3/3/2006 newsletter (Feb Performance)
*** Portfolio
Feb ended flat. My portfolio is up less than 1%, lagging slightly behind SP500, Russel Midcap, and Smallcap. Selloff on energy stocks contributed most downside. Exchange stocks contributed to the upside. Is energy story finished like the housing industry 6 months ago. There are evidences of that, but the performance has not been widely deteriorating. It is hard to call it. On the other side, exchange sector and investment banking sector are prospering quite well. Trading/Hedging, Merger/Spinoff will become the norm of corporate life.
*** Market
I thought Feb will be correcting. But SP500 still has quite a momentum. It is very hard to predict the market. This is why I am not doing it. I am practicing a skill called "piggy-backing". I will explain it later if you do not know what it means. Google exhibited large volatility which makes major indexes unstable. I think a major investor has bailed out this week. Google is making people uncomfortable. It is saying it will run the company as a 100 billion company. What? Google is "already" a 100 billion company. If it is running "like" a 100 billion company for the next few years. Its stock will make no gain at all. Am I missing something here?
*** Comment
http://en.wikipedia.org/wiki/Piggyback
Now piggy-back? From our upbringing, we were taught smart students do not piggy-back. You study on your own and read and think independently. We think piggy-back is only for those uneducated people. Now I am telling you a good approach of investment is to piggy-back? Is this a loser's game or what?
It turns out the difference is that, business process is an active process, while investment process is a passive one. You need a different metality to approach them.
Piggy-back means you mimic something. If that something prospers, you prosper. If it suffers, you suffer. Speculation is a form of piggy-back, you piggy-back on a hot trend, hoping the rising tide will carry you higher. You do not have to spend much effort to carry your own weight. But I am not telling you to speculate. I am telling you is to piggy-back on a major index. That is you make sure your investment correlates well with a major index. You do not want to be out of step with the major index too much. Hopefully, when you are out of step, you are moving better than the index.
Piggy-backing does not requires whole lot of "skills", but requires a lot of "faith". You may need some "skills" to pick stocks (if you think those skills worth something), but how much skill does it need to buy SP500 index? This is why Benjamin Graham talked about the temperament of investors is more important than his "investment skills". Even you applied your "skills" and bought a stock and prepare to hold it for 2-5 years. What can you do after you bought it? There is a similarity to religion. In the Bible, we are told to rely on God. Not by our own strength. But His mighty power. Not relying on our own righteousness. But trust what has been accomplished by Jesus. When you ponder to trust God / Jesus, you must have asked, How do I know God will do well ? (Since I am not relying on myself) How do I know God's strength is sufficient? Is Jesus effort enough to save me? Don't I need to do something to compliment God? You will ask the same questions in the investment process.
When you buy a stock, you entrust your money to the management team of the company. Since you do not know those few people can be trusted, it is better off to buy an index or mimic an index (by diversification to a group of stocks). When you buy an index, you trust the group of the companies "as a whole" will do well. When you buy SP500, you trust Corporate America will do well. When you buy MSCI World index, you trust the free economy of the world will do well. Will they? Nobody knows. But if history is a proof, they did, and they probably will continue to do so. On the other hand, if the whole world suffers, well, it is okay you lose a few bucks. You are not worse than other people. And there are enough choices out there to keep you busy selecting even in the index world if you still want to be an active investor.
This type of piggy-back turns out to be one of the most successful investment strategy a layman can have. If your experience can prove otherwise, God bless you. If not, you need to think about it more seriously...
Steve
Feb ended flat. My portfolio is up less than 1%, lagging slightly behind SP500, Russel Midcap, and Smallcap. Selloff on energy stocks contributed most downside. Exchange stocks contributed to the upside. Is energy story finished like the housing industry 6 months ago. There are evidences of that, but the performance has not been widely deteriorating. It is hard to call it. On the other side, exchange sector and investment banking sector are prospering quite well. Trading/Hedging, Merger/Spinoff will become the norm of corporate life.
*** Market
I thought Feb will be correcting. But SP500 still has quite a momentum. It is very hard to predict the market. This is why I am not doing it. I am practicing a skill called "piggy-backing". I will explain it later if you do not know what it means. Google exhibited large volatility which makes major indexes unstable. I think a major investor has bailed out this week. Google is making people uncomfortable. It is saying it will run the company as a 100 billion company. What? Google is "already" a 100 billion company. If it is running "like" a 100 billion company for the next few years. Its stock will make no gain at all. Am I missing something here?
*** Comment
http://en.wikipedia.org/wiki/Piggyback
Now piggy-back? From our upbringing, we were taught smart students do not piggy-back. You study on your own and read and think independently. We think piggy-back is only for those uneducated people. Now I am telling you a good approach of investment is to piggy-back? Is this a loser's game or what?
It turns out the difference is that, business process is an active process, while investment process is a passive one. You need a different metality to approach them.
Piggy-back means you mimic something. If that something prospers, you prosper. If it suffers, you suffer. Speculation is a form of piggy-back, you piggy-back on a hot trend, hoping the rising tide will carry you higher. You do not have to spend much effort to carry your own weight. But I am not telling you to speculate. I am telling you is to piggy-back on a major index. That is you make sure your investment correlates well with a major index. You do not want to be out of step with the major index too much. Hopefully, when you are out of step, you are moving better than the index.
Piggy-backing does not requires whole lot of "skills", but requires a lot of "faith". You may need some "skills" to pick stocks (if you think those skills worth something), but how much skill does it need to buy SP500 index? This is why Benjamin Graham talked about the temperament of investors is more important than his "investment skills". Even you applied your "skills" and bought a stock and prepare to hold it for 2-5 years. What can you do after you bought it? There is a similarity to religion. In the Bible, we are told to rely on God. Not by our own strength. But His mighty power. Not relying on our own righteousness. But trust what has been accomplished by Jesus. When you ponder to trust God / Jesus, you must have asked, How do I know God will do well ? (Since I am not relying on myself) How do I know God's strength is sufficient? Is Jesus effort enough to save me? Don't I need to do something to compliment God? You will ask the same questions in the investment process.
When you buy a stock, you entrust your money to the management team of the company. Since you do not know those few people can be trusted, it is better off to buy an index or mimic an index (by diversification to a group of stocks). When you buy an index, you trust the group of the companies "as a whole" will do well. When you buy SP500, you trust Corporate America will do well. When you buy MSCI World index, you trust the free economy of the world will do well. Will they? Nobody knows. But if history is a proof, they did, and they probably will continue to do so. On the other hand, if the whole world suffers, well, it is okay you lose a few bucks. You are not worse than other people. And there are enough choices out there to keep you busy selecting even in the index world if you still want to be an active investor.
This type of piggy-back turns out to be one of the most successful investment strategy a layman can have. If your experience can prove otherwise, God bless you. If not, you need to think about it more seriously...
Steve
posted by Steve at 6:30 PM
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