a bad investment

So it is standard procedure for investors to only talk about their good investments. I have already posted my results with Trimble. This stock started horribly but ended up being a good investment in the past year or so. Today, I’ll share one of my extreme failures – Microsoft. The chart is shown below. As you can see, the S&P500 has outperformed my shares of Microsoft and I am sitting on a 30% loss currently.

In April of 2000, I started to look at Microsoft as an investment based again on a qualitative analysis. I felt that the company had a huge monopoly on the PC operating system, legal or otherwise. To me this seemed like a huge advantage – they had a great means to limit competition. And as people have used their software for years, it becomes difficult to switch to other forms of software, whether that be operating systems (Windows vs Linux) or word processors (Word vs Open Office). This still seems valid although it seems that things are moving towards “Web2.0” where applications are now hosted on a internet server rather than a personal computer. If this is the case, it seems that Microsoft would lose its competitive edge to companies like Yahoo and Google.

As you can see again (and I am ashamed of this fact), that the purchase of this stock was based on a qualititative analysis. You think someone with my background would be inclined to perform a comprehensive quantitative analysis. This time the qualititative analysis didn’t work. It’s a gamble – sometimes you win, sometimes you lose. I need to reanalyze Microsoft. I am not sure what the conclusion may be: I could buy more shares, keep the current shares, or sell shares. (Just in case the SEC reads my website… I am a complete idiot and I am just trying to make sense of the crazy stock market. Please don’t use my thoughts or opinions as a recommendation or advice unless you a determined to be a loser.)


a fun stock chart

This is one of my favorite mistakes that I have made in my short career in investing. I bought my first set of stocks in 1999, shortly after graduating from high school. I really had no idea what I was doing… but I knew I was ignorant and accepted that I was going to make mistakes. However, these mistakes would become great lessons later in life when the amount of money at stake was much greater. In June 2000, I purchased Trimble, a small company that uses GPS in construction. You can read more about them on their website.

At that time, my primary reason for purchasing Trimble was because Bill Clinton had recently authorized civilian use of GPS. I felt that this was huge and had to find a stock to cash in on this news. I knew I didn’t really want to invest in the more recreational GPS firms. Trimble seemed perfect because it’s applications were more industrial such as construction, agriculture, and military. Unfortunately, I didn’t consider how expensive the stock was – everyone else was looking for a similar company and consequently the stock was overvalued.

Notice in the chart below how I purchased the stock on a peak only to see the price fall dramatically in the following years. The purchase time is indicated by a blue square. I loved to show this chart to get some laughs from my friends. However, I always felt that Trimble was a great company and could never find enough reason to part with the stock. I think this is part courageous and part stupidity because there were times when I had lost over 80% of my original investment. I followed my gut feeling and held on to the stock. As you can see, Trimble has seen an increase in it’s stock price over the past few years and has actually outperformed the S&P 500 during the same time frame. I wish I can give some intellectual basis for why I stuck with Trimble but my decisions were based more on how I felt qualitatively of the company. I thought GPS is a great tool for these industries and Trimble seems to be the only company that is well-positioned in this market. I didn’t crunch any numbers or try to figure out the intrinsic value of the stock. So, I think 95% of this result is just a lucky gamble.

Trimble's Stock Chart

But anyhow, this is one of my early mistakes. I have learned from it – that I should not necessarily buy what’s hot. I also believe that luck had a lot to do with the positive results of this stock and recognize a need to do a more thorough quantitative analysis of my investments.

Useless Stuff

cool link from lida

Here’s a link the my friend Lida, a fellow researcher in my lab, sent me: Learn how to dance with Napolean Dynomite


chapter 2 study notes

Ok, I breezed through Chapter 2 of The Five Rules for Successful Stock Investing since it was only seven pages long. My chapter two study notes are now posted to the web.

Finance Jade Useless Stuff

coins, financial advisor, car, and jade

The highlight of my day – I deposited all of my coins in a CoinStar machine at the local Safeway. All together, I had approximately $185 in coins! After the service charge, I received $172. That’s a lot of money from pocket change.

