Rule of 72

More Than 2 Years In, Still Beating the Market (Thanks Joel!)

2008-08-20T20:57:00.001-04:00

Fortunately I've been more rigorous in actually investing than in blogging about it, but since I'm taking the week off work, I thought it a good time to do the "two-year update" post I'd meant to do back in May.

So I guess this is a "28-month-update."

I've been generally following the strategy outlined in Joel Greenblatt's "Little Book that Beats the Market," which in a nutshell says:

Pick stocks using this screener

Hold them for about a year (if they're down, sell just prior to one year; if they're up sell just after one year, for tax purposes)

Lather, rinse, repeat (holding about 20 stocks at any one time)

Current/previous holdings now updated, and the chart below shows my performance since May 2006.

Also, in an attempt to get myself posting more frequently, I'm considering folding this blog into my main personal one. I'll try to maintain all the relevant links, but may well fail miserably. Check back at andrewsavikas.com/blog for updates.

Anecdotal Evidence from the Boston Real Estate Market

2008-06-10T23:56:00.001-04:00

My wife and I have been in the market for our first house for a little over a year now; the stars finally aligned recently and we pulled the trigger. Apparently we're not alone. And from the Completely Anecdotal department, all of the property alerts I set up on Redfin while we were house hunting are showing a distinct uptick in the number of properties going under contract. While my experience is limited to one square mile here in Boston, in that square mile, I've seen sellers slowly get much more realistic with prices, and perhaps that's finally bringing buyers back to the table.

Changing the Rules in the Middle of the Game

2008-06-05T22:08:00.001-04:00

Just caught Maxed Out on Showtime. Opinions on credit cards and bankruptcy aside, it does seem totally unreasonable to change the interest rate on money someone has already borrowed. it's one thing to say, "hey, you're being risky -- if you want to borrow any more money, we're going to jack up your interest rate."; quite another to reprice your product after a customer has already purchased it.

Why ATM Fees Now Make Me Smile

2008-02-22T19:30:00.000-05:00

I travel a lot, and while Wainwright Bank here in Boston has been great, I was just so rarely near one of their ATMs when I needed cash, that I often had to swallow obnoxious ATM fees.

As they say, you don't know what you've got until it's gone (true story: I saw them in concert in 1987. Twice.), and I had no idea just how annoying those fees really are until I stopped paying them. OK, I technically do still pay the fee, but every month I now get all of those fees refunded:

    01/31/2008    ATMREBATE    ATM Fee Rebate    $10.75

Schwab's not the only bank to offer ATM fee rebates, and now may be a great time to find one that works for you.

New Round of MFI Picks

2008-02-14T14:40:00.001-05:00

I picked up my (now quarterly) basket of new MFI stocks on Monday (I was a bit too tied up to post sooner). All of these had recent data in the MFI screener:

Cal Dive International (DVR)
Maximus (MMS)
Supertex (SUPX)
American Eagle Outfitters (AEO)
Administaff (ASF)

Also sold the following:

FDG (+45.89%)
WDC (+47.02%)

The full list of holdings has been updated.

Performance Update (Live from New York)

2008-02-08T15:41:00.001-05:00

I'm in New York this week, where I had the opportunity to attend the O'Reilly Money:Tech Conference, and while the conference content was excellent, I was left with mixed feelings about the market.

On the plus side, seeing and hearing so many market luminaries left me re-energized about investing, and excited to make my next round of picks (doing bi-weekly picks was problematic for two reasons: it was a lot of work; and the MFI site only updates with quarterly reports, so in some cases I was working off data nearly 3 months old).

One of the highlights from the conference was a conversation between conference program chair Paul Kedrosky and Mad Money's Jim Cramer. Not only is Jim as entertaining as you'd expect in person, he was very bullish on GOOG. (He said a lot of people were making "momentum" decisions: they open the drawer today, it says 'sell google'; after the market improves, they'll open the drawer again and it'll say 'buy google'.)

On the downside, there's a strong consensus among the Wall Street crowd that we're either in or heading toward a recession (an interesting data point here). While that does mean market opportunities, it also means a lot of people are looking at some lean times ahead.

Regardless, I'll be making a new round of MFI picks on Monday, this time five at a time (done every quarter to leave me with 20 at any given time). On that note (and because I'm tired of that Covestor widget to your right mocking me -- that precipitous decline you see in July coincides almost exactly with my Covestor signup), I thought I'd post my performance since inception, which now represents about 18 months of data. Still short-term, but I find the results encouraging: 25.32% against the S&P's 8.66% for the same period.

