Bonuses & current events

By the time you read this book, the current events may not be that current. Use the lessons learned to predict the future events.

1 Politics and investing

You may ask why politics is discussed in this investing book. Politics have been proven to affect the market. For example, the market had reacted to the different stages of Quantitative Easing whose dates had been preset. The following is a more recent example.

As of September, 2015, I predicted 2015 and 2019 would be profitable years even during the fierce correction in August. Why was I so sure? Very seldom is the market down in a year before an election including 2007. The last occurrence was 1939, the year when WW2 started. Investing is a multi-disciplined venture including statistics and politics. It may not always happen, but the probability is high for these years.

How to profit

2015 was a sideways market. The market reacted to good news and bad news. The strategy for a sideways market is: Buy at a temporary down and sell at a temporary peak. Define ‘temporary’ according to your risk tolerance.

For the ‘temporary market down’, personally I used 5% down from the last market peak. To me the ‘temporary market peak’ is 10% up from the last market down. The percentages can apply to the percentage changes in the stocks within your watch list. In other words, I buy the stock when the market is 5% down from the last peak and sell it when it gains 10%, or the market gains 10%. Be reminded that this strategy is opposite from market plunges, where you should exit the market totally - again depending on your risk tolerance.

The following are my purchases on 08/26/2015. I should have bought more stocks one day earlier if I were not blinded by fears (a human nature) during this correction. Below you will see my actual purchase orders. The four stocks were described as value stocks in an SA article and I did a simple evaluation. As of 12/31/2015, I sold all of the four stocks except Gilead Sciences. The annualized returns are more impressive such as GNW’s 10% gain in one day.

Stocks	Buy Price	Buy Date	Return	Sold date
AAPL	107.20	08/26/15	12%	10/19/15
GILD	105.94	08/26/15	-4%
GM	27.69	08/26/15	12%	09/17/15
GNW	4.54	08/26/15	10%	08/27/15

There were similar examples in 2013 and 2014.

2016: Politics and the market

No one including all the Federal Reserve chairmen / chairwomen and all the Nobel-Prize winners in economics can predict market plunges. One chairman predicted a smooth market and a few months later the housing market crashed! Many predicted correctly market crashes by pure luck. One even received a Nobel Prize and became famous. However, you would have been glad to ignore his later market predictions.

There were at least two best sellers asking us to exit the market in 2009. If you followed them, you would have missed all the big gains from 2009 to 2014. They did have a point though. However, you cannot fight the Fed. The market had been saved by the excessive printing of money and hence created a non-correlation between the market and the economy. I bet these authors (famous economists and gurus) may have not made a buck in the stock market except selling their books or teaching where his students should request refunds. It is a classic case of the blind leading the blind, or diversion of theory and reality.

From their articles, they do not know the basic technical indicators. You only want to react to the market when the market is plunging and not too early. That’s why most fund managers cannot beat the market as most are not allowed to time the market. Buffett had mediocre returns in the last five years – I had warned my readers three years ago in my blogs/books. To me, the ‘buy-and-hold’ strategy has been dead since 2000. The average loss from the peak for the last two market plunges is about 45%. Most charts depend on falling prices, so you will not save 45% and a 25% loss is my objective.

Fundamentally speaking

The market in 2016 is risky due to the proposed interest rate hikes (as of 4/2015 the Fed indicated only .5% so it would not be a factor), our record-high margin, strong U.S. dollar (as of 4/15, it was weaker) and the high expenses of the wars. Each reason could be a good-size article. Personally I try to maintain 50% in cash and would flee the market if my technical indicator tells me to.

Politically (and statistically) speaking

The election year is the second best for the market, but it may not be this year. We seldom have three terms from the same political party. For that, I predict a win by the Republicans. Republicans are usually pro-business, but ironically the democratic presidency has a better track record for a better market performance.

The market has more than recovered since the day when Obama took office. The S&P500 performance under Republicans vs. Democrats since 1926 to 2014 is approximately:

Annualized return under Democratic presidencies: 13%
Annualized return under Republican presidencies: 6%

The market is riskier based on the above statistics. In addition, there is a good chance that we will have either a non-politician president, or a lady president for the first time (more materialized in 4/16). The market usually would not favor this kind of change. Statistics do not mean it will happen but history repeats itself more often than not in investing.

Critical political issue for 2016

On our way back at about 4 pm on a Saturday, the bus was full of Spanish-speaking workers. I bet most are illegal workers working in my suburb such as our malls, the hospital and many restaurants. Why illegals? I bet most legal folks would get welfare instead of working on that shift. If they work, the state would take away the freebies such as health care in many states. The illegals do not have this option. I do not think the politicians understand this. There is no need to build a border wall but rather punish the employers who hire illegals. Before we do this, we need folks willing to take the jobs that are taken by the illegals today.

What will happen if the politicians allow all the illegals to be legal? There will be nobody doing these low-level jobs I predict. No one in his right mind wants these jobs when it is far easier to collect welfare. Why would politicians make this stupid decision? They want to buy Hispanic votes as evidenced in the last two elections.

In addition, most politicians side with the welfare recipients. Since 40% of the population does not pay Federal taxes, the politicians have to satisfy their needs in order to buy votes.

We should encourage folks to work. Representation without taxation is worse than taxation without representation.

Our high taxes, increasing minimum wage, regulations and strong US dollar dampen our competitive edge.

Some political decisions/regulations that affect the stocks

Beside the presidency and the interest rate hikes, there are many political decisions and regulations that affect the stocks. Just to name a few here:

· The never-ending wars postpone our secular bull market beyond 2020.

· Solar City (SCTY) and this sector depends on a government energy credit.

· My Chinese solar panel stock evaporated when the US banned them from importing them to the US.

· Any gun control measure will affect gun stocks (initially positive).

· When Hillary spoke against bio tech stocks or the coal mines, that sector sank.

· Restrictions on cigarettes if China and Russia follow our bans.

· Our immigration policy and great colleges attract the best from all over the world to come to the U.S. At the same time, we need to limit economical refugees from burdening our entitlement systems.

· France imposes extra taxes on foreign investors.

· Government bailouts on ‘too big to fall’ companies.

· High corporate taxes boost the exodus of corporate headquarters to tax havens outside the US.

· Infrastructure projects.

· Taking out the ban to export oil would increase the profits for oil companies.

· After the annexation of Crimea, the Congress restricted using Russia’s rocket engines and gave some new opportunity to the US companies in this area. Besides political consideration, Chinese rockets are the most cost effective and more reliable.

· China’s suppressing corruption affected Macau’s casinos. Actually every major change in Chinese policy affects the world and global investors.

· Currently the policy of forcing Chinese banks to take stocks in failing companies makes me stay away from investing in all Chinese banks.

· As of 7/2017, the market has gained a lot since Trump’s election especially those sectors fulfilling his election promises. Freddie Mac and Fannie Mac tripled after the election.

Summary

Politics affects the market. I predict a risky market in 2016.

Economy and religion also affect the market. Statistically speaking, the market is ahead of the economy by about 6 months. However, the current market is an exception due to the excessive money supply. The correlation will return to normal.

Religions in the Middle East have caused wars. These huge expenses are consumption-related, not investing. It will not be good for most sectors of the economy especially in the long run.

2 Presidential election

I do not like the presidential candidates from both parties in 2016 and it seems to be true in 2020. We have to choose the lesser of two evils. I am political neutral and seldom read articles on politics. You may find the following refreshing. Most are my original ideas but they are just common sense.

