The market has seemed bulletproof in the last 4 months, rising over 30%. I believe the time to get out is now. It is best to take the large stock gains now then risk losing them in the immediate future. While the market has gone straight up, there are a multitude of problems that could give the market a heavy dose of reality.
1. The European Debt Crisis
Contrary to what has been said on the news, the problem has not been resolved. While the Greek "haircut" is a temporary solution, other Europe heavyweights such as Italy and Ireland pose much bigger problems. There will be no easy solution to this problem. It may take the market down in 5 weeks or it may take the market down in 5 years, all we know is that there is no way out of the inevitable collapse of the EuroZone.
2. Israel vs Iran
There is no easy way around this as well. Iran is close to gaining the capability to create a nuclear warhead. Once this capability is reached, Israel will take it out, escalating a massive conflict in the middle east. While the United States is reluctant to get into any war, the threat of a presidential election in November will be enough to cause the US to enter the war if Israel attacks Iran. This will not be good for oil prices or the stock market
3. Earnings Season is Upon Us
Most corporations will be reporting earnings in the next few weeks, and the early sentiment is that it will not meet expectations. The S&P hovering above 1400 has created lofty expectations for corporations, and it remains to be seen if they can meet them.
Stay tuned, early this year I predicted a late March, early April stock market collapse. We will see if that prediction comes to fruition in the next 4 weeks.
Monday, March 19, 2012
Thursday, January 26, 2012
The Importance of Early Retirement Savings
Saving for retirement is like eating spinach. Everyone knows they should be eating it but people do not like to do it. Here I will talk about the benefits of saving for retirement, especially at a young age.
First take a look at this graphic (the amount that would be saved by age 60):
This table has a lot of important information.
First, regardless of the yearly return, the earlier a person starts to save for retirement the more money they end up with. There is nothing like the power of compounding interest.
Second, the difference between saving $1,000 and $5,000 a year is huge. It is inexcusable to save less than $2,000 a year because there is a retirement savings credit for that amount if a person has a low income.
Third, the difference between a 5% and 10% annual return is staggering. For a person saving $5,000 a year from the age of 25, a 5% return would yield $451,602 by the age of 60 while a 10% return would yield $1,355,122 by age 60. That is almost a $900,000 difference.
It is not unreasonable to assume a 10% return. Over the last 100 years, small caps have averaged around 15% a year while the stock market as a whole has held around 10% a year. Even a somewhat conservative allocation including bonds could still yield 10% over the long run. For people under 25, the difference between 0 and 1.4 million for retirement is as little as $5,000 a year.
There are 3 main ways to save for retirement, each with its own advantages.
1. The ROTH IRA
It is universally accepted that this is the better of the two types of IRA. The basis of the Roth is that income will be taxed when it is entered into the account but not when it is withdrawn. This means that the 1.4 million dollars as discussed above would be tax-free. This type of account is best served for people who save their favorites food for last. It makes sense to eat your carrots first because you know you've got some delicious chocolate chip cookies waiting for you. The Roth IRA is the delicious chocolate chip cookie.
2. The Traditional IRA
The benefits of the traditional IRA is the tax benefits immediately. People below certain AGI limits can deduct up to $5,000 on their tax return. On the downside, this money then has to be taxed when it is withdrawn.
3. The 401(k)
ALWAYS ALWAYS ALWAYS put money into the 401(k) first up to the amount the employer matches. If your employer matches half of the first $3,000 put into the account, you have earned a free $1,500. There are no sure things in investing except for the employer 401(k) match. Take advantage of it if you can!
I hope this helps with the retirement dilemma.
Remember, $5,000 a year, retire without fear
First take a look at this graphic (the amount that would be saved by age 60):
First, regardless of the yearly return, the earlier a person starts to save for retirement the more money they end up with. There is nothing like the power of compounding interest.
Second, the difference between saving $1,000 and $5,000 a year is huge. It is inexcusable to save less than $2,000 a year because there is a retirement savings credit for that amount if a person has a low income.
Third, the difference between a 5% and 10% annual return is staggering. For a person saving $5,000 a year from the age of 25, a 5% return would yield $451,602 by the age of 60 while a 10% return would yield $1,355,122 by age 60. That is almost a $900,000 difference.
It is not unreasonable to assume a 10% return. Over the last 100 years, small caps have averaged around 15% a year while the stock market as a whole has held around 10% a year. Even a somewhat conservative allocation including bonds could still yield 10% over the long run. For people under 25, the difference between 0 and 1.4 million for retirement is as little as $5,000 a year.
