December Stock Portfolio

PetroChina currently has a price of $83 while its Graham calculated intrinsic value (V*) is $149.  Other metrics worth noting are its Market Cap and Cash amounts which are $140 Billion and $10 Billion respectively with a total Debt of $10 Billion.  With OPEC cutting Oil supplies in order to reach their "fair" value of $75 per barrel, Oil prices should return this estimated value some time next year.

Shaw Group is an engineering, construction, and industrial services company.  What makes this company intriguing is its 20% vested interest in Westinghouse Group which specializes in Nuclear Power plant designs and equipment.  The Nuclear Industry was easily the largest donor to The President-Elect Barack Obama's compaign so it remains to be seen if these donations will turn into future profits for the Shaw Group.  Also worth noting is the Shaw Group current price of $19 while Grahams calculated intrinsic value (V*) is $25.  It has a Market Cap  of $1.1 Billion and $927 Million Cash with $1.1 Billion of Debt.

Symbol	% of Assets	Description	Dividend Yield	Industry
CCU	35.93	Compania Cervecerias Unidas	7.84	Alcoholic Drinks
C	7.34	Citibank	9.44	International Banks
PTR	31.05	PetroChina	4.19	Oil & Gas
BRK.B	11.79	Berkshire Hathaway Inc.	0.00	Insurance
SGR	7.27	Shaw Group	0.00	Metal Products
SBUX	5.17	Starbucks	0.00	Restaurants
CASH	1.45	Cash	1.04%	Cash

Federal Interest Rate

What is the Federal Interest Rate?

• When the Federal Reserve announces an interest rate cut/increase they are talking about the "nominal" rate, which is the rate at which Banks borrow money from the Federal Reserve.  
  

Why would the Bank ever want to borrow money from the Federal Reserve?

• Banks must maintain a minimum amount of cash reserve by law.  This reserve is usually 10% of the total amount of cash deposits held by the Bank.   When Banks want to make loans, they must ensure they have enough capital reserve to meet the minimum legal requirement.

When is it better for the Bank to borrow from another Bank?

• When the Federal Reserve raises the nominal interest rate, other Banks may have excess cash (borrowed at the lower nominal rate) that they can lend to other banks at a negotiated rate called the "effective" rate.  A basic rule of thumb is effective rate is always greater than nominal rate.  (E > N)

How does a Federal Interest Rate cut affect me?

• Lower nominal interest rates encourage banks to borrow more cash from the Federal Reserve and effectively encourages banks to loan money to you at a lower interest rate.

Why are Banks not loaning money?

• Banks are not loaning money because they no longer have enough reserve to cover the bad mortgages since Banks are no longer receiving payments for these loans; not to mention that the homes are now worth less than their original loan amount (called negative equity) so even selling these homes wouldn't pull Banks out of the "red".

So why isn't the Federal Reserve buying up bad mortgages?

• I don't know.

Intrinsic Value

Being an engineer I've always felt comfortable only after I see the numbers inside a formula. I've always wished to find such a magical formula to help me evaluate my stock interests. After scouring the internet and investment books for such a formula I finally found one while reading my Warren Buffet Biography "The Snowball". It was created by Benjamin Graham, who Warren Buffet studied under during his Columbia MBA days. The formula is simply called the Benjamin Graham formula and it calculates the intrinsic value of a stock based on current AAA Corporate Bond yield and a stock's Earnings Per Share (EPS).

The Graham formula proposes to calculate a company’s intrinsic value V* as:



V*: Intrinsic Value
EPS: the company’s last 12-month earnings per share
8.5: the constant represents the appropriate P-E ratio for a no-growth company as proposed by Graham
g: the company’s long-term (five years) earnings growth estimate
4.4: the average yield of high-grade corporate bonds in 1962, when this model was introduced
Y: the current yield on AAA corporate bonds

I currently use this formula on all my investments as it helps me evaulate a stock's potential. Other key numbers I look for are Cash vs Market Cap and Cash vs Debt. Warren Buffet as well as Jim Cramer are huge advocates of undervalued stocks that possess equal Cash to Market Cap values. I also like to incorporate Cash to Debt because any company with a huge debt tells me that their management is either being too ambitious or being sloppy with the accounting books.

