September 30, 2007

Oh yeah, “one more thing”...Having worked for Apple for as long as I did, I have accumulated the vast majority of my stock portfolio in AAPL (thanks to the Employee Stock Purchase Plan). AAPL has been VERY good to me, but to “have all ones eggs in one basket”, is not a smart long-term investment plan. As such, I have been slowly moving shares out of AAPL, even though its had an incredible run, and picking up other stocks that I consider good long term options. Last week I traded some AAPL for more Boeing Aircraft (BA), to a point where I carry more in BA, than I do in XOM, so technically, I should drop XOM from this portfolio, since it’s no longer in my real-life “top five”. However, I’m not going to. For a short-term project, I expect XOM to do better, especially going into Winter, and the increased energy demands that come with the cold.

Bank of America (BAC), also paid their $0.56/share dividend last week.

Action	Symbol	Amount	Price	Extended Value
DIV	BAC	199	0.56	111.44
Cash				136.76

The running tally so far this semester:

My portfolio is up 5.86%

Nasdaq is up 5.31%
Dow index is up 4.96%
S&P 500 is up 4.74%

Yay me!
Of course, in either an appropriate, or ironic manner, my big winner so far has been...wait for it...AAPL - up 12%

September 29, 2007

Babcock & Brown IPO-ed on Thursday, opening at $23.00. It dropped to close at $22.70. I actually bought a few shares for my real-life portfolio at $22.58, so that’s the price I’ll use for this portfolio. Duff and Phelps’ offering went live Friday, opening at $16, and closing at $18.35. When I checked the price during the day, it was at $18.25, so that’s where I priced my shares for this portfolio. Bioheart delayed their IPO until at least next week, so I’m not going to “buy” any of their shares.

I’m a little surprised by the fact that perception of Babcock & Brown’s IPO was that it was overpriced. It really seems like a bit of a mistake for the underwriters (Morgan Stanley, Citicorp, Merrill Lynch, and Credit Suisse) to have made. However, it is only about a 1% drop at this point, so maybe that’s not too bad for an IPO in this market.

Action	Symbol	Amount	Price	Extended Value
SELL	VEIEX	306	32.32	9889.92
BUY	FLY	443	22.58	10002.94
SELL	VEIEX	306	32.83	10045.98
BUY	DUF	550	18.25	10037.50
Cash				25.32

“In other news” the Dollar hit another new low against the Euro, generally attributed to a weak inflation report, despite the Fed’s rate cut(s). So, investors are expecting the likelihood of another rate cut to increase. All the more reason to look at foreign markets for at least the next few months. Once the Dollar stabilizes, it’s probably going to be a good time for long-term investors to buy US stocks again. However, since this project is only 3 months long, I’m going to see what I can do with ADR shares (remember, this project disallows currency trading, and is restricted to NYSE and NASDAQ listings)

September 22, 2007

Today, I created this blog to track my diary entries. While re-reading my entry from yesterday, I realized that while I may think Babcock & Brown Air is the best choice of the three IPOs scheduled for next week, this portfolio is experimental. Therefore, I’m going to pretend that I get to buy in on all three IPOs, soon after they release. That way I can track their performance, and see how well my analysis worked. I’ll allocate about $10,000 for each stock, when they become available.

September 21, 2007

I haven’t made any changes to my portfolio since the last entry. The market has gone up about 4% in the last three weeks, and my portfolio is up about the same, so I’m happy. Even my PowerShare fund is up about 5%. However, those “evil” oil companies are leading the way, with about an 8% gain.

In class, we just finished talking about IPOs, and I have been wanting to pick up an IPO stock just to show I have been paying attention. I just missed the Athenahealth offering last week, but there are several more coming up next week. Duff & Phillips (DUF) are a private equity firm, similar to Blackstone while Babcock & Brown Air (FLY) is an aircraft leasing firm, formed by the Australian investment firm, Babcock & Brown. There’s also an IPO coming from a bio-tech firm Bioheart, specializing in well, heart treatments.

