Appendix C - Bonus: Business.

The following chapters (in Appendix C to F) are stored in the web due to the practical limit of a printed book. However, the Kindle version does not have this limit, so they’re included in this book.

Most articles are new or topics not 100% related to investing. Some articles may be polished and inserted as regular chapters. Some ideas could be duplicated from the regular articles. Many articles may be deleted in the future and/or will be moved to another appropriate book or a new book.

I also include articles that are not 100% related to investing such as social issues and political issues. I’ve debated whether I should include these articles in a book about investing. Articles may be duplicated so the readers who bought the books earlier can read them in the web site.

Again, I am politically neutral but naturally biased as a Chinese I born in Hong Kong

Do not use the information to trade stocks as the information should be obsolete by now. The logic is still useful for selecting stocks in the future. As long as you understand this, this section could be quite useful.

I try to cover most major sectors. The best way to understand and learn the recent updates on sectors is from Value Line (recommended) and many web sites specialized in sectors.

When the leader of an industry moves, normally all the related companies moves in the same direction. To illustrate, when Apple moves, all its suppliers move in the same direction usually. Many sectors such as Basic Material depends on China, so many references on China are made in this section.

Some of my remarks may offend some especially the officers of the described corporations. They are intended to make a dramatic effect to attract your attention. If I offend anyone, please accept my sincere apology.

C1 Airlines

How to become a millionaire according to Buffett: "First, become a billionaire and then invest all in airline stocks!"

Source: Yahoo! Finance AAL

He may be right in his time when he made the statement. But, it is not true lately as evidenced by the following chart. You can buy American Airlines (AAL) for less than $10 from 2008 to 2012 and today in 2014 it is 4 times as much. The pattern has been repeated by other airline stocks.

I cannot find a decent ETF for airlines, so I use AAL (the stock I still own). From Yahoo!Finance, it is the maximum period allowed to draw the above chart. AAL used to be AMR.

It has a peak in Nov. 2006 and it has been down until 2012.

SMA-50 is the Simple Moving Average for the last 50 sessions. It did not help you to avoid the plunge from its peak in 2006, but it reduced your loss and recommended good reentry points. Personally I prefer 200 sessions to reduce the number of trading.

Why I bought US Air (LCC)

It had appeared in my performing screens (the better performers in the previous six months) several times from 12/2012 to 4/2013. I bought them in 6/2013 two times. Due to the merger with AAL, officially they were bought on 8/12/2013 and 8/13/2013. As of 11/2014, I have a 163% gain.

The following is a summary of my evaluation.

LCC	Passing Grade	12/15/2012	4/24/2013
Score System #1	15	38	31
Score System #2	2	3	6
Price		12.78	16.30

It scored very high in the two dates I evaluated LCC.

The first score system includes grades from many investment services I subscribed.

The second one has been described in my book Scoring Stocks using fundamental metrics available free.

Opportunities come and gone

If I have a time machine, I should have sold it at $45 in June, 2014 and bought it back it at $31 in Oct., 2014. As of Nov. 12, 2014, it is $43.

I used Turbo Tax to simulate how much tax I have to pay in 2014 tax return without considering any change of the tax laws. In June, 2014, I had over my limit in the long-term capital gain. That was the reason I did not sell my AAL. Taxes should not be considered in making an investment decision.

The threat of Ebola caused the stock to plunge to $32 from $45. I did not take advantage by buying more shares due to my (expensive!) vacation in October. I should have left some buy orders at 10% less than the current price. The Ebola threat was only temporary and shortly it went back to $43.

Analysis of airlines

Pros are:

1. Many airline stocks look like bargains if you look at its low expected P/E only. My Pow P/E taking consideration of cash and debt could be a better metric.

2. The outlook on the economy should be improving.

3. The falling oil price makes the airlines more profitable.

4. Air lines merger means fewer airlines and less competition.

5. Find ways to make profits such as charging for luggage. The next frontier charge could be the use of the lavatory and that is why they call themselves Frontier Airline. J

Cons are:

1. High debt (planes are expensive), a common and traditional problem in this industry. If AAL cannot service its debts, it will bankrupt. Its debts are more than three times its capital cap. Alarming!

2. High pension obligation, the same cause to bring down the old GM. Most especially the newer ones switch to employee-funded pensions as in most other industries.

3. High wages demanded by the unions.

4. Unable to raise the prices of the air ticket; they have not kept up with inflation over the years until recently.

5. Deregulation has its problems. The government should regulate some industries and airline is one of them. The government should do a better job on what and how much to regulate this industry. I hope to regulate the ticket prices as thy do on utilities.

6. Besides competition from other airlines, trains, high speed trains (little impact in the US), buses and cars offer a lot of competition especially for short-distance trips. Airports are usually located a long way from downtown.

The major airlines also face competition from new, smaller with leaner operation, direct flights and newer planes with better fuel mileage, not to mention the incentives to the foreign airlines from their governments. Many attractive ones will be acquired.

7. Merger will have fewer airlines and reduce competition. However, when two losers merge together, they become a bigger loser. The Virgin Air could provide long-term synergy to the US airline, but it is too high a price to the acquirer to me. Currently, most mergers of large airlines have been done except Alaska, JetBlue and several smaller ones.

8. The hub concept is getting more impractical with rising fuel prices (now falling) and the inconveniences to their customers. The future will be less stop overs with larger and newer jets that are more fuel efficient. It could be an efficient way for some routes such as filling international flights for smaller cities.

9. High cost of terrorism.
Most foreign airlines are subsidized by the government. Our government has bailed out other industries but not the airlines here. The only bright point is the airlines profit by jacking up the ticket prices, but you can’t do it excessively in this poor economy. Besides terrorism, events such as wars and Ebola could cause the airline stocks to fall.

10. Future shortage of pilots.
Many retire and many find new jobs in Asia. It is not an exciting profession as in the previous generation. It is also due to the military reductions in the 1990s and the raise of minimum training hours coupled with the maximum hours for pilots. However, the larger planes would reduce the number of pilots. It has not been materialized yet except in smaller airlines.

In my original article written several years ago, I recommended to evaluate the impact of a bankrupted airline. The above con conditions could be reduced for a bankrupted airline. In 2011, American Airline was under the bankruptcy protection. Following this advice, you could have bought it for $10 and make a good profit by now. Will the readers who took my advice please stand up?

China’s impact

China has impact on almost all industries and airline is no exception. The growth of the airline industry depends on Asia and China in particular. The increase of Chinese travel is due to:

· The fast growth of the middle class. China becomes #1 in tourist spending. It is due to the high tariffs of foreign goods

· China’s growing business requires a lot of traveling to and from foreign countries.

Be more careful to invest in China’s smaller airlines in China. Their short-distance travels are facing competition from high speed rail.

Analysis of Airline Stocks (11/12/2014)

	Passing grade	AAL	DAL	LUV
Score System #1	>=15	20	15	22
Score System #2	>=2	7	4	3

Expected Earning Yield	>5 & <35	17%	9%	6%
Debt / Equity	<1.5	3.5	.82	.31
Analyst Rating	>7	8.0	9.6	9.6

EB/EBIT	>5	3	11	13
F-Score	>7	6	5	7
ROE	>=15%	15%	83%	6%

SMA-200%	>0%	16%	20%	43%
RSI(14)	<60	71	71	75

Price		43.43	43.40	39.37

I selected three major airlines to represent the industry. I also selected the metrics and scores that are meaningful to this industry. It seems to be a good buy even after a good gain in 2014.

All three airlines pass both my score systems.

AAL and DAL are similar except that DAL has its own refinery and AAL has a huge Debt/Equity. LUV dominates in numbers of passengers within the USA and it is expanding to foreign countries close to the US.

All three airlines are overbought. The trend (SMA-200) looks good for all of them. However, the trend could be reversed very fast as we experienced it in mid Oct.

Explanation

Ø Scoring systems have been explained.

Ø Expected EY, Debt/Equity, ROE, SMA-200% and RSI(14) are obtained from finviz.com.

Ø Analyst Rating is from Fidelity. If Fidelity is not your broker, use Recommendation from finviz.com.

Ø EB/EBIT and F-Score are from GurruFocus.com.

The above is the Fundamental Analysis. It should be followed by the following:

Intangible Analysis includes the percentage of union employees and the median age of the fleet for example.

Qualitative Analysis includes articles for the company you’re interested. First, start looking for articles in Seeking Alpha.

Technical Analysis times the trend and overbought condition. Many investors do not buy a stock that is in its downward trend (i.e. he price is below its SMA-200).

Conclusion

As of 11/2014, I can see airlines are bargains judging from the high earning yields. I am cautious on the high debts (AAL in particular). I predict the stock prices will still rise at least to Feb., 2015. Now, it is the window dressing time for fund managers and they will buy winners like most of the airlines. However, their stock prices could change very fast. I recommend buying them and protect your investment using stops. It belongs to the strategy "Buy high and sell higher". In addition, follow how the institution investors and insiders trade.

Afterthoughts

· Pam Am. 1.35 billions of Chinese can tell you that the headquarter of the former Pam Am had bad Feng Shui as the road rushes directly through the building in NYC. Today’s Chinese stewardesses (young, slim and beautiful) are eye candies and look like the glamorous ladies of Pam Am in her heydays.

· Click here on the joke on how to save the airline industry. PG 14 and PG21 for Chinese J.

http://tonyp4idea.blogspot.com/2009/11/how-to-save-airline-industry.html

C2 Bank of America

Some dividend investors still praised how great BAC (Bank of America) is. This stock did come back great for the year of 2012. BAC could make another big price surge in the second half of 2013. When you have fewer banks, you have better market share and better opportunities to make money. In addition, the toxic loans should be reduced by now.

For the last five years starting from 2007, BAC has been falling from about $50 to about $8. The total dividends added will not offset the big loss. In Dec. 2007, BAC paid about 5% dividend at a price around $45. It would be loved by dividend investors back then, but not anymore after they found out how much their stock had depreciated immensely.

Their argument is the total dividends from the IPO day and even today’s depressed stock price could have doubled their initial investment. This argument has too many flaws including the following:

1. The performance should be adjusted to inflation.

2. If I bought Apple at its IPO, I could be thousands times richer than owning BAC. You just cannot draw a conclusion on a strategy from a specific stock and using a period favorable to your argument.

When we evaluate a stock, we should skip some sectors or not using our conventional way to score a stock such as the banking sector. The quality of the mortgage requires more expertise than using the common fundamental metrics.

In addition, we should avoid our biases such as loving blindly a strategy (dividend strategy in this case). Most strategies will fall eventually when the strategy is over-used. Do you remember buying internet stocks before 2000?

The cause of the 2007 recession
http://ebmyth.blogspot.com/2013/11/the-cause-of-2007-recession.html

C3 Caterpillar

You may need to hold CAT longer like two years (after 2014) when the economy would start to recover. Even with the present metrics, it looks great. As of 5/12, the mining and construction businesses are slowing down but they will come back eventually.

On 5/7/12, it scored at 24 from my scoring system which indicates a buy for any score over 15. However, the short-term outlook of the market does not look good.

Value Line indicates annualized 16% return after 3 years (8% is good for me). Fidelity has 9.5 out of 10 from a summary of analysts. 17% of its stock price is cash. It is 98% cheaper compared to its 5-year average P/E. In a word, it is priced below its value.

The only negative point besides the global economy is its high debt / market capital though it is quite normal in its industry. It wrote off a Chinese company it acquired due to fraudulent financial data. The management has to bear some of the blame. Well, if a big company with its immense resources cannot detect the fraud, how can we, the retail investors, detect such frauds?

On that day of the analysis, the stock price was 97.19 and today it is 79.14. I bought it two times in between these prices. Is it a gem or will it fall further? Only time will tell.

Afterthoughts

· As of 9/2012, CAT has appreciated by 10% from 7/2012. Together with Cisco, they’re supposed to be ‘Buy (bargains) and Forget (until the economy returns)’ stocks. The good news on China’s stimulus plan makes the stock rise. I will forget this stock until 3 years later. In the meantime, the immediate prospect is not good for CAT with the decreasing of most global infrastructure projects and mining projects.

· Buy CAT for the dividend according to this SA article.

http://seekingalpha.com/article/1504182-caterpillar-15-dividend-increase-makes-it-a-buy

C4 Apple

iGeneration

Almost everyone has an iPhone. Folks including myself in the lower class of the society carry imitators and/or those 'outdated' iPhones that are several months old.

My grandchild of just over one year old had a good time in playing with the iPad and it usually kept her busy for hours. Before she could say Mom, she said “I” for iPad. During my family gatherings, my cousins communicate with each other via their smart phones even when they sit next to each other. When they do not text messages, they play games with their smart phones.

Even with one pair of eyes and one pair of ears, they can play iPad, listen to iPod and text using iPhone at the same time. Thanks Apple for demonstrating what multi tasking really is. I prefer to do one task correctly than several tasks incorrectly. Chinese and Indian students are leaving us further behind by spending more time in study. Do you believe those children spending extra 2 hours every day in games would accomplish the same later in life?

Some parents have a hard time to explain to their children that their existence was due to the blackout of the iPad and iPhone caused by the hurricanes.

Why Apple is successful

Peter Lynch taught us to look for stocks in the mall. In this case, you do not even have to leave home.

I have a comparison of how the successful technology stocks performed in the first ten years and then the next ten years. If they survive in the first few years, most of them did incredibly well in the first ten years and not too good in the next ten years. Apple is the only profitable exception in the entire 20 years in my test. Apple had its bottoms many times and then miraculously came back stronger and better. Luck cannot be the only reason. To me, it is due to:

· The vision of the late Steve Jobs.

Apple is not the first one to introduce most products we use today. Jobs had the passion to make them useful and affordable. He was the slave master to drive his employees to the next level. These engineers and programmers are the best from our colleges and some are on H-1B visas. He knew how to play his China card described next.

