My 1st Million At 33 – yes, you can do it too

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  • Archive for June, 2006

    I am glad that I lost 40% in my first investing year

    Posted by Frugal on 30th June 2006

    When I just started investing in 1998, I started out by day trading stocks. I didn’t have much. Majority of my investing capital came from my parents. I had about $30,000 which was also the majority of my entire networth. Life was in the fast lane, day trading stocks in and out.

    Since day trading relies on making money on a very small percentage spread, I splitted my $30,000 to roughly only two transactions, each transaction worthed about $15,000 so that even on a 0.5% gain, I could net about $75 – about $25 round-trip commission = $50, a decent profit for me. If I was able to day trade two stocks in two transactions successfully, that would be $50 x 2 = $100. I figured in the most optimal case, $100 per day x 52 weeks x 5 days = $26,000 annual profit. That would be a really decent gain per year.

    But it was obviously not that easy. There were days that I could get $100, but there were days that I would lose $100. Overall however, I was making forward progress by small steps. Since my “day trades” were more like days trades every now and then to take advantage of special closing/opening prices, one night I placed a low-ball limit order for next-day morning (like I often did because I couldn’t wake up that early for east coast). The next morning, I woke up with my limit order filled, but just to discover that the stock that I bought had just tanked right through my limit order price. Although I put my limit order at some 3% to 4% lower from previous closing price, the stock tanked some 15% right at the market open. So the stocks that I bought was immediately in red for about 10% loss. I couldn’t close out my trade with a 10% loss, and so, I did what most people do, held on to my losing position. And the stock just kept going lower and lower.

    Eventually, after making several other big mistakes, I closed out at the end of the year with a big 40% loss. Obviously I was quite depressed about how much I had lost. What made it doubly depressing was that I was losing the money that my parents gave me as gifts. That was a substantial amount to me, especially when you compound that amount at some 4% or 5% for maybe 50 to 60 years ahead of me. I sat down long and hard, reviewed all of my mistakes, and tried to learn my trading and investing lessons. My wife asked why I was doing it at all, waking up at 6:00am PST for so many mornings for trading stocks, and had nothing to show for it, but a big hole in the pocket. It was a good question, and I had an uncommon answer.

    My answer was “I prefer to lose 40% now at my twenties, rather than losing 40% at my sixties. If I learn my lessons early, I would not make the same big mistakes much later. Today, I’m managing and investing some $30,000. One day, I will be managing and investing one million dollar. I can afford to lose 40% of $30,000 now, but I won’t be able to afford to lose even 20% of a million dollar.” Yeah, I was in pain from my deep loss. But I was so determined in continuing my stock trading & investing, and I was confident that one day I would be managing a much bigger amount. Since I knew I would be investing for the next 50 years or more, so I was just going to learn how to do it the earlier the better.

    Today, my stock portfolio is not a million yet. But my networth has increased dramatically. I definitely did not expect things to happen this soon. Fortunately, each of my past investing and trading mistakes has continued to help me to become a better investor and keener trader. My big loss of 40% in the first year has made me a much more cautious and knowledgeable investor. I think some of the lessons you can never learn it from books. Those lessons just need to be learned from painful mistakes. I believe that investing and trading are those kinds of lessons. And I continue to learn and re-learn my lessons as a forever student of the markets. My only modest goal is not to be stupid enough to lose some 30% of my networth when I’m least affordable for a big loss, such in my old age and in retirement.

    Posted in Investing, Miscellany | 12 Comments »

    Fed Raise By Another 25 basis Point

    Posted by Frugal on 29th June 2006

    Seeing the good reaction from the market. I am just relieved. I don’t expect market to make a big U turn, and zoom back up immediately. As long as it doesn’t fall further, I’m happy. Gold is facing a hefty resistance at 590/610 area. So I don’t expect that PM will simply take off like a rocket either. We must see economic slowdowns. Going forward, any economic slowdown news should be viewed as positive by the market because that will indicate that the chance of another interest rate hike is smaller.

    So what’s the market doing to both bulls & bears? I think market will not give you a dip, nor a take-off. It will probably grind higher slowly going forward with occasional pull-back, and until it gets closer to August Fed meeting, it will start to get more volatile.