401K Maximum

So back in September I blogged about how the 401k saves you money. Today I was routinely checking my online earnings statement that I receive from work and to my surprise I have achieved the annual limit ($15,500) for 401k contributions in 2008!

I did a bit of Google research on the internet and found that they are increasing this limit to $16.5k in 2009. I then became curious about how close I was to the limit each year so I researched what the maximum was for each year since I started working in 2001. Here is that list:

2001 - $10,500
2002 - $11,000
2003 - $12,000
2004 - $13,000
2005 - $14,000
2006 - $15,000
2007 - $15,500
2008 - $15,500
2009 - $16,500
2010 - $16,500

Keep in mind that this excludes any matching contributions from your employer, which is maxed out at 6% of your wages. For example Tom makes $50,000 in 2003 and contributes 24% or $13,000 to his 401k to achieve maximum value. His employer also contributes 6% of his wages or $3,000 towards Tom's 401k. Therefore Tom has a total of $16,000 in his 401k at the end of year 2003.

Even though the market has utterly destroyed my 401k this year, overall returns for the life of my 401k still sits north of 20% of the original cash contributions. This further proves my point that 401k saves you more money in the long run than any other investment vehicle.

October Stock Portfolio

Investing has always just been a hobby of mine but lately it has consumed my life because of the massive market swings in reaction to any negative/positive news. My own portfolio is no exception to these swings as I have done a good job of outperforming the S&P 500, but my portfolio is still down roughly 15% for the year. The recession will likely continue thru the better part of 2009 before we start to see market confidence return. Normally I would just hold, but I need to spend this money on more important things such as my own wedding plans and my parent's home remodeling. Family always comes first =)

So as you can see below, my portfolio has radically changed. I have taken a more aggressive approach to financials since they have been hit so hard with bad mortgage backed security investments. I'm betting financials will only want to do business in the most conservative ways that pretty much guarantee profit. Morgan Stanley recently received $9 billion from Mitsubishi UFJ Financial Group and another $10 billion from the US Government's Bank Rescue Plan. It's pretty clear to me that Morgan Stanley will receive enough help to never go bankrupt. My other position is American Express. I have always felt very strongly about American Express which has a very strong international presence and is very selective with whom they distribute their credit cards to. They are also receiving settlement payments from both Visa and Mastercard totaling $5 billion for imposing rules that had prohibited financial institutions from issuing credit cards through American Express. My last stock is one I continue to hold, but have reduced my shares in half and that is Pengrowth Energy Trust (NYSE: PGH). Though the price has been cut down roughly 40%, it still offers a very attractive 20% dividend that will essentially double my investment after 5 years (if the price holds *wink*).

The rest of my cash has been pulled out to my Savings Account which currently yields a 3% interest that beats the current Money Market rate of 1.04%.

Symbol	% of Assets	Description	Dividend Yield	Industry
AXP	18.44	American Express	2.71	Finance
MS	14.98	Morgan Stanley	5.33	Securities
PGH	23.12	Pengrowth Energy Trust	19.51	Oil & Gas
BRK.B	31.28	Berkshire Hathaway Inc.	0.00	Insurance
CASH	12.01	Cash	1.04%	Cash

Great Depression 2

"Is another Great Depression formulating before our eyes?"

