Investing 102

I am in need of some discipline. It is not often that I get to say this to myself, but when it comes to investing it seems to be the truth. I meant to write this piece a week ago when my portfolio was down something like 10% because I would have written with much more conviction then. You see right now, I am up 12%, and frankly I don’t feel as foolish as I did then. Regardless of whether I am up or down, there are some things that I can learn from my first approach to investing.

First let me describe to you my investment strategy. Me and my friend Jon sat around one day and listed all the stocks that we had any interest in. I believe that list was around 50 stocks. We then looked at what the 52 week spread (lowest price in a year to the highest price in a year) of that particular stock, and chose a price suitably lower than the 52-week low.

For example: Bank of America… that company is good, and look how low the stock price is. I think I will buy it if it hits 18 bucks, seeing as how the lowest price in a year has been 22.

So the stock hits 18 bucks, and I buy that stock. Buy is a little of an understatement, ‘pounce’ is a better word. This price is soooo cheap, I better get it now. I chose BAC as an example, because it taught my first lesson in how not to invest. Never ‘pounce’ on a stock. Right now BAC is second to last in returns in my portfolio with a loss of 15%. I similarly pounced on Citigroup, which was un-godly low in price at like 4.50. I watched that stock lose about 40% of its value from the time I bought it, but it is now leading my portfolio in returns with a 76% return on investment (ROI). So here are two examples of pounces, one unsuccessful, one wildly successful, but both completely unexpected. You see, pouncing introduces unnecessary risk because you do not take the time to look at the reason that a stock is behaving the way it does. If I would have taken the time to do my research into why BAC and C stock dropped so dramatically, I would have noticed the little news report that stated that Paulson (our Treasury Secretary) decided to renege on his promise to use the $700B bailout money to buy toxic assets (all those bad mortgages and credit default swaps that started this whole mess). So if the government was not buying them, the banks would have to swallow them and that equals lots of losses for the banks. Hence the drop in price across the financial sector. Hypothetically, knowing this, I would have said… ‘let’s wait until this news is accepted by the market, and the prices of these companies bottom out’. If that would have happened, I would have bought the BAC stock at 10 bucks instead of the 18 I bought it at, or C at 3 instead of 4.50. This would account for a 50% and +100% respectively on each stock by now, and it all it would have cost is patience. So lesson number one. Be patient when buying, and learn the reason for the drop.

My second lesson is in volume. In a market as tumultuous as this one, it is tempting to take advantage of many of the genuine discounts that pop up every day. But falling into a buying frenzy may leave your budget expended before the real steals come along. On my spending forecast, I am way ahead of plan. Don’t get me wrong, I have bought some bargains, but I have bought too many too fast that I now have to be stingy when it comes to any future purchases. This would be okay if purchasing were free, but brokerage fees of up to 10 bucks a trade will automatically eat into any gains from a stock price increase. Like in life, bulk is cheaper, and having invested heavily in the front-end, I decrease my ability to buy in bulk on the back end. Having said this, it is best to make sure you don’t try and time the market for a bottom, because markets roar back to life usually as quickly as they dropped. Which in this markets case, could mean a gain of 40% in a few days or weeks. Lesson number two: set up a timetable for fund expenditure, and stick to it. This recession is probably not going to end for a bit so there was really no need to rush in so quickly.

