11/26 newsletter

*** Market
SP500 is advancing quickly to new high amid positive sentiment for the holidays. November gain is easy money... My portfolio has reached +20% with 4 more trading days to go. I have checked several eminent fund manager's reports. None of them are on the sell side. In fact, Southeastern just purchased full load of stocks in exchange of all its cash (DELL is one, guess who is buying when it was down 25%?). However, it is not accepting new investors, this also indicates the market is not hugely undervalued.

*** Comment
I have completed a new screen to track world markets. Instead of tracking mainly in US market, I am now able to track almost any vibrant stock market in the world -- although buying stocks in these markets is another difficult task to overcome. The quest here is that, according to modern portfolio theory, a part of the portfolio should be diversified into other developed countries as well as emerging markets, I guess, in case US market does not work such as in the 70's.

My other reasoning is from Buffett's hint. That is -- a good management in a good economy can grow very satisfactorily. On the other hand, even a smart management can not outpace the constraint of a difficult economy. (Skillful housewife can not cook without rice?) Therefore, my derivation is to find the vibrant economies, then apply my stochastic method, which should give me strong stocks in these markets. The chance of yielding satisfactory result should improve further.

Of course, there is a caveat (just like anything else in stock market). I.e. whether the "vibrant" economy is only a more violent market. Or it is a materially growing market. Sometimes, the two can not be differentiated until the bear market comes (then it is too late). Mathematically speaking, if the volatility is too high, it can not be compensated enough by the perceived high return. The total effect can still be a losing game. Something to take heed.

--Steve

11/20 newsletter

*** Market
SP500 reached 3-year high this week. Several large mergers made market sentiment very positive. SBC swallowed AT&T, Verizon took over MCI. GE sold its re-insurance business to concentrate on its high profit margin stuff. Cisco bought Scientific Atlanta in an attempt to enter cable business. Google pushed above $400. You can kind of see where the IT industry is going. (I once owned Scientific Atlanta at its very bottom in 2002, but I did not make much money over it. It was my pity.)

*** My Portfolio
My portfolio is at +16% (since 12/1/2004) vs SP500 at +6%. It again has the 10% lead. The stochastic method is more robust than I would imagine. With energy and real estate under bearish attack, the whole portfolio still managed to mimic the market (instead of lagging behind) plus the small stochastic edge built into it. When a sector of stocks is pushed down, another sector of stocks took over the lead. The diversification works out nicely.

--Steve

11/13 newsletter

*** Market
Several major indexes are standing around the 3-year high level, preparing a breakthrough. I think the chance of moving up is much higher than moving down. Many corporates announced share buyback in the past two weeks. Insiders are clearly on the buy side. This should not be confused with a bubble high when most insiders are on the sell side (the public is on the buy side). With that contrarian operation, you probably will read a lot of negative reports about the market.

My portfolio is at +14.7% (since 12/1/2004), half point below the high established on 9/31. I have 2 weeks to go to finish my yearly benchmark (substract ~2.3% to get the YTD yield). SP500 is turning stronger than mid-cap and small-cap. It will be hard to beat it by 10%. November and December is the so-called window dressing time for Wall Street. Fund managers are eager to push up their holdings for year-end benchmark. It is like the last few seconds of a year-long race. Check your portfolio to see if it is doing fine...

--Steve

http://bible.gospelcom.net/passage/?book_id=47&chapter=25&version=31
PS. Pastor Chen gave a wonderful sermon on the Parable of Talents (we also did it in our Bible Study). There is one point that most people made wrong interpretation (including me and our fellowship). That is whether The Lord is a very mean capitalist. The truth rests in the scale of One Talent. One Talent at that time is about 10-year of a common person's wage. This is not a small sum. For a someone to give you that much amount of money to manage, you should be grateful of his trust, not grumbling about him giving another person 20/50-year of wage, etc. And why is the third servant called lazy? Because he did the least effort to manage the money -- he dig a hole and hid the money. How hard is it to dig a hole? Yet the other two servants managed to generate profit with businesses. Running business takes a lot of effort and risk, same as taking on a mission... And out of a gracious heart they did this to their Lord because they knew how much their Lord entrusted them.

What if the ventures failed (instead of doubling the money)? Will they still get a "well-done" from their Lord? This really depends on whether their Lord is a mean capitalist or a gracious King of Universe!

11/05 newsletter

*** Market
On Tuesday, FED bumpped up the interest another quater point to 4%. Interestingly however, SP500 did not drop, but rose 1% for the week. Can you figure out the implication? Did you know already that a Princeton professor Bernanke will succeed Greenspan? He is believed to be more mild (meaning easier to predict) than Greenspan. Who knows? Anything predictable is useless on Wall Street...

You may read some news that analysts are turning negative on the outlook. The reason is simple, 4%-6% CD yields better than SP500 YTD. Why invest in stock for all the risk and diminishing return? Go back to your bank account! But remember, print it in your heart (David Swensen mentioned this in his book) that stocks and stock market are norm-averse. It is typical that the market frustrates most people... That's what it is supposed to do for a zero-sum game.

Merck won the second Vioxx law suit. That makes Dow's life easier. But it remains to be seen if MRK can stand above $30. MRK's PE ratio is at a depressing 10... Hey, value investors!!!

--Steve

11/01 monthly performance

*** Portfolio
SP500 is down 2.5% in October. Small-cap is down a bit more, 4%. In the absolute scale, this does not seem a lot. But if you compare this to the miniature YTD return, this is a lot (that is 100% volatility)... My portfolio is also down about 4%, and yield +11.4% since 12-01-2004. I have one stock being knocked down 40%. Other than that, they have been holding up well, although many of them hit 25% stop, a level detrimental to short term traders.

*** Model
French and Fama Factor Model: [231 days, 2004-12-01]
Blend       Value    Growth
SPY 2.47
MDY 8.65
QQQQ -1.59
IWB 3.98 IWD  4.68 IWF  2.93
IWR 9.92 IWS 10.74 IWP  7.98
IWM 0.92 IWN  1.48 IWO -0.41