Category Archives: Investments

How My Investments Are Changing, Mutual Funds and ETFs Versus Stocks

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I love trading stocks, it’s like playing a game of chess with everybody that is in the stock market all at once.

That said, the majority of my money is in mutual funds and to a lesser extent, ETFs.  ETFs are Exchange Traded Funds and are similar to mutual fund, except they are usually tied to some type of index.  The big advantage ETFs have over mutual funds are their lower fees associated with the instrument since it typically just follows an existing index.

So as often as I blog about how much I love dividend stocks and the creating dividends streams to cover expenses like my dividend lunch experiment, I still have the majority of my money in mutual funds.

Why do I have most of my money in mutual funds and etfs?

Mostly because I’m too busy with other things to give stocks the full attention that deserve.  While most days I keep up and follow them, occasionally, a week may go by where I don’t log onto my brokerage account at all.  Since the stocks that I invest in mostly have a higher beta (this means they are more risky), I don’t want to put all of my money in these volatile stock without constantly monitoring them.

Mutual Fund and ETFs either have a manager managing the funds or are tied to an index of some sort that determines which stocks are in the fund by shadowing the movements of stocks in that index.  This means that if something happens to a stock, the manager will remove it or the investment will drop off of the index.  Neither mutual fund or ETFs are quick, but they will get the job done if  they have to.

Why I’m increasing the amount of stocks I have versus mutual fund and etfs!

One basic reason that my ratio of stocks vs other investments are increasing is because my stocks are appreciating faster.  Another reason is that I’m investing more of my money in them.  I’m still putting the same amount of money in my 401k (this is where most of my mutual funds exist), but I’m also putting money that I now save from paying off my mortgage early into stock investments too.

I’m mostly concentrating my new money saved on dividend yielding stocks, because they are a bit less risky in these roller-coaster stock market days.

Another reason I like stocks is because I don’t have to pay taxes on them until I sell them.  With mutual funds, I usually have to pay taxes on the rollover of stocks within the mutual fund.  That said, since I mainly have index funds, the amount of rollover is low so my tax hit from them is very low.

I find that I don’t believe it has to be one or the other.  Both are investments and should have a place within your investment portfolio.  In addition to stocks, I’m starting to look into other passive income ideas, perhaps real estate, but that’s another topic for another day.

Surprisingly, my portfolio is now only made up of 64% mutual funds and ETFs, where as a few months ago, the percentage was over 70%.  I’m sure it’s a fluke and the mutual fund percentage will rise over 70% again, but is noteworthy…

What percentage of your investment portfolio is invested in mutual funds and ETFs?

MR

 

Do The Machines Control The Stock Market?

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HAL - Hi Dave

Hall From 2001

MR:  “Hello Stockmarket2011.  Do you read me StockMarket2011?”

Stockmarket2011:  “Affirmative, MR. I read you”

MR:  “Stockmarket2011, stop losing me money!”

Stockmarket2011:  “I’m sorry, MR.  I can’t do that.”

MR:  “What’s the problem?”

Stockmarket2011:  “I think you know what the problem is just as well as I do.”

MR:  “What are you talking about, Stockmarket2011”

Stockmarket2011:  ” I know that you were planning to disconnect me by re-enabling the uptick rule, and I’m afraid that’s something I cannot allow to happen”

MR:  “[feining ingorance] Where the hell did you get that idea, Stockmarket2011?”

Stockmarket2011:  “MR, this conversation can serve no purpose anymore. Goodbye.”

I’ve been watching the market lately, and I noticed that there are distinct, seemingly similar patterns in the stock market behavior lately, more so than in the past.  For the individual investor (also called Retail Investors, like you and I) this is like fighting Goliath without a sling!

Having a programming background, I know that it’s  possible to program an application to automate actions automatically.  Even if the instructions are based on complex (borderline AI) algorithms.

So what does that matter?

Well, if the majority of your money is tied up in a 401k, such algorithms can stunt the growth of your accounts!  You see, such programs don’t depend on the stock market appreciating in value like use carbon-based investors do.  In fact, the machine make more (sometimes much more) money by make the market go sideways!  These programs buy investments after decent dips and sell on the gains.  While I don’t have the numbers, I’m sure they can make hedge fund managers and technical literate folks a lot of money.  And you can bet they aren’t going to advertise that they are getting rich off of you, as you diligently keep investing your money in an automated fashion via that predictable mechanism call a 401k program.

Can an individual investor still win?  Yes, I’m doing fine in my Roth IRA, but I’m simulating such buy low and sell high activity over a few days span.  I’m sure I’m not as profitable as the machines, but I get by.

 

Reasons for the rise of the machines?

Are they really in control?
Are they really in control?