Lesson number three, diversify and spread your risk. While they say that high risk pays over time, you should still balance your high risk bets with some stable ones. They classify stocks into generally three categories, growth, value, and income. Growth is risky but has the potential to well, grow. Value are stocks that are priced well now and expected to moderately appreciate in value over time. Income stocks have high dividends, where you might not get a large growth in stock price, but you will get quarterly dividends for every share of stock you own. I have no interest in income stocks because those are for old people who need money to live on in retirement, so I am exclusively in growth and value stocks. What I would like to do is balance my somewhat risky stock profile with some less risky funds. Most people know about mutual funds, but it may pay to do some research on Exchange Traded Funds (ETFs). All funds are supposed to track a sector, the difference is that mutual funds are actively managed and ETF’s are passively managed. Basically, a mutual fund will have higher management fees because there is a person actively picking stocks and selling stock to maximize the returns of a specific sector. So if you were investing in commodities, a mutual fund would have a person buying and selling commodity stocks to give you the best returns available in that sector. A ETF is passive, which in short means a computer model buys and sells shares in lieu of an actual person. The two benefit that an ETF offer are lower management fees (which seriously boost your balance sheet in the long run) and you can trade ETFs on the market just like stock (a mutual fund can only be traded at the close of the market, ETFs can be sold anytime). ETFs are not new, but they have become extremely popular lately because they seem to do just as well or better at tracking a sector without charging an arm and a leg just to get in the door with them. A benefit I left out, MFs often have high minimum balances (ex. 10K) but ETFs can be bought by the share if you so desired. I have gotten long winded with this one, but the lesson is to diversify the risk of your portfolio, and I intend to do that through ETF investing. Likely with ETFs that match Small Cap stocks (VB), Financials (VFH), and publicly traded Chinese companies (FXI). I have not made the mistake of being non-diversified yet, but if there is one thing I have learned from friends and colleagues, is that betting heavily in one or two stocks can have disastrous results.

As of now I own the following stocks: BAC, BHP, C, CCJ, CWCO, GE, GM, GOOG, GS, MON, NUE, PBR, POT, STP, and XOM. My return is at 12.4%.

I have to say this yet again. It is very EASY to make money in this market because everything is so cheap. I am making money despite my ignorance of investing because the market conditions are in the investors favor. I hope you all can take advantage of the times.

I am holding off on investing until this current market rally subsides (maybe a week, maybe a month), but then I plan to dive into the following areas:

Buying more of the stock that I own already. Particularly if they offer a good bargain.

Buying the ETFs that I listed before as appropriate. Hopefully Financials first, then China stocks, then Small Caps.

Investing in electrical infrastructure and utilities. If Obama’s plans to increase our energy efficiency are enacted, the electric grid is going to be one of the first things that need an overhaul. With his plans to build roads and such, commodities and construction equipment companies should be a good bet as well.

*Disclaimer: I have given up on studying the ‘fundamentals’ of a company. I.E. studying the balance sheet and their corporate earning reports. I simply ask myself if the business that this company is in will do well in the immediate and long term future, and if its price represents a good value on its past price and performance. The last part is supposedly bad practice since a stocks price is a stochastic process meaning its future is independent of its past… but I have not been convinced of that yet.

Thanksgiving

The weekend is over, and another week of early rising and office-squatting has begun. Strangely, I am happy that the work week is here. Not because I intend to work (as in the work they pay me to do), but because this is another week that I have eight hours of potential me-time. I can write, read news articles, or research some financial opportunities, all while collecting a decent paycheck. Now of course there will be times that I actually have to work, and work hard probably, but this end of the year timeframe is about as lax as it can get. This is good for the blog, because it gives me some time to catch everyone up.

It was another good weekend in Doha. My shipment arrived yesterday which was pretty much the last box to check in my official move. Also, Thanksgiving was pretty great as well, and I was fortunate enough to have had three days of celebrating the event. Seeing as how I have no real food in my apartment, I am very happy to have a fridge full of leftovers.

The first Thanksgiving Dinner I attended was pretty much the black folks of Doha, and needless to say, that food was by far the best of all the meals. They had fried turkey, candy yams, stuffing, PORK, and all kinds of other goodness. It was about twenty folks, including some loud arse children, and there was no shortage of anything. I was having a good time chatting it up with the older and increasingly drunker black folks of Qatar, but I had some partying to do with the young crowd. That night, they had a ‘famous’ DJ named Benny Benasi come into town and that was the place to be in Doha. It was much more fun than I thought it was going to be, the DJ played some pretty good house and electronica music that made me realize how dance deprived I have been lately. We had a good group of people and all was well, for a while. To protect the innocent, I will leave out details, but the night ended with me having to convince a heavily inebriated woman that I would not take her home with me. This involved a test “If you can stand up straight, I will consider it”… fail; and eventually only succeeded by me passing her off to some lady friends that would take better care of her. Surprisingly, being the good guy was very difficult in this case. The girl is smart, attractive, and unique, which in a place like Doha is a one in a million opportunity. But I passed, and I beat my head against the elevator door until I reached my floor, alone. Who knows what will become of the situation now. You would think I would get some points for such integrity, but drunk people forget things and the whole chivalry is likely only remembered in my mind now.

