Friday, April 17, 2009

Are you feeling rich, yet?

The sixth consecutive week the stock market is up. The Dow Jones is up over 20% from its lows. The S&P500 is up almost 30%! I don't want to brag, but my stocks have done even better than that. ;o) (Okay, maybe I want to brag a little....)

Interestingly, although my stocks are still down overall--by thousands and thousands of dollars, no less--the total value of my stocks is actually higher now than they have been at any time since 2001. Higher today than this time last year, even! And do you know why? Because I keep adding a little bit more to it every chance I get. When stocks really started tanking back last October, I practically cleaned out every cent in cash I had and threw it in the market. In poker terminology, I went "all in."

By last February, I recklessly went in with money I didn't even have--buying about $2,000 using margin. It's not much--I figured my stocks would have to tank probably about 95% before I got a margin call, and heck, if that was the case, who cares about the two grand?

So between the additional money I put into the market, and the fact that all my stocks have done so incredibly well these last six weeks, my net worth is actually higher now than it was at any time since I was laid off from Intel in 2001. I'm pretty happy about that. =)

But I'm a little disappointed too.... I rather liked stocks being as low as they were. I keep wishing another panic would set in--even just for a month or two--so I could buy more stocks at those same February and March lows. The idea of buying stocks AFTER they've gone up 20-30% just kills me. I still think stocks are generally pretty darned cheap, and I definitely want to keep buying, but I'd be happier buying if they were 20-30% cheaper than they are today. I can't really say if I could go back six weeks that I'd do anything differently. I already invested every cent I could--including $2,000 I didn't even have! I just wish I had more time to keep buying more....

But the real reason I felt compelled to write was a statistic I read in Why You Should Love Higher Taxes--that the overall stock market had a 284% turnover in 2007. HOLY COW! Is everyone INSANE?! The average stock was held for just four MONTHS?! I own about 2000 shares in a dozen or so companies. On average, the last several years, I've sold all of about 100 of them each year. That's about 5%. Frankly, they were stupid mistakes that really didn't fit well in my portfolio. The stocks might have done perfectly well, but they just "weren't me" so I sold them. And hey, I could harvest some tax losses in the process. =)

How could anyone possibly make any money by selling all their stocks every four months, though? It boggles my mind. I pay $7 per trade with my brokerage. Perhaps not the cheapest option available, but I consider it fair. To sell all my dozen or so companies would cost me 7 x 12 = $84. To buy another dozen companies would be another $84. And to do this three times each year would cost over $500! That's some serious money! I could buy another $500 in stock with that kind of dough!

And if those stocks actually were profitable, I'd have to pay short-term capital gain taxes on them. (Last year, that wouldn't have been a problem. Year-to-date, that could be quite a bit for me!)

So I figure I'm saving $500 in trading costs per year over the "average" person. And the amount of capital gains I've paid taxes on: Zero. Not one bloody cent. I sold one stock so far this year--in a company that was losing money and I no longer had much faith in--and bought another company I felt who's future looked brighter. It was in my IRA account, so I wouldn't have to worry about paying taxes on it. Considering that I lost money on it, though, that wasn't a concern anyhow. =)

But sheeze, I find that turnover rate astounding. Between the taxes and trading costs, how does anyone think they can come out ahead?

On another note.... I recently finished reading a book called How a Second Grader Beat Wall Street. I'd never heard of the book, but was looking for something completely unrelated at Barnes and Nobel and the title grabbed my attention. Cute. =) I flipped it open to the middle of the book and read a few pages, and found myself getting sucked in. I took a nearby chair and decided to read a couple of chapters.

I lost track of time. An hour passed. Then another. Maybe another. I don't really remember.... but next thing I knew, I turned the last page, then returned the book to the shelf. Thinking, "Wow, that was really, really interesting. There's a lot of people who should read this book."

If you haven't read it, I highly recommend it! I woudln't necessarily read the whole thing right there in the aisles of Barnes and Nobel, but that's an option if you want to make use of it. I'd probably check your local library first. ;o)

Thursday, April 16, 2009

Pigs and Gluttony

With all the bailouts, err, I mean economic stimulus recovery money being spent, pork--a.k.a. earmarks--have been in the news a lot. It's infuriating to read about, isn't it? Why are MY taxes paying for some stupid teapot museum in North Carolina? Or to study the mating habits of mosquitoes in Bora Bora? (Okay, I made that second one up. If my memory serves me right, that first one is actually true.)

