Blow them away!

In preparing for the new year, I have many books on the list that will be evaluated, and gobs of money will be spent trying to beat the market. This will be the year of the Shotgun Investor!!!!!

Oh the Possibilities!

In Fooled by Randomness, Nassim Nicholas Taleb (real name, not an anagram) discusses how randomness affects almost every daily event and how most do not make sense of it.

The most prominent people in the book are market traders who ignore the random component of their job. He gives multiple funny examples of peole making millions per year, thinking that they are the bomb, and then losing it all by not recognizing that a large component of their success was based on the fact that the trading system they were using was good, unless something "unlucky" happened.

Good stuff. A very entertaining read. He does not pull punches for the likes of George Will, and other media pundits. One point for the nerdy statistician!

My favorite section is when he compares winning ten million dollars playing Russian roulette versus earning the same through dentistry, explains the importance of "multiple probable outcomes," and relates how our brains are thought to interpret such different risks for the same reward. Neat.

The book is written like a blog or journal, and is entertaining and quite a easy read if you pass over all the philosophical name dropping. he also wrote a book called "The Black Swan" which will definitely be on my future reading list.

What to buy? This does not easily lend to a specific trading scheme, so I will sit this one out. Also, I spent my money buying gifts.

Abracadabara!

In looking for investment ideas, it seems as though the world is all too ready to give advice on stock market picks. Everyone wants a simple "magic formula" to investing. Ideally, one would go to a website, click on a button, and have an instantaneous result of a list of stocks to buy that could only go up.

Thankfully, Joel Greenblatt has already done it. Nothing could be more simple for the little guy. In "The Little Book that Beats the Market" a straightforward formula is given that bested the S&P for 30 years.

Basically, he uses the Return on Assets(ROA), and ranks the stocks. Then, he takes the earnings yield, and ranks the stocks. Combining the two lists of rankings, he comes up with a rank of stocks. For example, if Joe Blow company ranked #2 in ROA, and #376 on earnings yield, then overall the stock would gain a rating of #378. From this list, he then eliminates foreign companies, financial companies, and utilities. One should buy 20-30 of these stocks, and hold them for a year minus one day if the they are a loser, and for a full year if they are winners (for tax purposes).

More simply, he has a website that does all this for you, giving you your list.

A good book, only takes a day or two to read. Get it from your local library.

So for my "magic" selection, I have simply visited the site and obtained the stock ICF International, (ICFI) which is a companey that.... well, never mind. You see, you don't even have to know what the company does. See how easy? I'll buy twenty shares on Monday.

Buff-a-what-a-gee?

Buffettology looks at investing from the view point of the big man, Warren Buffet, legendary investor and 2nd richest man in the USA. The author, Mary Buffet, is the ex-wife of Buffet's son. But I guess she kept the name.

Whatever.

She describes his basic investing strategy as "business investing." That means not trading stocks with wild abandon, but rather looking at the entire business and deciding to invest on the merits of holding stock for years, or forever. For example, if you had the money, would you purchase ALL of the company for yourself? In this way, you know that you are dedicated to holding it for the long-term, certain that it will continue to bring in good earnings, and give you a great return on your investment.

He views stocks from the point of view of bond investing. Essentially, a bond gives a fixed rate of return. A stock is reviewed concerning the earnings per share and growth rate. If they are assumed to remain fairly constant, then the earnings of the stock (how much it appreciates over say, ten years) can be equated to a percentage return annually. This can be compared to the annual return on a fixed investment such as bonds. There are numerous examples in the book for you to investigate.

The trick is assuming earnings and growth will continue. this is where the idea of a margin of safety and consumer monopoly comes in. Coca-cola can charge much more than other companies for the same product because of name recognition, and it does not need to invest money in research and development or other capital expenditures in other companies.

What to buy? I looked at some ideas from the buffet letters to shareholders, the buffetwatch blog, and did some searches. I came up with a company Wabco (WBC), that makes vehicle control and stabilization systems.

If it is good enough for Warren, then it is good enough for me!

Where am I now?

O.K., time for an update to see how the old shotgun investor is doing.

So, what with the stock market going to hell, lets see where I stand. Going from the initial account value of $5,000, I bought four investments.

I spent $2,013.52 for IOO, SAM, ASR, and WAG. Now they are worth $1,962.23

This takes into account a $7 commission per trade, but not taxes, because I lost money.

I started this whole shebang on October 29th, 2007.

In that same time, the S&P had a loss of 3.3%, while my scheme gave me a loss of 2.5%.

Whoopee!

