My Comment On A Foolish Article

by golbguru on July 10, 2009

Read this article on

Rocket Stock or Dud?

A couple of years ago I would not have noticed anything amiss with this article.. and would have probably blindly agreed with the argument because it comes from some investment-savy dude on

Without much ado, here is what I commented on that article:

On July 10, 2009, at 11:01 PM, Golbguru wrote:

Rich, it is extremely misleading to talk about MLPs like NGLS (Targa Resources) without even mentioning “distributable cash flow” and “coverage ratio”.

2009 Q1 distribution was $0.52 per common unit (share). For 47.16 million shares, that’s a total distribution of $24.5 million.

2009 Q1 distributable cash flow was $33.6 million. Gives a coverage ratio of little over 1.3. Most MLPs are in this range - and it is not bad at all.

Plus it is well within the limits set in its debt covenant (please see the balance sheet).

In summary, your statement “Seems to me that while Targa may not be able to sustain its current dividend, it could cut the divvy substantially”, is essentially baseless.

Moreover, you need to do more homework on MLPs and stop calling distributions as “dividends”.

I will leave it to my astute readers to figure out what MLPs are … till I come back and write a little more about them.

Looking back, I cannot believe that I am actually taking the efforts to read and understand company balance sheets now-a-days. I am glad I am doing it now.

I still don’t have a good grasp of the macro-market-economics yet, but after reading views of various economists and chartists, I am not sure anyone understands that well anyways. May be someday I will understand and appreciate it, but till then I am not going to sit on a pile of cash and do nothing (and see the cash get devalued as the inflation catches up with us eventually).

Disclosure: Long on NGLS and a whole bunch of other MLPs.


Stock Market Technical Analysis - Loads Of Bull Crap And Bear Crap

by golbguru on May 28, 2009

In all the time that I have been away over the last few months, I have spent an enormous amount of time reading up articles on market technical analysis. At this point of time (it’s a continuing effort), I feel pretty disappointed with the whole concept of so-called “technical analysis” and with the “chartists” (market technical analysts who speak the language of charts) who make universal predictions about the universe based on such technical analysis.

Generally, from the events of past few months, I have come to a conclusion that “fundamentals”, “support”, “resistance”, “pattern”, “break-out”, and “dead cat bounce” are some of the most misused words in this area of pseudo-study (look up “dead cat bounce” on Google, it’s interesting). Given a time-history of a certain phenomenon (for example, stock price), one can calculate a plethora of brain-numbing numbers and relations; but all those numbers mean absolutely nothing if one cannot interpret the meaning of those numbers in the context of present and anticipated environment (including emotions, politics, public perception, and mass hysteria).

Moreover, you would think that if market technical analysis is just a bunch of numbers derived from a common stock price history, every chartist would have the same conclusion. Keep wishing on this! Depending on whether a chartist is a bear or a bull, he/she would try to put a different spin on the exact same numbers. Some of the chartists I have been following have been predicting a total collapse of the market since March 2009 - they are still waiting hopefully for that to happen. One group of chartist is predicting a “U” shaped economic recovery; another group of chartist is predicting a “V” shaped recovery; and yet another group of chartist is predicting a “W” shaped recovery. All these chartist should get in a room and come to a common conclusion over which letter of the English alphabet they want to use.

Then there are chartist who keep harping on support and resistance levels of a stock (or the market in general) and try to predict a stock’s future behavior based on these levels. The way I see it, support and resistance levels, like most statistical measures are backward looking measures - as such, support and resistance levels don’t dictate the future price of a stock, it’s the other way around. When stock price breaks its support, it is the support that changes, not the stock price. Whether the stock will keep breaking through its support does not depend on your silly calculated lines - it depends on people’s perceptions, anticipated future growth or decline, fear, euphoria, and herd mentality (among other factors).

It’s the same thing with moving averages. Stock price does not follow a particular price target because the moving average says so - the moving average is there because historical stock price said so.

