Sunday, August 19, 2007
Good to Great
Just got to get my hands on "Good to Great" by Jim Collins. Looks very interesting. I am going to write more about it when I am done reading it.
Would Fed's rate cut change anything?
Recently, I was explaining to my wife that a very anticipated rate cut by the Fed could allow infusion of cheap money in the economy, causing people to be able to afford cheaper mortgages, increasing housing demand, and consequently increasing housing prices.
My wife asked "Why would it help the people as a whole to save some interest on the mortgage, but pay higher for homes, if the prices increase"?
Now that question did stump me. So I decided to think about it.
The only people who will benefit from the cheaper money will be the ones who buy right away, with cheaper money, before the prices start to go up. But it is only a matter of time before they do. So what is the advantage of cheaper money for the rest of us?
It does not increase the GDP of the country in terms of production. It has an inflationary effect on the prices of homes. It reduces the value of the Dollar in the international market. It allows the mortgage companies to create innovative products to lure homebuyers again into risky loans.
In reality, almost nothing that cheaper money brings to the market will make America more competitive. Well, almost nothing, because cheap money breeds innovation, promotes risk taking, and allows innovation that can, in the long run, make the country more innovative.
But the Fed has no way to ensure that the cheaper money finds its way to go where it should. And it has no way to ensure that the cheaper money is not used to issue those sub prime loans again.
It really boils down to what is more profitable to those who get this cheap money. If the banks and financial institutions find the returns on sub prime mortgage better than the Venture Capitalists find the returns on risky new ventures, the economy would behave exactly the same way it did before.
So take your time, and figure why are all these financial institutions crying hoarse over an impending stagnation or recession?
My wife asked "Why would it help the people as a whole to save some interest on the mortgage, but pay higher for homes, if the prices increase"?
Now that question did stump me. So I decided to think about it.
The only people who will benefit from the cheaper money will be the ones who buy right away, with cheaper money, before the prices start to go up. But it is only a matter of time before they do. So what is the advantage of cheaper money for the rest of us?
It does not increase the GDP of the country in terms of production. It has an inflationary effect on the prices of homes. It reduces the value of the Dollar in the international market. It allows the mortgage companies to create innovative products to lure homebuyers again into risky loans.
In reality, almost nothing that cheaper money brings to the market will make America more competitive. Well, almost nothing, because cheap money breeds innovation, promotes risk taking, and allows innovation that can, in the long run, make the country more innovative.
But the Fed has no way to ensure that the cheaper money finds its way to go where it should. And it has no way to ensure that the cheaper money is not used to issue those sub prime loans again.
It really boils down to what is more profitable to those who get this cheap money. If the banks and financial institutions find the returns on sub prime mortgage better than the Venture Capitalists find the returns on risky new ventures, the economy would behave exactly the same way it did before.
So take your time, and figure why are all these financial institutions crying hoarse over an impending stagnation or recession?
Tuesday, March 27, 2007
Immigration to the United States
A recent discussion on the same topic with a friend "inspired" me to "pen down" my thoughts on this issue, and many many other related ones.
The American perspective
The Americans believe that the world has gained a lot from the Americans, and America has been a donor nation, giving away aid, education, peace, democracy and technology to the rest of the world.
Being from a different country, I know that ALL governments have a similar doctrine to feed to their general populace. This is the political stuff the governments are made out of. Only that the people are so easily tricked into believing that all of that is true.
A nation of immigrants
Contrary to what the Americans themselves believe, the world has NOT always stolen from the US. Au contraire, the US has always and regularly tapped from the best resource pool of the world. I took this list from the Time Top 100 scientists of the 20th century:
Leo Bakeland, the inventor of plastic was Belgian. Enrico Fermi, the Nobel laureate and particle physicist was Italian. Albert Einstein, the Nobel laureate and discoverer of relativity was a German. William Shockley, the inventor of the transistor (who brought silicon to the Silicon Valley) was born in London. Kurt Godel, the mathematician who gave the incompleteness theorem, was an Austrian.
All of the above ended up being Americans.
