Programmer's Investing Notes

Sell in May?

2009-05-02T12:16:57Z

Sell in May, buy in November?

It's a technique that's proven to yield good results. I wrote about it in 2007, see Sell in May, Buy Back in November.

Last year, the biggest losses were in that period. This year, I think it might be similar. Over the past couple of weeks, the stock market rebounded a great deal. I feel that stocks might be overvalued. Too fast too soon -- that's my general feeling.

I've sold several of my stocks recently. It's not only because of this rule. I want to simplify my investing. I want to own companies that I know (TJX, PHG,NOK,F,CSCO,VZ are some that I'm sticking with). I want to own less stocks and more ETFs.

I'm going to test the impact of this rule, though. I have a larger share of my stocks in Consumer Staples (Kraft, General Mills, Procter&Gamble). Plus, I recently found a mutual fund that has a large short position, so in my retirement account, I investing a bit in it. It'll benefit when the stocks go down.

I had a feeling that stocks were overvalued when the Dow reached 14K. But selling short is tough. I did several transactions, one of them was Wells Fargo. I did benefit, but with a wild stock market moves, I just bailed out. Investing in a Fund that has many short positions is better, I think. One that I found that is open and only requires $1K upfront is Comstock Capital Value R (CPCRX). It returned 57% in 2008! Had I known about these funds, I would have invested in them. Now I do, and this will help me in the long run. I learn something new every day. :-) But this fund is expensive! :-( It charges around 2% per year, I'll have to find something else eventually. (Let me know if you know about something less expensive, that's open and requires small position to invest.)

All in all, I think the stock market is due for a correction to the downside. The economy, though it seems it might be leveling off, is still in a bad position. Unemployment is high, foreclosures are mounting , house prices are sliding... Too much negative for the ecomomy to quickly rebound. I'm preparing for it a bit different this year, Sell in May, But in November.

Can you afford that house?

2009-02-09T19:42:54Z

The average homes are selling for 4.7 times average earnings now. It should settle close to 2.8 or 3 times, so we still have a ways to go.

Let's do some math here. If you are making $60K (household income, gross), which is roughly the national average, then you can afford to buy a house for $60 x 3 = $180K (or less).

Last time I checked, not many houses in NJ sold for less than $300K. Even now, it's hard to find a really nice house for that price.

Am I missing something? Or do houses have still further to go. I think so.

I had hoped to buy a house in 2008 or 2009. Now I think I will wait a little longer.

While reading this article, Five reasons to buy a home this year, and reading the comments (a lot of good ones), I came across an interesting one:

The Panic of 1893 was a real estate bubble-induced depression that scared people away from building houses for a long time. Housing prices and real estate values in general declined for the next 27 years after the 1893 Panic. Think about that. For twenty seven years, not until 1919 or 1920, could you buy a new home with the expectation it would increase in value. In other words, housing was a commodity, speculative at best, certainly not an investment.

I see talking heads on TV nearly every week, self-professed real estate experts, who say the real estate contraction is almost over. Housing values have declined over 25% since 2006. That percentage is greater than the percentage that real estate values declined in the 1930's during the Great Depression. So their argument is that real estate prices have already declined as much as they did during the worst economic period in American history. If you listen to the experts, mortgage rates are low, home prices are low, so there is no better time to buy a house than right now. But, as Paul Harvey would say, here's the rest of the story...

There were very few new home owners in 1929 when the stock market collapsed ushering in the Great Depression. Why? Because the value of individually owned homes had only recently, the last 9-10 years or so, started to rise. It wasn't until after World War I ended that new homes began to be built again and housing prices began to increase in value. Most people either lived in or near the cities and rented apartments, or they lived on rural farms as hired hands or tenant farmers or share croppers. Not only did very few people buy new houses at that time, there aren't even any government statistics available on home building or home ownership from that time period. Therefore, when the stock market collapsed in 1929, housing prices were already near their all-time lows having barely recovered from the Panic of 1893, as you can see in the link below which is Case/Shiller Housing Index data dating back to the Panic of 1893.

The main thing to notice in this chart is how housing prices hyper-inflated beginning around 1998. The home prices in 2000 serve well as a baseline for a historical median. You can see that home prices have pretty much hovered around that relative median value since the 1800's. But in 1998 home prices took off like a rocket ship as the Federal Reserve began to lower interest rates creating the largest easy-money housing bubble in recorded history.

Housing prices have only fallen about halfway down from their 2006 highs to the historic median price I alluded to above. Empirically, this would mean housing prices still need to fall another 50% just to get back to a stable median price. But this is obviously the biggest housing bubble in the history of America. It would not be surprising if housing prices fell to levels comparable to the crash after the Panic of 1893. Should that happen, housing prices could easily decline to less than 75% of their 2006 peak values.

Bottom line, it simply would not be wise to invest in housing until we have a much better idea how this recession is going to play itself out. The data doesn't lie, particularly Case/Schiller data. Just because a house is down 30% in the last two years does not make it a bargain. There is no reason it can't lose another 30% or more in the next two years. So just be careful.