The next day I went to a Thanksgiving dinner that was organized by the folks from the ‘camel-sandwich’ dinner. It was put on by the entire villa complex and it was a pretty good time. The guy who invited me was super-hung over from some ridiculous partying the night before, so he pretty much was absent from his own event 90% of the time. It has dawned on me that Westerners drink entirely too much in this country, but now that I think about it, Westerners drink entirely too much in any country. Here they have the rare combination of bigger salaries and less things to do, solution, drink. The food was so so, but it was plentiful. The biggest plus was meeting some new people. The highlight being a guy who does car customizations here in Doha. He had just finished putting 26”s on a Rolls Royce Phantom, and had changed out the exhaust on a Lamborghini Murcielago before that. Not only am I excited to have found someone to put a sound system in the Jeep I am going to get, but I intend to hopefully get invited to his shop when awesome cars come in. It is for opportunities like this that I recommend being an event whore whenever you go to a new place. Do everything that you can and meet as many people as possible, and then you can whittle down from the masses the people that actually suit your interests and needs. I also met another young black guy who is pretty cool, but who might be gay… not that there is anything wrong with that. Out of two younger African American guys I have met here (from outside the company), one was flaming, and the other is suspect. Either I am paranoid about homosexuals (which I am), or we have an increasingly high population of black men who are on the other side of the fence. Surprisingly, I hear that this is not a bad part of the world to be in if you are homosexual. Openly it is both condemned and punishable, but behind closed doors it is rumored to be a thriving community. I have come to terms with the fact that I am uncomfortable around gay men, but that will be an entry for another time. That night, I ended up watching Body of Lies (Grade: B), and taking it easy.

Saturday came around and yet another thanksgiving dinner was in order. This time it was with the old guard, hosted by my friend Cory, and turned out to be a very good time. The food was good, and since we all were fairly familiar with each other, it made the day feel as much like a family event as Thanksgiving in Doha could. It was long though and by the end of the day I was ready to crash.

Well I ought to do some real ‘work’ so I will continue my ramblings later.

More Doha Happenings

I am loving the life over here so far. My place is feeling more and more like home, I am getting lots of exercise, meeting new people, and generally dictating my own schedule at work. Yesterday I went out to dinner with a few people and it was a really good time. The thing about working here in Doha, is that everyone is here for a unique reason. Going around the table, we had a mother who is a physician who is specializing in internal disorders; her daughter who is a hippy doing a bit of everything; a teacher from LA who has taught in Venezuela, Japan, and now Doha; me who works for the devil; a very self centered young biologist who teaches nursing on the side…

Time out: The thing about self centered people (and I fall prey to this too) is that they enjoy talking about themselves more than they enjoy listening or hearing about anyone else. The reason these people succeed in living this lifestyle without becoming social outcasts is because these people are usually very interesting. They do interesting things, they follow their own path, and this gives them more to talk about which makes them seem more interesting, which makes them want to do even mooore interesting things, and the cycle continues. Basically, egocentric people are pretty annoying but you still cant hate them completely because they usually lead extremely interesting lives. In the case of this young biologist, he studies sea snakes and especially the ones that get caught in the giant seawater intake pipes up at the gas tanks. He milks, tags and releases these highly deadly (their sting will kill you) critters back into the wild. Pretty cool, but that’s not it, he is also a backpacker who has traveled to a whole bunch of awesome places. I know this much, because in the 30-second introduction that we all did, he took up about five minutes. Back to the story.

