From Rags to Riches?

Okay, this is what I have been waiting for the entire semester of writing this blog. It is time to add up overall results from start to finish of the stocks I posted.

To make this fair, I will pretend as if I bought 10 shares of each, with a $10 commission each. (TradeKing’s commissions are $5, so $5 for buying and $5 for selling)

1. Exxon (XOM). Purchase price: $617.90 Sell price: $718.50. Gain of $90.80.
2. Apple  (AAPL). Purchase price: $2837.50 Sell price: $3210.00. Gain of $362.60
3. Johnson & Johnson (JNJ). Purchase price: $619.60. Sell price: $624. 50. Loss of $5.10
4. AT&T (T). Purchase price: $286.60. Sell price: $286.63. Loss of $9.97
5. JP Morgan (JPM). Purchase price: $380.60. Sell price: $402.60. Gain of $10.00
6. Becton Dickenson (BDX). Purchase price: $741.00. Sell price: $810.50. Gain of $59.50
7. Telecom Corp. of New Zealand (NZT). Purchase price: $75.20. Sell price: $80.50. Loss of $4.70.
8. STEC (STEC). Purchase Price: $124.50. Sell price: $178.00. Gain of $43.50
9. Gap (GPS). Purchase price: $186.40. Sell price: $213.30. Gain of $16.90
10. Playboy Enterprises (PLA). Purchase price $51.40. Sell price: $49.30. Loss of $12.10

Total investment: $5,920.70

Final amount: $6,472.23

Total Gain: $551.53 (+ 9.3%)

I am honestly really impressed with this simulation. When I first picked those stocks, I did not really know too much. If I was to do it again, I would replace almost all of the ones I picked, but it goes to show, over a certain amount of time, the stock market typically produces a return. Have a little faith.

The Crumbling EU

Europe is in trouble. Big trouble.

On November 28th, Ireland received a huge bailout package from the European Union, a staggering $114 billion. (Am I the only one  comparing the this amount of money to Bill Gates’s net worth?) Anyway, it appears as though Ireland could be the first of many.

The thing is, the EU had this same problem a couple of months ago when Greece had to be bailed out. After the Greece bailout, things were supposed to be fixed. Well, here we are.

Portugal is already under close examination, and could possibly be the second nation to receive some kind of aid. Policy makers also have worries about this crisis spreading to Italy and Spain, which are the EU’s 3rd and 4th biggest economies.

What does this mean? The Euro as a common currency is in trouble. All of these bailouts obviously mean some kind of inflation. With the world’s economies already shaky and unpredictable enough, this additional ingredient is bad news. There are even rumors that the US is going to help with this bailouts. The currency markets are going to be pretty unstable in the upcoming months.

Update on Stock Prices:

1. Exxon (XOM): 71.28 (+ 0.29)
   
2. Apple (AAPL): 317.08 (+ 9.05)
3. Johnson & Johnson (JNJ): 62.09 (- 1.58)
4. AT&T (T): 28.24 (- 0.24)
5. JP Morgan (JPM): 38.05 (- 1.56)
6. Becton Dickenson (BDX): 79.58 (+ 2.31)
7. Telecom Corp. of New Zealand (NZT): 8.17 (- 0.3)
8. STEC (STEC): 17.12 (+ 0.87)
9. Gap (GPS): 21.61 (+ 1.12)
10. Playboy Enterprises (PLA): 4.85 (- 0.14)

They are okay I guess. Next week I will post results from the whole semester. If someone had about $5,000 to invest in Apple and knew how to time it right, they would have probably about doubled their money by now.

Looking at the Track Record

General Motors is about to become public again. Are you hopping on the stock wagon?

The past three quarters have seen GM posting profits that are nothing but impressive. $2 billion in quarter three alone. Compared to wonderful profits of last year (sarcasm), which were in the negative billions, it is nice to see that GM finally turned it around.

GM has really done well with what they have been producing lately. Camaros, Cadillacs, Silverados, and the awaited Volt are at the height of popularity. I can’t drive down the street without seeing a new Camaro or a bright, white, Chevy work truck.

