Posts from — June 2008

My brother got me inspired with his post here.

What do you like doing?  What are the things you do, where you constantly find yourself stress free, without worries, and not thinking about how terrible your next day is going to be?

Cue music. That’s where I am heading. I am not exactly sure where this is going to be, but I have some ideas in my head. That’s the important thing. Search for ideas you enjoy and start pursue them. There is no rules against doing this while you hold a day job. That job for most of us ends around 5 PM and last time I checked, there is something like 67% of your day NOT filled with work.

It’s easy to stay under the radar and wait for luck to come your way, but I challenge you to get out there and get your feet wet. Build something. A website, a car, a meal, just do something. It will help get you out of a rut you might find yourself in, and who knows. It might just lead you into something you actually WANT to do, rather than yearning for something different while doing something you DON’T.

I’m learning the hard way that trading to make money in the short term is far from easy.  I feel like I know about 20-33% of what I need to know.  That makes me feel really, really uneasy.  I feel decent analyzing companies for value and investing on a play that needs some time to work itself out, be it 3-6 months or a couple years.

Coming from a technical background, I am usually in the 80% camp of what people talk about.  I have been around enough where even if I don’t know the exact technical concept someone is speaking of, usually there is a lower level abstraction that I have been privy to. I know the lingo, the insider talk, the jargon. Its important.

Days like today are constant reminders of my need to learn as much as possible in a short amount of time. It’s what I need to compete if I want to trade to improve my monetary position.  For me, being in the game is the biggest thing.  I would rather have plays working during a bloodbath to learn aspects of the market I didn’t understand.  Learning these nuggets through experience will make me better much faster than reading any book or following any blog.

So cheers to a GOOD day. The sun will come up, and hopefully the market will follow suit at some point.

Yeeesh. I did this with BW3’s (BWLD).  I watched it happen again with Research In Motion (RIMM).  I held them through some impossible earnings expectations. I have since turned sour on BW3’s, because their CEO can’t successfully navigate increasing chicken prices.  Hard to believe while Southwest (LUV) seems to be dealing with a commodity that is seeing exponential price increases and still navigating the waters, but I digress.

These earnings announcements are a constant reminder for me that I am investing for value in the mid to long term with these plays. If I look back at my portfolio I am doing very well in this strategy when I bought Wal-mart (WMT) and Anhesier-Busch (BUD) at around 40 bucks a share. It just took them time to get to the valuations that I was aiming for.  NOTHING happens overnight in value.

It’s good to remember this when we are in negative sentiment, sell the news type markets.

Probably like a lot of you out there, I had no idea what to expect when I entered into corporate America.  I was likely more unprepared because I was trying to break into a technical field with a business degree and really no software skills other than ones I learned myself. I keed, UofL gave me SOME skills, but I lacked the in demand web skills which I had to foster through self discovery.

I spent a lot of my initial career working very hard and putting in a ton of hours. I was super fortunate to have a mentor that filled in the blanks I needed through my first couple of years, but I still always felt like I was behind my peers. This uneasiness led me to keep my guard up a lot more than I should have. Sometimes when I didn’t grasp a technical concept or business direction I would gloss over it and try to play catch up. For example, take bank accounting. It’s a ridiculous world where credits are actually debits and vice versa. Try developing internal accounting systems in that jacked up world. Furthermore, technical concepts are ALWAYS complicated because we’re in a field that fosters abstraction. Your abstraction of something is 90% of the time wildly different than what mine would have been.

So my advice to you is this, put your gaurd down and NEVER be afraid to say the stupid stuff that your always thinking. I’m usually in this camp. When a meeting starts off and you have 10 people that are trying to discuss something that no one fully understands, it will help when you ask that dumb question 9 other people are thinking and don’t want to ask. It will get everyone on the same page and working towards solving problems instead of wasting time.

I am getting really tired of the endless articles reading about the trials and tribulations of Twitter.  Frankly the assertions that people are making are absurd.  I read a particularly good one today in this article. These guys can talk all they want about developers bailing, but the developers aren’t the ones making twitter GREAT. The quality of the content IS.

I’m an optimist, and I don’t mind a bit of downtime here and there.  Twitter has issues for sure, and needs to stabalize, but the tool doesn’t matter to me.  I am following the content. So until guys like Andy Swan and Howard Lindzon stop posting on twitter and responding to their communities I am sticking right with them. If you really can’t make it without having access for a couple of minutes you have serious issues, and probably could use some medicinal meds.

Content is king and regardless of all the commotion of the technical platform until the producers of the good content start moving to another place, users will stay where they are. Twitter doesn’t need the developers to continue to flourish.  So stop talking about it and start creating good content for me to read.

