I went aggressively today into some mutual funds which provide leveraged exposure to exchange traded funds. I took the ProFunds Ultra OTC, which tracks the Nasdaq 100 (QQQ) at a 2x beta, and I also picked up a fair amount of ProFunds UltraBull, which tracks the S&P 500 (Spyders) at a 2x beta. Too much individual-company risk out there for me to look at single stocks. Accounting fraud allegations and the upcoming earnings season are enough to scare me away from buying single stocks right now. Institutional short-sellers are having their way right now as earnings warnings, accounting fraud, and terrorist fears are hanging over the market. The Nasdaq *will* be back at historical levels. It's just a matter of how long it will take. Japan has been mired in a slump for 10+ years, hopefully our economy will recover sooner!. As long consumer spending stays strong (66% of GDP), we should be ok.
Simply put, beta is a measurement of a stock's correlation to an index. So if the Nasdaq 100 moves 1 percent, and you have a stock with a 2x beta to the Nasdaq 100, your stock should move 2 percent.
To Answer a Few Questions: Yes, I work in finance. MadMax: Stocks are early indicators of corporate earnings recovery, not lagging indicators. Meaning that stocks will fluctuate based on expectations for the company over the short-run. If you see the economy strengthening itself, the market will already be priced for that. I still feel its more a decision on a company by company basis. Even with an infusion of capital and certain costs being curtailed by the government, there in nothing in airlines that truly makes me believe it can be a truly efficient company that can grow cash flow: the basis of stock valuation. Things may change, but for now I just don't see it. Dollar cost averaging is really the true way to override the primary evil in investing: emotion. TraderJorge: With that type of philosophy, you should just head to Las Vegas, at least there if you lose your money you get a free drink and a cheap buffet.
FD Khan -- Thanks for the advice, big boy. Vegas, buffet, that's funny. I laughed. I too work in finance and am confident in my investment strategy. So what you are telling me is that it is a bad idea to build positions when the market is at a 5-year low? It's a bad idea to build a position when recently released unemployment data, productivity data, and capacity utilization data shows strong signs of economic improvement? It's a bad idea to diversify through index funds in a volatile market? It's a bad idea to use leverage to enhance returns? My philosophy is sound. Sorry to "steal your thunder" on the thread. I'm sure you were enjoying the attention you got. Unfortunately, I have some advice for you: Don't go bear hunting with a stick. keep me laughing, big fella
Trader Jorge. Lets just hope my fear of a second downslide is not a accurate forecast. I've felt the market has always been overvalued in the blue chip and Technology sector over the past 2 years. So now that the first slide hopefully is over to reflect a more accurate representation of their value, my second forecast is another slight slide to reflect the "cleasing" of corporate america accounting books. But this slide is contigent upon how congress treats the execs at Enron and WorldComm....
What about plain old savings? I don't have a savings account, but I think it would be a good idea to have one to save and compound some deposits for tax reasons when I sell a stock and to simply have some liquid cash. Anyone know any banks with good interest rates and low to no fees? ING Direct has 3% and no fees, but wonder if there is anything better out there.
What do you (and anyone else) think about LUV? It's the only airline making a profit and I've been putting $100/month in it for awhile. For those of you that are looking for a place online to do this, buyandhold.com is a site that I use. It's pretty cheap if you're going the dollar cost averaging method, especially with multiple stocks ($14.99/month for unlimited trades. However the trades have to be in a certain "window", not real-time). Sharebuilder is a similar service that is $12.00/month, but I don't have any experience with them.
TraderJorge, My main concern with your strategy in regards to simply riding a 2X version of the Nasdaq is not a viable investment strategy. That, grouped with as you stated in your last post, index funds and other investments is fine. I just feel in certain respects the Nasdaq could continue to fall. The high multiples still being paid for many of those companies even with my understanding that in a post recessionary market, multiples will look high. But even with sustainable rates of growth in the top ten Nasdaq firms (with it being weighted by market cap) I wouldn't invest in them all in that fashion. BTW, you like the Vegas reference? Another favorite quote that I have been reminded of lately with respect to Worldcom, Enron, etc was by Galbraith : "Recessions find what auditors don't"
uhh... and why not? I refer you to my last post for why it is a viable strategy. Buying into economic upturns when the markets are down is pretty cut-and-dry. If today is any indication, it certainly is viable. Again, looking for specifics here, not broad-based, dismissive generalizations. Who in their right mind uses trailing multiples?!?! Forward multiples are the right metrics to use. The market looks forward, so should your analysis. No, I didn't. That was sarcasm. I found it offensive. I'm laughing all the way to the bank today, big fella.
I think you misread my post, I said EVEN with realizing that Nasdaq multiples are high because because we are in a recessionary marketplace, the fall based on future earnings will not bring the index to a feasible level. There are a few companies that I feel can profit, but the overall Nasdaq index at a 2X form is not a strategy to be pushing to new investors on a BBS Forum. I'm sure its the ritualistic Trader Man scenario in which your gleeful on a day such as today, yet most days of the year hiding in the closet watching your losses. Stockbroker mentality, I would imagine.
There are plenty of investors on the Forbes 400. The wealthiest man in Houston is Fayez Sarofim, a portfolio manager. (although Rich Kinder is making a strong push to supplant him) Trading and market timing are only two of many arrows in the quiver. Not many people use them exclusively. I'm familiar with a ton of hedge funds that are organized with a portfolio long term positions, supplemented with a trading portfolio. No one here is arguing the merits of buying and holding.
I am quite familiar with Sarofim, having family funds with his company for over ten years and know some of the analysts personally. I think his position as the wealthiest man in Houston, was through perseverance and patience more than anything else. That and marrying a girl whose family (Brown and Root '65) gave him his first major clientele. I try to adhere to true and tested forms of economics and finance. Some may say old fashioned, but I say proven. Though the minimum for Sarofim accounts are $3 million, his company is the investment adviser for a Mutual Fund: the Dreyfus Appreciation Fund. A NO-LOAD Fund that I would recommend to any individual as a diversified group of very strong companies with strong brand recognition. One of my weaknesses, as TraderJorge, has seen is a propensity to generalize based on statements of financial analysis. I mean no disrespect, but I feel any investing based on short term speculation or any factors aside from true company value (based on future cash flow) Thereby projecting that you are "laughing all the way to the bank today" neglects to mention to many that are unfamiliar to the market about the adverse return they would have recieved over the last few years, basically anyone would have lost 80% to 90% of their money. Though that might not be the case now, it is important to clarify when speaking, as working in the financial industry you really should know that.
Grummett, 100% Correct Statement. And Sarofim's Managed accounts and Mutual Fund: the Dreyfus appreciation fund has a turnover (change in portfolio composition) of less than 10% for the most part. Very little changes in a group of quality holdings is how he ammassed his wealth. I think we can learn from his example. As Warren Buffet stated about shorting or options in the market: (Though I can't recall the exact words) He stated that he had many ideas that eventually turned out to be right, but that he never benefitted from the options because you are paying a premium for that alotted time period. I agree with Buffet in the extent that though you can decide where you feel a company is valued, but to guess when the market will come up with the same conclusion in the short-run is another, much more difficult story. Now they offer LEAP's which are longER term option positions, but I still don't feel a year is even adequate time to decide valuation to market efficiency.