You can read about how this performance is calculated here. (There was actually someone from FolioFN at the conference, but unfortunately I didn't get a chance to connect.)

Best Week Ever

2008-02-05T00:31:00.001-05:00

Yes, it's the name of VH1's knockoff of E!'s equally vapid-yet-addicting The Soup. But while last week certainly wasn't the best week ever, it was the best week the Dow and the S&P have seen since March of 2003.

So what? Well, amid the market's recent turmoil, such strong upside is of course nearly impossible to predict. Anyone with cold feet who bailed last Friday really lost out.

Again, so what? Well, it's OK to nervously watch the CNBC ticker. But unless it's your actual day job, it's not OK to do anything about it. The technical way to talk about why it's a good idea to just methodically invest regardless of daily/weekly/monthly market movements is Dollar-Cost Averaging. The non-technical way to talk about it is that you have no idea whether this week will be another Best-Week-In-Five-Years.

For most people, putting money into the stock market (or taking it out) should be a long-view decision: "For the next 5/10/30 years, I'm going to put 10% of my income into an index fund"; "I'm retiring in 10 years, so it's probably time to shift from 85% stocks to 60% stocks".

The Modern Elevator Stock Tip

2007-10-17T02:06:00.000-04:00

It's hard to grasp how deeply embedded high-tech is within the fabric of Silicon Valley (and by extension San Francisco) until you have a moment like I did this evening. After checking in to my hotel for the Web 2.0 Summit, I was in the elevator with the bellman, and his obligatory chit-chat was not about the weather, but rather about today's earnings announcements from Yahoo! and Intel. Very surreal.

Robert Half International (RHI)

2007-10-08T16:35:00.000-04:00

My most recent MFI pick is Robert Half International (RHI), a staffing and consulting firm with a 5.29B market cap.

I've also dumped dog HLYS (-69.88%), and sold IUSA (+17.54%). See the rest of my current and past holdings here, or track my investments via Covestor.

iHeart my iPhone

2007-10-01T18:49:00.000-04:00

I didn't need a new phone. My Nokia 9300 was serving me quite well, even if it was a tad crash-prone. Nice big keyboard (fat thumbs), reasonable Web browser, and solid integration with my work's Zimbra mail server (sidebar: Zimbra was recently acquired by Yahoo! for $350M).

... And then I had a few hours to kill in Palo Alto a couple weeks back, and as soon as I got my hands on an iPhone in the Apple store, I was hooked (the recent $200 price drop sealed the deal).

Like most things Apple these days, the iPhone is a thing of beauty, and using it puts every other "smart" phone to shame. But this isn't just about the iPhone, it's about why buying an iPhone led me to buy some AAPL as well.

I've bought my fair share of cell phones, both in stores and online, and it's typically a painful experience involving all manner of forms, applications, and other bureaucratic minutiae. With the iPhone, what took the longest was updating my version of iTunes. From there I just told Apple (not AT&T, Apple -- save a small logo, AT&T was essentially invisible) that I was already an AT&T customer, entered my current number and last-four-of-SSN, and then picked out a data plan. Less than a minute later, my new iPhone was active.

Apple turned an annoying, complicated transaction into a couple simple iTunes screens. In other words, they went out of their way to make it very, very easy for me to (a.) start using their product and (b.) feel just fine about paying them for it. And of course I had to buy a case, and a screen protector, and a headset, and a ...

And it seems I'm not alone. Here's David Strom and Tim O'Reilly on their own recent iPhone purchases (and a recent general Apple post from Joel Spolsky).

Weighting Joint Contributions Means You Both Get That Raise

2007-08-25T14:04:00.000-04:00

A topic that has the potential to be a source of trouble for couples is what to do when one of you gets a raise. Obviously both partners want to share the good fortune, but deciding how and where to allocate it between you may be hazardous to your marital harmony.

Fortunately the simple weighting mechanism used to figure out how much each of you should be contributing to the joint bills works just as well in reverse.

For example, let's say Jack currently earns $40,000 and Jill earns $50,000. That means for every $1.00 in joint ("needs") expenses, Jack contributes $0.44 (40/90) and Jill $0.56 (50/90).