If you have lost on significant amounts of dough on positions in the market, it’s worthwhile to look back and ask yourself “Why did that happen?”.  A lot of times you’ll find answers in the numbers in the short or long term.  Sometimes the answers will tell you that you would have had a hard time predicting as huge a downward move as had been established. That’s what is happening in lots of sectors in the market today. Particularly in banking.

A super-prime example of this right now is Fifth Third Bank (FITB).  Just take a look at their chart here. Its an AMAZING testament that if your not careful the market can erase you in a matter of moments. I follow them pretty heavily since it is a former employer of mine and I have written copious amounts of software that is still in use. It was trading at $70 bucks a share when I started there, now they’re down under 10 bucks. All it took was creative financial instruments that people didn’t fully think through in the long term and WHAM! Another reminder that following the money is probably the easiest thing to do if you work in finance.

Lots of the people that I follow on twitter and through their blogs talk a lot about sticking and moving during tough market times. Nothing could be truer of having positions right now. Be active in the positions you take, even if your long. Sometimes it’s tough to see the secondary trends that follow the overall market ripple, but paying attention can get you out of positions that are going to get hammer you.

As a product of this trend in regional banking, I look for these markets to have some consolidation. No one has the leverage right or the cahones to take someone on their balance sheet, but as things continue to shake out its going to happen. Good time to be trolling for some strong upstart banking companies looking to grow who were smart enough not to loan to every Tom, Dick and Harry out there.

I am not unlike the typical person in software development. Hell, almost everyone I know is smarter than me, so I am actually the out lier. But over the past several years, I have adopted a new motto at work. Get S#@% Done. It’s that simple. I am not the type of guy that really likes to spend a ton of time sitting around analyzing how to create something. Once you throw out an idea I usually have an inkling of what you want and I’ll probably get you about 80% of the way there after talking through it a few times. That means I like to get in, get the ball rolling and let people start steering once they have touched and felt what I’ve built. Its that simple. Process kills me. S-L-O-W-S me down.

I tend to think thats the ultimate way that companies get eaten away at by competitors. Hell, even Google today is facing an increasingly dicey landscape with (insert your social network here) of the world. Business models REALLY need to understand this. It’s easy to be organic and want to continue to grow, but its difficult to sustain. I would even go so far as to say that if I was running a company that was relatively small but growing quick, I would do some very abstract things. I might even be willing to spin products off as companies really quickly. You would have to be careful because it could dilute your brand, but if you’ve established it with a fantastic product, chances are the lions share of revenue is going to come from there anyway. I might be crazy and think differently if I was there, but I certainly wouldn’t lead down a beaten path. To many crappy companies have been slaughtered on that path.

So my thought is a simple as this. When you company starts focusing on process and talking repeatedly about things that aren’t putting dollars in your pocket, step back. It’s time to make some movements that certainly should rock the boat. But they’ll also likely keep you away from that beaten path where no one wants to be.

I just finished reading Tim Sykes article on Limit v. Market orders over here. He writes *A LOT* so its tough not to see something he has going on out there on twitter, or his blog. It of course prompted my own thoughts on this concept of stops. He’s been trading a lot longer than me and seems to have worked out a small, risky niche that’s profitable, so take my beginner talk for what its worth.

Stops are a necessary part of any investors arsenal. There are always times where you want to put plays on cruise control, and have safe stops so that when your investment dips, a trade is executed that keeps you from loosing a ton. If your in a youngling phase of your investing career like me, though, and investing in longer term plays, focus on using your stops for protecting GAINS, not losses. Don’t ignore stops, just put them on the back burner when your getting started.

Intraday swings can really eat away at you if your not careful and you will have exited a positon that you didn’t want to get out of. I’m not saying ignore downward movements in your stocks. They can definitely send signals to you to get out. Concentrate on using stops to protect PROFITS. Set an overall loss % for each play (something like 8-10% is prolly good but I tend to question that number with smaller caps), and monitor it best you can. I don’t get hung up in micromanaging short term moves unless something major goes out of whack with the company. That way you aren’t hugging your position and getting stopped out of longer term plays.

I recently had a good example of this recently with SIMG. I bought into the company at $4.47, and watched it dip the next day to around 4 bucks, where I actually added to my position. If I would have set my stop religiously, I would have been out of the play for a nice solid loss. Since then its been on a good run, moving up over 7 bucks. While that move has been happening I have been setting and adjusting my stop about .25 points under the closing price, thus protecting my profits. Now I’m making money with each move up. I believed in the work I did before I put my money in.

