4/29/2006 newsletter (April performance)

*** Market
Ben Bernake reaffirmed Wall Street that the pause of interest rate hike is near. SP500 responded favorably, mostly in the hard beaten bank stocks. You may have heard that Microsoft revealed soft outlook and got beaten down 10% to the lowest level in 2 years. Intel CEO also told Wall Street Intel will have "broad restructuring". He put, not one stone will not be touched; and it would be too narrow to think the restructuring is just eliminating jobs. Wall Street welcomed this move.

However, the last week of April is somewhat negative to my portfolio. Several stocks are sold off more than 10%, even 20% in a single day. Some are due to bad news (lower than expected). Some are just profit taking. Sometimes Wall Street tends to be very homogeneous. All the institutions received the same reports from a few analysts, and decided to sell at the same time. This often caused extreme short-term volatility and scared people off. Although to Graham folks, the moodiness of Mr Market is to be taken advantage of. In my opinion, if you can't, at least you need to be able to sit still and do not be disturbed by it. If you need to sell, do not even look back after the order is executed. Otherwise, you will not be able to gain any edge over Wall Street... That is, you are worse than Mr Market.

*** Portfolio
That being said, I am still sitting on those beaten stocks after a lousy week. My portfolio finished April at $13.49. Fractionally higher than a month ago. This is about +14% YTD, compared to SP500's +6% YTD. I am about +8% ahead (ie, I losed 2% edge this week).

If you ever pay attention, you will also notice that oil stocks have a subtle weakness these days. Many oil stocks are not able to surpass the highs established last September, even though the commodity, crude oil, made new high. This is called "divergence" in technical term. A sign of overheated market cooling down. I am expecting some selling among these stocks in the next few months (not yet for now).

--Steve

4/22/2006 newsletter

*** Market
The market is bullish this week due to FED loosing its stance on further interest rate increase. However, commodities (oil, gold, copper) continue their march to new highs, boosted by the potentially weaker dollar if interest rate ceases to increase (of which Buffett has betted). This dented the rally in the stock market. Nevertheless, DJIA has reached the highest level once marked the peak of dot com bubble in March 2000 (when I moved to NJ). This is an emotional moment for many investors.

Google (I do not own) marched back to its high of $450. But it is funny on Friday, its 10% gain did not help Nasdaq 100 at all. Nasdaq ended down 1%. The weakness of tech stocks is unbelievable. CME reached $500. It appears that CME wants to be the king (highest per-share price) of the market (excluding Berkshire and a few odd stocks). What an ego!

*** Portfolio
My portfolio reached $13.8 (+38% since 12/2004). that is about +17% YTD. SP500 is about 6% YTD. The 10% gain over SP500 in 5 months seems to come too easy. I am cautious. But the yield of my portfolio does not deviate too much from my simulation...

*** Comment
US is in a dilemma. Meeting with Chinese PM did not yield any positive result to US, especially on the revaluation of Yuan. China got so used to piggybacking US dollar and enjoyed the inflow of hot money. It is hard to ask her to stand on herself in the world market. But US no longer has the strength to subsidize China anymore. US has also relied on China's appetite on Treasury to sustain the bond bubble. Now you got the flat yield curve and FED wants Treasury to turn bearish. One reporter said jokingly, it is like a co-dependent marriage with 30 children that has gone bad. What are you going to do?

Since Yuan is seriously undervalued, it is an investment loophole to invest in China. It is good for investors. However, the inflationary economy is bad for the common people. I feel bad about the massive Chinese workers who can not benefit from their strong economy and the should-be strong currency. The same scenario can also play out if Bush continues to inflate the economy and allow the twin deficits to balloon. I want to remind you that stock market is a better inflationary hedge than bond and cash (since it has a pricing power fix income does not have). But it is dangerous to invest in stock market without a good value proposition. Therefore, an inflationary environment is particularly risky to common people.

Steve

04/08/2006 newsletter

Portfolio: $13.4 +34% since 12/1/2004 and +14% YTD.
SP500: +12% since 12/1/2004 and +4% YTD.
Mid/Small cap: ~20-24% ~8-14%

Update on Samual. He is now having two theraphy sessions each week. He made quite some progress these days. He is now able to stand up and cruise along the edge of sofa or bed. So we are still hopeful he will be able to walk by late summer. We are much relaxed after witnessing his progress over time.

Last week I made a move to register the "Stephen Lihn Partnership" from IRS although I am not sure who would be interested in investing with me. If you are interested, you can take a look at my website http://www.ecoin.net/slp/ . I will personally move about $70K into the account and it will need at least $200K to make a portfolio according to my model. Let me know if you are interested. I will not be compensated until 6/31/2007. That is I will give you a free ride for a year in exchange for your risk to invest with me. Is that fair :-) My overall risk bearing will be much higher than yours for many years since I have more than $250K invested accordingly, which amounts to a very high percentage of all my liquid asset. I hope this does not convey a message of riskyness, but rather confidence.

Now, weekly update. A fun thing happened in my portfolio. You know I own CME. But I did not tell you I also own another exchange ICE, which is a startup exchange trading energy future. Its IPO is detrimental to the still-private NYMEX. ICE is all electronic, in contrary to NYMEX, which is open-outcry and is struggling to go electronic. This week after ICE is flying high, NYMEX finally bowed down to the competition and made alliance with CME's advanced global electronic platform. This move crashed ICE's lead and made it a head-on competitor of the formidable CME. For CME, this enlarged its market place with very little investment, which CME desperately needs due to its high valuation. The result is ICE dropped 27% in a week, and CME advanced 10%. Since I have much more stake in CME than ICE, it is an overall gain for my portfolio. But I am not selling ICE as some may fear ICE would be worthless since it will eventually be crashed to null by CME. ICE is more than 25% owned by Morgan Stanley, majorly owned by Total, BP, Fidelity. It will not go under easily unless something terribly wrong.

This is a vivid story of Buffett principle -- always be aware of the dominant market leader (the moat). In a lot of cases, the leading company has such a market dynamics on its side, that there is no way a secondary company can compete. The other morale is that the market scope can change suddenly when the alliance reshuffles. Once the scope is changed, the leader changes accordingly. ICE was a market leader in energy trading if you compare ICE with NYMEX. But when NYMEX makes alliance with CME, the scope changed and CME is the leader compared to ICE and NYMEX. This type of reshuffling can be quite dramatic after merger, spinoff, asset exchange, and all the new games played on Wall Street.

Steve