Now Jill gets a big promotion that changes the relative weighting of their income, so that for each $1.00 in joint expenses, Jack's contribution falls to $.40, and Jill's rises to $.60. Jill has more in her paycheck each month, but that's been partially offset by an increase in her contribution to the joint expenses -- she doesn't get to keep all of her raise, since she now "owes" 7% more each month to the joint account. At the same time, even though Jack's pay stayed the same, he now "owes" 10% less to the joint expenses, effectively increasing his leftover ("wants") money.

Both Jack and Jill have more spending money, and there's no room left for argument.

Sticking with it: this round's pick: GYI

2007-08-19T22:00:00.000-04:00

The only way I can really know if the Greenblatt strategy really works is if I stick with it, even when "Mr. Market" as Greenblatt calls it, is acting up.

This round's pick is Getty Images (I was spooked enough to pick something with a fairly large market cap at $1.8B), and I'm also selling Herbalife (HLF), for a gain.

Interesting counterpoint on Getty here. My involvement with content and digital-asset management suggests to me that replacing Getty with a wiki will take a mite longer than my 1-year investment horizon.

Spanked by HLYS

2007-08-12T20:27:00.000-04:00

The past week was particularly painful, as wheeled-shoe maker Heely's Inc. disappointed everyone. My stake lost more than half its value overnight. Ugh.

With this much volatility, the question becomes whether to hold off on any new LBTBTM stocks, or to plow ahead (and ostensibly get something strong even cheaper). I've got until Wednesday to decide (when the bi-weekly transfer to my brokerage goes through). Stay tuned.

P.S. -- I dropped the ball on posting last round's trades, which were picking up KNL and unloading OVTI for a loss. Sorry 'bout that.

Last Week's Wild Ride, in Context

2007-07-30T18:02:00.001-04:00

No doubt that last week took the wind out of more than a few sails as the broader market took quite a beating. A quick peak at my Covestor standings (as of today) suggests I fared even worse than the overall market. Indeed, a similar trend over the same time period (roughly the past month) can be seen in the performance graph (my performance is the darker of the two lines) taken directly from my FolioFN account:

Of course, such is the nature of short-term performance measures. I waited a year to start this blog in part to be sure that I had at least that much performance data to share. Even a single year is on the low end of my comfort zone for judging portfolio performance.

Viewed in the context of the past 12 months worth of performance data, you can see that while my positions did fall pretty far, pretty fast last week, they did so from quite a bit higher of a starting point than the broader market:

Covestor appears to be gearing up to display member rankings, but with only a few months worth of data (and significantly less than that for a lot of their newer members), I hope they delay the launch of that feature until they have a critical mass of reasonably useful data. If not, those rankings may well be as volatile as last week's wild ride.

Taking the Plunge: Is a Joint Checking Account Right for Both of You?

2007-07-24T21:36:00.000-04:00

According to the server logs, 10% of the search queries used to get to this blog have to do with joint checking accounts, including queries like "married add to checking account" and "dual savings checking account". Clearly a topic of interest.

So assuming you're married, soon-to-be-married, or living with a partner in a long-term relationship, should you take the plunge and set up a joint checking account? Or should you keep separate accounts? In a word: Yes.

Of course, everyone's situation is unique, so you may want to adjust accordingly, but here's what's worked for us:

Open a joint checking account under both your names, and get a debit card for each of you
Keep or open a separate, individual checking account for each of you. If you're married, be sure to work with your bank to set up the accounts so that if one partner dies, the account goes to the other partner.
Classify your monthly bills, identifying all the ones that are truly joint expenses like rent, cable, insurance, groceries, etc. (including any joint savings you might be doing for something like a down payment) I'll call these household expenses.
Decide what percentage of the total household expenses each of you should contribute. This should be weighted according to your relative income: if you both make about the same salary, then just split it 50/50; if one partner earns $60,000 and the other $40,000, then the higher-earning partner should be picking up 60% of the household expenses.
Have your household contribution direct-deposited into the joint account, and the rest deposited into your personal account (if your workplace won't split deposits, you may need to set up an automated transfer through your bank; another option is to open all of these accounts through ING Direct, which offers great rates and easy online access, including automatic transfers).
Pick one partner to manage the joint account. The other partner has the obligation to share timely information about any purchases they make (designate a drop-box for receipts). But what if having two cards causes an overdraft? Simple -- you do have that $1,000 padding, right? Since my wife and I did that, we haven't had a single overdraft, despite the occasional crossing of wires.
Finally (and perhaps most importantly), since the shared expenses are taken care of, what's left in your individual account is, well, yours. That means you can spend that as you'd like without consulting your partner, no matter how silly they think your purchase might be (no way I could have justified my $100 pocket notepad, but I love that thing and use it almost every day).

