Thursday, December 10, 2009

Just submitted an application...

One of the questions was a phone interview question:

"You have $100,000 to invest today. Where would you invest it and why? Be very specific (e.g. which type of security, company, etc.)"

I thought I would share my response with you guys:

"I could divide my portfolio into two very broad categories, the first being an emphasis on Value-Based Dividend Growth equities. The goal here is to find well managed companies, being offered at bargain prices, which also have a strong chance of raising dividends as time progresses. I do not hold any fixed-income debt. With that being said, I consider this to be the income portion of my portfolio and the most conservative. The companies I look for can broadly defined as those which:
  • have a long history of dividend increases
  • have strong free cash flows to sustain dividends
  • have well structured and well managed debt obligations
  • have dividends that significantly outperform treasuries and other "safe" investments
  • Are value companies offered at bargain prices. One metric I focus on is to look for companies with high earnings yields and high return on capital.
With that being said, I would allocate about 30% of my portfolio to companies like:
  • Abbott Laboratories
  • Eli Lilly and Company
  • Johnson & Johnson
  • Chevron
  • United Technologies Corp.
  • Aflac
The second part of my portfolio can be broadly described as a play on macroeconomic conditions. I believe the US dollar is headed for a turbulent future. However, I think that buying well-managed US companies with significant over sea's exposure is a good way to take advantage of currency appreciation against the dollar. Some of these companies coincide with my dividend picks. I would invest about 10% of my portfolio in companies like:
  • Hewlett Packard
  • Dow Chemical
  • Chevron
  • Pfizer
  • EBAY
  • Colgate
I am very bullish on commodities. I see recent corrections in gold as a good time to buy on weakness. Similarly, I think that world conditions make areas like agriculture and mining a good place to be. As global economies begin to right themselves and populations continue to expand, food and materials for economic expansion will only increase in demand. I would devote about 30% of my portfolio to holding gold, rare earth mining companies, agriculture, transportation and shipping companies, and energy service providers. Here are a few I would consider going long on:
  • GLD for gold
  • ADF, an Agriculture exclusive ETN
  • Lynas Corporation for rare earth metals
  • the NASDAQ clean edge ETF for novel and alternative energy
  • Textainer Group as a play on global shipping
Finally, I would allocate the remaining 30% into foreign equities and currencies. Currently, I am bullish on resource-driven currencies like the Canadian dollar, the Australian dollar, and the New Zealand dollar. I also like to move in and out of USD positions to hedge against inverse movements in equities. I would also take a position against the Euro, a currency I think is very overvalued, especially against the dollar. As far as foreign equities go, it is very hard for me to say exactly what I would buy and when. All I know is that there are good companies trading at bargain prices all over the world."

Phew, a 3 minute breakdown of my current strategy. Of course, you should always do your own research before you enter into any positions.

Toby Gerhart... You're Doing It Right

Finals are over, hurray!

A brief aside message:

Toby Gerhart for the 2009 Heisman Award.

That is all.

Sunday, December 6, 2009

Overall America... You're Doing It Wrong

This neat picture always makes me really sad.

Since finals are bringing me down, I thought that you could all use a little disappointment too.

The really blue areas (United States) are the areas of the world with a GDP composed of less than 10% agriculture, less than 10% industry, and more than 80% services.

Happy Holidays!

Currency ETFs... You're Doing It Right

Taking a break from studying for finals...

Currency ETFs are a great way for every type of investor to invest in the rise or fall of world currencies.

While there is always a tracking risk associated with buying into an ETF, currency ETFs have proven themselves to be excellent trackers of underlying currency indexes. I personally like them more than buying the similar alternative, an ETN.

Here are some potential uses for a currency ETF:

1. You think some global economies are poised to explode and you want to catch the currency movement.

2. If you are a Gold investor but you are wary of a potential bubble... why not hedge with your favorite currency or long a dollar ETF?

3. If you are worried about a drop in equities, perhaps you can bolster your portfolio with a currency play?

4. Not sure exactly what currency to choose but you have a bullish attitude towards a certain region of the world? Currency ETFs track single currencies or a basket of currencies from certain parts of the world.

There are many, many possible reasons to include currency ETFs in your portfolio.

However, you should always be wary of buying levered ETFs (ones which promise to double the movements of the underlying index) These can bring huge short term gains, but can just as quickly kill an otherwise solid portfolio.

[Long or Short depending on your strategy]:


Of course, always do your own research before entering into any position.

Back to studying for finals.

Saturday, December 5, 2009

Greece and America... You're Doing it Wrong

I think the similarities between Greece and the United States are remarkable.

For one, both countries remain adamant on running large budget deficits. To date, Greece is the only Euro zone country that has not reversed its fiscal policies in favor of a more balanced budget since the financial collapse.

Like America and the rest of the world, the huge debts being taken on by Greece are causing a lot of commotion over in Euro-land.

Also like America and its creditors, the focus in the Euro-zone is now on how to bail out Greece should it go belly up. The Euro zone in contract, has a "no bail out" policy, meaning that a bankrupt Greece would be left to fend for itself. However, is it practical to assume that this will be the case? How will Greece's collapse affect the economies of other Euro Zone members and what will translate to the Euro?

Of course bailing out Greece would be nothing like saving the United States. A healthy Euro Zone country like France or Germany could tackle Greece's problems alone. However, who would have deep enough pockets to come to America's rescue? Likely, no one.

So while a bankrupt America would be a burden for the world (much like a sunk Greece would be to the Euro Zone), the sheer scale of America's debt and its reliance on such a phony GDP makes it much more likely that the rest of the world would just absorb the collapse and move on.

Fiscally, we have very few friends left in the world. Those who say they are friends of the dollar are most likely being opportunistic. If you look hard, you can see that they all have very involved contingency plans, and when they is no more opportunity to be squeezed from America, it is most likely that we will be left standing alone.

This is so cheerful. I think it's because I'm studying for finals.

Friday, December 4, 2009

The Dollar Bubble

This video has a lot of good points. I got a good laugh at about 6 minutes and 20 seconds in. If you have free time, I recommend watching it and forming your own opinion.

Hey Everyone Thinking that the New Unemployment Numbers are Good News... You're Doing It Wrong

Sorry for the obnoxiously long title.

Anyways, today I found myself having to listen to fellow students in my economics course discuss the newly released US unemployment numbers:

"Oh my God, conservatives are sooooooo dumb! The new unemployment numbers came out, and everything is getting better! Go team Obama!"

Needless to say, it took every ounce of strength I had to not walk out of the classroom.

Here are the facts:

Jobless claims DID fall from 462,000 to 457,000 this week. Hurray team Obama!

Emergency Unemployment Compensation claims went UP by 265,000 Americans. Wait... what?

The EUC was created in 2008 to give more unemployment compensation to those who had already exhausted all of the traditional compensation available. The EUC numbers are not included in the traditional numbers... something that allows the government to claim improvements, when really, a lot of people are just falling off of traditional unemployment and being added to another program...

The huge spike in the EUC basically says one thing: Americans are not finding jobs after extending periods of unemployment. Just because fewer Americans filed traditional jobless claims doesn't mean that the American job market is improving. Every business needs ATLEAST a few people to turn on the lights every morning and possibly a different set of people to turn off the lights every night. The true indicator of the robustness of the American job market is the rate at which unemployed people are able to find jobs. The spike in the EUC is showing us that this is not happening and the magnitude of the spike means that we are looking at more tough times ahead.

I wish everyone who is unemployed the best of luck.