Tag Archives: stocks and bonds

Investing – To Hold or Follow the Crowd?

The last few months had been a huge roller coaster ride when it comes to investing in stock markets. The increase in Covid-19 infection rate together with the economic conditions have such profound effect on the stock market that making a profit is a hit or miss.

Investing in stock market has its own inherent risk. One one hand you can earn some great money if you made the right choice. On another hand you can easily lose everything if you made the wrong choice.

If you follow my earlier posts, my investment strategy is a mix. I have a diversified portfolio to reduce the risk of losing all my investment. Besides investing in well known stable companies, I also invest in bonds and stocks. I only invest less than 30% of my assets in volatile stocks.

Here is what I noticed on my portfolio for the last 2 months. The stable companies such as Microsoft or Apple continue to do well. Stocks that pay dividends are also stable and had very little volatility. In fact I did not lose any values on these stocks, bonds and ETFs.

On the other hand, the stocks that go up and down the most are those that do not fall into any of the categories I noted above. Stocks such as meme stocks or those that do not pay dividends. Some of the stocks that I own are Pinterests, Snapchat and pharmaceutical companies. These stocks continue to lose value as more investors continue to buy and sell at higher volume. In total, my portfolio for this portion of the stocks did not do as well as I hope.

Luckily I diversified my portfolio that the risk for it to lose is minimal. In fact, I learned that by holding onto the stable stocks, I continue to make capital gain on them. Unfortunately, some of the value was negated by the volatile stocks.

Here is what I learned since I started investing actively. Sometimes it is safer and more profitable if you just invest in stable stocks and hold them forever. The value of these stocks continue to increase while stocks that are being bought and sold tend to lose value at a higher rate.

If you are interested in investing stock market, I highly recommend that you do some research on the stock market and the companies that you plan to invest in. Do diversify your portfolio to minimize the risks and finally if you want to “follow the crowd” do put only a small percentage of your portfolio on risky stocks.

Stocks Buyer / Seller Remorse

A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri – RC2HAJ9BI6XP

If you have been following the stock market, it has been swinging wildly from one end to another end. All of us who are in stock investing obviously want to make money by buying low and sell high. However, for the past several weeks it has been a lot more difficult. Looking at my portfolio, most of my stocks (particularly in the equity) are on the negative side.

The question that I am trying to answer today is when do you actually buy or sell the stocks. It is very difficult to predict what the market would do consider because of my factors. Even though some of the businesses are doing well, their stocks are not. While some stocks continue to do well even the market condition says otherwise.

If you follow my blog, I put a majority of my investment in safe stocks such as Microsoft and Apple. The other holdings that I have are ETFs which are relatively safe. One third of the rest of my assets are in stocks that swing wildly; these are the stocks that I am willing to buy and sell and these are the stocks that I plan to make most money from.

The past several weeks have been difficult because majority of the stocks that I plan to sell are being depressed. Not only I am not making the money, if I sell them today I would incur some loss. What strategy should we use when it comes to these holdings?

There were a few times when I realized that some stocks I bought went up enough to make enough profit. Immediately after I sold the stock, the stock continue to climb. Conversely, there were some stocks went up to a level that I thought it was worth to buy. Instead, those stocks continue to come down to a level that I’ve ever seen before. Is that what we call buying / selling remorse? All I know is I feel like kicking myself on the behind.

I don’t think there is one way to deal with the fluctuations. Some would argue that you need to study the company, understand its market share and consider its prospect. Unfortunately, not all of us have the time to really study each indices. Even if you spent those time studying them there are not always spot on. One good example is the NIO, the electric auto company from China. For the past several years NIO was a good buy because of its prospect. Its stock price went up as high as $63. The first quarter of 2021 showed increased sales and that’s good news. Instead of expecting the stock price to climb up it continues to drop.

The strategy that I continue to follow is quite simple: Hold. The portfolio that I have continue to include companies that are more stable. Some companies such as those in the pharmacy are not as stable but they make up a small percentage of my holdings. The risks of my portfolio are considered low. My only option is to continue to hold these holdings and hope they will go up.

I would love to hear your strategy when it comes to dealing such uncertain market conditions.

Should Stock Speculation be Reigned In?