There are countless forecasts about how GM is going to perform over the next couple years, but I take most of these guesses with speculation. Sure many people can talk about the percentage of pension and market capitalization but does it hold any truth? We have already seen the collapse of this giant. Foreign companies such as Toyota, Honda, Hyundai, etc. are always putting out great vehicles which in many cases come with better reviews than the domestics. GM has to keep producing cars that are better and more affordable in order to continue their profits. They have to find a way to win the hearts of consumers who think that Asian cars are superior. I am going into a rant here, but GM has to be more than the cheapest rental car option.

Final Verdict: I don’t know. I mean I don’t see GM really having that high of a yield that would really set it apart from other equities. I don’t see it doing too much in the long run that would make it a must buy. All we can do is wait and see.

Behavioral Finance

The thing I have discovered about the stock market is that there is no sure answer to anything. Even though it seems like it, there is no book with the investing secrets of the world. I know you have seen ads all over the internet about “The Secret to Penny Stocks”, or “Make Money No Matter What!”

Everybody wants to make money, and any kind of guarantee aimed at the emotion of greed will get the best of most of us.

The biggest mistake we can make as investors is emotional responses to the market. The basic strategy that we all have been taught to follow is buying low and selling high. Easy, right? On paper, it is really easy to follow. When human behavior is thrown into the mix, then it is a different story. As investors, we are bombarded articles from major media outlets about stocks that we should buy or sell. A couple weeks ago, there was an article from USA Today analyzing whether Apple reached its market peak of not. At that time, Apple was valued around 300. A week later, the stock price was up to 320. Interesting…

There are so many ways we can make irrational or unpredictable decisions due to our emotions and psychology.

Even though behavioral finance is a relatively new field primarily dealing with modern markets, there are a couple points of advice I have retracted from some articles I have read. Even though they are somewhat vague, they definitely can prove useful.

1. Don’t be afraid to sell your stocks. Let’s say a stocks principle value is 100. Due to a bear market, the price quickly drops to 2. Sell the stupid thing when it is at 50; Don’t expect some miracle jump to happen as quickly as the fall did.
2. Do the opposite of what the media tells you. Back to the Apple example. Don’t be so quick to believe everything you are told.
3. Feel comfortable with doing your own thing. Believe in yourself and your decisions.
4. Don’t allow your emotions get the best of you. Make logical, thought-out decisions. Don’t be so quick to BUY BUY BUY or SELL SELL SELL.

Remember, there is no such thing as a sure answer.

Update on Stock Prices:

1. Exxon (XOM): 70.99 (+ 0.99)
   
2. Apple (AAPL): 308.03 (- 9.10)
3. Johnson & Johnson (JNJ): 63.67 (- 1.04)
4. AT&T (T): 28.46 (- 0.91)
5. JP Morgan (JPM): 39.61 (- 1.33)
6. Becton Dickenson (BDX): 77.27 (- 0.27)
7. Telecom Corp. of New Zealand (NZT): 8.47 (+ 0.09)
8. STEC (STEC): 16.25 (- 1.68)
9. Gap (GPS): 20.49 (- 0.32)
10. Playboy Enterprises (PLA): 4.99 (+ 0.08)

Probably the worst week out of all of them. I most likely would have sold after last week when the market was peaking, and then waited until this impending bear market. They will start going back up.

The Balloon is Eventually Going to Pop

Yesterday, November 4th, the market experienced the biggest gains in over 2 years. 4 out of 5 stocks were up. Making money on the stock market yesterday can simply be described as shooting fish in a barrel. (Which actually sounds decently hard when you stop to think about it.) This is due to the $600 billion dollar stimilus plan executed by the Federal Reserve Board.

It is nice seeing all the markets experience gains, but at what cost? The value of the US dollar declined greatly because of this move. Inflation is the highest it has been since December 2009.  Can you tell me one time in which having inflation is any type of a positive thing? Just think about your belly after Thanksgiving dinner; that’s inflation. The ultimate point of this move by the Fed is to drop interest rates, lower unemployment, and give our economy a little kick.

