Don’t Stop Fortune Hunting – Money Making Opportunities Are Everywhere

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So close yet so far. Giraffe reaching for leaves.

When I was 23 I got lucky, very lucky. No, a Ford agency supermodel didn’t decide to stalk me around Manhattan and show me off to her beautiful friends in case we didn’t work out. Instead, a $3,000 investment turned into $155,000 in two months. The stock was VCSY a Chinese internet company with a homepage consisting of a simple dial pad. I had no idea what the company did except for the fact that Internet + China in December 1999 sounded like a fantastic idea during one of the greatest bubbles of our times.

VCSY went from around $3 to $6, did an inexplicable 20-for-1 stock split and then went up to around $9. In other words, it went from $3 to $180 pre-split and I had 1,000 shares. The stock’s move was one of the most ridiculous things I’ve ever seen as everybody I knew on the Street started piling into the name. I eventually got out of the stock at around $155 a share, netting a cool $153,000.

I proceeded to do what every foolish 23 year old would do and blow it on things! I bought a 600cc racing bike along with a second hand Volvo 850 GLT. At least I didn’t go out and buy a pound of coke. The safety of the Volvo was a way to balance out the risk of death during wheely popping attempts on FDR drive at 100mph. With both vehicles came insurance payments and a $300 a month parking bill. Yes, even back in 2000 parking was that expensive in lower Manhattan.

My biggest regret wasn’t actually spending $25,000 on goodies after the financial windfall. My biggest regret was not investing MORE into VCSY! I could have put in up to $20,000 worth in the name because I just received my first stub bonus after starting work in the summer of 1999. Meanwhile, the ritual of saving more of my after tax paycheck had begun because getting into work before 5:30am and regularly leaving after 7:30pm didn’t seem sustainable long term. Unfortunately, I was too chicken shit to dump everything into VCSY. If I did, the $20,000 could have turned into a cool million! Sob. So close, yet so far from being able to make it rain!

Ever since the spring of 2000, I’ve regretted not taking more risk. I swore to swing for the fences more often with the new found capital. Instead of fulfilling my oath, I decided to cower in the corner like a scared child in the night because the internet bubble began to burst in March 2000. After a couple $10,000+ down days thanks to reinvestments in B2B stocks like Ariba Technologies I bid the stock market casino sayonara! The one year time period of confusing brains with a bull market was over.

GOODBYE STOCKS, HELLO CAREER


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Financial Benchmarks Investors Should Consider To Gauge Performance

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Pimped Out ride

There’s one simple observation I’ve noticed in my journey towards financial freedom. Rich people make things more expensive for the rest of us. Given the supply of desirable necessities such as homes, schools, food, and even water is finite, the rich bid up prices far beyond what the middle class can afford.

I remember back in 1995 thinking $20,000 to go to a private university was ridiculous. Now such a private university costs $50,000 in tuition. Ridiculous again, especially with the internet providing so much free education now. Did the median salary increase by 125% in the past 18 years? No. The median wage actually fell 8.9% from its peak in 1999 to around $50,000 per household. That is a double ass kicking!

I remember wanting to buy a sweet two bedroom, two bathroom, double balcony condo in Manhattan with a view of the Chrysler Building and Madison Square Park for $720,000 in 2000. The problem was I only had one year of post college savings and stock gains under my belt and had to borrow about $50,000 to achieve a 20% downpayment. The cost of the 1,350 square foot condo is now roughly $1.7+ million dollars sadly enough. Just take a look at the price per square foot values of ultra high end property and you’ll see an increasing spread compared to the value of median priced property. Someone with enough money bought the place and is now that much richer as a result.

As my portfolio grew over time, I became much more risk averse with my investments. With the Asian financial crisis in 1997, the Russian Ruble collapse in 1998, the stock market implosion in 2000, and the mortgage market meltdown in 2008, it’s hard not to come away with a more conservative investment style.

Now that I’ve built up a livable passive income stream, I’ve gravitated more towards absolute return once again. So long as I don’t blow up the principal portion of my passive income stream, it’s risk-on. We should strive to outperform the competition, especially if we have the buffer to do so. In this article I’d like to discuss the various benchmarks you should consider using to measure your performance based on your wealth and risk tolerance.

FINANCIAL BENCHMARKS TO GAUGE PERFORMANCE


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Are You A Real Investor If You Do Not Produce Alpha?

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Positive Alpha On 5/24/13

A rare positive alpha day.