    Friday is June 30, and it’s crucially important to have S&P 500 closed higher than around 1250/1260 level I believe. Monthly closing price is more important than weekly closing price, which is more important than daily closing price, and then the last is intraday price. If S&P 500 put in a good monthly closing, then a stretched bull case can still be made for S&P 500. But given the past actions in the carnage, I don’t expect the general market to make a new high (except Dow Jones 30 which is much easier to do). If the general market goes higher in the next two months, I believe it should be the chance for selling or even shorting. The probability of US going into a mild recession is very high in 2007. You don’t want to be the last one to find out that the recession is here.

    I still have plenty of cash left. I’m holding cash still. At the minimum, I want to see S&P 500 closing above 1260 tomorrow. Then I will start to make a few moves here and there. For the brave souls however, you can probably jump in right now. Hopefully the potential summer rally in crude oil will not derail S&P 500.

    Good luck trading.

    Posted in Investing | Comments Off

    Bull Market in Real Estate is Probably Over

    Posted by Frugal on 29th June 2006

    Here is an excellent reading for all the homeowners and potential homeowners. I really hate to see any of you losing big money on purchasing a house. Be independent in your thinking. Don’t get dragged away by the popular thinking. As I have said ealier, according to UCLA professor Didier Sornette, the housing bubble should burst in the middle of 2006 or about right now.


    Here are the strategies that I have suggested for every one of you, whether you’re a homeowner or not, related to housing issues:
    Unconventional Strategies in this Housing Market
    And what possibly may come in terms of price reduction in the housing market:
    How Much Will the Housing Market Fall

    If you’re not convinced and want an objective analysis, you can run through some actual numbers using my Rent vs Buy Calculator. It’s an excellent and comprehensive calculator.

    At last, to anyone who says home ownership is not just about money, but there are other benefits. I fully agree, except that I must say that everything has a price. Are you willing to lose $100K to own a house now? Are you willing to lose $250K? Are you willing to lose $500K? At some point in this questioning process, there is a price at which you will not be willing to get those non-financial homeownership benefits. And you should carefully consider that price for you personally right now, instead of regretting it later.

    By the way, stock markets always react faster, and lead the real economy. So if you just look at the stock charts of all the home builders, such as TOL, PHM, KBH, CTX, etc. you can get a taste of what’s coming in the housing market.

    Posted in Real Estate | 4 Comments »

    Review on My Past Market Commentaries

    Posted by Frugal on 29th June 2006

    Thumbs up:

    1. Gold not to exceed $750. $US down wave will be contained temporarily.
    2. Yield curve not flattening (yet) from Jun 8th post.
    3. Gold stocks correction is probably over (made this call after 2 days of the new low). Still yet to be seen whether gold stocks will make new low after Fed meets.

    Big thumbs down

    1. Incorrect forecast on precious metal market not correcting as much.
    2. Didn’t take Hindenburg Omen seriously, and totally over-estimate the new Fed chief Bernanke and PPT (Plunge Protection Team).

    Overall, despite that I realized Market Correction Is Here on May 12th, roughly 3 days after market made its top, my inaction hurt my portfolio performance a lot. The biggest reason for inaction is obviously my complacency and that I had no contingency plan for market surprises. My high cash level contributed partially to the reasons of not selling to build more cash.

    The lessons learned: I must devise plan A, B, & C for different unfolding scenarios as not to be caught in surprise of not knowing what to do. A calm in mind is the best for trading success. Knowing exactly when to fold and when to hold, and whether to trade or whether to invest is the key.

    Posted in My Portfolio | 2 Comments »

    Market At A Juncture

    Posted by Frugal on 28th June 2006

    Right before the Fed meeting, both precious metal stocks and the general markets are turning lower. The market is scared, and it should be. There are many dangerous under-currents beneath the surface of various markets, and they are not handled properly, all hell can break lose. In fact, since I started investing, I’ve never felt so SCARED as of now. Why? Many past capital market sins are coming home to roost at almost same time. Here are the dark clouds over the markets (many of which I have mentioned in previous posts):

