New Years Resolutions - 2008

I'm actually not one for New Year's resolution. I'm much more the type to just start something whenever the mood hits me rather than wait for a specific point in the year to take on a new challenge. However, since I have this blog up, I've decided that it would be good to lay out some financial resolutions for myself and see how it stacks up at the end of the year. So my financial goals for 2008:

1. Double my $20,000 - Obvious but worth mentioning.


2. Develop another source of Income - Right now I have two. I have my job and I have my investments. I really would like to have at least three if not four. It would be great if I could get this blog to make money. But if not that, I really want to at least come up with an idea on how to get my income to go up. I could probably save myself to being rich, but it will be a much easier journey to get there with another income.


3. Watch my basket more carefully - Warren Buffet advises that you put your eggs in one basket and then watch the basket very carefully. That is something I got away from in my investments this year with all the other things going on in my life. I need to be more choosy in picking stocks for my long-term portfolio, and watching that basket like crazy. I made a big mistake with ETrade, and should have gotten out much earlier. I paid the price for it.


4. Spend more money - OK. I know, this is usually the exact opposite of what most people try to do. Problem is, I'm not most people. I suffer from the exact opposite problem that most people do. I save way too much. I probably save about 60% of my net take home pay in one form or another.

That's it for now. They are actually pretty big goals. #4 may seem easy to some, but it has proven very difficult for me in the past. I even started a "spending" plan about two years ago, and it didn't work. I couldn't make it stick. Odd huh?

What are you New years resolutions?

Idiots Turn Trades into Investments

A while ago I took a position in some Natural Gas drillers.  Specifically Grey Wolf and Nabors.  I never really planned on owning them long term.  I just took positions because I thought I wanted a few different energy plays and so I branched out into an area I wasn't totally comfortable with (mistake #1).

I actually did OK on these at first, and saw some good gains.  As I was in this for a trade, I should have gotten out, but I didn't.  Soon after, the price of Natural gas spiked down and never recovered.  Since I didn't have a lot of money invested in either position, I didn't really worry about it.   I figured that it was OK and that it would eventually come back.  So I held.  Held like a chump.

I should have just gotten out of the position when it reversed.  I made a classic mistake that so many of us make; I let a trade become an investment.  I held on to the position WAY too long in the hopes that it would eventually come back.  Hope, it's the one case where it really isn't a very good thing to had.  I kept telling myself that energy was a great story and it would continue to be so (it is, but this wasn't the way I should have or wanted to play it).  I kept coming up with excuses to keep the stock.  But that was unnecessary.  It was a trade.  Trades don't have reasons, only investments do.

I finally got out of the positions this week.  I did it to take the capital loss and offset some capital gains I have but it should have never come to this.

Markets are Janet Reno Ugly

The market was down significantly today. The Dow was down almost 200 points and the Nasdaq was even worse than the Dow. There was a host of bad news that came down today from the assassination in Pakistan to Goldman coming out and downgrading a bunch of the financial stocks.

I'm not going to buy any stocks for the rest of the year. There is just no compelling reason to do it. Here is the problem. Everyone thinks that 2008 won't be a good year for stocks. And if you know anything about the market you know that expectations play a very big role in the short term. While sentiment is this way, people have not thrown their hands up and given up. The S&P is still up about 4% of the year. So you know that there is still a lot of people out there who are still bullish on the market.

But we are definitely trending down. To make matters worse, Christmas and New Years fall on Tuesdays meaning most are taking long weekends. This means few people making trades. Volume is very light right now. What that means is that there is not much liquidity in the market. Less liquidity means more volatility and more volatility means more risk. Best to not go long any new positions unless you are really sure about it for the rest of the year. I have to clear some losses out, so I hope the market doesn't tank before I can get out, but we will see.

Note:  Smart people can make lots of money when the market looks like this.  You can always make money whether the market is going up or down.  I'm just not that smart :)

Those Lattes Cost You $20,000

Here is a trick to prevent yourself from buying something you don't really need. Whenever I really

want something, I always think about just how much money it is actually going to cost me down the line.