· The China connection.

o Apple is the master of outsourcing. How can you find obedient workers to assemble Apple products at very low cost? These workers are better than robots. They can be trained to assemble new products in very short time and work long shifts without notice. Our unions, regulations and high living standard do not allow ‘slave workers’ here. Actually the ‘slave workers’ are quite educated and young. While many companies find defective products from Chinese factories, Apple so far finds few if not none.

o How can you find 40,000 technicians? Not from the USA at any cost.

o The large potential market. Chinese can buy similar products produced locally, but the selling point is the prestige of Apple to boost up their social standing. China will open up 4G LTE for iPhone line in more cities.

· Marketing.

The long-line waiting for a new iPhone or iPad is the best ad money can buy and even better when it is free. Can the trick still work in the future? It will as long as we have silly folks wanting to be the ones in his/her block to own a new gadget.

Scoring Apple

When I was writing the book Scoring Stocks, first I used IBM but its low score would not be a good example. Then I switched to Apple (AAPL). It scored almost the highest. I recommended AAPL at $55.72 (split adjusted) in April 19, 2013, the date the book was published. It is another example that fundamentals work. However, when we’re swimming against the tide, we need to be patient. At that time, the media and institution investors ignored fundamentals. The best argument of not buying Apple was “Apple has turned from a growth stock to a value stock”. They think they cannot get fired by thinking the same as the herd. Just garbage talk from the smartest folks!

Fundamental analysis as of 11/30/2014

	Passing grade	AAPL	Industry
Score System #1	>=15	18
Score System #2	>=2	2
Pow EY	>=5	6%

Expected Earning Yield	>5 & <35	7%	5%
Debt / Equity	<.5	.32	.29
Analyst Rating	>7	9

EB/EBIT	>5	13
F-Score	>7	5
ROE	>=15%	33%	27%

SMA-200%	>0%	30%
RSI(14)	<60	79

Price		$118.93

Explanation

Ø The first scoring system incorporates many vendors’ grades. The second scoring system is from my book Scoring Stocks using metrics available free from many web sites.

Ø Pow EY – Earning Yield (E/P) takes cash and debt into consideration.

Ø Expected EY, Debt/Equity, ROE, SMA-200% and RSI(14) are obtained from finviz.com.

Ø Analyst Rating is from Fidelity. If Fidelity is not your broker, use Recommendation from finviz.com.

Ø EB/EBIT and F-Score are from GuruFocus.com.

How Apple scores

It scores fine but not spectacular. The score from my book in April, 2013 is 5 and now it is 2. Fundamentally it is not as good as before.

P/B and P/S are usually not useful for high tech companies. However, Apple’s P/B at 6 is exceedingly expensive as compared to Google’s 3. When most analysts like the stock, usually it will rise in the short-term. RSI(14) shows it is overbought. To conclude, its fundamental score passes but not in flying colors.

The brief Fundamental Analysis should be followed by the following:

Intangible Analysis (described next).

Qualitative Analysis includes articles for Apple. First, start looking for articles in Seeking Alpha. Large companies like Apple are hard to manipulate, so most articles are not ‘pump and dump’.

Technical Analysis detects the trend and overbought condition. Many investors do not buy a stock that is in its downward trend. SMA-200 is a good trend indicator. Its price should be above the SMA-200 (same as SMA-200% is positive).

Intangible Analysis

Apple has lost a visionary leader Steve Jobs. I hope he was not replaced by similar managers at Microsoft, who are responsible for Microsoft's lost decade with few innovative products. Apple has a lot of cash to finance new projects. High tech business is tough as they need to build a better mouse trap continuously. When the mouse trap becomes a commodity, it will not have a good profit margin. That’s one reason that Buffett does not invest in Apple. If he read my book, he would buy Apple instead of IBM.

There are bright spots for Apple:

1. Apple Text Book. Imagine all students carry iPads instead of text books. Several educational apps have been created for iPads.

2. Apple TV.

It is a loser so far with a lot of risk and potential competitors. However, the potential is great. It could give all cable companies a run for the money. Wider internet channels would make it more feasible. Will the cable companies provide these speeds to allow Apple TV and similar products to step into their turfs?

3. While the iPad and iPhone are peaking in the hardware, iTune, software and contents for these devices to access have no limit. We have witnessed how iPad helps the folks with autism and iPhones for the blind. I can envision many other similar applications.

4. Apple moves to Kindle's market. iPad is too big to be used to read books during commute. You need to hold an iPad with both hands. The mini iPad, even making fewer profit margins, will be Apple’s answer to Kindle and a good addition to cover the lower end of its product lines.

5. All the mobile phone technology is originated by the first generation (if not counting Motorola) that Apple has a lot of patents. Its lawyers will milk money from Samsung and prevent cheap mobile phones from coming to the USA.

6. Apple Price.

I saw a similar ad from a credit card company a while ago and not recently. Apple has a proven history of picking up some failed products and turning them into gold. It is a big test for Tim Cook. Hong Kong had a similar application many years ago. The advantage of that application is you do not have to carry changes.

7. Apple iWear/iWatch.

There will be cheap Chinese products flooded in our market. However, the selling point is the prestige of Apple. For a similar reason, my $50 Casino has no respect even it is more accurate and more functional than an Omega costing many times more.

8. Apple has a lot of cash. Dividends usually boost the stock price and the option values granted to the management. However, it is important to plow back to development and acquiring technologies. They may have paid too much for Beats.

2015

Xiaomi, a Chinese phone maker, will most likely come to the USA in 2015 after conquering several emerging markets including India. Its phone is almost as good as the latest model of iPhone at about half the price. It also has a low-end version priced at about $100 that would set up a standard for entry smart phones.

Xiaomi prices the latest phone model barely above the manufacturing price and makes money in the decreasing component prices. It gains more profit by stretching the model to a longer life.

Apple’s lawyer will prevent its entry that Samsung found out the hard way. For starters, Xiaomi needs to modify the user interface to avoid some of the obvious lawsuits in the USA.

When the phone becomes a commodity, both companies have to make money in the content. Today Apple depends on iPhone for over 50% of its sales. After mid 2015, Apple stock may face some challenges. Eventually the smart phones will become a commodity product and they may have to face Xiaomi.

The Apple’s surge in Nov., 2014 is due to window dressing by the institution investors. While the fundamentals are still great, I predict the stock will not increase in this pace. Will there be another miracle? I do not bet on it as Tim Cook is no Steve Jobs.

### Joke ###

Chinese burned paper cars to their dead. The shopkeeper told his customer who bought a paper iPhone not to forget to buy a paper charger. It would be worse if your ancestor asked him to bring it down to his ancestor. This joke may not work for different culture.

The shopkeeper assured that his ancestor should be able to use the advanced features of the new iPhone as Steve Jobs was there to help.

C5 Microsoft’s tablet

The Good

Microsoft should capture a sizable market for business users if they market the product Surface right. They provide Word Office, a browser compatible with Internet Explorer (IE) and storage via Cloud. Built-in disk storage may not require Cloud for storage, but it would drain the battery and take long time to boot if it is from disk (the new version of Windows greatly reduces the boot time).

Most of my investment software requires IE and all of my investment spreadsheets use Office’s Excel. It will be a good tablet for business folks especially for travelling.

I do not believe I'll use it during my vacation but it will be a handy tool to many. We will see how Office is implemented in the tablet, the energy consumption using the Intel chips and the prices. It will be appealing if you can run the business software in your tablet and your office PC.

Migrating current business applications to the tablet is a good such as the laptop applications my doctors are using.

As long as it is not losing money, it would be a win especially for the lazy Microsoft’s management with no innovation for a long while. You cannot sit on the cash influx from Windows and Office forever. Wake up from your afternoon sleep and dream on how to spend your bonuses in your fancy offices and do something even it will not always be safe.

The Bad

Surface will not be replaced as a consumer product as iPads are years away with growing apps. The new version of Windows has a lot of nice features. It is very buggy as of 3-2013. I hope they have a specific version for tablet.

My thoughts

When Surface was announced, it was a non-event. The first article on Surface at Seeking Alpha, a website for investors, appeared very late. There was not much publicity as opposed to folks lining up for Apple's products. As a stock owner, I hope it will change.

Microsoft should not compete with iPad directly with the RT. The Pro is ideal for business folks with Office and Internet Explorer installed with full functions. I predict the Surface Pro will be the winner and RT will fade. Personally I plug in my electric outlet automatically on my laptop so I will not be disturbed while working. The battery life will not be a concern to me and I expect the newer chips from Intel will resolve this problem.

Afterthoughts

C6 Cisco and Huawei

Did Huawei steal Cisco's technology?

(http://en.wikipedia.org/wiki/Huawei)

Do they pass information to the Chinese government on sensitive data from their routers? They're all unfounded accusations to fight competition.

If the secrets can be stolen that easily, we have to blame Cisco for not protecting their secrets and we would have many companies like Huawei. Cisco is using this to protect its bidding from Huawei unfairly. This tactic works successfully in the U.S., but not outside the U.S. It is a case of its sales force in the U.S. does not care about the sales force in China.

The fact is there is no trap door to steal data from the network. If there is one, a good percentage (about 20%) of the global traffic has been routed via the Chinese equipment already.

It is a fact that companies spy against each other (same as countries), no matter it is a Chinese company or an American company. If you believe CIA (same for NSA) is just gathering information, you believe in fairy tales or your dumb nationalism covers your eyes. It would backslash on Cisco when China stops Cisco from selling its products to China for the same reason.

Cisco does not have the technology in 4G LTE as the top three companies (ALU, Ericsson and Huawei) do. The stealer has better products than the stealee! Cisco has missed the opportunity to buy ALU when ALU was $1 per share. I hope they’re working on this important technology. It could be too little and too late.

Cisco and its rival Huawei are riding on the economy. Many devices will be connected to the web. Cisco, Huawei and companies in this sector will all benefit. Singapore today provides a glimpse to the future. Every street has surveillance cameras which are connected to the internet via routers.

I expect Cisco's stock price will fluctuate with today's range (as of 5-2013) and it will take off after two or three years hopefully when the global economy recovers. Huawei will be in better position in the long term as their research and manufacturing costs are far lower than the U.S. and it doubles the size of Cisco. Huawei's products are very competitive and already have captured good market share outside the U.S. The margin of the industry will still be favorable.

Afterthoughts

C7 Is Volt a devil or an angel?

Financially Volt is a disaster but it serves as a compliance car. It drove GM to the brink of bankruptcy – thanks to Chinese for saving GM. Without Volt, the investors of the new GM could make more money. The current owners of Volt do not have good resale values.

Estimate how many miles you drive in a year to calculate how much money you save in gasoline. Most likely it will not pay back the extra investment, extra maintenance (two drive trains until we have a pure electric car), reliability with two drive trains, the extra electricity bills, the inconvenience of charging (your time as a Volt owner must be more expensive than the time of a Corolla driver), finding a qualified mechanic (except from the dealer who will charge you a bundle), the tickets for driving too slowly, the increased chance of hitting something due to no warning sound...

Why folks buy it besides the rebates from the government (at least at one time)? It is the same folks camping in line to buy the new iPhone to replace the ones they bought several months ago except of the age difference of iPhone owners and Volt owners. Don't tell me the iPhone would improve the productivity after they have wasted one night camping in the cold.

They want to be the first one in their town to own a Volt and show the world they're green conscious (that is debatable). The obsolete battery is not bio degradable and will harm the environment. I also wonder how often you need to replace the battery. It boosts their social standing and 'prestige' for some. It is not for me even if I had the money. Well, it could save them money by visiting a psychiatrist to boost their ego and most likely a prostitute could do a better job for less. J

There are a very small number of folks buying the car for the good of the environment. It is debatable as I said before. There is no convincing figure that it will reduce carbon dioxide emission significantly even when 80% of all cars are electric. However, I have to thank the first wave of electric car owners and the government rebates. Without them, we will never have a truly usable and affordable electric car in the future.

The battery technology is evolving and M.I.T. has a very promising technology. It may take at least 10 years (as of 2013) for M.I.T. folks to deliver the next breakthrough from a research project to a commercial product. Until they prove the battery is 100% safe, you’re advised to take the extra insurance among a list of options. J

I’m very absent minded. Many days I may have to call my boss that I cannot come to work as I forget to charge or I may drive the car with the charger on that could do some harm to the car, the charger or the house (hopefully it would not burn it down).

I also wonder how long it takes to drive an electric or a hybrid car from Boston to Washington, D.C. (including the time to recharge) for my family vacation. It could be a nightmare just planning where and when to find a charger.

C8 Tesla

As of 8/8/2013, the stock price of TSLA is $155. The performance has been amazing 350% YTD. It is a stock rocketing higher and higher. If you’re one of those lucky investors, protect your profit with stop orders.

Is TSLA a good investment?

From the fundamental metrics, it is not. The expected P/E is 150 and ROE is -360%. I seldom invest on stocks with P/E over 40. However, the outlook of the company is very rosy and the rising stock price indicates it could revolutionize the auto industry. It is possible, but do you want to bet on it?

My preference is “Buy low and sell high” as opposed to the current stock holders’ “Buy high and sell higher”.

Common mistakes of retail investors:

1. Investing in a company is different from investing in a company’s products. Many Tesla owners own the company’s stock.

2. Potential appreciation of a stock has nothing to do with its past performance. Will have another 300% return? Most likely, not. If the chance to decrease by $100 the same chance to increase by $50, I do not buy.

3. When the trend (all three simple moving averages in finviz.com indicates the trend is up), selling short is against you even if you have good argument. Do not swim against the tide especially in short term trade.

4. Your profession (or expertise) could bring you bias in making investment decisions in a company related to your expertise. I had many high tech friends betting on internet stocks as they ‘knew’ better.

