Wise thoughts

It doesn't matter where a stock's come from. All that matters is where that stock is going.

I made money by being able to decide what I wanted to focus on and what I wanted to ignore. There are 6,000 or 7,000 stocks out there, and if you can't narrow our focus, you can't win.

A stock of less than 250 mil is dangerous. For a big risk taker, only 20% of portfolio is suggested to buy those companies.

One hour homework per week for each stock you are owning.


- Jim Cramer

Economic structure of US

Manufacturing makes up 20% of the total economic activities (GDP?), while non-manufacturing makes about 80%. Non-manufacturing includes retailing, banking, construction and agriculture.

The Institute for Supply Management is producing two indexes in each month for the two categories of economy, Manufacturing Index and Non-Manufacturing Index. If the index is above 50, it indicates the category of economy is expanding.

ISM Website:

http://www.ism.ws/

Economics Digest Websites

Macro-economics is important for stock trading. It decides overal market direction. By Jim Cramer, it affects 50% of the price movement of a stock.

The websites of Economics study:

1 Federal Reserve's general economics statistic data
http://www.federalreserve.gov/
http://www.federalreserve.gov/FOMC/BEIGEBOOK/2007/ (Beige Book)

2 Department of Labor's Consumer Price Index
http://www.bls.gov/cpi/

3 Conference Board's Leading Indicators Index and Consumer Confidence Index
http://www.conference-board.org/
http://www.conference-board.org/economics/ConsumerConfidence.cfm
http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1

Note: Leading Indicators Index and Consumer Price Index are main factors for FED to decide the economy situations.

Qestions need to ask

The following questions need to ask before building a position:

1 Why buy this stock? (Economy, Sector, PEG, competitor, risk - business, finance, liquidity)
2 What's safety margin? (at least 70%)
3 What happens in next 6 months?

为什么散户需要TA

1. 散户们玩FA根本没有优势，前几天提到过一次，今天在重复一下：
比如你想查查现在internet backbone的利用率，以便作出要不要投资Level 3, AT&T，Corning, 或CSCO的决定。这种报告网上就有，但最基本的开价是$12000。你一个小小散户付的起吗？如果你付不起，你有怎能玩FA，你连最重要最基本的信息都 没有！

还有AMD与INTC的FA: market share, channel inventory的report遍地都是，但每一份好几千块钱。你没这些信息还玩什么FA?

还有餐馆的FA: 比如一些Hedge Fund顾一批高中生，要他们注意某某城市某某餐馆的生意及变化。你干得了吗？

还有人家巴匪，他一个电话就打到CEO那了，公司底细，领导阶层的质量，重要员工的素质了如指掌，你做的到吗？何况此人有65年的投资经验，很多对他一目了然的事咱们得想好几天。

再说段坐庄NTES，他手下有十几人专门玩网络游戏，比较各家的强弱。

大师都是这样玩FA的，别以为看了Yahoo Finance或读了几本10Q就是FA。


2. 那么说咱们散户不是没戏了吗？非也！散户有两大优势：一是灵活性，咱们进退自如，看准了，几分钟就能杀进去或者逃走。大户们行吗？所以每次大户们有大动作时，他们的痕迹就表现在图形上了。如果你能很好配合你有限的基本面和对图形趋势的认识，你就能跑在他们前面。

散户的第二个优势是耐心。如果你实在对图形没有兴趣或感觉，你可以和大户们拼耐心。市场一般看前3-6个月，最多12个月；如果你能看出一个企业3-5年后的潜力，那你就不需要那些昂贵的短期信息，但你必须对这几点肯定：
- 了解公司的行业；
- 公司的投资回报(Return on Equity)很高，而且能保持下去；
- 公司的领导阶层有能力而且可信任；
- 合理的股价。

行情上涨的秘密

一个投机者的告白
Author：安德烈 科斯托兰尼（Andre Kostolany） ，德国知名投资大师

假如证券市场只受前一章所描述的因素影响，就会随着经济的发展缓慢向上涨。但我们知道，狗是来回奔跑的，证券市场在长期的经济成长过程中会多次反复大涨大跌。大涨之后，证券市场虽然很少跌回上涨前的水准，但在这段时间，行情将来回波动得非常厉害，主要受中期性因素影响。

一是货币。货币对证券市场而言，就像氧气之于呼吸，或汽油之于引擎一样重要。没有货币，即使未来形势大好，世界充满和平，经济一片繁荣，行情也不会上涨。如果没有剩余的钱，就没人买股票。我们可以说，货币是股票市场的灵丹妙药。

货币＋心理＝趋势

但是单靠货币，股票市场也不会起变化，还要加上另一个心理因素。如果投资大众的心理是负的，即没有人想买股票，市场也不会涨。只有在货币和心理都呈正面时，股票指数才会上扬。两个因素都是负面时，指数就会下跌。

如果一个因素呈正面，另一个因素呈负面，发展趋势就会持平，也就是说，证券市场的行情平淡、无趣，不会出现大幅波动。我的公式由此得出，同时也成为我的信念：货币＋心理=发展趋势。

如果某个因素略占上风，便会透过略为上涨或下跌的指数呈现出来，这要看哪个因素更强。只有当一个因素发生逆转，使两个因素同时变成正面或负面时，才会出现行情大涨或大跌。

结论是，如果大小投资者愿意，且有能力买股票，指数就会上涨。他们愿意购买股票，是因为他们对金融及经济形势抱持乐观看法；他们购买股票，是因为口袋里有足够的资金。这就是行情上涨的全部秘密，即使是经济呈现不利的态势，都适用。同样的机制也会起反作用。当一般大众非常悲观，负面评价未来，而且缺少现金，一方面因为大众可以将钱投资到其它地方，例如房地产、储蓄或债券，赚取更高的利率，一方面也因为贷款取得更加困难。如果缺少想象力和货币，指数就会跌到谷底。