· The major problem of our political system is buying votes. The politicians have to satisfy the voters. When 40% of the citizens do not pay Federal income taxes, their requirements will be satisfied first.

· Most politicians do not tell you how to finance all the freebies such as free tuition. We need to force the government officials to balance the budget.

· We have to ensure the campaign promises are fulfilled. We still have the two Middle East wars, not as promised. We should fix our infrastructures and invest with the resources that go into the wars. Being number one is only important to our leaders.

· Making illegals legal can buy many Hispanic votes. The best idea from the politicians is for work visas. When they are legal, it is easier collecting welfare than working on jobs that no one wants. They will also burden our entitlement systems by bringing their family members in.

· It is far more effective to punish the employers for hiring illegals than building a wall; you can make a small hole in the wall or build a small tunnel to let the illegals in.

· The welfare system discourages folks from working. Why would you want to give up free medical delivery (in many states) by taking a job?

· Gun control has not been discussed much. I know it is impractical to enforce it. However, we should not let the guns be sold to the mentally ill, criminals…, especially the semi-automatic weapons. Hope someday we can send our children to school, or see a movie without worrying about being shot at.

Update after the election

Against most polls, Trump won the election. The market plunged and then recovered quickly. CXW, the company that manages prisons, affected adversely when Clinton was leading and then recovered some lost ground after the election. It is similar to some sectors such as bio tech stocks when Clinton warned that she would reduce price gauging.

I am politically neutral. Please give peace a chance at least during the ‘honey moon’. The essence of the U.S. is the Constitution that leads to a peaceful transfer of power.

Hope Trump will lead the country to the Promised Land. Do not send Hillary to the big house, do not sue the ladies, do not build the Great Wall (a small tunnel of 10 feet would defeat it; just punish the employers who hire the illegals), do not send the illegals back (we need them to work on the jobs even the welfare recipients do not want), be a good president (building a good cabinet to start with), consider fixing ObamaCare but not abandon it.

During the election, the following important issues have not been discussed in detail:

1 End the wars. It drains all our resources. We have enough problems to be fixed in home. Being #1 is too big a price. We do not have an economy robust enough to support these wars.

2 Balance the budget. With #1, it is far easier. Obama has almost doubled our debts but rescued the market.

3 Jobs. With globalization, some jobs will be lost as a $20 wage can never compete with a $2 wage. It's not China as many low-wage countries will replace China's advantage.

4 Gun control in a practical way. When can we send our children to school without being shot at? Will it be materialized in our life time?

5 Harmony between the blacks and the police. Despite some bad apples, I have to thank the police for maintaining peace at the risk of their lives. As in all professions, there are bad apples. The above #4 would help.

6 Reform election. To start, reduce campaign funding by special interest groups.

More articles

This book is already too thick to hold and too expensive to produce in its entirety. I leave some non-essential articles in the web that is accessible for you. Click here for ebooks or type the entire line in your browser for printed books.

https://ebmyth.blogspot.com/2020/01/book-15-economy-and-market.html

# Filler

Shrinking space in airplane seats. Finally, I, the 'short guy' (by American standards), get a break. I do not really care about you tall guys and fat guys.

3 Football and Investing

With a few exceptions, there are some similarities in football and investing. Being a Pats fan, I was motivated by the impossible and greatest comeback of the Patriots in Super Bowl LI to write this article. Hence I use Brady/Belichick as an example as often as possible.

Belichick

He is the greatest chess player. In most of his talks after a win, he always shows he is the ‘loser’ in his monotone voice. He moves his facial muscles to a minimum. Politely speaking, he is boring. Do you want a boring coach who gives results? I sincerely like his boredom. I prefer him over the well-presentable x-CEO of Pennies Corp or the best-seller written by a Ph.D. telling us to exit the market in 2009 (I am not 100% sure it is 2009 as I do not have his original edition).

Belichick and Brady’s philosophy

It is quite simple and most are applicable to investing and actually to most we do in life.

· The coaches and players have to love football.

· Work hard.

· Evaluate all possibilities and prepare for them. Study the match ups.

About investing, select the stocks that have the highest appreciation potential at acceptable risk in the current market conditions. To illustrate, select high-dividend stocks when interest rates is low or defensive stocks in risky markets.

· Understand the opposing coaches will work. Trading stock is a winner-loser event.

· Eat humble pies; do not motivate your opponent team.

· Concentrate on your next game (next stock to trade about investing).

· Multiple skills. If you say you play one position only, you do not fit into their system. Investing requires multi disciplines from evaluating, psychology to simple computer skills.

· Draft the best players at reasonable prices. Brady is a sixth round pick. About investing, buy low and sell high.

· The Pats never spend a lot on one or two players. About investing, we do not put all eggs in one basket.

· Trade the player who does not fit in with the team such as the backup quarterback when Brady is playing at his peak. About investing, trade stocks to improve the portfolio.

· Prefer players with potentials, not what they have accomplished. From the last two Super Bowl wins, God must be a fan of Pats. It is similar to trading value stocks.

· A successful person does not depend on luck although luck has something to do with this Super Bowl win to me.

· Take advantage of the misfits, changes and their bad decisions. The Falcons defense was exhausted for working too hard and too long in the first half. In the last quarter, Falcons could win easily by running with the ball. About investing, it is the contrary investing to institutional investors, but ensure they are really making errors.

· Never give up. When you had 25 points to make up against a worthy opponent, do not give up.

It is a little exception about investing: Sometimes we have to give up bad stocks due to our original bad evaluations or the fundamentals change.

· Brady and most successful quarterbacks throw the ball to the open receiver consistently, not always to the star receiver. About investing, it is called diversification.

· Adjust your strategy if appropriate. Being a Monday quarterback, I would like the Pats to adjust the strategy in the start of the second quarter.

About investing, no strategy is evergreen and no metric such as P/E always works. Only use the ones that work recently – adaptive investing in my term.

· Football is a team work. Everyone in the team contributes. No one including Brady cannot be replaced. Hightower and White contributed a lot to the comeback. About investing, do not depend on your own research only but check out other researches from reliable sources.

4 The myths about China

"China as a sleeping lion whose roar would one day shake the world." - Napoleon.

Yes, China is roaring in this decade and the roar is getting louder and louder.

The most successful story in the last two decades

When the USA played the China card against Russia, it took away the embargo. Deng Xiaoping started an economic zone to build infrastructure (electricity, roads, etc.) in a fishing village in South China and the rest is history. It is my Coconut Theory that when hard working folks have a chance to sell their 'coconuts', they will prosper. Lifting millions from starving to death is no small task. To me, Deng and Nixon should receive a Nobel Prize. However, since China has dominated the world, except the last three centuries, it is no surprise to me.

The Myths about China

Sam Walton was a patriot. He preferred to make less money by not selling Chinese goods. His estimates were wrong about the profits from the Chinese products. When he died, the company turned into stores for Chinese products, making his heirs one of the two richest families and many of his investors millionaires.

Investors should not follow the following myths that have been spread by the TV networks and even professors. All the below are wrong, or not partially wrong, and I will dispute them one by one.

· A TV network advocates "Made in USA" in a series.

· A professor from a prestigious university believed India would replace China as their population is younger.

· A professor from one of our top universities believed colonization was good using Hong Kong as an example.