I added to the list some other most influential scientists the US has had:
Neils Bohr, the particle physicist who worked on the Manhattan Project was Danish. Robert Oppenheimer, the father of the atom bomb was the son of German immigrants. Wolfgang Pauli, also a particle physicist (of the Pauli's exclusion principle fame) was an Austrian.
Even in sports, the US has benefited by immigration. Martina Navratilova is Czech. Andre Agassi is the son of Iranian parents. Arnold Schwarzenegger is Austrian.
Even the bureaucrats like Madeline Albright (Czech) and Henry Kissinger (German) are first generation immigrants.
A more comprehensive list can be seen in the third reference.
Americans created this wealth themselves?
No doubt US is the only superpower. No doubt that it is the largest economy in the world. But the notion that all this power was generated in vacuum, by Americans themselves is farcical, and anyone believing this is indeed kidding himself. Indeed a lot of wealth that the US has created in recent times was generated by immigrants to the US.
The symbol of Americana, the Levi's Jeans were first created by Levi Strauss, a German immigrant. The man who created the Mustang, Lee Iacocca was the son of Italian immigrants. The co founder of Intel, Andy Grove is a Hungarian immigrant. The co founder of Hotmail, Sabeer Bhatia is an Indian immigrant. The co-founder of Yahoo, Jerry Yang, is a Taiwanese immigrant. The Bose Corp was founded by Amar Bose, the son of Indian immigrants. The "Father of the Pentium processor" is Vinod Dham, an Indian immigrant. Sun Microsystems was co-founded by Vinod Khosla, an Indian immigrant. Tibco was founded by Vivek Ranadive, an Indian immigrant.
Why the US immigration policy sucks
Many many immigrants to the US cannot turn entrepreneur because of the archaic laws that prevent them from opening up ventures on their own, and hence the major reason why so many of the technology companies were founded by immigrants as co-founders. Those who wait for a more favorable status find their wait extraordinarily long. In an age and time of rapid progresses in science and technology, such a wait can ruin entrepreneurship. This hurts the competitiveness of the United States in the long run.
The Xenophobia
The xenophobia that is sweeping the US is acquiring some of the shades of the Nazi Germany, where the more successful Jews were loathed and blamed for the ills of Germany. While the xenophobia at this time is merely at the hate level, and has not acquired the violent shades as observed in the Nazi Germany in the 1930s and 1940s.
Still the xenophobia is apparent in the campaign against the H1B visa holders, especially the Indians and Chinese who, in the words of the campaign, lower wages, and increase joblessness in the country.
The US immigration system is completely broken (or is created thus) to create modern-day slaves for businesses. Slaves who have to work on lower salaries, who cannot change jobs or positions or open their own companies. They are stuck in queues for years, waiting for an absolution,
The cracks appear?
The unfavorable myopic policy in the United States, coupled with a more favorable one in most other nations is rapidly reversing the flow of immigrants into the US. Many students, especially from China now return back to China to set up start-ups after studying at the US universities. According to the Chinese Ministry of Personnel, by the end of 2005, more than 930,000 Chinese had studied abroad, and about 230,000 returning to China over the last decade.
What the future holds
The stifling of entrepreneurship and discouragement to immigrate to the US is causing the US to miss out on the next big thing. With China, Australia, India and Ireland rapidly making strides in research and development, the US superiority in much of new research areas has already appeared to crumble. Indeed the US has already fallen behind a lot of development in the automobile (hydrogen and electric/hybrid autos) biotechnology (stem cell research) and Wireless (3G). With a failing manufacturing sector, stagnating housing, and decreasing profits, the US is rapidly turning from a net producer to a net consumer. The rapidly falling value of the dollar is a testimony to the danger the future holds for the US economy. That the dollar has lost 43% of its value against the Euro in 2003-2006 portends worst for the future.
I hate to be the pessimist guy here, but the result does not appear to be too rosy or too far for the US.
References:
http://www.time.com/time/time100/scientist/
http://www.ailf.org/notable/famous.htm
http://immigration.about.com/od/usfamousimmigrants/Famous_and_Notable_Immigrants_in_the_US.htm
http://en.wikipedia.org/wiki/List_of_Indian_Americans
http://english.cri.cn/4426/2007/02/17/164@197584.htm
The American perspective
The Americans believe that the world has gained a lot from the Americans, and America has been a donor nation, giving away aid, education, peace, democracy and technology to the rest of the world.
