Archive for July, 2007

I picked up Wade Cook’s Safety 1st Investing when it was recommended by a reader.  I read the book a while back and I’m just now getting around to writing a review of the book.  Wade Cook does a good job covering all the different types of stock trading & investing: Diversification; Company News & Quarterly Earnings; Calls; Puts; Spreads; Naked/Covered writing; Index plays and various formulas

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The book I have was actually published in 1999 and no doubt, was written to capitalize during the dot com boom, but the strategies are still usable today.  I like buying older books on occasion to find if they stand the test of time.  What might have been popular 8 years ago may not be so popular today but I find that options trading has increased significantly since the late 90s so the book does hold up against time.

If you need an overview on different trading methodologies and understanding the importance of keeping up with the news and company’s financial statements then you should consider reading the book.   If you regularly visits sites like finance.yahoo.com to check out a company’s balance sheet, income statement, cash flow, options and stock price, and trade (even occasionally) calls or puts then you probably won’t get much out of the book.

It is comforting to know that there are people out there that think the same way I do and Harv Eker’s The Millionaire Mind covers many topics I’ve covered here on my blog over the past year. If I ever sat down to write a book, it might nearly be The Millionaire Mind almost word for word!

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I’ll get the suspense out of the way, EVERYONE should buy this book; if you don’t have any money, go to your local library to check it out or ask for it as a birthday present. The book explores what really keeps people from getting rich: Themselves!

I wrote recently a compilation of the top 10 excuses I’ve personally heard over the year why people weren’t getting rich and Harv pretty much covers them all in his book. Harv, however, delves into the psychology behind the excuses and his findings are quite profound. The entire principle of the book starts with each person’s money blueprint.

The environment you grew up in provides the foundation for how you’ll live the rest of your financial life. If you had a religious upbringing in which your parents instilled in you that wealth was evil then there is a high likelihood that you’ll feel the same way about money and handicap your potential financial success.
One of the things I love about the book however are the “wealth principles” scattered throughout the book.

Here are some gems:

You income can grow only to the extend that you do.

The only way to permanently change the temperature in the room is to reset the thermostat. In the same way, the only way to change your level of financial success “permanently” is to reset your financial thermostat.

If your goal is to be comfortable, chances are you’ll never get rich. But if your goal is to be rich, chances are you’ll end up mighty comfortable.

I won’t write much more about the book because I think everyone should read it and I’m certain that everyone will find a reflection of themselves in at least one of the chapters in this book.

The 500 point Dow drop over the past couple of days illustrates, to an extent, how you can never really time the market. Index funds got clobbered today. The second best alternative is to profit when the market goes up and when the market goes down. How is it possible to do this? There are many ways but the easiest and safest (in my opinion) is to buy exchange traded funds (ETFs) and sell in-the-money calls for the ETF you own 30 to 60 days out.

This “system” is called ETF Covered Calls and you can always read more about it here at http://www.etfcoveredcalls.com

Was it perfect timing or luck that I happen to be in all cash this week when the Dow dropped? I had a feeling the Dow would drop with all the bad news coming out every single day: Sub prime loan mess, $100/bb Oil, $700 oz Gold, Weak Dollar, War with Iran, Billions wasted in Iraq, Out of Control Inflation, etc.

If I had held securities during this drop, it would have been beneficial because my short positions would have expired worthless or I could have bought them back very cheaply. We all know that the Dow will eventually recover right? It may take a few days, weeks, months or years but it will eventually recover the only question is how long it will take to recover.

My investing strategy is to focus on making 1.5% to 4% every 30 to 45 day period and not worry about averaging 10% per year or some other annualized return. I didn’t lose a single penny this week since all my stock was sold automatically last Friday during Options Expiry; it’s a natural “release valve” that locks in my monthly profit by selling when things are good and expiring worthless when times are bad – either way, I profit.
With the market down this week, I’ll let the ETF-Cashinator pump out some ideas for investing in this volatile market. I hope you’ll check it out at http://www.etfcoveredcalls.com.