Great Depression Part I (1929 to 1932)

• Caused by "The Roaring 20's" where American consumers and businesses relied on bank loans and credit to purchase goods and stocks in a very bullish stock market. Debt began accumulating and "Black" Tuesday triggered panic which eventually led businesses to cut jobs and encouraged people to withdraw any cash they had left from failing banks.
• On "Black" Tuesday, October 29, 1929 the Dow Jones lost $14 billion or 11.7% of its value.
• 13 million people became unemployed (approximately 25%)
• Industrial production fell by nearly 45% between the years 1929 and 1932.
• Home-building dropped by 80% between the years 1929 and 1932.
• Home values dropped more than 30% during this time period.
• From the years 1929 to 1932, about 5000 banks went out of business.
• Members of the Rockefeller family bought large sums of stock to demonstrate to the public their confidence in the stock market.
• The Dow Jones reached its bottom in 1932 and didn't return to pre-1929 levels until 1954 or 22 years later.
• The Federal Reserve was unable to inject capital to the economy since the economy was based on the Gold Standard (amount of gold in possession).
• Severe droughts were experienced during the 1930's was a man-made disaster caused from deep plowing of the Great Plains, which killed natural grass that normally kept soil and moisture trapped in the ground.

Great Depression Part II (2008 - TBD)

• Caused by defaulting bank loans given to people for the purchase of over-valued homes which ultimately caused a housing bubble. Banks also began repackaging these home loans as mortgage-backed security investments and began selling them to foreign investors. Housing prices began to decline which left home owners with interest-only loans that would soon increase to monthly payments that were impossible to make before the owner could "flip" the house for profit. A catastrophic chain of events soon followed as houses began foreclosing.
• On Monday, September 29, 2008 the Dow Jones lost $1.2 trillion or 6.9% of its value. (A total drop of 777 points, the largest point drop in history.)
• 728,000 people became unemployed from Jan to Sept 2009 (total unemployment currently at 6.1%)
• US Industrial production fell a sharp 2.8% in September, the biggest decline since December 1974.
• Housing starts fell 6.2 percent in August 2009 to an annual rate of 895,000, the fewest since January 1991.
• Home values on average have fallen close to 15% from their peak values.
• So far, Lehman Brothers and Washington Mutual have gone bankrupt, while Wachovia and Merrill Lynch were acquired by Wells Fargo and Bank of America respectively. Investment banking industry completed eliminated as a business.
• Goldman Sachs Bank and General Electric asked Warren Buffet to pledge $5 billion each to instill confidence to the market.
• The current Dow has fallen to 8451 points, a level not seen since 2003 during the Internet bubble.
• The Federal Reserve is injecting $700 billion into troubled businesses and $250 billion into failing banks.
• Hurricane occurrences along with severe climate changes have increased due to society's dependence on fuel, which creates excess carbon emissions that are the main cause for Global Warming.

Was it really all Bush's fault?

While reading one of my favorite blogs Freakonomics, I came across an interesting article which possibly places some of the blame on the Clinton administration for allowing subprime mortgages to get out of hand.  The date that the article was first published was September 30, 1999 and it cites Fannie Mae's reluctance to lend low-income consumers any kind of mortgage and even goes as far as stating the following:

"Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits..."

"...In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's."

Still you can't really pin this current housing recession on one particular event as one of my co-workers pointed out to me.  It's one thing to tell Fannie Mae to lend money out to low-income consumers, but when the borrower only makes $30,000 annually and turns around and tries to buy a house worth $800,000, it doesn't take a financial genius to figure out that is a bad investment for the bank.

September Stock Portfolio

Somewhere along the line my brokerage decided to increase the Money Market Sweep Account interest rate for holding my cash.  I noticed that it began paying close to 5% after I had cashed out my Charles Schwab (NYSE: SCHW) and Archer Daniels Midland (NYSE: ADM) stocks.  This might be in response to the recession in order to create more liquidity for the credit market.

**Note**

A Sweep Account is an interest-bearing account for any uninvested cash that flows into your brokerage account from various sources. Cash is automatically swept daily into the Sweep Account, earning you interest. When you are ready to use this cash for trading or for cash management activities, the necessary cash is automatically pulled from the Sweep Account. 