Although I’ve admitted to disliking the stock market, there are those rare days when everything goes right and I just love it. Those days are when your shorts go down in an up market, when your longs go up in a down market, your longs go up more during an up market, and your shorts go down more in a sell-off.

Plenty of people proudly proclaim their investment prowess now that the stock markets are back. You’ve got recent college grads who can’t even get an interview at a investment house recommending stock ideas on Motley Fool and Seeking Alpha as freelance writers. Are they confusing journalism with investing?

You’ve got grocery store clerks highlighting their latest stock ideas to customers during check out. Why work at Safeway for $9.25 an hour when you could make more trading stocks full-time?

You’ve got folks who put all their net worth in the stock market and think they’re brilliant because they’ve never seen a bear market having only started four years ago. The best attitude is when asked what if the markets go down? They say they’ll just buy more, as if they have infinite capital and courage.

Even people like me are writing more on the topic of investing while working on a new investment forum. Bubbly bubble perhaps? Probably. At least we’ll focus on short ideas as much as long ideas. A large reason why I’m writing this post is to remind myself not to be delusional in my investing abilities.

It’s very rare to meet someone who has admitted to losing money in the stock market. Perhaps it’s natural to talk about our winners and keep our losers hidden. If you’ve never met anybody who has lost money in the stock market, well let me be your first. I lost about $30,000 in a company called Gastar Exploration (GST) in a span of six months when I kept doubling down thinking gas prices would rebound. Now that was an expensive lesson in commodities trading!

What I do wonder now is whether people are once again being led to slaughter by becoming overconfident in the stock markets. If you start extrapolating 15% a year returns in your portfolio due to the past four years, many of your other assumptions change e.g. age of retirement, rate of savings, spending decisions, and so forth. You might think, “Why work hard and save as much if my investments are going to make me so much money? My $100,000 investment portfolio will turn into $1 million in 10 years!” I recommend everyone run scenario analysis on their portfolios. Be conservative in your assumptions please.

Are people confusing investing with simply the process of saving? When you are mindlessly buying a index fund, mutual fund, or a set list of dividend stocks on a list with every paycheck are you really an investor, especially if you consistently underperform? Let’s discuss.

THE DEFINITION OF ALPHA


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The Refinance Window Is Closing: Historical Charts Of The 10-Year Yield

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10 Year Yield Chart Over 1 Year

Those who’ve been waiting to refinance for the past 12 months have missed the boat with the US 10-year treasury yield surging to 2.15% as of 5/31/2013 vs. a low of 1.4% in July, 2012. Everything from 5/1 adjustable rate mortgages to 30-year fixed rate mortgages have all moved higher by similar, but not exact magnitudes due to durational differences.

I recommend refinancing as many times as possible if existing rates are at least 0.5% lower and you can break even on the refinance costs within 24 months. Not refinancing due to laziness or fear is quite stupid. It’s interesting to note that the larger your mortgage to refinance, the lower your explicit refinance costs. Given I believe the ideal mortgage amount is $1 million dollars (if you can afford it) for tax purposes, my refinance costs are often “no cost” with fees simply embedded in the new lower rate. There is no free lunch, but it sure feels that way when a bank says do you want a 0.5% lower rate that will cost you nothing out of pocket!

SO WHAT IS A HOMEOWNER SUPPOSED TO DO?


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How To Make A Lot Of Money In The Stock Market And Still Feel Like A Loser

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Sea turtles on the beach

Slow and steady often wins the race.

On May 5, 2013 I wrote an article called, “Should I Invest In China? A Top Down And Bottoms Up Perspective.” My simple thesis was that with the Yen depreciating to 100+ due to Abenomics coupled with strong world markets, China must inevitably catch up in a risk-on environment. I then identified the Chinese internet space as the most laggard sector where investors should consider putting money to work. Chinese internet stocks have been going straight down for two years. Stock picks included BIDU, SINA, and RENN.

So what happened with the stock picks since then? And more importantly, did I put my money where my mouth is or was I just pontificating like some useless Wall St. research analyst does with Neutral/Hold/Wait And See ratings? I hope you know by now that I don’t like wasting time writing about things I don’t know or care to act upon. Of course I invested in my thesis. I just didn’t invest enough.

Almost like magic, every single name ramped higher by 15-25% within three weeks after publication while the broader markets climbed 2%. It was almost as if someone got a hold of my article and forwarded it around, causing a buying frenzy. If there’s a chance this is true, is there any wonder why hedge funds keep their holdings as close to their chests as possible?