Here is a more detailed analysis of quantitative easing:

Risking the value of the already struggling US dollar is a gamble, and I believe that it really isn’t a smart one. We already saw what happened with the bailouts of 2008, and GM isn’t even going to be able to pay that money back. Something needs to be done about the economy, and I am not too sure this is the best move.

Update on Stock Prices:

1. Exxon (XOM): 70.00 (+ 3.68)
   
2. Apple (AAPL): 317.13 (+ 7.61)
3. Johnson & Johnson (JNJ): 64.65 (+ 0.66)
4. AT&T (T): 29.27 (+ 0.93)
5. JP Morgan (JPM): 40.94 (+ 3.24)
6. Becton Dickenson (BDX): 77.54 (+ 0.54)
7. Telecom Corp. of New Zealand (NZT): 8.36 (+ 0.7)
8. STEC (STEC): 17.93 (+ 3.75)
9. Gap (GPS): 20.81 (+ 1.76)
10. Playboy Enterprises (PLA): 4.91 (- 0.16)

Have you ever just wanted to hit your head on something? That’s how I feel when I look at these things. All I can say to myself is coulda, woulda, shoulda. It really pains me that I do not have every cent invested right now. I am going to go cry.

Patience is More Than a Virtue

Talking to older people about the stock market always ends in the same reassuring response: “The market is a tough place.” What does that even mean? I will end up in a dark alley in Harlem surrounded by men with brass knuckles? My Xbox controller will run out of batteries during a virtual battle to the death? I really have no idea.

For the last couple days I have been analyzing the history of every stock I know, and almost every single one has had a positive return over time. Think of a company. Any company. Just a couple off of my desk: Microsoft (MSFT), Google (GOOG), HP (HPQ), Johnson & Johnson (JNJ). Each one has a that drop between 2008 and 2009, but that is expected because of the recession. As long as the company has a good chance of survival and posts some kind of a profit, the stock price will without a doubt get back in the green. People like you and me need to exhibit the highest amount of patience, if not, money will surely be lost. It is kind of like fishing. If you pick a decent pond that is known to have at least a couple fish in it, something will eventually bite. If the bait is constantly pulled out of the water and checked, or if the rod ends up in a thousand pieces out of impatience, nothing will be accomplished.

Be patient, have faith, and trust your investments. Its not that tough out there.

Update on Stock Prices:

1. Exxon (XOM): 66.32 (+ 1.02)
   
2. Apple (AAPL): 309.52 (+ 7.21)
3. Johnson & Johnson (JNJ): 63.99 (+ 0.25)
4. AT&T (T): 28.34 (- 0.16)
5. JP Morgan (JPM): 37.70 (- 1.02)
6. Becton Dickenson (BDX): 77.00 (+ 0.92)
7. Telecom Corp. of New Zealand (NZT): 7.66 (- 0.33)
8. STEC (STEC): 14.18 (- 0.5)
9. Gap (GPS): 19.05 (- 0.01)
10. Playboy Enterprises (PLA): 5.07 (- 0.27)

Not as great as the past couple weeks, but after the steep decline as the market opened on Tuesday, October 19th, it was expected that the value of these stocks would not be perfect. Apple is still doing very well, thats where I would put my money right now. We will surely see a better result next week.

Counting Cards

A market practice that has been gaining popularity lately is high-frequency trading. High-frequency trading can be defined as using ridiculously fast, expensive computers to move huge quantities of stocks in microseconds. Firms program these computers using algorithms, a complex math formula, to monitor minuscule changes in equities. The supercomputers then take this data and, depending on the situation, buy or sell.  The supercomputers do not care about typical investing factors. They do not care if the board of directors sucks, if the CEO is having an affair, or if a trillion gallons of product was spilled into the ocean. The only thing that matters is the price.