Symbol	% of Assets	Description	Dividend Yield	Industry
CU	29.75	United Breweries Company, Inc.	6.83	Alcoholic Drinks
BRK.B	18.29	Berkshire Hathaway Inc.	0.00	Insurance
GOOG	8.58	Google, Inc.	0.00	Online Services
CSCO	4.93	Cisco Systems, Inc.	0.00	Data Networking
JOYG	4.94	Joy Global, Inc.	0.84	Construction Machinery
WMT	3.54	Wal-Mart Stores, Inc.	1.69	Discount Stores
JNJ	3.38	Johnson & Johnson	2.69	Drugs
PGH	10.42	Pengrowth Energy Trust	14.50	Oil & Gas
STKL	2.57	Sunopta, Inc.	0.00	Agriculture
PXD	1.67	Pioneer Natural Resources	0.47	Energy
CASH	11.88	Cash	5.01	Cash

Cashing Out

Cashing out can either mean you made money or lost money.  The point is you're trying to free up that cash for other potential investments.  Today I cashed out Charles Schwab (NYSE: SCHW) and Archer Daniels Midland (NYSE: ADM).

I bought Charles Schwab back in 2006 because the company was struggling with the current CEO David Pottruck in place.  Mr. Schwab himself stepped back into the role of CEO and re-established the company to be the finest and most trusted stock brokerage names around.  He is again stepping down as CEO and therefore his value to the company will leave with him.  I believe the stock price has achieved its intrinsic value of around 23 to 25 per share and with added competition from cheaper brokerages, it remains to be seen if Charles Schwab's new CEO Walter Bettinger will be triumphant in this new era of online trading.

Archer Daniels Midland is a classic example of holding on to a trend for a little bit too long.  I was riding the wave of ethanol production from corn and this stock was up roughly 40% for me at one time.  However, this company has taken some losses not only in demand for its products but also from pure speculation of alternative fuel developments.  I continued to hold and eventually lost my gains and even began losing on this stock after 2 years of holding.  It would have been better to have cashed out while ahead and applied the cash to other investment opportunities.

My July Stock portfolio had about 16% cash but my August Stock portfolio had only around 3% cash.  My dad always taught me to hold about 10% to 15% cash for emergency reasons so the sale of these 2 stocks now place my cash holdings into that range.  I'm fine holding the cash since my brokerage sweeps my cash into a money market fund that returns roughly 5% so doing nothing may be a safe play for now as we wait for the $700 billion bailout to pass. 

Should you buy a house?

My dad keeps asking me when I'm going to buy my own house. My answer is when I decide where exactly I'm going to settle for the rest of my life. Based on this Rent vs Buy Calculator, a modest Bay Area home selling for about $400k would never see a return over the next 30 years given the current market conditions. In fact according to Yale Economist Robert Shiller, the housing market has a chance to fall farther than the 30% drop experienced during the Great Depression (see chart above).

Not to pour salt in the wound, but the reason we are experiencing this current recession is because of all the foreclosures. Banks are closing down on Wall Street because they were loaning money out to people who were not qualified nor responsible enough to make the required mortgage payments. The idea of "flipping" a house instead of owning it became a get-rich-quick scheme that never reached fruition for many. The huge spike you see from the chart above clearly shows artificially inflated gain from housing prices, which means housing prices are overvalued and probably have a long ways to drop before it reaches its true value.

So sorry dad, but I'm not buying a house anytime soon.

How 401k saves you money

I received a performance bonus of $1000 from my job this week.  Because of the simplicity of the numbers, it allowed me to see how my 401k actually increases the amount of cash I keep instead of losing it to Uncle Sam.

I contribute 15% of my income to my 401k, which means I get to subtract out $150 from the $1000 bonus BEFORE taxes.  My income is then taxed at 40% and the remaining amount is what I take home.

