Some might argue that the general stock markets in US already came down from the peak of last October, we probably already hit the bottom and on the way to recover. Even some of the commodities-related companies are already priced low enough for value plays, to that extend I would agree. But slow growth meaning these commodities companies will not able to recover as fast as some other sectors, like Financials. With current interest rate at all time low and the special windows extending to some of the big financials, they are positioned to benefit the most from the yield spread. Already we see the financial sector rebound from their lows. I think this will likely to continue until FED ease off the rate.

I wished I’ve came to this generalization earlier, the signs were long before my eyes, the oil coming off its highs and Global inflation concerns. While I will continue to work on the timing in the future, I think we are currently at very early stage of this cycle, so we can still make the transition and benefit from this trend.

This is a general disccussion of the current trend, by no means, I am suggesting to dump the commodities stocks or buy the financial at the instant. Please be patient and let the market come to you for favorable conditions.

http://www.oneonian.com/invest.php

Since the fundamental principles of my investment strategies are greatly based off Graham’s The Intelligent Investor, I think an evaluation against the book would be a good way to reassess my strategies.

From the very first content in the first chapter, Graham defined investment.

“An investment operation is one which, upon thorough analysis promises safety of principle and an adequate return.”

And I think Buffett said it best in the preface on how to achieve successful investment over a lifetime.

“What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

From these two key notes that underline the importance of the safety of the principles and the control of emotions, the reflection on my past endeavors shown these two areas will require further improvements.

As a novice investor, looking back at the transactions I made over the past fifteen months, there were some good investments and some bad investments. I am glad the ratio of my good judgments is increasing.

However some judgments, from the selection of the stocks to the timing of the transactions, failed to pass Graham’s teaching on the safety of the principle. To guarantee the safety of the principles is to obtain enough margin of safety at the time of investment. While the intellectual framework and the ability to pick better investments is partly innate and partly a slow process that requires continuing learning, the timing is largely controlled by emotions that unfortunately can be effected by the swing moods of Mr. Market. Practice patience and the courage to act when the market is panicking are good antidotes to emotional influences.

Naturally the question follows is what to wait for? Graham urges to buy when there is a margin of safety and hold preferably indefinite. Over a horizon of twenty years or longer, the market should yield a positive return. After experiencing the up and down of this passing bear market, this is where my belief start to deviate from the traditional buy and hold long.

Buy and hold long should be the method during an upward cycle, where selling stocks with good fundamentals will probably end up at lower prices then the price to buy it back at later time. Different strategies should be practiced at different market cycles.

Regardless of bull or bear market, eventually all will come to an end. Like the bull market that ended last September, the signs of an overheating market were apparent, increasingly high PE ratios with rate of growth that’s unsustainable. Most of my emerging stocks such as ACH, PTR, CEO, YZC, GRMN were approaching over 50% to 90% rate of return for merely three to four month leading to the pinnacle of the last bull run. Buy and hold during this period of unsustainable growth could only mean pay dear when the market undergoes correction.

In order to guarantee the safety of principle, buy and hold should not be the uniform strategy for the ages. Alternatively, it should vary with the general cycles of the market, not the short-term gyrations, but the long-term bullish or bearish cycle that last over five, ten years.

Within a lifetime of investing, I believe large transactions should take place during the climax of each cycle. Large portions of the holdings should be sold or brought depending on whether the current market is excited or distressed, respectively.

Having held through the pinnacle of the bull market last year, I stuck through with the buy and held idiom and missed the chance to sell portion of my holdings. But, with the Dow Jones approaching closely to 12000 and a frantic overselling all across the market, I upped my personal investments this past quarter, a 50% increase from previous quarter, the most I could contribute. These investments should yield a handsome reward once the market starts to recover.

Like mention earlier, in a bullish market, smaller and smaller periodic investments should be made with limited number of selling orders. As the length of the bullish market expands, those purchase order should gradually dimenishes. Of all the cycles occurs in market, the bull cycle should have the lowest number of transactions.

Different strategy should be used during bearish market as we are experiencing right now. Whether it’s a “U” or “L” trend, bearish cycle can last, some “experts” have suggested about an average of 400 days. During this cycle, the trend go through smaller interim cycles with longer wavelength than generally seen in a bullish market. Same selling or purchase price can occur multiple times. Relative short-term patience is needed to wait for the Trough or Apex of the trend. Here I might even consider the reference of the technical analysis. The period of the smaller cycles is at least a month in range. Smaller selling and repurchase transactions can be practiced here following the trend but the holding time should last at least half of the period of the interim cycle. The general day trading is still strongly opposed.

Further, the amount of transaction should be large enough, so that the commission costs do not eat away the short-term profits. I am currently considering this to be less than 1% of the principles. The principles should also be small enough, assuming the fundamentals of the companies still exist, only a small percentage of individual holding should be traded with the trend, say around 30% or less.

