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

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  • Archive for November, 2006

    Question for the readers: Shall I make an offer to this home?

    Posted by Frugal on 30th November 2006

    In the past few days, my mind is focused on whether I should be buying this home:

    1. Built in 1995, 3 bedrooms, 2.5 bathrooms, 1940 square feet, detached condominium (just like single family home, but with some legal differences).
    2. Price is $600,000. Annual property tax + Home owner association dues + Insurance is about $10500, not including any amount of mortgage payment. Part of the $10500 is tax deductible.
    3. School district is not one of the best, but second rated (actually one of the worst around that particular area).
    4. Current owner bought it for $680,000. Still haven’t paid 2005 property taxes of some $5000. Apparently, it is not working out for him.
    5. This property has been on the market for about 160 days total, after probably a couple of rounds of price reductions.

    Before my vacation I think the price was $635000. After my vacation, the price is $600000. My agent told me that there are now 2 full price offers. My agent probably is not lying to me, but I don’t know whether the listing agent is telling the truth. I was told that if I don’t make an offer this Friday, I would lose this home. If the seller doesn’t find and accept an offer, he will go into foreclosure.

    Dear readers, shall I fork over my money and make a non-contingent offer? I plan to sell my current residence if I buy this. But in this slow housing market, it will probably take a minimum of 3 months if not 6 months to get it sold.

    Any advice is appreciated. Thanks.

    Posted in Real Estate | 18 Comments »

    Future Trend: Intelligent Software and Artificial Intelligence

    Posted by Frugal on 30th November 2006

    This article is less money-related, but more technology-related (or job-related for that matter). It concerns all of us. Will intelligent computers overtake the world in our lifetime, or our children’s lifetime? Many futurists will tell you YES with great excitement and/or extremely deep concerns for the social ramifications. Me, on the other hand, I will tell you that they are way too early in their “visions” (in my personal opinions). I do believe that software will get “smarter” over time, but reaching a comparable state of human intelligence is probably at least one hundred years away if not a couple of hundreds. Please bear with me on my lengthy discourse. I do hope that it will be interesting to you.

    Do you understand how computers work, and how softwares are written? Lack of knowledge gives you fear and creates ignorance. I want to ask, how many of those futurists know anything in details about artificial intelligence or AI? AI was one of my academic pursuit and sparetime contemplation. When I was 13, I wrote an unbeatable tic-tac-toe game on an Apple II computer. When I was 15, I laughed at the most rudimentary form of AI of robotic mice going through a laberynth, and solved a more difficult problem of creating a random laberynth without any unreachable space inside. At that time, I have realized the biggest hurdle of AI (or rather AI based upon expert systems), which is that all intelligent softwares or non-intelligent softwares must be created by the human software coder. The software inherently is a rule-based recipe. Whether the software can beat the best chess player in the world or not, it is still rule-based (or algorithm-based if you are more mathematically inclined), and must be created by a human being. If the software in the computer has any of the apparent intelligence, it is still granted by its creator. Yes, computer can analyze tons of data much faster than human can, and/or calculate millions of forward scenarios unfathomable by humans (because of lack of human processing time), but it is human that gives computer the rules to do so. And if computers can create and deduce their own rules, those rules are still within the same rule-creating framework which itself is another rule-based systems. Sorry to inform you this, but computers just canNOT think outside of the box, figuratively speaking.

    Later on, in college, I came across technologies behind speech recognition and optical character recognition. I won’t go into details of the speech recognition which is based upon Hidden Markov Models (HMM) which can successfully model human speech through a probabilistic model. On the optical character recognition (OCR), it is really the advancement in the processing speed of computers that made a 1974 technology called Neural Network possible again.

    When I first learned about Neural Network as a senior in college on my own, I was so excited. Because I knew that I’ve found the thing that I have always been looking for, the true way of how human intelligence is assimilated and processed. The way how neural network works is it simply models how 100 billions of neuronal cells inside human brains work: it is a network of nodes with different connection strength to each node, and the strength of the connections are repeatedly trained through stimuli to become either stronger or weaker connections. Human brains compute through biochemical reactions between neurons in an analog (non-digital) way. However, such computations are done in a massively parallel way involving billions of neuronal cells everyday. Through stimuli, we form patterns. Through patterns, we form rules, etc.