I got called on my UNG holdings last week after options expiry. Since selling at $41, UNG has now dropped to around $39 and everyone is talking about getting a small piece of this commodity play. Unfortunately, too many people are betting on a tired horse and a hurricane that may never come but who knows; not much in this market makes sense any more anyway…

There is heavy action with a short fuse on UNG calls and the volume is double of normal trading. The August ATM call options are yielding about 5% with only 25 days till expiry! This is where the temptation comes in for easy money using ETF Covered Calls but I’m not biting. I’m going to let this fish get away as I sit and wait for calmer seas before dipping my toe back in. Cash holding for the rest of the week!

Bloomberg recently published threshold securities table which shows ETFs, Stocks and Funds that show outstanding unsettled stock trades in which “stocks for which sellers failed to deliver 10,000 shares or more in the past five trading days and the level of “fails” is a minimum of 0.5 percent of the shares outstanding” over here.

So who were the biggest offenders?

IIG and IOC came in at the top of the list with over 200 days of unsettled stock trades of 10,000 shares or more.

I was surprised to see these ETFs on the list though:  EEB; XLF; XOP;  UNG; USO to name a few although some only had a few days of outstanding unsettled shares.

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I’m 100% cash right now and I think I’m going to stay that way for a while.  My spidey sense is tingling and it’s warning me to stay away from markets right now.   The talk and prospect of $100/oil, war with Iran, USD in the dumps, and Bear Sterns/Sub Prime mortgage fiasco are all warning bells going off that we may be headed for rough seas ahead.

I’m currently in the market for two new cars. We were considering Cadillac Escalade and the Lexus RX 350. We went to test drive a few cars and were truly surprised to really like the Hyundai VeraCruz. Compared to the Lexus, it was nearly identical in so many ways sans the logo. We actually liked the Veracruz better because it included a third row seat and was a bit bigger than the Lexus. We began to do some research and came across this article from Motor Trends

http://www.motortrend.com/roadtests/suvs/112_0707_hyundai_veracruz_lexus_rx350

which speaks favorably about the Veracruz. The Lexus was too small and quite frankly, too overpriced for what you got. I ruled out the Escalade after watching Who Killed The Electric Car on TV a few days ago. I simply can’t forgive GM for destroying perfectly good electric cars and killing the technology so I won’t be buying a GM vehicle any time soon.
As we looked at the Toyota Sequoia’s and Highlanders we began to wonder if we’d ever narrow it done. Every car had its pros and cons but were surprised that the Toyota dealership was nearly out of cars.”New 2008 inventory coming soon,” is what the dealer told us.

After getting home a bit tired and flipping on the tele I began to wonder why out of the 1000 channels on TV there isn’t one dedicated to buying cars. On ShopNBC, QVC, etc I can buy pretty much anything on TV: jewelry, electronics, clothes, toys, and more but I can’t buy a car!

With all the TV commercials about cars from various manufacturers, you’d think they’d all get together and start their own car channel. Here’s the potential schedule:

9 a.m. to 10 a.m. – Lexus Hour. Have a panel of guests talk about how great their Lexus is and the features they like best; then have a 10 minute interview with actual customers about how much they like the Lexus. Interview a mechanic about the maintenance schedule; have a consumer reports interview talking about customer satisfaction and perhaps an insurance agent talking about safety and crash ratings.

10 a.m. to 11 a.m. – The Toyota hour. Same thing as above but talk about Toyota cars

11 a.m. to 12 p.m – The Car Buyers Power lunch – Have some negotiator talk about how to negotiate the best price then accept calls from viewers.

12 p.m. to 1 p.m. – Lunch with the Car manufacturers- Headline news about cars, recalls, interviews with manufacturer CEO’s etc.