Being from a different country, I know that ALL governments have a similar doctrine to feed to their general populace. This is the political stuff the governments are made out of. Only that the people are so easily tricked into believing that all of that is true.
A nation of immigrants
Contrary to what the Americans themselves believe, the world has NOT always stolen from the US. Au contraire, the US has always and regularly tapped from the best resource pool of the world. I took this list from the Time Top 100 scientists of the 20th century:
Leo Bakeland, the inventor of plastic was Belgian. Enrico Fermi, the Nobel laureate and particle physicist was Italian. Albert Einstein, the Nobel laureate and discoverer of relativity was a German. William Shockley, the inventor of the transistor (who brought silicon to the Silicon Valley) was born in London. Kurt Godel, the mathematician who gave the incompleteness theorem, was an Austrian.
All of the above ended up being Americans.
I added to the list some other most influential scientists the US has had:
Neils Bohr, the particle physicist who worked on the Manhattan Project was Danish. Robert Oppenheimer, the father of the atom bomb was the son of German immigrants. Wolfgang Pauli, also a particle physicist (of the Pauli's exclusion principle fame) was an Austrian.
Even in sports, the US has benefited by immigration. Martina Navratilova is Czech. Andre Agassi is the son of Iranian parents. Arnold Schwarzenegger is Austrian.
Even the bureaucrats like Madeline Albright (Czech) and Henry Kissinger (German) are first generation immigrants.
A more comprehensive list can be seen in the third reference.
Americans created this wealth themselves?
No doubt US is the only superpower. No doubt that it is the largest economy in the world. But the notion that all this power was generated in vacuum, by Americans themselves is farcical, and anyone believing this is indeed kidding himself. Indeed a lot of wealth that the US has created in recent times was generated by immigrants to the US.
The symbol of Americana, the Levi's Jeans were first created by Levi Strauss, a German immigrant. The man who created the Mustang, Lee Iacocca was the son of Italian immigrants. The co founder of Intel, Andy Grove is a Hungarian immigrant. The co founder of Hotmail, Sabeer Bhatia is an Indian immigrant. The co-founder of Yahoo, Jerry Yang, is a Taiwanese immigrant. The Bose Corp was founded by Amar Bose, the son of Indian immigrants. The "Father of the Pentium processor" is Vinod Dham, an Indian immigrant. Sun Microsystems was co-founded by Vinod Khosla, an Indian immigrant. Tibco was founded by Vivek Ranadive, an Indian immigrant.
Why the US immigration policy sucks
Many many immigrants to the US cannot turn entrepreneur because of the archaic laws that prevent them from opening up ventures on their own, and hence the major reason why so many of the technology companies were founded by immigrants as co-founders. Those who wait for a more favorable status find their wait extraordinarily long. In an age and time of rapid progresses in science and technology, such a wait can ruin entrepreneurship. This hurts the competitiveness of the United States in the long run.
The Xenophobia
The xenophobia that is sweeping the US is acquiring some of the shades of the Nazi Germany, where the more successful Jews were loathed and blamed for the ills of Germany. While the xenophobia at this time is merely at the hate level, and has not acquired the violent shades as observed in the Nazi Germany in the 1930s and 1940s.
Still the xenophobia is apparent in the campaign against the H1B visa holders, especially the Indians and Chinese who, in the words of the campaign, lower wages, and increase joblessness in the country.
The US immigration system is completely broken (or is created thus) to create modern-day slaves for businesses. Slaves who have to work on lower salaries, who cannot change jobs or positions or open their own companies. They are stuck in queues for years, waiting for an absolution,
The cracks appear?
The unfavorable myopic policy in the United States, coupled with a more favorable one in most other nations is rapidly reversing the flow of immigrants into the US. Many students, especially from China now return back to China to set up start-ups after studying at the US universities. According to the Chinese Ministry of Personnel, by the end of 2005, more than 930,000 Chinese had studied abroad, and about 230,000 returning to China over the last decade.