Since publishing my post on China, my IRA grew by roughly $40,000. Sounds OK right? Not really since I started off with $400,000 at the end of April. I will usually take a 10% gain for the full year any day. However, a 10% gain is a 5-15% underperformance of my stock picks, equating to roughly $20,000 to $60,000 in money left on the table.

So what the hell happened to cause such a leakage in performance you ask? Ill-timed accumulation and exiting of positions as well as FEAR. Remember, I am the King of bad trades. The below chart shows the value of my IRA portfolio today. The pending activity is pending cash as a result of $209,913 worth of stock sales as I’m continuously worried about a market correction. I already sold $168,006 worth of stock several days earlier. At the same time, I’m not willing to place massive short bets either because the market is being artificially propped up by the Fed.

Current IRA portfolio.

IRA portfolio 5/22/13

MY IRA PORTFOLIO BEFORE THE BAD TRADES


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Why I Dislike Investing In The Stock Market Even In Good Times

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Poker table with scattered cards and chipsSell too soon. Buy too early. Sound familiar? Welcome to the club. I am the King of making suboptimal trades due to fear and greed. Whenever I’m about to make a trade, I begin to have delusions thinking I’m smarter than the market. After all, I need to have conviction if I’m going to put tens or hundreds of thousands of dollars to work.

When my bid gets lifted or my offer gets hit, I’ve already made a mistake. Why? Because there are two sides to every trade and in that brief transactional moment the other side is usually always getting the better deal. For example, let’s say you want to sell a stock with a limit at $10 a share. As soon as you sell, the stock will probably move higher with momentum. You start cursing yourself for not holding out a little while longer.

If you’re looking at buying a stock that’s been beaten up, chances are high that if your buy order gets filled the stock will continue to move lower due to an imbalance in sell orders. You then kick yourself for not being a little bit more patient to buyat a more favorable price. You can enter an order way below the existing share price, but nobody will be willing to sell.

If you focus on getting the best price possible when you’re building a position, it’s very easy to get frustrated with the volatility of the markets. If the stock performs well after purchase over the long run, your purchase of the day doesn’t really matter. However, I’m focused on the short run and the long run. A lot of money is made or lost on the initial entry price.

Despite the stock market enabling me to buy my first property by 26, I’m going to highlight why I actually dislike investing in the stock market even if I’m making money. A lot of you folks will respond by saying “that’s why I just buy and hold” which is fine. But those of you who want to go beyond plain index investing and are hooked to fortune hunting like me, this post is for you.

STOCK MARKET INVESTORS / TRADERS BEWARE


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The Virtual Currency World Of Investing With Olim Dives

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Olim Dives Banner In JordanWhen I first began investing in college with the money I earned from odd jobs in high school, I had no idea what I was doing. Online investing was a new concept back in 1997 and I couldn’t believe I could randomly press some buttons to buy and sell stocks. I was hooked and would purposefully arrange my college classes around market hours to get in some feverish trades.

What took exhaustive summers of working minimum wage jobs to save what little money I had quickly got wiped out making ill-advised trades. One time I bought a software company named Macromedia which I thought was a bank. Another time I bought a graphics chip maker named TDFX at the absolute top. The good thing about only having $3,000 to my name is that the most I could lose is $3,000.

It’s been 17 years since I first made my first trade online, and I’ve developed a much more thorough and systematic approach to investing. During this time, I’ve literally made and lost hundreds of thousands of dollars in the process. When you lose money, you start cursing the world and your stupidity. Just look at all the folks who bought into the Facebook IPO hype at $38, Apple at $700+, and any Chinese internet stock a couple years ago. Oops!

If only I had some type of platform where I could trade with virtual currency as realistically as possible for a couple more years. Maybe, just maybe I wouldn’t have made as many investment errors as I did since college. Maybe I would have been smart and shorted the home builders in 2007. Maybe I would have hedged out my company stock during the crisis to make sure I don’t receive a double whammy of a lower bonus and a lower share price. Who knows for sure. What I do know is that if you plan on investing your own money,do as much due diligence as possible. You won’t know your true risk tolerance until your positions start going the wrong way.

For those of you who are inexperienced investors, I’m pleased to introduce a startup called Olim Dives. Olim Dives means “future wealth and prosperity” in Old Latin and was started by Ben Hubbard and Roshan Vani. Olim Dives is a social investing site which allows users to trade a virtual $100,000 as close to real life as possible. You can also share ideas, compete for prizes, and learn from fellow users in the process as it’s a social investing site. Where was this stock market game when I was growing up?!

A CONVERSATION WITH OLIM DIVES’ FOUNDER, BEN HUBBARD


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