Portfolio 24 -- getting closer to being fully invested!

Okay, 1000 SGMO @ $10.99 and sold 10 UGDFV (JUN08 $12.50) at $.25.

Sangamo Biosciences is another favorite of mine -- recent spike up to the $13s had me worried that I missed the boat. An analyst came out today with an opening Sell rating on the stock which made it dive $1.50 and I pounced (this analyst, by the way, is kind of a weather vane for me -- whatever he says, I do the opposite of).
I actually hope it stays below $12.50 past June because I want to keep these shares. Sangamo makes Zinc Fingers, which can basically turn targeted genes on or off. They are unlike most biotechs because they actually already license out the ZFPs to agro-chemical companies for genetically modified grains. Yes -- a biotech with revenues!

Current:
2000 SUPG (-20)2000 NBIX (-10)400 ELN (-2)2000 DNDN (-10)1200 TASR (-12)2000 ARNA (-20)300 WYE (-3)1000 SGMO (-10)
Cash = $24,894

Regards,
Trond

Port 24 Addition

Hi all,

Newest addition to the portfolio is Wyeth. Buy 300 WYE @ $44.06 and sell 3 WYEFI (JUN08 $45) for $1.10.

Wyeth is a huge pharma company with a finger on many different biotechs. I am primarily interested in them because of their collaboration with Elan on their Alzheimer's drug AAB-001 that will have their Phase II results released this summer. Added plus -- Wyeth has a decent dividend too!

Leaves us with:
2000 SUPG (-20), 2000 NBIX (-10), 400 ELN (-2), 2000 DNDN (-10), 1200 TASR (-12), 2000 ARNA (-20), 300 WYE (-3)
Cash = $35660.71
Total account = $102,078 and a 2.08% return so far since mid-May 2008.

Tomorrow: some extra info on covered calls -- and how to make this strategy even safer (I know I tend to go for the volatile small caps and biotechs).

Regards,
Trond

My Endorsement

Time for a rant. :-)

Does anyone seriously expect any of the three candidates for President to actually do anything once in the Oval Office? And inviting the winning college World Series players to a photo op in the Rose Garden doesn't count.

Now, I don't mean "not do anything" in an apathetic sense. What I mean is -- the President really cannot do much.
Think about it. All three have their various platforms, and sure, they can ask to have certain bills introduced. But those get amended to include pork for Senator X so he'll vote for it, something else for Representative Y because she's the Chair for the committee that would otherwise reject it... and so on and so on ... until the bill that arrives to be signed looks nothing like the original item.

It is not their fault, actually. Remember "checks and balances" from way-long-ago history or civics class? The Executive and Legislative branches were purposely set up so that laws would take a while to be passed, and hopefully well deliberated ones to boot.

So if HillaryCare is what you think is most important, and thus you vote for her, please remember that she then has to go to battle with 535 Congresspeople -- all of who have their own ideas about the "right" way to spend our tax money on the people's health. Hey, here's a campaign slogan: "Hillary Clinton -- the 6th and 7h terms of the Bush/Clinton era."

If we do need to "stay the course" and thus you cast your vote for John McCain -- same thing. Congress actually controls the purse strings -- remember? Thus if a Democratic majority decides to shut down funding, we will get out. Hmmm... feel like you wasted your vote?

Obama is new enough to the scene that he does not yet seem captured by the machine yet. He has made the populist claim to be the outsider and seems the most believable at this point. I honestly believe that he will be marginally better than the other two, and that is why Barack Obama wins the coveted "Official Trond24 Presidential Endorsement."

Regards,
Trond

Up, up, and away!

My nephew just got his pilot license and was hired at a major airline. Congratulations!!
(got engaged too... congrats to you both!)

I, of course, am going to turn this into a lesson. :-)

You have joined a profession that, from my limited Googling, appears to have a decent starting salary and that can easily turn into an extremely well-paying career, six to ten years down the road. I'll whip out the old cliche though -- it ain't how much you make, it's how much you keep.