Money is made in tiny increments. The gains are so small that they are literally measured in pennies, but they add up. Firms typically make thousands of these tiny gains throughout the day, and usually post a profit. Some firms have been posting profits for four years straight.

This is where the skepticism arises. How is it statistically possible that a business can have a constant profit? Do they have an advantage over the typical investor? The answer is subjective. There’s a reason why they use these supercomputers, and it is to get information quicker than the normal investor. The advantage is just a couple of microseconds, but the computers can analyze and implement this information quicker than the human eye can even detect, and it is why these firms have the ability to turn such a great profit on a constant basis.

I am on the side of the normal investor. The one who wants to believe that the stock market’s purpose is to be fair for all. When I hear these type of strategies being used, the only thing I can think of is card counters in Vegas. Even though it is not illegal, it surely is unfair. Something needs to be done to at least limit these firms from sitting at the blackjack table with the rest of us.

Update on stock prices:

1. Exxon (XOM): 65.30 (+ 1.45)
   
2. Apple (AAPL): 302.31 (+ 13.09)
3. Johnson & Johnson (JNJ): 63.74 (+ 0.52)
4. AT&T (T): 28.50 (+ 0.25)
5. JP Morgan (JPM): 38.72 (- 0.8)
6. Becton Dickenson (BDX): 76.08 (+ 1.56)
7. Telecom Corp. of New Zealand (NZT): 7.96 (+ 0.26)
8. STEC (STEC): 14.68 (+ 1.21)
9. Gap (GPS): 19.06 (+ 1.04)
10. Playboy Enterprises (PLA): 5.27 (+ 0.15)

Another really good week. The market has been going up lately, and it can be seen in the stocks above. Every stock except for one is in the green, and Apple is definitely the standout. It has went up almost 19 points in two weeks, impressive. Hopefully these gains continue, because I am seriously starting to consider putting my lunch money in these equities very soon.

That Shiny Stuff

A big debate in the finance world is to invest, or not to invest, in gold.

Gold has seen a huge increase in price over the last ten years. In fact, the price of gold has increased 300 percent since 2000. Gold is typically sold by the ounce, and as of June 2010, ounces were fetching above $1,250. With such huge gains in price, toddlers should be putting their money into gold, not piggy banks. Even the government is helping people invest in this precious metal. The US Mint started selling one-ounce, half-ounce, and bullion fraction coins.

Many investors will argue that investing in gold is a great way to avoid inflation. Buying gold is a sure way to avoid struggling economies because gold, in theory, should always be worth something.

I am going to tell you why investing in gold is not a sound investment

1) Gold does not protect against inflation more than stocks, certificates of deposit, annuities, etc. The Federal Reserve board is doing everything in its power to keep inflation as low as possible. Inflation has only been experiencing minimum increases, with an annual rate of below 2 percent. Economist Paul Kasriel says this about inflation: “There really is not much inflation in the developed world. The risks are more toward deflation than inflation.” Therefore, why invest in gold to protect from inflation when there is hardly any inflation in the first place?

2) Gold produces no income. Gold, like cash, produces no interest or dividends. People buy it, and then pray that the price will go up to make their investment worthwhile. Gold also costs money to insure and store properly. Many gold owners have to pay an annual interest of 0.4 percent on all their gold to cover these costs.

3) It is nearly impossible to put a value on it. Gold has no intrinsic value, you can’t drink eat, play with it (unless a bar of it is used as a football), make phone calls with it, etc. Therefore, gold’s value depends solely on what others will pay for it. It is kind of like selling a son or daughter’s finger painting from elementary school; you can insist that the thing is worth as much as a Van Gogh, but it simply depends on what the buyer is willing to pay. As I stated earlier, an ounce of gold may be worth $1,250, but like any market, there needs to be a buyer.

In sum, Gold is not a smart investment. Sure, it is possible to make money on it, but it all depends on the risk the investor is willing to take. In some cases, the investor can make 300 percent, and in others, be stuck with a shiny metal brick.