In choosing between the three, I’m going to go with Babcock & Brown Air. They’re actually an established company (Ireland-based, incorporated in Bermuda) and the IPO is really the first offering of their ADR (American Depository Receipt) shares. I’m not entirely sure I would want to play with an equity firm in this market, and Bioheart is going to be a very small IPO of a company that has miniscule earnings and isn’t expecting to have a product approved until the middle of next year, at the earliest.

Two other side bonuses are: Babcock & Brown Air is not US-based, so the weak dollar, and expected rate drop later this year can only strengthen their position (I hope), and they’re already promising a quarterly dividend of $.50 per share. I’m hoping for a winner. We’ll see... Their expected price is between $22 and $24 per share, although I expect it to be much higher before the average buyer could get at them. I’ll keep an eye on the market next week, and see when it would be reasonable to say I could have bought shares on the open market, and price my purchase there. I should also expect to set an upper bound of when I will take the money and run - I don’t want to get greedy.

Finally, the money market fund is a stupid idea for this project. I can pretty much pick any fund for my “unused” cash, so I’m going to move it into much more aggressive fund. I’ll stick with Vanguard, but go with their “Emerging Markets Stock Index” fund (VEIEX). I’ll take the whopping $0.0012 gain per share (for 11 days) from VMMXX, combine it with the balance in that fund and place it all into my new “default” fund.

Action	Symbol	Amount	Price	Extended Value
SELL	VMMXX	40154.28	1.00	40154.28
DIV	VMMXX	40154.28	0.0012	48.41
BUY	VEIEX	1269	31.66	40176.54
Cash				26.15

September 10, 2007

Chevron (CVX) and Exxon/Mobil (XOM) paid their dividends today of $0.58 and $0.35 per share, respectively. Unfortunately, the date of record for ownership of the shares to receive the dividends was earlier in August for both companies. So, if I had bought the shares on August 30th, I would not have received the dividend payment. However, since this is really an experiment, and just for fun, I’m going to pretend that my project portfolio stocks get the dividend anyway...just ’cause I can!

I’m going to use the Vanguard Prime Money Market Fund (VMMXX) as my money market fund. No special reason for that choice, just picked one at random. Although, a Vanguard Index fund (not a money market fund) was the main destination for my 401K dollars, back when I was working.

Action	Symbol	Amount	Price	Extended Value
DIV	CVX	115	0.58	66.70
DIV	XOM	117	0.35	40.95
BUY	VMMXX	40154.28	1.00	40154.28
Cash				0.00

August 31, 2007

I think it’s important to start with a basic strategy for my investment portfolio. If this were a real-life situation, the goal would be simpler -- to maximize gain while minimizing risk. In the case of this assignment, there is no risk. There are no consequences for an investment losing value, other than it would give me less fake money to “play” with. To that end, I am going to set my primary goal of this portfolio as being to learn as much as possible about the consequences of different short-term investment strategies.

My secondary goal is to increase the value of this portfolio as much as possible. While I don’t get any real benefit, or even a higher grade for earning more, I would be able to take a certain amount of personal pride, should I manage to beat the markets. To that end, I have noted level of three major indices at the close of market yesterday, and the number of “shares” 100,000 would have purchased at that time. I’l use this as my baseline comparison.

Finally, since this is an experiment in short-term investments -- the project only lasts until the end of November -- I will play around with much riskier investments than I would normally consider. While option trading and penny stocks are expressly forbidden by the assignment, and we are limited to only the Nasdaq and NYSE, I might try timing purchases to take advantage of IPOs, dividend payments or maybe even see if I can play some arbitrage games.

As one of those experiments, I am going to play the “invest with your head, not your heart” game. As part of my “starting five”, I own two “evil” oil companies, Chevron (CVX) and Exxon (XOM). While my personal politics may, or may not agree with the social aspects of such companies, I consider them smart investments. As a counterpoint, I am going to pick up $10,000 of PowerShare’s WilderHill Clean Energy Portfolio (PBW), which is a managed fund of “companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy.”

