Generation Y Investor » Uncategorized

Scary Factoid Of The Day

Stephen Kline — Fri, 28 Aug 2009 00:54:22 +0000

So by now you’ve probably heard that the Federal deficit is going to reach $9 Trillion dollars within the next 10 years. I feel this spending is so much that most people aren’t grasping how much it really is. To put this somewhat into perspective… this year alone the Federal government will spend $22,000 more per family than it takes in. The average American family makes about $48,000 per year. Think about that…

A couple more years of this and we’re essentially bankrupt…

The Fed Leaves Rates Unchanged

Stephen Kline — Wed, 12 Aug 2009 22:49:15 +0000

Today the Federal Reserve announced that it would be leaving interest rates unchanged from their current 0%-0.25% levels. The Fed also stated that the economy appears to be leveling off, but is still suffering from job losses and tighter credit. From the looks of the statement it appears that The Fed is planning on keeping interest rates at these low levels for the foreseeable future.

Madoff’s CFO Is Starting To Talk

Stephen Kline — Wed, 12 Aug 2009 01:25:14 +0000

Here’s the latest on the Madoff saga… Apparently Madoff’s former CFO is starting to talk to investigators about how the ponzi scheme operated. He indicated that the scam has been going on since at least the late 1980’s and that he was ordered to lie to the SEC in 2006 to throw them off track.

I’m happy to see that investigators are starting to make some progress in the case. However, there are still many questions still to answer. Mainly, who else knew about and took part in the illegal activities? and where did all the money go?

Data Mining Isn’t A Good Bet For Stock Market Predictions

Stephen Kline — Tue, 11 Aug 2009 01:43:36 +0000

I found this Wall Street Journal article by Jason Zweig discussing why data mining or “back-testing” isn’t a reliable way of outperforming the market.

Zweig says..

“The stock market generates such vast quantities of information that, if you plow through enough of it for long enough, you can always find some relationship that appears to generate spectacular returns — by coincidence alone. This sham is known as “data mining.”

Those assumptions are completely unrealistic, of course. But data-mined numbers can be so irresistible that, as Mr. Leinweber puts it, “they are one of the leading causes of the evaporation of money, especially in quantitative strategies.”

This article is worth reading if you’re thinking about using one of these strategies. I see advertisements everyday promoting “proprietary software” that lets you consistently profit in every market; but in reality, the only one profiting from this type of investing is the person selling you the system or software. Remember, if it sounds too good to be true it probably is.

Where’s The Next Bubble?

Stephen Kline — Sun, 09 Aug 2009 19:38:45 +0000

The 1980’s had a bubble in junk bonds…the great technology bubble followed soon after in the roaring 90’s…. and now we’re in the process of suffering a major hangover from the real estate bubble of the 2000’s. This leads to the question… Where’s the next bubble? Here’s a video of James Altucher discussing where the next big bubble may pop up…

Altucher thinks the next bubble may be in either green technology or biotechnology. I agree with him that green technology is ripe for a possible bubble… it’s an exciting emerging industry and the government is also behind it.

Where do you think the next bubble will turn up?

US Debt Clock

Stephen Kline — Sat, 08 Aug 2009 16:48:42 +0000

Here’s a cool yet scary website that tracks the national debt… www.usdebtclock.org

What makes the site really interesting is it breaks down the total debt per citizen and shows the amount of unfunded liabilities. Check it out and see what shape our national balance sheet is in.

Gen Y Needs To Save

Stephen Kline — Fri, 07 Aug 2009 01:04:53 +0000

Here’s a pretty bogus article from marketwatch that says, “Impatience and financial illiteracy” “Could stunt a good retirement for young adults”.

The article is full of broad-based hogwash such as…

“Almost half — 47% — of Americans born between 1977 and 1994, also known as Generation Y, are below average when it comes to financial literacy, with little understanding of how to budget and save efficiently.”

Another gem is…

“There’s a mindset that is possibly generation-wide that is ‘instant gratification,’ you Twitter just so you can find what someone is doing today. You microwave, you have Easy Pass.”

My main problem with this author’s writing isn’t that her points are inaccurate. In fact, I’d agree with most points that she does make; however, they don’t just apply to Gen Y. You could re-write this whole article and change “Gen Y” to “Baby Boomers” or just “Americans” and it would still be completely accurate.

The bottom line is most Americans in general aren’t financially literate. Gen Y has learned their poor financial skills from their baby boomer parents with poor financial skills. You can’t just single out the young generation without realizing that we’re merely a reflection of the older generations.

Mary Schapiro On Flash Trading

Stephen Kline — Thu, 06 Aug 2009 01:04:03 +0000

There’s been a lot of discussion in the press recently talking about high-frequency or “flash trading”. Flash trading is a pretty complex method of trading that uses extremely fast computers and software to probe the market and determine how much slower traders are willing to pay for a particular stock. The software does this by automatically sending and canceling small orders within milliseconds. Hedge funds and other sophisticated trading operations then use this information to game the system. If you want more detailed information check out this article.

It’s obvious that this type of trading is unfair to many investors. As a result there has been serious discussion about banning the practice. Here’s a video of SEC chairman Mary Schapiro talking about the potential ban…

Focus On The Downside

Stephen Kline — Mon, 03 Aug 2009 16:29:09 +0000

Many times when we’re looking at a stock to buy we think about the potential upside to the investment. We like to hope and dream about how much money we can make and what we’ll do with it when we get it. This way of thinking can lead to trouble however because we neglect to assess the downside risk to the investment.

Here’s a video of Cramer talking about how professional investors focus on the downside risk before buying into an investment. He talks about company stock buy-back plans and dividends and how they can act as a buffer when the stock is going down. Another good thing to look at is how much debt the company has and whether it has enough cash coming in to pay it and run the business.

P.S. One of the best books that addresses this subject is The Intelligent Investor by Benjamin Graham. Graham discusses in detail how to avoid catastrophic losses by focusing on buying investments with a “margin of safety”. This tip is one of the reasons why Warren Buffett is so successful. Check it out if your serious about investing.

Rich Dad Poor Dad

Stephen Kline — Fri, 31 Jul 2009 13:33:57 +0000

Even though the book has been out for years, I just got around to reading Robert Kiyosaki’s book “Rich Dad Poor Dad”. Kiyosaki is a fairly controversial figure. Some people love the guy and listen to his every word and others think he is a snake oil salesman.

After reading the book, I found that I actually agree with a few of Kiyosaki’s main ideas that deal with assets vs liabilities and the concept of cash flow.

Here are some of the most useful quotes from the book…

On Assets vs Liabilities…

“Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets.”

“An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket. This is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. It’s not knowing the difference that causes most of the financial struggle in the world.”

“In my world, real assets fall into several different categories…

1. Businesses that do not require my presence. I own them, but they are managed or run by other people. If I have to work there, it’s not a business. It becomes my job.

2. Stocks

3. Bonds

4. Mutual Funds

5. Income-generating real estate

6. Notes (IOUs)

7. Royalties from intellectual property such as music, scripts, patents

8. And anything else that has value, produces income or appreciates and has a ready market”

On Cash Flow…

“Keep your daytime job, be a great hard-working employee, but keep building that asset column. As your cash flow grows, you can buy some luxuries. An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first. The poor and middle class often buy luxury items such as big houses, diamonds, furs, jewelry or boats because they want to look rich. They look rich, but in reality they just get deeper into debt on credit. The old-money people, the long-term rich, build their asset column first. Then, the income generated from the asset column bought their luxuries.”