· China is evil and they are communists.

· They're stealing our jobs, technologies and movies.

· All Chinese products are inferior products.

Globalization

China is one country in the chain of the global economy which promotes free trade. Buy the product from the country that produces the best product at the least cost. Globalization works and debunks the myths.

· China is moving up the product-value ladder. Some manufactured products, such as garments, will be moved to countries such as Vietnam and Burma with wages lower than China. This TV series “Made in USA” makes you feel good and hence makes it easy for them to sell their advertising.

In reality, manufacturing in many products will not come back to the USA due to our high wages, regulations, taxes and robots. In a sentence, we're hurt by our own success that leads to a higher living standard, protecting our workers, stricter environmental controls… We need to give up these industries that we cannot possibly compete in and concentrate our efforts on high-value industries and industries we can compete in.

· Product quality is controlled by outsourcers. Do you find product quality problems in Apple's products while most of them are manufactured in China?

· When you have a new technical product, you may want to assemble it in South China, where most other components such as cables and batteries are available.

· In many cases we are copying China’s mobile technology which China depends on. China has been in the frontier of several industries.

· From 2013 to September, 2016, China has had only one failed rocket launch. It is the cheapest and most reliable launch platform. We cannot use it due to a national security argument. However, it provides a good incentive for the space station and China is building one themselves. By 2025, China could be the only nation on earth that has a space station. Europeans are learning Chinese.

· China has never wanted to be number one. From Opium Wars of 30 years or so ago, China had been bullied by foreigners helping Brits pushing opium to China. China built the Great Wall to keep the invaders away. They could have colonized many countries in the 1400s, but they did not.

· China is not stealing our jobs, but globalization does. Most companies can outsource all functions of the company to other countries where they can find the best workers that cost less.

· China is polluting the world. Aside from the pollution from factories producing products for export, energy consumption per capita is far less than ours. China is #1 or #2 in implementing most green energy technologies. Unfortunately, China is blessed with coal, but not blessed with the less-polluting gas and oil.

· China is stealing our movies and intellectual properties. It is the same for most developing countries. China will enforce intellectual properties before it can move up to the next phase of a developed country. Our companies have to protect our secrets. Even the US had been in that stage briefly. Charles Dickens was so angry that he did not want to visit the US.

· China is closer to a developed country now. Its previous 10% growth is not sustainable but it has been impressive. China will stay in the 5% range for a while.

· Yes, China does have many problems that most countries are facing such as pollution, regulations, corruption…

We can shut ourselves out from all foreign trades, but it will harm us more than help us. We have to enjoy a $50 toaster. All the chicken feet, a delicacy for the Chinese, will be dumped into the ocean. Our high-tech companies, farmers, and movie industry will suffer.

Communism and China

China is only communist in the second "C" of CCP, China Communist Party. The Chinese are more capitalist than us. If you do not work, you do not eat. This simple rule motivates its citizens to work hard. The safety net is improving, but it is a long way from our social security system; our system may be too generous as it has encouraged too many free loaders and cheaters (also in the corporation level). It explains why they have a high savings rate. Most companies in China do not have unions, inconveniences of labor laws and sometimes companies even receive help from corrupt officials. After a taste of capitalism, China will never return to communism, which encourages folks to be lazy.

Human rights and Tibet

When you compare present day China to the China of 30 years ago, 20 years or even 10 years ago, human rights have grown by leaps and bounds. To me, food and shelter come first before human freedom. Human freedom should be allowed gradually and it requires educated citizens that China has but not in the rural areas. Allowing freedom to grow too fast would cause chaos (my thought and this is debatable).

Before the 'liberation' of Tibet, only monks could get an education. The one-child policy does not apply to Tibetans and other minorities. Their culture is maintained throughout from the experiences of my two visits within the last 10 years.

Hong Kong

Present and past, Hong Kong's wealth depends on its proximity to China, contrary to the colonialism theory a professor had stated. I had bet on the iShares MSCI Hong Kong ETF (NYSEARCA: EWH) (an ETF for Hong Kong) at the start of the Umbrella Protest. My order had not been executed due to my low price. The reason that the stock market did not drop further could be the plan allowing citizens in China and Hong Kong to buy stocks from the opposite exchanges. It will materialize soon after they finalize the tax and regulation details. Hence, the Chinese have more investment choices instead of investing in real estates.

India

Indians compare themselves with Chinese, but Chinese usually compare themselves with the USA. India will not catch up with China in this decade. It is more corrupt than China, more protective than China, and has more social inequality than China. The Tier I cities in India cannot even compete with the Tier II cities in China when you compare the infrastructure, high rises, subways, airports, etc.

The growing population of India eats up all the limited resources of the country. As a Chinese saying goes, you get rich by making fewer babies and building more roads.

China's advantages

· Huge internal market. The scale of economies is quite obvious.

· An educated and hard-working work force.

· Relatively low wages for qualified engineers and researchers. The wage of an average US engineer is about the total wages of four Chinese engineers from my rough estimates. It is giving some technology companies problems, such as Cisco.

· Government incentives and subsidies.

· Most big projects and major purchases by foreign countries have a clause of technology transfer. If we do not oblige, they buy them from your competitor.

· There were some bitter tough lessons in the past 300 years starting from the Opium Wars to WW2.

· A one-party political system has not been a bad thing. By the time China connects most, if not all, the Tier I cities with high speed trains, our two parties are still arguing on how to introduce it to our country.

I’m not naïve to believe that China does not have their problems. For starters, they need to control the air pollution, the water pollution and food quality sometimes at the expense of jobs. They need to have more regulations to protect their citizens.

The success of China is good for the world

After the last earthquake struck China, Chinese and the overseas Chinese helped to rebuild the disaster region without asking other nations for help. If China were as poor as before, you may have 20% of the world population begging for money.

When you need a drug to cure a terminal disease, do you care whether it is from the USA or from China? It is too expensive to develop a new drug in the USA.

China has rescued many US companies such as GM from bankruptcy. So is Volvo. China will buy many bankrupt US companies if we allow them to. Some bankrupt US companies do not have much salvage values, but we argue not to sell them to China based on national security.

Vietnam is copying China's model and it is at least 15 years behind. Eventually, many factory jobs will be replaced by robots and countries such as Vietnam with labor costing even far lower than China. It already has attracted many industries such as textile that cannot afford the rising wages in China. The latest riot against foreign factories (mostly from Taiwan) is more political and was not against the Chinese. The Chinese there have been more integrated with the Vietnamese than most other SE Asian countries.

Resource-rich countries such as Brazil and Australia benefit from the demand in China. They will return to the normal trade levels when the global economy improves. Macau and Hong Kong have been benefiting from Chinese tourists. With the suppression of corruption, the gambling industry in Macau will suffer. Due to the recent Umbrella Protest, Hong Kong will suffer from fewer Chinese tourists.

China has become number one in tourist spending in France. It is similar to many other countries. Most companies producing luxury products benefit. The myth of an average Chinese citizen making less than $5,000 is debunked by these tourists. First, the median salary is not $5,000 and the size of the middle class is huge. Most countries benefit from the rise of China today, except Japan, which has an islet dispute with China. Philippines, backed up by the USA, has a similar problem with China. I hope they will resolve the problem diplomatically by sharing resources.

