Good companies, different results

I just scanned my portfolio quickly, and observed that Merck is as right now the biggest position in my portfolio. Since I bought it a little over a year ago, it has appreciated almost 40% and making it 9% of my total investment. I also bought 3M almost the same period, with a -2% return so far. I have to admit that I wasn't being patient at the time. I had cash and wanted to invest it. 3M wasn't cheap but wasn't overvalued either. Being a good company it was a safe buy. It did just that, a safe buy. I wish I'd stuck to what Warren Buffett preached "consider the cost of opportunities." the 3M buy had cost me other opportunities, like those other stocks when they were beaten down, or when 3M was beaten down. 3M is serverely beaten down right now. With earning increased over 17% over last year and remain the same price I bought it? What was a safe buy then has become an attractive buy.

Perfect 10

John Dorfman, a columnist from Bloomberg has the piece Perfect 10 Portfolio Wasn't Beautiful This Time. In the 2006 edition of his annual 10 picks (which had an average 17% return since inception), one of his picks is Hartford Financial Services Inc. (HIG). He listed his reason why he likes the stock, which is the same reason I like it. I bought it a little less than a year ago, and it's currently sitting at a 13% paper gain. Adding the 2% yield, it meets my objective of a 15% annual gain. It's nice to have someone else to agree with you. It doesn't mean whether you are right or wrong. But as human we seek comfort in numbers.

Money that I didn't make

I am starting to regret I didn't take advantage of the drop in the past month. With Build-A-Bear and TD Ameritrade coming back to life the chance of short term gain has slipped away. The problem with me wasn't that these companies weren't attractive buys. The problem was my portfolio was already fully allocated. Any further juggling will require me to unload other positions as I refuse to increase my exposure at this point. Yes, fundamental is important, but fighting the tape isn't very smart either.

It seems like I am going to make it 4 years in a row since I am converted to a "investor" from a "speculator" that I will make the goal of beating the S&P500 by 5 percentage points.

Buh bye, Sara Lee. I will miss you honey!

Not really. I have quite a few turn-around stories in my portfolio, SLE is probably the only one that did turn out okay. What scared me was the further deteriorating of its fundamentals and the slow-foot pace of its restructuring. I also figure if it's going to spin off brands like Champion, etc, I could just buy them over the open market. What also bother me was the 130% dividend pay-out ratio. We should know that 5% yield is not going to last if fundamentals don't hold. When they cut dividend, the price will sink further. I took the 7% loss and moved on.

I also exercised my rights granted by USG corp, doubled my position in USG. At this point, I am just a few thousand below my 52-week high. My confidence is slowly coming back but still remain cautious.

Reponse to "Should You Prepay Your Mortgage?"

http://www.freemoneyfinance.com/2006/07/should_you_prep.html

I had to respond to freemoneyfinance about his post. Since his site is down (unable to post comments) I am putting my comments here, and will copy-paste to his site late:

I dispute your points

1) You really have to look at it from the right perspective. The money you put into mortgage should be considered a 30-year investment. If your horizon is 30 years, pull up the equity market chart, no 30-year S&P500 period under perform the meager 5.5% percent. Statisically, it's ALMOST guaranteed it would outperform the 5.5% return.

2) Under normal circumstances, the usual mortgage terms people go for are fixed 30-year loan

3) You gotta give credit for people having more discipline than you expect. In other words, if people are already reading your blog, they at least have the motivations and the will to succeed financially. Perhaps you should re-read freakonomics.

4) That's subjective, not objective. Leverage, is often a tool to maximize return. I often think of my mortgage as a fix-asset-backed margin for my equity account. that 5.7% APR sure beats the 9% the brokerage house charges on margin rate. That why I am long only.

5) Finally, John, I think you should know this since you have a very strong finance background. Investment risk DECREASES for equity as the investment horizon extends, and INCREASES for fix-income when investment horizon extends. The risk of having your money tied-up at 5.5% over 30 years is so huge, I can't even begin to describe the horror. What if inflation increases? a 5% inflation rate will render your real return to almost zero. Worse, when inflation goes up, the fed will fight inflation with interest rate. I still remember the late 80's when your daily saving account can enjoy a 6% return, not to mention the CDs gave you over 10%. Your 5.5% will terribly under-perform even the safest investment instruments. There are not guarantee of success, only chances.

Small Investor Blues

Small investors' mood I believe is probably reaching the low, or close to the low. What I just stated isn't anything scientific. It's based on the fact that I am a small investor, and I woked up extremely annoyed by the market. For the third straight year, June-July-August period gives me the blues. I also noticed quite a few blogs that I read regularly, the authors being small investors themselves, have no new material. When people are depressed, they usually go silent. (The opposite is true, when they are excited, they tend to talk a lot).

I am annoyed. But I shouldn't be. My account is still above water, off 6% from the height. That compared to the accounts that I have w/ two professional private money managers, both down more than 10% from the height (one still above water). I should feel pretty good. Except, comparing bad to worse is not a good way to make you feel great. This morning I almost felt like I need to unload half of my positions. Then I realized "holy shit, what am I doing..." It's probably a good time to double down (I am currently 80% invested, long only). Except... the little Hamlet is doing his work inside of me.. decisions, decisions, decisions....

Every time I see a position imploded, I get angrier. First, Ameritrade, then Urban Outfitter, Build-A-Bear, and the latest, 3M. "F---ing Mother F---er" I said. The emotional me tells me "The hell with these f---ers, let's sell them." The logical me then remind me that, I didn't double down on Digital River when it was hammered last summer, big mistake. I didn't double down when Sherwin Williams was hammered last winter, big mistake. I didn't double down McGraw-Hill this spring when it was hammered, big mistake. Ouch ouch ouch! Damn this greed and fear bullshit. What to do! What to do!

Oh and look at that 6% yield on FNT! I think I buy that one. Valueation-wise a lot of stuff look very attractive. It just when things look cheap, usually that's when your account isn't exactly healthy.

That has me thinking, maybe I should be a little more fearful next time when I got greedy, so I can be greedy when everyone's fearful. Hind sight is ALWAYS 20-20.