    1. Fannie Mae, the big elephant in the room: The full details of Fannie Mae accounting fraud will be revealed soon, possibly later in this year. If the whole truth is revealed, both $US and US bonds may react very negatively to the report. Despite that US treasury repeatedly states that GSE bonds are not insured by US government, the bond market is still pricing a preferential rate for GSE bonds.
    2. Inflation starts to spiral out of control causing Fed to raise interest rates by too much, which in terms causing waves of deflation to come. Greenspan has “cheated death” by bluffing out of his way at the initial periods of 1 to 2 years where the energy price stays elevated. Afraid of crushing bond market, Greenspan never restored short term interest rate to a normal level by hiking interest rate at a much faster clip. Now Bernanke is receiving all the results from the past sins committed. Even the fudging of home owner equivalent rent is biting back hard on US Fed. At the time of housing prices going through roof, CPI was not showing any significant upticks. Now CPI is getting all what it deserved, having rents going up while the housing market slows down. Obviously, Fed cannot slap on its face, and correct the fudging of the CPI measurement, or else it will lose all the credibility if there is any left. This is putting Fed into a very tough position. Further increases in the short term interest rate will probably collapse the housing market. A terrible chain reactions will be started from this. GSE bonds will collapse because of increasing foreclosures and housing price deflation. All types of bond markets will go down along GSE bonds. That will in turn trigger further P/E ratio compression in the stock market. Massive selling in the US markets will speed up $US depreciation. It’s a total abyss if Fed raises interest rates too much. Obviously, that’s what the stock markets are currently afraid of. Under this scenario, there is not many places that one can hide. Even precious metal equities may be hit hard initially by the waves of selling on wall street, but eventually they will start to correlate to gold price which should be rising (after some delays most likely).
    3. Fed is losing its credibility because Fed doesn’t raise interest rate enough to fight inflation. If Fed doesn’t raise interest rate as a show-off for being an inflation fighter, Fed won’t have much credibility. A stop in interest rate hikes probably will trigger gold to rise to new high. However, I believe that this is probably the preferred method for Fed. A rise in the gold price will not necessarily translate a heavy depreciation in the $US, as long as all other major countries cooperate in joint devaluation of all currencies. A rise in the gold price will not necessarily bring about an increase in oil price either, since gold is currently undervalued relative to oil. Besides, gold price is the easier commodity to be manipulated by central banks. As long as they control the rise in the gold price to a tamer posture, everything else will not go into a deflation mode. Obviously, once deflation starts, it can be very hard to put a stop, especially in this information and computer age, where millions & billions of dollars can transact in a very short time.

    I believe that 5.5% on 30-year treasury bonds is the absolute line in sand before housing market goes tanking. As I have said previously, Fed forewarned the market two weeks before this meeting, and has normalized the inverted yield curve again to an almost flat 5.25%. A flat line means slowdown instead of recession, and that is Fed’s message to the stock market. However, for the next hike if it comes, I believe that the bond market will no longer conform to Fed’s wish, and will indicate a strong possibility of recession by an inverting yield curve. The message from bond market probably should be more correct than the Fed’s.

    In case Fed either raises interest rate too much for the housing market and/or talks too tough to disappoint the stock market but pleasing $US currency market, Fed will probably begin cutting interest rates much sooner than anyone expects (possibly this year). It will be trying to reverse the speed of housing slowdown, and engineer a soft landing in housing market.

    So if you have any money today to invest, what should you buy? I would suggest putting a little into precious metals, but not betting too much either. I think cash is slightly preferably at this point even than precious metals. We don’t know what Fed will be doing tomorrow. I personally will not venture a guess (except for a minimum of 0.25% hike which is baked into the cake). They may come out talk tough or soft, and that will influence the market dramatically. I’ve put 50% of my tradable cash into precious metals, and I won’t be buying much until either the stance from Fed is very clear, or that the precious metal market re-tests the low. I think deflation danger is very real, especially coming from a new Fed chief Bernanke who thinks inflation can be easily done through helicopter money. Well, yes and no. Bernanke can always engineer inflation, but probably not without a big deflation scar first if Bernanke is not thinking clearly. For now, I’m afraid that the deflation scar may hurt quite a bit. So having some cash for the uncertainty time is good. And if Bernanke panics to save economy from deflation, the next wave of inflation certainly will not be a walk in a park. It will be a walk in jungle, with different markets making fresh new lows or fresh new highs in the most unexpected ways, except to the correct position holders who endure and stand tough through ups & downs.