Meeting with the financial advisor – So today I met with the previously mentioned financial advisor. We had a nice 30-minute conversation mostly about investing. As I mentioned earlier, I approached the meeting with a lot of trepidation since I generally think of financial advisors as just an additional and needless cost. Here’s some key points and my thoughts on todays meeting…

  • He introduced his financial firm and emphasized that they provided comprehensive financial advice and were independent from any particular investing firm. Comprehensive financial advice means that they provide advice in a huge range of financial topics from real estate, to investing, to estate planning, to budgeting, etc. His emphasis on independence was meant to indicate that there was no company pulling the strings in the background.
  • I asked him how exactly his firm made money. He said there were three ways – an annual fee, commissions, and recommendations. Although I didn’t ask for him to explain further, it is obvious that the majority of the money he earns comes from commissions. The annual fee was miniscule. This frightens me because there is an obvious reason for him to recommend bogus investments to obtain his commissions. This system is fundamentally flawed. But at the same time, I can’t fault the advisor. He has a life as well and will try to make money to support his family. There is an obvious incentive for him to supply recommendations that are beneficial to his well-being. I am not sure if this particular guy would do such a thing but regardless, the system is bogus and I feel that financial management on my own would be a better approach.
  • I also asked about investing strategies – specifically, why should I let you manage my investments when I can just put all my money in a low-cost index fund or exchange traded fund. Specifically, we discussed the Vanguard S&P500 and the iShares S&P500 ETF (IVV). He explained that they use modern portfolio theory (MPT) to build a portfolio consisting of ETFs that closely approximate the stock market but significantly reduce the risk. To reduce this risk, my money would be distributed among different forms of assets (US stocks, bonds, money market, international stocks, etc). I know very little of MPT and can’t really validate his comments. I don’t understand how MPT is different from diversification. Is it different from diversification? I am guessing that money is moved around between different asset classes depending on how the financial advisor predicts the future economy. For example, if he predicts a bear stock market, more money would be positioned in the bond markets. To me this sounds like market timing … and, based upon what I’ve read, market timing is a hoax. Hopefully, I can actually read a little about modern portfolio theory but it is at the bottom of a very long to-read list.
  • Overall, I came away from the meeting thinking that I don’t have any particular reasons to use a financial advisor in the near term although I enjoyed meeting with the advisor.

the car – the saga continues. So after spending $400 on tires, I took my car to get a tune-up today. I had a dead fuel injector, which cost me another $400, most of which is labor costs. I should really look into fixing these problems myself – I could save a lot of money.

jade – visited the vet today. Had to shell out $150 for a urinary tract infection. Once the vet told me this, I asked, “$150? Does the dog really need the urinary tract?” Unfortunately, it sounds like the urinary tract is necessary.


chapter 1 study notes

Ok, I finally got Chapter 1 complete. The junk below was just a start. The first chapter is only eleven pages but I got distracted reading related websites and journal articles so it slowed me down quite a bit. The Chapter 1 notes are now online!

While I am discussing financial stuff, I got this call out of the blue from a financial advising firm. The company has a program of giving free financial advice to graduate students (or “young professionals”) in the hope that they will eventually use them once these students get into the real world and make money. Since it is free financial advice, I accepted their offer and have an appointment tomorrow morning at their office. It is located near River and Cambell, a nice part of Tucson, so I think it is legit. I am interested to see what they say or if I made an appointment for them to sale me stuff.

I am not sure how I feel about financial advisors. I recognize that most of these people are really gifted and care about their work but I guess I am not convinced that paying them will help me out financially. If I am prudent with my money, will a financial advisor add much to my efforts? Maybe this free advice is good for me, it will expose me to the financial advising community and I can develop an opinion of whether paying for financial advice is worth the money and effort.

Exercise Photos

The Seven Falls

The Seven Falls
Originally uploaded by GarretB.