Soon we will compete with China on higher-value products as we’re competing with Western Europe now. There are many recent examples that worry me more. A Chinese company captures 70% of the market of the consumer drone that was invented by our military. Chinese military drones cost about one quarter (or half by some estimates) of ours and they have little restrictions to whom they sell them to. The Chinese have a monster machine to build bridges. They have more high-speed rail than all other countries combined. These are just a few of many examples. When the average Chinese student spends at least two more hours in studying than ours per day, they will achieve more in life and catch up fast.

Afterthoughts

Being born in Hong Kong, I am naturally biased. I try to present these articles with facts. China has a lot of problems and they are common to most developing countries.

The following data are obtained from Barron’s article dated on Nov. 17. 2014.

	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

Thailand is the most developed with a thriving tourist industry. However, political unrest would likely take it several steps backward.

5 Losers in a trade war with China

The following are based on my predictions on a full-fledged trade war with China. Buy the winners and short the losers. When the trade war is settled, reverse the losers and winners. Losers are:

· American farmers and their suppliers such as fertilizers and farm equipment will be the chief losers. The government subsidies cannot last forever. Many have already lost their farms while their products have filled up storage spaces. Currently Brazil and Argentina are filling in the gaps to supply these products to China.

· Many chip suppliers to China will lose a lot of sales as China is the chief importer. It will take at least a year for countries to take up the slack. In 10 or so years, China will develop their own chip products. Hence, they will be back to normal in 2 years, and they will face China’s competition in 10 or so years. I bet Huawei will have all chips made in China in 2022.

· Many U.S. companies are still profiting in China. These days are numbered.

· China in the future will reduce their number of buying new planes from Boeing and/or switch the orders to Airbus. Today China still needs a lot of new planes and hence the effect may not be immediate. China has the largest market for airplanes. If the U.S. bans selling GE’s jet engines to China, China will buy them from EU and/or Russia.

· Australia siding with the U.S. will be a serious loser. Australia supplies China with iron ores and agriculture products. It will be a big blow to Australia’s economy.

· Many Chinese companies especially Huawei will suffer a lot even with the help from the Chinese government. Huawei could lose their popular mobile phone sales outside China when Goggle stops suppling the apps to them.

· The markets in both the U.S. and China will fail. It could lead to a global recession.

· China would withdraw Treasury. Together with trading energy not using USD, it could shake our reserve currency status of our USD.

· China would limit their export of rare earth elements and ingredients to our drugs to us.

The phase one of the trade war as of 1/16/2020 is a win for Trump. However, it is not sustainable in the long run. For example, China cannot consume the amount of the farm import. It turns many losers to winners and many winners to losers. When China is ready to say No, they will not honor this unfair treaty and the phase two has more problems. At that time, Iran and Russia will side with China for the oil / gas. EU will too as they are losing a lot of orders such as Airbus from China.

6 Winners in a trade war with China

Winners are:

· Vietnam is the obvious the largest beneficiary from this trade war. Many factories have moved from China to Vietnam. Many are owned by Chinese. China has helped Vietnam to improve their infrastructure. It has already gained about 8% of its GDP from the new business and is experiencing an influx of direct foreign investments.

· India could be a beneficiary too. They have a lot of problems to be fixed internally. They should copy the model of China by opening a special economic zone.

· Malaysia is a winner too. China will cut the rare earth elements to the U.S. Many countries including U.S. and Australia produce these elements but they do not refine them from the ores due to the damage to the environment. Most will be refined in Malaysia instead of in China.

· Countries may replace the U.S. as the chip and product suppliers to China. Taiwan and many EU countries are obvious beneficiaries. Many of them do not want to do business with China at the fear of being punished by the U.S.

· Russia will replace the U.S. as the supplier of energy such as LNG to China. They will have a closer tie than their history has shown.

· The South East Asia countries and some South American countries such as Brazil and Argentina will benefit and replace American agricultural products for China.

· Ericsson and Nokia will be the primary supplier of a 5G network to countries that ban Huawei’s products. However, Ericsson’s initial implementation is very poor compared to Huawei’s. Taiwan could be the biggest winner when many consumer electronic products would be switched here from China.

· Many companies such as Samsung and Apple will capture Huawei’s mobile phone market in Europe.

· More tourists and Chinese students will come to Europe particularly the EU countries.

Some of the symbols of the affected companies and country ETF are: VNM, INDA, EWT, ARGT, ERIC and NOK. As of 6/2020, INDA, ERIC and NOK are not doing well.

7 The root causes of a trade war

The trade war is supposedly used to fix the huge trade deficit with China.

The root cause is capitalism. The only objective of our corporations is making money. They take advantage of the cheap Chinese labor when China opened up.

The result of cheap Chinese labor means less jobs for the U.S. workers. The average family does not survive with one job in the U.S. The mother has to work and it floods the job market with more job seekers to make the conditions even worse. With the supply and demand, corporations reduce the wages and increase their profits.

As of the beginning of 2020, the unemployment rate is very low. But, is it a trick for the election year? In addition, the average salary is still lower than 2007 after inflation.

The government cut corporation tax rate. It is good for the stock market. The improved employment does not compensate for the revenue loss from the corporation taxes. In addition, the higher welfare expenses (due to the promises by our politicians in order to buy votes), our Federal deficit has increased to a record level.

We print money excessively and ask foreign countries to buy our debts; China and Japan are the top two lenders. When we cannot pay out the interests, the status of our USD as the reserve currency will be shaken. We know what happened to United Kingdom when the USD replaced the pound as the reserve currency.

The second root cause is that China is threatening the reserve status of USD. China, the biggest importer of oil, is replacing the USD to trade energy (mainly oil) with Yuan. China has purchased a lot of gold to back up her Yuan. Russia and Iran are the chief energy exporter to China. The petrodollar (all oil from Middle East countries are sold in USD) era may be over. The embargo to Huawei has backfire. I expect within 2021, Huawei will not need a single chip import from U.S., and that will be total financial losses from affected companies forever.

China had imported G1, G2 and G3 technologies from the U.S. and the West. Most likely most countries have been spied by U.S. There is not a single incidence of spying by Huawei so far. Huawei is the center of this trade war as it will threaten the U.S.’s own spying and the leadership in technology.

The third root cause is nothing to do with the trade war but the world leadership. China has been spending a lot on infrastructure, education and industries that would challenge the U.S. in the future. We have been spending too much on our endless wars.

The following are related topics:

Money talks

In order to capture the huge Chinese market, corporations gave out our secrets to Chinese. The CEOs care about their bonuses / options, which depend on the corporate profits.

Walmart becomes one of the largest companies by selling cheap Chinese products to meet the high demands of the poorer U.S. citizens.

Are we better off?

With low unemployment, you think we’re better off. The additional tariffs will pass to us the consumers. It hurts the poor more.

Many states in the U.S. have the average income of $30,000. You would live like a king in many countries but you cannot survive in U.S. without all kinds of subsidies.

The rich gap is widening. The rich own stocks in the corporations and they become richer. The poor is getting poorer.

California is the 5^th economy after Germany and before United Kingdom if it were a country. It has Hollywood and the Silicon Valley. It has about 1/5 of the total homeless folks in the U.S. Many homeless folks are not unemployed. Most have low-wage (relatively) jobs that they cannot afford to rent an apartment. It is an example of the worst of capitalism.