In the past week there were a few anomalies in the stock market. Beside the “normal” increase in stock prices for a number of stocks after the inauguration of President Biden, there were a number of stocks shot up in prices that are out of the norm and shouldn’t have happened.

The 2 stocks that particular interesting are GameStop (ticker: GME) and AMC Entertainment (ticker: AMC). GameStop stock price shot up by almost 700% in a week time while AMC Entertainment went up by 430%.

GameStop stock price in a week
AMC Entertainment stock price in a week

I’m not here to trying to understand or find out the cause of the price increase. If I have to guess, there is a lot of speculating of the stocks and through social media they are a lot more buyers jump on the band wagon and start trading these 2 stocks. There were a lot of short sellers that artificially increased the stock price beyond their value.

There is nothing wrong for any stock price to go up or down. However, if we dig further on GameStop, it is bleeding badly since the beginning of the pandemic. On top of closing 300 stores permanently it is impossible for the company to be valued at its current price. A year ago GME stock price dropped to $2.57. As of today, it went all the way to $380.

The stock price of AMC Entertainment is also the same. The lowest price of its stock dropped to less than $2 and it went all they way to $20. AMC is especially hit hard by the pandemic as more and more people skip the theater and stay at home. It is unlikely we will see AMC to increase its business anytime soon. The company even warns that it may run out of cash early this year.

The problem with these two anomalies is because of a lot of speculation of investors who are gaming the market. There is nothing wrong in making money off the market, but there should be a limit. That’s where the regulators come in. There are many controls in place set by the regulators to ensure the market is viable and not being abused. All the licensed brokers and companies have surveillance in place to prevent abuse. The trading apps such as RobinHood and Trading212 are uncharted territories for the regulators.

These anomalies will definitely raise a lot of red flags with the US regulators. I can assure you that there will be a lot of investigations in the upcoming weeks and there will be regulation in place by the end of the year to prevent this from happening again.

When I told my son that it is wrong to speculate. He asked me a good question. How are the GameStop and AMC different from Tesla? Tesla is trading at its highest and that made Elon Musk the richest person in the worth. If you dig further in the balance sheet of Tesla, it has yet to make money and consider its stock price compare to its valuation, Tesla stock is way overpriced.

I guess the question is should the regulators reigned in investors from speculating on stocks? If yes, at what threshold without stifling the market? I work in Internal Audit function of one of the largest bank in the world and this will be interesting to see in the few months. And how the market will react if the regulators start clamping down on such behavior.

All I can say now is as always the stock prices for these two stocks will right themselves up according to the market. In other words, their prices will drop according to their value. If you bought these 2 stocks, I recommend that you sell them before you start losing money.

It is unfortunate that a few bad apples take advantage of the market and hurt the rests of us who are honest investors. Let me know what you think?

Investment Priority (Part 2)

Grow Your Money

“Investment” is an umbrella term of giving your hard earned money to someone else in hope of multiplying the value after a set period of time. Investment includes many options. The question is what should you invest in?

As a disclaimer, I’m not an expert in financial markets and I’m not a Certified Financial Planner (CFP). The message that I’m conveying today is based on what I learned over the years and based on some of the research that I’ve done. Investing comes with risks and there is no guarantee that a positive return can be gained from investment.

The first investment vehicle that I was exposed to was 401k retirement plan from Arthur Andersen. As I started to pay for my taxes, I learned about Individual Retirement Account (IRA). Over time I was exposed to stocks and bonds. There were others such as Foreign Exchange, Options etc. The amount of investment vehicles that are available are mind boggling. How do we expect regular people like us to understand what they are and what they do.

The purpose of this blog is not to cover all investment vehicles but to highlight the minimum types of investments that everyone should invest in. Additionally, my goal is to clear up some of the confusions that many young people have when they were first exposed to investing their money. In the sea of investing options, which boat should you take that will bring you to your dream sunset? The bigger question is which boat will not sink because you put too much weight on it and which one will stay afloat.

I still remember the first day of working at Arthur Andersen. I was given the employee handbook along with employee benefits. One thing stood out was 401k retirement plan that Arthur Andersen was offering. The company was providing matching contribution up to 6% and the contribution was vested immediately. Two terms stood out, “matching contribution” and “vested immediately”. I had no clue what they meant but they peaked my interest. Upon further research, I realized that I can save for my retirement without lifting a finger and I was getting free money from the company. Additionally, the amount that I invested in the plan was immediately put into the market and start growing.