If charts predicted the future, life would not have been as interesting as it is now. All chartists would have been super rich and all others would have been super suckers.

In conclusion, to me, technical analysis charts are like opinion polls - they are interesting, but generally useless. There are no patterns. Trying to establish patterns in a stock market is like looking at clouds and imagining many various shapes (animals, mermaids, or whatever you feel like imagining).

“Smoking is injurious to health” - people still smoke.

“Past performance is not indicative of future returns” - people still draw charts.


Financial Age Regression

by golbguru on February 28, 2009

Think about this.

Stocks tumbled Friday on worries about the government taking a bigger chunk of Citigroup and a bleak reading on the economy, again touching 12-year lows. (source)

As Wall Street slides towards a 12-year low, it’s almost like getting back 12 years on your financial clock - and a great opportunity to get to all the investing that you have been planning and procrastinating and planning and procrastinating … but never really doing anything about it.

This especially applies to people like me, who, just a few years ago, procrastinated much without actively investing, and thought that they missed the bus on making big bucks in the stock market.

The cash percentage in this portfolio will give you an idea of what I am talking about.

I now have a chance to invest some of that cash 12 years ago - with valuable diversification lessons from the past couple of years. :)

Well… what happens if we hit 24-year lows?

For people like me, that would be an unprecedented opportunity - assuming you believe that markets will have to go up sometime in the future. The time-frame over which this happens is not really predictable, but one can’t stay eternally pessimistic, you know.

Way forward: I am thinking dollar cost averaging and some key ETFs (having a healthy volume).

I have had doubts about dollar cost averaging in the past; but given the current situation, I have sort of started appreciating the value of investing that way - small steps at a time. Of course, the gains are small and slow, but so are the consequences of failure. I bet the slow and steady are surviving this crisis a lot better than the fast and furious.

ETFs (by their very nature) mitigate the risk of losing a bunch of money on individual company bankruptcies, but they have their own pitfalls - read this to understand how ETFs have the potential to put you in a hole if you are not careful.


Are Americans Killing The Economy By Saving Too Much?

by golbguru on February 14, 2009

This appeared on CNN Money a couple of days ago about Americans saving too much:

Why saving is killing the economy
Saving more and cutting debt might sound like a good plan to deal with the recession. But if everyone does that, it’ll only make matters worse.

That’s probably the most misleading (almost irresponsible) statement/observation that I have come across during this unhappy recession.

I think I now understand why this country is going through a recession in the first place. Remind me, why are we currently being chased by this dark financial cloud - was it saving too much … or perhaps, was it spending too much (in fact spending too much of borrowed money)?

It is not like Americans were saving “enough” all these years and suddenly they have started to hoard every penny they have leading to an economic crisis. Consider the situation in 2005-2006 as reported by MSNBC:

Americans’ personal savings rate dipped into negative territory in 2005, something that hasn’t happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.

The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.

… “Americans seem to have the feeling that it is wimpish to save,” said David Wyss, chief economist at Standard & Poor’s in New York. “The idea is to put away money for old age and we are just not doing that.”

Now that should have been like a slap on head - those numbers were indicative of the fact that people were spending money that didn’t even belong to them (borrowing). Sure enough it propped up the economy in the short term (markets did great in 2006 ~ 2007, housing demand/prices did great, etc.), but it seems now (20-20 hindsight) that we were just heading higher up the cliff, inflating the bubble, and increasing our chances of a successful financial harakiri in the future.

It reminds me of those situations in cartoon films where the characters run off a cliff … walk in the air for a while … and then suddenly realize that the freaking ground is no longer beneath their feet.

The current saving rate is higher than in the past, but it’s not like it is way out of whack. In fact, I am not even sure that increased saving rate is going to be sufficient when extrapolated a few decades into the future.  PBS reported this about a week ago:

Amid fears of further job cuts and economic uncertainties, Americans boosted their savings rate to 3.6 percent of their after-tax incomes in December. That was the highest level since tax rebate checks temporarily pushed the rate up to 4.8 percent in May, the Associated Press reported.