This is so easy a monkey could do it.

Watch out Mr. Market! I just re-read the book "A Random Walk Down Wall Street" by Burton G Malkiel. I would have to say that this is an excellent all-around guide to the market. It begins with a history of pretty spectacular market bubbles of the past, including the tulip craze and South Sea Company debacle. A short course in technical analysis and fundamental analysis follows.

The meat of the book is in the in depth coverage of how different investment vehicles work. I thought it was excellent in how much detail was presented. It includes everything from derivatives to zero coupon bonds. He covers many different theories on how the market works, and in essence gives the advice that a random selection of stocks will outperform professionals.

The writing seems to be balanced, whereas most books I tend to pick one idea as the best and only present information to back up their theory.

For anyone that doesn't already have this book, I believe it is a must.

So, for my selection. The actual suggestion in the book is that you buy a global index fund of all the stocks and just hold it indefinitely. But, since I just did that on a previous post, that would be boring and redundant. Therefore, I will pick a stock at random. I used a random number and letter sequencer that I found on the internet, and obtained the result of ASR, completely at random. I have no idea what the stock is all about, but it appears to be some sort of foreign operation that manages airports in southern Mexico. At about fifty bucks per share, I should be able to pick up about ten shares. This being a holiday weekend, I hope there are no surprises for Monday.

I'll Drink to That!!!!!

How to Make Money in Stocks by William J. O'Neil.

This guy talks like he knows the biz, and he has the history to prove it. He started out with a few grand and ended up with enough cash to buy a seat on the NYSE. He lays it all out in front of you, with an eloquence that seems to say, ”this is so easy, anyone can do it, as long as you follow my system.” The only problem is that his instructions are open to great interpretation and are at times, contradictory.

For example, he proposes that stocks that are “market leaders” are the best stocks to buy because they will remain strong in a bear market but goes on to say that these same market leaders will “turn on their heels first.”

But, besides the overall wishy-washy advice, there is some meat in the book. On pages 103-106. Here he gives information on when to sell. Not cut and dry though. 36 separate reasons to dump a stock. You better have them memorized as well, so you don’t make a crucial error and see a head and shoulder pattern when you should have seen a cup with handle pattern.

Overall, I would have to say this is a good book to buy, study, read over and over again, then buy other similar like-minded books, and trade (uh, invest) in some stocks. That is, if you don’t already have a job and are rich enough to not be hurt with all of the commissions etc…

I can’t devote that kind of time, and frankly, I am busy all day. What’s more, how can I be constantly trading and doing all this research into stock patterns and charts and whatnot. It is not for me.

Then, a few chapters in the middle of the book are nothing except an add for Investors Business Daily.

I know this rambles a bit, forgive me, it is late. The overall message is cut your losses early, buy market leaders with good solid earnings, and let your winners ride. Oh, and there are a few pages in the back that say if you don’t want to invest the trememdous amount of time it takes to use his system, then buy some mutual funds, hold them long term, and you will be rich anyway.

So what to buy with my own $500 cash-money based on this book? This is easy. He helpfully compiles a IBD 100 index of great stock buys. So, looking down the list….ah, here we go, SAM. Boston Brewing company. They make Sam Adams beer. Sounds good to me. Buy it and forget it. Case closed. Sorry about the pun.

The Battle for Investment Survival

The Battle for Investment Survival by Gerald M. Loeb is the book that triggered the shotgun investor blog. It is a great book that was originally written in 1935. This person seems to have begun the whole "investing for the common man" idea. He was a legendary stock broker, whose history you can read about in the introduction of the latest printing by Ken Fisher. the style is very similar to a blog-format, with very short one to three page chapters. Each one with down-home friendly how-to tidbits on the stock market. He gives away his philosophy piecemeal, with examples.

One big theme through the book is discussing the issue of when to sell stocks. Buying them is one thing, but he states that the real decision is when to get out. This is especially difficult for me with losers (United Airlines anyone?). His advice for novice investors is to shed any stocks that drop ten to twenty percent and think about why you invested in the stock in the first place, and try to learn from it.

Other interesting points he makes are following trends, letting profits run, the difference in perspective that young versus old investors have, fallacious wall street proverbs, speculation versus investing, and public psychology. In fact, much of what he discusses are things that seem to be "new" ideas in neuroeconomic circles, technical analysis, and other current market strategies.

The book is also very interesting from a historical viewpoint. In the midst of describing the process of living the Wall Street career, he describes the proper way to create an Ice-Cream Soda. He gives insight into the old-fashion ticker tape watchers, and the other speculators of the day. Truly a must read for anyone interested in the history of Wall Street.

