46th Carnival Of Investing

Welcome to the 46th Carnival of Investing, hosted at My 1st Million At 33! Thanks to all the contributors to the carnival to make this another great carnival for more learning on investing your money, and thanks to Jonathan for making hosting arrangements.

Using my own judgment, I have highlighted the posts that I like better by RED color. There were a couple of posts that I have struggled with my binary RED/not RED decision. Please don’t take my color codes too seriously. Also, the listed order is however RANDOM. All the comments/color codes are only of my own opinion. Readers are encouraged to investigate on their own for each post.

    1. Victor Fam presents Millionaire Factors posted at Victor Fam. Victor shares the tips from the book of The Millionaire Next Door.
    2. TJP presents Can Gap Inc. (GPS) turns things around? posted at Investor Trip. TJP gives 3 reasons GPS may not be doing well.

    1. Finance Buff presents 401(k), Roth IRA, then Back at 401(k) posted at The Finance Buff. Comments on a few rules in the list of 25 Rules to Grow Rich By from Money magazine.

    1. indexfundfan presents Cash balance interest and margin account posted at Indextown. A good detailed strategy on how to maximize your cash balance interest earnings while waiting for an opportunity to invest the money.

    1. F. D. Bryant III presents Newsvine – Social Security is a Ponzi Scheme: Why we must switch to Personal Accounts posted at FDBryant3’s Newsvine. Yes, I agree with the author to some extent.

    1. Andrea presents Starting in Real Eatate posted at To Become Wealthy.

    1. Steve Faber presents This Can Make You Money – But You Must Dig Deeper posted at DebtBlog.

    1. MillionDollarCountDown presents Some Strategies For Down Market posted at MillionDollarCountDown. Strategies for managing your portfoilio when market goes south.

    1. Ralph Morgan presents Asset Class – Fine Art posted at Enough Wealth.

    1. Ricemutt presents Diversifying into real estate through REIT ETFs. posted at Experiments in Finance. An introductory post about four REIT ETFs.

    1. Michael K. Dawson presents The Commodities Bull Market is Back posted at The Time and Money Group.

    1. Andy presents Spend and Save at the same time! posted at Andy.

    1. Trent presents Counter Intuit-ive posted at Stock Market Beat.

    1. Christine Kane presents Don’t GET Rich Quick. BE Rich Quick. posted at Christine Kane.

    1. Gina presents Include Net Capital Gains in Investment Income posted at Gina’s Tax Blog.

    1. The Dividend Guy presents 7 Stocks for the Really Long Term posted at The Dividend Guy Blog. A collection of stocks for the long term.

    1. Super Saver presents Investing 101 – Managing Risk Successfully posted at My Wealth Builder.

    1. goldguru presents A Closer Look at Tagish Lake Gold Corp posted at goldguru. Detailed look at Tagish Lake for massive gold and silver deposits. Get in while the getting is good.

    1. Tom Hanna presents The Week Ahead: Your Financial Roadmap for October 30 to November 3, 2006 posted at Financial
      Options
      . Economic calendar.

    1. Mike presents Investing In Stocks and Personal Morals posted at The Road 2 Riches.

    1. A Samuel presents Sama Dubai Snap Poll shows Dubai Property Outshines China and India posted at Nubricks.com.

    1. Scott presents New Prosper Features posted at Scott.

    1. Jonathan presents Trade Execution: Why It Matters, and Broker Comparison posted at MyMoneyBlog.

    1. Paul Paulson presents Gold For Thought posted at MoneyKeg Blog.

    1. Michelle presents How to Invest For High Returns & Avoid Losing Your Original Investment posted at EconoEdge.

    1. Jim presents Don’t Invest Borrowed Money posted at Blueprint for Financial Prosperity. Investing borrowed money makes you more emotional.

    1. Andy presents Desire to Retire: “3 things to consider when think… posted at Andy.

    1. Mister Juggles presents Save These Hot Boobs from Cancer posted at Long or Short Capital.

    1. Bryan C. Fleming presents Million Dollar Savings club Update: Day 65 posted at Bryan C. Fleming .com. I wouldn’t invest $100 IMHO.