BILLIONS of dollars are WASTED every year through earmarks. It's something that gets the blood boiling. It's something Republicans can take the moral high road. (Being in the minority, let's face it--their real complaint is the fact that they can't get THEIR earmarks in. Not like they did much about earmark problems when they actually had power in Congress to make lots for themselves.)

But one newspaper account I read said that in a $700 billion stimulus package, about $6 billion was earmarks. That's less than 1% of the stimulus package. Frankly, I don't really find myself getting worked up about less than 1%. Eliminating earmarks isn't going to balance our budget.

I'm also going to go out on a limb and say that not all earmarks are bad. Take the millions of dollars that will be paid out to Filipino WWII vets. That's an earmark. Ideally, it wouldn't be part of the economic stimulus package--it doesn't create jobs. It's not really relevant to the question at hand. But screw it, it's a good earmark anyhow. I'm ashamed that the US waited so long to get this sort of thing through. And while it won't directly create any jobs, to say it would create NO jobs isn't exactly the whole truth either.

We give out money to these well-deserving vets and what happens to it? They SPEND it! They spend it on health care. They spend it on homes. They spend it on food. Or maybe to fix their car. Guess what? Those types of activities create jobs. The money goes to companies that research and make drugs, home construction, your checker at the local supermarket, and the mechanic to fix the car, and the guy in the factor who made the parts that needed to be replaced. And then guess what happens? Those people who have jobs will spend the money THEY make. And so on. Directly, no, those payments don't create a single job. Indirectly? I don't know how many jobs they create, but it does indeed create jobs.

Even a teapot museum in North Carolina creates jobs. Teapot aficionados from around the world might buy airline tickets to see this world-class teapot museum. They might book motels, rent cars, and do some sight-seeing along the way. (Though to be perfectly honest, I'd rather see the money go for a rather more noble cause.)

So the economy is in the crapper. By some accounts, the worst recession since the Great Depression. It doesn't seem wise to say no because the economic recovery package is "packed" with less than 1% pork. And considering that a large amount of that less than 1% actually are good earmarks, and likely create jobs indirectly--I say suck it up. It's not as bad as Republicans or the media leads you to believe.

I kind of have a suspicious eye on Republicans. I don't really like to pick sides--or at least find an excuse to criticize both Democrats and Republicans rather than single out either side for praise or a smackdown. The fuss over earmarks by Republicans, I think, is mostly because they have little power and can't push through their own earmarks. So they're taking the moral high ground bashing the Democrats for using them. All the while wishing their roles were actually reversed.

But there's a cynical side to me that thinks it's even worse than that. Consider this: The best thing that could possible happen to help the Republican cause is the complete and utter failure of the government. Who'll get the blame? Democrats, of course. They control both houses of Congress AND the presidency. The Republicans actually have a vested interest in making sure the government goes down in proverbial flames. They could be thinking, "Hey, this economic stimulus package thing might actually work. And those darned Democrats will get all the credit for 'saving' our nation! But if we can stop it from passing.... and the recession keeps getting worse.... the Democrats will get the blame since they're the ones in power."

Don't get me wrong--I have absolutely no reason to think that sort of thing is going on. I think the more likely scenario is they're just pounding drums about pork because they can't push through the pork advantageous for themselves, so they're claiming the moral high ground instead. It's the logical thing to do.

But I still find it somewhat disconcerting that Republicans as a whole really have no incentive to pull us out of this recession. At least if Republicans had a majority in at least one of the houses of Congress, THOSE Republicans would have a vested interest in getting the country straightened out. The blame for anything bad that happens would be spread among both parties (and likewise, any good news would be shared among both parties).

Politics as usual....

Don't believe the hype, though. Pork is not as bad as the media generally makes it out to be. Not that I'm a huge fan of it either, but in the grand scheme of things, there are more important things to worry about.