Though having multiple accounts does add some administrative overhead, the benefit is that you avoid a lot of potential friction caused by -- how shall I say this -- differences of opinion on appropriate spending.

Comments welcome on what joint-account setup works for you.

This Round's Pick: HLYS

2007-07-24T21:26:00.000-04:00

As you know, in keeping with the LBTBTM strategy, roughly every two weeks I pick up another stock, with the intention of holding for approximately a year. This time around, it's Heely's, Inc., which makes those shoes for kids with the wheels in the heels.

In addition to some impressive financials, I like how clearly they've defined their target market:

Heelys, Inc. engages in the design, marketing, and distribution of action sports-inspired products for 14 year-old boys and girls.

Their market cap is about $600M, and the MFI screener calculates their pre-tax earnings yield at 10%, and their pre-tax return on capital at over 100%.

My current holdings are posted here, You can also track my holdings through Covestor.

This week I also sold my holdings in Renaissance Learning Inc., up 18% in just over a year.

P.S. -- Don't forget the fine print.

This Round's Pick: UEPS

2007-07-06T17:55:00.000-04:00

As you know, in keeping with the LBTBTM strategy, roughly every two weeks I pick up another stock, with the intention of holding for approximately a year. This time around, it's Net 1 Ueps Technologies Inc., which makes smart-card technologies.

Their market cap is about $1.2B, and the MFI screener calculates their pre-tax earnings yield at 8%, and their pre-tax return on capital at over 100%.

My current holdings are posted here, You can also track my holdings through Covestor.

P.S. -- Don't forget the fine print.

"Covestor" Tracking Added

2007-06-28T20:33:00.000-04:00

I don't usually read the Wall Street Journal cover-to-cover, but had several wi-fi-less hours to kill on the way back from FOO Camp earlier this week (always a tremendous experience, though Larry Page arriving by helicopter was a bit surreal). Had I been in more of a hurry, I might not have otherwise spotted an article mentioning a new website called Covestor, which lets you track the (audited) trades of other investors.

I'll continue to update my holdings here, but you can now also monitor my holdings as tracked by covestor (see the sidebar on the main page of this blog). What I'm most excited about is that covestor plans to offer the ability set up automated "following" of another member's stocks if you like their style (hint hint). More details on the covestor site.

I'm especially impressed with covestor's savvy in offering easy-to-use blog widgets -- such tools are a big part of the success of many social networking sites (of which covestor is really just a variant -- a financial Facebook).

Note that I just created the covestor account a few days ago, and they don't do retroactive performance, so the data's rather sparse right now. That will of course improve with time.

This round's pick: PMTI

2007-06-22T18:30:00.000-04:00

As you know, in keeping with the LBTBTM strategy, roughly every two weeks I pick up another stock, with the intention of holding for approximately a year. This time around, it's Palomar Medical Technologies, which makes lasers for cosmetic use (hair remove, varicose veins).

Their market cap is about $645M, and the MFI screener calculates their pre-tax earnings yield at 8%, and their pre-tax return on capital at over 100%.

My current holdings are posted here, and my 1-year performance (as of today) is at right. More details on how that performance is caluclated is available from the FolioFN site.

P.S. -- Don't forget the fine print.

First Scheduled Sale of Stocks -- Some Winners and a Big Loser

2007-06-14T21:47:00.001-04:00

If you've read my previous post summarizing my first-year results, you know it's been a pretty good year. Part of the Greenblatt strategy is to hold for roughly a year, which means for the first time, I've been selling as well as buying.

Here's the stocks that were up for evaluation:

HNR -- -27.60%. No longer on the MFI list. A definite sell.
RATE -- +19.4%. A small impulse purchase that wasn't part of the MFI list, but up nicely anyway.
ELOS -- +21.58%. Selling to capture the gain (at the more favorable long-term tax rate)
XJT -- +5.86%. This one's a bit trickier. It's been up much higher over the past year while I held it, and it's still appearing on the MFI list. I've decided to hold on to it for now.