1 p.m. to 4 p.m. – The Big Three hour. All about Ford, GM, and Chrysler cars & trucks.

4 p.m. to 5 p.m. – The Car “Environmental” Hour – Give an hour to environmental groups to discuss pros/cons of hybrids, fusion hydrogen cars, ethanol, flex 85, etc to duke it out to tell us which is best and why.

I could go on but I think you get the point. Rather than wasting hundreds of millions on TV commercials with little or no information, give us something BETTER like a TV channel dedicated to cars!

I can flip through all the channels on my TV and watch knife enthusiasts, coin enthusiasts, makeup enthusiasts, etc but not a single car enthusiast sales channel. I am aware that there are various shows dedicated to niche car enthusiasts but not dedicated for the general consumer.

Oh well, we’ll make a final decision on the type of car we’ll buy then we’ll start the negotiation process.

We’ll keep you posted.

Yahoo has this story about how NOT watching TV can save you a million dollars.  I’m writing this to counter that argument and illustrate how you could possibly earn $1 million with a TV.

TV: Although TVs are expensive to buy initially, when you factor in the ROI (see below) you’ll understand it’s a great value.
Cable: You’ll want to get cable or satellite service with your new TV.  For a buck or two a day, you’ll get access to various news programs and financial channels like CNN, Bloomberg, CNBC, MSNBC to keep up with the events around the world.  If you watch a news report that the US has just launched an attack on XYZ oil rich country then you know the price of oil is going to go through the roof; time to buy oil futures or oil stocks to rake in some cash.  Potential profit: $10,000.
Pay-per-view: Rather than putting some wear and tear on your car and spending  $50 on  movie tickets, popcorn,  soft drinks  and candy, simply get pay-per view movie at home.  You’ll avoid the crying babies in the back of the theatre.

DVDs:  You’ll have the ability to rent or buy various videos on everything from Do It Yourself Home Improvement, personal finance, health fitness, commodity trading, futures trading, real estate investing and many other educational opportunities.  Potential ROI: $100,000
DVD/DVR: In order to maximize your investment, you’ll want to share what you learn with others and the best way to do so will be with a DVR and passing on your DVDs to family and friends.  By creating a network of educational improvement for your local community: friends, family; you’ll enable them to become more successful.   Possible return: $200,000
Gaming system: It’s not all about work; playing games will relieve stress and enable you to share some quality family times with your kids and family.  I highly recommend a Nintendo Wii.  Avoiding heart attack and keeping your kids home and safe has potential ROI of $100,000.
Energy: Without a TV, you’ll likely be getting in your car and driving somewhere for entertainment thereby increasing your dependence on foreign oil and polluting the enviornment.  TVs help conserve energy in the long run.  Remember a gallon of gas is running about $3 so to drive across town to watch a movie once a month will cost you over $10 month.
Commercials: This is a great way to find investment opportunities.  If you’re watching cute commercials advocating the use of debit cards, then watch a news report illustrating how banks are raking in $17 billion in fees then you know the banking industry is a great stock buy.  If you watch Apple iPhone commercials every 5 minutes on TV and everyone at work is talking about the iPhone then you know it might be time to buy Apple stock.   Lately, I’ve been seeing a lot of quacking duck commercials about insurance; perhaps its a good time to buy insurance….isn’t that what Warren Buffet is doing?

Opportunity costs: You could be wasting your time mowing your own lawn or pay the kid next door to do it for you for $20 while you watch Flip That House so you can get some renovating ideas to make your home worth more instead of hiring that $200/hour interior designer.

I could go on but I think you get the point.  TV is a device that could be used for any number of purposes.  You can use it to veg out and become a couch potato watching garbage TV or you can use it to enlighten yourself from a historical, philosophical, financial or health perspective.  It’s all up to you on how you use it.

Now that credit card arbitrage is dying a slow death, I’ve been tweaking a system for mortgage arbitrage. I actually need to speak with a loan officer to find out if this little plan of mine is going to work or not. Unfortunately, I’ve been too busy at work to get away for a few hours and talk with bank loan people to get a few questions answered.

