Stock Market Gambling in 2009-My investment rules

This is my 2009 roundup for my stock portfolio. I made an 80% annualized return on my portfolio and in this post I plan to track what I did for the future references and updates.

In my opinion, Stock market ‘kicks’ you almost the same way tables games do in casinos. I always thought I had a better chance to win if I had lots of money to bet on a roulette table ( yes, I am talking about those people who stack-up the chips all over the table and win 36 times back on some) Strange, but I thought the same about Warren Buffett .

So to gamble, I started my stock portfolio in 2009. Thanks to the academic training, the financial numbers and data don’t make me dizzy. (I should also mention that my master’s thesis was to model Stock market behavior). I risked $ 2,000 when I started this portfolio in early Jan 09 and the idea was to learn to play the game in the US market. My first pick was Ford as I liked their new products line and the CEO. My second pick was Citibank as I thought at $5 Citi was grossly undervalued. Also, these stocks were really cheap and entry was easier with a 2K portfolio. I sold Citi at a 21% loss a month after and four months later sold Ford for a 132% gain.

My first two trades used only 60% of the 2K I had and they generated a profit of $ 821 and that was a 41% return- close enough to a roulette side bet. I have noticed one thing; CEOs make a difference. Obviously that was not a new learning but I developed an investment rule for later use. Read the CEO profile in Wiki or online and if the products don’t impress you, at least CEOs should.

I stayed low during the March/April market meltdown and saved up money for a comeback in July. I increased my cash stake to 6.5K in July and bought beaten down financial select sector ETF (XLF), Citibank, Discover Financial and CIT. Financial sector was really fragile hence generated a lot more fluctuation than the overall market. This was also an opportunity to make money and I thought I had some advantage as I understood the finance business better. The investments paid off and by Aug I had a cash return of 3.1K i.e. a 48% return on the 6.5K investment. I was more convinced with the strategy of investing in the businesses you understand better. One of my investments, CIT was deliberate as they had become penny stock fearing bankruptcy and I thought the government would rescue them with another bailout. However, bailout did not happen but the bondholders provided a lifeline to CIT and bailed me out in the process.

During these seven months, I learned how and where to look for information. I also got some idea how news translates in to price movements on specific stocks. Unless you have your own money, you never pay attention to such details. With all the encouragement I had from the trading returns, I increased my investment to 25K by September. As of end of December, I did 27 buy transactions and generated 7.3K profit or 30% return on 25K. Since I did not have 25K in the beginning of the year, annualized return on my investment stands at 80%. Please take a look at attached trading log to see my winners and mistakes.

Many of us know gambling games are designed to benefit the house in the long-term and it might be a Monte Carlo or since we are talking about stock market, it might be Goldman Sachs. Again in my opinion, gone are the days where stock market was a place for long term returns but focusing just on short term, we could make some money or at least have some fun of trading.

These are some rules I developed in the first year of my US stock market investments.
1. Do at least 1 buy and 1 sell transaction in 2 weeks and keep at least 50% of the funds invested. Opportunity to make higher profit increases with the number of trades.

2. Never invest more than 60% funds. This means you have 40% of your portfolio as cash. When the price of the share you bought unexpectedly goes down and you have reasons to believe that it’s going to recover, try to average the price using the cash in hand. (Wells Fargo, Dell & Citi in my portfolio).

3. Sell whenever the net return on a trade crosses 2%. Never hold beyond 5%. ( Nomura, Citi, Ford)

4. Watch the panic sales and price drop due to unexpected news or expected stock dilution or similar. Jump in when they start recovering. Companies with good fundamentals are the best bet (Nomura, Dell, Autodesk are some examples in my portfolio).

5. Sell when prices continue to go down and there is no reason for you to justify a wait. In other words, don’t think every stock recovers in the long-term. By waiting, you are just blocking the cash (Lloyd, Citibank in my portfolio)

6. Invest in the businesses you understand – Old Warren Buffet saying but this also means that you should learn about a business before you invest in it. Many a times, knowing the business helped me to discard the Wall Street analyst’s number games. (Nomura for example )

7. Read about CEOs; watch they talk.

Overall, my favorites are beaten down stocks because bulls pick them to ride on. New product launch or a better sales quarter can cause these companies prices go up. Also, remember to get rid of them the moment they cross 2% return mark as such bull runs are usually short-lived.

I do not diversify the stock holdings as I believe it does not let me maximize my returns. Also I am against holding more than 3 companies at a time as that would demand a lot of time in research and tracking. I also invest in the same companies over and over again as I already know the price support and resistance levels. Finally, I use fundamentals to make sure they don’t become penny stocks in next couple of years.


Day trading is not possible for people like me who work 8 hours a day and no access to online trading at work. I see there is lot of leverage you could do by margin trading or increasing the frequency of trades but my investment objective was to make a 10-15% on my cash savings. And all I have is lunchtime and an iPhone so average holding period for a stock was 3 weeks.


Talking about liveraging, I also have a small options trading portfolio. I will have those results published soon.

Here is the trading book to see the buy and sell trades.

Healthcare reforms -never ending discussions

I am juggling my thoughts around the healthcare reform proposal of Obama administration and the discussions it generated so far.




I doubt backing out on a Government run insurance plan was a compromise by Obama administration. There are several programs like Medicare, Medicaid, Children’s health insurance and Emergency Medical care that morphs into a some form of insurance. All these programs were opposed as ‘socialistic’ at the time of their introduction and were never endorsed by the so called ‘conservatives’. May be the new plan could have streamlined it, at the best.



I feel insurance companies are not to blame for this mess. Just like any others, they provide a valuable service and make a profit out of it. There are several players in this market to ensure that competitive prices are available to the insurance shoppers.



In a marketplace, consumers demand value for their money. If that holds true for healthcare, they should check the doctor’s fee, cost of the procedures and services and compare it with the quality before availing the services. This means if someone is paying higher cost for their healthcare, it’s because he/she enjoys a superior service. I don’t think the present system encourage the insured customers to do this evaluation. Cost of many of the procedures I looked at is shockingly high and probably well justifies the cost of insurance.



Billing fraud and excessive billing by healthcare providers also pushed the average cost of insurance high. Physicians are often encouraged to perform multiple procedures allowed under the insurance plan because they want to be protected from any legal suits in the future and also they earn for their employers.



I have some proposals !

• Subsidize the medical education; let’s not pressurize them into making money to pay off the half a million debt. I think its worth spending for the best of our talent which government could tap into later.


• Protect physicians from unnecessary law suits. In other words, if the physicians win the case, the one who sued them pay the cost. This should discourage 90% of the fake litigations. Also this will reduce malpractice insurance cost and combined with earlier point, may reduce the consultation fee they are charging.


• Make people more responsible: Individuals pay for the normal consultations, fitness checks and simple procedures. That way, they will be encouraged to shop for the best value service in their area.Insurance coverage should be a protection for expensive procedures or hospitalization. A range of policy packages should ensure that everybody is covered to the degree of what they are paying for.


• Government should set-up a chain of hospitals that are competitive with private run hospitals in terms of facilities. This will help in setting a standard for the cost of diagnostic procedures and other services. Also the government could administer all their current programs through these outlets.

I am sure almost all of these thoughts are debatable; but I just want to put my version down. Penny for your thoughts !

Distracted Driving

Today's New York Times article throws another stinker on Bush administration for not letting National Highway Safety association publish a study that statistically proves that talking on telephone while driving could cause a crash four times likely compared to a normal driver. And it is probably as bad as drunk and driving.

None need to tell us that talking while driving is distracting - let it be with hands free or without. Every time i watch a vehicle coming too close or abrupt lane changes i see a driver talking. There is nothing wrong in talking while driving but since it has proven that such a behaviour is threatening others lives, it should come into the category of drunk and driving.

The benefits to the business and convenience to the consumer are clear. However, most of the consumers don't mind a legislation to prevent talking on telephone while driving. So the telephone industry and electronic device manufactures lobby the law makers to prevent any such bills getting passed in the congress/state legislature. The smart phones these days generate more revenue by surfing Internet and downloading stuff from the net - not just the calls. A lot people make use of such devices to stay in touch or read while driving hence improving the margins for telecom companies.

I use a smart phone and a reasonably busy person. When i use the phone while driving ( of course with bluetooth on) i really know that i get too involved in talking and make mental pictures about what i talk. Some people say i am incapable of multi-tasking which i agree as there is nothing like multi-tasking. So i really hope to see a legislation to stop this bad habit of mine :)

Securitization - GE tries something different

Yesterday GE removed 2 million accounts from its securitized master trust to shore up its performance and the accounts were mainly from their private label credit card portfolio. Its a rare event for any such a business and it tells about the proactive steps GE is taking to ensure the funds flow in future.

GE private label credit card business, under GE Money brand, is a leading player with more than 60 billion in assets. The portfolio includes private label cards for JC Penney, Wal Mart, Gap, Lowes and a number of other retailers. Securitization was always a significant source for GE for funds but due to the nature of their portfolio ( Storecards have some subprime customers) , the delinquencies in their trust went up to 10.58% recently. It was still maintaining a spread of 8% to investors (Thanks to the 26% finance charges and other fees ) but seems GE is worried about the spread getting thinner and the investor confidence in those instruments.

GE tried to sell this portfolio in 2008 but due to financial crisis and probably aversion for sub prime portfolios, it could not find a buyer . Now GE says they are going to keep it so maintaining the confidence on their securitized instruments is very vital to their access to funds.

This news is particularly interesting as a credibility building exercise from a major corporation.

Toxic Waste

Dow is at 6627 today.A drop of 1600 points since the historic inauguration day of January 20th. At that time around everyone thought the financial crisis was factored in to stock prices but i think the market is not clear about the direction the Obama administration is taking to stabilize the financial crisis situation.

As per the TARP, the initial plan was to buy back the troubled assets ( alias toxic waste) and there by inject money to banking system to boost lending activity. Now they are not sure that's the best way. It seems they are thinking over two possibilities :

1. Buy all the toxic waste at a fair price and sell to private investors

2. Lend low interest money to private investors to help buy the toxic waste.

both these cases don't guarantees an increased lending by financial institutions. The only way to do that is to nationalize the banks temporarily to unlock the liquidity and stagnation .

Bernake's confessed before the congress that bailing out companies like AIG (so far 180 billion spent and counting ) was most painful as they behaved more like hedge funds. This pain is no spreading to major banks like Citi ( 50 billion spent and guaranteed 306 billion worth of assets) and Bank of America (45 billion spent and 118 billion guaranteed). These are soon would be zombie organizations Obama's administration should temporarily nationalise so that markets will get stabilized and then its easier to direct funds to priority sectors.

Temporary Nationalization says Greenspan

Allan Greenspan's admission that temporary Nationalization might be a way to fix the current crisis is in a way conceding that laissez faire was not the right approach to keep a healthy banking system. Greenspan was a strong advocate of the hand-off approach as he believed the corporations always acted in best interest of the shareholders and in a perfect market there is no place of wrongdoing without being monitored by interested parties.

It's quite frustrating that Obama government refuse to admit this, even after many respected economists like Krugman was a strongly advocating the same. Relating temporary nationalization to Socialism is silly and makes no economic sense. It seems Obama is trying to stay away from a 'socialist' brand by avoiding such tough decisions. His economics council probably knows what's required but protecting his political image takes the priority so far.

Stimulus Plan Miracle

Obama's stimulus plan is being debated in a rare Saturday Senate session, ahead of the crucial Monday vote. Optimism around the recovery plan was reflected in the Market on Friday itself where Dow was up more than 200 points despite the dismal January job loss report and unemployment rate rising to 7.6%. One question remains : Is the economic stimulus package is big enough to stop the recession ? None seems to know.

800 billion spending in the form of tax cuts, infrastructure building and health care subsidies appears like a big amount and a required one. However, we probably cannot place all our bets on it for the economy to recover. The government is running out of tools to give a boost to the economy and deficit financing is probably the only one left. However, the US is in war for last 6 years and some estimates show that the government spends 16 billion a month to meet war expenses in Iraq and Afganistan. Obviously a good percentage of that is earned by the US corporations and citizens so there was a stimulus package close to 1 trillion already deployed in this economy . Some economists estimate that the real cost of the war is going to be 3 trillion and that means more money in the stimulus package.

So what's the miracle we are expecting out of this stimulus ? Looking at the economic models, its about flooding the economy with money hoping that the aggregate demand will increase, driven by the Goverment and people consumption. So the war expenses and the new stimulus package are doing the same thing. Stimulus package is probably more targetted with a hope that sectoral growth help spreading the activity to other sectors as all are realated in a grand scheme of things.

I really hope the stimulus plan works . However I see the economy slipping into very low activity in 2-3 years . There are couple of signs for that. 1. Increased savings by Americans(means less consumption and hence low production) 2. Unemployment rate : Indicates that businessess see no demand int he future also people get less money for consumption.

Low Gas Price ! Good for the US?

I feel low gas price is detrimental for the US, considering the way tax dollars are being used by the government and the paradigm shift in the way economy operates.