Can the politicians fix these problems with all the money? The priority is to satisfying the rich and in this case the corporations. They cannot tax the rich to the maximum as they can just give up the U.S. citizenship. All the projects such as infrastructure will not pay off for them in the next election (a four-year cycle). Seattle with corporation Microsoft, Boeing and Starbucks is another state with the same problem as California.

8 Disasters in 2020?

There are some predictions that the U.S. will suffer a lot in 2020. Some predictions are correct and some including the “world end in 2012” are not. Hence, this article should belong to the Conspiracy Theories. Even with some good arguments, I am not totally convinced. However, I would take actions, similar to buying insurance. I would like to invest in gold and foreign countries (but all countries will be on fire if the prediction is correct). I will limit my Chinese stock holdings in 2020 for sure.

Prediction #1 (materialized as of 2/2020). To some, China has a cycle of disasters every 60 years and 2020 is supposed to be the year for disasters. It happened in the last three: 1960 Great Famine (1959-1961 estimated 30 million died), 1900 Boxer Rebellion (1899 – 1901) and 1840 First Opium War (1839 – 1842). I cannot find any major disaster in 1780 and the Sino-Japan War was not in the cycle year. It has 3 rights and 2 wrongs – not a bad bet. If Trump got reelected, it could be China’s disaster in 2020. China could benefit if Trump settles the trade war soon.

Prediction #2. Some predictors believe the USD could lose the reserve currency status. It is quite possible as we have been printing too much USD and our national debt is ridiculously high compared to our GDP. The hint today is that some countries are not using the USD for trading. The “One Belt, One Road” is another example, where the participants are trading with Chinese and /or Russian currencies.

Secondly, they also believe there will be an overdue earthquake that would destroy California. Despite of any predictions, it would happen but hopefully not in my life time. It could destroy Silicon Valley and Hollywood, the most important areas for our economy. The stock market could lose most of its value. The Federal government would not likely be able to rescue California in this scale and that could lead California to become independent. It is likely but I do not bet on it.

The two events if materialized would possibly cause a global depression and even civil wars. Election year is traditionally a good year for the market, but we should be cautious with our money this time.

Believe it or not? Another conspiracy theory? But, do not say you were not warned. Personally I do not believe it, but I will take some actions just like buying insurance. I hope the predictions are wrong. For more info, check out Billy Meier from the web. He did have some correct predictions but some of his photos were falsified.

It could be the most entertaining article in this book, or the most important one. Even if there is no disaster, it is always better to diversify with gold (about 10% I suggest) and to sell short when the market is risky.

https://www.thebalance.com/dollar-collapse-how-to-protect-yourself-and-survive-3306263

Will update this article on 1/1/2021 if we survive. Written on 8/2019.

Update 1/2020.

# There are plagues in years ended with ‘20’ such as 1720, 1820, 1920 and this year 2020. Is it a coincidence?

Update 3/2020.

# The virus spreads to Europe and U.S. It could cause a global depression. Hopefully the warmer climate would kill the virus and save our economy.

# U.S. tries to solve the financial crisis by excessively printing money. It could cause inflation and the USD will be shaken (Prediction #2). So far, China seems to recover from the virus, and it is the only threat to our USD.

Prediction #3, as of 4/2020

If U.S. asks China for damages, China would likely refuse. If the debt of about 1.07 T is frozen, China would take counter action. This would lead to military war and WW3. Even if it does not happen, consider decoupling. Personally I do not invest in Chinese companies and ETF on China and be careful with companies whose factories and investment are in China. Gold could be a better investment when war happens. I bet the war will be threatened but not materialized. Appropriate trading could be profitable.

9 How to prepare for disasters

This article prepares you for some of the predicted disasters in 2020, which may never materialize. [Update 03/2020. Pandemic has happened and the breakout was in China.] However, it also helps you to prepare yourself for any future disasters. The disasters may never happen but your actions are the insurance for protecting yourself. Depending on your risk tolerance, allocate 2% to 10% for this effort. I divide the actions into several categories as follows. As to all my recommendations, you should consult your financial advisor before taking any actions, especially the risky ones like this one.

Preparing for the depreciation of the USD (U.S. Dollar).

As of 5/2020, this has not happened, and I hope it will not happen in my lifetime. The government has been printing too many USD and the economy may not be that rosy as our government has described as of 2019. As a result, the USD could lose the reserve currency status. We know what happened to the U.K. when the pound was replaced by USD. In preparing for a market plunge, we usually accumulate cash, and / or buy safe Treasury Bills. It may not work this time as USD could lose its buying power.

Here are my suggestions on what to buy. The current prices are based on around Oct. 1, 2019. They are rounded up to be easier to remember and they are used for reference only. The following prices are for comparison only; I am not responsible for any errors. As of 2019, it is too early to prepare for this disaster.

Action	Related ETF	Current Price

Gold per ounce.		$1,490
Gold coins (Canadian).		$1,590
Gold ETF	GLD	$141
Gold Trust	IAU	$14
Gold miner	RING	$22

Silver per ounce		$17
Silver (American Eagle)		$26
Silver Trust	SLV	$16

Bitcoin (too risky for me)		$8,000
Copper Miner (risky)	COPX	$17
Commodity-indexed Trust	GSG	$15
Commodities Select Strategy	COMT	$44
Material	IYM	$92

Oil (Risky)	USO	$12
	OIL	$11
Oil barrel		$55
Europe assets
Sell bonds
Short bank stocks	SEF	$21

Reduce cash (CDs, bonds…)

Preparing for a prolonged recession

As of 3/2020, it has happened at least to some extent. U.S. could be in a prolonged recession from natural disaster such as an earthquake in California. The trade wars could bring a global recession. In addition to the above table, more actions are presented here.

Action	Related ETF	Current Price
Sell most U.S. stocks.
Short U.S. stocks and leave them uncovered until market recovers.
Short U.S. stocks with HQ in CA (in case of earthquake) until market recovers.
Sell oil & oil stocks
Buy farm stocks (outside CA).
Sell Chinese stocks.
Short Chinese stocks (risky).
Increase CDs and money market
Swiss stocks or EU currency related.
Important and risky:
Contra ETFs and short technology.	TBF	$18.77
Contra ETF DIA	DOG	$52.46
Contra ETF SPY	SH	$26.13
Contra ETF QQQ	PSQ	$27.74
Contra Mid Cap (risky)	MYY	$42.61
Contra Small Cap (risky)	SBB	$32.32

Contra ETFs bet the selected group of stocks would go down. Most investors should not buy double or triple leveraged contra ETFs. Contra ETFs are aggressive and are not suited for conservative investors who should stay in cash. When the market starts to recover (using the market timing technique), sell all contra ETFs and move cash back to equity.

If you are conservative investors and do not want to time the market, buy stocks that have high dividend yields, low debts (utilities are fine) and/or in consumer staples that are used regularly such as tooth paste.

Avoid stocks in the following sectors: retail, technology, housing, autos and sectors that require heavy borrowing. Consumers will not buy anything that are not essential. Companies will not invest in upgrading their operations. To me, today FAANGs (such as Netflix) should be avoided.

U.S. companies making chips such as MU would fluctuate with the trade war negotiations with China. If the market keeps on advancing, it could be due to the ending the trade war with China. Hence, my approach is not 100% bullet-proof.

Interest rates move opposite of long-term bonds. TBF, shorting Treasury bond, moves the same direction as the interest rates. In the 2008 market crash, bonds moved down in the first year but recovered nicely on the second year.