That’s saving $36 out of $1000 disposable after-tax income - nothing to write home about.

Anyways, increased savings rate,  however small, suggests to me that Americans are now coming to their senses and doing what is necessary to ensure some level of financial security over the long run.

Whatever the numbers are, here is the truth. A good economy doesn’t need consumers who spend “freely” - it needs consumers who spend “wisely” - better still, a good economy requires consumers that save and invest wisely. If Americans don’t save for their retirement now, they are going to increase the financial burden on national reserves in future - if they save now, they would be in a better position to spend later.

What would hurt the economy is “hoarding”. However, there is a subtle difference between hoarding and saving. Hoarders don’t have a reason to hoard, but savers always have a reason to save - and more often than not, the reason is to be able to spend wisely in the future on things that matter.

For those who are interested in furthering their knowledge about savings rate and its effect on the economy, this paper (pdf file) on will give you some clues.


Blind Men And The Elephant - The Story Of A Stimulus Package

by golbguru on February 8, 2009

O how they cling and wrangle, some who claim
For preacher and monk the honored name!
For, quarreling, each to his view they cling.
Such folk see only one side of a thing.

So oft in theologic wars,
The disputants, I ween,
Rail on in utter ignorance
Of what each other mean,
And prate about an Elephant
Not one of them has seen!

I don’t think there is a better way to describe the Democratic vs Republican wrangling on the economic stimulus plan.

Although, I am unable to make up my mind as to whether the leaders of this country are simply blind or have monochromatic vision compounded by exceedingly narrow minds.


In the end the Elephant will fall,
But on the way it will crush us all!

(Pardon the little rhyme and pun there)


Zecco Bait And Screw: Account Minimum Increased To $25000 For Free Trades

by golbguru on February 1, 2009

Oh come on man! … from zero dollars Zecco has increased its minimum balance requirement for free trades to $2500 earlier and now to $25000 !

Hello Jeroen Veth… that’s an “order of magnitude” change !.. and doesn’t  really gel with your self-proclaimed objectives (source):

At Zecco we believe in complete transparency in everything we do. That means that we’ll share with you how the site makes money. You’ll know how much traffic your pages get and how big the advertising checks are that come in. We believe sunshine is the best cure for iffy investment schemes and hyperventilating stock touts. Ultimately, we believe that greater access to information helps make the investment game more fair. And we rely on members of the to contribute to the effort. By sharing research and perspectives, exposing creative accounting and conflicts of interest and uncovering hidden and undervalued opportunity in the marketplace, we all help each other. We believe that everyone has a story and deserves a listen. In the best tradition of democracy, we’re lowering the barriers to entry in the market of ideas. By sharing, debating and testing investment ideas, the of investors may help each other make informed investment decisions.

Why weren’t you guys honest enough to just declare your “free trades” deal as an introductory offer? That way people at least know that their honeymoon would be over within the next year - that way they anticipate what’s coming and don’t feel screwed.

I think Zecco would potentially completely destroy its loyal customer base by doing something as stupid as this - of course I am assuming that a lot of those customers (like me) were attracted to Zecco ONLY because it was offering “free trades” - and it seemed like a fair bargain to avail those free trades in spite of whatever other issues Zecco had at the time. It doesn’t seem to be a smart decision - especially in these times - considering the consequenses of losing business from a number of people and earning a bad reputation.

The good part of the story is that it has woken me up from my complacency and now I am researching other brokerages where I can transfer my securities. Some of the options I am considering are listed below:

1. Sogotrade: $3 per trade, no minimums.

Our online rate is just $3.00 regardless of order type with no share limit
Stocks priced below $1.00 carry an additional fee of 1/2 of 1% of principal.