There are 3 main ways to save for retirement, each with its own advantages.
1. The ROTH IRA
It is universally accepted that this is the better of the two types of IRA. The basis of the Roth is that income will be taxed when it is entered into the account but not when it is withdrawn. This means that the 1.4 million dollars as discussed above would be tax-free. This type of account is best served for people who save their favorites food for last. It makes sense to eat your carrots first because you know you've got some delicious chocolate chip cookies waiting for you. The Roth IRA is the delicious chocolate chip cookie.
2. The Traditional IRA
3. The 401(k)
ALWAYS ALWAYS ALWAYS put money into the 401(k) first up to the amount the employer matches. If your employer matches half of the first $3,000 put into the account, you have earned a free $1,500. There are no sure things in investing except for the employer 401(k) match. Take advantage of it if you can!
I hope this helps with the retirement dilemma.
Remember, $5,000 a year, retire without fear
Thursday, January 19, 2012
What is Going On?
The stock market has been up in 12 of the last 14 days with no real good news to justify the move. The S&P is above 1300 for the first time since July and the market appears overbought to me.
We have a crisis in Europe brewing that will start to unravel in the next couple months.
As much as I would like to start selling stocks now, I have a strong inclination to wait a couple more weeks. With the S&P running into little technical resistance, it is unclear how high the market will go before Europe takes it down again.
I am willing to take my chances for a couple more weeks.
I am predicting the stock market will crash in late March or early April as investors come to grips with reality once Europe's first quarter GDP numbers are released. I think the S&P will start a drop that will bottom between 1050 and 1100.
The only thing that can prevent this from happening is Barack Obama and Ben Bernanke. With this being an election year, the White House will be on a short lease with any market dips. I think QE3 will take effect at the first sign of trouble.
This puts everyone in a terrible quandary. This should be a perfect time to sell and buy later at a more opportune time. However, with the threat of QE3 lingering over us, it is possible the market could go continue its unsustainable trend and approach 1500 in the coming months.
A speculative play would be to buy gold now when it is still reasonably priced because gold will go up if QE3 is announced and implemented.
Time will tell if Europe will blow up and Bernanke will implement QE3, but now is the time to be overly cautious as we enter into this critical juncture.
Sunday, December 18, 2011
My Stock Wish List
With the holiday season right around the corner, I thought I would take some time to state my stock wish list for 2012. This is the entire list of stocks on my watch list and the price that I would start looking to buy (in no particular order).
I will go over why each of these companies are on my list. Remember to make your own decisions and to do your own research before investing in a company.
Sodastream International (SODA) Target $30
Always buy into a company when you believe in their product. I believe that Sodastream may revolutionize the soda business. They are a high margin company that sells a product that allows consumers to make their own carbonated beverages. I was skeptical at first, but once you buy their product and their drinks, they're addictive. Major retailers like Target and Best Buy just started to carry this product. Revenues should start to increase exponentially in the future. Since the company went public a year ago, they have had 4 consecutive earning hits. This company continues to surpass investor expectations.
This stock is not for the faint of heart. Currently trading at $30.92, this stock was trading at $70 three months ago. This is typical of stocks coming off of an IPO, but if you do decide to buy, be forwarned. At under $30, I will be buying this stock and I think it has the potential to be trading at $100+ in the next couple of years.
Enbridge Energy Partners (EEP) Target $28
This stock is only a viable investment in a Roth IRA. This company is a Master Limited Partnership and is subject to confusing and time consuming tax rules. No tax needs to be paid if in a Roth IRA however. This company is a very safe energy stock that has a dividend around 7%. As I have said in the past, I feel energy (along with technology) will be great plays for the next 10+ years. This stock has consistently paid a large dividend for almost 20 years, and it doesn't look like it will stop anytime soon. I have a target price of $28, and it is currently trading at $30.95. In addition to the 7% dividend, I believe this stock could appreciate in price another 8-10% a year, making this a good long term investment.
Halliburton Company (HAL) Target $30
Many companies are expected to benefit from rising oil prices, and Halliburton is one of them. The company has got rocked the past four months, peaking at $57 and now trading at only $31.76. I believe this stock is extremely oversold. They have a very small PEG of .39, and this company is expected to grow substantially going into the future. This is a company that specializes in oil drilling and exploration. I do not see how the stock price can go any lower, but there is a good possibility it will be trading much higher this time next year.
