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Wednesday, July 18, 2007
Bears Roam The Street Today
Seems like the bears finally won a round. DJIA’s down about 100 points currently. I’ve gone ahead and sold my stake in Goldman Sachs. Financials are extremely volatile at the moment. I’m hoping [[GS]] will drop around $200/share and re-enter once things in the financial sector have stabilized. With the recently selling of [[HAL]] as well, I’ve managed to open up a few positions in my portfolio. Over the next week I’ll explain my theories on the new participants to my portfolio.
New to my portfolio today:
XTO Energy [[XTO]]
Gamestop [[GME]]
Titanium Metals [[TIE]]
I’ve also added to my position with [[LVLT]]. A drop of 2.3% always makes for a great buy-in.
Bear Stearns Mess
In case you haven’t heard, the two hedge funds Bear Stearns was attempting to revive are completely worthless. BSC is reporting returns from those two hedge funds to be approximately 10 cents to the dollar. A 90% loss will make anyone unhappy. From the Associated Press:
Both funds were squeezed after Bear Stearns made wrong-way bets on the home mortgage market and was caught as loans to risky investors began to default. The assets in one of the funds are essentially worthless, while another is worth 9 percent of its value at the end of April, according to a document obtained by The Associated Press.
They gambled… and lost… big. 90% of their investments wiped out. From Kudlow and Company on CNBC this afternoon, they reported that lawsuits may be pending as a result of the hedge fund mess at BSC. What really disturbs me is how the other large financials, GS, LEH, MS to name a few, are being brought down with them (I’m currently long with GS). Although my cost basis with GS is around $220, my position’s still being hammered. It’s probably going to be a good time to cut my losses and run to something a bit more profitable, such as oil or tech (although I own shares of LVLT, a speculative tech stock). My short list for my revamped portfolio’s going to be reworked a bit. It’s amazing how the stock market can declare an entire box of goods damaged when only one of the items inside is broken.
Tuesday, July 17, 2007
Congrats DJIA!
CNBC Alert: Dow Jones Industrial Average Briefly Crosses 14,000 for First Time in Intraday Trading
Debt and Investing
I’ve seen a lot of questions on a website I frequent, Stockpickr.com, regarding debt and investing. I need to point something out. Unless it’s debt such as a mortgage or a student loan, there is no reason why you should use spare cash to invest in the stock market instead of paying down debt. It doesn’t make sense mathematically unless somehow you’re the next Warren Buffett or George Soros. Let’s take an example of why it’s silly to invest in the stock market instead of paying off credit card debt:
Blogger A has $1,000 in credit card debt at a rate of 15%. Blogger A also has $1,000 in excess income. Blogger A feels that investing in the market while paying the minimum on his credit card is worthwhile, since he sees so many folks hitting it big with the market. Assuming Blogger A, his first time investing ever, can make a 10% return on his investments (S&P500 average in the past):
From Bankrate.com’s Credit Card Calculator:
$1,000 starting balance @ 15% interest while paying the minimum amount: It will take you 147 months to be rid of your debt. In that time, you will pay $911.56 in interest.
Assuming that same $1,000 investing returns a daily compounded 10% rate of return, the future value of that investment will result in a future value of $1,105.16, a difference of $900.
Moral of the story: Pay your debts first before you invest. You’re saving much more money in the long run than attempting to beat the market and win big. And for the love of everything that can make you money, don’t ever draw equity from your home in order to invest. Your home is the heart and soul of your family. There’s no need to risk it. If you’re seriously interested in investing, create a budget or find a second job.