…; a visiting friend who was either high, slow or jetlagged; a Japanese-american professor who teaches at Qatar Academy…

Time out: This guy was cool too. He was relatively quite, but when it came to his introduction, it was as if a light switch was turned on. He was far more interesting than the egotistical teacher (and he knew it) but let us draw it out of him rather than forcing it on us. The bait he provided were his research topics: something boring, the evolution of lions (he used some technical terms) throughout some time long ago (some other technical term for one age or another), and the behavioral abnormalities in the reproduction of mammals (or something like that). He refused to talk about his sex research, claiming it to sensitive for the conservative Moroccan restaurant we were eating at, but gave us plenty of anecdotes related to his research on tigers. This guy was also fond of memorable statements like: you have very polish morphology (translation: you look polish) and to live in japan you must be a self inflicting masochist (is there any other kind of masochist I asked). He also told us why professors are so boring and hard to understand. It is intentional he explained. Most professors only care about the research, so lecturing is just an exercise of confusing as many people as possible by talking in circular and elaborate English in a monotonous tone. Back to the program.

…; a kid who got out of school and had the choice of working in the oil industry in Canada or going to Qatar with his parents…

Time out: He was cool too. He decided to try out Qatar and so he arrived and started looking for a job. He had no experience and no one would hire him except for some school that needed a professor for one of their oil classes. This is the same school that the egotistical biologist works at, and evidently they take anyone. Probing him about what that means for the school, having a professor who clearly does not know anything (I asked him in a nice way). He explained that his job was not really to teach but to pass everyone that came in the course. His students, Qataris, take a test at the end of the year, and if they pass they go and get a job in the government and if they fail they take the test over and over again until they pass. It was also interesting to hear that when surveying his class, only 50% of the young men in his class ever intended to have a career. Women responded at around 25%. Most would evidently prefer to work more as a hobby and to live off of the assistance provided by the government. I take these statements with a grain of salt, but that is an interesting claim. Returning.

…; an emergency health service guru; and a random guy and his wife that came late and did not speak much. We had a wonderful dinner at a Moroccan restaurant, where I had a camel sandwich and some wonderful Arabic tea, and then parted ways.

I realize I spent a ridiculous amount of time talking about last night, so let me breeze through the rest of the weeks highlights. I went to a high end auto show at Qatar’s man-made island called the Pearl (still under construction), where I saw some Rolls Royce’s. Bentleys, Lambo’s, Ferrari’s, etc. The thing about seeing these things here is that you are probably just as likely to see them driving around town, so that made it slightly less exciting than normal. They had a bugatti veyron that they did not even uncover, and I was not interesting in waiting for the unveiling, because I will probably see one of those driving around town one day. The highlight of the show for med was the Konesseg (sp?) CCX. This car was priced at well over a million bucks and is one of the fastest cars in the world. I will post pics on Facebook. The best thing was that they turned it on and revved the engine for everyone. It was like a rapid fire machine gun with rabies, loud and uncontrollable.

We had a big party at work because we unveiled our new building (the one I work in), and it was pretty boring. They said there were going to be refreshments so everyone took that to mean drinks and ate lunch before hand. Turns out there was like a million pounds of food and desert at this thing, the vast majority of which will go to waste.

That’s about it so far. Later.

God's Law

I am quite tired right now, and sleeping is the most desirable thing I could do right now, but I am trying to get disciplined about this whole writing thing. I forgot to mention a few other interesting things about that culture class that I took, and it had to do with the unique properties of the church state.

As a Muslim country, Qatar laws are dictated by the Sharia’a which are the rules spelled out in the Holy Koran. In the states the Supreme Court is the highest authority for settling matters of law but in Qatar the highest authority is that of the religious leader (an Iman I think) who interprets the holy law. This was particularly important to me because I had a specific question on the matter: “Are there any laws here that I would be unused to in my home country, such as the law of zero tolerance for drinking and driving?” Basically I wanted to know how to keep myself out of jail. The teacher, knowing that I am young and single, decided to explain the laws of female and male interaction. Basically it is illegal for a man and a woman to be in private together if they are not married. It is illegal for them to be provocative in public even if they are married. Lastly, although it might not be illegal, I am not to approach a Qatari woman under any circumstances with the intent to court her. He did go on to say that although it is illegal, these laws (except the last) are largely for those of the Muslim faith and that us expats generally can do what we please as long as it is in a non-offensive manner. I was glad to hear his advice, but I was still looking for more than just the rules on interacting with woman. That I could have guessed on my own, but after asking again for any reference to laws I should know but probably don’t, I realized he would not go any further. You see the laws and the rulings of the court are not published, leading to a situation where the laws and their punishments are variable.

