Jamin Chen

Jamin Chen
Contributor since: 2011
It appears that you are interested in a buy and hold investment and investing in just a small number of stocks. For such a purpose, an investment in the ETF DIA with dividend reinvested may be a possibility. It may return about 8% compounded if the past is any guide, though that does not guarantee the future performance. For detail you may look into my article: http://seekingalpha.co...
The article is based on applying the data correction technique regularly used by chemical engineering profession to the performance of DIA which I believe you can follow easily.
For the long term investment purpose, I feel DIA is better than the two other market averages, SPY or QQQ, for the reason that DIA is less like a market average but more like a collection of the 30 of the best corporations in the United States.
Here, you have it. For 5 years into the future, you may put a high probability of T and VZ keeping their dividends and you may put very low probability on their capital appreciation, and they may still come ahead of other DJIA stocks.
The formula in the above post did not appear correctly. Here it is again:
Probable return on a stock =
[(annualized capital appreciation)x
(probability)
+ (annualized dividend)x(probability)]
/(purchase price of the stock)
Hope it will appear correct this time.
We buy stocks to make money. Of the many ways to make money from stocks, capital appreciation and dividend are the two adopted by many. In picking a stock based on these two principles, the stock may be evaluated by the following simple formula:
Probable return on a stock = [(annualized capital appreciation)x(probabi... + (annualized dividend)x(probability... price of the stock)
If you would, you can throw in the annualized growth of the capital appreciation as well as annualized growth of the dividend in the evaluation above.
Based on the principles above, whether you pick a stock for its dividend or capital appreciation, or both, is up to you.
There is no need to pick one over the other. Do not overlook the probability of each over the expected investing time horizon.
Manipulation or not, the best long term investment one can have is stocks, especially the market indices. The next best is precious metals, though far inferior to the market indices. The worst is the U.S. dollar or any paper money issued by any government; they all have devalued relative to precious metals. All you have to look is how all three of them performed in the last 25 years, 50 years, or even 100 years. However, if you are interested in investment less than 25 years, as most of us are, the values of most investments oscillate widely and you would most probably not be able to pick the winner among the three.
Small investors like you and I are putting money into the market via VOO while someone else is getting out of the market via SPY. Very interesting.
If the market continues to attract more inflow of cash by going ever higher, where the cash will come from to fill the gap created by the $10 billion tapered by the Fed?
I asked only a few days ago someone who fled Vietnam when the US pulled out there what did he carry with him, US dollars or gold? He said gold. He bought everything with gold, even the boat ride he took out of Vietnam.
According to GLD website, the ETF started in 11/18/2004. For most of 2005, GLD was traded between 40 and 60. The number of GLD shares outstanding is about 1,000 tons. Suppose the issuer sold out all the shares in 2005 and GLD is doing $130+ today, someone must have lost a lot of money. Suppose again the issuer borrowed gold from some central banks, how do they repay the central banks?
Yours is a very good advice. Setting an unachievable goal is a prelude to a failure, sometimes even a disaster. In this series of article, I tried to explore what it takes to achieve certain goals. It does not necessary mean if you have all these conditions you can achieve what you set out to do. However, I hope what I presented here gives some ideas on what may be achieved with what you got. In fact, I have been experimenting with the principles set out in this series. The outcome has been generally positive. However, there are many other things, both investor psychology as well as the will of the market itself, having tremendous effects on the outcome of such an undertaking.
I use an Excel spreadsheet devised by myself. It takes some work to get it to work properly. Not the greatest thing but inexpensive. Thanks for asking.
No. Basically, I do not trade in anything that has a time limit on it.
I like your life style, Brian.
At our age, having fun is the number one thing.
Playing the market is for some brain twisting to keep it running well oiled.
