Keep Investing Simple, Simple, Simple

I've been reading three interesting books on the demise of the Wall Street firms of Bear Stearns and Lehman Brothers.

I'll review the books more specifically in separate posts, but I'm motivated to point out that the biggest folly of these firms was to over-complicate investing and trading.

For example, one of the final straws for Bear was having to bail out its own sub-prime hedge funds. These hedge funds blew out because they loaded up (with leverage) on complex, illiquid products derived from mortgages. They used the products as collateral to borrow money from banks so they could keep buying.

Even with this use of leverage and sophisticated products, they were making 9 and 10% returns at the time I was making 12, 15, and 22% returns using my Stock Trading Riches system.

I was doing better than them, and I was using plain old liquid stocks and no leverage. They are using crazy securities invented by "rocket scientists"and using 40 to 1 leverage!

It goes to show that you should never underestimate simplicity.

Short Sales Gaining in Popularity

During the last few years, as the real estate crisis has unfolded, one previously rare technique has become much more common: the short sale.

A short sale occurs when a lender allows a homeowner to sell the property for less than the cost of the mortgage. For example, if the mortgage is $300,000 but the house is only worth $250,000, then the lender can allow a short sale where the owner sells the house for $250,000. Then, the owner walks away with no cash, and the lender loses $50,000.

In the past, when the real estate market was healthier, a lender was much less likely to approve a short sale because the lender could foreclose on the house and then sell it for at least as much as the mortgage. But, as you can see, if you click here or click here, housing prices are weak today, and many homes are "underwater" (the mortgages are more than what the home is worth).

I Bought TSU and TKR - "A Tale of Two Tims"

Based on analysis by Ken Fisher in Forbes Magazine and my own online research, I bought Tim Holding (TSU) and Timken (TKR) this morning.

Tim Holding (TSU) - is Brazil's third largest cellular carrier (with 190 million customers), but has the highest revenue per customer. It is the leading seller of iPhones in Brazil. It had a rough couple of years, but the Brazilian economy is recovering, and Tim is in a good position for growth. It is selling around one time revenue and 16 times Fisher's 2011 earnings estimate.

Timken (TKR) - is an old cyclical favorite of Fisher's. It's an Ohio-based manufacturer of anti-friction and power-transmission components, bearings, specialty steel, seals, and lubricants. According to Fisher, it's products "are basic to any economic expansion and will be throughout this one. Every downturn it gets crunched. In every expansion, it is underestimated. It should be no different this time given that 60% of its sales still come from the U.S.". It currently sells for 13 times Fisher's estimate of 2011 earnings.

Like all my holdings, now that I bought them, I will use the Stock Trading Riches (STR) system to manage the positions.

I'm Included in a Wall Street Journal MarketWatch Article on Bloggers

http://www.marketwatch.com/story/blogging-all-the-way-to-the-bank-2011-01-12

I'm Included in a Wall Street Journal MarketWatch Article on Bloggers

http://www.marketwatch.com/story/blogging-all-the-way-to-the-bank-2011-01-12

Business Lessons From Baskin-Robbins

Here is a reprint of a post I originally did in May 2008 - when Irvine Robbins, co-founder of Baskin-Robbins, died at age 90. It lists business lessons, Baskin-Robbins style:

1. Get publicity by piggybacking on important events.  Baskin-Robbins created short lived flavors like Lunar Cheesecake for the moon landings and Valley Forge Fudge for the 1976 bicentennial.

2. Be ready to improvise. When the Beatles came to the United States in 1964, a reporter called to ask whether Baskin-Robbins was going to commemorate the event with a new flavor.  Robbins didn't have a flavor planned but quickly replied, "Uh, Beatle Nut, of course."  The flavor was created, manufactured and delivered in just five days.

3. Don't let egos get in the way of partnerships.  When he partnered with his brother-in-law, the late Burton Baskin, Robbins recalled they used a flip of the coin to decide which name came first.

4. Don't be afraid to try new concepts.  Baskin-Robbins decided to sell their stores to managers, pioneering the franchise concept for ice cream stores.

5. Treat your employees well.  As corporate policy, employees were allowed to eat all the ice cream they wanted, because, Robbins said, "I don't want my employees stealing."

6. Focus on quality metrics. Robbins was dedicated to upholding the quality of his ice cream regardless of the cost, his daughter said.

Another Example of A Successful Internet Website For Small Online Businesses

Here is another example of the type of website that small businesses can find success with on the internet:

This site does only one thing, and that is selling dehumidifier UK systems.

In other words, the only product that this website sells is dehumidifier systems for UK based people. By focusing so precisely, they will tend to attract search engine traffic which is high quality (i.e. U.K. people who are serious about buying dehumidifier systems).

Always Trade With A System

When I was first starting out as a trader, I sometimes traded impulsively - where I tried to use my "gut feel" to execute buys and sells. What happened every time was that I lost money and got stressed.

This also includes jumping in and buying a stock because of a hot tip or because you like the product. Now, don't get me wrong - I do buy stocks based on analyst recommendations or because I like to shop there. But, I follow my Stock Trading Riches system so that I know at which prices I will buy and sell, and at what quantities. So, I am never trading impulsively.

No matter what happens to the stock, I can fight the emotions of fear and greed because I have an objective way to calculate my buy and sell points.

I'm not saying that everyone should use the Stock Trading Riches system - because different systems appeal to different personalities. Even if system A is better than system B, you would be better off using system B if it appeals better to your investing philosophy.

But, the key is that you do need a system.

Selling 26 Inch TVs: A Key to Internet Marketing

Today I came across a website that illustrates the keys to business on the internet: focused simplicity.

This website sells only one thing: 26 inch TVs.

This site succeeds for one important reason:

The key word ("26 inch TVs") is something that buyers would tend to search for.

In other words, people just seeking out information on TVs would probably not do a search for the exact size. A person doing a search for "26 inch TVs" has already done their research and is interested in buying a TV of that exact size.

A website that only lists those types of TVs would appeal to him or her as a quick and easy place to shop.

The six year return on my Stock Trading Riches System

While I'm happy that I beat the market in 2010, what I'm really proud of is that I have exclusively used the Stock Trading Riches system on my portfolio for the last 6 years, and I have beaten the S&P 500 over those 6 years:

Year, Me, S&P 500

2005, +13%, +4.91%

2006, +14%, +15.79%

2007, +22%, +5.49%

2008, -40%, -38.49%

2009, +44%, +23.5%

2010, +22%, +13%

My portfolio had a cumulative six-year return of +65.66% vs. +10% for the S&P500.