2. Just2Trade: $2.50 per trade, no minimums.

We offer unlimited trades for $2.50 and 50¢ per contract.  There is no share limit per trade. There are no other fees.  No gimmicks and no surprises.

3. MB Trading: Plan A fee structure.

$0.01 per share for the first 500 shares, then just $0.005 per additional share¹.

100 shares= $1.00
300 shares= $3.00
500 shares= $5.00

(The note marked “1″ says: $1 minimum ticket charge applies.)

In the fine print it also says “SEC Section 31 and FINRA Trading Activity fees apply to all commission plans.” However, these fees are hardly significant (per MB Trading information) - SEC Section 31 fee is $5.6 per million and the FINRA charges a Trading Activity Fee is $0.000075 per share.

4. Low Trades: $4.95 per trade, no minimums.

However, these guys charge a semi-annual $50 inactivity fee.

Inactivity Fees charged for trading periods between January-June and July-December of each calendar year. To avoid inactivity fees, one executed trade must be completed during each trading period. IRAs and Custodian accounts are exempt from these fees.

5. Options House: $2.95 per trade, no minimums.

Fine print says:

The commission for stocks priced $2.00 or less is $2.95 per trade plus $0.01 per share.

6. eOption: $3.00 per trade, no minimums.

Fine print says:

Less than $2.00 per share** $29.00

7. Trade King: $4.95 per trade, no minimums.

For Stock and ETF trades, we charge $4.95 per trade. For option trades, we charge $4.95 per trade, plus 65 cents per contract. That’s it.

I still need to read all the fine print for my options in details, but this is going to happen sooner than later. I would rather stay with a brokerage firm that charges higher fees upfront (thinking of the good old Sharebuilder - more so because now its managed by ING) than a brokerage firm who likes to get sneaky on its customers.

Stupid bait and screw tactics.


Do Above Average To Be Treated Above Average

by golbguru on January 11, 2009

This whole hiring-firing thing is too complicated to capture in a small post as this,  but one of the simplest thing I have realized over the last year is this - do something above average if you want to be treated above average - make yourself indispensable - make yourself valuable - do something that makes your peers and bosses remember your face when they compile a list of people who are to be fired (that will be one step towards ensuring that you are not on that list).

As much as organizations want to reduce costs by laying off a bunch of people, they are also aware that they need to be highly efficient when things aren’t as bright as usual - this requires that they NOT layoff their efficient employees (well unless they want to shut down completely .. but that’s a different ball game in itself).

The point is that if you want to be treated as a “special” employee, you have to first ask yourself if you are doing anything “special” for your employer. It’s a very simple thing, but you will be surprised how many people don’t get it. They will come 15 minutes late everyday - spend an hour in the break room everyday - talk about kids and football for about an hour everyday - browse the internet for a couple of hours everyday - leave 15 minutes early everyday - leave an hour earlier on every Friday - and then they will act all surprised and cry foul when they get the pink slip.

Another thing to realize is that most of the bigger corporations hire with some degree of redundancy in mind (especially when the times are good and there is a lot of money flowing around). This means that some of your peers are capable of doing the exact things that you are capable of - now, when it comes to choosing who should stay and who should go, don’t expect to be safe unless you have done something more valuable that your peers.

The message is simple - do average, get average - do special, get special. Don’t just make it a habit, make it a lifestyle.


A Silver Lining To The Dark Financial Cloud

by golbguru on November 16, 2008

I bet this whole financial mess has made everyone of you open your eyes and question your wants, question your income, question your money management (or the lack of it), question your expenses, question your investment strategies, question your job security, question your $10-per-workday lunches, question your credit card statements, question your insurance coverages ….. sort of made you question your attitude towards money.

For those of you who still have your jobs, I bet you feel fortunate (and generally crib less about being less paid, etc.) - and I bet you are putting in extra efforts to make sure that someone higher up notices your hard work before you get into the to-be-laid-off list.