As promised, I have uploaded the pictures from the Seven Falls hike into my flickr account. This photo is the seven falls. As you can see, there’s little falling occuring here. Anyhow, it was a great hike and I look forward to doing it again after a significant rain or snow storm in the mountains.


another hike

I went on a hike with two of my friends (Vrushali and Anthony) yesterday. The hike is named the Seven Falls for the seven cascading waterfalls at the end of the trail. In their current condition, it is a stretch to call them waterfalls. A more appropriate name would be something like water-drips. It has been pretty dry, even for Tucson standards. I think this would be a great sight once we have a few rainstorms or snow melts from the nearby mountains. Anyhow, I took pictures of this hike but have misplaced my camera. I’ll upload those images once I locate my camera 🙂 Unfortunately, dogs were not allowed on this hike so Jade had to stay at home.

My other adventure for the weekend was getting four new tires for my 93 Nissan Maxima. One of the tires had gone completely flat and the others were suffering from some pretty bad dry rot. So I bit the bullet and purchased four new tires and tacked on an oil change at the local Sears Auto Center for a grand total of $415 bucks. I don’t feel good about spending that much money – that is probably around 20% of my car’s value. On the other hand, I now have tires that are guaranteed for another 60,000-miles. Maybe if I look at the expense from the perspective of owning a new car… today’s purchase is equivalent to a month or so of car payments. Unfortunately, more work on my car is needed including a tune-up. Oh well, I guess it is an expense I need to have.

I have been working on the outline to The Five Rules for Successful Stock Investing. I pretty much finished Chapter 1 but I didn’t save the notes and the computer crashed. So I am working my way through Chapter 1 again. I hope to have those notes posted pretty soon.

Here’s the hiking summary…

Num Date Name of Hike Miles
1 12-29-05 Huckleberry Trail, VA 11.7
2 12-30-05 McAfee’s Knob, VA 7.2
3 1-07-06 Seven Falls, AZ 8.2
Total 27.1
Useless Stuff

gb study notes – chapter 1

Five Rules

Chapter 1: The Five Rules for Successful Investing

  1. Do Your Homework
    • “… sitting down and reading the annual report cover to cover, checking out industry competitors, and going through past financial statements [pg 2]”
    • why? because you have the possibility of losing your money, you should know about your investment
    • why? because you can’t always trust or rely upon opinions of others
  2. Find Economic Moats
    • moat – A deep wide ditch, usually filled with water, typically surrounding a fortified medieval town, fortress, or castle as a protection against assault []
    • economic moat – the ability of a company to keep “competitors from attacking a firm’s profits”, to protect its profits from the assault of competitors
    • the term economic moat was popularized by Warren Buffett
    • An Important Concept: Typically in a free market, a profitable company will attract competition that will eventually erode the company’s profits.
    • The Key Question: “How does a company manage to keep competitors at bay and earn consistently fat profits? [pg 3]”
    • Related Websites:
      1. A Look at Economic Moats – Investopedia
      2. Digging an Economic Moat – Morningstar (Pat Dorsey)
      3. How Morningstar Measures Motes – Morningstar
      4. Companies with Wide Economic Moats – Street Authority
      5. An Introduction to Economic Moats – Yahoo (Pat Dorsey)
  3. Have a Margin of Safety
  4. Hold for the Long Haul
  5. Know When to Sale

gb study notes

Prior to my trip back to Tucson, I purchased a book to read during the flight. I chose a book by Pat Dorsey at Morningstar entitled The Five Rules for Successful Stock Investing. To be honest, I hadn’t really heard much about this book but I figured it was worth checking out since it was from Morningstar – my favorite investing website. I got halfway through the book yesterday and was really impressed – so much so that I thought I should put more effort into the book to try to extract and memorize all the important concepts. I’ve found in my many years of school (albeit in science, math, and engineering) that writing a series of note sheets clarifies the material. It also helps in the memorization of key points.

Consequently, I am going to back up and start writing my study notes for the book. I hope these notes will be helpful to others although they may be compressed significantly from the material covered in the book. Helpful or not, this is a great investing book and I definitely recommend it for both beginning and intermediate investors (I still consider myself a rookie). I know these notes are going to be benificial for me but hopefully they will be helpful to someone else as well.