    Now, if we model the same computations on computers, do you know how much worse it will be? First of all, computers deal with digital numbers, and so each analog connection strength now needs to be a digital (floating point) number. Now, depending on how many neural cells we model, let’s say N, the number of connections between all cells are N times N. And then the each computer or rather each CPU can only process things serially even though each CPU is really really fast. Because nowadays, computers are quite fast, we can do some limited application such as optical character recognition (OCR) in a reasonable amount of time (mostly via backpropagation neural network). But to model 100 billions of neurons in a human brain, and all computing in parallel??? Given the current computing power, you need LOTS and LOTS of computers & electric power too.

    What are the current most promising technologies that may duplicate the computational power done by human brains?

    1. Ex-Caltech professor Carver Mead has done analog implementation of neural network in silicon chip. But it appears to be not very successful since I can’t google out much more information on this thread.
    2. Quatum computation: If successful, such ways of computation will be power efficient and enable much faster computers than current semiconductor technologies can provide, based on silicon.
    3. There is an actual system built with probably hundreds of thousands of computers to mimic a human brain. I can’t find the link now, but the computational power is in the same order of a single human brain. But

    In any case, despite Moore’s law on computation, I don’t think we are anytime close to a machine intelligence era at all. After studying both the biology of brain and the computational aspect of the brain, I truly marvelled at how great our brains are at doing the “wet” (biological) computations.

    Just a side note for you to become a smarter person. Do you know how to become smarter? Smartness is always associated with the ability to change. Make sure you’re willing to change when things don’t go your way. When the biological neural synapses are no longer elastic (or not being able to change when you get older), your learning ability starts to drop. Do you know why there is only a fine line between genius and insanity as said by Oscar Levant? Obviously a genius has lots of brain activities if not great learning ability. For any control system to have more elastic/wider-ranged parameters, the end result is probably faster learning/convergence, but it also comes at a cost of less stability. Obvious when the stability is lost, it would be called as insanity. Got that? By the way, the above is only my thinking. Didn’t really read those anywhere, but I’m sure somebody must have written or said something similar.

    By the way, if one day we do have such computational power, that alone will not create human-like intelligence. Human brain learns because there is a need for survival. The learning process is goal/survival driven. Without a motive for machine, machine will NOT continually learn and improve. To have a motive, there must be inputs and outputs. The outputs go to the external world, in the attempt to get the best desirable inputs back into the human brain or machine brain. And of course, as the creator of the intelligent machine, the creator must carefully define what are the most desirable state for the machine, but the thinkable machine will certainly figure out that survival for itself should rank very high.

    I will stop here, since I’m really going off tangent.

    Posted in Futuristics | 5 Comments »

    Update on My Portfolio

    Posted by Frugal on 29th November 2006

    During the past 3 to 4 weeks, there were some changes in my portfolio if you have not noticed. The main changes are

    1. My money manager sold out most of my pharmaceutical positions due to a Democratic win in the November election.
    2. My money manager and I added more energy positions in natural gas companies and Canadian energy trusts.
    3. I added some foreign equities.
    4. I added NG which I may be selling anytime. This is the only precious metal position that I’ve added, only because I know it would not be volatile at all, but would be more event-driven. I’m pretty loaded in this precious metal sector, and I don’t plan to add more. If I do make any changes, it will be exchange of positions rather than adding more.

    My cash has gone down somewhat, and it’s at about 10% of my portfolio value. Comparing to about 30% on 5/9/06, 10% is my historically low point, but certainly high by any portfolio management standard. I usually err on the conservative side, and the cash also includes any cash that I need to use daily.

    I will be looking to add more US large cap once the current mini-correction is more complete. But if it doesn’t fall more, I won’t be adding anything, playing conservatively. My net worth has gone up somewhat due to my company holdings (which are usually correlated to the general stock market). I am hoping to liquidate some of these holdings at a higher price than current market price later on.

    By the way, I’m still trying to catch up after a long vacation during which I visited my parents back home. This coming weekend, I will try to reply to all the past questions if I have not replied yet. Thanks for your patience.