Gold is the number 1 buy for me in bad times. However, some may argue that gold is fairly valued as of 11/2019. When the economy is down, Oil, Energy and Basic Materials (copper for example) should be down too. Buy these sectors ONLY when the USD is losing value. Today (11/2019), the USD is pretty stable compared to other foreign currencies, but the outlook in longer term is not that rosy.

Most countries keep foreign currencies for trading and reserves. Today (11/2019) and from my rough estimate, USD is about 60% to 65% in global reserves, Euro about 20% and Yuan about 1%. In five years, I predict USD would be down to 50%, Euro 25% and Yuan 5% due to our high debts. Recently, China is using Yuan in trading with their partners such as in their energy exchange.

Protecting your lives

Protect yourself from a stage of no government and police protection.

Action

Buy guns or weapons (I’m for gun control with a realistic approach).

Store enough food.

Store enough water.

Store enough wood.

Store enough gasoline and have a generator.

10 Investing risks

I presented the risk of losing money due to politics and government regulations. Many sectors such as utilities are sensitive to the interest rates that is governed by the Fed and hence we have an interest risk.

Economic risk is another one. When we have a recession, most likely the market will be down. If the investor loses his or her job, s/he is forced to sell the stock. It is a personal risk. If many lose their jobs at the same time, the risk will be spread to others.

Sector risk is another one. For example, when all the internet stocks in 2000 fell, it affected many related sectors such as computer and software.

When the CEO does not do a good job or the company’s products fail, the stock will most likely go down. It is the management risk. When the company speculates such as Enron betting on energy futures, we share their risk too.

Inflation is another risk. The buying power decreases especially in the long term. Tax is not a risk but it causes you to lose some of your profits.

There will be virtually no risk in buying CDs and/or government bonds. However, the interest does not keep up with inflation (the inflation risk). Our capitalist system punishes us for not taking risk.

11 Taking advantages of fund managers

Fund managers have the best resources about investing. However, we can beat the fund managers by taking advantages of their restrictions and limitations as described below:

· The hefty fees. It is about 1.5%. Most charge more. They have hidden fees such as using their in-house brokers. I am paying $5 per trade and even less when using selected ETFs. The ETFs have comparatively low maintenance cost than the average mutual fund.

· Most have to sell when their clients sell. When there is blood in the street, it could be the best time to buy.

· Most cannot time the market. We can.

· Most cannot trade stocks less than 1 billion and/or the stock price less than $5. We can.

The high volumes of their trades are usually seen by the day traders who take advantage of it by riding the wagon.

12 Future trends

We’re at the cross roads in many areas. Let me outline some of my thoughts. Check it out in five years and see how many have materialized.

Economy

1. Today the market is fundamentally unsound but technically sound. When the technical goes down, it could be the time to exit the market.

2. FAANG as a group of stocks is very risky it seems to me. Netflix is the riskiest fundamentally.

3. Oil prices will take a break before its upward trend. When the oil price was at $30, I bought some oil stocks. When the oil price was at $50, I sold most of these oil stocks. I expected there to be fierce correction and at that time most sectors including oil would go down. Why did I expect an uptrend on oil after that? It is a simple supply and demand at work. Today drilling, exploration… are not economically feasible. Hence we should have less oil in the future and oil is still competitive and environmentally friendly.

4. China’s “One Belt, One Road” Initiative will have impact on the world economy. It will benefit the participating countries and provinces in west China. Even many American companies including GE and Caterpillar will benefit by providing heavy equipment that China does not build today.

5. The world should benefit from the rise of China if China does not create wars.

6. From my estimate, only one job will be gained from 10 returned jobs from Mexico and China due to automation.

7. The wealth gap will be widened due to robots and the advance of artificial intelligence. It could have the biggest impact since the internet.

8. Europe will finally recover despite the rising of terrorism.

U.S.

1. The U.S. is declining but we’re still leading in many sectors. We spend too much effort on being a world policeman while China is concentrating their efforts in improving the economy.

2. Trump may not be re-elected. Will it be the trigger to bring down the market? Only time can tell.

3. We used to be a nation of problem solvers, but have become people avoiding problems. Trump did that by dissolving his committee of business leaders. So is Yahoo!Finance. I miss many nice features from this site that are no longer available.

4. We need the H-1B program to attract the world’s best programmers and scientists to make us more competitive. We need to monitor and enforce the program to ensure that there are more benefits than that could harm.

13 Coming decades

The aging population, technology advances and China are major factors affecting the stock market today and specific sectors for the coming decades. These sectors may not rise or fall in a straight line.

The aging population is due to the baby boom after WW2. It is happening now. It gives rise to health care and medicines tailored to the growing needs. The seniors are supposed to withdraw their savings and then the market could tank. However, the market has been rising for the last 10 years and the drug companies are not doing as well in 2018. The population is rising fast in developing countries such as in Africa and India where the GDPs are low.

Technology such as robots and artificial intelligence will make many jobs obsolete. The internet could make newspapers obsolete as the readers can find articles that are free. If they do not adapt, they will perish. So are brick-and-mortar retailers to some extent. Most big chains have on-line stores. Mobile pay could replace credit cards.

When more electric cars are manufactured, gasoline prices would be reduced and many gasoline stations will have battery chargers replacing some gas pumps.

5G technology would make some sectors prospering while some become obsolete. Driver-less cars would be one that can benefit. After 2030, China will be the main force in a global economy. It has been slowed down by the trade wars of 2019.

14 Lessons from my trading in 2019

I made many financial mistakes along with some good decisions in 2019. I have explained how to avoid some mistakes in my books and I did not follow my own preaching.

In the last two months of 2019, I started buying contra ETFs betting the market would go down while the market has been making new heights. The market is financially unsound but technically sound. Lesson #1: Follow the simplest market timing described in this book. Lesson #2: Never bet against the market on the year before election.

There are always two sides on the opposite views of the market. I studied them and believe 2020 could be a disastrous year for the market. No one is sure unless s/he has a time machine. Again follow Lesson #1.

I did well in buying GLD/SLV, and basic materials including IYW and two copper miners. I will unload some copper miners. Lesson #3: Every portfolio should have a small portion in gold (GLD/or similar ETFs, gold coins and an ETF for gold miners).

Stay away from Chinese stocks for the entire year. I may buy a contra ETF on Chinese stocks. The trade war and the explosive debts will drive China’s economy down for a few years.

I had 50% profit in one month using my year-end strategy in 2018. From my memory, I made about 100% on YRCW and lost about 30% on another buy on the same stock. Lesson #4: “Year-End Strategy” works at least so far. Lesson #5: Sell the stocks bought using this strategy within 2 months, and hence I should use retirement accounts for this strategy.

I made some money in trading energy stocks that have been beaten down badly. The outlook of energy stocks is not good. Lesson #6: Buy low and sell high. Lesson #7: Buffett’s “Be greedy when everyone is fearful and vice versa” is correct thinking.

There are many ‘great’ traders making millions and losing most. Lesson #8: Avoid big losses by using stops. Lesson #9: Do not speculate and be a turtle investor.

Sold METC and REI in early 2020 for 14% gain (172% annualized) and 35% (508%) respectively. They were screened from my year-end strategy in early Dec., 2019 and profited due to the daily news (Iran). Lesson #10: Combine different strategies.

I have saved the most important lesson for last. If you spend all day long trading, you will not enjoy life and it is bad for your physical health and mental health. Wish you a healthy and prosperous 2020!