Most companies are turning away from pension-type plans, and opting into defined contributions plans -- or 401(k)s. If yours offers one, please, *please*, just fill out the paperwork to start contributing 10% as soon as they let you!

Now, 10% is a pretty large chunk of change for someone to voluntarily give up. You have probably already estimated your paycheck and have spent it all mentally already. Don't!!

First, the good news. 401(k) contributions don't count towards earned income, and so you'll pay less taxes than you otherwise would. If you make $30,000 and contribute $3,000, then you only get taxed on $27,000 of income (heh -- read an earlier post and you'll see I'd love for you to also contribute $5,000 to a Roth IRA).

Next, the really good news. Employers typically will also contribute some money for you too, based on what you put in. Let's say it is 50% of your contributions, up to your 10%. So -- you put in 10%, they put in 5%, so you've added $3,000 to your retirement, they've added $1,500, and you've lowered your taxes.

Finally, the best news. As your investments grow, they do not get taxed while in this account. That is called tax deferred compounding, and it's a beautiful thing. Sure, in 30 years if you retire and take some out, that gets taxed -- but 100% of it gets to compound in the meantime, year after year.

Downside? You might only go to Starbucks once a week instead of every day. Upside? How does retiring at age 50 - 55 grab you? If you contribute 10% from day one, you'll be in a position to retire early!

Next week: what funds to invest in for a rookie. :-)

Regards,
Trond

Portfolio 24 additions

For the next few days I'll be adding a bunch of positions to the Port 24 -- so if you are reading this and don't care about the Port... my apologies in advance! To hit my target of 2% a month, I need to be nearly fully invested and thus the continuous updates.

I want to remind you that I AM tracking commissions behind the scenes -- if anyone wants to see exact numbers please comment or email and I will be happy to provide them. What I am doing is logging on to my brokerage account, getting the ask price on my stock, and then going to the option and getting the bid price. I am not doing enough activity to really move the market, but obviously my real world results may be off by a cent here or there. The nice thing about the real world is that I am more patient -- I actually enter a market price on the stock to assure myself of getting it and then add a limit buy at the next higher 5 or 10 cent increment and just wait for it to be eventually filled during normal daily price fluctuations. That can add another .5 to 1% returns just by being patient!

I just added:
1200 TASR at $7.20 and -12 QURFU (Jun08 $7.5) at $.30
2000 ARNA at $4.95 and -20 UGGFA (Jun08 $5) at $.25

I like Taser as a covered call stock because it is so volatile. I like the product itself and the continuous lawsuits against the company does not scare me. You just need to be patient with this one! We're on a recent dip so it's a perfect time to buy.
Arena has an obesity drug that it is probably going to be partnering soon (read -- a couple months more). Partnerships are where young biotechs can hit the motherlode -- cash up front, milestone payments, royalties, etc.

We're at:
2000 SUPG
2000 NBIX
400 ELN
2000 DNDN
1200 TASR
2000 ARNA
Cash: $48,566, and stocks worth approx $53,008, for a total of $101,574 after less than a month. Most of the stocks are underwater right now.

Regards,
Trond

Finally ... on to personal finance!

One of the basic tenets of personal finance is to spend less than you earn. That sounds pretty basic and, may I say, even silly to have to point out, but many people live beyond their means.

It gets more complicated because you're taxed on what you earn, and taxed on what you spend, and even taxed on the returns of anything you may have managed to save!
So, if you earn $50,000, you may only keep $45,000 after federal and state taxes.
Then you can't buy $45k worth of goods, because of sales taxes. I live in CA with a 7.75% sales tax -- I would only be able to spend about $41,700.

My point is that if you live BELOW your means, you give yourself options to save or invest the difference. One of my best friends has a blog that deals with living a frugal lifestyle. I highly recommend a visit to her site, listed on my Important Sites list and also here http://frugalupstate.blogspot.com/. Enjoy!

Regards,
Trond

Both were Goliaths

I admit it -- I love American Idol. Most of the reality shows I pass by (heck, most TV I willingly brush off) but AI is something that I look forward to.

