Wednesday, February 02, 2011

January Lessons

So how is this for a New Year's resolution? Invest better. Better yet, look at your investments rather than just open a statement once a quarter. This is a time consuming pursuit, but one that could be very worthwhile. My portfolio has beat the S&P 2 years in a row now. Pretty impressive until I mention that I made 0 moves during that time frame. Perhaps that works out best... we shall see.

What is the easiest way for me to become interested in something? Why join a fantasy league of course. Yes they do have those. Unlike sports related leagues this only has one category: Return on Investment. I managed to eek out 6 basis points higher than the S&P during the first month. Impressive I know. One important note here is to say that this is 'fake' investing for the purpose of gaining knowledge. I have not make actual investments in any of the thing I will reference.

  • Emerging Market Valuations are highly suspect. Everyone for instance wants a piece of the Chinese market right now. Make sure that it is a credible analyst providing information. Several companies were stung by corruption and bad accounting in January. Their touting analysts were somewhat complicit. I am not saying that company is necessarily bad, just that some numbers may be way off. A good example of this would be RINO or CVVT that both got stung.
  • Valuations are based on available data. Using old data right before earnings reports come out puts you behind in the game.
  • Publicity does not guaranty that a stock will go up. Good news in the press does not always mean good news for your portfolio.
  • Ultra ETFs try to double or triple the return of a given index. Inverse ones do the same thing but bet the thing will go down. These can seem too good to be true. They can be useful, but take extreme caution.
  • Betting on earnings is a risky game. This goes back to the publicity thing as well. Just because they beat earnings does not mean that their future forecast is favorable.

So at this point you are probably laughing at these realizations, but there they are. Now what DID work for me?

  • Choosing companies with High Profit Margins and High Earnings per Share Growth. e.g. ISRG or FSLR or GLW
  • Related to that, I also chose items with High Profit Margins and Low PEG Ratios (PE Ratio / EPS Growth) eg. MU
  • Last, betting that Silver and Gold was overpriced and would go down. This was pure luck and have decided to stay out of that.

Hopefully February will be even better. Now for those of you wondering. I am not an investment professional. I have no personal stake in the stocks mentioned here in either real money or a fake portfolio at this time.