Apocalypse Now!

So just imagine, you have done pretty well for yourself, inherited a bunch of money, and was able to put your hands on millions of dollars. Then, out of nowhere, the world start to fall apart. It really doesn't matter what you do, the country gets sucked into a major war, catastrophe, or has a massive civil war. What are you going to do with all that cash, not to mention art works, gold bullion, a fancy house, jewelry, etc?

That is the subject of this book. Barton Biggs discusses what happened to wealth during the two world wars, how the market reacted, and also seemed to predict, the outcome. He also discussed what to do with your own millions.

Amazingly, prior to major turning points in the war, the markets in multiple different countries seem to rally if they were connected to the Allies. Conversely, The Axis powers had initial rallies during the first two years of the war, but then, a couple of months prior to the Allies gaining the upper hand, they fell apart. There probably was some component of a consensus in the market that sensed which way the war was going. Good stuff.

The best wealth protector for the ultra-rich? Foreign farm land. Beat everything else down the line, except for jewelry, which was needed in those short-term starvation cases where the food supply was also destroyed, and you could trade family heirlooms for stale bread.

Happy Investing!

Turn my back for one second!

Well, well, well. I have been a bit indisposed recently and have not been watching the market with my usual obsessive, portfolio watching zeal. So I was shocked to see the recent gyrations (yes, I did type the word"gyration," (now twice)). The market was flapping around like a fish out of water. Lets see how I held up.

Since the end of october, the S&P index has lost 250 points, or about 16.1% of its value. My portfolio, on the other hand has dropped only 5.8%, excluding dividends and taxes, but including commisions. What is the reason? Basically, the Sam Adams buy, a la How to Make Money in Stocks, was a big winner. Also, the ultrashort QQQ ETF which rises when the S&P drops, bought after reading Hedgehogging, went up.

All the others went nowhere other than down to varying degrees. The biggest loser so far has been TBSI international limited, a la The Little Book That Makes You Rich. I guess the title is a bit of a misnomer.

Here's the rundown:

Symbol	Name	Type	Date	Shares	Price		Notes
WAG	Walgreen Company	Buy	Oct 30, 2007	10.00	39.45		Rule #1
SAM	The Boston Beer Company, Inc.	Buy	Nov 16, 2007	15.00	34.44		How to Make money in Stocks
ASR	Grupo Aeroportuario del Sureste...	Buy	Nov 26, 2007	10.00	54.89		Random Walk
WBC	WABCO Holdings Inc.	Buy	Dec 3, 2007	12.00	46.36		Buffettology
IOO	iShares S&P Global 100 Index...	Buy	Nov 5, 2007	6.00	82.92		Future of Investors
ICFI	ICF International, Inc.	Buy	Dec 10, 2007	20.00	26.00		Little Book that Beats the Market
WFR	MEMC Electronic Materials, Inc.	Buy	Jan 3, 2008	6.00	88.00		Invest Like a Shark
WFR	MEMC Electronic Materials, Inc.	Sell	Jan 7, 2008	6.00	80.20		Invest Like a Shark
STMP	Stamps.com Inc.	Buy	Jan 23, 2008	50.00	10.80		Dhandho Investor
QID	UltraShort QQQ ProShares (ETF)	Buy	Jan 31, 2008	10.00	51.30		Hedgehogging
TBSI	TBS International Limited	Buy	Feb 19, 2008	10.00	38.17		The Little Book that Makes You Rich

Hot Stock Tip!

OK, so this is a bit off the usual post for this blog. One of my side projects while learning about the market is to focus on the "neurosciences" and the stock market. Now, a warning. I have no experience making investment recommendations etc, and I lost money recently (but not as much as the overall market). So, follow at your own risk.

A uncommon disease called myasthenia gravis affects less than 100,000 people per year in the US. It is caused by the inability of proper muscle contraction by antibodies to the muscle end-plate acetylcholine receptors. Learn more about it here. A common treatment is to give medications that inhibit the breakdown of neurotransmitters that act on the receptors, but it has numerous side effects, has to be taken multiople times per day, and so on.

However, there is a new drug that has great promise. This drug has the ability to inhibit the production of acetylcholinesterase which decreases the breakdown of the acetylcholine neurotransmitters using antisense oligonucleotide technology, which is really cool. Essentially these snippits of DNA can inhibit the gene transcription, or production, of acetylcholinesterase.

A U.K. company called Amarin, AMRN, which has been having some problems lately (delisting, turnover of management, and failed drug for huntington's disease, amongst others), has bought the rights to this drug from a Israeli company called Ester Pharmaceuticals. So what is the big deal? Well, hold on to your pants. The same acetylcholine neurotransmitter and receptor interaction is seen in the brain. And of two treatments for Alzheimer's currently being used (anticholinergic and antiglutaminergic), there is a wealth of information that supports increasing acetylcholine activity delays the progression of Alzheimer's disease. Yeah, that's right. This drug that is currently being used and is approved by the FDA for myasthenia gravis could potentially treat Alzheimer's disease, which affects millions. The numbers boggle the mind.