It is similar to your origin of nationality. When you were born in China, it does not mean you’re an expert in Chinese stocks.

The Business Model

Building super charge stations for the current owners to use free after a small initiation fee is a reversed business model of giving razors free but making money on the blade. The latter proves it works, but there are not too many beneficial precedents for the former model.

Tesla, the car

Tesla is an electric car. The current model is about $80,000 (not a typo) and the new model will be about half that. It still has similar problems as the Volt except with one simple drive train. The problems are:

1. The service stations are built for free charging after an initial fee. Are they really free? It will be great for the owners if the company will not be bankrupted from its shaky financial state. Same for sending mechanics to your house to fix your car. I hope they will prosper as I cheer them from my cheap seat.

2. The charging range for the average owner is far worse than the range under ideal conditions and it will never be close to the range of cars using gas. Is the extra cost for larger battery worth it to an average driver?

3. The other problem is some states do not (or will not) allow selling a car there without a dealership. It is costly to build a dealership network.

4. My estimate is $10,000 rebate per car sold by Tesla from the government. Will the government subsidize them forever? It is not a big deal now as the number of cars they are selling is still small.

5. It will appeal to folks driving a lot of miles in a year and/or when the gas price surges. I drive about 8,000 miles a year and it will never pay back for the extra cost ($80,000 vs. $23,000 for my Honda CR-V). Hope the $40,000 Tesla would make a big difference.

6. Even if the company is making easy money in selling the carbon credit, it will still have big losses in the coming years.

The link is http://en.wikipedia.org/wiki/Carbon_credit.

Musk

Musk is very brilliant in pumping up the stock. He will sell it without the restrictions in the loan after he paid it back to DOE. The last owners of this stock could be the biggest losers if it heads south. I could be wrong in the timing but not wrong in the fundamentals of the company.

I sincerely wish he and his company will be successful and I were wrong. Only time can tell. For my own money, I prefer to buy low and sell high. It is just me. If you want to buy high and sell higher, you should protect your investment with stop order. Also, adjust the stop when it appreciates.

Afterthoughts

C9 First Solar

I have a lot of doubts in this company. Some of my fellow commentators giving rosy outlooks could be the hedge fund managers or retail investors holding a lot of this stock. Their arguments of investing in this stock do not make a lot of sense. Even if it has potential appreciation as stated in the article and the comments, it is too risky by many fundamental metrics. The company is losing a lot of money and the outlook of solar industry is cloudy except banning the Chinese solar panels from coming in.

This stock has been recommended by many well-known subscription services. Most followers lost money. My advice: Analyze the company with an open mind on any recommendation and understand the hidden agenda of the writer. There are many articles in the web are just controversial. This company will rise for the following reasons: 1. Not letting Chinese solar panels in or 2. Energy (oil and gas) cost rises.

Here are my negatives on this company:

1. They cannot compete with Chinese companies if the protectionism is lifted. Some companies in Europe produce better products. Hence, they depend on local sales and tax rebates.

2. Solar is still expensive if oil is below $100 in most regions of the USA.

3. Shale oil and gas could make solar impractical in most areas in the USA. The time frame for shale energy is 5 years from now (as of 3-2013) if they can solve the environmental problem and set up the pipelines.

4. How many previous losers (there is a lot) on this stock will return? More importantly, how many investors find its potential appreciation attractive?

5. The company is losing money now.

C10 Holes in retailing

Many retailers have more holes in their operations than Swiss cheese. I wonder who the CEOs are. Common sense must not be taught in Ivy League colleges and presentation is the only criterion for their selection. Here are some holes.

· The bankrupt Circuit City ‘pioneered’ returning merchandise with no question asked. Buy the most expensive TV before the Super Bowl and return it after. You will always have the top-of-the-line TV for big games to impress your friends. You can buy them back at a discount. Normally they are available in the same store on the day you return.

· When an item is on sales, you cannot get the credit of the difference of the price you paid and the current sales price within a specific number of days. However, you can return it for a full refund and buy the same item at the sale price.

· Sears once was the biggest retailer. At one time, I made over 50% in less than a few months on Sears, sold it and never looked back. The Canadian operation still looks great and I bet it may have been spun off already.

Eventually they can only sell lawn mowers, appliances... There are so many wrong decisions that I do not know where to begin. Selling clothes of Salvation Army quality at bargain prices in expensive malls is the same as committing suicide slowly plus ruining the image of the company.

At one time, Sears split itself into multiple stores such as one for eye glasses and one for tax returns within the same location. It had been proven it did not work. The most amazing thing is the x-president of JC Penny followed the same idea. It is the same of stepping on the trap that has an obvious sign. A blind following a blind is silly; a blind following something that has been proven not working is ultra stupid or stupid beyond words.

· If you enjoy books, try out the free 30-day trial of Kindle Unlimited and $10 per month afterwards.

You can help me to make some money (I promise to give the extra to the poor) by borrowing 10 of my books and returning them with or without reading them and borrowing another 10 again. Repeat the process until I'm a millionaire! Do it now before they close the hole.

· Apple does not allow the retailers to sell at discounted prices. However, they can get away by using general discounts.

American corporations must be run by guys looking like a movie star but with a retarded brain!

C11 Tough restaurant business

They may be one or two out of 10 restaurants that are doing fine. Try to avoid buying stocks in this business.

Retail and Restaurant are just tough businesses. Red Lobster did not do well.

I attended a banquet in a top hotel in Boston. The steak was so tough that I could not chew (old age was one reason too). I do not know why the hotel wanted to risk its reputation by saving a few dollars per plate. If you need to save the few dollars, please grind the meat. Yes, there will be no return customers, but this is the reputation you’re risking.

Appendix D - Bonus: Review.

D1 How to profit from a proven strategy or subscription

This chapter illustrates how to use a subscription and makes it work better. We use AAII’s shadow screen as an example but it will apply to most other subscription services.

Does it perform?

From the AAII’s website, the shadow strategy performs quite well as of this writing. It uses cash, so there is no cheating. However, you have to concern yourself with the following.

· Check out the performance of the last 10 years only, not its long history. The market changes a lot in the last 10 years. Hence any performance data over 10 years ago would not predict better than the more recent data.

· Can you simulate the same performance? You cannot if the selection of stocks is distributed to others before you. I treat it as a general alarm and not specific to AAII.

First, ensure that the insiders of the subscription service do not have this selection and act on them first; some subscription services enforce it. Second, check whether you have to pay extra to be the first group to receive the selection list than other members.

· In general, I prefer they give me the tool to select stocks myself as there are too many pitfalls especially on low-volume stocks. However, this requires less effort.

· Actually they provide the database and the screens at extra cost. It may worth it as you will be ahead of the general subscribers. The large number of subscribers would drive up the prices of the recommended stocks initially.

The better way is to modify the screens so they will not produce the identical lists of screened stocks.

Once you get the selection list, analyze the stocks and perform paper testing. If the performances during up market and down market both beat the general market, then the service performs well.

Improve the performance

We would improve the performance from what we learn in this book:

· Market timing by cycle.

Close all stock positions before and during the market plunge. Hopefully market plunge can be detected and act accordingly.

· Market by calendar.

For example, select the holding period of a stock from Nov. 1 to May 1 next year for non-taxable accounts.

· Diversification. In general, do not have more than 25% of your portfolio in the same sector.

· Skip the sectors that require expertise.

· Common criteria that may not be included in this strategy. Adjust them as this strategy favors small cap only.

· Modify the strategy. The purpose is not to trade the same stocks as everyone is doing. When you do, the herd theory would apply – the leaders of the investors on the same stock would profit more than the rest.

This strategy suggests you to sell all the stocks that do not meet the filter criteria. The following may not apply to this strategy. However, you want to be ahead of the herd by selling most of them earlier than most by setting more criteria to sell such as reaching a price objective and close to a fixed holding period.

1. Try to sell before the herd. If the strategy asks you to review the stock positions in 6 months, do it in 5 months.

2. Using the above such as Skip the Sectors, you may already have different set of stocks as the herd.

3. Modify the selection criteria. If it asks you to have market cap less than 150, try the market cap between 100 and 300 – just for illustration.

· Analyze the stock.

· Second opinions:

1. Use the Scoring System from my book Scoring Stocks (from amazon.com). Only select stocks with passing grades.

2. Use Blue Chip Growth. Only select stocks with grade A in Fundamental Grade and / or Overall Grade.

3. From any other subscription services and / or free websites in evaluating stocks. For illustration, this strategy is for a holding period of about 6 months. Hence, use a subscription service on fundamentals and those services for momentum and day trading will not be relevant here.

· Buy the stock.

· Sell the stock.

Links

Scoring Stocks. http://www.amazon.com/dp/B00CX3F3CC

Blue Chip Growth.

http://navelliergrowth.investorplace.com/bluechip/password/index.php?plocation=%2Fbluechip%2F

D2 My predictions

Recently I read several books on how several authors claiming their correct predictions on the housing bubble in 2007. I do not know whether it is before the fact or after the fact. At least two from these authors made similar predictions on the bubbles of the stock market after 2008.

So far they have either not materialized or have been just wrong. If you followed them to move all the stocks into cash, you have missed the biggest recovery of the stock market from 2009 to today (8-2013). The excessive printing of money boosts the stock market as described in Non-Correction of the Market and the Economy.

It taught us:

· The correct prediction of one major event does not mean his/her future predictions will be correct even with good arguments.

· Even authors of best-seller books could be just a one-trick pony. I was amused that at least two authors blamed other authors of being one-trick pony. Tasting the same dose of medicine?

I had the best performance in 2009 and recovered most if not all of my loss in 2007. I was too conservative after 2009. As of 7/2013, I would like to review which of my predictions are right.

This chapter is for information and education purposes. I have not spent enough time to evaluate every one of my predictions. The primary purpose is:

· With educated guesses, we should have more rights than wrongs. A win percent of over 50% can make you a lot of money in black jack.

· Buying stocks or any investment is a prediction for better profit potential. Hence, there is risk that the prediction will not materialize.

· Learn from good experiences and bad experiences. However, ensure the lesson is not due to irrational market, luck and conditions you cannot control.

· Even with the best arguments, the prediction may never materialize. Do not bet the farm on it.

· Your action on prediction depends on your risk tolerance.

Correct or close to correct predictions

· 2000 market plunge. Moved most my high tech sectors to traditional industries. Could be better to move them to cash or contra ETFs (I believe they were not available in 2000).

· 2003. Moved back to stocks for better profit in Early Recovery.

· 2009. Moved back to stocks in Early Recovery. I had my best return in my largest taxable account by dipping into my credit line (not recommended).

· 2011. Predicted the market close by end of year. Better than most predictions for that year.

· 2012. Predicted the market close by end of year. Better than most predictions for that year.

· April, 2012 Correction.

· June, 2013 Correction. 6%, not the predicted 10%.

· Some stock winners (more winners due to rising market and scoring system).

· Scoring System works by beating the market for the test period.

· Recommended Apple at 390.50 (before the split) on 5-2013.

Incorrect predictions

· 2008 market plunge.

It was due to the false security on huge profits from energy stocks. When the economy continued heading south in 2008, everything including my energy stocks plunged. The simple chart from the chapter on Spotting Big Plunges should help. I did not use it as I had not discovered and refined this simple technique.

· Correction on Q1 2013.

It could be due to the pumping of too much money in the market by the government. As of 8/2013, my stocks perform quite well. However, I’ve been keeping too much cash expecting a serious correction. It is a case of winning the battles but losing a war.

· Some stocks losers. They are quite mild compared to the number of my big gainers. I have not learned from my previous findings to avoid these stocks.

Predictions not determined now

· 2013 Market.

· Secular bull market will start between 2017 and 2020.

· 2013 Correction from now (8/2013) to Nov. 1, 2013.

· Interest rate continues to rise at least to 1-2016.

· Dividend stocks will lose 10% from its recent peak by the end of 2014. Not correct so far.

· Recovery of commodities by Nov. 2013. So far so good even before Nov.

· Secular bull market will start between 2017 and 2010.

· TSLA will lose half of the peak value in 2013 by the end of 2014. Not correct so far. Same for ALU.

· Abandon long term bond and buy contra ETF to 20-year Treasury. Not correct so far.

The prediction for all predictions

The chart in Detecting Market Plunges shows you how to follow the moving average to exit the market and reenter the market. It works splendidly in the last two market plunges (2000 and 2007). It will work for the future plunges. However, the charts may not provide plenty of time to react as the last two; only time can tell.

Summary

It is not important on how many times we have predicted right, but what we learn from our good and bad predictions. Learn from our experience that would help us to make better future predictions.

All our stock trade decisions are based on predictions. Some will materialize and some will not. Diversify your portfolio.

D3 Reviews

This chapter reviews and summarizes important concepts in this book. I am a reader too to remind me on the lessons. This book allows me to write down my ideas and experiences. I review them and monitor how many mistakes I still repeat in investing.

1. A mistake may not be a mistake, or a win may not be a win.

Mistakes are repeated over and over again due to not staying consistently with a solid strategy and letting our emotions to influence our trading.

However, some ‘mistakes’ are not mistakes. I have evaluated my past trading record to determine whether my money losing episodes are real mistakes, just bad luck on uncontrollable circumstances or bad financial data.

If it is a real mistake, write it down to avoid repeating the same mistake. Often a trading mistake is worth more in future successes than experiencing a one-time windfall. To illustrate, I bought a small Chinese company that had excellent financial metrics, but it was all fraud and I lost most of my money in the stock. After a while, I made the same mistake again.

Cheat me once, shame on you. Cheat me twice, shame on me. I had that shame.

It is the same for a win, but in reverse sense.

For those readers not having the large number (about 100 to 150) of stocks as I do, draw your lessons by including stocks that have been evaluated even they have not been bought.