Intel Corporation (INTC) Target $21
Most people know about Intel and their products. There are three reasons why Intel is poised to dominate in the next five years. 1. They are still the semiconductor industry leader. 2. They are trusted in the IT industry. 3. They have large gross margins. Like most technology stocks, Intel has stayed relatively flat over the last decade. However, they now yield a nice 3.6% dividend and a P/E of just 10. If Intel can keep growing at over 10% a year, there is no way the price can go any lower.
This is a stock that I consider a substitute to Cisco Systems. Along with ExxonMobil, Cisco Systems is one of the most privately owned stock in the USA. I think now is the time to get out of Cisco and to get into Intel. This is the reason Intel is on my watch list. Currently trading at a price of $23.03, Intel has a ways to go before it falls into my strike range. However, this stock has a beta that is greater than 1, and if the market goes down, this stock will fall with it, even if it is not warranted.
Vodafone Group (VOD) Target $25
This is a very interesting stock and is one I would buy immediately if it reaches my strike price. Vodafone is the world's largest wireless phone company with a dominant hold on most of Europe. They also own 45% of Verizon Wireless. Vodafone "officially" pays a 5.5% dividend each year, but they pays a special dividend on top of that. When you consider the special dividend, Vodafone yielded a whopping 11% this year. With Verizon promising to pay big dividends in the future, I do not see this changing. They are currently trading at $27.17, but the stock price has been increasingly volatile as of late. I see Vodafone dipping below $25 very soon and I will ready to pounce when it does.
Procter & Gamble (PG) Target $60
This has been one of the safest and consistent performing stocks during the past 20 years. It is always important to diversify your portfolio, and mine is currently heavy on Technology and Energy. Procter & Gamble is a great way to dip into the consumer goods section. While this stock does not offer a ton of upside, it does pay a 3.2% dividend and will not go down very much if the market crashes again. I could see them trading in the mid 70's in a couple of years, and with limited downside risk, that is not too bad in today's trading environment.
Corning Incorporated (GLW) Target $12.50
Corning is another company I am giddy about. They have dropped in price dramatically during the last couple months because of an earnings miss. However, I see them rebounding very nicely. They are one of the world leaders in glassware, and own over 60% of the LCD screen market. They also make screens for phones and household glass products. With the stock currently trading at $13.08, I expect it to bounce into the 17's very soon. My only hope is that the stock can drop below my strike price before it does that.
Transocean LTD (RIG) Target $40
I am aware that this stock is currently trading at $39.83 which is below my target price. However, I believe this stock may still go lower, which is why I am holding off on buying it for now. This is a wild stock that was trading at $80 four months ago and $160 four years ago. This company was partially responsible for BP's oil rig problem in the Gulf, but I think the stock has been oversold as a result of it. Transocean pays an 8% dividend. There are many negatives going on with the company right now which is why I have not bought yet. First, they just issued a lot of new stock, which is depressing the stock price. Second, they posted negative earnings last year as they had to spend a lot of money cleaning up the Macando Rig spill. However, this company is too strong and good at what they do to not bounce back. Despite everything that has happened, I will buy them when the price is right. If the S&P drops down into the 1150 range, RIG's price will be so low that it will be a surefire buy.
Exelixis, Inc (EXEL) Target $4
This is by all accounts a flier pick. This is a bio-tech company, and anyone who follows bio-techs know they are hit or miss. This is an extremely volatile company, and can have 300% upswings in the course of two weeks or it can lose 80% of its value in two weeks. They try and create drugs to help treat and cure cancer but the approval process is long and difficult. I am willing to take a risk with this company because they seem to have some promising products in the pipeline, but even I know this is just like playing slots at a casino. It could turn out either way. This stock is currently trading at $4.16.
Whirlpool Corp (WHR) Target $45
This is another company that I think has got the short end of the stick. Whirlpool's stock price has dropped 50% in the last six months and I think it is due a rebound. They pay a 4.3% dividend and they are the market leader in may products. Whirlpool is very much linked to the housing market and is dependent on consumers to have money to spend on luxury products. I think the next decade will be very good for stocks and with a beta of 1.89, Whirlpool is sure to shoot straight up like the best of them.
There it is, the stocks on my watch list. As you can see I like stocks that I feel are undervalued but still may be on the downswing. This is why I am very cautious about when I buy because I do not want to try and catch a falling knife. I hope you enjoyed this list and gave you some inspiration for your own investing ideas.
I will go over why each of these companies are on my list. Remember to make your own decisions and to do your own research before investing in a company.