This season was very good. The try-outs were predictably boring -- they follow too many contestants who aren't particularly good OR particularly interesting -- but the top 10 cast was one of the strongest ever. I was a little vexed about Michael Johns, who seemingly should have been one of the favories to win; he just never could muster enough passion unless he was singing a Queen song. Carly was from the same mold.

Both Davids were excellent. Congratulations for making the finals -- and here's to David Cook -- Amercian Idol #7!

Regards,
Trond

One more Portfolio 24 entry...

Tomorrow -- a non-portfolio post coming!

Now... earlier in the day I saw this too enticing trade:
Buy 2000 Dendreon @ 5.49, sell -5 Aug08 $7.5 at $.63 and -5 Nov08 $12.5 at $1.03.
Cash = $66314.47
Postions = 2000 SUPG (-20), 2000 NBIX (-10), 400 ELN (-2), 2000 DNDN (-10) = $36,360.00.

I love Dendreon -- total short squeeze coming, way underpriced, Provenge works, and we'll know it in the second half of 2008. It hit $25 last year just on the FDA's Advisory Committee's thumbs up.

Regards,
Trond

Another Portfolio 24 trade

I won't bother with listing all the costs + commissions in every entry. What I'll do is list what I bought/sold, why, and the total portfolio at that point.

Bought 2000 NBIX at $4.63 and sold 10 Jun08 $5 calls at $.20.
Bought 400 ELN at $27.30 and sold 2 Jun08 $28 calls at $2.50.

It kills me to sell calls against Elan (ELN). They will likely be coming out with positive results for their Alzheimer's drug this summer and I think it likely the stock will soar. That said, 7% for just over a month is kind of nice too. But I'm only selling against 200 of the 400 shares I bought.
Neurocrine (NBIX) is expecting a lucrative partnership agreement sometime this summer/fall. That is why I am again selling calls against only half of what I bought.

Cash: $76497.98
Positions:
2000 SUPG, -20 (Jul08 $2.5)
2000 NBIX, -10 (Jun08 $5)
400 ELN, -2 (Jun08 $28)

Regards,
Trond

Portfolio 24 - first trade

Okay, we're in business.
First trade is buy 2000 SUPG @ $.252 and sell 20 calls (UQGGZ, Jul08 $2.5) at $.55.
Notice that these are already in the money by $,02, so I really only make $.53 profit instead of the $.55 the calls sell for.
I like SuperGen because they already have a product they are selling, and yet with a good result from their current European clinical trial they will gain a little market share. Conversely, a bad result is already factored into the share price. Basically, a 20% gain in two months if exercised, and downside protection to $2.00.

Started: $100,000. Bought 2000 SUPG at $2.52 = 5040 + $7 comm = 94953. Sold 20 UQGGZ (Jul08 $2.5) at $.55 = 1100 - 32 - .05 (sec 31 fee) = 1067.95, for a balance of:

Cash: $96,020.95
2000 SUPG
20 UQGGZ

Regards,
Trond

24% returns

The long term stock market average return is around 12% annually. Warren Buffett has returned around 22% since 1966. What am I thinking I can do?

24%, baby. That’s my target.

Now, I have one huge advantage. I will be assuming that my trading will be taking place in an IRA, so I do not have tax considerations to worry about.
However, I will still take commissions into account, and NOT enter any trades which would violate IRS wash rules. Thus, for a very rough taxable account comparison, take my returns and knock off a third.

My fictitious account will be assumed to be held at Scottrade. They offer no-fee IRAs; no annual fee, no inactivity fee, no minimum balance fees, etc. Their commissions are $7 for stock and $7+$1.25/contract for option trades, with a $17 exercise fee.
Although you can consider this a plug for Scottrade (I do have a real life IRA there and have had no issues with their customer service or handling) I have transferred a brokerage account to Zecco instead – still no fees but the commission schedule is much more aggressive – including 10 free stocks trades a month! So – do your own research but PLEASE take fees and transaction costs seriously in your own life.