Overnight my MOS turned from profit into loss due to the collapse of the cartel in potash industry. It is an event we cannot control, expect or will be repeated, so this loss is not a lesson to be learned except on diversification.

I read many analyst reports on companies. First I have to ensure whether they’re written with hidden agenda. Second, I check out whether they make sense. Some companies fell even after good analyst reports. I reviewed them and sometimes I found their arguments were right. Several times I bought more shares and they turned out to beat the market by a good margin as a group. So it is only wrong timing initially.

We are human and we all make mistakes. We should learn from our mistakes and reduce the chance to repeat them.

I am guilty of repeating same mistakes such as buying foreign stocks that have been proven not profitable recently.

2. Spotting big plunges.

Market timing does not always work. However, when it works more times than it does not, we can benefit a lot in the long run. The chapter provides a lot of hints to detect big market plunges avoiding huge losses. Play defensive when the market is risky. Monitor how risky is the market routinely and act accordingly. Set up a schedule when to review market risk. In addition, understand market cycles.

Unless the same strategy is over-used, the chart should work. It may not give us ample time to react as the last two. Again, it depends on the data (the stock price), so it will not detect the bottom and the peak precisely, but it will spare you further losses and return in time when the long-term trend of the market is up.

3. Trade plan.

First, identify your objective in investing. Next, set up a simple trade plan to start, and then set up a schedule, e.g. when to review market risk and when to trade. For casual investors, it could be a quarterly task. Excessive (such as everyday) checking our portfolios is a waste of time for most.

Following a trade plan consistently forces you to be disciplined in investing. You should stick with the strategies that have been proven and avoid the bad human nature such as greed, fears and ignorance.

This book could be part of a trade plan as a source for reference.

4. Match the ideas of this book to the current market conditions and your personal objectives and risk tolerance.

The market changes often and it is not always rational. Every one’s investing objective is different. Even couch potatoes can benefit from this book by reading the chapters selected in Introduction.

5. Risk tolerance.

My objective is to make a decent return at the least risk and conserving of what I have is more important. Be a turtle investor who makes small but consistent profits. Many including many smartest people make millions but lose it all. Avoid options, leverages and margins. The exception is for well-off investors and / or during early recovery.

Customize your investing strategy depending on your risk tolerance. I describe mine here.

I am a retiree with enough money to have a comfortable living and hopefully it will stay this way. My strategy is conservative. However, life will be no fun if I just buy CDs and treasury bills (so is losing money in reckless investing). I do not want to take any risk for the sake of selling books or boosting my personal prestige. Here are my three major accounts.

Ultra conservative. I keep more cash in this account than the other two accounts. I do practice the strategy of ‘all in’ only in the Early Recovery stage of the market cycle. Most other times, I have cash, stocks with high values or sometimes some contra ETFs to lower my market risk.

Swing accounts. Buy deeply-valued stocks, and replace them with growth stocks during the Up and Peak stages of the market cycle. I am conservative in the Peak stage of the market cycle with stop loss. The average holding period is 6 months and longer for consideration on long-term capital gain tax.

Momentum accounts (most in Roth IRAs). However, switch at least some stocks to contra ETFs when the market is risky (temporary dips or the Bottom phase of the market cycle). The average holding period is one month.

There is no stock with high expected return at low risk. There are rare occasions. During market bottom, most stocks are on sale. Institution investors sold Apple to buy other stocks in May, 2014. I spotted the big bargain of Apple by its great fundamentals.

There is virtually no risk in buying Treasury Bills except losing the buying value due to inflation.

As of 2014, banks seem to have great value if not including the possible lawsuits.

Small stocks historically have higher return than large stocks. At the same time they’re more volatile and they have more chance to bankrupt.

6. Investing advice.

Select the ones that are appropriate to your needs.

7. Evaluate your requirements and apply what makes sense.

Every one’s requirements are different and my investing style may be different from yours. Write down your risk tolerance, your time available for investing and your general knowledge (and your desire to learn investing). Only apply those ideas that make sense and fit your requirements.

If you are a beginner in investing, learn from this book and other basic books. Trade on paper. Buy stocks starting small. Believe in due diligence. Luck in investing only works short term.

For the +intermediate investors, it is better to invest on mutual funds and ETFs. Master market timing before selecting individual stocks.

8. Be politically neutral in making investment decisions.

A political statement often offends a lot of folks. Do not let political bias distort your investment decisions. When I made political remarks on any party, I could be 100% right or 100% wrong to you according to which party you belong.

You do not have to be politically correct in making investment decisions. In this book, I have reported my dislikes to both parties and may offend many unintentionally such as politicians in parties, union members, investment professionals… They are not always right and you have to decide what is right in making investment decisions.

Also do not let your bias cover your eyes in investing except to be socially responsible. To illustrate, do not let your religious belief to bar you from investing in stem cell technology. Do not buy your company’s stock solely because you work there. Do not be overconfident as the market is not always rational.

9. Trade effectively and monitor your trades.

Do not commit the same mistake again. Do not buy any stock without doing a thorough analysis. Be careful on hot tips and hot stocks from the media.

10. Investing is multi discipline.

Investing requires knowledge in finance, accounting, economy, psychology, probability, statistics, PC skills, politics and government… This book touches many areas in basic terms.

11. Best strategy.

The best strategy is not to lose big money. Refer to the chapter on Spotting Big Plunges. Try to identify Early Recovery phase of the market cycle and invest more aggressively in this phase.

In other phases of the market cycle, choose one of the following strategies depending on your skill, time and risk tolerance.

1. Conservative strategy. Remain more in cash all the time except during Early Recovery phase.

2. Less conservative. Buy Low and Sell High.

3. More aggressive. Besides ‘Buy Low and Sell High’, add ‘Buy High and Sell Higher’ to a small extent.

In any case, do not gamble the money you cannot afford to lose and check how risky is the current market. Do not bet your farm in any prediction even if you have a good record in predictions. One bad one could wipe out your entire savings.

This book provides you with a lot of knowledge in investing. However, you have to apply the ideas to the current market conditions and practice them.

When one strategy works consistently, stick with it. Limit your investing strategies to a few (one is fine) depending on your time and your objective.

12. Be socially responsible.

This book is my contribution to the marvelous country that allowed me to prosper and lead a comfortable life. Avoid defense companies, tobacco companies, etc.

D4 Chronology of a trade

This is a summary of the life of a trade as described throughout the book. In a word, do your due diligence (same as do your homework). It is a general summary. Modify the plan to fit your personal requirements and risk tolerance.

· Is the market favorable to buy?

o Market timing. Early Recovery is the best time.

o Even in a bear market, there are valued stocks to buy.

· Screen stocks to buy

o Use screens and strategies that are successful recently.

· ETFs. If you trade ETFs only, skip the next step.

· Analyze Stocks.

o Sectors to avoid.

o Sector/Industry¹ risk:

§ Rank sector (many subscription services have a current rank for the sector/industry).

§ Sector metrics (e.g., average for debt/equity, average P/E…).

§ Sector outlook.

o Scoring a stock.

o Qualitative analysis.

· Buy a stock.

· Sell most stocks when the market is going to plunge.

· Sell a stock.

¹Companies are categorized into sectors and sectors are further sub categorized into industries. For example, bank is a sector and regional bank is an industry.

D5 Good pointers from a popular book?

I read a popular book on how to make money. It works for the author, but most likely it will not work for you. I have provided all the reasons here. It is similar to many books. A good book should provide useful hints that you can use to cover your investment (your time). Let me know (pow_tony@yahoo.com) how many hints you can find in my book, any read proof errors and any links that do not work.

· The book has been read by tens of thousands. From my book, when the strategy is over-used, it will not be effective. No exception.

When you follow the same strategy to find stocks, most likely you end up finding the same stocks as tens of thousands of his readers.

· If you do not consider market timing, you could lose half the value of your portfolio in a market crash.

· Always diversify. The stock market is not always rational. Even a good stock could lose half of its value without warning. If you have $50,000 or less, stay with 3 stocks in 3 different sectors. Preferably, one stock is an ETF.

· Basically it uses Buffett’s philosophy to pick stocks. Some work, some do not work, and some are not available to the retail investor.

· Today stocks are screened every day by many. I bet you do not find stocks selling at 50% discount in an up market. If you do, watch out. There could be reasons why they’re selling at these steep discounts. We usually only find these discounts in the Early Recovery of a market cycle.

· When you find value stocks with a huge margin of safety, most likely they will not increase in value in a hurry. There is no free lunch in life.

I enjoyed reading that book. I did find one or two good pointers and had included them in this book. There are many similar books that will make the author wealthy but you. Again, use common sense and read any book including mine with an open mind.

I have similar experience reading another book using technical analysis and rules from a popular subscription service. Check out their portfolio of their top 50 stocks. It did not work for a long while. However, as of this writing, it is working again.

The author of another book made millions in a short time. However, he lost most of them. I practice the art of a turtle investor. I included his valid points in investing in this book. However, I have to stress on safety by using market timing and diversification.

There are many classic books that may not work in today’s market conditions. I included most of their fine teachings in this book. The problem of many classic books is they have one theme and sometimes it is not worth it to spend days in reading a book to find the few helpful hints.

D6 Applying strategies

I exchanged trading ideas with my reader JsIRA via comments in my article. The lesson is we have to apply the strategies, follow them strictly and measure their performances accordingly. In this case, the stocks in the first portfolio were bought for long-term holding and the stocks in the second portfolio were bought for short-term holding.

I forgot why I bought these stocks after a long while. It turned out that the 20 stocks I bought described in the article were bought for long-term capital gain (one year for me). It was evident as all except one were bought for my taxable account.

The 15 stocks described in one of my comment in the article were bought for short-term swing (1 to 3 months for me). It was evident that most were bought in my non-taxable accounts. Hence, we should compare the performance for 3 months for this portfolio and 12 months for the other one.

The following are the summaries.

The first 20 stocks are for long-term holding. After a year from the published date of the article, the return is 53% beating SPY by over 100% without considering dividends. My actual return should be smaller. VELT was delisted and I used the price I sold. ANET was acquired and I used the price they paid me.

The second 15 stocks are for short-term holding. After about 3 months from the publish date of my book Best Stocks 2014 According to me, the return is 60% vs. the SPY's 22%.

The difference between these two portfolios is the stocks in the short-term portfolio were not fundamentally analyzed. Why? Value stocks are bought against the tide and it needs time for the market to realize their values. Short-term swing stocks are bought for momentum for short-term gains.

ARTX was bought in the wrong account. When it rose by 50% in one day (could be a “pump and dump”), I missed selling it due to considering the higher tax on short-term capital gain. I learn another lesson and hope you learn it too without suffering from lesser gain.

D7 A Tale of Two Portfolios

The first portfolio (20 stocks) was described in my SA article Amazing Returns more than a year ago and the second portfolio (15 stocks) was described in my book, Best Stocks 2014, According to Me, and was also mentioned in one of my comments in the article.

The first portfolio consists of Banner (NASDAQ:BANR), Key Tronic (NASDAQ:KTCC) (2 times), Questcor Pharmaceuticals (NASDAQ:QCOR), The Active Network (NYSE:ACTV) (acquired), Iamgold (NYSE:IAG), Advanced Emissions Solutions (NASDAQ:ADES), Nacco Industries (NYSE:NC), Velti (VELT, delisted), Alpha Natural Resources (NYSE:ANR), Apple (NASDAQ:AAPL), Citigroup (NYSE:C), Deckers Outdoor (NYSE:DECK), Microsoft (NASDAQ:MSFT) (2 purchases), Alcatel-Lucent, S.A. (NYSE:ALU), Dollar Tree (NASDAQ:DLTR), Caterpillar (NYSE:CAT) and Boston Scientific (NYSE:BSX) (2 purchases).

The second portfolio consists of Universal Insurance Holdings (NYSE:UVE), Gray Television (NYSE:GTN), Esterline Technologies (NYSE:ESL), Johnson Controls (NYSE:JCI), Nexstar Broadcasting Group (NASDAQ:NXST), Pozen (NASDAQ:POZN), China Lodging Group (NASDAQ:HTHT), CVS Caremark (NYSE:CVS), Home Inns & Hotels Management Inc. (NASDAQ:HMIN), Arotech Corporation (NASDAQ:ARTX), Canadian Solar (NASDAQ:CSIQ), Jazz Pharmaceuticals Public (NASDAQ:JAZZ), Motorcar Parts of America (NASDAQ:MPAA), Micron Technology (NASDAQ:MU) and Och-Ziff Capital Management Group (NYSE:OZM).

The first one has an average return of 53% beating SPY's (an ETF simulating S&P 500) 25% by 112% from 1-4-2013 (the publish date of the article) to 1-4-2014, a year later.

The annualized return of the second portfolio is 31% beating SPY's 16% by 94% from 12/16/13 (the publish date for the book) to 2/15/14 (2 months later). The choice of the end date will be explained later. Dividends are not considered in all calculations.

The second portfolio is one of several short lists from the 135 stocks recommended in the book. The best short list is Small Cap which has an annualized return of 98% beating SPY by 512% for the same period. It consists of the following nine stocks: Arotech, Consumer Portfolio Services (NASDAQ:CPSS), Entravision Communications (NYSE:EVC), Gastar Exploration (NYSEMKT:GST), Dot Hill Systems (NASDAQ:HILL), Lee Enterprises (NYSE:LEE), MTR Gaming Group (NASDAQ:MNTG), RAIT Financial Trust (NYSE:RAS) and Star Gas Partners (NYSE:SGU). Recently, small stocks are not doing as good as before.

The returns are pretty good, but they are not the discussion here. I would like to see what we can learn in investing.

You cannot learn from someone you do not respect

There were a lot of criticisms and doubts in my original article. I welcome all of them as I can learn from the comments and how I should be more defensive in writing. However, some do not make a lot of sense.