Sodastream International (SODA) Target $30
This stock is not for the faint of heart. Currently trading at $30.92, this stock was trading at $70 three months ago. This is typical of stocks coming off of an IPO, but if you do decide to buy, be forwarned. At under $30, I will be buying this stock and I think it has the potential to be trading at $100+ in the next couple of years.
Enbridge Energy Partners (EEP) Target $28
Halliburton Company (HAL) Target $30
Intel Corporation (INTC) Target $21
This is a stock that I consider a substitute to Cisco Systems. Along with ExxonMobil, Cisco Systems is one of the most privately owned stock in the USA. I think now is the time to get out of Cisco and to get into Intel. This is the reason Intel is on my watch list. Currently trading at a price of $23.03, Intel has a ways to go before it falls into my strike range. However, this stock has a beta that is greater than 1, and if the market goes down, this stock will fall with it, even if it is not warranted.
Vodafone Group (VOD) Target $25
Procter & Gamble (PG) Target $60
Corning Incorporated (GLW) Target $12.50
Transocean LTD (RIG) Target $40
Exelixis, Inc (EXEL) Target $4
Whirlpool Corp (WHR) Target $45
There it is, the stocks on my watch list. As you can see I like stocks that I feel are undervalued but still may be on the downswing. This is why I am very cautious about when I buy because I do not want to try and catch a falling knife. I hope you enjoyed this list and gave you some inspiration for your own investing ideas.
Sunday, December 11, 2011
Life Lesson #2: Walking
1. When walking on a sidewalk or on a like pavement, always walk on the right side. I do not know how many times I have been walking on the correct side only to see someone coming right at me. I should not have to move to the left side of the sidewalk. This should be second nature to almost everyone, but it needs to be stated as it is an issue.
2. When walking through a split-door, always enter through the right door. If I am walking into a building, I don't want some chumbalone coming out the door I am trying to come in. It is not that hard to just go through the right door. An exception can be given if the right door is a handicapped door that is harder to open, but only is no one is trying to come out the other doors.
3. When walking in groups on a sidewalk, it is the group's responsibility to clear a path for people coming the other way. The last thing I want to see is an inconsiderate group of people forcing me to walk on the grass instead of moving to their side of the sidewalk.
4. When someone is walking slow in front of you, that person should let you pass in front of them. For whatever reason, people will sometimes start to swerve in front of you when you try and pass them. They also might try to speed up as well, making you awkwardly walk next to them for even longer. Rule of thumb, if your not fast enough to walk with the big boys, then move to the side and let them pass.
5. When walking in a space with intersecting hallways, it is common to run into people who do not know walking etiquette. For example, if I am walking on the right side of a hallway and turn right onto the right side of a perpendicular hallway, there is a good chance there will be someone there and I will run into them. First of all, the person walking on the left side of the hallway is making the mistake, and it is their fault that they ran into me. This happens way to often, and causes me to think that if people walk so poorly, how can they possibly be driving any better?
 |
| WHAT ARE WE IN ENGLAND?? These kids are being taught to walk on the wrong side of the street |
That is all for now, but rest assured, more life lessons will be coming in the future.
Wednesday, November 16, 2011
Investing in Energy
First, the world needs energy, and as countries like China and India become more industrialized, the world is going to need a lot of energy and fast. There is no better way to play this than to buy oil companies. Oil already sells for $100 a barrel, and will soon sell for much higher.
Another sneaky play right now is in oil rigs. Because of what happened to the Macando well in the Gulf, investors have been avoiding these stocks with the plague, but with little reason. These companies are undervalued and can pay dividends in upwards of 6 to 8%. I am talking about Transocean (RIG) and Seadrill (SDRL). Both companies are indeed risky, but their upward potential is off the charts.
Disclosure: I own XOM
Thursday, November 10, 2011
An Idiots Guide to the Europe Debt Crisis
The news keeps being dominated by the European debt crisis, but very few people actually know what is going on. I will attempt to explain whats going on in Europe in a way that everyone can understand.
Let's start with the United States. In the US, we have the Federal Reserve, which saved us from complete financial collapse in 2008. The Federal Reserve is run by Ben Bernanke, who is going to be referred to as the US Financial Mob Boss from here on out. Since the US is one singular entity, our Financial Mob Boss was able to act swiftly in an effort to save us. Not so in Europe.