    1. MyMoneyForest presents eBay – The Maturing Dot Com posted at MyMoneyForest.

  1. FMF presents The Best Investing Book of All Time posted at FreeMoneyFinance.

That concludes this edition. Submit your blog article to the next edition of carnival of investing using carnival submission form. Past posts and future hosts can be found at blog carnival index page.

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A Good Deal For The Week (October 21-28 2006)

I just bought a 2GB Secure Digital (SD) memory for about $19, made by Kingston. The 1GB SD memory is about $9, also made by Kingston.

The original price for 2GB SD is $37.95 before tax, with $9 mail-in rebate, using $10 Google checkout reduction, and $0 for shipping. The rebate will expire on Oct 28.

The deal for 1GB SD is $30.95 before tax, with $13 mail-in rebate, using $10 Google checkout reduction, and $0 for shipping.

Hurry before the rebate expires. Kingston is a pretty good manufacturer.

Here is the link to 2GB SD:
http://www.buy.com/retail/product.asp?loc=101&sku=202743332

Here is the link to 1GB SD:
http://www.buy.com/retail/product.asp?loc=101&sku=202743519

If you have missed the deal, don’t worry. Go to the Google Checkout site list and just start shopping for any combined order more than $30. As far as I can tell, you can use Google Checkout for $10 REPEATEDLY. If you can manage to buy things just for $30, you can get 33% off in every order. Not everyday you can get such discount. Plus that if you scroll down on that page all the way to bottom, you can register any of your Citicard and get $5 additional off on your first order. And I am guessing that you can register multiple of your Citicards, and get multiple $5 off, :) . Am I too sleazy?

Ideological Bear

I found this term when surfing one of the financial sites over the weekend and thought it an apt term for my thinking at this time. Just to clarify: I’ve been writing about asset allocation which normally calls for being fully invested at all times. However, only about half of my assets are invested that way. With the other half, I try my hand at stock picking as well as market timing.

A big part of my approach is top-down, macroeconomic based. Frankly, I see the US and to a lesser extent, global economy on very shaky ground. A central theme of our economic system strings together (over)consumption of the US consumer, Asian and Middle Eastern trade surpluses and recycling of these surpluses into US debt instruments. A crack in this chain would bring painful adjustments for everyone involved.

I see the US consumer as the weak link in this symbiotic relationship. Unless you spent the last year in a cave, you are well aware of the drastic slowdown in the housing market all around. But a “soft landing” remains the current consensus. Although many home builder stocks have lost 50% or more from their peak they have stabilized since July. I, however, count myself in the camp that thinks the unwinding from this historic housing bubble is far from over. The next phase of decline, may well involve lenders and mortgage backed securities (MBS) such as this latest news on bonds from Countrywide Financial suggests. [Disclaimer: I’m shorting BZH and LEND.]

“What a load of crap!” I can hear you say, “What about the Dow’s daily new highs?!” I admit I didn’t see that one coming. I have some positions in bear market funds. Even though I’m net long the market, watching this relentless upward march in the major indices has put a knot in my stomach the size of which I never imagined possible.

So it finally brings us to the term “ideological bear” which to me is a state of being bearish, yet gored by this bull too many times to go seriously short. Funny, maybe, unless you are in the same shoes. After much soul searching though, I still see this rally fueled by liquidity akin to the post Y2K “melt-up”. Of course, if we’re closer to 1995 than 1999 there will be a tremendous opportunity lost. Alas, only time will tell.

Tips For Listing A Loan on Prosper

My Digg of This Week is at Blogging Away Debt, paying down $10K credit card debt in seven month! Tricia maintains an excellent personal finance blog, and she has always been so meticulous on the in & out of her money. If you want to learn more about investing in a Prosper.com Loan, or how to obtain a loan from Prosper.com, you can go to her site and check it out. By the way, prosper.com is a place for people-to-people lending.