Reference
Five reasons why buying a house is a right move - the comments are the real value here

Economy: How bad is it?

2008-12-01T17:02:36Z

The latest BusinessWeek had an interesting article, full of stats, How Bad Is It? It turns out things are really bad. (The bolded date means "worse since.")

International travel fell 2.9% year over year in September, the worst drop since the SARS scare in August 2003.

Chief Executive magazine's CEO Confidence Index stood at 58.2, the lowest since the survey began in 2002.

Corporate jet takeoffs and landings in October were down 19% from last year, the largest drop since the FAA started collecting such data in 2001.

The S&P 500 index dropped to 752 on Nov. 20, the worst close since it hit 744 in 1997.

The unemployment rate rose to 6.5% in October, its highest since March 1994.

Citibank announced layoffs of 53,000 on Nov. 17, the most pink slips since IBM's announcement of 60,000 jobs cuts in 1993.

New jobless claims hit a seasonally adjusted 542,000 for the week of Nov. 15, the highest weekly level since 1992.

Retail sales were off 2.8% in October from September, the worst drop since current counting methods began in 1992.

The Home Builder Confidence Index plummeted to 9 for the month of October (a rating of 50 means half those surveyed say the outlook is good), the lowest since the index was created in 1985.

Auto sales declined 32% year over year in October, the worst drop since 1983.

Core consumer prices (excluding food and energy) were down 0.1% in October from September, the first dip since 1982.

The Consumer Confidence Index hit 38 in October, the lowest since its creation in 1967.

Monthly housing starts fell 4.5% in October, to a seasonally adjusted annual rate of 791,000, the lowest since record-keeping began in 1947.

GM stock dropped to $1.72 on Nov. 19, its lowest since 1938.

The Dow tumbled 47% on Nov. 20 from an October 2007 peak, the worst drop since it fell 49% from 1937 to 1938.

Reference
How bad is it?, BusinessWeek

NJ Area: Least Affordable

2008-11-18T14:18:14Z

New York-White Plains-Wayne, N.Y.-N.J., was the nation's least affordable major housing market for the second consecutive quarter.

That's been my experience as well. Trying to find a decent house in northern Bergen county for around $300K is still not really possible. Are people really making that much money? I don't think so. I think house prices, especially in Bergen county, are still overpriced. More pain ahead. And perhaps I can find something "affordable."

Reference
Least Affordable: NY Metro Area, New Jersey Real Estate Report

Home Prices Keep Falling

2008-07-23T02:01:07Z

Housing market is a mess right now. But house prices are still expensive. I believe we have ways to go. And this article, Home Prices Keep Falling, Prolonging Financial Crisis, supports my view. Here are a few excerpts...

"It looks to us that at least one half of the peak-to-trough price decline has already occurred and that we should see an outright bottom either late next year or in the first part of 2010."
"If prices were to moderate back to where they were relative to income in the mid and late 1990s, the S&P/Case-Shiller 20 City index would have to decline 35.1 percent in total compared with its 17.5 percent fall thus far."

"Regardless of which index you believe, the important measure is that we are only 50-60 percent of the way down."

Reference
Home Prices Keep Falling, Prolonging Financial Crisis, CNBC.com article

Betting on Stock Market Downturn

2008-06-26T20:07:58Z

It's not easy to be in the stock market in the past few days and weeks. I had a feeling that the stock market recovered a bit too high too soon. I should have capitalized on that. How? By betting that it will correct itself. How do you do that? By "shorting," which is a way to make money when a stock goes down: you're basically betting that a stock will go down, and when it does, you make money. I just discovered that there are now ETFs designed specifically for that purpose. That's a very good investor's resource, in my opinion.

Here are a few ETFs that do the "shorting" for you:
ProShares Ultrashort () - rewards a fall in the Nasdaq;
Proshares Ultrashort S&P 500 ()- rewards a fall in the S&P benchmark
Proshares Ultrashort Dow 30 () - rewards the fall in the bluechip industrials.

Rydex recently rolled out eight new ETFs, half of which offer double-inverse plays on the energy, financial, health care and technology sectors. The Rydex Inverse 2x Select Sector Financial () - up more than 8 percent in light Thursday trading.

Keep in mind that "shorting" can cause unlimited losses: if stocks go up, you lose. But these ETFs do limit the risk somewhat and that is a very good think.

Reference
Shorting Stocks Could Be Way to Play This Market, cnbc.com article

Housing Bottom

2008-04-11T11:41:39Z

When will housing reach bottom? Not too soon according to a Wall Street Journal survey.

Reference
U.S. Economy Hasn't Hit Bottom, Survey Says -- WSJ.com ($$$)

Housing - not a pretty picture

2007-12-27T12:37:42Z

Reference
Pace of Decline In Home Prices Sets a Record, WSJ

Foreclosures Rising

2007-10-07T21:02:58Z

Take a look at the chart.

And we're not at the peak yet!

According to The Economist...