    Let’s hope that Bernanke won’t be so stupid and too arrogant in thinking that he can do it all. Let’s hope that he will put a stop to the bleeding of stock market (before it’s too late) and commodity market. $US may fall some and maybe make fresh low, but at least it’s got some room right now, while the stock market has zero or negative room for continuance in the bull market trend.

    Posted in Market Pulses | 2 Comments »

    Book Review: The Millionaire Next Door

    Posted by Frugal on 27th June 2006

    I heard about this book long time ago, but have never read it until recently.  I had always dismissed it because one of the words in its title is Millionaire.  Since I never believe that by reading any books, one can become a millionaire, I tend to discard those fashionable titles.

    After reading the book, I found that I really liked it.  This is one of the books that you can both learn from its experiential examples, and also use it as a solid reference.  Furthermore, the book is a good reading & reference for wide range of ages and income levels.  I highly recommend it to everyone.  Here is a short summary:

    Because the entire content of the book is based upon a solid survey of millionaires, the texts in the book are not just empty words.  The author Thomas started with the description of the American millionaires (based upon his interviews, surveying questionaires).  He found that one of the common traits is frugality.  There were many other traits, such as a high percentage of the millionaires are self-employed business owners, or most millionaires are not active investors, and tend to hold stocks for several years, etc.  You could read about the book to find out the other interesting common traits in the “frugal frugal frugal” and other chapters.

    Then Thomas went on discussing how most millionaires use their time and energy very efficiently to increase their wealth over the long term.  I think this is also a really good and important chapter.  Majority of people don’t realize that Roman empire is not built in one day, and that small daily changes in life goes a long way.  If you simply spend 15 minutes less in front of TV or on the phone, and spend those time wisely such as to increase your knowledge on wealth, you can learn and do a lot in the long term.  And because everyone has only 24 hours a day, spending the time efficiently over the long haul will certainly make a huge difference in terms of achievable success.  Personally, when I spend my time on money-related matters, I usually focus on the bigger dollar problems, or a habitually repeated process (which adds up to be a big dollar problem by its repetition).  My wife is much more frugal than I am in the daily matters.  I keep telling her not to waste too much energy on anything that is less than $100.  My daily portfolio swing is usually more than several thousand dollars.  It’s obviously much more important to get my portfolio right than saving $10 on an one-time deal.

    Near the end of the book, Thomas also listed out several things that how and what the millionaires teach their children about money, and the professions of their successful heirs.  The list on what they teach about money is an excellent list for parents.  It includes things such as not revealing how much money to your children, not discussing how much they may get for inheritance, etc.  All of them are great advices to parents.

    Overall, I must say that this book is definitely worth the money.  I’m pulling out my Amazon affiliate ads for this book (or for any future books that I recommend reading).  If you want to purchase this book, why don’t you go through my link as another way of showing support to my ongoing publishing efforts on this website.  I will certainly appreciate your kind gesture.

    Posted in Book Review | 3 Comments »

    Stock Newsletters: Are They Worth It?

    Posted by Frugal on 26th June 2006

    A short answer: Most of the stock newsletters don’t worth the subscription price that you need to pay. But there are a few select ones that can really make you (some but not big) money. The problem is to know which ones beforehand.

    Because of the size of my portfolio, and the lack of my time to manage it, I feel the need to rely on external advices. I began subscribing various stock newsletters since two years ago. Very often, I put my own money at stake to experiment with the advices by stock newsletters, and more often than not, I lost many thousand dollars beyond a couple of hundred dollars in the subscription price. If you read any advices on stocks on my website, they have been filtered through me and my thousand dollars loss. But the experience of experimenting with different stock newsletters have been simply a very painful process of loss. Until today, I probably have lost more than five thousand dollars at the minimum relying on the advices from the bad stock newsletters.

