Investing Curiouscatblog

Category: Investing

  • Bernanke Calls for Stronger Regulation of Mortgages

    Bernanke Calls for Stronger Regulation of Fannie, Freddie

    Federal Reserve Chairman Ben S. Bernanke said yesterday that the scale of Fannie Mae’s and Freddie Mac’s mortgage investments could pose risks to the financial system, and he called for them to limit their holdings almost exclusively to loans for affordable housing.
    …
    His solution: “Tying the portfolios to a purpose that provides measurable benefits to the public would help to ensure that society in general — not just GSE shareholders — receives a meaningful return in exchange for accepting the risks inherent in the portfolios,” Bernanke said in the text of remarks prepared for delivery by satellite to a gathering of community bankers in Hawaii.

  • Learning About Mortgages

    Signing a mortgage document is one of the biggest financial actions you will take in your life. Taking the time to understand what you are getting into is important. I suggest you don’t act until you actually understand what it is you are taking on. And if that takes hours or days of reading and research so be it. Don’t find yourself with remorse for acting without understanding what you are doing with such an important financial decision.

    On the Curious Cat Investment Dictionary mortgage page we have defined some common mortgage terms and provided links to some excellent resources from the Federal Reserve and HUD as well as several articles from Business Week, including: Understanding the Mortgage Process from the Federal Reserve and Nightmare Mortgages from Business Week.

  • Buffett’s Newest Letter to Shareholders

    Buffett’s letter to shareholders. Always a required read for investors.

    We’ve come close to eliminating our direct foreign-exchange position, from which we realized about $186 million in pre-tax profits in 2006 (earnings that were included in the Finance and Financial Products table shown earlier). That brought our total gain since inception of this position in 2002 to $2.2 billion.

    Interesting. The following (and more in the letter – page 15) is extremely important.

    As our U.S. trade problems worsen, the probability that the dollar will weaken over time continues to be high. I fervently believe in real trade – the more the better for both us and the world. We had about $1.44 trillion of this honest-to-God trade in 2006. But the U.S. also had $.76 trillion of pseudo-trade last year – imports for which we exchanged no goods or services. (Ponder, for a moment, how commentators
    would describe the situation if our imports were $.76 trillion – a full 6% of GDP – and we had no exports.) Making these purchases that weren’t reciprocated by sales, the U.S. necessarily transferred ownership of its assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of what we owned in order to consume more than we produced.

    Related: On Warren Buffett – 2004 Annual Report by Buffett

  • 10 Stocks for 10 Years Update – Feb 2007

    I originally setup the 10 stocks for 10 years portfolio in April of 2005. In order to track performance I setup a marketocracy portfolio but had to make some adjustment to comply with the diversification rules. In December of 2006 I announced a new 11 stocks for the next 10 years (9 are the same, I dropped First Data Corporation, which had split into 2 companies and added Tesco and Yahoo.

    The marketocracy portfolio won’t let me by Tesco so I don’t have it in that portfolio though I want to and will add it if they let me. I also have not sold Western Union of First Data (the companies resulting from the split of First Data). I still find them reasonable investments, just at this time would not buy them for the next 10 years (but for reasons such as not being able to buy Tesco and diversity rules for Marketocracy I am keeping them for now).

    At this time the stocks in the marketocracy portfolio in order of returns – Google (116% return, 15% of the portfolio), PetroChina (88%, 7%), Toyota (85%, 12%), Templeton Dragon Fund (69%, 12%), Cisco (56%, 6%), Amazon (23%, 4%), Yahoo (2%, 4%), British Petroleum (3%, -3%), Intel (3%, -11%), Dell (6%, -32%). The split First Data is probably up about 20% and combined they are 4% of the portfolio. I also have under 2% positions in a couple of stocks and about 15% in cash. I occasionally purchase or sell some amounts (I have sold a small portion of Templeton Dragon Fund and bought some Amazon, Dell, Intel and Yahoo in the last few month). I will sell First Data and or Western Union if the price increases enough. I would also like to find an energy company I like to hold in addition to PetroChina (and would likely sell BP if I find one I like for the long term).

  • Urban Planning

    Next Stop, Tysons – good article on urban planning and real estate development in Northern Virginia. Urban planning can create excellent real estate development opportunities but it is not easy. It is easy to look around the country and see how poorly planned development has been resulting in huge wastes of time through long commutes. But it is not surprising, smart planning requires long term thinking which is often lacking. Arlington made excellent decisions in the 1960s, 1970s, 1980s, 1990s and 2000s (and I am sure plenty of less than perfect ones too). The wrong decisions could have been made during that process that would have greatly reduced the benefits. Arlington now seems pretty well set and now the path toward smart development is the default position. Still they have challenges.

    Fairfax, which borders Arlington, made poorer decisions in the past. Now they have difficult decisions. It will be interesting to see how they can do. Both counties have a huge incentive to push for more subway capacity but we will see if they do it. They can’t wait until the need is urgent. Any plans will likely take decades to bring online. Plans have been floated for many years but still nothing has been decided.

    Ballston in 1979. Most notably, the surge in development along the corridor has produced relatively little additional automobile traffic, which is why Fairfax, Montgomery County and other suburbs are invoking the high-density model as the cure to their traffic woes.

    “If we don’t change the old pattern of growth and development, we will continue to get what we have always gotten,” said Gerald E. Connolly, chairman of the Fairfax Board of Supervisors.

    It is not going to be a simple process and many years of tough decisions, good management, good planning will need to follow any decisions made now. But the options of clustering high density development seems like the best bet for success to me. One strategy of a real estate investor can be to find a good long term (say 10+ years) play (like Arlington) and invest before the prices skyrocket. Then just sit back as the likely takes place and watch your investment grow.