Investing Against US Dollar

First of all, make sure you understand the title correctly. Investing against $US is in no way investing against US, nor is it unpatriotic. As I have talked many times in my blog, I expect a higher than normal inflation rate going forward compared to recent history and compared to other countries, most likely this will translate into a higher depreciation rate versus other currency, and rising prices of commodities. Warren Buffett has betted billions of dollars against $US in the foreign exchange market in his company Bershire Hathaway because he also believed that $US is vulnerable to depreciation due to heavy government debt overhang. Same for George Soros, and Bill Gates (Actually, some of their timing was not that ideal. I think they got screwed by all the central banks).

Cash
You could put some of your money in foreign currency, especially in a foreign country that you either travel to more frequently for personal or business reason. I don’t advise anyone to put too much cash in foreign currency in general. The reasons are that the amount of cash that you put in foreign currency will add to the amount of your idle non-investing cash. This amount of cash is also quite less usable to you since it is in foreign currency until you travel to the same foreign country. And unless you divert a significant amount of your asset to foreign cash, your overall portfolio cannot be protected against $US depreciation.

Despite all these, if you want to invest in foreign cash, you can do so very easily at www.everbank.com. This is one of the best international banking site that I’ve seen. Not only they offer certificate of deposit in foreign currency, but they also offer CD tied to a basket of commodity currencies (such as Australian/Canadian/South African dollars). The foreign exchange charge by them is a little expensive for my taste at 1.5%. It means that the moment you exchange your $US to foreign currency, you are already out of 1.5%. So unless you intend to leave those money in that currency for a very long term, and/or use them when you travel, it serves you no good to exchange your money just for a couple of years.

Bond
If you have an allocation for bond investment, I advise highly to allocate some money to foreign intermediate term bonds within your bond allocation. There is no easy way to tell how much you should allocate for each currency. Some of the currency that I like better for the long term are Euro, Japanese Yen, Chinese Renminbi, Canadian, Australian, and New Zealand dollars. My criteria for choosing a particular currency are a strong, expanding economy, and/or economy more based on production of commodity. European countries don’t grow that fast, but I would put some dollars in that economy since it (and maybe Yen) would probably be the first primary choice when $US falters.

If your portfolio is small, and cannot invest in individual bonds, I would suggest buying some un-hedged international bond fund, preferably having no US component in it. I found and invested in a low-fee bond like that BEGBX, but its returns are (and were) not great. The primary reasons are obviously that $US has been going quite strong against foreign currency these past 1 to 2 years, and that bonds in foreign currency usually pay less interest than US, especially Japanese bonds which has its interest rate at almost 0%. For that reason alone, I probably would not put too much money into Yen if at all. So please do set your expectation lower when you invest in foreign bonds, and understand your reasons for investing in them. You’re taking a position, not for a quick short term gain.

Stocks
You can either buy diversified global stock funds or country-specific mutual funds or ETFs (such as EWJ for Japan, EWY for Korea, EWT for Taiwan, IFN for India, EWC for Canada, EWA for Australia, etc.) Diversifying in foreign countries may also help reducing your portfolio volatility, according to Modern Portfolio Theory (MPT). Personally, I would recommend buying ETF/mutual fund from Vanguard, and possibly fine-tune your allocation by adding EWJ, EWY, IFN, and maybe EWA/EWC (both of which are more tied to commodity markets if you are interested). How much you should allocate for each depends on your personal preference? In the long term however, this percentage may be the determining factor of how well your portfolio performs.

Commodity
By commodity, I don’t mean physical commodity, but rather any investments that are related to commodity price. More specifically, they are natural resources and/or precious metals. I have two focused posts on how to invest in those two sectors. Please simply click on the hyperlinks. Assuming $US depreciates, investing in these two sectors will help retaining the purchasing power of your US dollars. The biggest advantage of investing in commodity-related investments is that it is the more direct way of maintaining your purchasing power (if deflation sets in, your money in this sector will shrink since the current price of commodity is less compared to the time you invested). However, commodity sector is the most volatile sectors of all. If you cannot take an annual swing of some 40+ %, you should control the volatility by sizing this portion to a small percentage until you can accept its overall volatility effect on your portfolio.