I am retired and, therefore, I have much more time than most people who are working. I spend a lot to time, about 4 hours in the morning everyday, in front of the computer not just for the stock market but also for almost everything else these days, like reading newspaper, reading e-mail, playing games, and so on. Usually, before the market opens, I glance through the list of stocks I am interested in. After the market opens, I follow the market for about 20-30 minutes to figure out the possible entry point of the day. Then, while I am going about other things in life, I keep an eye on the market. When the strike situation occurs, I then buy the stock which mostly takes only about 5 minutes or so. After I bought it, I immediately place a limited sell order. After that I follow the price movement of the stock by computer or I-phone. When I see a situation I can get out with a profit I am happy with, I sell the stock immediately even if it does not reach the original sell price.
By the way, I spend most of every afternoon playing ping pong at a senior center and I play Mah Jangg one or two mornings there also. A smart phone is a great thing.
Thanks for the compliment. I think one of the important things about investment is a realistic evaluation of what we can earn with our money. Thanks again.
By "good use" I meant using it in other types of investing. In my case it is swing trade. Since the start of this year, the swing trade had netted $12,993.76, or 5.23% of the initial allocation to the program trading. If I combined the two together, the annual return is more than 11% which is very respectable. The detail of my swing trade is in my articles about "how to double your money." I have avoid reporting the two trades (the program trading and swing trade) together because it could be quite confusing to the readers. Yet, for my investing purpose, the two compliment each other. Maybe someday, I will make a comprehensive report of them.
You are right when you make a direction comparison between the program trading described here and the buy and hold program. However, there is a large cash hold in this program trading. If you can make a good use of that cash hold, the combined return will mostly likely be greater than a simple buy and hold. That is a subject I'll address in the future.
Thanks for your comment.
If you read through all the articles I have written on this subjects, you will find the "system" and strategies I have been using associated with the program trading. I'll look into the possibility of third party verification sometimes in the future. Thanks for the suggestion.
The net (gain) from this trading is after all trading costs which is mostly commissions. The total trading cost over the year comes to $924.78 which is 6.2% of the net gain and 0.37% of the initial capital. I traded in my IRA account and, therefore, there is no tax consequence from this trading. The buy and hold strategy I mentioned is also for IRA account. Therefore, the comparison should be comparable.
Thanks for the request for clarification.
Poundofbutter
I would suggest that you take a look at an investment in DIA (or SPY). If you
(1) make a monthly investment starting with an initial investment of $1,000 and
(2) increase it by 0.4% per month (which is the average income growth of an American male) and
(3) buy DIA with dividend reinvested,
(4) by the time you retire in 30 years from now, DJIA will be about 71,854, if it will grow at a rate as it has been in the past 100 years or so,
(5) you will have made a total contribution of $831,516, and
(6) you will own 3,957 shares of DIA which will be worth $2,750,448 at $718 per share with an annual return of 8.8% and will distribute $73,212 of dividends on the year you retire,
(7) but the inflation will make your accumulated wealth worth only $1,057,952 in the 2012 dollar.
There are certain lessons here. The power of compounding is one. But the effect of inflation is something you cannot neglect.
The detail of how I came to this number is in my Seeking Alpha article: http://seekingalpha.co....
Jamin
I have been to Japan on business an average of more than twice a year since 1968 to my retirement about a decade ago. I read Japanese (I read not just novels but also various political and academic writings), I speak it (I conducted all my business there in the local language), and I write (passable). But, these do not qualify me to make any critical comments on the economical and financial workings of Japan. However, I do have some observations. Roughly speaking, Japanese corporations pay the highest corporate tax in the world (http://nyti.ms/LYW524) yet the Japanese people pays the lowest income tax. During the height of the Japan Inc in 1970-90, I lamented to my daughter, who was then attending college, in one of my letters from Japan (actually as I was hiking up Hakone resort in Japan) that: “Poor Japanese people, they toiled for their corporations and made huge amount of money for them but they got very little in return.” And, until very recently, I always thought that the Japanese people got the short end of the stick through the huge economic cycle from post WWII to today.
