Sunday, January 31, 2010

Foreclosure defense preparations

Half million dollar house in Salinas, Californ...Image via Wikipedia

Before you can even plan your foreclosure defense, you need to tabulate your assets, your strengths, your weaknesses, and decide on the goal of your defense.

First, what stage of the foreclosure process are you at? (See Six stages of Foreclosure Process) The earlier you are, the better. Preferably, you're still at stage 1, or the hypothetical stage 0, where you know you will not be able to pay the next payment, but it's NOT late yet. The later you are, the worse your options. Here are the stages again:

0) Normal, all payments up to date
1) Pre-foreclosure, some payments are late
2) Foreclosure notice, or "notice of default". Now clock starts ticking
3) Reinstatement period, catch up on payments and penalties and all is forgiven
4) Auction / Sale, house is no longer yours, and you are really in deep trouble
5) Redemption period, pay off the entire loan and you can still have the house back
6) Eviction, where you get tossed out to the sidewalk with all of your belongings


Saturday, January 30, 2010

13 Signs of a Successful Company

Peter Lynch revealed 13 favorable attributes of a company what may warrant your investment in his book "One Up on Wall Street". It basically boils down to the following adages:

* company doing dull, but necessary work, or work that is otherwise stigmatized, and goes undiscovered or unseen, but growing year after year
* company has a competitive edge such as a niche or brand, has room to grow, and a good employees and management with high morale

Having all of these signs won't guarantee you a stellar investment, but these are good signs that a company has growth potential, but so far has not been "mob-rushed", so you can get in "at the bottom". It's useful to "cull the herd".

1) It sounds dull, or better, ridiculous

Frankly, a lot of investors invest in a company because the name sounds trendy and/or exciting and/or exotic. What would you rather invest in: Consolidated Rock, or Genentech? Who would have thought that "Pep Boys -- Manny, Moe, and Jack" would be a great company to invest in? Or "Crown, Cork, and Seal"? Or Lynch's favorite, "Seven Oaks International"?

Wednesday, January 27, 2010

Harvey Mackey on Networking

Two people shaking handImage via Wikipedia
Harvey Mackey is one of the best authors on networking, and I don't mean between computers, but between people. And one of the concepts he promotes is you should consider networking as having four elements, with the acronym R.I.S.K, which are

Reciprocity
Interdependency
Sharing
Keeping at it


Reciprocity

Reciprocity is about giving something, and get something in return. It is a mutual exchange, in an ongoing basis. It is utility power at one of its purest forms: quid pro quo. You don't need to like everyone you do business with, you just need to network with them. And often, you need to give before you can receive. People *do* remember you helping them, thanking them, informing them, and so on. However, do NOT do anything immoral or illegal. That's bad, bad, bad. Just remember to actually let them know when you did do them a favor, if it's not obvious, like with a third-party. (i.e. "Oh, I mentioned that your son is looking for a job to banker _____. He's looking for an intern and will be in touch."


Wednesday, January 20, 2010

The Relative Strength Index (RSI) Primer

Example of RSI Indicator DivergenceImage via Wikipedia
Relative Strength Index, commonly known as just "RSI", is first explained by J. Welles Wilder in his 1978 book "New Concepts in Technical Trading Systems". It is an oscillator, meaning it oscillates between two fixed values based on price or index movements. It is a "leading" indicator, meaning it actually predicts price tops and bottoms BEFORE they actually occur. The name is a bit of a misnomer. It is measuring strength relative to ITSELF, not to something else.

RSI has one "setting", the "period" to use. Mr. Wilder used 14, so 14 is the default in most RSI charts. However, 9 and 25 are also used. So how do you calculate RSI? First you need to calculate the RS for the period in question.

Sunday, January 17, 2010

The Greenspan Folly

Alan Greenspan, former chairman of the Board o...Image via Wikipedia
Everybody thought Alan Greenspan is the greatest economist ever. He was on capital hill for FIVE presidents (started with President Gerald Ford, in fact). And he enjoys the Libertarian view of economic regulation: the less the better. In fact, he said so in his autobiography that he is a fan of Ayn Rand, who believes that government should NOT regulate the economy at all! As a direct result of that, his policy had encouraged the current toxic asset problem, and thus, the recession we all are stuck with right now.