YES 401k

$1000 x 15% = $150 -> 401k 

$1000 - $150 = $850 (decreased income subject to tax)

$850 x 40% = $340 -> Uncle Sam

$850 - $340 = $510 -> my pocket

Total Cash I keep -> $510 + $150 = $660

Now if I had elected not to contribute to my 401k, the entire $1000 is now subject to the 40% income tax and I would be losing 6% more to Uncle Sam.

NO 401k

$1000 x 40% = $400 -> Uncle Sam

Total Cash I keep -> $1000 - $400 = $600

($660 - $600)/$1000 = 6%

I dedicate this posting to my co-workers and friends, who beleive they are taking home more spending cash by not contributing to their 401k but are actually losing money to Uncle Sam.  Help me help you! Don't give your money to Uncle Sam, give it to your 401k.

"A penny saved is a penny earned." -- Benjamin Franklin

"Help me help you." -- Jerry Maguire

**NOTE**

When you finally do cash out your 401k, you will be taxed at a much lower rate than 40%.  The rate you will be taxed at is the same rate you are taxed for holding a stock for 1 year, which is generally about 20%.  A savings of approximately half on income tax; all the while your 401k cash is growing in a compounding interest account for the next 20+ years.

Selling Short Explained

The other day I was IM'ing with a friend about selling short. We were discussing how I thought AIG, Goldman Sachs, and Morgan Stanley would drop after the news of Lehman Brothers going bankrupt. What I should have done was explain selling short in a previous blog post about my first and last experience of selling short in the stock market. So I'll do that now.

So what exactly is selling short a stock? It's making making money when a stock price goes down. The way it works is you borrow shares from your stock brokerage and you immediately sell the stock to gain cash, or "sell short". You then monitor the stock and decide when you want to buy it back (hopefully at a cheaper price), which is called "buy to cover". If you were successful at buying back the stock at a cheaper price, you keep the difference in price as profit.

For example, AIG stock was at $15 per share on Monday 9/15/2008. I "sell short" 2 shares of AIG stock on Monday from my stock brokerage and now have $30 cash ($15/share of AIG stock multiplied by 2). With my $30 cash, I buy back 2 shares of AIG on Wednesday 9/17/2008, which happen to be at only $2 per share. Doing a little math you can see that I only had to spend $4 to buy back 2 shares of AIG on Wednesday therefore profiting $26.

Joy Global (NASDAQ: JOYG)

Today I doubled my investment in Joy Global (NASDAQ: JOYG), which manufactures and services mining equipment for the extraction of coal, copper, iron ore, oil sands, and other minerals. Its stock price was recently depressed because of one stock analyst Terry Darling from Goldman Sachs, who believes JOYG's "operating performance continues to depress" and missed HIS earnings estimate. However, JOYG's earnings beat the industry consensus estimates by $0.15 with 3rd quater net income up 55 percent! This is a great example of how "professionals" can be wrong at picking stocks as well. The last time I checked, we still need to mine for coal, iron, copper, and even diamonds! And with added demand from emerging markets China and India, as evidenced with JOYG's recent acquisition of China's Wuxi Shengda for $22 million, I really don't see where the slow down of mining is going to occur.

This company believes in itself and cares about its investors by agreeing to repurchase $1 billion of its shares before the end of the year. What is repurchasing? As quoted from the Forbes article, "Repurchasing stock takes a company's shares out of circulation, boosting the value of existing shares and fattening profits measured per-share. Companies usually repurchase shares when they feel their stock is undervalued." Also this stock pays a dividend of $0.175 per share on a quarterly basis.

Tell me again Terry Darling, what exactly is wrong with this stock?

Be the bank!

In the midst of the current financial crisis comes a new investment vehicle. It's Peer-to-Peer (P2P) money loans, where you can literally loan money like a bank does to strangers. Featured on CNBC, a website called Zopa.com has created a process where investors can easily buy a Zopa Certificate of Deposit (CD's) and then decide who receives help by using some of the return money to aid borrowers repay their unsecured loans.