The alternative to buying something is to not buy something and save the money. You then put the money

to work for you and suddenly that small purchase really starts to make a difference.

Take lattes for example. Say you buy a latte at $5 a pop everyday you go to work. Figure that there

are about 230 work days in the year and you see that lattes will cost you about $1150 a year. Now say

instead of buying those lattes, you save the money and at the end of the year put the money in an index

fund. After 30 years, assuming a 10% rate of return, that money turns into $20,000.

The Real Cost
Cost Today
Rate
Years
Amount

This is even more true for big ticket items or things that are reoccurring. That $3000 LCD flat

panel? That cost you $52,000. Want to buy a new car instead of just keeping your current one? That could

cost you almost $500,000. This is not to say that you should live like a miser and not buy anything. You

should of course enjoy your life; you just need to be aware how current consumption will affect your

future net worth. The latte example only considers one year. Imagine if you don't do it over 30 years. The numbers get staggering.

Want to try it out yourself? Just enter the cost of some item above, and it will

calculate what the real cost of that item is 30 years down the road. If you want to adjust the numbers

from the default, you can do that too.

Ivy League Schools are Affordable

Harvard announced today that it would ease the burden that Middle-class families would have to bear to send their kids to the second-best university on the planet.  I have always stated that Ivy League schools are actually more affordable than many other universities.  They just have a ton of money to help those who genuinely need it.

By the time I got to college, my family was relatively poor.  I came from a single family parent where my mom was making under 30K a year.  When choosing colleges, I did not let cost factor into the equation because I believed that a good education from the right school was worth it at almost any price.  What I discovered was that these schools had fantastic need-based financial aid.

I left Princeton (the best university in the world) with about $17,000 in debt (all of which is already paid off). If I had actually been about two years younger, I would have left with $0 in debt as Princeton has switched all it's need based financial aids to grants rather than loans.   The last two years I attended the university, my family paid $0 to the university.  I only paid  my fees to my eating club.

I actually talked to several people in my high school who did not apply to some of the better schools because they were not sure how they would afford a private school tuition.  I wish they had known how affordable it really can be.  So for all those of you who find this page and are wondering if you should apply my advice to you is this.  APPLY!  Worry about how you will get the money later.  The worse thing that could happen is that somehow you might not be able to afford and you won't go, but you will never know unless you try.

Gambling, Stocks, and Beating the Odds

I listen to a lot of sports talk radio. On the radio today was a sports bookie and he was talking about where the good places to bet would be in the coming months. Right now, there are a lot of things you can bet on like the NFL regular season, the College Bowl Season, and Basketball.

Something he said really interest me because it applies so well to picking stocks. He was telling people where they should put their money this bowl season and was telling people to look at some of the smaller college basketball games. His reasoning was that there were so many people focused on the NFL and College Bowl Games that there was just not enough coverage of some of these smaller college basketball games and that meant there was great value there.

When picking stocks, this is the sweet spot. I will admit, I've not been great in this space, but one thing you as a small investor can do to gain an advantage is to look at the smaller, less well known names. The big names like Google and Goldman Sachs are very well researched. The odds of you getting an edge over someone else is very small. However, if you concentrate on the stocks not covered as well, you can find some great value.

All I Want For Christmas ...

are a few great stocks. I've started my wish list where I will put all the stocks that I'm actually interested in buying. I might buy one out of ten stocks, but it will give you an idea of what I'm thinking. I'll update it regularly so check on it often. One of my goals this holiday was to figure out what stocks I was going to buy for this journey. Thus far, I haven't identified any, and have only listed some good long term plays. I'll continue to plow through some ideas that I have and hopefully come up with a good play for tomorrow or later this week.

Hope everyone is having a good holiday. If you want to get me a gift I really need some short term trade ideas.