Back to 24%. Where do I get off claiming that is doable?
First, let’s look at what it gets me. With a 24% return, every 39 months my balance doubles. If I start with $100,000 then it will take just under 11 years to get me to $1 million. Now, I don’t think you can plan on retiring on a million anymore – we’re living longer and medical breakthroughs are occurring faster – so I’d say you have to plan on at living to at least 100 these days. With inflation at 3% (and I’d argue its higher than that) the cost of living will double every 24 years. But $1M is a nice round target to shoot for.

Nice, Trond. But HOW??
Options – covered calls, to be precise. I noticed a few years ago that the premium of slightly out-of the money covered calls tends to be anywhere from 1 to 3% per month. Now, most stocks I own are only in multiples of $1, 2, or 3 thousand dollars. A 2% return on $1000 is a measly $20. But if you do the math it adds up mighty quickly. The biggest obstacle is if you pick a stock and it tanks immediately after buying – you have the choice of selling lower strike options and probably selling at a lower price, or selling the higher strike further out and accepting a much lower yield.

I will be aiming to return about 2% a month -- technically, at 1.809% a month, I would hit my 24% annual returns on the dot – but I like round numbers. I will start with $100,000 and post my trades immediately after deciding on them – I will log onto my brokerage account and use the current ask price for the stocks and the current bid price for the covered call.
Let the games begin!

Regards,
Trond

Buyer beware

I ran across this article on the SEC website, regarding short selling. They are basically saying that short selling is allowable to cap stock prices!! If they add liquidity when people are trying to buy, there will be no large spike in the stock price.

If people want to bet on a stock declining in value, let them buy option (puts). In fact, buying puts satisfies all three reasons given for shorting stocks.

Since most people investing in the market are out to profit from rising stock prices, it behooves us all to contact the SEC and request that short selling be stopped.

Regards,
Trond

http://www.sec.gov/spotlight/keyregshoissues.htm
A. What is a short sale?
A short sale is generally the sale of a stock you do not own (or that you will borrow for delivery). Short sellers believe the price of the stock will fall, or are seeking to hedge against potential price volatility in securities that they own.
If the price of the stock drops, short sellers buy the stock at the lower price and make a profit. If the price of the stock rises, short sellers will incur a loss. Short selling is used for many purposes, including to profit from an expected downward price movement, to provide liquidity in response to unanticipated buyer demand, or to hedge the risk of a long position in the same security or a related security.

Private Social Security Accounts

Okay, if I hear someone throw out the idea of private SS accounts one more time without at least putting some thought into the resulting issues ... I'll scream.

I am not going to talk about whether we should do this or not -- I just want to point out four potential issues.

1) What funds or companies get to do the investing? What kind of vetting process occurs? What types of funds are included or excluded? Can people treat these as brokerage accounts or would they have 3 to 5 options ranging from high yield bond to agreesive stock? (I don't think there would be a cash or government bond option, since that kind of defeats the purpose of allowing more agressive investing!)

2) What kind of provisions for bailouts would we need to have in place? I think people, without some kind of penalty in place, would simply opt for the most aggressive option, and if it lost money, would expect the government to replace what was "lost".

3) This is the worst for me: if we have a sudden influx of $13 to $65 BILLION dollars into the market*, that would simply causes company share prices to rise without any intrinsic value change. With more buyers than sellers, prices rise, and these funds simply have to add the contributions received into whatever style companies they invest in. Thus, a fund mimicing the S&P 500 would blindly buy more shares of those 500 companies. Notice this: those companies have not performed better and are attracting more capital as a result -- there would simply be too much money floating around.

4. Then consider what happens when the stock market hiccups. People transfer money from the aggressive options into the "safer" ones. There is so much being moved that all those phantom gains get lost, and cause oh-too-real pain for "real" shareholders.

I am not saying privatizing accounts in some manner wouldn't work -- I just want to see real dialogue on the process.