    Posted in My Portfolio | 2 Comments »

    Stock Market Took A Big Fall

    Posted by Frugal on 28th November 2006

    Similar to US Dollar fall, after the Thanksgiving Black Friday, stock market took a big fall yesterday. Yes, market was quite overbought. In fact, I hope it corrects for a week or two, so that I can add some more stake. I am still in the bullish camp for the general stock market heading higher towards next spring in 2007.

    Part of the reason is that it seems that real estate market next year probably will not fall as much, possibly by just 5% at where I live (metropolitan cities in California). Looks like the lending standards have not tightened much, and therefore all those exotic loans will keep rolling over and stay exotic. In other words, the clocks on these time-bombs have been delayed and spread out through more years into the future. They will “explode” and foreclose only until that the loan balance have increased sufficiently or flipper’s cashflow has drained up due to lack of sufficient rent income to cover mortgage payment AND housing price has fallen sufficiently to disable the rollover process of the exotic loans. According to LA times, 26% of the loans are interest-only, and 13% of the loans are ARMs in the first six months. As long as mortgage market does not implode, the current real estate market will only be constrained by the turn in investor psychology and household income (which certainly limits any further dramatic run-up in the real estate market).

    Looking at the poll results from, I’m actually cautious of precious metal sector at this point, which was voted by 23% of the bulls to be the most likely sector to rise. Spot gold has not exceeded my line of sand at $650 for me to turn fully bullish. While I’m still neutral to slight bullish in precious metals, I’m very encouraged by the actions in both the silver and silver stocks which have been outperforming the gold stocks. In a precious metal bull market, I would like to continually see silver outperforming gold. At the top, silver to gold ratio should definitely hit a high point without doubt according to the past history. In fact, I simply regret not converting more of my gold mining stocks into silver. Notice that in the following figure (click to zoom in), the top usually correspond to the top of the precious metal market.


    There will be a stock market correction of probably more than 25% almost for sure I believe. But I am still holding my breath, believing that the yesterday’s fall is not the beginning of the end of the bull run. Just remember not to be too greedy and try to sell out at the very top early next year. Very few investors percentage-wise will be able to do that statistically speaking.

    Posted in Market Pulses | 2 Comments »

    Dollar takes a tumble

    Posted by ML on 27th November 2006

    I had to work on Black Friday which definitely put me in the minority. In my area, there were stores that opened at 3-5 AM. Unbeknown to most Americans, their dollar took a tumble just as they stood inline for such bargains as sub $1,000 42” LCD TVs. Did the money saved compensate for the lost purchasing power of their savings? I doubt many were making that calculation. Oh, wait, what savings?

    Over a 3 year chart, the neck line of the large head and shoulder (double H&S?) pattern that went back to the “Buffet short” on the dollar in 2005 was broken to the downside. This pattern projects a downside target of 75 on the dollar index. Was this a case of the Chinese making good on their promise to diversify away from dollars? I personally avoid such speculations. If I wonder about where the dollar is heading all I have to do is to look at the deficit and future obligations of the US government. The exact trajectory is secondary.

    Not surprisingly, PMs did well. Gold spot gained over $8 to end at $637.9 and silver spot $0.39 to end at $13.40. HUI also managed a gain of almost 2.5% to end at over 340 on a shortened trading day. Here’s a summary of my recent posts:

    • Oct. 25 HUI at 316, noted some buying strength in PMs.
    • Nov. 9 Advocated taking partial positions through GDX, even though it was overbought. HUI closed at 341.
    • Nov. 16 Reduced 25% of my position after the HUI:gold ratio broke short term support, although the HUI was still above my “line in the sand” of 315.

    That last move turned out overly cautious, as the HUI never closed below 317. The worst it did was an intraday low of 312 before reversing up on the same day. The 315-316 area corresponded to a 38.2% retracement of the previous rally, and of course to the level on Oct. 25. I did manage to replenish some lost positions through UNWPX the day before Thanksgiving. After Friday’s gain, we’re back to the same level as Nov. 9 but with the overbought condition worked off. Should this strength continue on Monday, it would be the “all clear” signal that the gold bulls have been waiting for all summer. EW/Fibonacci fans will be happy to note that it’s roughly 6.5 months from the May high which is half of the length of the preceding 13-month bull leg.