But now I have a different perception about Japan. It may not be quite correct, nevertheless, I like to share it with you. Now, I view Japan as a family farm, albeit a gigantic one, where only the family members work together. Immigration into the country is greatly discouraged. Economically what matters is the transaction across the corral, the nation’s boundary. As long as more money comes in than that goes out, it is OK. Japan has the world’s second largest foreign reserves after China (http://bit.ly/LyHaWC). As long as the corporations generate a net cash inflow and pay the world’s highest corporate tax, the government provides capital with zero or near zero interest. The government also ensures all the family members are fed enough to subsistent by providing essential necessities.
Japanese and their corporations are no different from people of other nations. There has been no lack of scandals with one distinct exception, which could be just my personal perception; Japanese corporations would not think of evading the Japanese taxes like many of world’s largest corporations do. If they do and if it becomes public, the heads of those corporations could not escape a fate of “Hara-kiri” or worse. That is a Japanese ethos.
In the mid 1980s, I was stationed in an industrial town just outside of Tokyo and there I watched in amazement the following hour-long consumer education TV segment ran in the government-run NHK (Nippon Hoso Kyokai – Japan Broadcasting Corporation) station. At the time, the Japanese government started to allow foreign liquors to be sold through some discount operations. The government decreed that the liquors like Hennessey, Chivas Regal, to name a few, to be sold through the discount route to be packaged in special bottles distinctly different from those we are all familiar with. The program explained that the liquors sold in the discount stores have skipped a few distributors (middlemen) as well as the tax receipts that government would otherwise get from those middlemen. The program then displayed side by side the full-priced regular bottles and the discounted bottles and declared that: It is your citizen’s duty to buy those expensive full-priced liquors, not those cheap discounts.
I believe that most Japanese heeded the government’s declaration and bought those more expensive imports.
In America today, officials of giga-size corporations are given mega-dollar rewards for devising tax evasion schemes. People with wherewithal are denouncing U. S. citizenship to avoid paying taxes. The Japanese tax system simply would not work here. The big corporations not just evade taxes but get tax refunds in doing so. Higher corporate tax may just mean more tax evasions with greater revenue losses. Most citizens like you and I go for the cheapest goods in the stores and the higher priced locally produced products would not get our attention at all. The Japanese style tax policy will not work here. We got our own set of ethos here. Another thing to consider: The world economy cannot expand forever. Even if it does, it goes through expansions and contractions in cycle. We may be in the contraction phase now and Japan may be ahead of us in facing it while the rest of the world (the U. S., Europe, the rest of Asia) are all still hoping for another miraculous expansion.
It appears that we need a few good men and women to propose and enact national sales tax (the rich buys more and the poor buys less but pays more sales tax in proportion to the income, but after all we all have to sacrifice and you got to give some to get some) and abolish altogether the corporate tax, for the latter is not just meaningless but also wasteful (all that tax accountants, congressional earmarks, etc.) anyway. In my simplistic view a national sales tax and zero corporate tax combined may provide incentives for the big corporations to bring some jobs back home, help the small local business survive, and, by having jobs, let you and I afford to buy things made in the U. S. of A. And, in doing so, we may even wipe out both our foreign and national debts. And, after having committed the political Hara-kiri, we may bestow upon these few courageous men and women the National Medals of Honor or erect the busts of their likeness around the Lincoln Memorial in Washington D.C.
That is a $64,000, or $6,400,000, question. Isn't it? I havn't perfect it yet. It is, as I said, a work in progress.
To some extent, DIA represents the general market. Therefore, when it rose from $103 to $133, there are hundreds, if not more, of stocks that had done better than that. The thing is that if you try to take full advantage of such a rise, you also run the risk of getting the full disadvantage when the market goes the other way. It is your choice how you balance your risk and gain.
As I mentioned in Item (2) above, this swing trade program has been developed to complement the program trading which I started in August last year. I will have a report at the end of this month on how these two programs have worked together. Briefly, the program trading takes advantage of the large swings in the market including the bear market while the swing trade program takes advantage of the sideway market. So far, the two combined is producing an annual yield of about 10% based on the total capital devoted to the combined program. The whole thing is a kind of work in progress and I am still trying to see where it is leading to.