So far, I don't see much evidence that anyone has thought this through to the logical conclusion. Again, I cannot stress enough that this blog post is all about speculation. The drug may not work due to lots of factors, but once the idea has spread though to the market, I think it will take off. I will pick up a few shares, and see if it pans out.

:)

Turtle Soup.

Spending the day idly trading stocks and pulling in millions of dollars really is the way to go. That is the main reason books like this are compelling. Unfortunately, as you read through this book, you come away with a sense that either this guy is a genius, or just really lucky. There is no way that an average shotgun investor who only places trades after hours and can look at his selections for just minutes a day could pull this off. Interesting stuff nonetheless.

Covel begins with a saying from Benjamin Graham, a guru of value investing, that analysts and fund managers cannot beat the market because they are the market. Essentially, when people trade frequently in the market it is a zero-sum game, or nearly so. For every winner, there is a loser. The person who makes the money, in general takes it away from people who lose money. For long term investors this is not the case, but the explanation is a bit to in depth for this post.

This is the story of how Richard Dennis, a wealthy commodities trader, placed an ad in a newspaper and recruited "normal" individuals and taught them how to make millions by trading in methodical ways. Very similar to the movie Trading Places, he began this experiment as a bet to see if anyone could be a trader. The old nature versus nurture.

He educated the turtles, and gave them his own money to trade with. They did well as a group, and made millions. They were is essence momentum traders, which is the subject of book also by Covel. I don't believe this books leads to a particular stock, so there won't be a purchase with this one. Very good story though. Top notch. And Dan Aykroyd and Eddie Murphy were great in Trading Places. If you like early 80's comedies, this one is for you.

Small book, big results (hopefully)!

The Little Book that Makes You Rich is a another of the "Little Book" series that supposes an easy way to make a killing in the market. It does not get any easier. Navellier makes investing seem like a spectator sport. All you do is go to his handy web site where he has constructed a grading scale for stocks.

In the book, he describes his ranking of stocks on eight different measures, all of them growth related. I'll list them so you do not have to read the book.

Positive earnings revisions
Positive earnings surprises
Increased sales growth
Expanding operating margins
Strong cash flow
Earnings growth
Eearnings momentum
High retun on equity

They are tabulated to come up with an overall fundamental and quantitative weighted grade. If the stock is an A, then you buy it. If it is an F, you sell. It is that easy. So, how do my stocks rate thus far? Let's go to the site. Of course, they don't rank the ETFs that I purchased, but of all the others, ASR, ICFI, and WFR are graded as "A," SAM is a "B," STMP is a "C," and WAG is a dog graded at a "D."

There is not a lot of other material in the book, so I don't recommend it overall. He states how he originally came up with the formula and gives some theoretical reasons why it should work. He does have a good discussion of Beta, the volatility of a stock compared to the overall market, and Alpha, the return of a particular stock above or below the overall market. Not to much info that is new. One would want to diversify holdings to keep beta low, and pick stocks that have a high alpha to increase returns. Unfortunately, alpha is how a stock has done in the past, so may not hold true in the future.

Now, which to buy? Very easy, he rates each stock on his site, so I will pick the recommended Marine company TBSI, which has a overall grade of A on both the fundamental and quantitative scales.

Ugh.

Well, this has been a bad week for the shotgun investor. However, it was much worse for the stock market as a whole. My recent purchase of the QID ETF even eeked out a gain. Unfortunately, the rest of my picks matched the overall market, and I essentially have been riding the market down. I will regroup and finish a new book with a new investment choice as soon as time permits.




I have decided to hold on to each stock for three months, then to cut losses or lock in gains.

My first hedge fund!!!!!

Barton Biggs has inspired me to open and run a hedge fund. He was a big player at Morgan Stanley, and this book chronicles his thoughts on Wall street and the rise and fall of hedge fund traders, and other greedy folks on Wall Street.

My favorite parts of the book include his meeting with Margaret Thatcher (Hillary is no comparison), the ins and outs of losing hundreds of millions of dollars in short order, and the short-essay length biography of John Maynard Keynes (the gayest economist in history, called his love of boys "Higher Sodomy").

Also, he explains ideas such as the rise of gold in fairly simple terms, in which he gives an insight into some of his thinking. The Institutional Investors have about half of the $60 trillion market in tradable securities. There is only $200 billion in investment gold available in the world at the "true" price of about 500/ounce. So, if the Instituional Investors get nervous, and move some of their usual 3% of money in Gold to 5% of assets, the price jumps by quite a bit. Two percent jump of about $30 trillion dollars is an additional $600 billion invested in gold. So, if the price gets to a total of four times its "true" price, then he would short it big time.

