It’s been a while! School’s kept me busy and unfortunately unable to update my portfolio blog, so I thought I would do all that in this post. Having ended last August with my portfolio deep in the red, I managed to singlehandedly erase the NFLX crash that essentially halved my position by riding the AAPL train. The 25% total return from AAPL was supplemented by the 17% total return from NCT plus about $400 in dividends accrued over a year. This purely opportunistic portfolio has returned me to my starting stack. After a year of monitoring my portfolio, I can truly appreciate how turbulent last summer’s equity markets were: the 5% up/down swings of the Dow on a daily basis were seldom replicated, and the major indices have made healthy gains since then.
I have changed as an investor as well. While my buy decisions used to be justified by predominantly fundamental indicators, I have begun to appreciate the power of technical indicators after reading more about them online. While I agree that past prices have limited ability to predict future price movement, I am also convinced that there are definite recurrent patterns of price movement which can be used to predict momentum in price changes. I did some back-testing of many of the technical analysis strategies with NFLX, and found that even simple indicators such as moving average lines should have sent out serious warning signals weeks before the tumble. While I still plan to use fundamentals to evaluate potential buys, I will definitely be using technical indicators to help me decide entry/exit points and for me to better interpret price movement with respect to market news.
There will again be no lack of interesting market news this summer as François Hollande’s ascendancy to the French presidency will again shake up the Eurozone, and it will be interesting to observe how Hollande’s stress on growth inducing measures is received by Merkel’s austerity-driven approach. Their collaboration will be crucial to how the Eurozone crisis will evolve over the summer and beyond. The upcoming Facebook IPO on May 18th will also be a hot-button issue as investors scramble to determine a legitimate valuation for a giant social network that has exciting potential and complex problems in its balance sheet and financial statements. I will again be looking to diversify my portfolio: AAPL prices have been stagnating and won’t be making a major move in the near future, and I’ll be looking to cash in my AAPL returns and initiate new positions in some high-dividend REITs and the like. I hope that my performance will be much better this time around.
Today the major indices surged due to relief from Hurricane Irene’s less-than-expected damages and a merger of Greece’s two largest banks. My portfolio saw the biggest rally in about a month, with a gain of about 3.5% today, outperforming the three major equity indices. Some of the more prominent market news immediately relevant to my portfolio include Steve Jobs stepping down as Apple’s CEO, which understandably created a lot of buzz. From an investor’s point of view this is really not a surprise, as his retirement was widely expected and had been priced in to AAPL shares a long time ago. I still firmly believe that AAPL, now led by Tim Cook, will continue its excellence in product innovation and look forward to their future product updates and releases. NCT (Newcastle Investment Corp) is also rallying back to its resistance level of around $6, which is great. The fact that UBS and Deutsche Bank recently priced $1.4 billion to securitize a basket of commercial real estate, while not immediate relevant to NCT, is nevertheless a good sign that REITs are back in business.
I’ve got pretty much all of my cash tied up at the moment, which is obviously a bad idea because a good investor should always aim to keep some portion of the portfolio liquid. But I thought this would be a good way to limit my focus on the markets and have more time to concentrate on schoolwork. I fully intend to follow the markets and each of my stocks on a daily basis, but there probably won’t be any significant transactions unless something drastic happens. As I’ve known and seen for myself, my portfolio is extremely volatile so things shouldn’t been too drab in the year ahead. I am now truly going long for the long haul now, and eagerly await how my portfolio turns out by year-end.
School’s about to start in a couple of days and I’m planning to set aside time each day for market research. I’m first looking to create a calendar of important earnings release dates and economic data publication. The rest of the time would be spent reading tons of books and articles so I can get a better idea of what kind of finance career (analyst? trader? salesperson?) appeals to me the most.
I’m reluctantly saying goodbye to Beautiful British Columbia on this slow Tuesday afternoon. I’m about to head to the airport in a few hours, and I feel a strange sense of destiny.
The summer before freshman year was all about the excitement: looking forward to the first year of college, going away from home for the first time… Now I’m at a critical juncture in my life where I must decide to either pursue my premed studies or look into a career in financial services. I met up with a fellow Vancouverite Yalie for lunch the other day to discuss my predicament. He’s a rising senior heading to a full-time gig at Morgan Stanley after graduation, and I learned a great deal about how it’s like to work as an analyst. It’s surprisingly not much different from medical school: it’s a ton of work, a sheer test of your physical endurance, and extremely competitive. I suddenly realized that I have a workable background to gun for an internship at an investment bank, and I am seriously contemplating going for it. It will definitely give me a better idea of what I really want to do in life.
At the same time, I feel like I’m being stretched way too thin by my conflicting interests right now. My schedule next year includes Intermediate Microeconomics (econ major, Yale doesn’t have a finance major and macroeconomics courses are the closest thing there is to getting background knowledge to work in the finance industry), Genetics (bio major), and physics (premed), along with a physics lab and French language course. Hopefully my portfolio won’t distract me too much from my studies.
Oh yea, I came across a great book when I went to the bookstore yesterday (Yea I go to bookstores to read because I’m too cheap to buy the overpriced hardcovers). It’s “Investing and the Irrational Mind” by Robert Koppel. I finished about a third of it in the bookstore and it’s a great read. It made very good (and some personally haunting) points about the role of emotion in investing. It really made me reflect more on my investing behavior during the past two months and place them in a neuroeconomic context. One of the great points that Koppel makes is that a common trait among all successful traders and investors is the incredible discipline they possess. It’s something I need to continue to work on.