Europe has something similar to the Federal Reserve, but since there are many countries in the European Union, it takes to long to get everyone in agreement on a potential rescue package. This renders the European Financial Mob Boss useless. Since the US Mob Boss is the only way we survived the crisis, what is Europe going to do?
The problem is that European countries have been living way outside their means. Lets pretend that you are Greece, and you make $100,000 a year (good for you!). Unfortunately, this is not good for you because you spend $500,000 every year. To make up the $400,000 difference, you ask your neighbors to loan you money. You do this for 50 years. Eventually, the people will ask for their money back, but you are going to have to say "sorry, I don't have your money." This seems crazy that Greece could let this happen, but they did and it is now all of our problems.
Currently, Germany and France are in robust financial conditions, and are able to prevent Greece from defaulting based on their own bailouts to Greece. Germany is led by Angela Merkel, and France by Nicolas Sarkozy, and they are really the only two people who have the power to divert this crisis. A Greek default would send shock waves through the European system as people would doubt the monetary ability of the Euro. Greece is one of the smallest economy's in Europe, so the media made this out to be a bigger deal than it actually was.
A much bigger issue is Italy, which is the 3rd largest economy in Europe. Italy is too large to fail, but also too large to bail out. This has epic disaster written all over it. Let's pretend we are climbing up an icy mountain. France and Germany are the leaders, and are very experienced climbing mountains. Most of the EU countries aren't great climbers, but they can pull their own weight. When climbing a mountain, generally all the climbers are strapped together so if someone falls they don't automatically fall to their death. Everyone is strapped together, and Germany and France are leading the way up the mountain. Then there is Greece at the end. Greece is a small child, which is dangling at the end of the rope. The child is doing nothing to help climb up the mountain. While not ideal, this is okay, since Germany and France can easily keep climbing with the dead weight hanging at the end. Now let's add Italy at the end. Italy is a 1,500 pound sumo wrestler, who is currently pulling his weight climbing up the mountain. There will come a point in the near future that Italy will reach the point of no return, and just let go of their ice pick. Germany and France will instantly feel the weight, and will immediately dig their ice picks into the side of the mountain and hold on for dear life. Unfortunately, the weight of Italy is too strong, and the leaders lose their grip and everyone starts free falling down the mountain. There is no way to save them once this starts happening.
This is the dangerous path that we are on right now, and we need to do everything in our power to make sure that Italy does not take down all of Europe with it. The scary part here is there are no real solutions to this mess. 2012 is going to be a wild ride for investments. I think that the market might do well in the short term, but after the holidays, I could see the market going down like we have never seen before. If you have any gains at that time, it may be wise to sell and ride this coming crisis out.
 | |
| Ben Bernanke |
Europe has something similar to the Federal Reserve, but since there are many countries in the European Union, it takes to long to get everyone in agreement on a potential rescue package. This renders the European Financial Mob Boss useless. Since the US Mob Boss is the only way we survived the crisis, what is Europe going to do?
 |
| Merkel and Sarkozy |
A much bigger issue is Italy, which is the 3rd largest economy in Europe. Italy is too large to fail, but also too large to bail out. This has epic disaster written all over it. Let's pretend we are climbing up an icy mountain. France and Germany are the leaders, and are very experienced climbing mountains. Most of the EU countries aren't great climbers, but they can pull their own weight. When climbing a mountain, generally all the climbers are strapped together so if someone falls they don't automatically fall to their death. Everyone is strapped together, and Germany and France are leading the way up the mountain. Then there is Greece at the end. Greece is a small child, which is dangling at the end of the rope. The child is doing nothing to help climb up the mountain. While not ideal, this is okay, since Germany and France can easily keep climbing with the dead weight hanging at the end. Now let's add Italy at the end. Italy is a 1,500 pound sumo wrestler, who is currently pulling his weight climbing up the mountain. There will come a point in the near future that Italy will reach the point of no return, and just let go of their ice pick. Germany and France will instantly feel the weight, and will immediately dig their ice picks into the side of the mountain and hold on for dear life. Unfortunately, the weight of Italy is too strong, and the leaders lose their grip and everyone starts free falling down the mountain. There is no way to save them once this starts happening.
This is the dangerous path that we are on right now, and we need to do everything in our power to make sure that Italy does not take down all of Europe with it. The scary part here is there are no real solutions to this mess. 2012 is going to be a wild ride for investments. I think that the market might do well in the short term, but after the holidays, I could see the market going down like we have never seen before. If you have any gains at that time, it may be wise to sell and ride this coming crisis out.
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