    In case you run into some of the following stock newsletters, you may not want to subscribe to them after my painful loss.  By not subscribing, it could save you from lots of dollar from stock loss:

    1. a newsletter ChangeWave by Tobin Smith. He has a couple of category for aggressive investors for which he doesn’t put any performance number. Initially, I took his words. After losing more than 75% on EVOL, I finally saw what those categories were for. A dumping place for his recommendations that went bad. Maybe through the process of “natural selection”, the stocks that survive his recommendation give a good performance to his stock newsletters. I must give him a little credit on getting me started on my own research into the high yield dividend stocks. But anyone could have pulled a couple of his recommendation from a simple finance yahoo search.
    2. a newsletter Sound Advice by Gray Cardiff. This one is almost like a scam, or his customer service is very poor. Personally, his advices sounded more like copy-cat and unconvincing to me. By his refund policy, you should be able to get a full refund during the lifetime of the subscription. Great advertising indeed. If you have taken his words, you may fall right into his trap. I couldn’t get any refund through repeated contact to the newsletter. Luckily before the 60 days of credit card dispute period is up, I disputed the charge through credit card company and got the full refund. And still absolutely no news from this newsletter.
    3. a newsletter Intelligence Report by Richard C Young. This guy gives you probably close to 100 stocks, and probably some 40 mutual funds. He will add & subtract from his list, but he doesn’t keep a performance number since recommendation. Guess why? Because they don’t seem to be not that good. I did the due diligence of going back on his recommendations over two years period from his newsletter archives. I found out that overall the performance is not that great compared to other better newsletters. If you don’t show your performance number for buy & sell, there is probably not much to show anyway.

    So far, the best stock newsletters that I have subscribed in my opinion are

    1. Capital & Crisis by Chris Meyer
    2. Outstanding Investments by Justice Little & Kevin Kerr

    Both of the stock newsletters make pretty good stock recommendation, and their understanding of the stock & capital market is simply superb.

    If you know any bad stock newsletter, or any good stock newsletters, please share your recommendation with me & others by leaving a comment. Thanks.

    Again, a reminder on my legal disclaimer.  All advices are provided AS IT IS, and are based purely on my personal experiences.  Your experiences can vary, and the products mentioned can change better or worse over time too.

    Posted in Investing, Stock Market | 30 Comments »

    My Advice To Understanding & Preparing for Wealth At Teens

    Posted by Frugal on 25th June 2006

    From age of 10 to 19 (teens and pre-teens), a person is forming the basis of his or her views on life.  This is also the most important period to build up one’s knowledge, abilities, & skills that could be used for the rest of his or her life.  Most young adolescents may not understand how important their educations are until much later.  Enjoying their growing independence from parents and the companionships of their friends, their center of focus may simply involve around friends.  Friends certainly are an important aspect of one’s life, but friends cannot do your job, nor earn money for you (at least not everyday).

    At this stage in life, in respect to a person’s future wealth, I suggest to understand wealth, forming a healthy attitude towards money & life in general, and to prepare for wealth, establishing a solid foundation of learning & knowledge.  What is a healthy attitude?  In fact, what is an attitude?  An attitude is a default or habitual reaction or a course of pro-active action towards something.  Healthy attitudes (and attributes) include being positive, optimistic, pro-active, objective, resolute, and persistant instead of being negative, pessimistic, reactive, clouded by bias, vacillating, and giving up easily.  One may be born with a certain set of positive and negative characteristics.  But one could learn and improve oneself.  At teens, you question every authority, and every why on you should do this or that.  But don’t just question for rebellion.  Question for the true sake of questioning.  Think and contemplate, meditate if you will.  Ask why.  Seek an understanding of life and the world at large.  Essentially, you’re forming and shaping your responses to the world around you, your attitudes.  But no matter what conclusions you have reached through your search in understanding the world & life, what’s more important is actually in how you react & interact to the world.  The world may not change immediately, but you can change how you react to it.  Between a positive and negative attitude, you always want to choose the positive one, simply because it’s better for you.  Understanding wealth & money as they’re part of the life, but not all of the life, nor none of the life.