I thought that by investing 401k retirement plan that I would have enough to retire when I reach 65. Unbeknownst to me that 401k will only generate a very small portion the retirement income; I will need supplement income to enable me to retire comfortably. We live in the greatest age of financial markets where there were many before us thought of this question. In the past century many economists came up with all scenarios and many experts in this field came up with all kinds of solutions. The end results are new investment options were created. The government recognized this and several acts were enacted to assist retirees when they retire.

I began to dig a little deeper to find out what are other investment vehicles that will fulfill my retirement needs. I realized that investing is not only based on the types of investments but should also be based on age and risk tolerance. For example, if you are in your 30’s your risk tolerance will be higher then people who are in their 50’s. You would be willing to invest in stocks which carry higher risk of volatility than in bonds. Higher risk such as stocks usually generate higher return than bonds.

There is no magic numbers when it comes to what are the best combinations when it comes to investing. There are so many books and articles written on this subject. Some investors would prefer to invest heavily in stocks while some would prefer bonds. While some would invest everything in 401k only. And there are others who would risk everything in high return/high risk investment.

I started to deal with this question only when the economy collapsed during the housing bubble of 2008. I saw my 401k retirement plan dropped half of its value. I saw the stocks options that I received from my company at that time, Citigroup, dropped from $54 to $1. That was the worst time of my life and I realized that I may have to continue to work even when I retire.

To minimize the risks of losing money and to ensure stable return, I found out that I need to mix my investing strategies. I’m not 100% there yet because I continue to prioritize my personal finance. However, I do suggest that you prioritize your investment as follows:

  1. Invest in tax deferred qualified 401k retirement plan – Most companies today no longer offer pension plans because they are costly to companies to invest and maintain. However, most large companies offer 401k retirement plan. If you are working for a company that offer 401k retirement plan and also offer matching contribution, you should invest at the minimum to obtain the contribution from the company. They are considered “fringe benefits” because they are considered below the line expense item in the company’s balance sheet. This benefit is hidden from employee compensation package. If the employees don’t use it the company will just take it away. If possible, budget permitting, try to invest the maximum allowed by the IRS.
  2. Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement.  You will need to open an account and buy “shares” of the Roth IRA. The difference between Roth IRA and traditional IRA is you have to pay taxes when it is invested. You don’t have to pay taxes when it is time for retirement. Roth IRA and IRA are no offered by the companies that you work for. This type of investment can only be purchased through banks and investment companies. There are certain conditions that must be met for anyone to qualify under IRS rule.
  3. Traditional IRA is the next best thing. It is very similar to Roth IRA but the only difference is you will have to pay taxes when retirement comes and you have to sell it. The amount of tax depends on the amount of value of the IRA and the tax bracket when it is your retirement age. It could go both ways. There is a likely chance that the tax could be in your favor or you will be stuck with a high tax bill. Traditional IRA is available for everyone but not Roth IRA.
  4. The Exchange-Traded Funds (ETF) is also considered index funds, is basically a collection of a list of company stocks. It is also very similar to Mutual Funds but there are some fundamental differences. ETFs can be traded in the open market and most if not all ETFs pay quarterly dividend, which is a passive income. The major difference between ETFs and equity stock is the risk is lesser. The likelihood of ETF’s value drop to $0 is minimal while individual stocks could be easily wiped out depend on market condition.
  5. Company stocks which is also called equities is a lot riskier than bonds. The return generated from stocks are usually higher than bonds but they come with inherent risk of volatility. The movement of stocks depend on market conditions. However, history of stocks have been showing a lot more ups and downs. There are stocks that pay dividends on a quarterly basis while there are some stocks don’t. This is where I find investing in stocks appealing. I consider investing in stock to legalized gambling. You have to pick the right hands to win or you could lose all.
  6. My preference to stocks over bonds is because of their higher return. I would consider bonds to be a longer term investment. If you are still young, you may want to invest a small percentage in bond to ensure that you have a diversified portfolio. The bond will continue to grow and hopefully by the time you retire there is a large sum of money waiting for you. As you close to retirement, you would move a larger percentage into bonds to minimize the volatility of stock market.