Nationally, people are defaulting on mortgages at a faster pace than at any point in recent decades. According to the Mortgage Bankers Association, some 5% of all mortgages are delinquent and the share rises to almost 15% for “subprime” mortgages—those lent to people with shaky credit histories. In the second quarter of 2007, almost 3% of subprime loans entered foreclosure (the process of default and repossession). RealtyTrac, a company that tracks foreclosures, reckons up to 1.5m households will enter the process this year (see chart), double last year's figure. And with some 2.5m adjustable-rate mortgages resetting to higher rates before the end of 2008, everyone knows there is much worse to come.

I think we will not see a recovery in housing till at least 2009. But in housing, everything moves slowly. So this downturn might not be over well after 2010.

Reference
The hummer drops, The Economist

Worse to come for housing?

2007-09-25T11:47:21Z

I don't think housing is out of the woods yet. In my opinion, the worse is still to come. Take a look at these stats released by the WSJ today.

$31.8 billion in subprime adjustable-rate mortgages got adjusted this month - the highest amount of subprime ARMs due to reset over a one-month period in this housing cycle.

In August, foreclosure filings rose 36% from the previous month and were up 115% from last year, according to RealtyTrac. As ARM resets reach a peak, more homeowners will have trouble meeting payments.

It would take 9.7 months to sell all of the single-family homes now on the market, near the previous peak set in May 1989.

All this means that housing in the months to come will most likely get worse, not better.

Reference
Housing Slump Could 'Reset' Itself Again, WSJ

Some technology ETFs; CLUB

2007-08-27T22:39:58Z

Being well diversified is the key to long-term investing. If you were not, you probably learned from the recent correction. I began moving towards big, dividend paying, safe companies for some time. As a result, my portfolio is in good shape after the correction. The fact is, though, the economy is slowing and might even go through a recession. It doesn’t mean that there are no good picks. Actually, the best time to buy is during market downturns.

Here are some of the stocks and ETF that I’m currently looking at. I think technology is a good place to be in the near future. There is decent growth and the stocks do not look overpriced. I am going to have to pick on technology oriented ETF and invest in it.

Software and Technology ETFs
Software ETF ()
iShares S&P GSTI Software Index Fund ()
PowerShares Dynamic Software ETF ()
Technology Select ETF ()

Town Sports Intl ()
Strong membership growth; profits should follow.

BoA Free Trading -- The Catch

2007-08-03T18:25:00Z

I fell for it. Have $25K in your accounts and you will get 30 free trades every month -- that's the offer from Bank of America (BoA). Because I had that amount with some cash and money from my Interactive Brokers account, I went for it. Now that my account is transferred to BoA it turns out I’m charged $10 for each trade!

The catch?

You have to have $25K outside of your investing account! Wholly shit! Who the hell is going to keep $25K in their savings/checking accounts? Definitely not me! I don’t need more than $5-10K in my savings account. I want to have my money invested, not sitting idle in an account.

I am going to look elsewhere and transfer my assets out of Bank of America.

One possibility is Zecco. They also have free trades and it seems like a good offer. I don’t see any catches – not yet, at least. :-) If that does not work out, I’m going to go back to Interactive Brokers ($1 per trade; 10 trades/month minimum), where I had my account for the past several years.

I guess the lesson for me is to read the fine print.

Good Stock: Life Time Fitness

2007-06-26T17:02:42Z

Americans are getting heavier. That's a fact. Companies that deal with that will benefit. Which companies? Good question.

Life Time Fitness (, $53), is a "Lexus experience for Toyota price. This is a health-club chain, where members for about $60/month enjoy amenities usually reserved for facilities that charge a lot more: wood panel rocker rooms, yoga, Pilates, pools, care, and day-care centers, and more. They currently operate in Minnesota and Texas, but are expanding to Georgia, Phoenix, and Salt Lake City areas.

Reference
Kiplinger's, March 2007 issue

Related
Nautilus (), Bowlex maker

Rate Rise Pushes Housing, Economy to `Blood Bath'

2007-06-21T16:22:27Z

Excellent article on state of the housing... and things to come.

The worst is yet to come for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, according to the National Association of Realtors.

“When all these people see their mortgage payment and it’s up 40 or 50 percent, they’re going to say, `We can’t stay in this house,”’ Pimco’s Kiesel said. “And there are millions of people in this situation.”

Some owners are selling their homes at “fire sale” prices to avoid foreclosure after seeing their adjustable mortgage rates spike, said Lawrence White, an economics professor at the Stern School of Business.

“Prices will continue to soften for as long as we have distressed sellers,” White said. Some regions of the U.S. could see price declines of 10 percent in the next six to 12 months, he said. The slump probably won’t cause a recession, he said.

Reference
Rate Rise Pushes Housing, Economy to `Blood Bath' - Bloomberg.com: Worldwide

Clean Energy ETF

2007-06-15T22:20:34Z

PowerShares WilderHill Clean Energy ()
It looks to me like an interesting ETF. I see a lot of activity in the clean energy area, a lot of talk. It looks to me that clean energy is the future and things are starting to happen there.

"PBW holds 40 companies specializing in the production of clean energy, such as wind and solar power, and hydrogen fuel cells." - Kiplinger's