    Arlington now has fairly high housing prices, the question is likely whether they have skyrocketed yet (many say they have – I am not so sure, they are not cheap but for what the potential for the area is they could go much higher). It certainly is not as great an opportunity as it was in 1995. The government sure feels flush – spending over $80 million each for 2 high school in the next couple of years (replacing schools build a few decades ago – school population is actually shrinking not growing)! Real estate taxes have been increasing dramatically each year to pay for more and more spending.

  • More Non Bubble Bursting in Housing

    Housing sales drop in 40 states:

    Nationally, sales declined by 10.1 percent in the fourth quarter compared with the same period a year ago. The national median price – the point where half sell for more and half sell for less — fell to $219,300, down 2.7 percent from the fourth quarter of 2005.

    While there is no agreed upon definition of bubble bursting, a almost 3% decline certainly can’t be seen as a “bursting bubble” can it?

    In all, median home prices fell in 49 percent of the 149 metropolitan areas surveyed, the largest percentage of areas showing price declines in the 27-year history of the Realtors’ price survey.

    Again hardly data of bubble bursting proportions.

    Related: Coming Collapse in Housing? – Beginning of the End of Housing Bubble? – Colored Bubbles

  • Mortgage Defaults: Latest Woe for Housing

    The main point of this article is the increasing evidence of problems due to loose underwriting for mortgages of the last few years. Mortgage defaults: Latest woe for housing:

    The rate of subprime borrowers who are more than a month late on a mortgage payment was 13.2 percent in the third quarter of 2006, the latest numbers available, up from a 10.5 percent delinquency rate in the third quarter of 2005.

    The overall mortgage delinquency rate was 4.7 percent in the third quarter, just slightly above the 4.4 percent rate of a year earlier, when it was a historic low.

    The problem of loose credit is real and important. But isn’t it really amazing how 4.4% is the historic low for mortgages over a month late? That seems really high too me. Obviously 13.2% for sub-prime loans shows how risky it is to take out such a loan. In my opinion, the delinquency rate for over 90 days late is a more important figure (but these numbers can serve as a leading indicator).

    Related: articles on investing – investment dictionary – How Not to Convert Equity

  • Exurbs Hardest Hit in Recent Housing Slump

    Exurbs hardest hit in recent housing slump:

    While the U.S. housing downturn has depressed once-thriving real estate markets around the nation, far-flung suburbs of major cities have suffered the most abrupt market correction. Home construction in these distant exurbs has slowed and prices and sales have fallen more than those of close-in suburban neighbors since a five-year U.S. housing boom ended in the summer of 2005.

    Average home prices in Loudon County, Virginia, 35 miles outside of Washington, D.C., fell roughly 11 percent in 2006, according to the Northern Virginia Association of Realtors. By contrast, Virginia’s Arlington County, which hugs the nation’s capital, saw a price decline of only about 2 percent.

    And, so far there has been no “bust.” As I mentioned previously I did not, and do not, see a “bursting of the real estate bubble” overall.

    Related: Beginning of the End of Housing Bubble? – real estate investing articles

  • Roth IRAs a Smart bet for Younger Set

    There are few investment opportunities as valuable as IRAs (tax sheltered retirement accounts) – nor many more critical to successful personal financial success (for younger or older really). Roth IRAs a smart bet for younger set by Tami Luhby.

    Roth IRAs, as well as the newer Roth 401(k)s, are a smart bet for many people in their 20s and 30s, experts say. Younger workers are more likely to be in a lower tax bracket now than when they retire, making any current tax deductions less valuable, and they have enough years to save to make the tax-free withdrawals very beneficial.

    The beauty of the Roth IRA and 401(k) is that there’s no tax on the capital gains in the accounts, so the longer you have to accumulate those gains, the better.

    Mathematically, if the tax rate in the year of the contribution and the tax rate at the year of withdrawal are equal a Roth IRA and regular IRA provide the same value. However, in addition to earning less money in while young and therefor being in a lower tax bracket there is also the benefit from a Roth IRA of eliminating the risk of an increasing tax rate structure. Since money withdrawn from a Roth IRA is not taxable. This is a huge benefit.

    So add to your IRA for last year if you have not already and add to your IRA for this year now. Also add to any employer matched 401(k) for your long term retirement savings. Few investments will have the long term impact of adding to retirement accounts early and often.

    Related: Saving for Retirement

  • Nicolas Darvas

    Nicolas Darvas wrote a classic investment book – How I Made $2,000,000 in the Stock Market. In it he provides an honest and open look at his experience from his naive start to his eventual success. He lays out, in great detail, exactly what he did and how foolish some of his actions were. Then he explains how he came to find success by focusing on the price and volume action of stocks. While honing his investment strategy, in the 1950’s, he traveled the world working as a world class ballroom dancer and placed order via cable.

    As with other classic investing books age does not detract from this books value. The book is very similar in form to another classic: Reminiscences of a Stock Operator by Edwin Lefevre (about his experience in the early 1900s).

    Darvas’ method was a forerunner of the many technical analysis schemes used today. He is extensively referenced by William O’Neil (of Investor’s Business Daily fame) and other leading technicians. An extremely simplified overview of Darvas’ method: determine “boxes” (trading ranges) for a stock and buy on the breakout, to the upside, of the box. He used very close trailing stop loss orders to minimize losses. He sought to make large gains (let his winners run) and take losses quickly.

    More on Darvas’ investing ideas – other leading investors