    To prepare for gaining wealth in later life, it is necessary to have a solid foundation in learning & knowledge.  Every step in the education ladder is important to the next.  And if there is any mis-step, you should catch up immediately in the next step.  Very often, a teen may ask, “why do I need to learn this or that?  I will never need it.”  The truth is that educations from elementary to high schools (and even some parts of college) are the basic learnings that one should have.  And by basics, it means that it’s a foundation for you to build your other professional skills later on.  You may not know when you will need it.  But when you need it, and you don’t have it learned, you may not find your way out, and may find yourself in serious disadvantage.  Opportunity does not wait for you.  Either you’re prepared, and catch it, or you don’t.  If you are going to deny the school and what school can teach you, you may be able to find your group of friends supporting or joining you for now, but you will find yourself very lonely later.  Can’t even answer a basic question in interview?  Sorry, next person.  You’re on your own.

    In summary, here are my advices for the people from 10 to 19:

    1. Understand the world & life.  Train yourself to interact/react to the world & life in a positive way.
    2. Solidify your learning in schools.  Your basic learnings will go a long way.

    With a good understanding & solid preparation, it will then make wealth possible.

    Posted in Miscellany | 2 Comments »

    New Purchases by My Money Manager Puplava Securities

    Posted by Frugal on 23rd June 2006

    I forgot to add this comparison in my last post.  Comparing to Puplava, they made 3 purchases in my account, and their performance at the closing of this Friday including one-sided buy but no sell commission costs (which is quite significant) is up by 3.52% (while mine is up by 12.61% at closing)

    1. 8.25%
    2. 3.55%
    3. -2.86%

    As much as I wish to give more of my money to them for management, when it comes to execution, they’re quite far from my satisfaction despite all of my high respect to their research & analysis.  I opened my conservative growth account (which includes about 20% to 25% of precious metal, commodity) before the last bottom of precious metal market in last April.  Bottom was in about mid-May.  But after more than 1 year, their total gain is less than 10%, while my mutual fund purchase went up by 55%.  Because I lump my performance with everything, Puplava certainly has dragged down my overall performance.

    I do understand that a bigger firm can’t move as nimble as an individual, but a 9.09% difference is quite a lot to be hand-waved.  Comparing my own past execution to theirs, time after time, my execution was usually at least 5%, and sometimes 15% better than their execution.  Do you know any good money management companies that you could share with me?  If you’re a good trader (like ML) at investing the middle way, I’m even willing to consider and try as long as there are proper platform/channel setup.  I am fairly open-minded in general.  I started my online banking back in 1997/1998.  As long as you can show that you’re good, I am willing to consider.

    P.S. I forgot to state that my individual account at Puplava may not be representative as a whole.  But going back to the old statements, it appears that the performance in my account is probably not too far from their collective performance.

    Posted in Miscellany, My Portfolio | 4 Comments »

    New Stock Purchases Up 10.74% Since Jun 13, 2006

    Posted by Frugal on 23rd June 2006

    As of 12:32pm EST, my new stock purchases since last week are up 12.46% on arithmetic average of percentage, and up 10.74% on dollar-weighted average of percentage. The performance doesn’t include commission which is tiny in percentage. I won’t give out the symbols that I’ve purchased. Pretty much all of my symbols are the component from GDX anyway, so you can simply look through that list for your stock ideas if you’re interested in precious metal market. I made total of 10 purchases. All of the stocks that gained less were purchased later in comparison to the bigger gainers.

    1. 15.28%
    2. 16.38%
    3. 13.76%
    4. 9.53%
    5. 19.78%
    6. 6.1%
    7. 13.77%
    8. 4.72%
    9. 21.35%
    10. 3.91%

    HUI currently at 309.82 has gained 14.5% since the lowest point on Jun 13. For the reference, Scottrade’s junky trading system that caused a cancelled trade not to be cancalled is still costing me -6.5%, which I could have turned it into another 10% gainer.
    Time after time, I still cannot convince my parents, my brothers, and my parents-in-law to put together some money to invest at the good time. Last time when I told my brothers about a good buying opportunity, my own purchase went up 55% from 7/5/05 to 6/22/06, even after a big drop of some 30%.  This time again, my brothers did nothing. Well, none of my relatives except one is listening to me still. Just don’t know how I can get them to listen to my advices.

    To my readers: I know most of you don’t read my trading journals. But the world is changing BIG time right beneath you, and I just cannot emphasize that strong enough.

    Posted in My Portfolio | 9 Comments »