Alan Greenspan was given post of Federal Reserve Chairman by president Reagan, and then, under Clinton as well. Clinton also appointed Bob Reuben as economic advisor, and later Treasury secretary. Both have made fortunes on Wall Street, and both decided to do a little as possible when it comes to regulations. Tim Geitner and Larry Somers are also of the same mind.

On the other side of Washington bureaucracy is a little known agency called CFTC, or Commodities and Futures Trade Commission. Their job is to oversee derivatives and agricultural futures, and its chairperson is Brooksley Born. She was one of the candidates for attorney general under Clinton, but when Janet Reno was chosen, she was offered chairperson of CFTC as sort of a consolation prize. She is a Securities lawyer by trade, and she is troubled by the vast use of derivatives on Wall Street.

Wednesday, January 13, 2010

Madoff's Ponzi Scheme

NEW YORK - JANUARY 5:  Bernard Madoff (C) walk...Image by Getty Images via Daylife
By now everybody have heard of Bernie Madoff, and his Ponzi scheme finally came unglued after decades of deceiving the investors involving at least 50 billion dollars. So how could he have gotten that big? There are three major factors: secrecy, greed, and deception.

A Ponzi scheme is named after Charles Ponzi. The scheme is relatively simple: the people who got out richer was paid by people who got in later. By steadily attracting new people who put their money in, and have more people coming in than going out, the people who get out will get MORE than they put in, and whoever runs this thing can skim off his share as well from the pool. Of course, when people stopped coming in, or just slow down, then the scheme will unravel. There was no real investment and the money is not growing by itself; any growth is from new investors.

Foreclosure Process

Sign Of The Times - ForeclosureImage by respres via Flickr
Foreclosure can be caused by a variety of reasons, from emotional problems (depression and grief, leading to disengagement from the world) to outright financial difficulties, or even a combination, such as divorce, or even fraud. There are a variety of options, but the first thing you need to do is acknowledge the problem. After all, you cannot solve the problem if you don't even acknowledge that the problem exists! Of course, you have to LEARN about the problem first.

There have been many cases where one member of the two-person household is in charge of all finances, and the other person does NOTHING. As Reagan said before, "Trust, but verify." You may trust your partner that he or she will do the right thing, but there have been many cases where the other is either too busy to even realize there was a problem, or too ashamed to admit that there was a problem. There were plenty of anecdotes that the owner of the house didn't even know that his house had been foreclosed on, and SOLD OFF in a sheriff's auction on the courthouse steps. He only knew when a real estate professional came to his door to inform him. He had entrusted all financial stuff to his wife, and when his wife failed to send payments, he knew nothing.

Thursday, January 7, 2010

6 signs of stocks to avoid

Peter Lynch could be called a contrarian investor in many senses, and it is with good reason: so-called hot industries and hot companies are driven up by EMOTION (I consider social pressure an "emotion" here, as "need to conform"). Once the emotion is spent, the company fizzles, and stock price nosedives so fast and so far it'll give you a nosebleed.

Advice 1) AVOID the hottest company in the hottest industry

Why? three main reasons:

a) hottest company have stock prices inflated by speculators, which in turn attracts MORE speculators, which fuels even FURTHER price inflation, until it all inevitably comes back down.
b) Hot industry attracts competitors, unless you got an exclusive niche you can exploit. Xerox was so famous, their name is synonymous with "photocopy". However, when IBM, Kodak, and various Japanese companis got into the copy machine business, Xerox stock prices tumbled, and never really recovered.
c) trend comes and goes, and so do fortunes of the trend-riders. 20 years ago carpet was the hottest thing. Now wood flooring is preferred. When will it switch back to carpet? (Robert Kiyosaki called it "flavor of the month" in Rich Dad's Guide to Investing, I think it was)

Monday, January 4, 2010

A very morbid investment

A surgical team from Wilford Hall Medical Cent...Image via Wikipedia
The business of "life settlements", is a morbid one, and unregulated, but there is an opportunity there, for both the buyer, and the seller, and the agents in between.

The idea of life settlement is very simple. Someone bought a nice big chunk of life insurance with "cash value". It's part life insurance, part savings account, so to speak. If the holder surrenders the policy, he gets the cash value back, and that's it (assuming he pays the annual premiums). If the holder dies, the insurer pays out the benefit amount to whoever the holder chooses. So say, you're old, you can no longer keep up the lfie insurance policy yearly payments, and the cash value is negligible, you can opt to sell the policy to a "life settlement investor" (through brokers, escrows, and whatnot), and yield bigger returns.