What the future holds
The stifling of entrepreneurship and discouragement to immigrate to the US is causing the US to miss out on the next big thing. With China, Australia, India and Ireland rapidly making strides in research and development, the US superiority in much of new research areas has already appeared to crumble. Indeed the US has already fallen behind a lot of development in the automobile (hydrogen and electric/hybrid autos) biotechnology (stem cell research) and Wireless (3G). With a failing manufacturing sector, stagnating housing, and decreasing profits, the US is rapidly turning from a net producer to a net consumer. The rapidly falling value of the dollar is a testimony to the danger the future holds for the US economy. That the dollar has lost 43% of its value against the Euro in 2003-2006 portends worst for the future.
I hate to be the pessimist guy here, but the result does not appear to be too rosy or too far for the US.
References:
http://www.time.com/time/time100/scientist/
http://www.ailf.org/notable/famous.htm
http://immigration.about.com/od/usfamousimmigrants/Famous_and_Notable_Immigrants_in_the_US.htm
http://en.wikipedia.org/wiki/List_of_Indian_Americans
http://english.cri.cn/4426/2007/02/17/164@197584.htm
Tuesday, February 20, 2007
Down with cybersquatters
Looking to launch a website on finance and investing, I looked through domain names like intelligentinvestor.com, betterinvesting.com, fastmoney.com, profiteer.com and the likes. And much to my bad luck, none is available. Most have been grabbed by the cybersquatters who don't even have web pages there, or just have ad-links pages.
At first this bothered me, then it made me angry. After all, just because they happened to have access to the Internet first doesn't mean they should deprive the more deserving and genuine people of their fair share of the Internet domains.
But then realization downed on me. Does fool.com really mean anything remotely similar to money? No. Does thestreet.com sound like a good domain name? No (all the domain names with "the", "my", or "your" prefixed before the main name is a desperate attempt to get a domain people would recognize). In fact, some of the names are outright ludicrous. Take for instance, moneycontrol.com. I can understand if they're trying to say take-control-of-your-money-dot-com. But really, moneycontrol.com doesn't sound anything like that. Despite this, this site is very popular. Why? Its the content that matters. Not the fancy name.
What really is happening is this : Domain names are losing their value. I don't type "stockadvisor.com" when I am looking for advise on stocks. I just Google (or Yahoo) "stock advise". And most of the people I know don't either. They just use Search Engines. Search Engines have eroded the value of easy-to-figure-out domain names. Bookmarking has eroded the value of easy-to-remember domain names.
So, in essence, I can build a better website than anyone who has a better domain name, and can find a better domain name than anyone who can build a better website.
B.t.w, if any of you readers can think of any decent name for my investing website, please advise. I'd appreciate it.
At first this bothered me, then it made me angry. After all, just because they happened to have access to the Internet first doesn't mean they should deprive the more deserving and genuine people of their fair share of the Internet domains.
But then realization downed on me. Does fool.com really mean anything remotely similar to money? No. Does thestreet.com sound like a good domain name? No (all the domain names with "the", "my", or "your" prefixed before the main name is a desperate attempt to get a domain people would recognize). In fact, some of the names are outright ludicrous. Take for instance, moneycontrol.com. I can understand if they're trying to say take-control-of-your-money-dot-com. But really, moneycontrol.com doesn't sound anything like that. Despite this, this site is very popular. Why? Its the content that matters. Not the fancy name.
What really is happening is this : Domain names are losing their value. I don't type "stockadvisor.com" when I am looking for advise on stocks. I just Google (or Yahoo) "stock advise". And most of the people I know don't either. They just use Search Engines. Search Engines have eroded the value of easy-to-figure-out domain names. Bookmarking has eroded the value of easy-to-remember domain names.
So, in essence, I can build a better website than anyone who has a better domain name, and can find a better domain name than anyone who can build a better website.
B.t.w, if any of you readers can think of any decent name for my investing website, please advise. I'd appreciate it.
Wednesday, February 14, 2007
Who is Jim Cramer?
Today Jim Cramer recommended selling BJ Services (BJS), saying the stock is good, but he doesn't like it, and people would do well to book profit and get out of it.
Well, I do have BJS, so I thought what the heck.