Regards
Trond

* "Income including interest to the combined Old-Age and Survivors, and Disability Insurance (OASDI) Trust Funds amounted to $785 billion ($656 billion in net contributions, $19 billion from taxation of benefits and $110 billion in interest) in 2007. "
http://www.ssa.gov/pressoffice/pr/trustee08-pr.htm
I assume here that anywhere from 2 to 10% of people's individual contributions get added to these accounts.

Needless to say...

Happy Mother's Day to my mom, and to my wife -- and to all other women out there!

Regards,
Trond

Roth IRA – the greatest thing since sliced pizza

The Roth is one type of IRA, or Individual Retirement Account (fun Trivial Pursuit fact, they were first, and still, called Individual Retirement Arrangements). The extraordinary thing about the Roth is that withdrawals – done correctly – are tax-free!

Here's the lowdown – and as always, check with someone, preferably a tax professional, who knows your specific situation better than an anonymous blogger. :-) Also, check out http://www.irs.gov/ for the official scoop.

Like all IRAs, the Roth has to be opened correctly. Specific forms, etc. They can be through a bank, credit union, brokerage, or other financial institution (personal gripe – a lot of people still think you can only have an IRA through a bank,and only “invest” in CDs!).

Contributions:
In traditional IRAs, you can add money, called contributions, and that money can usually be deducted from this year's income for tax purposes. In a Roth, you do lose the deductibility of your contributions.
There are limitations on the contributions you can make in a year (for 2008, it is $5,000, or for those 50 and older, $6,000). After 2008, the maximum contribution will be adjusted upwards based on a cost-of living adjustment.
If you have too high an earned income then the amount allowed to be contributed is lowered and finally gets completely chopped off. For 2008, the amounts at which you start being phased out, and then stopped are $101,000 to $116,000 for singles and married filing separately (and living apart); $159k to $169k for married filing jointly; for married filed separately but living together, the rather draconian numbers are $0 and $10,000.
You can contribute to a Roth until age 70 ½, and even if you have a retirement plan offered at work.

Tax Deferred Earnings:
Okay – you have money in the IRA – now what? Like all IRAs, the earnings compound tax-deferred. This is Uncle Sam's way of thanking you for planning your own retirement – anything earned this year will not be taxed this year! Think of it this way -- if you earned $50,000 at your job, you get taxed on that $50,000. But if your IRA earned $50k, then the entire amount goes to work for you the next year.

Withdrawals:
Now, in a traditional IRA, when you take withdrawals, those withdrawals count as income and are taxed. In a Roth, however, since you added to the account with after-tax money, all the contributions and earnings get special tax treatment. All withdrawals are tax free! * Remember, in a Roth, you also can take contributions out penalty-free (and tax-free) anytime.
Now, like all IRAs, the Roth does penalize early withdrawals – if you take the earnings out before you get to age 59 ½, then you pay a 10% penalty along with that withdrawal being taxable.

I will need to write another time about some other special-circumstance things like taking earnings out for first-time home purchases, and the rules for re-characterizing a traditional IRA to a Roth.

* Assuming they are not early withdrawals.

Regards,
Trond

Welcome

Greetings and salutations -- thanks for stopping by.

It's a good time to start a blog. For one thing, I have these things called thoughts. In person, I have to keep that filter between my brain and my mouth constantly active. Finally, using this wonderful medium, I can say things here -- and the sheer act of having to write it down first will keep me a little more on point. That, and I'm out of reach of being slapped.

If you are interested in personal finance, the stock market, or the current state of affairs in America, read on.
There will be many tips and links regarding budgets, finance, and retirement.
I'll be keeping a fictitious stock portfolio with a goal of 24% annual returns -- and I'll post every trade prior to adding it to the portfolio (I'll also pretend it's in a retirement account, preventing tax implications -- but I'll also track commission costs to keep it real).
I'm very worried about our country right now -- a little sunshine on various agencies or people never hurts. Quis custiodet ipsos custodes?

Regards,
Trond