As a borrower, you simply sign up for an account and post your "Facebook" type of profile and your reason for the loan, which is usually a personal story. Based on the credit score, the borrower receives an unsecured loan at a competitive interest rate and then hopefully receives help from investors, who get to choose who they would like their return money to help which reduces the total amount of the loan + interest.

As a lender, you get a nation-leading, guaranteed & insured 1 year return (3.75% which is slightly higher than the national average of 3.1%) from the Zopa CD and a chance to choose who your money is helping. A lender can feel good about knowing that his/her money is helping a medical student pay back his school loans, or a mother of 2 start a baking company.

*NOTE*
There are other P2P websites like Prosper.com, which allow you to actually lend money directly to a borrower at the winning bid's interest rate however, this lending model exposes the lender to possible fraudulent loans and does not gaurantee the safety of your money the way Zopa.com does by using CD's.

School's for fools (sorta)

I found this article from the New York Times titled "Bye, Bye B-School" that uses Edward (Eddie) Lampert as an example of a young successful hedge fund manager, who achieved success without an M.B.A. degree. I think Richard Schmalenese, who was the dean of the M.I.T. Sloan School of Management, said it best:
“I don’t think you will see M.B.A.’s less represented in executive suites, but you may see M.B.A.’s less represented in the lists of the world’s richest people,”

I also found an article from SmartMoney.com titled "10 Things Millionaires Won't Tell You" that points out this interesting fact:
"...the median college grade point average for millionaires is 2.9, and the average SAT score is 1190 — hardly Harvard material. In fact, 59 percent of millionaires attended a state college or university..."

The point I'm trying to make here is anybody can achieve financial success. Attending prestigious schools or getting good grades doesn't necessarily equate to instant wealth. You have to invest the time to research your investments as information and trends are always changing. School can only teach you so much, but you have to take the initiative to take what you've learned and apply it to your investments.

August Stock Portfolio

Here is my portfolio as of August 2008. You can see that I have since sold off my position in Freddie Mac, which proved to be a very smart move. I then used my cash to purchase Pengrowth Energy Trust, which pays me an annual Dividend of 14.5% or about 1% per month.

This portfolio performance currently sits at a 3% unrealized return this year, which I am proud of since the stock market in general has been doing so poorly because of this recession. With that being said, I'm more focused on my dividend return which is currently fetching me around $3,000 annually regardless of my portfolio performance. I'd like to eventually reach around $5,000 annually so the search continues for additional forms of income.

Symbol	% of Assets	Description	Dividend Yield	Industry
CU	32.97	United Breweries Company, Inc.	6.83	Alcoholic Drinks
BRK.B	15.59	Berkshire Hathaway Inc.	0.00	Insurance
GOOG	9.44	Google, Inc.	0.00	Online Services
CSCO	5.26	Cisco Systems, Inc.	0.00	Data Networking
JOYG	4.15	Joy Global, Inc.	0.84	Construction Machinery
WMT	3.49	Wal-Mart Stores, Inc.	1.69	Discount Stores
SCHW	3.40	Charles Schwab Corp.	1.10	Securities
JNJ	3.36	Johnson & Johnson	2.69	Drugs
PGH	12.01	Pengrowth Energy Trust	14.50	Oil & Gas
ADM	1.77	Archer Daniels Midland	1.80	Agriculture
STKL	2.62	Sunopta, Inc.	0.00	Agriculture
PXD	2.05	Pioneer Natural Resources	0.47	Energy
CASH	3.89	Cash	2.66	Cash

DRIP investing

The acronym DRIP stands for Dividend-ReInvestment Plan. DRIP let participating shareholders collect their cash dividends in the form of additional shares without paying a commission.

For example, if you own one share of a stock trading at $100 per share today and the company pays a $5-per-share dividend, your dividend would equate to 0.05 shares of stock. After the dividend, you would hold 1.05 shares.