Thanks for the interest.
Thank you for your comments. Parts 2 and 3 have been published and the connection to Part 2 has now been added right at the end of this article by the editor of Seeking Alpha.
The short answer is “no.”
The long answer is it is possible but highly unlikely.
If the price stays at $120 or slightly lower after 9 years while it is generating 8% return per year, it implies (though not necessarily) the dividend rate is 8%. Therefore, (1) it is very hard for DIA to maintain a 8% dividend year after year while staying at $120, or (2) if its dividends are that high, the face value of DIA will certainly rise resulting in even higher return
I hope this answers your question.
I have been out of country for a while and apology of not replying sooner. I go this strategy all by myself. Thanks for the question.
I probably made some mix up in causes and results as well as control of the samples. It is easy to isolate all of these in physics. But it is not easy to isolate them in the actual financial settings.
Thanks.
I wholly agree with the writer.
Most individual investors are buy-and-hold type. Unfortunately, they often jump in at the wrong time. They should have jumped in a while ago when DJIA was about 10,000 or even below.
As DJIA approaches 13,000, it is traders' market. Individual investors jumping in now must be very careful otherwise they could be sent to the cleaners.
Thanks for the tips.
Here, I like to add something more to the market forecast. At any time, there are many real and possible events that may affect the market performance, present and future. Examples are corporate profits, Fed policies, employment, inflation, Euro crisis, Middle East, ... and so on. How significant is each event and in what sequence they happen, etc ..., they affect the market differently. If you can figure them out, I guess it would be the stuff of Nobel prize. But, as we deal with the market, we are forced to make some sense out of them. We do that kind of rationalization everyday when we read a financial section of a newspaper or listen to a financial newscast. Based on that rationalization, we try to see or get a feel of where the market is heading to today, tomorrow, at end of the month, or even years from now when we retire. This is a very important part of investing in the market.
In a sense, my trading program is a cope out. If you get the entire history of DJIA and plot it on a semi-log plot, you will find the index has been marching up steadily with some hiccup here and there. If you draw a straight line through it (if you go to Yahoo!Finance, it would do all this automatically for you), you will find that the straight line rests at about DJIA=13,000 right now and it has, in the past, deviated from that straight line at most about 2x on the upside and 0.5x on the downside. These are all very rough numbers. Therefore, instead of trying to figure out how each of these market events or their combinations may affect the market, I simply tell myself that the market could now move between DJIA=6,500 (0.5x of 13,000 - this is where that 7,000 figure came from) and 26,000 (2x of 13,000) and plot my trading strategy accordingly. So, my answer of "maybe" is not something I just pluck out of the thin air. It does have some sort of logic, though it may be quite thin, behind it.
My previous statement about forecasts requires some amplifications. We do need forecast or expectation before we take actions. However, the certainty of a forecast varies from one to another. I agree with you that setting an expectation in where the market is going is an important part of investing or trading in the market. The question northhills24 asked above is a very serious one.
Would the market revisit DJIA=7,000 or lower? The answer is: Maybe. The question that comes right after that answer is: What do I do if it does happen?
Thank you Augustus for pointing out the incompleteness of my statement.
I bought those DIA in a previous incarnation of the present trading program. Overally, it was successful and made money for me. But it failed in the rising market at the time of QE1 and QE2. The methodology describer here is a remedy to that failure.
I have not followed DVY. I just took a look at its history and it looks very interesting. I am working on another trading methodology which is quite different from the present one. It is still in its formative period is not ready to tell people about it. I hope I will write about it in a month or two from now.
As for which way the market is going and how far it will go is a very difficult thing to do. I was told that most forecasts do not work. My thinking is this: Instead of expecting where the market is going, get prepared for what to do if the market gets there.
Thank you again for your interest in what I am doing.