The short duration would boost my annualized returns. Yes, the annualized return of a week is not meaningful, but a month is, at least for 20 stocks. The annualized return is a two-edged sword and it can amplify the losses too.
Sometimes I do not have a choice such as comparing the performance of my momentum portfolio. It has an average holding period of one month. Now, I compare the performance of the 20 stocks for one full year.
I could have skipped my losers. They were all real trades within the specified period in my largest taxable account. Actually, I skipped some huge winners that missed my criteria by days. Now, I use the publish date of the article as the start date.
Today's low commission should not be a concern even for 20 stocks. My commission is $5 per trade and it represents a negligible percent of the trade.
I did have a loss at one time on my second portfolio. There was nothing to be concerned with. If you believe you never want a loss, do not invest and let inflation eat up your investment. The yardstick is whether you can beat an index such as S&P500.

Survivor Bias

VELT was delisted and ACTV was acquired. I used my sold price for VELT and the proceed I received from ACTV to calculate my return. Hence, the return is not precise for simplicity.

When you test a strategy, your return could appear better than the reality. In this case, VELT and ACTV are not selected in your test as they've been taken out from your historical database; few handle this bias.

Usually, the delisted stocks lose a lot of value and the stocks being acquired gain a lot of value, so they would balance out the effect. In reality it is not. There are more stocks delisted and/or bankrupted than the stocks being acquired. In addition, usually their average loss is more than the average gain of the stocks being acquired.

Countries and sectors

Usually, I do not trust the foreign countries that do not have a regulator similar to our SEC, especially on small stocks. VELT, a loser here, could be one.

I outlined in my books several sectors to be cautious of, including miners and ANR and IAG belong to this sector.

Size of bet

I had double bet on BSX and a low position on VELT. I did not place a large bet on ALU, a winner but risky at the time of evaluation. Gained some and lost some. In general, you want to double or increase the bet when the appreciation potential is good with acceptable risk.

Fundamental analysis works

Most of the 20 stocks scored high in my two scoring systems (one using simple metrics available to all). Value stocks need time for the market to realize their values as they're swimming against the tide. The short-term return usually does not mean anything, though it does this time.

The second portfolio is intended for short-term swings (3 months to me).

Fundamental analysis does not work

It is not contradictory. It depends on what the stocks are intended for. The second portfolio is for short-term swing. I used fundamental analysis to the minimum. There were about 135 stocks recommended in the book and I did not have time to evaluate each stock fundamentally in detail. If I did, the information would be obsolete. I provided a simple method in my book on how to do fundamental analysis.

These stocks are selected from the strategies (screens, subscriptions and screening recommended stocks from the subscriptions) that have been proven recently. They're described in my book The Art of Investing which covers most of my investing ideas. When you select the stocks based on momentum, do not hold them too long, as momentum usually does not last longer than 3 months.

Account

I have all the 20 stocks in the first portfolio in my taxable account and most of the stocks in the second portfolio in my retirement accounts.

I placed ARTX in a taxable account by mistake. I did not sell it when it gained more than 50% in one day due to the tax consideration.

Holding period

It is targeted to over one year for the first portfolio so they are eligible to the low tax treatment on long-term capital gains. For one year or two, my Federal tax on a huge capital gain was virtually zero taking advantage of a provision in the tax law.

I use two months for the second portfolio, as this is the time I start to sell the stocks for the short-swing portfolio. I compare different periods and this is the choice. In actual trading, I take advantage of their weekly fluctuations using technical indicators such as Bollinger Bands.

"Buy and hold" is not for me

Before 2000, market timing was waste of time. Since 2000, we had two market plunges with the average loss of about 45%. I have a simple chart to detect market plunges. It will not catch the peak and bottom as it depends on the falling/rising market. Hopefully, it will give us plenty of time to prepare as the last two.

The second reason I churn my portfolio is improving the appreciation potential. It is just my preference. When I sell a stock, it does not mean I'm not buying it back.

Risk tolerance

I am more conservative as a retiree. However, I was more than 'all in' (using my equity credit) in 2009. It depends on individual risk tolerance and situation.

Conclusion

Using these two portfolios, I have covered a lot of my ideas in investing. Implement the ideas that make sense to you and your requirements.

We need to have a trade plan to find stocks, analyze them, order them in the right account and sell them. Enhance your trade plan and stick to it. In addition to the described portfolios, I have one for momentum where I keep stocks for a month or less. I have other strategies such as Top Down and Sector Rotation. When the market is risky, I sell more stocks than I buy. Today I'm taking a break.

There will not be a book titled "Best Stocks for 2015". I find stocks almost once every month so it does not take too much effort to document my selections in a book. The window to sell the book is too short and it does not make it financially rewarding. But, never say 'never'.

I may have another article on my next 20 stocks in the future. The market is risky by any yardstick. Excessive printing of money causes the current non-correlation of the market and the economy. The government eventually has to reduce the money supply and they will correlate again. Until then, I am investing more conservatively.

The original article appeared in Seeking Alpha.

http://seekingalpha.com/article/2492255-a-tale-of-2-portfolios

D8 Tech stocks in last 20 years

I tried to use my historical database to test out NASDAQ 100. The return is great. To illustrate, from 1/4/1999 to 6/6/2001, the annualized return is 54% vs SPY’s 1.6% without considering dividends.

Do not ‘wow’ too early. The reason of the high performance is due to the survivor bias. Many internet companies were taken out from the index and/or the database, and hence the performance as a group is deceivingly high.

The following chart is for the popular high tech companies for the selected 10 years. For every one of the following successful high tech companies, there must be many that do not make it.

	1990-2000	2000-2010
	Annualized Return	Annualized Return
Microsoft	940%	-4%
EMC	7500%	-7%
Apple	20%	65%
Dell	8200%	-7%

Average	4000%	12%

The above figures are estimates for demonstration without considering dividends and compounding. Dell has been privatized today. Now, we can draw some conclusions.

· Tech stocks usually beat the S&P500 index. Risk usually pays.

· 1990-2000 are the golden years for tech stocks.

· 2000-2010 are not so good for tech stocks due to the crash of 2000. If it is not for Apple, the return of this portfolio would be negative.

· Except with Apple, it indicates the first ten years (or the early phase) of the tech stocks give the best returns. After they become mature companies, they seldom maintain the same growth rates. The worst of the group in the first 10 years become the best after 2000.

D9 Concise market outlook for 2015

For the last few years, most market predictors have their crystal balls broken. It is due to the excessive supply of money that leads to a non-correlation of the economy and the stock market. It cannot last forever. It will correlate again when the money supply is reduced.

2015 will be a tough year to predict. I will predict a gain of 7% if the market does not plunge. As usual, there will be two camps in opposite directions.

Good News

· The market is slightly over-priced.

SPY’s P/E is about 18 vs. the normal 15.

· The economy is improving slowly.

· Energy cost is reducing (bad for the energy sector).

· Most corporations have good profits especially in the first and second quarter.

Bad News

· Margin debt is in the record high. The market would usually plunge the next year after that year.

· Interest rate will climb after the mid year of 2015.

· The national debts and obligations are high as a percentage of the GDP. If we legalize 4 million illegals, how many will give up their work and collect welfare?

What should we do

I would watch how the above will materialize. The weather man can predict the weather in the next few days better than the next month.

When the market is down, we need to know whether it is a correction or the start of a market plunge. For a correction, you want to buy stocks as in Oct. 15, 2014. For market plunges you want to sell. For me, I prefer to ignore corrections as it could be the start of a market plunge. Most predictions from analysts and fund managers are rosier than they actually are. Accept their ideas that make sense.

Appendix E - Bonus: Investing

E1 Distorting indexes

The S&P 500 and Dow may not be a good benchmark especially for long term (say 15 years) for the following reasons. It would give you distorted results if it is not used correctly. The better ones are the equivalent ETFs like SPY, but they have a shorter history.

1 Survivorship bias.

To illustrate, excluding Lehman Brothers, AIG… would have better return for dividend stocks in 2008. How many dividends you have to gain when you lose the entire investment on these stocks? If you do not include the many failed small companies, your portfolio on this group should be fantastic.

2 Most companies in the 1920s have not survived. They may spin off, being acquired, or change name. Examples abound. Comparing the index for a specific year is fine but not from 1920 to today.

One testing technique is having a test window for a shorter time frame; for example, start on the first of year and end at the end of the same year, and then repeat the test every year for the next n years.

To illustrate, a company originally worth $2M spins off a subsidy and each new company now values at $1M. It does not mean the original company loses half of the value and the data base should adjust the price accordingly. Usually spun-off companies appreciate better than the market, but there are many exceptions such as Palm.

3 When I use a database with no survivorship adjustments, I usually have screens making incredible returns especially those screens not excluding the penny stocks.

To illustrate, I have two stocks costing one cent each. One goes to 2 cents and hence makes 100% return and the other one goes to 0. In reality, my return for this portfolio is 0. However, the database does not include the bankrupt stock and hence it shows me I have a 100% gain in this portfolio.

When you see the ads claiming unbelievable returns, it could be the survival bias or they use the best price of the day to their advantage.

4 Stocks are added and removed from the indexes every year. The ones that are removed could be bankrupt or doing badly like Kodak, Polaroid, AIG, Bear Stern, etc. It would make the indexes look better than they really are.

5 Inflation. When I was in college, I paid $1 for a Value Meal and now I need to pay $7 for the same meal. My stock has to make seven times to break even for that period, not to mention the taxes for the Federal government and the state.

6 Dividends are not added to the index.

When your investment says they have 10% return and compare it to the index with 8% without dividends, the comparison could be misleading. The investment is even with the index if the dividend is 2%. By law, the investment subscriptions / services can take advantage of the dividend. Check the current rule.

7 Both indexes are not ideal and both do not represent the complete market. S&P500 with capital-weighted construction is better than Dow with price-weighted construction. As of this writing, Apple is not included in Dow.

Usually Dow and S&P500 follow each other, but not in 2012. In 2012, the largest ten contributors in S&P rise but not in Dow.

Investment decisions are educated guesses based on current market conditions, tax laws... A lot of time, indexes cheat and you need to adjust your result accordingly.

I prefer to use S&P 500 (^SP500 in Yahoo!Finance) which has a decent historical data and it has better diversity than the Dow:

1. S&P 500 is more diversified than Dow's 30, and

2. Capital-weighted (vs. price-weighted). The shortcoming is that when a company such as Apple is weighed heavily in an index, it would affect the index when it rises or falls sharply.

Links

S&P 500:

http://en.wikipedia.org/wiki/S%26P_500

Dow:

http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average

### Songs ###

Honey, my book can sing!

Enjoy them even if you do not know Chinese.

A Chinese love song.

https://www.youtube.com/watch?v=lXaLVnL-qAY&feature=BFa&list=FLabyQLmqtZftxmVL8W1qg_w

Moon river in China.

https://www.youtube.com/watch?v=PyzFmi_wKF8&list=FLabyQLmqtZftxmVL8W1qg_w

E2 A prolonged recession

As of 2014, we're in the 6th year of this recession even the market recovers fully. It is the longest from my memory. We tried too many short-term solutions such as massive printing money and rescuing big companies that should have been failed. They work for the short term especially for the stock market, but it does not work in the long term. The temporary fixes are definitely not beneficial for the economy and its capitalist system. Politicians want to buy votes and voters do not want to bite the bullet. In addition, our economy is globally connected. What happens in foreign countries including EU and China affects us.

Sometimes no solution is the best solution and let nature take care of itself. No companies are too big to fall. We cannot spend recklessly to solve our problems and that is the main reason to get us into this recession on the first place.

When we let big banks or corporations fail, the job unemployment would rise and their buildings will be empty. It is a temporary problem. Companies with better management will take over, start hiring and fill the buildings. It is called capitalism. The lessons will be learned.

Our money has been used unproductively on unemployment and welfare. I’m glad we did not bail out Lehman Brothers as their former clients all over the world would ask them to pay back for misinterpreting the safety of their derivatives with some of them bundled as ‘mini bonds’. Many of the banks selling these derivatives are liable since Lehman Brothers is gone.

The investors are doing fine in the market as it is close to the 2007 level. It is still a depression when you lose your job and/or your house.

I'm looking and longing for a prolonged bull market when the two wars will finally and completely end. The U.S. is still full of natural resources especially per capita wise. Everyone who wants to work should have a job. The environmentalists should allow the oil companies to drill unless the concerns are real. The politicians should have a longer vision beyond four years and we cannot pass our debts to the next generations forever.

Afterthoughts

· From Eric: I think you are completely on the spot on with this point. The system needs to cleanse itself once and for all, and current policies are only prolonging the agony at this point. I was OK with QE1, as a chaotic unraveling could not have been allowed, but I still wonder if we wouldn't be much further along in putting the crisis behind us if QE2 was left on the shelf back in 2010. Sure the adjustment process is painful, but so are many things in life that must inevitably be endured before things can get better.

· From Wheels: Recession for 4 years...hmmm...sounds like a depression to me...And we all know the reason why nature will never be allowed to take care of itself: because it's not politically tenable. No politician can stand up and speak to the dumb masses that we’re in trouble.

On the investing front, can someone please tell me how it is possible to get real valuations for the market with all the juice that global central banks have put in? Trying to invest with "fundamentals" in mind is making my brain hurt, because there is no such thing as fundamentals with all this intervention. And, 2008 is still staring us in the face, and scares me. And I think I'm a pretty average Joe investor out there.

E3 W-shaped recession?

As of 2013, this recovery is different from the previous ones:

1. For most job seekers, it is still a recession. If you lose a job, it is a depression. No matter how the government dresses up the employment picture for election, employment is still not promising.

As of 2014, we have improving employment. However, the median wage is still lacking. If you get a job that pays half your previous job, you will not spend recklessly like our government. The government says your new job increases the employment by one.