    As said many times before, the PM sector is volatile. It sure didn’t feel good to “flip-flop” between Nov. 9th and 16th, but if one’s goal is to make money then one can’t be concerned with being wrong, just as if there’s a big drop on Monday I know I’ll have to reevaluate. The key is not to predict the future, but to know what to do for each outcome that materializes.

    Posted in Gold/Silver, Investing | 4 Comments »

    Back from my vacation

    Posted by Frugal on 26th November 2006

    Hello, everyone,

    After a long trip, I’m back and refresh. I will be replying to any unreplied questions/comments slowly in the next two weeks.

    I hope everyone had a refreshing Thanksgiving long weekend too.

    Posted in Announcement | 2 Comments »

    What does it mean to be an Investor?

    Posted by Frugal on 24th November 2006

    An investor takes positions, while for a trader tries to take advantage of short/intermediate term swings. Most people don’t have an investor mentality, and they don’t understand what it means to invest, nor what it means to have an asset allocation. For them, money means cash. If a trade turns out to be profitable, and he ends up with more cash, then it’s good. Cash is the sole meaning of money to them.

    What I would like to impart on you is to have a different view on money (check out my definition of money). Yes, at the end of days when your entire portfolio is marked to market, that is its true value on that day when settled in cash. However, wealth does NOT equal to cash, which is merely a medium for exchange of goods & services.

    Why do I suggest managing your portfolio by taking a view from asset allocation? Asset allocation means taking a carefully sized position in different classes of assets. POSITION means that you stand there, and don’t move. Certainly, you should choose your positions carefully and make sure it is a good one. By partitioning your net worth into different asset classes, you make sure you own different things and businesses in this material world. You own THINGS, instead of some intangible electronic record in your bank account. And you do not panic in the event when the value of your possession drops. Yes, the valuation has changed. But what you own has not changed. You own the same thing whether they are priced at $100 each, or $10 each one minute later.

    Alternatively (instead of top-down approach of asset allocation), some investors use bottom-up approach by stock-picking the best stocks that they can find. Again, the keyword here is taking a long-term position. Certainly you should re-evaluate your positions when things change. However, due to efficient market hypothesis, it is quite a low probability event that you can out-perform the general market in the very long term by stock-picking. I would recommend NOT to put too much weight into this strategy (even though I do it personally quite often, :) . Most people are too confident to admit that they cannot do stock-picking. I myself is still in the discovery process. Maybe after another 20 years of investing, I will come back and tell you that efficient market hypothesis is bull-shit. But according to my today’s best understanding of investing, don’t try to pick stocks, nor time the market. (Hey, if I smoke pot, don’t smoke pot like me, :) ).

    In summary, when you invest, make sure you understand the meaning of taking a position. And don’t just arbitrarily take a position. Carefully evaluate the position before you put your hard-earned cash into it.

    Posted in Investing | 8 Comments »

    Happy Thanksgiving

    Posted by Frugal on 23rd November 2006

    No post today, but one more post tomorrow on Friday for the long weekend.

    Happy thanksgiving to everyone.


    Posted in Announcement | Comments Off

    Net Commercials and Oil & Gold Revisited

    Posted by James on 22nd November 2006


    Crude Oil [ ]

    First of all let’s look at oil. The two charts above are displaying USO (oil ETF) and WTIC (oil). If you notice the count from 1 through 4, the pattern is very similar. This makes perfect sense as USO is supposed to track the price of oil. That is until you get to the low made at 5. Here you can see USO at new lows while WTIC is above its lows. In fact as I am writing this on Monday, USO just made another minor new low, while crude oil is trading above its low at point 5. This could be a result of the fact that next month’s oil contract is rolling in (January vs December). It could also mean that stock-traders are hedging against a further oil decline, as they sell the USO ETF and as a result drive prices to lower lows while crude oil finds support at higher lows.

    But what is even more important is the net-commercial position. And what is bothering me somewhat, is that net-commercial position has decreased over the last two weeks by a total of 17 639 contracts. And all this while oil is not yet rallying, in fact it is still sitting near its monthly lows. One reason for this could be that large-traders got a little ahead of themselves, and picked the bottom a little bit early. This raises a yellow flag; however, I would like to see next week’s COT data, for confirmation. Otherwise, two data points do not make a trend.