So what to trade? I'll be purchasing five hundred smackers of Proshares relatively new Ultrashort ETF for the Nasdaq called QID. It is designed to increase twice the amount the Nasdaq drops. What fun! If you think China is in a bubble, they have an ETF for that.

Waltz

The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends

This is one fine book. A compilation of charts with running commentary by Kenneth Fisher, from Fisher Investments and Forbes. It covers about two hundreds years of history of the stock market, in this and other foreign governments, all in pictures.

Say you were curious about the bond market's prices during the US civil war? It is in there.

Interested in if the comparison of South African gold to world gold production from 1950? It is in there.

Say you wanted to know if a large deficit is bad for the economy? Yep, included. Fascinating that a large deficit is actually very good for the economy. When following Andrew Jackson's ideas in the early 1800s, the federal government repaid our deficit with disastrous results. there is a great graph of this that covers public finance from 1790.

What about the Iraq war? Good or bad for the economy? Not important, and he presents information to back it up.

A good read and coffee table book, but no specific investment advice on this go around, so I will sit on the sidelines.

Dhandho Ho!

Mohnish Pabrai is a managing partner of Pabrai funds, which is modeled (copied) from Warren Buffet's partnership. In this book, he explains the theory that he had used to have annualized 28% returns. All right, so what is it?

Buy stuff really, really cheap. Less than intrinsic value.

The catchy title of Dhandho is simply Hindi (Indian?) for business. He stresses that one should only buy business that are on a fire sale. The goal is to recoup all your invested capital in about five years or less, when the market recognizes the intrinsic value of the stock.

Also, he describes the Kelly formula, which is used to compute the amount of one's bankroll that one should bet based on the outcome, edge, and odds of the wager.

So what to buy? Looking at his filing with the SEC, his most recent position is in STMP. This is the company stamp.com, which is exactly what it sounds like. I will place an order for 500 bucks worth, and see where it goes.

Risk Risk Risk.

The history of mathematics as it applies to the probabilities and the stock market is of course one of the most fascinating subjects around. The book "Against the Gods: The Remarkable Story of Risk" covers it in great detail. A fascinating read, Peter L. Bernstein reviews the beginning of recorded history of "possible outcomes," to how the idea "evolved" into the current system of statistics and probability theory.

One of my favorite topics is the middle ages when insurance companies started to issue life insurance. Originally, companies would charge the same amount for a life insurance policy no matter the age or health of the individual, as the concept of "likelihood of death" was an evolving concept. They had no term for evaluating risk of death!!!!

Even more cool is the the way that he explains the history of the Gaussian (Bell) curve that we so admire. I was amazed to learn how much of the mathematics of probability was NOT invented by mathematicians, or even physicist or astronomy types. It was evolutionary biologists! Imagine that! I was shocked to say the least. I never realized how much mathematics was developed by the likes of Galton, Darwin, Mendel and his peas, and other tree huggers.

The last part covers modern game theory and other "recent" developments, such as efficient market theory and the Sharpe Ratio. Absolutely fascinating. A must read if you are into the history of statistics.

Unfortunately, no part of the book identifies any particular strategy for investing. No bets today.

Whales 1, Shark 0

So, the shark has lost. Per the last review, I dutifully bought their recommended stock, and placed a stop loss order on it. Not one week later, the stock tanked. Well, at least the stop loss kept me from losing more cash.

WFR just cost me 50 bucks!!!!!

Poor me.

Well, throw that book into the trash.

Otherwise, lets see where I stand. Since starting on October 29th, 2007, the S&P had a loss of 9%, while my scheme gave me a loss of 1.4%. This includes all commissions, but not taxes, as I am currently losing money (about forty bucks total). If it wasn't for the shark strategy, I would be up ten dollars.

Jaws Attacks!!!!!

"RevShark" as he is called, started a investing career after he went deaf, got divorced, and lost his job. He then traded up to millions of dollars and started a website for self promotion that reminds me a lot of Jimmy Buffet's.

He then wrote Invest Like a Shark which is a clear advertisement for his website, which can cost thousands to subscribe for a year! Don't worry, I will sum up his entire philosophy and strategy in a few short sentences.

First, his philosophy. Little investors can act like sharks. Fast, aggressive, following trends of the whales (big Wall Street types), and quickly moving on to the next opportunity.

Second, his strategy. Follow a low-cap stock, wait until it "makes a move" which is essentially crossing the fifty day moving average. Then, take a few "bites" by buying some shares. Finally, dump the stock very quickly if you lose money. If you do not lose money, hold onto it. Then, sell it once it stops performing for you, preferably with a 8-10% stop-loss.

What to buy? Well, that is easy. You can sign up for the "stock of the week" which conveniently fills all the requirements. This week, WFR is the one to buy. I will buy 500 smackers worth at the open, and place a trailing stop-loss that will automatically dump it if there is a drop of 10% from its high point.

Don't worry about the RevShark. He is making millions, got remarried, and now has a cochlear implant and can hear everything just fine.