Many quit looking for jobs. The sign-up bonus for recent graduates is replaced by years of under-employment in jobs that they do not have to go to college for.

Globalization changes the entire picture from your caddy’s days. Corporations can hire the best candidate (slave wages and good education with the right skills) any place in the world.

2. Corporate profits are good after the bare bone cuts. They need to spend more and hire more to ensure future earnings. Employment is still low today.

They can move their ‘headquarters’ to any place in the world to seek the best tax benefits. We’re forcing the golden geese to fly away. It is similar to tax the rich excessively.

3. Large money supply drives down the interest rate. It should be good for business for several years to come. However, the money supply does not stimulate business investment and hiring as it is supposed to. The government is running out of tools to stimulate the economy. I have strong doubts whether the previous tools/actions are effective.

4. We've inflation for most commodities and food but deflation for housing.

I do not want to ignore the slim chance of a W-shaped recession even the market is doing great lately. A W-shaped recession means two recessions one after the other without recovery in a short time. It is very rare but we have the perfect storm coming our way with the EU crisis and China’s slow down.

Very often time cures all our problems including the EU crisis, our reckless spending… This time it just takes longer than the usual. I expect the second part of 2013 will start the economic recovery for real this time. Only time can tell.

As of 1/2013, the chance of a W-shaped recession is very slim, but the economy is recovering very slowly. We have a non-correlation between the stock market and the economy. However, it will return to the normal correlation.

E4 Momentum and volatility

Take advantage of the fluctuations and the short-term trends of the market. Volatility and Momentum work opposite to each other. Select the fluctuation (volatility) or short-term trend (momentum) according to the current market conditions.

When we've so many 3% fluctuations and the S&P stays flat, you can take advantage of fluctuations by buying a market ETF at the dips (3% down in this example) and selling at the temporary surges (3% up in this example).

Bollinger Bands supposedly indicates stocks normally trading within the bands (upper and lower). This technical indicator is available in most charts such as Yahoo!Finance. For example, enter SPY for the stock and select the Bollinger Bands. You should see the two bands and the stock price in between. Buy when its price is closer to the lower band and sell when it is closer to the higher band.

Momentum is profitable by buying when the last n days is up by x% (you define your n and x and adjust it for the past data). You need to protect your portfolio with stops as momentum can reverse and/or dips can happen unexpectedly. Do the opposite (via a contra ETF) when momentum goes in the opposite direction.

Design tests using historical data from Yahoo!Finance and implement your strategy accordingly. It can also be used to test the direction of the current market. A lot of time volatility happens for a very long period before the market changes direction.

Momentum works better in a rising market. Monitor whether the market peak is close, as it could plunge very fast and very steep. In this case use stop orders to limit big losses due to market plunge.

Links

Volatility:

http://en.wikipedia.org/wiki/Volatility_%28finance%29

Momentum:

http://en.wikipedia.org/wiki/Momentum_%28finance%29

E5 Investors’ psychology 101

Emotions control our investment decisions. We buy in greed and / or excessive optimism and sell in fears and / or excessive pessimism. They are just human nature that we have to avoid. Here are some pointers.

· Emotionally detached.
Investing is about making money at the least risk with emotions detached. Never fall in love with a stock or a group of stocks. Never be bothered by failed stocks and do not be too excited with successful trades.

· Every asset/class will return to the average value with one or two minor exceptions (gold is one most likely due to the depreciation of USD).

As previously stated, when a strategy is used by everyone, it will lose its performance.

· Do not risk the money you cannot afford to lose.
One recent retiree lost most of his money in a market downturn and he died due to too much worry. After a year, the market recovered and he should have recovered all his losses except his life.

Older investors should have a rainy day fund in cash. This could be 10-30% of your total portfolio depending on its size. Younger families should have enough emergency income for at least 6 months.

· Buy when the market is bleeding and sell when everyone is buying.
Buy low and sell high is the best strategy but it is hard to do so as human emotions do not allow us to do so.

· Diversifying your portfolio will improve your mental health besides your investment performance. Stocks could plunge with unexpected events and / or being manipulated. Diamond and Carnival were examples in 2012. I can sleep better with one bad loss among 20, but not one among 2.

· Do not buy sin stocks like tobacco companies unless the potential profit is more important than your moral can allow. One choice is to donate the ‘loot’ to the cause such as Lung Cancer for this example.

· Do not follow the herd without an exit strategy. If you are against the herd (contrarian), make sure you have good reasons to do so.

The flow to money fund proves that the average retail investor is usually wrong in market timing.

### Tips from my book Best Stocks 2014 ###

From 12/16/13 (publish date) to 3/29/14 (today), the performances of the entire list of 9 small micro-cap stocks (RAS is not a micro cap by my definition) are:

Stock	Market Cap (M)¹	Annualized Return
ARTX	52	234%
CPSS	176	6%
RAS	602	-19%
GST	329	83%
EVC	515	65%
LEE	171	293%
SGU	313	16%
HILL	166	491%
MNTG	147	12%

Average		131%
SPY		22%
Beat SPY by		496%

¹As of 12/16/13

E6 Herd theory

When the herd makes money, they think they're genius. The last one to leave the herd will be the fool of all fools such as the last holders of Lehman Brothers, AIG, Bear Sterns, etc. The biggest fools are the ‘value’ buyers when these companies were plunging fast.

The real genius is the one who makes money on the way up but leaves before the bubble bursts. Even a genius cannot predict the peak and the bottom but I'll call him/her a genius if s/he is right better than 70% of the time.

Now dividend growth stocks have the highest premium in the last 30 years. It is a mild bubble when we've many retired or retiring folks seeking for income. However, the bubble will burst when the interest rate rises; the initial rise actually will help dividend stocks. At that time, the long-term bonds with low yields will lose. The newer long-term bonds will rise when the rise of interest rate has been settled down. Hence, they will not rise initially but eventually.

Dividend stocks will benefit when the interest rate is low. Bond holders move to dividend stocks from their low yield bonds when the interest rate is low, and vice versa. Long-term bonds lose their values when the interest rate rises, and vice versa.

Same for the internet bubble in 2000. I did unload most of my tech funds on early April, 2000. The more I read that time, the more I got scared. It was partly luck and partly ‘genius’ to move all these sector funds to traditional industries. At that time, they did not have contra ETFs, so cash and the equivalent money market fund were the best asset.

There are many irrational human behaviors that would be harmful to investing. They are:

· Greed and fears. We buy when the market is heading north and sell when the market is heading south. We should evaluate whether the market is oversold or overbought and whether the market is overvalued or undervalued.

When the market is peaking, it is the most dangerous time to buy. When the market is bottoming, it is the best time to buy.

· We sell winners and losers (and some do just the opposite). We should sell when the stock has met our target or the stock is no longer fundamentally sound.

· Never buy losers. Losers could turn out to be potential winners. Most big profits were won by buying turnaround companies. Check the fundamental metrics and the outlook of the company.

· We seldom buy stocks that have been rising fast. However, these companies could represent better potential. It has been demonstrated by AAII stock screens on better profits by positive earnings surprises.

E7 Why market rises or falls

We try to answer this billion dollar question with a simple top-down approach.

The institution investors drive the market. Their trades are more than 75% of the total trades. They switch to bond /cash when the market is risky, switch to sectors and stocks with more profit potential. It is the basic of Top-Down Investing.

Market direction

There are two cycles: the longer secular cycle and the shorter market cycle (do not confuse with business cycle). The shorter market cycle exists within the secular cycle.

For simplicity and illustration, the duration of a secular cycle is 20 years and the 4 years for market cycle.

Some may argue we’re in the 6^th year of the secular bull cycle. I argue against as 1. The economy is still down, and 2. We still have major wars that are draining our resources that should be devoted to the economy.

I define the market cycle into the following phases: Peak, Bottom, Early Recovery and Up. I recommend selected sectors in each phase.

There are several articles to describe detecting market crashes as in my book The Art of Investing.

Sectors and countries

Very seldom sectors and countries continue its upward swing for years. They follow their own sectors with the above phases too. With the growing and aging population, some sectors such as health care should be in the secular bull market.

Today’s market

As of 2014, there are many positive signs and negative signs. I would predict we will have a fierce correction for the market to take a breather.

We cannot print money (affecting interest rate, inflation, credit, margin accounts, corporate profits… in theory) at the current pace. We should not pass our liabilities to the next generation forever. When the printing is eased, we will have a correction. Hopefully the economy will be strong enough to prevent a market plunge. At that time, the non-correlation of the market and economy, a rare occurrence, will be ended.

E8 Earnings nightmare

A bad earning would nose dive a stock. As of 9/26/2014, FINL is such an example. It lost 14% in one day to $25.11. I looked at all the fundamentals, ratings from many sources and analyst recommendation before today. They are really great. In addition, it is not a small company that would swing widely.

Here are some of the metrics on the day. It belongs to the Specialty Retail sector which is not great during a recession.

Metric	Value
Forward P/E	12
Debt /Eq	0
ROE	16%
Market Cap	1.2 B
Insider Trans	-16%
Short float	6%
EV/EBIT	8
Shiller P/E	21
Analyst Rating	9/10
F-Score	8
Revenue Growth	15
EBITA Growth	8
Zacks	Hold
SPEY	6%
PScore	4
Score – ST	6
Score – LT	21

Explanation.

· SPEY – Pow’s Earning Yield. Based on PPE (Check chapter on Mysteries of P/E) considering cash and debt. The passing grade is 4%.

· PScore – My scoring system and 2 is the passing grade. The higher, the better.

· Score – Short Term. Based on PScore plus metrics from my subscriptions. LT for long term. Passing grade is 15 for both.

The only metric that shows problem is Insider Trans. Next time, before we buy a stock, take a look at this ratio. If it is more than 10%, watch out. They are the folks that know the earnings before the announcement. Illegal insider trading? The other warning is the institution ownership from 100% to 6% in 3/31/14. The smart money wins again.

The above figures are from finviz.com, Fidelity (customer required) GuruFocus.com and Zacks (subscription required for both). Usually Zacks is quite good for predicting stocks before their earnings. The stock was screened from one of my ‘reliable and performing’ screens.

I may consider buying it after this plunge. Trap for further down or opportunity to buy? The lesson is diversification and do not put all eggs in one basket. Also watch out for insider and institution.

It went further down to almost $24 and as of 11/20/2014, it is back up to $27.74.

Missing or exceeding earnings estimate would cause the stock to swing 10% either way. Zacks has a good record on this kind of prediction. However, the prediction is usually more accurate when it is close to the announcement date.

For long-term investments (over a year), ignore the announcement as long as the fundamentals have not changed. The price swing is usually short-term. Missing or exceeding the consensus by one penny has no meaning. However, calculate the fundamentals based on the new information such as the earnings.

E9 Winning trade with CAMP

My trading on this stock involves several buys and sells so far. Here is the trade history. In 12/14/12, I have two buys. As of 10/07/14, I still own the stock.

Buy On	At	Sell On	At	Days	Return	Ann. Return
12/14/12	8.06	01/17/14	32.07	389	298%	279%
12/14/12	8.06	01/08/14	30.00	380	272%	261%
04/24/14	18.48	06/17/14	20.11	53	9%	61%
04/28/14	17.56	10/07/14	19.80	162	13%	29%

CAMP is a good stock to trade as the fundamentals were quite good most of the time. When the fundamentals are good, buy it. When they are bad, sell it.

I can tell the price and its P/E were exceedingly high in Jan, 2014 and that’s the reason I sold it besides qualifying for the long-term capital gain. On 1/17/14, the stock was high valued at $32.07 with P/E = 24 and RSI = 65. It was even higher valued at $32.80 with P/E = 104 and RSI=67.

It looked like a double top to me in Jan. to March. A double top predicts a plunge. The price dropped almost half in April, 2014 and I picked the stock up two times at decent prices. From the chart, notice the double bottom, a technical indicator that predicts a surge. Use the double top and bottom as a secondary indicator.

Today, the stock was up by about 20% after the earnings announcement. The forward P/E looks very decent and so is my Pow P/E (similar to P/E with cash and debt into consideration) with almost one dollar cash per share and only 1% debt/equity.

Appendix F - Misc. and New

This section contains articles unclassified, less important or new articles.

F1 One blog that could change your life

This blog does not guarantee you will be able to extend your life to 100 (actually not even living another minute), but it will improve your health. These topics on health have been discussed in countless articles but we do not follow them in practice. I list them in one page, so we can come back to review it from time to time.

We know some smokers and liquor addicts live over 100 years and some healthy souls live a short life. However, they are the exceptions and they are not true statistically.

Good

One cup of coffee a day is good for you from what I read. Decaf has no effect except mentally. One glass of wine a day and plenty of water. 15 minutes of sunshine every day. Fruits and veggies are good. So are soy bean and the products derived from it.

Seafood from unpolluted water. Chicken without skin.

Curry, ginger, garlic, cinnamon, banana, tomato, kiwi, honey are all good. Take the prescription drugs. Take life easy. Money cannot buy health and happiness. Simplify your life (by giving all of your money to me). J

Multi vitamin pills. It would gain 5 more years to our lives again statistically. I need to save for living expenses for those extra years and Social Security would have to pay me 5 more years. Poor Uncle Sam!

Bad

Soda including diet drinks and smoking is always bad. Avoid food with nitrates such as hot dog. Limit on red meat. Avoid fried food.

Not excessive

Consistent and appropriate (according to your age and physical conditions) exercise is good. Brain exercise. Eat out. Excessive cleanliness (relaxing our immune system too much).

Anything excessive is no good.

Do you want to live longer or happier?

Afterthoughts

· Live to 100. http://www.tonyp4joke.blogspot.com/2009/02/live-to-100.html

· Here is a related blog I wrote.

Doctor knows best?