In the states, stealing is against the law and you will be convicted if found guilty. Your guilt is independent of your motive, whether it be greed or to provide for your family. Your sentence may be lighter for one motive or another, but you are guilty either way. In the case of Sharia’a it would seem that your guilt is dependent on the infraction and the motive. Stealing for greed would be punishable whereas stealing to provide for your family could possible be deemed acceptable. Lawyers speak of ‘intent’ when it comes to laws. As in, this laws intent was to do this and that, but often the wording and precedents associated with said law make ruling based on the intent difficult. This system of variability in judgment in a Muslim nation fixes that problem. A judge can rule based on the intent of the law being ‘broken’. In the case of stealing, the intent is to define the rights of personal property, not necessarily to punish those that have no alternative that can ensure the survival of themselves and their families. This benefit in determining intent or reasonableness of a crime comes at the price of fairness. Favoritism and the differing opinions of judges can create wildly different results from similar circumstances. This does not seem to bother anyone because of their views of fate and faith. If they get a bad judge who gives an unnecessarily long sentence, it is simply the will of God.

The moderator of the event gave one interesting example. Expats are allowed to own a liquor license that grants them the right to have alcoholic beverages in their homes. Most Expats seem to have them and the state makes a pretty penny off the highly inflated beverage prices. Well one Expat bought a bunch of liquor, took it home, and then went out of town on a business trip. While he was gone, his maid decided to sell some of his liquor, and she was caught in the process. Selling alcohol is illegal, so she was arrested. Once the man got back in to town, the cops were waiting at the airport, and he was arrested as well. In court, the man tried to explain that he was given the liquor permit by the state and that his maid was the sole violator of the countries policy on alcohol. The judge did not agree with the mans logic, and offered these words. “Who is more important, the state, or God?” Clearly the answer was God, because the man was found guilty of violating the countries alcohol policy, was given lashes and sent home. No one in the court argued that he tried to sell the alcohol, but he was in violation of God’s will by even having alcohol in the first place which is in violation of Sharia’a. Despite being legal under the states law, he was guilty of God’s law and was punished accordingly.

Settled in Doha

My day just got umpteen million times better. I found my top-secret essential-to-my-survival notebook. I lose it about once a month and I despair unnecessarily until it shows up in an unexpected but perfectly logical place. This time it was in one of my suitcases that I threw stuff in as I moved into my apartment. Hooray or was it Gossam? I can’t believe I forgot the superior Hooray synonym already.

Well to the point. I am in Doha, set up and ready to go. I am extremely relieved to be here, well anywhere really, that I can safely call my home for the foreseeable future. For most of the last nine or ten months I have been bouncing between Houston, Doha, and Lagos, and that was getting a little stressful. So how is it? Awesome.

I arrived on Monday night and pretty much threw my stuff down in my temporary apartment and tried to stay awake long enough to get a decent nights rest. My permanent apartment on the 19th floor of the cool tower was not supposed to be ready for a few weeks, but they had both an unexpected vacancy on the 9th floor of the other tower, so I ended up moving into my permanent place the next day. This place is huge… I am not good with square feet, but I would guess it is about 1500 square feet at least. It is fully furnished (and stocked with food) which is good because my stuff would have fit in maybe one room and would have made it look crappy in the process. If anyone comes to visit Doha, you will have plenty of room.