So spend your time on your front end analysis, not “overwatching” your value plays. Remember we’re talking about longer term plays, and short term volatility might bounce them around during the longer term trend that you are playing.

I was fiddling around with an idea in my head to write a small website that helped me translate stock charts into nice looking URL’s. Most of the time, when you look at a stock chart and want to share that with someone, the URL is GIGANTIC. It contains all sorts of cool variables, vectors, really everything that the site needs to paint the proper chart. I wanted a way to copy and paste a URL that was MUCH shorter, so that I can use them in systems that limit my character usage. Also, it just gives me a much cleaner URL that can be embedded anywhere you might be linking to charts without having a really crappy looking URL.

Well, with that, I spent last night watching hockey and writing an application, called Twrts (pronounced Tw-arts), with Google’s App Engine. You can check it out here:

http://twrts.appspot.com

It was an exercise mostly in fun, but I did want to see how productive I could be with the limitations of the framework. The main one for me is that you have to write stuff in Python. I have used it before, but its been a while, so I had to use a lot of reference material. I gotta say, the framework is really nice for simple stuff. You can be up and productive in about 15 minutes. Concepts are easy to grasp and without having to really muck with configuration is really, really nice. The deployment is money as well. One click and done. I love that.

My implementation definitely isn’t without flaws. The first glaring one is the size of the URL. Without buying up a shorter domain name, I am stuck with probably 8 extra characters I would like to shave off (twrts.com instead of twrts.appspot.com gets rid of a period and the appspot). Oh well, if anyone actually uses it besides me, then I will look into some forwarding through a smaller domain. I also chose the simplest algorithm possible for producing the generated URL’s, meaning I am limited to only around 14,777,000 url combinations. But since I will probably be the only one using it, it should suffice ;).

It’s also interesting to note that this is pretty much the same thing that TinyURL and the other millions of services do. With my implementation though, I didn’t want to have to go to the chart’s URL in order to copy and paste it into one of those services. Just eliminates a step or two from the process. Also, I want to build in posting a message to Twitter to simplify the process even more. That should be uber simple with the twitter API.

Check it out when you get a chance.

I just finished pairing down my portfolio which means that I am selling off the terrible plays that I had a hard time letting go of. This will free up some cash to put into good companies and get away from these naive plays that I made when I first started investing. This is leading me into a quick newbie lesson if your like me.

The first thing is get rid of companies when they dip 8-10% below your original investment. It’s a really, really difficult thing to do, especially considering you are really smart and made a nice pick on a value play that “seems” underpriced, only to watch it sell off. The problem here is you might wait a very, very long time for that play to recover, if it does at all. I was bad about this when I started investing and was holding on for dear life in numerous positions. For example, I held a position in NOOF and one in OPMR when they were almost double where they are now. Both of these were relatively speculative plays, especially with OPMR and I never should have been sniffing around them anyway. In a nutshell, they both started a nice downward trend with OPMR becoming a total massacre. I should have seen the signs and gotten out of the initial downward move and saved myself money in the further pullback. But you don’t learn those lessons until your out there trading.

The second important lesson I have learned is to research everything as best I can. A *lot* of people will invest following analyst recommendations, or blog posts like mine (Don’t do it, I am just learning :)) and make plays based on these people. That’s a big mistake. Analyst recommendations are usually something to take into account and note, but they often are priced into the market already, or might not be giving an accurate picture. People writing about the companies on blogs or through twitter might have different investment objectives than you. It’s good to get exposed to what they are talking about to get an idea of the strategies that they are following, but don’t fall in love with their recommendation until you’ve done your homework. Remember this:

–Its a bit like getting to watch Texas Hold’em on TV where you see how the pros play their hands when you see the cards they have. The intarwebs, particularly in blogs and micro-blogs, like twitter, are opening up avenues of transparency that have never existed. Use this transparency as chances to learn.–

So in light of not following these two lessons, how are you going to find companies to invest in? Earnings. Earnings, I would argue, is the place where you can glean the most out of a company. This is capitalism, and if companies aren’t growing and turning over solid double digit growth, why even get involved? Even mediocre management has a tough time screwing up good products that are generating good revenue growth.

Stick with investing in good companies that are posting good earnings per share numbers of 20% growth or so. Don’t turn a blind eye to everything else and research the crap out of them, but use this earnings growth as a good screen to tuck away the crap and focus on companies that worth investing in.

This is just a simple way to start finding better companies to put your money into. But once you start here. quickly you will be eliminating the noise and picking up on the signals before the analysts and bloggers turn their eyes towards the companies you are getting into. That will pay off in returns that you would have missed if waiting for someone else to tell you what to do.