday and Wednesday, selected Regal Cinemas will show a G and PG rated film at 10AM. The admission is free, limited only by the capacity of the theater.

For as listing of participating theatres in your area, see the Regal Entertainment Group website for more information.

For more on Ideas You Can Use, check back every Tuesday Wednesday for a new segment.

This is not financial or entertainment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Links to Carnivals from June 18 - 24, 2008

Here are links to carnivals in which My Wealth Builder participated from June 18 -24, 2008.

Cavalcade of Risk #54

Carnival of Personal Finance #158

Carnival of Family Life

Festival of Stocks #94

Festival of Frugality #131

Check out these carnivals and give the hosts some recognition for their excellent work.

This is not financial, investment or family advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

My Stocks For A New Era

When one admits that nothing is certain one must, I think, also admit that some things are much more nearly certain than others. ~ Bertrand Russell

Recently, there there seems to have been a shift in confidence among financial experts in their projections.

There doesn't seem to be as much air of certainty for their recommendations and predictions. In his last presentation, the head of my financial advisor team commented on this phenomenon and how these were people that were usually certain about their projections. My father-in-law made a similar comment about his view of the global economic picture. While he as been able to anticipate key trends of the past twenty years, the direction of the future isn't as clear.

That's probably because we are in the midst of a shift to a new era, not unlike the transition from an agricultural to an industrial economy in the early 1900s. However, it it isn't clear where we're going from industrial. Some possibilities are information, service or financial.

I believe that the shift will be towards an information era, with particular focus on the scale of knowledge transfer. Just as the industrial transition was about the systematization and scaling of knowledge into making products, the information era will be about the systematization and scaling of knowledge into product manufacturing and services.

To me, a potential winner in the future information era is Amazon.com. While some see Amazon.com (AMZN) primarily as a retailer, I think of them as an expert supply chain and back office operations company. Instead of keeping the expertise proprietary, Amazon.com is selling the knowledge to small companies in the form of supply chain and back office services, at a cost lower than a small company could achieve themselves. If Amazon.com could provide these services for a large number of small companies, the revenue stream would be tremendous.

Another potential winner is Google (GOOG), whose mission is "to organize the world's information and make it universally accessible and useful." While Google is the leader in search, the area that may be potentially big (and still to be proven) is their work on cloud computing.

In both cases, these companies are willing to sell core expertise to other companies that can benefit from the knowledge and competencies, which will eventually drive down costs significantly and improve productivity. As a result, I believe Google and Amazon will be two of the major winners in the future economic era.

Disclosure: At the time of publication, I owned shares of Google and Amazon as part of my core long term holdings.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC