Do you Zecco?

One of the first few posts that I wrote when I started writing this blog was about Zecco. $0 stock trades! The terms and conditions have changed a a little since then. It no longer works as "unlimited" number of free trades (I didn't need that anyways), but has changed to such that now you can make up to 10 free stock trades in any one month that you maintain $2,500 minimum account net equity. After that, you pay only $4.50 per stock trade.

Still a pretty fair enough deal and for most smart investors, that should work.

As an incentive for telling your friends about this, existing account holders can now receive a $50 credit in their account for referring a friend who enrolls (as a side note, I was not too happy with the whole experience dealing with opening your account at Zecco and hopefully that has changed since) and funds that account.

This is my "personal invitation link":
http://friends.zecco.com/r/08469b94e076102a8555

Please feel free to join by sending yourself an invitation using that link. As an added incentive, you get a FREE (as in Zecco trades :-)) copy of a book called Small Giants written by Bo Burlingham.

Happy Fee[sic] Trading!

Enhanced thinking on overseas investing

I spent a lot of time thinking about how to get my portfolio the necessary overseas/developing country exposure right from the the start when I started taking investing seriously. However, my thinking was limited to buying into country-specific funds and Vanguard Emerging Market ETF -VWO.

Around the same time, being overwhelmed with news and information about the United States economy, I understood the need to be invested in large-caps through out 2007 as it was obvious that they will be out-performing the small-caps over the new couple of years at least.

However, it seems I limited my thinking about overseas investing by exposing myself to too much risk in the form of what I owned (IIF and VWO). Luckily, the fast growing emerging markets prevented embarrassment. The US economy lags behind significantly this year in growth compared to other markets:

Country2007 growth
China	11.5%
India	8.9
Russia	7.0
Middle East	5.9
Central/Eastern Europe	5.8
Brazil	4.4
United Kingdom	3.1
Mexico	2.9
Euro area	2.5
United States	1.9

However, I could have done a better job of not only benefiting from overseas exposure, but even achieving a more balanced portfolio had I thought about things a little more. Large US companies have a significant exposure to foreign markets. On an average, the S&P 500 companies get approximately 50% of their revenue from goods that are made or sold overseas.
Also more recently, the falling dollar I suppose helps too in making the American goods more cost-competitive internationally. Intel (which is one of the only 2 out-and-out stocks that I own, part of a very badly managed and tiny Roth-IRA), Coca Cola, McDonald's, Exxon Mobil just to new a few HUGE companies have close to 70% of their revenues from overseas.

So, owning a large-cap U.S. growth ETF or an S&P 500 ETF, you might have provided me with all the multinationals I would need, while at the same time moving me a lot more steps closer to a balanced portfolio.

Well, lesson learned! It seems investing is like a practice. At least it is for me.

The question that bothers me however is that if all of these large-caps have so much overseas exposure AND I would think large-caps make up a significant part of the entire US economy, wouldn't all that growth in other countries in turn reflect in growth in these companies and onto the growth number of US economy itself? hmmm......

Warren Buffett thinks like me!!!

......well, not really, but its a title that makes this post without a picture a little more interesting to read!

Very often I stumble on an article or two on what successful, powerful, smart and admirable people offer as suggestions to the mere mortals. As a side note, I always wonder who these "lucky" interviewers are who get to meet these superstars and ask the question. Do you think they might slip in a couple of personal investing questions just in case they get a lucky?

Anyways, while reading about those investing tips from Warren Buffett, I noticed that if you simply adopt a discipline and the benefits of a good investment vehicle like ETF, you cover the spread on most such lists without even trying very hard. Lets analyze:

1. Invest in Businesses, Not in Stocks
When you invest with ETFs, you buy into a sector, or maybe a broader index, a basket of stocks. Not individual stocks. You have a pretty good hedge in that case on buying into a business.

2. Only Buy Businesses that You Understand
I don't really get this because you are limiting your options in diversification if you use this rule too strongly. I work in IT and hi-tech, software industry, but I am not sure if I can even claim to understand the entire business.

3. Buy Companies with Defensible 'Franchise'
This generally implies that you invest in large caps and avoid riskier small caps that do not have a control over the entire market segment . I think this is a sector specific subject and you should have a solid basket of stocks in consumer goods, commodity companies, etc.

4. Hold for the long term
Is there any other way? According to me, not holding for the long term means that you have to sell! Now that would just be too much work for a lazy investor. With ETFs you don't want to be paying commissions anyways, so might as well just buy and hold.

5. Ignore Short-Term Fluctuations in Price
Looking at short-term fluctuations is like thinking your married life is going to be as much fun as that one night stand and running off to vegas for a drive-through wedding! Ok, not exactly an example that makes perfect sense, but you get the point.

6. Buy Good Businesses When Prices are Down
My thoughts exactly! My reason for this is however very simply due to the fact that I don't really have a very solid "when to buy" set of rules. So I only buy an ETF when I am convinced that it is below a 200-day moving average and has gotten there after a downward trend and there are strong factors that have brought it there.

7. Don't Be an Active Trader
That would require you to be "not lazy". Forget that.

8. Do Not Over-Diversify
Not out of choice, but I think I got this covered :-). Aren't you aware of my constant struggle to getting to that Zen-like diversified portfolio?

9. Invest Only When There is a Margin of Safety
This probably sits better with funds, but if I figure out how to translate this to EFTs, will let you know. I think it means you try and buy something that has a higher value than the current price reflects. But isn't the whole purpose of the stock market to balance out the price and value?

There you go, though I can still not figure out why the title of that article is "Billion dollar investing ....."!

Portfolio Update

I haven't been doing a lot of investing over the last few weeks. Actually I haven't been doing a lot of financial anything since the last post. Just stuff, life throws at you. Actually that is part of the challenge of personal finance and investing. There are factors that are personal, and those have so much influence on your life and hence on your finance.

Anyways, as opposed to my general philosophy of not selling ever, I had to make a decision to move things around a little bit. In a way, this is also an attempt at balancing out my portfolio a little more. I am still in a broader pursuit of having a 50-50 distribution between foreign (a very generic term) and domestic holdings.

So, just an update to maybe get things restarted on writing more often again.

Temptation and Emotion

Wow, what a few weeks for an investor! I am tempted to say, what a disastrous few weeks, but that would be unfair to all the smart investing advice I have been given through books and other reading material. Then again, I cannot even say what exiting few weeks, since all these corrections and buying opportunities cannot give any normal investor any confidence about what to do right away.

So I will just write about what my own thoughts are regarding all this. To begin with, I am pretty sure if I had money to invest right now, I would have bought something missing from my highly unbalanced portfolio. However, as is the habit, even though I have nothing to gain/lose from that action, every morning I check how the market is doing and how my portfolio is holding up. Now, I have no intention of doing anything in a time like this that involves selling or panicking, I am after all a mere mortal. And sadness and disappointment does lead to a very strong temptation to "do something".

The idea of course is to resist the temptation to do anything. I know that, and so does probably anybody who has had made an effort to learn all the basis of common sense investing. I can give out all sorts of charts showing you how not selling, sticking to the long-term investing strategy in a market like this works out way more beneficial for an individual investor as compared with somebody who does such "crazy" things, but then I would not be able to call myself a "lazy investor". So, just believe me or pick up any decent investing book.

I guess what I am saying is that even after knowing what the right things to do are, investing, money, personal finance, the stock market, etc have a very strong human element to it. We are all emotional human beings and panic, disappointment, excitement and most importantly temptation are factors that no book or knowledge or advice can teach you. That unfortunately has to be handled individually.

As for me, I generally deal with days like these by a few minutes of silent cursing followed by some sulking, a brief moment of panic and then moving on with life......

A tool I could use

I haven't had the need yet to rely on tricks and tools that are now freely and readily available online for a regular investor these days.

I use all the information I can from Yahoo! Finance, once a while I will use Morning Star's Instant Portfolio XRay and maybe sometimes ETF Connect's Fund Sorter. These seem to have done the job for the information I was looking for, though in no sense do I consider myself a "power user" for any of those.

However, very recently I have felt the need to have a tool that could give me a list of ETFs, from a list of stocks that I provide as input. What I want to do is to see, if say for example from a list of 10 companies I like, in a sector that I like (or need for a balanced portfolio), which ETF(s) do a maximum number of those stocks belong to.

Sounds simple enough, and I refuse to believe there isn't anything like this out there. Maybe I haven't been looking for it hard enough. Or maybe such information is not needed by the mere fact that following a balanced investing scheme using ETFs, you would never have the need for looking up that sort of information.

It would be at least a fun thing to play with...

C quiz question

I was looking at coming up with a few small C/programming questions for a number of interviews that I am taking these days. Here is one that is interesting:

What would be the output in the following piece of code?

main()
{
  int  a[5] = {1,2,3,4,5};
  int *ptr =  (int*)(&a+1); 

  printf("%d %d" , *(a+1), *(ptr-1) );
}

I needed to compile and confirm, but the output in this case would be "2 5".
How we get "2", is obvious. The interesting one is how we get the "5".
The reason being ptr is a pointer to the array of integer. Not a pointer to an integer.
So when you do &a+1, you are pointing to the next array of integer, and not a[1].
Hence, when you do *(ptr - 1), you end up dereferencing a[4].

It gets interesting when I next ask you for output of the following piece of code:

main()
{
char a[5] = {'a','b','c','d','e'};
int *ptr = (int*)(&a+1);

printf("%c %c\n" , *(a+1), *(ptr-1) );
}