It's a great way of increasing your shares which would result in gaining additional dividends! As I've said in previous posts, I own many company stocks that offer dividends. My highest yielding dividends come from Compania Cervecerias Unidas (NYSE:CU) @ 6.7% annual yield and Pengrowth Energy Trust (NYSE:PGH) @ 14.88% annual yield.

Check with your brokerage to verify that you are enrolled in any DRIP offered from the stocks in your portfolio.

mint.com

From a friend's recommendation I started using a website called mint.com, which basically tracks all your finances online in one location. It can track every penny you own or owe from your bank accounts, stock portfolio, 401k, and even outstanding loans you have on house/car/school.

It's interesting to see where you are spending money and what areas you can cut down on to increase savings. Apparently I spend a lot on Starbucks since I'm a fan of the new Vivanno drinks. The graphs also make this application very asthetic since I no longer have to track my own accounts with a spreadsheet.

As for security, mint.com uses industry standard 128-bit secure socket layer (SSL) encryption from Verisign similar to what Credit Card and Banks use for customers to view accounts and will automatically log you out after 5 minutes of idle time. Still many of my friends are worried about having all their account information stored in one place so this technology may not suit everybody, but I still like it.

Mad Money with Jim Cramer widget

Internet technology has matured enough now to show TV clippings from last night's show. Here are TV clippings from one of my favorite shows called Mad Money with Jim Cramer, who was a former hedge fund manager and stock broker at Goldman Sachs. Take his advice with a grain of salt because nobody is perfect, but still he has many interesting and informative things to say about current stock market trends.

A penny saved is a penny earned.

Today I sold off my Freddie Mac shares and it appeared to be a good move despite news of an 5.3% increase in pending home sales. Quoting Benjamin Franklin, "A penny saved is a penny earned." I saved my butt from losing another 10% on Freddie Mac. Then I decided to ride the housing slump and shorted some shares of Fannie Mae. With Fannie Mae reporting earnings at the end of the week, I assumed that the news would further deteriate its stock. I gained about 5% from the opening bell and found out fast that I wasn't able to stomach the swings associated with selling short and sold immediately this morning. I compare selling short shares of stock to that guy who bets on the "No Pass" line at the Craps table. Just feels like bad vibes and negative karma. So no more selling short for me.

FYI. Fannie Mae continued to decline another 8% and it looks like my assumption would have been correct that Friday's earnings was really going to drag down its price.

Pengrowth Energy Trust (NYSE: PGH)

With the market still currently in "bear" mode, I've continued to hunt for high dividend yielding stocks. I came across Pengrowth Energy Trust, which has been in business for 19 years and engages in acquisition ownership, and management of working interests and royalty interests in oil and natural gas properties in Canada.

What makes this stock attractive is that it currently pays $0.22/share on a monthly basis. That's over 15% annual return on dividends alone! Just like my posting about Compania Cervecerias Unidas (NYSE: CU), Pengrowth Energy Trust (NYSE: PGH) has a stock price that is depressed because of stock market momentum. With oil prices soaring, alternative sources of energy gain value as demand increases. So in my opinion, any sources of energy except oil have a chance to gain market share in the energy industry.

As long as I hold my stock positions, I like the fact that I will be paid $0.22/share on a montly basis (I own 500 shares so my income just went up $110 per month). Of course I'm never going to realize these gains since I'm enrolling in the Dividend Re-Invest Plan (DRIP). I'll blog about DRIP later.

=)

**UPDATE**
I finally blogged about DRIP here.

Bear Market Historical Trends

I read an article in the usatoday that in the 10 bear markets since the 1940's, statistically each bull market was followed by a bear market that has taken back 60%. In other words, for every $100 gained about $60 was taken back by the bear market that follows. According to the article, our bear market has taken about 44%.

I'm not one to argue against numbers (being an engineering major in school) so my estimate is that the market still has about 15 to 20% more to drop before we start to see some stability.

Below are some charts which show the Dow Jones Index from 1960 to its present day value.