Summary
Since most of the people (if living in the US) will have the majority of assets in the US and/or dominated in $US, it simply makes good investing sense to have your asset diversified in different countries if not in different currency. Most financial advisors will advise you to at least have 10% to 20% stock/mutual fund holding in foreign stocks. Historically, such diversification reduces your overall portfolio volatility. For the following classes of assets: foreign cash, foreign bond, foreign stocks, and commodity-related investment, I recommend foreign stocks as the safer and better long term way to invest against $US for smaller investors. If your portfolio size is sufficiently large > $500K, I suggest to consider foreign bonds as part of your existing bond portfolio.

If one’s portfolio is big enough (>$300K), and has the tolerance for extreme volatility, one can put some 5% to 20% into commodity-related investments in natural resources and precious metal investments. At times, this may be the only saving grace for your portfolio when both domestic and foreign stocks are down. More and more, due to globalization of world economy, this is increasingly true. Stock markets around the world are quite synchronized. Investing just in foreign stocks most likely will not save you a heart attack in the short term (when all stocks fall) but only giving you a long term advantage.

Oil Market Is Close At Bottom 2

I believe the bottom of oil market is right here around $57. Consider buying any of the beaten oil stocks, such as MRO, VLO, COP, or ERF, PWI for Canadian Royalty trusts, or oil-related index OIH, XLE.

One may wait for another pullback, or if you don’t have any positions, now is a very good time to add some into this market.

Remember to balance your portfolio with different sectors. Without diversification, you will simply be asking trouble (like me, :) , oh, well, just down 10% to 15% overall, 1 to 2 years of my annual savings, or close to an entire year of my salary. Hey, it’s just money. ).

P.S. I wrote this post in less than 5 minutes. Didn’t have much time to even catch my breath. Please see my comments for more details.

Shareholder Rights And Activism

I’m not sure if you follows any of the drama in the merger between GG (G at Toronto market) and GLG. The management at GG decides to dilute GG by 67% without giving shareholders a right to vote. Not only that, when shareholders challenge and request for a vote, GG management expresses unwelcome messages and uses shareholders’ money to hire the best legal team possible to fight off shareholders, who are the true owners of the company.

The CEOs and the board directors have long forgotten who are the true owners of the companies. Not only that, they have gone at length to shut out shareholders’ voice. Often you need to have at least 5% to propose any shareholder resolution to be voted at the shareholder meetings. Very often, you see dilutive actions by the management requesting for additional stock option grants and/or share grants for the purpose of enriching their and partially lower level employee’s pockets. And most share buybacks are simply recyling of cash from corporate cash pile into management’s pocket through which share dilution due to selling by management becomes less pronounced.

Do you vote when you receive your proxy statements? Do let your vote count. The only way we can make ourselves heard is through voting. If you don’t vote, the management of these big corporations will continue to disrespect shareholders as the true owners of the companies, and either embezzle your money via elaborate schemes or by outright extravagant compensation.

The same is true for politics. November election is coming up. VOTE! Apathy in democracy dramatically reduces the effectiveness of a democratic system. Exercize your basic rights as a citizen. Exercize your rights as the shareholder.

If you own GG Goldcorp shares, I hope you will support Rob McEwen in his legal fights against the management in Goldcorp. You can sign up your shares by faxing in your information to them. I have already done so.

Yes, I’m the owner, don’t I get to vote at least? Who is to deprive my right as the owner telling me that they are smarter than I am, and that I should not get any say on this acquisition matter?

At www.billcara.com, you can follow the latest details of this legal fight. After Enron, it is simply outrageous for such disrepecting CEO and management at GG to exist. But they got their hands in the honey pot, and they just won’t let go.