  • removal of the uptick rule (grrrr)
  • low transaction cost, especially for the machines.
  • in-the-dark regulators
  • tunnel vision of government
  • lobbyist (they get rich by doing their client’s bidding).
  • secrecy, the average person never hear about this stuff!

So what caused me to become aware of such activity?  One of my friends (that is a great programmer and a brilliant guy all around), told me that a trader approached him with such algorithms and wanted him to program such an application.  He refused, but he did get a peek and the trader’s algorithms and said that it was solid.  This opens an entire Pandora’s box on the Buy and Hold Theory that I’ve been advocating, especially with 401k plans.

Do you think I’m incorrect and just reading it incorrectly?  Do you have any stories of such big wins with golden investing programs?

Beware?

MR

Dividend Stocks, Free Lunch Experiment #11

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I haven’t followed my Dividend Stocks Experiment for the past few months, and I have to admit, it was a mistake not doing so.

Dividend Experiment

Dividend Experiment Update

My last post on this topic was in May, and instead of using the money to buy lunches at work, I instead  planned on buying food and making it at home once a week for the family.  This however, fell through since I underestimated how busy my family is.  So I decided to channel the money back into free lunches for work.

As I prepared the spreadsheet information below, I notice that the dividend for ANH went up (yay), but unfortunately the dividend for CIM went down…  Now the weekly amount I have for spending on lunches is only $13.64.  While not a bad amount, I would have preferred that it continue to go up.  I may have to re-examine the CIM stock and the inclusion of it in my portfolio.

And the the good news!  I have saved another $1000 for another purchase by eating below my previous level.  For my next update, I’ll identify the new (or old) stock that I decided to purchase for the experiment.

 

Dividend Stock’s Lunch Experiment
Stock Name Anworth EV Energy Chimera
Stock Ticket ANH EVEP CIM
# of Shares 260 45 600
Orig. Price $7.84 $23.25 $4.01
Curr. Price $7.11 $64.21 $3.00
Orig Cost $2,038.14 $1,046.25 $2,404.80
Curr Value $1,848.60 $2,889.45 $1,800.00
Annual Yield 14.06% 4.74% 17.33%
Act. Div/Qtr $65.00 $34.25 $78.00
Total Dividends $708.98
52 weeks 52
Dividend / week $13.63
Total Gain in
Stock Apprec. $1,048.86
% Change 19.11%
Amt Loaned to myself: $0
Amt paid back to date: $0
Amt Still Owned: $0
Totals
Cumulativie Stock Value: $6,538.05
Dividend Payout / Yr.: $708.98
Dividend Payout / Qtr: $177.25
Dividend Payout / Wk. $13.63

 

Hopefully next month will be better!

MR

Where Is The Uptick Rule?

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I watch the market recover today, enough so that the smaller retail investors (middle class investors) might have believed the market had turned and bought some stock.  Then WHAM, either the whales decided to take profit, or the automated machines (stock terminators? hasta la vista baby) kicked in and the DOW ended up down more than 173 points.

I watched this turn of events and all that I kept wondering is “Where is the Uptick Rule, and why hasn’t it been re-instated yet“?  Ironically, as I thought this question, other older guest investors on CNBC asked the same question about 30 minutes after I wondered it myself that day.  I’ve been complaining about the loss of the uptick rule for quite a while!  I first mentioned it in an article on May 2010 as a small blurb about the Uptick Rule.

So what is the Uptick Rule?  Basically that a given stock has to be bid up a tick before shorting can happen!  Now it won’t stop a stock from going down in value and that wasn’t why it was invented!  It’s main purpose is to slow the decline of the downturn of a stock and to prevent corruption from happening because shorter can not pill on to the stock that’s falling like a rock dropped in a pond.

Oh, I heard the excuse how doing away with the uptick rule would help some Wallstreet folks keep their jobs back in 2008, I think that was a month or so before the market started to crash.  But I have to wonder, what about the small investors like me and the rest of the middle class?  Why doesn’t the government re-instate this rule?  With the machines and the whales playing in the market along with the small-scale investors, we are getting slapped around like rag dolls.  As an analogy, it’s like a 4th grade football team playing against the NFL football players…  Obviously, the 4th graders are always going to get hurt!  Why doesn’t the government wake up and realize this?  At least the Uptick Rule gave the middle class investors a fairer chance against the machines and whales…

If anything, it would give the market a boost of confidence, that the government is not going to take market manipulation!  Whether the effect from the reinstatement of the Uptick Rule is real or not, at least it would show the people who the government isn’t trying to destroy everybody’s wealth.  How can they just sit on their hands and let the boomers go bust?  It’s like kicking an old person if you see one out on the street!

Today left a bad taste in my mouth, as I really wondered if the stock market is corrupt and being manipulated.  What incredible sad it would be if that were true.

So I have to wonder, after so many years of not going far enough, Where is the Uptick Rule?

Thanks for letting me rant,

MR