Yep, I did it again. I bought some more stocks today. So I told you about how all my gains in NFLX evaporated in a matter of days last week, and today I bought some more at $246 apiece, making NFLX stock the biggest portion of my portfolio. If you look at their monthly trends going back to a year ago, it’s pretty obvious that there’s been a steady monthly uptick and dip cycle. It’s so predictable and regular that it’s scary. These fluctuations are natural manifestations of the buying and selling that’s taking place, but what’s unmistakable is the steady upward trend in the stock price over time. Sure, the recent dip is slightly steeper than the previous dips, but that’s due to the recent hysteria about their subscription price hike and the overall negative economic outlook. It’s understandable. But after having some productive conversations with my investor buddy and doing some more digging myself, I was convinced that the current price is a genuine discount.
A word about the ups and downs in the stock market last week. It’s been a helluva rollercoaster ride, with plenty of motion sickness to go with it, as I observed the Dow plunge and rally by half a thousand points on a daily basis. It’s not every day that a novice investor gets exposure to this kind of historic volatility. I’m glad I went through it, because it allowed me to really feel (through the losses in my portfolio) what rampant fear and panic in the market can produce. I am now much better at tempering my emotions, and I’m happy to announce that my mood swings are no longer synced with the Dow. My longterm strategy remains stridently bullish, and my only regret is that I wasn’t able to make more bargain buys like NFLX today. I almost bought SBUX a few days ago when it plunged to $33 a share, but couldn’t find the courage to do it with the major indices poised to fall even more. Even with my conviction that the sell-off was temporary and that the economy was nowhere near what the indices indicated it to be, I couldn’t find the sang-froid to scoop up the “bargain.” Sure, I’m kicking myself now, seeing that SBUX has rallied back to $38 and its trading range has returned to its 50-day. I know many people made a fortune making bullish bets at the nadir of the 08-09 crisis, and I thought that was an easy way to make money. I just had to wait for another such opportunity and scoop up the discounts. When I was presented with that opportunity a few days ago, I finally realized how hard it is to pull the buy trigger amid a massive sell-off.
It was a spectacle, seeing red everywhere this past week in the biggest round of panic selloffs in the market since the 08-09 crash. No doubt memories of the recent recession are still fresh in investors’ minds as signs of another economic slowdown emerge.
My portfolio took a huge tumble, and today’s dismal NCT quarterly report caused the stock to plunge further. A lot of the losses, to be honest, were because I wasn’t stingy on some buys. Another huge chunk of losses are due to the uncertainty surrounding NFLX and their pricing adjustments. My friend makes a good case for why this makes NFLX a good bargain amid investor confusion but there’s no doubt that its run to $300+ was a little premature, but its tumble is by the same token also not very justified.
These panic selloffs are the times when a long-term investor must be strong psychologically, especially if there’s evidence that the chances of a full-blown recession is quite low and many stock prices are severely discounted at the moment. But it’s hard to salivate at stocks on your radar (like SBUX) that have finally dropped to a reasonable price when your portfolio is plunging. One thing I can gather from today’s volatile market trend, though, is that there is widespread disagreement among investors about what the recent downturn really means. Some are fireselling and betting on another recession, while others remain convinced that the economy can be fixed. Most seem convinced that a QE measure by the European Central Bank will be an effective way to relieve the debt crisis in Europe, as the markets rose significantly after speculation that the ECB may buy Italian and Spanish bonds.
Now that I look at the market beginning from the Greek debt news from mid-June, I can fully appreciate how the US developments with the debt ceiling and the stagnating economy created only marginal fluctuations in the market. Truth is, US economy is actually very stable compared to the European economy, whose collective size is similar to that of the US. Europe is in much deeper trouble at the moment, and how that situation gets resolved will determine the market outlook for the immediate future.
Also got some interesting insight from a friend who is a purely technical forex trader. Assuming that the markets are efficient and then following trends sounds a lot easier than dissecting fundamentals, and it’s definitely something I wanna learn a lot more about. Technical analysis can prove a very useful supplement to my buying/selling decisions.
Getting a good glimpse of just how much pressure portfolio managers are under every day as they play with a million times more money than me.
It’s good to be home. I’ve been out and about a lot lately and haven’t been following the market as closely, but it doesn’t take much to sum up the market behavior for the past few days: getting more and more jittery with each day of stagnation in debt talks. However, it’s not really the debt talks that are the biggest threat to cause a downturn, since most are expecting a raise (short-term or long-term) in the debt ceiling. It’s an official downgrade of the US sovereign debt by a major ratings agency such as Moody’s or Standard and Poor’s that will cause investors to lose confidence in the US economy.
As a long term investor, it’s definitely not fun when you realize that market trends are going to be pretty much decided by these ratings agencies that have a terrible track record, so bad, in fact, that they’re being sued over their role in the financial crisis in ’08-’09. Their business has become less about giving accurate assessments of funds/debts than about profit. These big-name rating agencies have an uncanny ability to get things wrong on a very consistent basis: Japan’s debt rating was downgraded to a level close to that of Botswana at one point in 2000, and their firm positive rating of toxic real estate assets in 2008 caused many investors to lose fortunes in the housing bubble. If people realize the obvious fallibility of ratings agencies, why do they still react so sharply to their downgrade threats? The fact is the word of these agencies will absolve the investors’ decisions if things go wrong: buying “AAA assets” that go bust is clearly a betrayal by the market and not a fallacy on the part of the investor. Now I’m not saying that the American economy is robust and the ratings agencies’ downgrade threats are totally unfounded, but the fact is their actions have proven to be consistently misleading and destructive.
I have friends who are buzzing to make a profit from the looming “downturn” by shorting equities, which I think is a great strategy in the short term. If a downgrade occurs, I will see it as an opportunity to find many stocks that will become severely undervalued and go on a spending spree.
By the way, my comrade in investing has started a blog of his own. Check it out.