 

Update on stock prices:

1. Exxon (XOM): 63.85 (+ 2.13)
2. Apple (AAPL): 289.22 (+ 5.5)
3. Johnson & Johnson (JNJ): 63.22 (+ 1.23)
4. AT&T (T): 28.25 (- 0.35)
5. JP Morgan (JPM): 39.52 (+ 1.46)
6. Becton Dickenson (BDX): 74.52 (+ 0.40)
7. Telecom Corp. of New Zealand (NZT): 7.70 (+ 0.18)
8. STEC (STEC): 13.47 (+ 1.02)
9. Gap (GPS): 18.02 (- 0.62)
10. Playboy Enterprises (PLA): 5.12 (- 0.02)

A relatively good week, 70 percent of the stocks I have listed experienced gains. The stock market had a good week as a whole, with the DOW passing the 11,000 mark for the first time since May.

Additions

I have decided that in order to make my blog more of an interactive experience, I am going to pick about five big name stocks, five relatively unknown stocks, and post their closing value every week. I think it would be particularly interesting to see the progression, and if we are lucky, the profit of these stocks.

All five of these are on the Top 10 of the Standard & Poor’s 500 index

1) Exxon (XOM). This massive oil company is regarded as the most valuable company in America. Stock Price: 61.79

2) Apple (AAPL). Apple recently passed its best friend, Microsoft, and became the most valuable technology company in America. iStock Price: 283.75

3) Johnson & Johnson (JNJ). The maker of almost every single shower product you own. Stock Price: 61.96

4) AT&T (T). The reason why Verizon doesn’t have the iPhone. Largest telephone provider in the United States. Stock Price: 28.60

5) JP Morgan (JPM). This international banking corporation has assets in the sum of $2 trillion dollars. Stock Price: 38.06

These other five aren’t necessarily on the S & P 500, but they have been catching the eyes of many investors.

1) Becton Dickenson (BDX). Becton Dickenson produces medical equipment. It has experienced dividend increases for the last 37 years. This company has no where to go but up, especially with the baby boomers increasing need for medical care. Stock Price: 74.10

2) Telecom Corp. of New Zealand (NZT). Telecom Corp. of New Zealand is a monopoly, and it has experienced gains in dividends by 10%. Stock Price: 7.52

3) STEC (STEC). STEC produces solid-state drives, which are essentially hard drives for computers that are smaller and more efficient. This company has no debt and a $650 million market cap, but there is doubt around its earning potential. Stock Price: 12.45

4) Gap (GPS). Gap is a clothing retailer that is located in pretty much every mall across America. Gap also has a huge online store. Stock Price: 18.64

5) The darkhorse: Playboy Enterprises (PLA). I think it will be interesting to see if this particular entertainment company can survive in a ever changing world. Most famous for its print magazines, this company’s only chance of survival is if it can adapt to the electronic media. Stock Price: 5.14

So every week when I make a blog post, we will see, hopefully, an increase in these prices, and analyze a possible profit.

Contrary to Everyone’s Belief

The “Great Recession” has been over for almost a year. In a recent article by USA Today, a group of economists declared that the recession has been over since June 2009.

In January 2009, the US economy experienced the biggest drop in output since World War 2. Unemployment is still high at 9.6%. It must be annoying for the millions of Americans who are unemployed to hear “the recession is over.” It still is difficult to get jobs, especially for many Americans that do not have bachelor degrees. In retrospect however, unemployment is dropping steadily, 1.2% since October 2009.

This declaration doesn’t mean that the stock market will start to look pretty again over night either.

As seen in this diagram, it can be seen that the DOW was its lowest in June 2009. It is bouncing back though. It still isn’t the most ideal market for investors, but it is increasing at an impressive rate.

What does this mean? We as citizens of the US have to almost roll with the punches. In an ideal world, the economy would be stable, unemployment would be lower, and investing would be easier. The economy is on a tight rope right now, but at least we are back on the rope unlike during the “Great Recession.” One thing is for sure, this doesn’t make investing easier for any of us.