So Wednesday was the Qatar Culture Awareness, which was actually very informative despite my four months of exposure to this country. We learned that politics is still very tribal and that the Emir is chosen partly on ability and partly on political appeasement. The current Emir had an interesting history with his half-brother because everyone figured the brother was the most qualified and the obvious choice. But I guess the powers that be wanted a more neutral candidate. The Emir is married to two cousins and a non-relative, the latter has borne the Heir Apparent (the successor). We were given all kinds of other tidbits of info, and frankly, a lot of it ground against our socialization as Westerners. In the discussion on labor rights, our presenter simply said: “Here we do not believe in unions, or the rights of workers. Or for their ability to make demands or strike or force higher wages, it is just taboo.” On citizenship: “I have lived here my entire life, but because my parents were not born in Qatar and of Qatari heritage, I cannot be a citizen. I have to renew my work permit just like anyone of you.” On rules: “There are the rules but there are also exceptions. You know its who you know, so yes, mentioning a name or making a few phone calls can get you around many things here. Its not that the rules are broken, we just understand different circumstances.” And on women rights: “It’s really just a pride thing, nothing against the women. Men here just want to feel like they are the head of the household and that they make the decisions.” On this last one, I would like to point out that Qatar is making huge leaps in the area of women rights. One example is in the Sheikha Mozha who is a spokesperson for the country around the world, but another is in their version of a parliament or congress. He told the story of four years ago, women were allowed to run for the first time. Three chose to do so. By the day of the election, two succumbed to the pressure, and pulled their name from the ballot. The third stuck in, and received one vote, her own. Fast forward four years to the latest election, and not only did more women run, but three won. This is even more astounding when you consider that it’s a 40 person cabinet. I know it’s not perfect, but I think they are on the right path. It is interesting though that Qatari men are given very valuable parcels of land and a salary from the state (assuming they are from a recognized family) and a women has to either marry (which is typically arranged) or she has to petition the state for funds if she remains single, which the state is happy to oblige.

Other interesting stuff is that they are completely tax free in this country, loans are extremely cheap (4.25 percent no matter who you are and credit cards are like 8 percent), and the population has doubled over the last couple of years. Also, the PGA tour golf course that they have uses 10% of the countries water supply. Talk about a status symbol.

After the class, I went car shopping, and have pretty much settled on a new 4-Door Jeep Wrangler. Gas is like 30 cents, you need a SUV to go in the desert or to get through some of the more dodgy streets, and the to survive the driving here you need something to intimidate others with.

Today I took a tour of Doha for half the day, but declined the full thing because my boss was asking me if I ever planned on coming in to work. I did get driven around the golf course, and it is was no surprise that this thing consumes as much water as it does. It was by far the nicest golf course I have ever been on and it had better be if its on the PGA tour. My only beef with it was how unnatural the whole thing was. The landscape was at war with this monstrosity, and nature was losing. The desert wins at the fringes, but this country is so rich that it can afford the million dollar a month (guess) water bill that is required to keep it going. On a side note, the head groundskeeper is a black man which was neat.

My group had a honorary lunch for one of our employees at the Four Seasons hotel, and afterwards I did my first bit of work since I got in town. After work I was able to go out with a young Qatari guy that joined the team. He invited me out to a football game with some other guys and I showed that Americans know how to play. I don’t mean to brag, but I was pretty awesome out there scoring like 6 or seven goals, and this was in tennis shoes. Unfortunately, next time I play, they will be expecting the same performance. That brings me to tonight, and I am simply going to clean up my place and hit the sack to sleep off the last of this jetlag. I plan on writing again now that I am settled, so look out for more.

P.S. Today on the way to the soccer game I drove behind a Rolls Royce Phantom ($400K+), an Aston Martin DB9 ($150K+), and a Lamborghini Gallardo ($150K+). In another display of Qatari wealth. The same guy I played soccer with took me to lunch with his friend one day. This kid had a Cartier wrist watch, a pen with diamonds running down the clip, and drove us in a Porsche Cayenne Turbo. I say kid because he was like 22 and had been out of university for maybe three months. He did explain that it was his uncles Porsche, and that he was borrowing it until his car gets in. I asked him what kind, and he said, “oh another Porsche Cayenne”. Seeing my incredulous look, he explained “Its not the Turbo version, just the GTS.” Money like Arabs.