I’ve a lot of doubts about my doctors and dentists. Many dentists try to squeeze every dollar out of me. They care more about their bottom line than my health. When we have health problem, the best way is to diagnose ourselves via the internet (from some good sites) and books before we visit our doctors.

You can suggest to your doctor of what to do. They are not saints. I should have told my doctor that my prostate problem was most likely due to the enlargement, not cancer. I had several biopsies and they’re all clean except I may not have a full prostate after the numerous biopsies. I also should have told another doctor to take out the water from my knee after a fall. The old doctor did not want to do anything as he will retire soon. I suffered the pain for a long time. Should the doctor know best? I do not think so at least from my own experiences. I hope some doctors would respond to this blog.

· Norman’s experience:

For many over 40, sugar in any form causes diabetes. Alcohol is a form of sugar and gives the same results. Even diet drinks have elements that simulate sugar and your body reacts to it as if it is sugar. If you want extended life, cut out sugar, even in fruits.

I took popular multi-vitamin pills for years. It does not have the proper dosage for those over 50. Recently both my wife and I started taking the one for those over 50. We both have improved health and skin. It definitely makes a difference.

· Play Mah Jongg. It exercises your brain on every move. Chess does the same. However, few play chess every day. When there is no money involved, it would not be addictive. Most Orientals and some Jewish women play MJ. Hong Kong women have the highest longevity and almost everyone plays MJ.

· A good friend passed away due to playing racket ball. He was a high achiever always giving 10% more effort. A doctor himself, another player being a doctor too and the hospital was minutes away could not save him.

· Many folks I know who have more health problems do not eat enough fruits and vegetables. My theory is we have cancer cells and our immune system fights them off with the help of nutrients. One’s theory.

· The root cause of all diseases?

http://worldtruth.tv/inflammation-the-root-cause-of-all-disease/

Another article on heart attack due to inflammation and harm on processed food.

http://www.sott.net/article/242516-Heart-surgeon-speaks-out-on-what-really-causes-heart-disease

· The primary cause of death changes according to our age in ascending order: accidents including cars, then drugs and alcohols, then cancers, then heart disease, and lastly Alzheimer’s. To increase our chance of survival, do not drink and drive recklessly during our youths, eat fruits and vegetables to protect our immune systems, and exercise appropriately for the heart and our brains in our old age.

· Do not let your dumb nationalism kill you. Chinese medicine in the last 500 years is losing to the West to me. There are too many examples on those ‘miracle’ doctors and ‘miracle’ cures that have killed many.

· Google on any critical disease and stem cell. Most likely they do not work and prey patients for their money.

· Ginger, garlic, honey, apple… are all good.

http://tonyp4idea.blogspot.com/2013/06/believe-it-or-not-from-my-friend-sam-in.html

· Jokes could make you healthy.

Some jokes are original, semi original and not written from me. Some may have included in this book already.

Click here or the following link,

http://ebmyth.blogspot.com/2013/04/jokes.html

Same for music. Even if you do not understand Chinese, your spirit will be lifted and all the worldly worries will be gone. Click here.

F2 China Study

Disclaimer. I'm not a health professional and the following are my personal experiences. Consult your doctor before taking any action.

Be careful on articles circulating on the internet including this one. What works for me may not work for you. For example, one falsely claiming from a famous institution has a lot of errors. Many well-presented articles are sponsored by institutions such as meat association, diary association or the drug companies with their own agenda as described in the book China Study.

I read China Study by Dr. Campbell. I heard it more than two times that it is a life-changing book. It has thousands of good reviews from Amazon.com. I bought it right away for less than $10 and it could be the best $10 I spent.

If you want to save your $10, stick to a whole food, plant-based diet. Eat fruits and vegetables. Avoid meat and dairy products (soy milk in place of cow milk). The book draws many conclusions from the statistics of China Study. Most likely you're not convinced and that's why you want to order this book. The author is data mining from this China Study - making conclusions based on the extensive health statistics.

Well, some do not apply to me (as I have a life too and I'm not a monk).

You need to answer the question: Do you want to live longer or happier? Or, in between. I choose the 'in between' as I can avoid some meat but not all.

I believe drugs are good (opposed to what the author Dr. Campbell claimed) at least for me. It lowers my uric acid, lowers my blood pressure, and shrinks my prostate... Many operations are required due to the aging body (Steve Jobs might have survived longer if he had an operation earlier as described in the following YouTube). Besides blood pressure, cholesterol, and the high sugar, most cannot be cured easily by just the diet alone.

I believe diet is more important than exercise. When I worked, I ate greasy food in Chinatown but walked to the bus stop and during lunch. After retirement, I lost more than 10 lbs. (for a 155 body it is quite a lot) and many health tests are improving.

Hong Kongers have one of the highest longevity. Unfortunately, it will not last for long as the diseases of the wealthy folks and the bad environment are creeping up. Most Hong Kong folks in my generation ate less meat than this generation and the public health had improved but pale by today's standard in HK. Today, as the citizens are wealthier, they eat more meat and the air is more polluted by cars and the factories in South China.

Youtube:
Campbell: Vegetable diet
Heart disease
How Steve Jobs died: Counter argument

F3 H-1B visa

On my bus commute to downtown, I noticed a lot of Indians and some Chinese besides myself. Many of them are on H-1B visas and work in banks, insurance companies and brokerage firms. Some have applied or will apply for the green cards. Their living standards have been improved greatly here and no one is naive enough to wait for India to fix their infrastructure and offer similar job opportunities for the equivalent salaries.

If you're a technical manager, which one you want to hire:

1. An H-1B visa worker who will work hard for peanuts but gold when comparing to their native country,

or

2. One who has no incentive to work hard except trying to get your job eventually.

We should encourage our children to get into science and math. Our system is great for creative folks like Steve Jobs, Gates, etc. However, the society does not need that many geniuses but folks with the right training. To illustrate, most well-paid, high-tech jobs are held by foreigners and children of foreigners who study in programming, engineering, science and math. These professionals are not geniuses, but they have the right training to enhance and / or market the products / services from the visions of the geniuses. From my rough estimate, we probably need one genius for every thousands of professionals such as engineers / programmers.

If we have enough qualified professionals, we can cut down H-1B visas; however the government has to give incentives to hire local professionals to offset the lower wages from most potential H-1B holders. Today and in the near future, we can't cut down these visas otherwise our high tech industry will not be competitive. Most H-1B recipients eventually get their green cards, and move their parents to the U.S. burdening our welfare and entitlement systems. The employers do not care as this is not their problem. The alternative is setting up research / development centers in foreign countries such as India and China at the risk of proprietary secrets being stolen.

Afterthoughts

· There are 3 million (4 million for some reports) jobs last year in the US are unfilled due to lack of skills while we have many college graduates who cannot find a job. We have a serious problem of skill gaps.

As of 2013, here are about 2 million unfilled positions desperately needed by programming including the cloud computing. Our high tech industry is expanding their training programs in order to fill 'skills gap' positions. Throwing money is not a good solution as we cannot find suitably skilled manpower. The other area is in the exploration of shale energy.

There is why the Congress is slapping permanent visas to those foreign students who graduated in the US universities with the right training in science and computer science and advocate larger H-1B visas.

Vocational colleges and apprenticeship should be encouraged. The high school graduates should match their careers to jobs that are plentiful. A college degree without a job potential is a waste of money and time, not to mention the heavy loan that will take years to repay.

When we legalize the illegals, do you think they are stupid enough to work instead of collecting welfare legally? Who is doing to do the jobs that no welfare recipients want?

F4 Capitalism, democracy, socialism & communism

When we use communism to describe China’s political system, it is not 100% correct. It started communism about 60 years ago, but Deng modified it to be socialism with Chinese characteristics. Now, it is highly capitalistic.

Capitalist-Socialist is a better term to describe China's political system. However, China is also ruled by a single party with about a handful of rulers who determine the next leader every decade. It is consensus rule by a few within the context of party authoritarianism.

Communism shares food and other stuffs evenly. So, communism encourages laziness and China today is capitalist where you starve if you do not work.

Socialism is in between capitalism and communism. Democracy could lead to socialism, which in turn could lead to self-destruction as demonstrated by Greece today.

What do we call the U.S.? Socialist-Democracy? We have generous welfare and free speech. Some may call it a welfare state.

Western Democracy may not work for countries with low education. It could and have led to corruption as indicated in many Asian countries, past and present.

To use health care as a yardstick, China practices capitalism. If you do not pay, you die literally in the lobby of a hospital. Canada is socialist. Everyone has some basic form of health care. Many of U.S. states offer free medical care to the poor, so the U.S. is communist or a welfare state. Many poor who do not chip in get better health care than the middle class. A joke or a reality?

Afterthoughts

· We cannot weigh the same vote for an educated citizen and a bum. We should have an IQ meter in the voting booth. Your vote is multiplied with your IQ. In the U.S., your tax return from last year will be handy too as we should not allow representation without taxation. Quite extreme even for me but just a thought. J

· As Uncle Deng said, “If the cat catches the mouse, I do not care it is black or white”. I see a lot of holes in the current Chinese system. However, China has lifted millions from poverty (i.e. starving to death) and just for that it is a good system in my book.

Deng should get a Nobel Prize for that. It is better than Obama’s for doing nothing and even before spending recklessly. Well, the current Nobel Prize committee has become a political clown who only gives prizes to folks against China.

· The authoritarian system has some advantages like bulldozing all the houses to give rise to a highway or a high speed train rail. As long as it is not my house, it is OK. J

· The problem of the current system in China.

The central government sets up good policies. However, the local governments’ top priority is how to sip money for themselves. The central government should take action on corruption by the local government and ensure they follow the rules and policies.

· We spend too much time in planning, arguing (especially the silly objections between two opposite parties), lawsuits, financing in a large public project such as the High Speed Rail (HSR). By the time we start the actual work, the project plan is obsolete and the landscape has been changed.

BTW, High Speed Rail (HSR) is not cost effective for the U.S. even though It works in China. As in Business 101, you need to calculate benefit over cost (i.e. rate of return of the project). You should select the most cost effect projects first and HSR is not one of them except for political reasons. We’re not as densely populated as China. Airlines will compete better than HSR when the driving distance is more than four hours. In addition, how many workers want to work in that kind of conditions in laying rails instead of collecting welfare?

As most if not all big projects in the U.S. (actually same in most countries) are painted in a very rosy picture initially and then end up in cost overrun and diminished returns. The recent Big Dig project in Boston is one of them. We did not have so many problems on similar projects decades ago even we have updated technologies and know-hows. This project has been late, cost-overrun and unsafe.

Links

Next Leaders:

http://en.wikipedia.org/wiki/Elections_in_the_People%27s_Republic_of_China#Indirect_elections

Lead to socialism:

http://www.tonyp4idea.blogspot.com/2011/10/democracy-leads-to-socialism.html

F5 Could socialism lead to self-destruction?

In 2011, I heard more folks talking about it recently. It is what is happening in Greece today and to some extent in the U.S.

The major flaw of the U.S. political system is the election every four years, despite its strengths. Our leaders do not plan or care about the longer term. We've more poor than the rich and each has one vote. Hence, the politicians have to be pro poor. However, after the politicians have been elected, they have to pay back to the special interest groups which have funded their campaigns. That's why our democratic system could lead to corruption and self- destruction.

Politicians have to watch out for the benefits / welfare of the poor in order to buy votes. The rich will migrate to other countries where they pay less and fewer taxes and are rewarded for their investment for taking risks. It is the same reason why corporations moving jobs and investments overseas. We have to blame ourselves as we vote to elect our leaders. The middle class are squeezed by both ends.

Most of the recent protesters in Wall Street belong to the unemployed and about 40% of the citizens do not pay any Federal income tax. I do not blame the unemployed due to our economic mess. It is similar to taxation without representation in reverse. The able folks should take jobs with minimal pays (that are being taken by illegal aliens today) and give back some of their entitlements. They have been taking more from the society than giving back for a long time. Welfare and many entitlements are supposed to be a temporary safety net for most.

Greece has illustrated this concept thoroughly. Democratic systems especially the richer countries could lead to socialism and corruption, which in turn could lead to self-destruction. With the world interconnected, it could lead to a global recession.

F6 Ferguson

My common sense:

1. The President and Mr. Holder appear to side with the 'victim' before taking full investigation. Racism can be done in both ways. The president has to side with the minorities in order to buy votes.

The other observation is both of them are black (one is half black to be exact). They have a natural bias. Want proof? Check out the two entirely different reactions from students in a white college and a black college in the acquittal of OJ Simpson.

2. It will not justify all the looting. That's why no business wants to set up shops in the poor neighborhood as the Korean immigrants found out in LA the hard way.

3. The 'Johnsons' are making money taking advantage of the incidents. If you look at how they and their family milking money, you will find they are no saints.

4. It is justified to call in the National Guards. The primary purpose is to keep peace when the police cannot and not to be sent to the front line.

I'm close to be called racist. If we do not know their problems, we cannot fix them.

Education is important to all races. Multi generation of teenage mothers and high divorce rate are too obvious. Set up good examples (education starts at home) and teach the kids to work hard.

There are some athletes, singers, dancers... making big money, but they are the very few. The first objective is to be a good citizen. The second objective is to find a good professional job or a job useful to the society. Check out the following percentages for different ethnic groups with regard to the population: welfare recipients, the drug addicts and prison population. Statistics never lie

My own experience in racism is limited as I deal with younger professionals more.

# Joke on Jokes #

A church-goer told me that my jokes were not funny in front of many of my friends. My readers including fund managers, business owners and professionals told me otherwise. My conclusion is that you need an education to understand my jokes, so I do not blame her. An open mind helps but it is not required.

As defined by me, the anatomy of a joke is something that is unusual unless you’re 10 year old or younger. It has one or all of the criteria below.

- Ridiculously exaggerated.