15 The Cover & the Art of War

The spider depicts how we buy stocks: Time, Find and Score. For the spider, it is Wait, Aim and Bite.

Actually its availability from the free clip arts is the sole reason for my choice and the above is makeup.

The Art of War

The title of this book was inspired by the above book that was written about 2500 years ago. I was surprised that no one uses the title “The Art of Investing”.

With some minor interpretation such as the titles of the officials and the capital names, Chinese text can be understood even from that long ago. I believe they're craved on bamboo. It has 13 chapters. I believe there were more books from this author and got lost from the long history. This book could be the official recording from the emperor, a usual practice in Chinese history.

Japanese business men use this book and the “Romance of Three Kingdoms” a lot. The US army adopted this book as the required reading for their officers. I do not think it would be useful in today's warfare except in the urban wars that we lose most of the time. Maybe the other side of the war studied the book harder than us. I will try to see what and how this book is relevant to investing; so far I cannot find a lot.

The story. The emperor asked that author to demonstrate his technique of training an army. He asked the emperor's ladies to learn how to drill. After several laughs, two lady leaders of the drill were beheaded and then everyone was serious and then he had trained successfully the most beautiful army in world's history!

Normandy. War. http://tonyp4idea.blogspot.com/2014/06/normandy.html

http://tonyp4idea.blogspot.com/2014/05/on-wars.html

Review what we’ve discussed

This article reviews and summarizes the important concepts of this book. I also read my book and am reminded on the lessons I have learned from especially from my bad experiences. I hope you can avoid the costly mistakes that are described here.

This book allows me to write down my ideas and experiences. I review them and monitor how and why some mistakes I still repeat while investing. I hope you will do the same for yourself with a trade journal. However, from my experience marketing a book like this is time-consuming, not financially rewarding and hence not highly encouraged.

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 consistent with a solid strategy and then letting our emotions influence our trading.

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

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 this, I bought a small Chinese company that had excellent financial metrics, but I discovered later that it was all a 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 but plan not to repeat the same mistake. It was a big learning moment for me.

It is the same for a win, but in a reverse sense. We want to repeat wins by the same lesson.

Most readers do not hold a large number (about 100 to 150) of stocks as I did once. Draw your lessons by including stocks that have been evaluated even if they have not been purchased by you.

Overnight my MOS turned from a profit into a loss due to the collapse of the cartel in the potash industry. It is an event we cannot control. So this loss is not a lesson to be learned but it teaches us not to put all eggs in the same basket (i.e. diversify your portfolio).

I read analysts’ reports on lots of companies. First I have to ensure whether or not they’re written with a hidden agenda. Second, I check out whether they make sense to me. Some companies have fallen even after some 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 was only wrong in the timing.

We are human and we all make mistakes. We should learn from our mistakes and reduce the chance to repeat them again. I am guilty of repeating mistakes such as buying foreign stocks that have proven to be unprofitable over a year’s time.

What should we do with a losing stock? Do another evaluation. If we really make a mistake, sell it and move on. I do not recommend to reverse the trade (i.e. short the loser) unless you have a better convincing argument.

2. Spotting big plunges.

Market timing does not always work. However, when it works more times than not, we can benefit in the long run. This book provides a lot of hints to detect big market plunges and avoid huge losses. Play defensively when the market is risky. Routinely monitor how risky the market is and act accordingly. Set up a schedule as to when to review the 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 (2000 and 2008). 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 returns in time when the long-term trend of the market is up. Recently we have received more false alarms. Most of the time you do not lose much except for taxable accounts as it usually tells you to reenter the market shortly. Personally I try to keep 50% in cash when the market is risky and 100% in stocks during the Early Recovery phase (defined by me).

When the market is plunging, do not buy stocks. When it starts to recover, this is the best time such as 2009 to buy stock as almost every stock is on sale. It is similar to flash crashes and some fierce market corrections. In the last flash crash, I participated one day too late and still made some great profits. Next time my reasoning needs to overcome my emotions.

Someone found the perfect screen producing an average return of 20% from the top 10 stocks and an average return of 5% for shorting the worst 10 stocks. However, in one abnormal year, the shorting lost 100% erasing all the gains for this strategy. It would work better using market timing.

3. Trade plan.

First, identify your objectives about investing. Next, set up a simple trade plan to start with, and then set up a schedule. Write down when to review the market risk and when to trade. For casual investors, it could be a quarterly task. Excessive (such as everyday) checking of our portfolios is a waste of time for most investors, not to mention the damage to your spirit.

Following a trading plan consistently forces you to be disciplined while investing. You should stick with the strategies that have been proven recently and avoid the bad human choices such as greed, fear and ignorance.

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

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

This book could bring you closer to the Holy Grail of investing: You need to adapt what works in the current market conditions including fundamental metrics and the screens you’re using. There is no evergreen strategy and the predictability of metrics changes in different markets.

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 related chapters.

5. Risk tolerance.

My objective today is to make a decent return at the least risk and conserving what I have is more important. Be a turtle investor who makes small but consistent profits. Most traders watch the screen all day long, spend a lot on commissions for the large number of trades and pay higher taxes for short-term trades.

Many of the 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 when the profit potential as high.

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 would be no fun if I just bought 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 ego. 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 trading accounts. I buy deeply-valued stocks, and replace them with growth stocks during the Up and Peak stages of the market cycle (defined by me). I am conservative in the Peak stage of the market cycle with mental stops. The average holding period for me is 6 months and longer for the more advantageous treatment of long-term capital gains tax.

Momentum accounts (most in Roth IRAs). I switch at least some stocks to contra ETFs when the market is more risky. The average holding period for me is one month. Stress is on growth and momentum.

6. Investing advice.

Select the advice that is appropriate to your needs from good web sites, magazines, newspapers, etc. The media usually emphasizes the business news and some have their own agendas. However, I have profited from some, so I do not want to ignore most of them. Take time to analyze the news and only act on it when it makes sense.

7. Evaluate your requirements and apply what makes sense.

Every one’s requirements are different and my investing style may be different from yours. Actually my current strategy is far safer than ten years ago. Write down your risk tolerance, your time available for investing and your general knowledge (and your desire to learn about investing). Only apply those ideas that make sense and fit your requirements.

If you are a beginner to investing, learn from this book and other basic books. Trade on paper. Buy ETFs but start small. Believe in due diligence. Master market timing. Luck about investing only works in short term.

For the intermediate investors, it is better to invest in mutual funds and ETFs.

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 make political remarks on any party, I could be 100% right or 100% wrong for you according to which party you belong to.

You do not have to be politically correct in making investment decisions. In this book, I have reported my dislikes of both parties and may offend many unintentionally such as politicians in parties, union members and investment professional. I am trying to enlarge your thinking.

I caution you on holding a bias that may keep you from being socially responsible for others. You can act on your beliefs and buy stocks that can enhance life in positive ways. Perhaps a promising drug that can potentially cure cancer, rather than buying a tobacco stock. You do not need to buy your company’s stock either just because you work there. You should not be overconfident about the market as it is not always rational and/or the government gives out false information about the economy.

9. Trade effectively and monitor your trades.

Do not commit the same mistakes again and again. Do not buy any stock without doing a thorough analysis. Be careful on hot tips and hot stocks you learn from the media as they are usually too late and some may be manipulated especially on small companies. Do not trade a stock days before its earnings announcement date unless you have a good reason to do so.

