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.......