- Body (female and male) parts we do not discuss/show normally unless you have something extraordinary.

- Words with double meaning.

So, about 30% of the jokes are about sex. If you do not believe me, turn on the cable TV tonight, count and classify the jokes.

Here is one good example of a good joke (not written by me) to satisfy most criteria described above. It is brief and effective. The writer should get a Nobel Prize (exaggerated) to make so many folks laugh in just a short time. Here it is:

We were supposed to have 8″ of snow in Boston, but there was no snow. The beautiful but naive anchor lady asked the weather man, “Hi Tony, what happened to the 8″ (double meaning, sex and exaggerated) you promised me last night?” The whole staff in the set laughed so loudly that they’ve to go on commercial for the next hour.

F7 China by 2020

By the time 2020, China will catch up with the USA in GDP. China has about 4 times the population of the USA, so the average income is 4 times less than ours.

There are misleading about China and the figures will not tell the entire story.

1. China's product quality is improving as it is moving up the value chain (that has been gone thru by Japan, Korea and briefly the US in the colonial period). Today a lot of goods that requires cheap labor are assembled (via China's outsource) in other countries such as Vietnam and Lao.

2. The quality of these foreign products is checked by the outsourcees. Does Apple have quality problems from China?

3. As long as the US corporations want higher profits and do not spare the time in checking quality, product problems will be here no matter they are from China or any foreign country.

4. China saved GM from out-of-business and also the tourist industry (ask any luxury retailer in NYC).

F8 Solve our deficit problem

We should have a 0% (ok I hear you and will settle for 10%) corporate tax and a 3% VAT and extra 2% for luxury goods.

Advantages:

· All the corporate golden geese will flock back.

· Our dividends will not be taxed twice.

· Corporations will plow back the money for investment and hence ignite employment.

· VAT discourages unnecessary consumption and spending. The 2% surcharge for the rich is fair and simple. The above numbers are arbitrary. We need to set up a budget and require the government to enforce it. If we have excess, we can cut down the income tax that would encourage working.

You may say we do not have money to run the government. It is simpler than expected.

· A small and efficient government.
If you're one of the lazy government employees surfing the net and waiting for the 4 pm stampede (after the two-hour lunch followed by your nice afternoon lap), you know exactly what I'm talking.

· Why the government employees can retire at almost full pension at the early age (comparing to corporate employees) is just beyond my comprehension.

· Stop being the world police. We've more problems to solve at home.

· Cut down the generous welfare and ask the able to get off the couch. Watching TV all day long for the rest of your life is boring and not good for your health. Remember when we run out of money to give you, the host and the parasite will die together

· Prosecute the welfare and disability cheaters.

· Prevent illegals to come in by prosecuting employers. If there are no jobs, they will not come. We do not need all those fences and patrols.

F9 The myths of ‘Made in USA’

A TV network advocates products made in the USA.

Are we cheating ourselves or redefining "Made In America" when we find out the assembled car here has more foreign parts than made here?

It is similar to one time that the entire shirt was made in China except two buttons and the label of "Made in Hong Kong" to get away from American embargo on China.

F10 Defending China

The politicians cannot fix our problems and use China as a convenient scapegoat. Many newspapers / magazines and TV stations (excluding Wall Street Journal, New York Times, Washington Post and 60 Minutes) want to sell their stuffs by giving what you want to hear / see by twisting the facts frequently.

As a Chinese American, I am naturally biased (so are most of you for your country of origin) but I'll not let my dumb nationalism cover my eyes or yours. There are Chinese bashers and U.S. bashers who do not convince us as they're not using facts. They promote distrust and confrontation that I try to avoid.

There are always two sides of any story.

Actually Chinese have not been an aggressor during the entire, long history unless you include Mongolia as part of China. The kingdom has been rich until the last 250 or so years and that is why they set up the Great Wall to keep the aggressors away from stealing their wealth.

About 250 years ago, Brits pushed opium to China due to nothing better to trade and enforced the opium trade via its advanced weapons. How dare a nation pushing opium to another nation? China was semi colonized and bankrupted. Then the Japanese war criminals brutally invaded China. After that, China had the revolution and the civil war. Mao was a great revolutionist but not a good governor. The bitter lessons encourage this generation of Chinese to work hard and be successful.

The recent wars with Vietnam and India were not that recent and were quite brief comparatively. China has lost many territories to Russia, India (on the boundary line drawn by Britain who governed India then) and other countries. Tibet is controversial with its long historical relationship with China. Mongolians once ruled China in the Yuan Dynasty and Russia wanted part of it to be independent to set up a buffer zone.

The following are my random comments to many wrong opinions on China and its political system.

· In general I do not trust financial data from developing countries including China. Usually they want to paint a rosy picture to attract investment and / or to make their citizens feel better to avoid social unrest. However, the export data can be trusted.

· China is not a communist country, except in a letter in CCP. It is more capitalist than us. If you can’t pay, you die in the lobby of a hospital. In the US, they treat a billionaire or an illegal the same in the emergency room in any hospital.

No one in China even the government wants to go back to communism after its citizens have a taste of capitalism and democracy (even very limited).

· It is quite over-blown in the Chinese ghost cities and similar news. China is so big and on its rush to modernization, there is always news and problems like that. If you go to India, you can dig up far more news like that. If the media cannot exaggerate any news, they cannot survive economically. A sad reality.

The ghost cities are financed by investors themselves and shadow banking system (by-passing the regular banking regulations). You do not see too many defaults so far as expected. The investors do not want to rent them out as this would lower the values of the new apartments – hard to be comprehended by Westerners.

There is another loaning practice (I call it family banking) that is quite popular in the Far East and China. Basically it is a monthly accumulation of money from a group of friends. Everyone in the group who needs money can bid the loan from this money every month.

· China is very developed in some cities and some areas, but as a country it is still under-developed comparing from many metrics such as GDP per capita or the average urban income (about $5,500 per year). Many do not report all of their incomes. To illustrate, you cannot live in any Tier I city in China for $5,500 a year; check out the average rent.

However, the super-rich class is developing fast. While the percentage is small, the total number is huge. That’s why most luxury brands all over the world have increasing percentage of their total sales from China or Chinese travelling abroad.

· Many have been using the wrong yardstick to judge China. China could laugh at us for our generous welfare system, lack of gun control, etc. We should use our yardstick to judge our country 10 (20 or even 30) years ago, and so is for China.

· China paid a bitter price for ignoring the Industrial Revolution, advanced weapons, iron ships, etc. about 300 years ago. China was bankrupted after the Opium Wars and the semi-colonization by foreign nations. It is a lesson not to be forgotten for them and it sets up the objective and the spirit of a nation.

· Judging from what Chinese had accomplished from the first century to 300 years ago and the last 30 years, China will have immense impact to the world and hopefully all will be positive.

Afterthoughts

· China has released Third Plenum reform details.

http://www.forexlive.com/blog/2013/11/15/chinas-third-plenum-reform-details-now-released/

It is the major global financial event besides the appointing the Fed Chairwoman.

China should concentrate on corruption (started), pollutions (water and air), production safety and quality (esp. food), regulations (all kinds including organization similar to our SEC)...

They should learn from the West and avoid the mistakes of the West (such as overspending to buy votes). Learn to settle territorial disputes without using force. Be a good global citizen. Gain respect from the rest of the world not by showing how wealthy you’re, but by how you behave to other countries.

They've fixed the basic human rights (food and shelter). Now they should improve the other human rights such as freedom. It is far better than 15 years ago but is still not up to par with us. To move to the next stage of a developed country, they should protect intelligence properties at least starting in Tier I cities.

There are many important items not included in the reform. Taking out the restriction of selling farm land is a surprise to me. Relaxing One-Child policy is controversial. China’s population is still high.

They have good track records on their previous reforms starting from Deng and most items in their five-year plans. Even with many problems, the centralized government is quite effective. It is easy to have large scale project such as high speed train. The problem when the decisions are passed to the local governments, they usually are changed or not followed 100% according to the benefits of the local governments.

No one will give you a medal for improving or maintaining roads and dams, but building more roads and dams. They need to calculate the returns of major projects besides providing jobs to relieve social unrest.

As Chinese President Xi Jinping puts it well:

"There are some bored foreigners, with full stomachs, who have nothing better to do than point fingers at us … First, China doesn't export Revolution; second, China doesn't export hunger and poverty; third, China doesn't come and cause you headaches, what more is there to be said?"

Prioritize human rights: Food more important than freedom.

Too much news on China.

China is not communist (i.e. everyone is paid the same so there is no incentive to work hard). It only exists in one "C" of the CCP and everyone's daily life is ultra capitalist.

China is more capitalist than the US (i.e. if you do not work, you die).

Democracy is catching up slowly. However, comparing China 30 years ago, democracy has grown by leaps and bounds. From our yardstick, it is still a long way to go. Human rights should be prioritized: Food, Shelter, Clothes, Democracy...unless you're spoiled in the USA.

The $500,000 for a lot of rich Chinese is peanuts. If the money is from corruption, some would not come to the USA as there is a chance of forcing them to go back for trial. They come for education / opportunities for the children, food, water and air quality. It is better than those who come for welfare

One fast food from the US asked the city to collect more taxes from them if the city did not allow the other fast food to come to town. Monopolize? All the fat children in China are due to eating too many fast food and playing video games. Are the flies coming in when the window is opened?

F12 A Nation of No Losers

We do not let you be a loser!
Your mistakes will be rewarded handsomely.

*
When you bought a mansion that you cannot afford, we bail you out.

When your beach-front house was destroyed by hurricane, we give you money to build one (and the next one too).
When you bought a clunker that you should not have, we give you $4,500.
When you bought any inefficient appliance, we pay you no matter how old they are.
When you returned an old gun, we give you money for a better, updated gun so you can kill more.
When you lost your job, we extended your benefits.
When you cannot pay your college loan, we will give you amnesty.
When you ran out of money for Christmas gifts, we give you 2% payroll tax reduction.

When you do not have saving or a real job, we give you free health care.
When you have saving or a real job, we take your free health care away.
When you die penniless, we help you out.
When you die with millions, we share your wealth.

Drunk drivers, no one will prosecute you as the entire jury and even the judge are drunk.

Druggies, as long as you do not inhale, you’re still a no-loser – we even elect you for our top job.

Murderers, as long as you provide money to a good lawyer, you will be free.

Baby killers, we give you a movie / book deal to give you incentive to kill your next baby.

Old folks, your driver's license is also a license to kill.

Rapists, you’re in good company of our politicians, coaches and clergymen who rape and cheat as a glorious sport.

Altar boys, you could be the top 1%. Some real losers want to know which churches you went to.

Minority kids, we give you special pass to go to college and jobs.

Teenagers, the more babies you have, the more benefits you have. Keep them coming.

Grade F students, it is your teachers’ fault to give you too much homework; you should spend your time in something more stimulating, such as video games.

Fatsos do not worry. Our up-coming drugs will melt all your fat while you eat.
At the mean time, we double all seat sizes in buses, airplanes..., triple the size of the value meals and replace the slim actors with fatsos to make you look like a no-loser.

*
Congressmen, insider trading was legal to your privileged club. Sorry to close this loophole but you can keep the loot publicly.
Lobbyists, help us to put tariff on Chinese products that we cannot compete with.
Prisoners, you will get the flu shots first and free dental care. If your local jails are full, we beg you to leave with free transportation and goodies.

Gun control, what’s that?

When you cheated billion, you can retire in a resort-like 'prison'.
Also, the billions your wife hid are hers - no questions asked.

When your company fails, we bail it out.
The executives are rewarded with bailout money for bringing down a company.
When your company is failing, we give you half a billion – what a country!!!

*
All athletes are rewarded with millions for taking drugs.
We’re outrageous on foreign athletes doing the same.
It is an American invention and how dare you copy it without paying us royalty!

We have to lay off our scientists due to lack of funds.

We have funds to bomb Syria, so the terrorist regime can take over Syria.

When our friend Korea and Japan fight against each other, we will side with both of you.

We sell jets to Korea and Japan will want them too. A win-win situation for us.

A friend of a no loser is a no loser.

An enemy of a no loser is a no loser too.

Need to hire back some scientists to think of an acceptable reason.

*
The small catch.
We need your vote to re-elect us every four years.

The children cannot vote today, so let's pass our debts to them.
China does not have a voice here, so let's pass all the blame to them.

Even the entire world agrees with us.
Our President was awarded the Nobel Prize for doing nothing but reckless spending, so why do you work hard and save?

The above serves as a wake-up call / satire / joke and nothing more. It is written by a 'winner' who actually is a ‘loser’.

Afterthoughts

· This blog receives a lot of good responses but a few personal attacks like ‘why don’t you go back to China’. If we do not know our problems, we cannot fix them. Again, all the problems are minor and can be easily fixed. I hope I’ll re-write the above and this time in past tense. Actually I did use past tense on insiders’ trading by our Congressmen.

· I have enough material to write a similar article on China. However, Chinese government is less open than the U.S.

· Martin whom I do not know said: Thanks for this one! I had fun reading this. I would be glad to share this to others!! This is a blog that should be read over and over again!!

Click here for more Afterthoughts.

# End #
Click here for the Appendix G for the Concise Edition of The Art of Investing.

	Vietnam	Cambodia	Laos	Thailand	Myanmar
GDP Growth	5%	7%	8%	3%	8%
Export Growth	12%	13%	17%	0%	16%
Population	93 M	16 M	7 M	68 M	56 M
Monthly MFG Wage	$250	$130	$140	$370	$110

ETF	VNM			THD

	P/E	SMA-200	RSI(14)
FXI	8	7%	56%
EWH	12	4%	55%
EWZ	16	-7%	45%
VNM	11	0%	44%

Saturday, August 16, 2014

C1 Airlines

D9 Concise market outlook for 2015

F4 Capitalism, democracy, socialism & communism