Action	Symbol	Amount	Price	Extended Value
BUY	PBW	472	21.17	9992.24
Cash remaining				40046.63

I will also be keeping track of my portfolio using CNNMoney’s free portfolio tracking service.

The “Cash” in my account is assumed to default to being in a money market fund, yielding about 4% APY, which would be standard for an investment account. I’ll figure out my interest return on my “loose” cash at the end of the experiment.

August 30, 2007

Tonight, we were given the assignment to “purchase” a portfolio of $100,000 worth of investments to monitor over the course of the semester. I have a few ideas for some strategies to play with, but for now, I will base my portfolio on my actual (real-life) investment portfolio, with a couple of exceptions. First, a fraction of my real investments are in illiquid assets (real estate and commodities), which are “not allowed” for the assignment, so I will not consider them. Secondly, about half of my remaining investments are in a managed account, which I know only the general composition (essentially a blind trust), so I will not take that into account for my base investments. Finally, a number of my stock investments are stocks which I would not consider good choices to purchase at this time -- In the “Buy”/”Hold”/”Sell” scheme, they are “Hold”s.

So, to start, I will take about half of my $100,000 and distribute it equally among the stocks which have the largest remaining share of my real portfolio.

Action	Symbol	Amount	Price	Extended Value
BUY	AAPL	73	136.25	9946.25
BUY	BAC	199	50.21	9991.79
BUY	CAT	134	74.66	10004.44
BUY	CVX	115	87.19	10026.85
BUY	XOM	117	85.40	9991.80
Deposit	(cash)			50038.87
Market	DJIA	7.5536	13,256.78	100,000
Market	NASDAQ	38.9818	2565.30	100,000
Market	S&P 500	68.6031	1457.66	100,000

Introduction

One of my courses this semester is Economics 139, "Principles of Investment". The instructor is Marty Kropelnicki, who also happens to be a VP and CFO of The California Water Service Group, so he's got some "cred" ;)

A pretty major part of our grade and, more importantly, our learning experience, is our portfolio investment project. From the assignment: "Imagine that you have just received $100,000 to invest. It can be either your money, or money that you are being trusted to invest for a client."

The main guidelines are that we are to select a portfolio of investments and track them over the course of the semester. The actual handout contains a sheet where we are to record each transaction, including details such as date, cost, brokerage fees and net gain or loss. I assume that we turn in the sheet at the end of the semester with an analysis of our investments, and so on.

Judging by the fact that the assignment sheet looks typewritten, and photocopied, and that there are only 16 lines for investment transactions for the three-month long semester, I suspect this original assignment is a bit dated. So, I'm updating it to the 21st Century. I'm going to use a Blog as my investment diary, and CNN/Money's free portfolio tracking service as my transaction log.
Some specifics:

• We are to select investments with a "ready market". So, no comodities, precious metals, coins, real estate, etc.
  
• We are NOT allowed to include futures or options in our portfolio
  
• The original assignment had a stipulation that you must purchase at least one of each of:
  
  
  • OTC Common Stock
    
  • Major Market Common Stock
    
  • American Depository Receipt
    
  • Preferred Stock
    
  • Closed-end Investment Company
    
  • Mutual Fund
  
  
• Luckily the last requirement was waived, so we can buy and sell what we wish.
  
• We are NOT allowed to purchase "Penny Stocks", and all our stocks need to be listed on NYSE or NASDAQ. Finally...
  
• Our final grade does not depend on the performance of our portfolio. Obviously, since the only thing we hand in is our report at the end of the semester, it's too easy to simply "invest with hindsight", picking the winners over the past three months.

I started my investment diary in a word-processing document, but realized last night that it would be perfect for a blog. So, my first few entries are all dated today, but were originally written on the date in their titles.