I did a search on the Internet for "Jim Cramer BJS" to get the story again, and the 4th link caught my attention: http://seekingalpha.com/cramer/on/bjs
This link leads to this page: http://seekingalpha.com/article/15862
Cramer was bullish and bearish on some stocks in Mad Money on 22nd Aug 2006. I thought I'd rather look closely on Cramer's calls. Here's some analysis:
S&P moved from 1298 to 1455. That is a gain of 12.09%. Good. Now see what Cramer recommended, and what happened to them.
The results are in. Cramer, over a 6 month period of time (Aug 22 2006 to Feb 14, 2007) managed winning picks only 9 out of 14 times, an accuracy of 64.28% only. And if you consider that many of his picks rose less than S&P500, his actual gain over S&P500 was a shameful 5 out of 14 times, i.e. 35.71%.
Look at it this way. If you invested $100 in each of the 14 stocks based on Cramer's recommendations on Aug 22, this investment of $1400 would be worth just $1434.13 (Aren't you glad at least you didn't LOSE money?). You would have lost in 5 of the 14 picks. And an average guy picking all the stocks of S&P500 index blindly, would have turned his investment of $1400 into $1569.26.
Go figure. Booyah !
Well, I do have BJS, so I thought what the heck.
I did a search on the Internet for "Jim Cramer BJS" to get the story again, and the 4th link caught my attention: http://seekingalpha.com/cramer/on/bjs
This link leads to this page: http://seekingalpha.com/article/15862
Cramer was bullish and bearish on some stocks in Mad Money on 22nd Aug 2006. I thought I'd rather look closely on Cramer's calls. Here's some analysis:
S&P moved from 1298 to 1455. That is a gain of 12.09%. Good. Now see what Cramer recommended, and what happened to them.
The results are in. Cramer, over a 6 month period of time (Aug 22 2006 to Feb 14, 2007) managed winning picks only 9 out of 14 times, an accuracy of 64.28% only. And if you consider that many of his picks rose less than S&P500, his actual gain over S&P500 was a shameful 5 out of 14 times, i.e. 35.71%.
Look at it this way. If you invested $100 in each of the 14 stocks based on Cramer's recommendations on Aug 22, this investment of $1400 would be worth just $1434.13 (Aren't you glad at least you didn't LOSE money?). You would have lost in 5 of the 14 picks. And an average guy picking all the stocks of S&P500 index blindly, would have turned his investment of $1400 into $1569.26.
Go figure. Booyah !
Sunday, January 07, 2007
The fundamentally flawed strategy
There are quite a few trading strategies out there. There are two I'd like to talk about.
The first is about trying to look for stocks that are relatively small, fundamentally strong, very under-priced and have not yet been spotted by the Wall Street eagles. This, at least theoretically should yield hundreds of percentage point returns over a few years.
While there is nothing fundamentally wrong with this strategy, it usually does not work. How many spotted Walmart in late 1960s, or Genentech in 1980? Very few. Even Warren Buffett did not. If you think you can be one of those who can spot these gems amongst the millions out there who trade in stocks, then you're looking at a probablilty of 1 in millions. I think its practically zero. Unless you're a big time risk taker, penny stocks would almost never be a good idea to invest in.
In the other fundamental strategy, you look for fundamentally good stocks, fair or somewhat underpriced (though "underpriced" is not absolutely necessary), that have an upward momentum, and find good entry and exit points, and most importantly, don't expect hundreds of percentage points returns in just a few years time. You don't sleep over your stocks but ride on the momentum and sell them. Timing and speed become your best friends.
While this second strategy never gives astronomical returns, it is more possible, probable and practical. Think about it.
The first is about trying to look for stocks that are relatively small, fundamentally strong, very under-priced and have not yet been spotted by the Wall Street eagles. This, at least theoretically should yield hundreds of percentage point returns over a few years.
While there is nothing fundamentally wrong with this strategy, it usually does not work. How many spotted Walmart in late 1960s, or Genentech in 1980? Very few. Even Warren Buffett did not. If you think you can be one of those who can spot these gems amongst the millions out there who trade in stocks, then you're looking at a probablilty of 1 in millions. I think its practically zero. Unless you're a big time risk taker, penny stocks would almost never be a good idea to invest in.