Dow Jones Index 1960 to 1980


Dow Jones Index 1980 to 2000


Dow Jones Index 2000 to Present

Compania Cervecerias Unidas S.A. (ADR) (NYSE: CCU)

After reading "The Warren Buffet Way", the theme that really stuck with me was the comparison of buying stocks to counting cards in blackjack. When the odds are strongly in your favor, put down a big bet. You want to make a large enough bet to really make a significant impact to your portfolio if the bet works out. That bet for me was Compania Cervecerias Unidas S.A. (ADR) (NYSE: CCU) or United Breweries Company, Inc.

I like this stock over other choices for 3 specific reasons:

1. The dividend yield currently sits at 6.68%, which doubles what bank interests were paying me, and it had a depressed stock price only due to stock market momentum in my opinion because this company has produced a positive cash flow since 2005.
2. It's an international beverage company that operates in Chile and Argentina. The company's diverse product line includes wine, beer, mineral water, and soft drinks.
3. It owns licensing agreements with many familiar names such as Pepsi, Anheuser-Busch, and Heineken.

I mainly wanted a company that was internationally concentrated so that it would be some what immune to the US economy recession. I also wanted to own a conservative industry that, in my opinion, will never die out and alcohol fits that description nicely. Besides, what do people do when they have problems and are losing money? They drink!

July Stock Portfolio

As you can see, I currently hold positions in 12 different stocks (see chart below). My stocks are spread over many different industries, however, this was not my intent since Warren Buffet doesn't believe in diversifying.

Although I don't fully understand how Warren Buffet determines a company's intrinsic value (true worth of a company based on historical financial earnings), I look for positive earnings over a 3 to 5 year period of time. If a company can show consistent positive cash flow over this range of time, it tells me that this company has a successful business model in place to hopefully continue this trend in the future. All of my stock positions qualify under my definition of intrinsic value.

Symbol	% of Assets	Description	Dividend Yield	Industry
CU	32.01	United Breweries Company, Inc.	6.83	Alcoholic Drinks
BRK.B	15.70	Berkshire Hathaway Inc.	0.00	Insurance
GOOG	10.24	Google, Inc.	0.00	Online Services
CSCO	4.98	Cisco Systems, Inc.	0.00	Data Networking
JOYG	4.37	Joy Global, Inc.	0.84	Construction Machinery
WMT	3.43	Wal-Mart Stores, Inc.	1.69	Discount Stores
JNJ	3.36	Johnson & Johnson	2.69	Drugs
SCHW	3.29	Charles Schwab Corp.	1.10	Securities
FRE	2.30	Freddie Mac	12.53	Finance
ADM	2.11	Archer Daniels Midland	1.80	Agriculture
STKL	2.09	Sunopta, Inc.	0.00	Agriculture
PXD	1.94	Pioneer Natural Resources	0.47	Energy
CASH	16.38	Cash	2.66	Cash

About Me

I’m a 30 year old technology consultant from the Bay Area. When I was a child, my father always taught me the value of investments. I bought my first stock at age 14 and have been following stock market investments as a hobby ever since.

Two of my favorite investors I follow are Warren Buffet, who has consistently been ranked the richest man in the world at over $50 billion, and Carlos Slim, who recently overtakes Bill Gates as the richest man in the world at $53 billion.

Lately I've been interested in finding stocks with high dividend returns. This type of investment provides an opportunity to return higher yields (5% to 10%) than if I had parked my money in a bank (3% at Washington Mutual).

This blog will showcase some of my own investment ideas, what investment vehicles have worked for me, and how I decide where my next investment will be. Like every investment, there are risks involved, but I try and minimize these risks with my own research and understanding from the infinite amount of data available to us via the internet, print media, and industry trends around our daily lives.

I enjoy comments of all kinds, so please feel free to post your opinion and definitely post information related to the investment topics I write about here.

Many Thanks.

The Hobby Investor.