Carnival of the Capitalists

Welcome to Carnival of the Capitalists – 10/2/06 Edition at 1stMillionAt33.com. Thanks to all those who participated, and thanks to Jay to give me this opportunity to host.

  1. Onto the Carnival of the Capitalists, posts are listed roughly in the order of submission. For most posts, I’ve added a short summary or my own commentary. Please DO NOT SUBMIT posts that are too off-topic in the future. I have highlighted the posts that I like by RED color. Please do note that what I like better may not appeal to you.
  2. Generative Transformation presents Freakonomics Book Review. An in-depth book review on a book about economics.
  3. Phil for Humanity presents Phil for Humanity: How to Contact Elected Officials. A good list of links on how to contact various levels of government officials.
  4. Green Rising presents For-Profit Social Ventures. A commentary on Google’s founders’ philanthropic adventure.
  5. The Small Business Buzz presents 4 Ways to Keep Up on Industry Trends. I like his lists of suggestion.
  6. Pacesetter Mortgage Blog presents Do I need a Land Survey when I buy real estate?, and Why do Mortgage Lenders/Brokers sell my Mortgage Loan?
  7. The Time & Money Group presents The Trump Way. Good summary about Trump’s seminar. When everyone learns about exploiting other people’s stuffs, who will be these other people?
  8. InsureBlog presents The $2.5M Bite. A simple bug bite could lead to catastrophic financial consequences.
  9. StayGoLinks presents Mobile Standards and the Tower of Babel. There seems to be little progress in getting wide acceptance for, and involvement in, Mobile Standards.
  10. Passion, People and Principles presents Us and Them. A great commentary on our group identification rather than expressing individualism.
  11. Software Project Management presents Know the Process. When you know how things happen, know the process, it’s much easier to exploit your chances and achieve your goals.
  12. SportsBiz presents The Mouse Rings Off. A commentary on ESPN Mobile.
  13. Slow Leadership presents The Freedom to Choose . . . and the Time to Do It. Living your life in the best and most enjoyable way you believe you can is the purpose for which work is the means, not the other way around.
  14. Searchlight Crusade presents Should Negative Amortization Loans Be Banned?. Clear disclosure is much better than out-right ban. May I add that regulation on loan quality is also needed.
  15. Kicking Over My Traces presents Annoying Website Visitors. Websites are marketing tools. But they can work only if visitors stick around.
  16. Free Money Finance presents What is a Job You Love Worth?
  17. Worker Bees Blog presents Online over Print…Amen!. The value of submitting work to print-only publications is diminishing.
  18. Ask Uncle Bill presents Your Own Business. Everybody wants one but few have one.
  19. TamsPalm presents Everyday productivity thiefs. Did you ever think about how much 5 minutes a day are on a year view?
  20. Sox First presents Theft and economic espionage. Economic espionage and theft of trade secrets have become big business opportunities and problems for many.
  21. Queercents presents Straight Partnerships: Saying No to Marriage. A guest post from the blog “Tired but happy” about money and matrimony.
  22. Et Tu Bloge presents The Korean Experiment. Communism does not work economically.
  23. Aridni presents Are you the one to run the show? Characteristics that you need to be run a business.
  24. Blog Business World presents What Sticks by Rex Briggs & Greg Stuart – Book review. Good commentary by Wayne.
  25. CounselingBlog presents Get Motivated Now.
  26. Photon Courier presents The Roboticization of Customer Service. The downside of the trend toward micromanaging all interactions between employees and customers.
  27. Business & Technology Reinvention presents Be the Big Dog. Leadership is all about being the big dog.
  28. Execupundit.com presents Critical Sphere of Sensitivity. How to avoid conflict by being more sensitive.
  29. Econbrowser presents The great gasoline price conspiracy. Rebuttal to the gasoline price conspiracy theory.
  30. The Boring Made Dull presents Union Dues and Politics. Opt-in or Opt-out for union due?

That concludes this edition.