No doubt I feel a lot better at the pump these days and regret less driving a performance car. But high gas prices make me happier knowing that in this demand supply equation, high prices indicate that the economy is reviving and people have the funds available to purchase more. Since the Fed is trying all the monetary tools (like cutting Fed rates & funds to failing businesses) to increase money supply and thereby push the overall demand, a deflationary trend in major commodities like gasoline tells me the policy ineffectiveness. But that’s just gas price as an indicator.

Necessity is not always the mother of Invention but innovations and discoveries are normally aimed at incentives when a business pursues it. So low gasoline prices could put to rest many of the R&D efforts in improved technology, new sources or alternatives. For Instance, Toyota sold less hybrids at $2/Galon gas (Check sales number of Toyota Prius when the Gas was $4 and now); It would be less viable to drill newly found oil fields in Brazil or continue exploration in Arctic for fossil fuel at $2/Gallon. Same story is true for the electric line-ups now being demonstrated in Detroit Auto Show. Projects like creating mass transit facilities like electric trains in all cities will have few takers due to low potential demand as people have no incentive for taking a train as compared to riding their own car.

Government makes huge infrastructure investment (with Tax payer dollars) every year to maintain or build roads and bridges. This is where the Washington lobbyists protects the interest of Auto Manufacturers or resist any alternate form of transit.

So going back to the economic principles, we will have to create a new incentive system to motivate businesses and individuals to achieve the bigger goal of reducing fossil fuel consumption. I think it’s fair for the owners of the vehicle to pay for the maintenance of the road infrastructure(Not the whole country). When the auto makers sell cars, people just pay sales tax not a road tax. Many countries charge a road tax on the top of the sales tax and that could be 10% of the cost of the car, paid an yearly basis. Further, the Government should put an additional tax of $1-2/ gallon and that will automatically work as an incentive to consume less. When driving is part of their work, gasoline should be treated like a cost of production and should get the tax credit.

These two additional taxes in place, the incentive system looks lot better for an ordinary Joe. The tax he pays depends on what he buys- let it be car or gasoline. He pays a lot less when he takes a public transport so whatever discomfort he has is paid for. When he buys a gas guzzler he is prepared to pay a lot more, everyday, than his neighbor who rides a fuel efficient car.

India's Enron & Short-term achievers

Ramalinga Raju of Satyam was searching his saul over a decade and finally decided to speak out his conscious yesterday. The news dragged down India's Sensex 7% and wiped out the Satyam shareholders assets 77%. Satyam was in spotlight for a month ago for their decision to buy Maytas constructions, a company with Raju’s sons have significant stakes, as a case of poor corporate governance. The company did show a tainted image to the market then and that news was followed by World Bank banning Satyam from doing IT outsourcing because of their unacceptable business practices. The biggest looser is India as a country – the institutional investors now will require additional premium for compensating for this kind of risk.

Its quite evident that Raju was totally informed in the fraud game. Most of the reported adjustment was in cash balance and its hardest of all to hide. This also raises concerns about what auditors, Price Waterhouse Coopers, was doing in the process. The independent auditing is supposed to bring the credibility to the financial statements but appears like those practices are compromised. The market instantly named it as ‘Indian Enron’ so are we going to see Price Waterhouse going down soon? Satyam is going to get hurt badly as many of their Furtune 500 clients re-evaluate and decide to walk-off from the deal and most probably sign-up with one of the competitions like Infosys or Tata. The question left is how pervasive this kind of frauds are in India ? If Satyam could do this many others also could. Raju admitted that he was riding a tiger without knowing how to get off not being eaten. Something started as a small discrepancy, a decade ago, now grew into a billion dollar problem. This confession allude to a bigger global business issue- chasing short-term profits.



We see all market punishes the companies with lower quarterly earnings. If the earning doesn’t meet the analyst expectation, the share prices tumble and it seems the stock price is the only yardstick of CEO’s performance. Should the quarterly earning be that important? I think its important that the technology and product based companies are evaluated differently because lot of their future earning depends on the brand establishment and innovation, which takes several quarters of waiting. Analysts in Wall Street hardly know anything in engineering or innovations but so good at making judgments by crunching numbers from the financial statements. So none wants to give out a bad news to the market fearing its going to eat them up. Things would eventually culminate into a point of no return, hurting investors and employees and unrelated everybody else in the market.




Now this is not to justify Satyam's action. There is no justification for billions of shareholders lost wealth . Ever since Satyam was in focus for the bad deal to buy Maytas, Raju's back was on the wall and he knew a confession was better than exposing