In the other fundamental strategy, you look for fundamentally good stocks, fair or somewhat underpriced (though "underpriced" is not absolutely necessary), that have an upward momentum, and find good entry and exit points, and most importantly, don't expect hundreds of percentage points returns in just a few years time. You don't sleep over your stocks but ride on the momentum and sell them. Timing and speed become your best friends.
While this second strategy never gives astronomical returns, it is more possible, probable and practical. Think about it.
Monday, January 01, 2007
Why Intel and AMD should do well in 2007
Recently the semiconductor technology industry has seen a fair bit of downturn. In fact, in 2006 the PHLX Semiconductor index lost 5% while NASDAQ gained 8%. Partly it was because of the inventory glut, and partly because of the reduced sales worldwide of computer equipment, because of corporates waiting for Windows Vista.
The two main players - Intel and AMD suffered. Intel dropped 20% in the year. AMD suffered even more - dropping about 37% in the year.
Fundamentally there's nothing wrong with either Intel or AMD. AMD was always tight on financial controls. Intel corrected itself in 2006, by means of restructuring and reducing workforce.
And because of the reasons mentioned above, the valuations of Intel and AMD appear very good at this moment.
AMD at 20.35 is trading at just about 47% of its 2006 high. It has a very good EPS of 1.01 and a very healthy P/E ratio of 20.03. The funnel of AMD includes Barcelona, that is a true quad-core processor that is useful for gamers and high end servers market. While gamers don't necessarily comprise a huge market, the high end servers is a niche market that provides higher margins, and thus provides a good incentive for chip manufacturers to enter this market. The gains from ATI acquisition should also appear in 2007. If the lawsuit against Intel's monopolistic practices goes in its favor, AMD should gain market share from Intel.
Intel, at 20.25 is trading at 76% of its 2006 high. With an EPS of 1.01 and a healthy P/E ratio of 20.03 (exactly the same as AMD), its valuations appear very interesting. With the restructuring, Intel is likely to improve its earnings. And with a very successful Core Duo and Core 2 Duo range of processors, it is likely to maintain its market position for the desktop and mobile processor segment.
The downside to this optimism about the chip stocks is if Windows Vista doesn't play out the way it is widely expected to. If Vista does not succeed, the demand for new equipment would essentially stagnate, and that should hurt both Intel and AMD.
The only fear that AMD and Intel have is from each other. In a competitive chip market Intel and AMD will live as long as they let the others live.
The two main players - Intel and AMD suffered. Intel dropped 20% in the year. AMD suffered even more - dropping about 37% in the year.
Fundamentally there's nothing wrong with either Intel or AMD. AMD was always tight on financial controls. Intel corrected itself in 2006, by means of restructuring and reducing workforce.
And because of the reasons mentioned above, the valuations of Intel and AMD appear very good at this moment.
AMD at 20.35 is trading at just about 47% of its 2006 high. It has a very good EPS of 1.01 and a very healthy P/E ratio of 20.03. The funnel of AMD includes Barcelona, that is a true quad-core processor that is useful for gamers and high end servers market. While gamers don't necessarily comprise a huge market, the high end servers is a niche market that provides higher margins, and thus provides a good incentive for chip manufacturers to enter this market. The gains from ATI acquisition should also appear in 2007. If the lawsuit against Intel's monopolistic practices goes in its favor, AMD should gain market share from Intel.
Intel, at 20.25 is trading at 76% of its 2006 high. With an EPS of 1.01 and a healthy P/E ratio of 20.03 (exactly the same as AMD), its valuations appear very interesting. With the restructuring, Intel is likely to improve its earnings. And with a very successful Core Duo and Core 2 Duo range of processors, it is likely to maintain its market position for the desktop and mobile processor segment.
The downside to this optimism about the chip stocks is if Windows Vista doesn't play out the way it is widely expected to. If Vista does not succeed, the demand for new equipment would essentially stagnate, and that should hurt both Intel and AMD.
The only fear that AMD and Intel have is from each other. In a competitive chip market Intel and AMD will live as long as they let the others live.
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