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 This is the second piece of Portfolio Management series. I started this series, mostly to record what I have learned in last few years, since I wrote Stock Lessons (as a beginner). The stock market since last year is humbling, but I also learned quite a bit in the process, with some real results. For instance: my stock portfolio is up about 51% YTD (year to date), vs. Dow’s +6.21% YTD, and S&P 500 +11.16%. Note I only use cash account and only long stocks in my account.

One thing I learned more recently is always keep some cash at hand, I can think of two reasons:
1) This one is easy, if I have some cash at hand, when some good stocks really go on sale (like at March 5 market lows), I can pick up them and feel good about it.

2) Second reason, which is not as obvious, is that if I have some cash at hand, I would not feel compelled to sell when the market goes down. Ideally this should not happen. If the money I put in stock market is meant for long term, and if I believe the stocks I hold are good ones. But in reality, well we all know how scary the stock market was last year after Lehman collapse, and this March when it seemed the sky is falling. I understand this kind of market does not happen often. But rationale of “keep some cash” still has its merits, although it’s more from psychologically (feel good) point of view.

The bottom line is, if I know I have some cash in my account (perhaps cashed in some gains from stocks), I can take some loss to offset the temporary paper loss of a good stock (because of the gain), and still feel comfort in heart.

This is also not isolated in the point above, after all, I want to deploy the cash to make more money.

Last but not least, why portfolio management is important? We know why this is important to Buffett (hint, he has a lot of money, and theorically he has a lot opportunities). For individual investors, picking stocks is always exciting and we can see that from CNBC (esp. programs Fast Money and Mad Money), but very little about portfolio management besides Jim Cramer’s Am I Diversified.

Because without portfolio management (or cash management) sometimes we could run into liquidity problem, and freaked out. From long term point of view, picking good stock (and buy it in meaningful amount) is just the start, how to keep it when the stock goes up and down and eventually make money is the hard part.

That’s the main difference between myself and real masters like Buffett.

Disclosure: NA

 Was talking to this to a close friend yesterday. My rationale of “not selling all at once” is because: it’s usually happens a stock (or something else) will go up in price after a person sells it. Very simple.

Appearently that’s what happened to some Tongkang Zijin shareholders in recent years (FT article “Woes after a windfall“). The story is a bit long, so let me summerize. Apprearently in June 2001 the residents in Tongkang villiage (in Fujian Province) received around Rmb1,338.85 ($196, £117, €138) Zijin stock for the compensation of their land use right. At the time Zijin was not in good financial shape and its stock was not listed. Eight years later, after the public listing at Hongkong and Shanghai (and fundamental change of the business), the stock is worth Rmb 800,000. Obviously not everyone kept the stock. Quote FT:

Of the original 1,068 villagers, around 230 had already sold out, for prices ranging from the face value of Rmb1,338.85 to Rmb 652,000 ($95,000). “Some people who sold early regret it so much they want to jump in the river and drown,” says You Facai, whose household had sold one allotment for Rmb 100,000 to build a new house but still retained seven that were together worth Rmb 5.6m, an unthinkable fortune for a subsistence farming family in an area where a brand new 100-square-metre apartment in town costs only around Rmb 250,000.

So the lesson here is: don’t sell all at once.

Personally I can think of two reasons people sold out the stocks (the lottery ticket they got for giving up land rights).

1) They need money. But this is lame for people sold it at Rmb 1300, because most people can make that money by a month’s work at toy factory.

2) People feel disgusted (by the amount of stock being compensated), they just want to get rid of it and move on. Emotion should never be a rationale behind a investment decision, not to day that is a lottery ticket associated with giving up land rights. A very special lottery ticket.

This story itself is very unique and the kind of reward does not happen in stock markets, but I think we can all learn a few things from it because in many instances, we could make similar mistakes. Your take on this?

When I say “play Buffett” I meant people who follows Buffett investing strategy, more specifically people who buy and hold his company Berkshire Hathaway (NYSE: BRK.A, BRK.B) stock. This is not easy as Buffett’s strategy is not clear cut, and his company stock is mostly overpriced in recent years (because of his fame), not to mention doing homework on Berkshire is almost mission impossible (at least I felt I cannot understand his corner stone business: insurance). So here is a better way:

Buying the stocks Buffett bought
Berkshire is a net buyer of equities (stocks), and because of its size, it has to file buy/sell activities to SEC each quarter (gurusfocus has a nice table for this). Buying the stocks Buffett bought @50% or 30% off Buffett price, will offer the margin of safety (both in terms of company business and the stock price) in investing. As I said in my previous NRG post, Buffett average cost of NRG stock is about $34.36 per share.

A showdown between Exelon and NRG Energy
I received the annual meeting and Exelon proxy material: both companies sent the letter and voting card twice (one before the new offer, one after). I voted with the NRG board before Exelon raised its offer. 

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Not exactly, but close enough (here is a post I wrote on June 29, 2007 when iPhone started). Today the new iPhone 3G S is on sale at AT&T store, as I understood. This time iPhone did not generate as much buzz, but I heard my favorite tech writer Walt Mossberg was also standing in line (he already has a free iPhone from Apple for review, maybe he is buying another one for his wife/girl friend). Here is his tweets:

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四川腾中重工(in Chinese, Sichuan Tengzhong Heavy Machinery) The little known Chinese Co. who bought Hummer brand from GM (pink sheet: GMGMQ) yesterday (News: Bloomberg; Reuters; Tengzhong web site). Quote Reuters:

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