There are other investment vehicles that I would not be discussing here as this will require a lot more than a blog. The recommendation that I proposed above should be considered closely by all because it is a start for a better future. The market condition today is ripe for the taking and history suggests that it will continue to go up. So don’t wait and start investing. You may ask where to come up with the money to start investing. Subscribe to my blog because this will be my next subject: how to save enough to begin investing?

Learn to Avoid the Biggest Mistake of My Life – Start Investing (Part 1)

There are certain things in life that you know you should have done but didn’t. When you realized that you made the mistake (or in this case not correcting it) it was too late because the time had passed and the ship had sailed.

Before you jumped into any conclusion, I’m not referring to something that I did and I regretted my decision. In this case I am referring to something that I didn’t do and now I regret it. I’m alluding to investing early for retirement and I’m hoping that anyone who reads this post and heed my advice and start investing.

I realized I made this mistake about 5 years ago when I noticed that I hardly earn any interest from all the money I saved in my savings. In fact, I have a large sum saved in the Preferred Money Market Account, which is supposed to pay higher interest than the regular savings. If I recall of the $50 K that I have in the account I earned less than $150 in interest. That got me thinking if I made the fatal mistake by putting everything in savings.

After I started working full-time I always put the money that I don’t use in savings. This is something that we learned at a very early age that we save all our money in bank using savings account. For the next 20 years working I continue to put all my money in the same account and it felt good seeing the balance keep adding up.

And was I wrong… I realized soon enough that I have been giving my money to the bank for use (that’s what bank does – it takes the money that lend it out or reinvest it) and I was not getting my fair share. Granted that this is not the only bank’s fault but also the economy itself. Banks will only pay the interest rate based on what the Federal Reserve Bank dictate. In turn the banks will use the government’s rate and unilaterally pay a much lower interest rate to the customers. I’m not an expert in this field so I won’t attempt to explain any further.

For the last several years I’ve been doing some reading and researching during my free time (like almost never). I read several articles on how many young people in their mid-30s become millionaires. In each articles they mention only one thing, “investing”.

For the purpose of this post, investing refers to buying stocks or bonds in the financial markets. I’m not referring to investing for retirement such as 401K or IRA because it is a very different subject. Investing comes with certain risks because the market can be volatile. You could invest $10 thousand today and you could lost all of them tomorrow.

I am currently reading a book titled “Quit Like a Millionaire” by Kristy Shen and Bryce Leung. The book talks about how to become a millionaire by investing smartly and find loopholes in the system. They are able to make their first million and quit their job. Using the income they earn from their investment they are able to travel the world 365 days a year.

Obviously I do not see myself quitting my job and just focus on investment. There is an inherent risk in this idea. Additionally, I have a family that I need to take care so quitting my job is out of the question. My short-term goal is to be able to earn passive income by investing in stock market. Ultimately I want to be able to retire comfortably without worrying if I am every able to pay my electricity bill.

As a declaration, I am not a financial planner nor a stockbroker. I am not in the position to give any investment advise. It is better to leave this to the professionals. In this post and subsequent post, I want to highlight several things I learned that I believe will be beneficial to anyone who wants a better financial outcome other than what Social Security can provide us.

Invest Early

Investing in stock market 5 or 10 years ago was reserved for the rich only. Anyone who wanted to invest in the stock market would need to have a large sum of money saved and would willing to pay a high commission to stockbrokers. The incentives to invest our hard earned money were not there.

Today is very different. New ideas and technology are popping up everywhere. That give rise to business model that allow regular people to invest in stock mark for free. The app that I use is Robinhood. Buy and sell stocks are easy and commission free. Hence, there is no reason not to invest. Obviously, before buying any stocks please do your homework and ensure you are not investing in risky stock.

Each stock have metrics and numbers to assist buyers in make the necessary determination. For someone who is new in stocks, I would highly recommend that you invest in reputable companies such as Microsoft, Apple or Disney. Keep in mind that while some companies are reputable, they may not do well in the market. For example, Macy, JC Penney and GE are some of the companies that you should stay way from. Keeping abreast of current news will help.

Next post I will touch on what to invest and what it means by diversification. Subscribe to my blog so you don’t miss any of my post. If you are interested in this subject I highly recommend that you Google it or do a deeper research.