Asset Allocation ETF Account

The best way to learn about something is to see it in action. In this article, I’ll examine the performance of a simple all-ETF portfolio that is actually a part of my wife’s account at Scottrade. I convinced her to devote $30k to this portfolio in September of last year and have been tracking its performance monthly.

The portfolio follows a simple buy-and-hold allocation plan from Paul Merriman (scroll down to the bottom of the page to see an updated version). When the portfolio was implemented the Merriman portfolio consisted of 8 ETFs, 4 for the domestic market (SPY, S&P index, large blend; IWD, Russell 1000 value, large value; IWN, Russell 2000 value, small value; and IWC, Russell microcap, small blend), 2 for the foreign market (EFA, foreign developed markets; and EEM, emerging markets) and 2 for bonds (AGG, total bond; and SHY, short term treasuries). I replaced SPY with RSP, the equal weight S&P 500 index that had a better record which I will discuss in a future post. Merriman’s consertive 60/40 split for stocks/bonds was preserved. Furthermore, the equity portion is equally devided between domestic and foreign markets.

Referring back to the Morning Star style boxes shown in the previous post. The four boxes were covered nicely by the 4 ETFs for the domestic market, and a weighting of 7.5% was assigned to each of them. At the time, ETFs for the foreign markets were not nearly as specialized as for the domestic market; hence one single fund, EFA, was used to cover all four boxes for the foreign developed markets which is why EFA was assigned 24% to EEM’s 6%. As new ETFs appear almost weekly, more precise implementation becomes possible. For example, Merriman’s current model portfolio includes EFV, foreign large value, and DLS, foreign small cap.

In addition, Merriman replaced some iShares with the equivalent Vipers, presumably due to their lower fees. In particular, IWD, IWN, and EEM were replaced with VTV, VBR and VWO, respectively. The difference in fees is small and the Vipers are less liquid. Further more, the Vipers have a short history and I cannot judge if they are better than the iShares in terms of tracking error even though the Vanguard mutual funds may be. So for now I would characterize the change as a matter of principle rather than a practical necessity.

The following table shows the current and target weighting in the portfolio.

Here is a summary generated by Microsoft Money in which the %gain is calculated on a total return basis, i.e., including the dividend payments. The period of performance was Sept 8, 2005 to October 6, 2006. Interest earned was not included as this was only part of the account and I didn’t want to mix things up.

You can see the two bond funds were essentially flat after taking into account all the dividends, while all the equity ETFs made nice gains. Leading the pack were the two foreigh funds at over 20%. Double digit gains were also posted by IWD, IWN and RSP. Despite the hiccup in May, the foreign market was still the place to be last year. Overall, the portfolio gained 10.7% in 13 months, which is 8.9% annualized. Not bad considering the heavy fixed income component.

The 60/40 equity/bond split is too conservative for a young investor. If this portfolio were our main investment outlet, I would consider reducing the bond component to 30% and add 5% each of IGE (iShares GS natural resource) and GLD (gold) to make it a 10 ETF portfolio. More adventurous souls may further replace some bond component with REITs (ICF, IYR or the like) oil/gas income trusts, or other higher yielding instruments.

Gold: A Precious Metal

I was heartened by gold’s price action over the last three days seen in the price chart from Kitco below. From a high near $592 on the 23rd, it dropped nearly $19 to a low near $574 on the 24th. It then almost recovered all the way back to $592 today (25th). Gold stocks, as represented by the HUI, managed gains during this turmoil in the physical market, culminating in today’s 3% move to 316.13. This speaks loudly of some persistent buying in PM stocks.

The PM correction from the May highs has been quite painful. The “throw-over” move at HUI=369 got many people, myself included, I’m apprehensive about calling a bottom. Indeed, I’ve been fully invested in PMs and determined to ride out the rest of this correction. There is a cluster of fibonacci retracement levels and moving averages in the 320’s. Since the HUI is nowhere near oversold, it needs to get over those levels to show this rally has legs.

This is not investment advice, all usual disclaimers apply.