But enough of that. Buy the book (or visit your friendly library and let your neighbors foot the bill). As the most consistent theme in the book that applies to my position is selling losing stocks, that is what I will do. I will sell any losers from my positions that I have held which have dropped more than fifteen percent. These were purchased prior to the official start of this blog. So long!

The Future for Investors

The Future for Investors by Jeremy J. Siegel (look at the size of his head, you know he is smart) is a solid book. It is divided into essentially five parts. First, he discusses some history of investments, and explains that there is a confusion about growth stocks, and why they are good stories, but not necessarily good investments. Through a good number of pictures and whatnot, he explains that the return on investment is a different entity from the growth of any particular company.

The second part of the book can be summed up in two words: Bubble trap. You buy some stuff that has gone up astronomically in price recently and you will get burned. Pages 71 through 124. You can skip it.

Part three is the meat. Here he explains what works in the market from his perspective, and gives good evidence for it. Essentially, he explains that the source of all investment returns is from earnings, and these are reflected most transparently into good stock returns by purchasing reasonable valuations on dividend paying stocks, as they produce good returns. This is true even if the market as a whole is dropping, because then you simply obtain the shares at a cheaper cost.

Part four is a bore. Again, skip it. People are going to be old in the USA and young in other parts of the world. Why should you care? Because a large portion of the market's return will be from the international market. End of story.

Finally, he ends the book with investment recommendations that are fairly specific. If one cannot buy a sufficient quantity of individual stocks, then she/he may buy a ETF or exchange traded fund, that represents all of the available stocks within a particular sector/region/niche. Also, he describes individual sectors and strategies, such as oil, health care, and the "Dogs of the Dow," that one can use to enhance a standard well balanced international portfolio.

So now I will put my money where my mouth is. Of course, it is 1:00 AM on a Saturday, so I will need to put in a order for the coming week. He recommends ETFs of large multinational companies. In order to follow his advice, I will purchase five hundred dollars worth of the shares of IOO ETF, traded by iShares, which represents the largest global 100 multinational companies on the planet earth. Take that WAG!!!!!

We shall see.......

Rule #1 Investing by Phil Town

Rule #1 Investing by Phil Town

I picked this book to write about as the initial reviewed book only due to its title (#1 - get it?). I already regret it. Why? Simple. The book is horrible. I mean the whole damn book is nothing but a big waste of time. I am so glad that I did not buy this book but borrowed it from the library.

O.K. enough ranting and raving. Most of the book tells you how great this guy is and how he was so lucky to obtain "stock market trading guru status" when he helped some rich guy take a raft down a river. Then he proceeds to inform you that the best way to become rich is by trading in and out of a stock using "signals." How do you pick the stock? By looking at the traditional moat idea of Buffet, and only buying stocks with great growth. Here is the rub. He has no proof. Zippo. All simple opinion and no facts. Garbage.

He pretends to know the answer by combining value ideas with trading ideas, such as MACD to time in and out of a great company, ignoring facts of costs due to trading.

But, I will put my money where my mouth is and invest in one of his ideas. Man, I feel like I can already kiss that money goodbye.

His latest advice is on Walgreens (WAG), stating that you should buy it at $38. Ignoring the BS, I will buy 10 shares at the open, and see what happens.

shoot at the stock market

I will now begin to analyze exactly how to make millions and millions of dollars utilizing combinations of neuroeconomics, sound market strategy, and technical analysis bulls**t to pull in dough above and beyond the benchmark of the S&P. Additionally, I will do it using only my brains, current trashy stock market books, and spare free time. To make things even more interesting, I will assume people do not have time or the ability to trade stocks at work, given firewalls etc. Therefore, all trading, investing, and research will be done only in the wee hours when the brain is digesting the news fromthe day.

Let me assure you, I have ABSOLUTELY NO EXPERIENCE, CREDENTIALS, OR KNOWLEDGE of the market, so follow this at you own risk. But, if I can do it, anyone can. Things will be a bit chaotic to begin, but I hope to find a path to riches. Hopefully, anyone who joins me in this quest can do the same (or at least not fall into the "trading trap" as I like to call it).

The first step, start with a few books, analyze them in turn, put in some opionions etc..., and perhaps use their advice.

The second step will be to start with $5,000, and begin to invest. I plan to report on how I am doing, and each step of the way will post the current amount of my holdings. That way, you can see if I make money, or lose it all. :(

The third step is of course, early retirement.

-The Shotgun Investor