    Personally I remain constructive on oil; and if you think about it from a psychological point of view, the play that worked thus far over the last few months, was to buy stocks and sell oil. The only problem is that once everybody buys stocks and sells oil, there is nobody else left to drive stock-prices higher and oil-prices lower. At those junctures we will have a top in the stock market and a bottom in the oil market. I believe that a bottom in the oil market is fast approaching; I am less sure about a top in the stock market. Some COT data is pointing to at topping pattern (SPX) while other data is pointing towards higher prices still (NDX). With oil however, the cot data overall remains bullish, and in the short-term I would like to see whether commercials will start their buying campaign once again. If they do, the oil setup will be near perfect in terms of risk / reward.

    Broad Markets

    Russell 2000 [ ]
    Net-commercial position increased by 312 contracts.

    S&P 500 [ ]
    Net-commercial position decreased by 16 062 contracts. If this selling pressure continues, this market will be setup for a decline pretty soon.

    NASDAQ 100 [ ]
    Net-commercial position increased by 1 149 contracts. In two out of the last three weeks, both commercials and large-traders were buyers in this market, while small traders were sellers. Although this is bullish, there has been commercial selling in the MINI-Nasdaq not to mention a lot of selling in the S&P 500.

    Dow Jones [ ]
    Net-commercial position increased by 775 contracts.

    I continue to remain neutral on the stock-market. The trend continues to point up; meanwhile I don’t see a clear signal from the commercial players. Until then, I will continue to pay close attention to these markets to try and gage their future direction as soon as a clearer picture develops.

    The VIX or fear index is at very low levels. This implies that there is very little fear amongst investors which normally correlates with rising stock market. Commercials were big sellers of the VIX a few weeks ago. Consequently, the VIX broke down to new lows as the market rallied. So far, the VIX is not yet setup to move up. So I am not anticipating fear/volatility to re-enter this market, just yet. This is telling me that the markets will probably continue to move higher. I plan on adding a VIX-chart to the website, shortly.


    Gold [ ]
    Net-commercial position decreased by 9 065 contracts, in fact, over the last three weeks net-commercial position declined rather dramatically by 43 012 contracts. From this selling, I would not be buying gold at these levels. It seems that a correction / consolidation is in order. From a big-picture perspective the trend is up, as long as we continue to trade above $550.


    US Dollar [ ]
    Net-commercial position increased by 4 168 contracts. The US dollar was setup for a decline just a few weeks ago. And now it is setup for a rally. It is interesting that as commercials sold the dollar they bought oil & gold, and now as they are buying the US dollar they are conversely, selling oil & gold… The US dollar index is setup to rally and if it does, look for the dollar to re-test its reaction-high at approx. 87.25.

    Posted in Investing | 1 Comment »

    I Was Homeless Once Due to An Impossible Mission

    Posted by Frugal on 21st November 2006

    This week is the Thanksgiving Week, a week of gratitude to reflect on big or small favors that you receive from the people close to you, and/or from the entire world. I decided to share my own Homeless experience with you, along with some background that led to it. It’s a little long, but I hope that it would be of some interest to you.

    Do you know what it feels like when the night comes and you do not have a place to stay, and a bed to sleep on? A sense of anxiety due to indefinite non-belonging in this world? Unless you become a homeless, you may not know what it is like….

    If you have read a little about me, you would know that I have gone through a difficult period through my graduate studies. The first year of my master’s degree I was fortunate to earn a scholarship and did not pay anything. I also had very good monthly living stipends. I guessed I took everything for granted. So Life decided to teach me what the meaning of money to me. After lots of ordeals, I ended up going for a second master’s degree, which was at a private prestigious but very expensive school. I had never planned for this. But I was very fortunate that my parents were able to support me financially for a second degree which I (or rather my parents) had to pay everything. Since this was my second master degree, I was extremely determined that I wanted to finish the degree as soon as I could, and didn’t want to spend one extra dime of my parents’ money. Certainly, I did not expect that I would almost literally fulfill my determination.

    In the last two quarters of my second master’s degree, my strong desires for learning led me to undertake a curricula that were extremely demanding. In the back of my mind, I knew that this was probably going to be my last chance in school, learning. So I kind of did the “impossible mission”, took on several tough classes, a couple of which was said to require a full 40 hours every week to complete the class project.