It has made people question their governments, and governments question their respective policies.

On my part, I have convinced at least half a dozen young people (close friends and relatives) to open their minds about saving more and/or investing in the stock market (on the argument that it’s a good time to buy stocks, develop good money saving habits, etc.). It’s a happy feeling (almost a proud feeling) when these guys and gals discuss interest rates, stocks, ETFs, and portfolio diversification over lunches and other casual meetings.

Of course there is much suffering and stress, but hopefully most of us will come out of it with several lessons for life. Hopefully, adversity will bring out the best of our efficiency and adaptability.

As it is, we have to read/hear bad news everyday … just thought I should throw in a pinch of positive out there.


Socialist When Poor, Capitalist When Rich

by golbguru on November 1, 2008

When you are poor you would like someone to share your financial burdens; you want to someone to give you some tax relief; you want someone to give your kids financial assistance to get through college; you want someone to bail you out of the financial crisis; it seems logical for you that the “rich” are taxed more - you call that graduated tax; you consider it fair that there are incentives/affirmative-action for the economically and socially challenged; the growing disparity between the quality of life in the rich and the poor bothers you; the concept of “free market” doesn’t always work in your interest; you find it surprising that CEOs are paid several million dollars a year while you can barely make your ends meet; you generally don’t like that the fact that health insurance is controlled by for-profit companies; and you want the government to have some control over banks/firms who handle your retirement money; you generally envy the “capitalists”.

When you are rich you want to enjoy all your wealth by yourselves; you think “poor” people are “poor” because they aren’t working hard enough to get “rich”; you think it’s unfair that you are taxed at a higher rate than the “poor” - you call that “spreading the wealth”; for you “charity” is only a means of reducing your taxable income - you generally don’t believe that “wealth should be spread around” so the concept of “charity” doesn’t really appeal to you; you are a staunch supporter of “free market” (but you still want the government to bail you out of financial mess - I don’t know what’s up with that); you recoil in horror because some plumber who earns more than $250,000 a year will pay about $3500 more per year in taxes; you think it’s draconian to limit profits or pay of any company or individual; you don’t care about the fact that health insurance is offered by for-profit companies - because you can basically afford anything they charge; you want minimum government involvement in anything that you are associated with financially; you believe that lack of government control leads to a “self-correcting” market; you generally hate the “socialist”.

The world isn’t black and white.


Financial Crisis: The Theological Aspect

by golbguru on October 13, 2008

Here is an excerpt from an interesting article I read a few days ago:

Says Anthea Butler, an expert in Pentecostalism at the University of Rochester in New York: “The pastor’s not gonna say, ‘Go down to Wachovia and get a loan,’ but I have heard, ‘Even if you have a poor credit rating, God can still bless you — if you put some faith out there [that is, make a big donation to the church], you’ll get that house or that car or that apartment.’ ” Adds J. Lee Grady, editor of the magazine Charisma: “It definitely goes on, that a preacher might say, ‘If you give this offering, God will give you a house.’ And if they did get the house, people did think that it was an answer to prayer, when in fact it was really bad banking policy.” If so, the situation offers a look at how a native-born faith built partially on American economic optimism entered into a toxic symbiosis with a pathological market.  …

“Narratives of how ‘God blessed me with my first house despite my credit’ were common. Sermons declaring ‘It’s your season to overflow’ supplanted messages of economic sobriety,” and “little attention was paid to … the dangers of using one’s home equity as an ATM to subsidize cars, clothes and vacations.”

Read the rest of it here.

In addition to Wall Street, it looks like the faith business also needs a little more scrutiny. Apart from that, I am always surprised at how gullible people can be when it comes to being sold out divine rhetoric.

If we keep up with this even God will need a bailout someday!

Finally, God helps those who help themselves, for everybody else there is Mastercard everybody else needs to clearly understand the meaning of the words “deliquency” and “foreclosure”.