I’ll eventually get to the program in more detail but I’ll state that this won’t work for most people that don’t have enough money stashed away to pay off their mortgage. Actually, this plan is so insidious that I may never publish the details of it until I’ve fully exploited it over and over again. There are actually two angles to this plan so one or the other or neither may work but I think it’s worth a go.

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I’ve just unloaded the last 25k in credit card arbitrage and am curious to see how this is going to impact my FICO score. If you recall, back in April I wrote this post detailing how paying down 25k of 50k of credit card debt on 100k of credit line made my score jump from 725 to 757 so in a few weeks we’ll see what happens when I unload the last 25k.
I’ll also planning on finally purchasing a new car or two so I want to shore up my credit score to get low interest on an auto loan and low rates on auto insurance. I’m considering the Cadillac Escalade or Lexus 350 SUV. We’ll test drive them this weekend (hopefully) and begin the negotiation process which will likely take a few weeks…

Yes, it is a need and not a want. The iPhone has everything that I’ve been looking for in a computing device. The one feature I don’t want of course is it’s cellular capabilities. When you start to think about the efficiencies this device creates it really hits you. Here’s just a sample from my perspective:

Forget about buying GPS car navigation, you’re iPhone can browse the web for directions; use google maps or mapquest.

The stock market made a sudden move up or down and you want to trade as you sit in the park with your kids, just do it with the iPhone.

Speaking of kids, you want to go to the cinema to catch Harry Potter but don’t know the show times? Click on Fandango while the kids finish playing in the swing and you’re set.

Stuck in traffic, log on to your e-mail and check your messages, write a post for a blog, or look for an alternative route; everything is right there!
Walking around at Best Buy and found the perfect LCD TV you’ve been wanting, why not surf the web and check prices to get the lowest price.

The possibilities really become endless when you think about how to harness the internet from virtually anywhere.

So why am I NOT buying an iPhone yet? Only one reason and it isn’t the cost of the phone, I’d gladly pay $1000 for the capability the phone has but the reason for not getting one is that it is stuck on AT&T’s SLOW network!

How do I know it is slow? I currently have an AT&T aircard for my laptop and it is slow! I didn’t realize how slow it was until I picked up a Sprint Wireless Aircard and saw the tremendous difference! Those TV commercials don’t lie, Sprint does have a much faster network and I’ve passed on my AT&T card to someone else.
Until AT&T upgrades their network or Apple comes up with a faster version, I’ll continue to carry my laptop and aircard around with me. The draw back is lugging around an 8 pound weight to get things done.

I can easily foresee a future however where laptops become obsolete. You’ll carry around an iPhone computing device which will have a couple of USB ports for you to attach a keyboard and mouse along with perhaps a VGA port to attach to a large external screen. I can already see it……and I like it!

As I was reading the Sunday paper, I came across an AP story that reported that the L.A. Catholic Diocese has shelled out $600 million dollars to settle their child abuse allegations.  That’s not a typo, it is SIX HUNDRED MILLION DOLLARS!

I wasn’t sure what really bothered me the most with this story.  The fact that a church has $600 million in cash stashed away for lawsuits like this is somewhat ludicrous. Don’t they have something…er….more charitable to do with this money?

Other congregations seem to spend their tithing funds building mega churches that offer all the amenities of a gym, health spa, entertainment complex and more.

The United States is one of the richest countries in the world yet 40 million people don’t have health insurance and tithing or charity hasn’t seemed to solve this problem (or many other problems) despite billions given.

What’s the solution?  I prefer the “teach a man to fish” rather than “give a man a fish” philosophy so to that end, I spend a great deal of time lobbying the companies I’ve worked for to invest in training, incentives, and career advancement opportunities and out reach programs by providing internships to as many people as possible.