    How was this “impossible mission”? On the average, I probably slept just 4 hours a day for probably 4 consecutive months. Too bad that there is only 24 hours a day. I really did not sleep by the schedule of 24 hours. My “day” was more like 30 hours or so. Quite often, I would go non-sleeping for 20 hours, sometimes 28 or even 36 hours. And then I would sleep for 4 to 8 hours. Sometimes, I would sleep on the “bed” made by aligning 4 chairs in the computer lab. Sometimes, I simply passed out sitting in the chair. I watched sunrise in the morning about every week in the lab. Others in the computer lab maybe went home at midnight at 12am, while I went back at 12pm noon after working through 12 additional hours.

    But I guess the “impossible mission” was a little bit too much. In my last quarter, I couldn’t complete my class project before the final date which was supposedly my graduation date. The reason that I couldn’t complete the project was mainly due to my two other partners on the same class project, with whom I had to make up what they didn’t do. Anyway, my partner requested an extension, granted by my professor. But it was beyond my summer graduation date.

    I knew the project was very close to completion, but I had no ways of predicting how much longer it would take. The lease term for my dormitory was up. And you know what, I was determined that I’m not going to spend one extra dime of my parents’ money for my second master’s degree. So I decided that I would not renew the lease for the summer. I was living in the computer lab anyway most of the time.

    I didn’t tell anyone, not my partners, nor my parents. I guessed I was just too proud and too shy to ask any favors from others. I was just going to make it. Because of the granted extension, my partners no longer worked through the night (they just did it a couple of times, and couldn’t take it anymore). So came the the day that my lease was up. I loaded up all of my belongings into the car. Moving, except that I didn’t have a place to move to. Then, came the night….

    I parked my car at someplace remote on campus. The night was really chilly even though it was summer. I let a small opening in my car window so that airflow was not blocked. And I just put on extra clothing, and tried to sleep. I was really homeless, but I was so glad that at least I had a car. I was a little anxious indeed, since I didn’t know how many more nights I needed to spent in my car.

    The sky was clear with all the shining stars, and the parking lot is totally empty. Everyone had gone home, a term that I had taken for granted without thinking. Reflecting over my plight through my graduate studies, the physical demand on my body and mind in that last year was not much, compared to all the emotional soul-wrenching experiences in the previous year at my first master’s degree program. Soon, my weariness took over me. I was soundly asleep.

    After another homeless night, my friends found out and insisted that I stayed over in one of the friends’ apartment. I shyly accepted their offer. I took a shower after two days (it was not the first time. When you don’t sleep every 24 hours, you don’t take shower every 24 hours either.) My friend had a fullsize bed, and he insisted that I slept on the bed with him. It felt a little weird, but it was probably just an issue for 30 seconds. I fell asleep very soon, and I finally slept on a bed for 8 straight hours, which I never got to do in the last 4 months. It was very refreshing, waking up with your brain not in a sleepy muddy state.

    With my friends’ blessing, the next day after, I finished my project, got approved by my professor, and wrapped up all the graduation paperwork, and was ready on my way to head back to my brothers’ place 800 miles away. I got an A in that class, but grades were no longer an issue to me. I bid farewell to my friends who were my classmates, thanking them for their support through my difficult days. They still had another quarter to go. Most people in that master’s degree planned for an extra fall quarter. But I just didn’t want to spend my parents’ money more than it was necessary.

    One of my most favorite movies is Pay It Forward. Patch Adams and A Civil Action are my most favorites too. In Pay It Forward, the kid named Trevor, invited Jerry, a homeless person, to stay in his house, and getting back on right track. I don’t know anybody who has invited a stranger to stay in home, nor do I recommend you doing that. But still, everytime I see a sign of homeless held up by a poor person, I cannot stop and think about all the what if I do this and that, and what should I do this and that. And then I would think about this movie. If everyone can be like Trevor, being altruistic just for a few more moments, our world can be transformed into Heaven in no time.

    My website is about money, or more specifically how to make and retain more money. But at the end of the day, let us remember that it is just money, and money is definitely not everything. In this Thanksgiving season, let us all remember to thank the people that we should have, and be grateful for whatever big or small things we receive from the world. And give a helping hand to friends or strangers, and give with a true heart. Homeless people don’t just need physical shelters. They need some carings too. They are our fellow human beings.

    Posted in Miscellany | 8 Comments »