The strategy discussed above evolved from my previous investment principle. As such, the underline companies of each transaction are first valued based on the fundamentals of value investing. As oppose to Warren Buffett’s advice in the ability to ignore the daily up and downs of the investments, in a bear market, due diligent is needed as it requires more active participation of the market. Trades and shot-term profits can be made by anticipating the bearish cycle of sinusoid trends.

As always, I will continue to shape my investment principle. This will be an ever evolving process. Current strategy does not reflect future strategy. I am content to have The Intelligent Investors as the foundation to my investment strategy, and optimistically anticipate with each amendment, the results will be shown in more profitable returns.

http://www.oneonian.com/books.php?book=WhenGeniusFailed

Now you can use www.YuanPlace.com and www.HYfinancial.com to get to OneOnian.com.

With half of equities in emerging fund, OneOnian fund was in a gyration since year 2008 started. At some point in January the fund was down 14%. The cause of this is due to the deteriorating of the credit issues in fundamentals of the market. However as banks started to write down big losses and Feds started to take notices and actions, I believe this bearish cycle is coming to an end. The market will start to alleviate and buyers will start to pick up bargains. Even the big wave of write down have passed, we might expect some secondary and possibly tertiary market effects that might cause a few more ripples. Mostly side effect will come from consumers and inflations related.

During the past quarter I did a few things to take advantage of the market downturn. First I swapped different tax lot of the same stock. For example, I had multiple purchases of ACH, some were brought at higher price than others. Assume you still believe in the fundamentals of the company, when the market offers a price at 20, 30, or 50% from your highest purchase price, you can sell those stock and buy them at lower price. The gain is the tax advantage. The short losses can offset your gains at normal tax deduction. With long-term capital gain tax at 15% and compare to my higher than 30% income tax, that’s 15% gain. However, to fully take advantage of this, the numeric gains should be much higher than the commission you paid to do the swap.

Next, I dropped my position in PTR, GRMN and all of my smaller positions like CHL and MT. Each had different reason (I will cover them in my next quarterly report), but the general selling is to free up some fund to purchase other stocks with higher potentials of returns. In addition, I dumped another $6k into the fund and brought more ACH at $33/share, 2000 share of ETFC (Etrade, Financials) at average of $4.79, 250 share of FNM (Fannie Mae, Mortgage) at $31.90, more shares of CREE (CREE, LED) now at average of $24.43, and today, 50 shares of DRYS (DryShips, Shipping)  at $82.50. I believe all of these purchases suffered a substantial drop, now with a much higher return potential then the stocks I sold. Also, through this series of trades, the portfolio is now better diversified. The advantage of diversification is subject to another discussion.

In the end, is not the behavior of the market that determines the size of your bank account, it is the ability to remain patient, clear-minded, judge and execute even amid the most panic influences that will yield you the greatest gains.

http://www.oneonian.com/books.php?book=SecretOfAges

Lower Your Taxes

http://www.oneonian.com/books.php?book=LowerYourTaxes

Real Estate Tax

http://www.oneonian.com/books.php?book=RealEstateTaxSecrets

http://www.rb-trading.com/article10.html

The report is dated 9/16/1999 with currently more than 100 day-trading firms with less than 7000 day-traders. The day-trader firms are possible through an unintended clause in the legal system.

“Other day-trading firms choose to organize as entities such as limited liability companies (”LLCs”), which sell interests in the firm to individuals wishing to day trade. These firms are registered as broker-dealers, but because individuals who day trade at these firms are part owners of the day-trading firms, they are not considered “customers.” Instead, these individuals are “associated persons” of the firm. The day-trading firm allows these individuals to trade using a portion of the firm’s capital often an amount tied to the amount of each individual’s capital contribution.

There are several implications of day traders being part owners of the firm, rather than customers. First, although the firms are registered as broker-dealers with the Commission, day-trading firms organized as LLCs can avoid becoming NASD members, and are therefore not subject to NASD rules. Rule 15b9-1 under the Securities Exchange Act of 1934 (”Exchange Act”)⁴exempts a broker-dealer from the requirement of being a NASD member if the broker-dealer does not have customer accounts and is a member of a national securities exchange. Although this exemption was intended primarily for exchange specialists, a number of day-trading firms are organized as LLCs and are using this exemption as a means to maintain membership only in the Phlx. About 12 to 15 day-trading firms are currently members only of the Phlx. Second, as discussed further below, day traders who trade a firm’s capital can lawfully use leverage significantly beyond the levels permitted by the customer margin requirements promulgated by the Board of Governors of the Federal Reserve System (”Federal Reserve”) and the SROs”

http://www.oneonian.com/invest.php?report=2007_Q4

Down 7.23% for the quarter and a total gain of 51.46% return for the year of 2007.