I've also added previous holdings to my holdings report for your enjoyment. You'll notice JH on there, appearing as sold well before the 1-year mark -- JH was acquired while I was holding it, and I got a nice 40% premium over my purchase price (which is in fact the average premium paid in an acquisition).

The Power of Padding (your checking account)

2007-06-11T21:29:00.000-04:00

Over the past 3 years, my wife and I have done a lot to improve our financial wellness, from online banking to Roth IRAs (however small the contributions).

But perhaps the single most useful things we've done was also probably the simplest (note I didn't say easy -- running a marathon is very simple: you just run for 26 miles; that doesn't make it easy). It was a tip we'd heard in one form or another before, but really picked up from the excellent book, All Your Worth.

The tip? Pad your checking account with an extra $1,000. Most financial books recommend saving 3-months' worth of living expenses as an "emergency reserve". I don't personally know anyone under 30 who has actually managed to do that, though I'm sure they're out there somewhere. And if they are, they have little use for financial advice books, since they probably wrote one. But $1,000? Sure it took us longer than I'd prefer to admit, but we did it. And it made a world of difference.

No more worrying about bouncing checks, or rushing to make a deposit before a bill was due. Just a warm fuzzy feeling knowing that if the car broke down on a road trip and needed a new radiator, we were prepared to handle just such an emergency without a credit card.

The (admittedly minor) contribution I'd like to make to the suggestion is in the mechanics of how to fool yourself into forgetting that $1,000 is there. It's very simple: just make an entry in your checkbook as if you'd written a check (or actually write the check if you'd like) to "Cash Reserve" or something similar. In fact, if you don't currently have an extra $1,000 to put into a reserve, then writing checks in smaller increments for a few months might be a fairly painless way to build one up. This way, when you balance your checkbook, you don't have to remember to add (or was that subtract?) the extra money -- it just shows up as an uncleared transaction.

In the grand scheme of things, it was a pretty minor thing. But it was a great milestone to reach, and gave us the motivation to go further toward setting and reaching our financial goals.

More reason to keep an eye on GOOG

2007-06-07T18:30:00.000-04:00

On NewsFactor (via Google News of course):

"The continued growth, on top of the record growth of 2006 and despite advertising's traditional sluggish first quarter, demonstrates the growing significance of interactive advertising to the overall advertising and marketing industry," David Silverman, a partner at PricewaterhouseCoopers, said in a statement.

Nuts and Bolts: How I Implement the Greenblatt Strategy

2007-06-06T00:00:00.001-04:00

Greenblatt's book is a little vague on the day-to-day mechanics of how and when to buy the recommended stocks. This post explains in step-by-step detail how I've chosen to implement the strategy. This is what I've found is best for my situation -- there are other options that may better suit your particular situation, and your mileage may vary.

Open an account at an online discount brokerage that allows for partial purchases. You want someplace cheap, and someplace that will let you purchase specific dollar amounts of a stock, not just specific numbers of shares (so that, for example, you could invest $100 every 2 weeks, regardless of the price of the particular stock). I use FolioFN, but ShareBuilder is another good choice, and there are others out there.
Set up automatic deposits into the brokerage. When it comes out of your paycheck, you'll never miss it.
Every 2 weeks (or with every paycheck, if you're paid monthly or bi-monthly), pick up a new stock, using the choices listed at the Magic Formula site. You may certainly want to consider what I've chosen, but by all means, pick what you're comfortable with. Remember, these are all "good" stocks, and if you're going to hold 20-30 of them, don't sweat any single pick.
Hold each stock for a year. If the stock is down, sell it just before the year is up; if the stock is up, wait until just after the one-year mark (to receive the more favorable 15% long-term capital gains rate).
Remember, you're in for the long run. The minimum investment horizon for the plan described in LBTBTM is 3-5 years.
Finally, don't invest what you can't afford to lose. While I'm understandably excited about how my stocks have been doing, this is "risk capital" -- I'm still putting my "real" savings into a 401(k), in a diversified mix of index funds, bonds, and mortgage securities.

Disclaimer

2007-06-05T21:42:00.000-04:00

Just a reminder:

I am not a registered investment advisor or broker/dealer. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. I can't be liable for any loss or damage caused by your reliance on any of the information from this blog/site. You are solely responsible for your own investment decisions.