10. Investing is multi-disciplined.

Good investing requires knowledge in finance, accounting, the economy, psychology, probability, statistics, PC skills, politics and government… This book touches many areas in basic terms. I never stop learning about investing.

11. Best strategy.

The best strategy is not to lose big money. Please refer to the chapter on Spotting Big Plunges. Try to identify the Early Recovery phase of the market cycle and invest more aggressively in this phase. As in life, nothing is guaranteed, but following the basic market timing would give you a better chance of making money.

In other phases of the market cycle, choose one of the following strategies depending on your skill, time and risk tolerance. When everyone is making easy money, the market could be very risky. However, not participating in a rising market could be very tough. If you do participate, exit the market FAST when it is heading down; it could be the best insurance.

1. The conservative strategy. Remain more in cash all the time except during the 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. Always protect your profits and cut down your losses by using stops.

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

This book provides you with a lot of knowledge about 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 personal objectives.

When good strategies do not work, take a break. It happens once a while including 2015 when most value stock pickers failed. In 2015, I bet it was due to ‘bubble’ stocks such as FANG (Facebook, Amazon, Netflix and Google). It is hard to beat the market without owning them. I encourage investing over trading. Be a turtle investor; only buy bubble stocks with clear exit strategies. However, some trading strategies explained in this book do work such as sector rotation, and understanding insider trading, etc. The difference is the holding period to me: At least 6 months for investing strategies based on value.

12. Be socially responsible and emotionally detached.

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. Sometimes you have to take out your humanity hat in making investing decisions. To make you feel better, donate your ‘loot’ to related charities such as the profit from a tobacco stock to the American Cancer Society.

Ignore daily news. My emotions could have gone wild on oil with the daily news on the oil price. Look at the long term. Short term wise, even the best experts cannot predict the direction of oil.

What I missed recently

· Bought AMAG from my regular brokerage. It gave me a better price than my order. Placed another order with a ‘bargain broker (with no commission). During the day, it went lower than my order price. Hence, it should be executed, but was not. No more ‘bargain’ broker.

· I expected the oil price to go up from Jan., 2016. It did as of 6/2016. However, it did but my OIL ETF only rose by 50% of the supposed gain. I should have bought USO. From my memory, OIL once performed better than USO.

· I wanted to buy stocks from companies into virtual reality. Acted too late as of 5/2016 and Sony was up by at least 5% in a day. It is fine to make mistakes, but we have to learn from our mistakes and hopefully not repeat them.

Afterthoughts

· There are many other correlations. The following should correlate with the economy: construction industry, employment, commodity /commodity-related currency and oil. Once a while and for a good reason, they do not correlate.

· QE, printing money, foreign loans (to China...), reserve currency, debt ceiling all mean the same: We live in a higher standard of living than we can afford.

When Uncle Sam unsuccessfully uses all the tools to maintain our living standard and works to be the world’s policeman, he runs out of tools such as printing money. That will build a higher cliff for us to fall off of. Hopefully the shale energy will save our economy.

· The global economy still has not recovered as of July, 2013 according to this article.

(http://www.telegraph.co.uk/finance/economics/10174862/Renewed-fear-of-global-recession-as-companies-rein-in-spending-plans.html)

· Here are some economic indicators.

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

· This time is REALLY different. Your Dad’s generation does not have the internet, powerful PC, low-interest commissions, trading at a click of the mouse… Global economies are better connected via the internet, shipping… All these affect our lives and economies.

Our $20 wage can never compete with a $2 wage in countries such as India and China. Multi-national companies hire the workers for their best benefits: low-cost, obedient, non-union, skilled work force, stable government, tax incentives, abundant resources (such as rare earth elements), local market potential, etc. Chinese farmers migrated to cities for better factory jobs. Contrary to a popular belief, Apple is not a slave master in China.

Epilogue

I have never taken any class in economics, accounting, business and investing except those required in my Industrial Engineering degrees. Investing is extraordinarily multi-disciplined and all we need is common sense and a desire to learn.

After my early retirement, I have been spending most of my time in investing, running thousands of simulations and reading over one hundred books on investing. Starting with the year of 2000, I have been doing very well in my investing. I comment on financial blogs and save the good ones for my own blog, so I can refer to them later on. Then after several years, I had enough information to write a book.

It is far more financially rewarding working about my investments including finding new strategies. Writing books and articles takes time away from my investing and it actually costs me more money. However, it has been fun to write this book and to interact with my readers. Money cannot buy everything and the satisfaction of holding my printed book.

I do not believe that this book or any book can be the Holy Grail of investing. However, it has a lot of fresh ideas and good pointers that have brought me financial success (at least so far). I ask my readers to challenge my pointers and ensure they are applicable in today’s market and meet their own objectives and requirements.

A good pointer can make you thousands of dollars, and a bad or misinterpreted one can do the opposite. Always do paper trading on any strategy and / or idea before you commit real money to it. Start your strategy with cash in small increments until you have more confidence.

Use the links in this book for reference and understand how we come to the conclusions. This book and similar books provide you ways on how to make decisions based on current events that can be obtained from TV, the internet and magazines.

Hopefully, this book’s primary objective of enabling you to be a better investor is met. Actually, you should be a better investor than I am if you can integrate the knowledge you already have with mine – I called it adding wings to a roaring tiger. You also learn to avoid the mistakes I made.

This book should be read repeatedly to remind us (I am a reader too) of any error(s) we repeated. Some articles are not easy to read as this book is not intended to be so. You need to practice what this book suggests such as learning how to detect a market plunge.

There are many styles of investing. It is better to master one at a time than trying to master several. Personally I selected swing trading with 6 months to renew my investment. Sector Rotation and momentum trading are my other styles I practice.

I have made a lot of predictions. There have been more right than wrong compared to most other authors I have read. I never use after-the-fact predictions. Even when there are wrong predictions, I would show the logic behind.

Promoting books teaches me some human behavior, both good and bad. One oldie showed me his broker statement one day with over 8 million and asked me to show him mine with some racial remarks. Hope his racist attitude would not pass on his ‘successful’ children.

The major advantage of self-publishing e-books is the low cost to you. Without self-publishing, this book would never be done.

I will practice what I preach and what I’ve learned from writing this book. Jesse Livermore was probably one of our greatest traders ever. Yet he ended up losing most of his money and then killed himself. The major reason was he did not follow what he preached. We need to diversify our investments and it is better to be a turtle investor. Recently a 20-year-old, Robinhood trader killed himself after losing $730,000.

A link is provided for future updates and announcements.

https://ebmyth.blogspot.com/2020/01/updates.html

My blog:

https://tonyp4idea.blogspot.com/

Final notes

Thanks for reading this book and I hope it will be beneficial to your financial health. If so, comment on it on Amazon.com or the place you bought this book. I will be very grateful.

I believe the readers are getting a very good deal ibn reading this book. To benefit more, you have to try out the techniques described in this book and paper trade them thoroughly until you are successful.

I have put everything I know on investing in this lengthy book. The following book will have recommended stocks: “Best Stocks to buy in 2021” available after Dec. 15, 2020. This book is in the planning stage and there is no promise that it will be published. It may include the End-of-Year stock selection. For my political views, “China: Trade War and Pandemic.” is recommended.

Art work by Eric of PowPaper

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Thursday, March 26, 2020

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