我认为对中期证券市场，货币比想象力更具决定性作用。如果货币因素是正面的，那么到了一定时候，心理因素也会变成正面的。

如果有很多剩余资金留在金融机构内流通，据我的经验，这些流动资金的一部分最晚在九到十二个月之后，便会进入证券交易市场，虽然此时大多数的投资者对股票仍持负面态度。在此阶段，第一批的买进交易遇到的是完全净空的市场，这时指数开始上涨。上涨的指数使大众对股票产生兴趣，于是继续出现买进交易，吸引新的买主，如此循环不已。

股市评论家和分析家总能为行情上涨找到原因，因为经济面从来便不是全黑或全白的。如果无法说明当前的经济现状，必定会用未来的正面发展来解释上涨趋势。接着，正面的评价逐渐改变大众的态度，货币不断流向股票市场，使行情继续看涨。

反之亦然。如果货币因素是负面的，大众的心理状态在九到十二个月之后也会转成负面状态，即使经济第一线的消息仍相当正面，如果没有新的资金，行情还是无法上涨。如果大家期待的指数上扬没出现，第一批人就会失望地退出股票市场。第一批卖出交易把指数压低，引发进一步的股票出售，如此循环下去。这时评论家仍然可以找到负面消息，当成指数下探的理由，这时，整个气氛已经改变了。对于中期的证券市场发展，货币至关重要。因此，投机人士必须密切注意影响货币的各种因素

Update Stocks

Forget to update the portfolio yesterday. One stock has increased 15%.

Read an accouting book yesterday at UW, emphasizing on valuation. Two approaches are proposed to analyze the economic characters of the industry a firm is operating in (or, should be the economic characters of the firm)

1 Value chain method.
Supplying - Research and Development - Manufacturing - Markerting - Distributing

Vertical integreation or horizontal integreation

2 Porte's frame work.
1) Demanding - Customers
2) Price elasticity - price on impact of sales.
3) Competitor's products - Unique, alternative, similar
4) Easy of entry
5) ...

Should be discarded. If it could not be re-stated, it means not use for one self.

Safety Margin

Liquidated the long position of Ford out of frustration. This company has no hope at all. Strongly felt the pains for not selling it at $9.13. Recall the moment of reasoning. Thought it would not go down to the price which justifies the commissions (double, $60). But didn't ask further questions of why not?

Always ask the following questions when havinglong position:

1 How much is room for growth within the planned holding period?

2 Is it a good buy at the current price level?

Answers of the two questions lie in the valuation of the firm. Actually, the question should be asked as

Is the price still under its intrinsic value?

It's not easy to answer the question. If not very sure, MUST liquidate it ASAP, especially if it has increased 20-30% of the price.

When buying a position, ask the following question:

What's the downward moving range and occurrence percentage?

What's the upward potential and occurrence percentage?

The answers of the two questions MUST be used to judge safety margin of the purchase.

Value investment

At UW library, read a book about Innovation of management. There are two excerpts written by Peter Lynch and Clews. Both of them are value investors.

How to make money in Wall Street?
"Buying 'sheep', selling 'dear' " - cited by Clews.
Similar sayings: You pay the price and get the value. - Warren Buffet

Basically, it is buying under intrisic value. This usually happene when there is a general panic in Wall Street. Based on this, contrarianism is formed. Peter Lynch said that, being contrarian is not to sell when all of the other is buying a hot stock. Instead, it is to find the stock which is under is intrisic value.

But why when all of they others are panic because of the unpromising economic fators, is it the point the stock market reaches its bottom? Why at the worst point of market situation, does the market start to reverse? How is the bottom formed?

It is all about the results of two opposite forces - bushlish buying force and bearish selling forces. When everybody is optimistic about the market condition, the buying forces are starting to exhaust. In the same time, the indivdual stocks are overvalued. The value investors have finished liquidating their positions. If nobody is buying, the stock market is falling. This is self-enchancing phenomenon - based on human nature. The stock market is accelerating to decrease. At a point the value investors think it provides a good chance, they start to buy. It's balanced at the bottom of stock market.

The question is how to decide the bottom point to buy the sheeps. How much is the gain from the bottom enough to start to sell in order to avoid the being caught. Deciding the selling point after a market has gain a specific percentage is especially important for a big fund.

Actually, all of the teaching of Warren Buffet and the other value investors, such as looking for a business which one should understand, looking for a business the managnement team has integrity, looking for a mort business etc, are about intrisic value. All in all, buying a business which has competive advantage. If the one's money is small, short term competive advantage can make a profit. But it one is like Warren who has big buying power, offcouse, he should like Warren to buy business which have long term competitve advangae. A winning culture is not easiy to establish and copy, no wonder Warren is buying a managnement team which have long term goal in their mind and enphasizing building a long term winning culture.

Technical anaysis is a techniqe also.

All in all, to be successful, one has to be outstanding. Outstand the crowd, both judgement and emotion. But how?

So principle of my investment is buying sheep and selling dear. How? Fundamental and technical. Be flexible. Be unemotional. Looking for Insider holdings and trade, looking for institution holdings. Looking for competitive advantage. Looking for management. Thinking of safe margin. Thinking for the profitability of the business.