My Chinese stocks are up MAD!

Everyone knows that China is a rising world superpower, and an economic powerhouse. Never mind their massive polluting of the earth, the repression of their people, or any of that ancillary stuff. I own 5 Chinese stocks and they are flipping insane!

Guangshen Railway (GSH) -- up 13.72% today
iShares FTSE Xinhua 25 (FXI) -- up 9.27% today
China Unicom (CHU) -- up 8.07% today
China Telecom (CHA) -- up 7.24% today
Ctrip.com (CTRP) -- up 6.43% today

These held 5 of the 6 top spots today. I continue to be amazed at the heights these stocks are reaching. I haven't allocated a massive portion of our portfolio to them, but they are outpacing my other holdings. I am hesitant to plow new money into these stocks, but I am not selling either. I just get the feeling I'm holding on to something special - something like the Chinese Wal-Mart. We'll see!

Investing success (or not) for 6/27/07

The Dow was up 90 points today, and my portfolio blew the doors off with a gain of $1,200.

I love when a gain in the Dow corresponds to a much larger-than-expected gain in my portfolio. It normally does not happen this way. I usually see a commensurable gain in my portfolio when compared to the rise in the Dow, but an oversized drop in my portfolio when compared with a modest drop in the Dow. I don't know why that is - it could have something to do with the small cap stocks I own, which introduce a higher volatility to my portfolio. I could also just be imagining this phenomenon.

Investing successes today:
First off, I had some big gainers today, and I'll highlight them below. But today was unusual in the sheer number of stocks that were up. I had 45 advancers today, next to 10 decliners. That makes for a good portfolio day! I had 18 stocks that were up at least 2% today. Some details:

Inventiv Health (VTIV) - up 7.1%.

Nuance Communications (NUAN) - up 5.7%

Dawson Geophysical (DWSN) - up 4.4%

OYO Geospace (OYOG) - up 4.2%

Volcom (VLCM) - up 4%


Investing failures today:
Peerless Systems (PRLS) - down 5.4%. Big whoop, I own $300 bucks of this - it's the runt of the litter.

A few other decliners, nothing of great significance. It was a great day!


Also, I will soon bring news of a financial transaction that I recently consummated - something I said I would never do! Stay tuned.

Investing success (or not) for 6/4/07

The market showed amazing resiliency today. Shanghai had an 8% meltdown yesterday (well, today, but it feels like yesterday to us because we were all sleeping), and this has typically led to similar pullbacks across the world's bourses. But not today. USA! USA! USA!

But seriously, both the Dow and the S&P 500 posted new records (again). The weird thing is that the gains were miniscule, and yet my portfolio was up $504. I love days like that!

Investing successes today:
Dawson Geophysical (DWSN) - up 4.9%.

OYO Geospace (OYOG) - up 4.1%.

I had 12 other stocks that were up at least 1.5% today.

My Chinese stocks - besides Kongzhong, which bears mentioning below in the "failures" section, my Chinese holdings held up rather well. Typically on a day where Shanghai has a huge drop, my Chinese holdings take a bit of a beating. I was just surprised that that did not happen today.


Investing failures today:
Sadia (SDA) - down 2.7%. No big deal, I'm still up 89% on this stock.

Kongzhong (KONG) - down 2.4%. The stock with the coolest ticker symbol is a real pain in my arse. I have two lots - one is down 40%, the other is down 28%. This stock is barking.

Investing success (or not) for 5/22/07

Today the markets were basically flat, and my TDAmeritrade accounts were up a combined $75. My accounts there are now above $95,000 in total, which is easily a new record for me. I have pumped some cash into them in the last few months, but the prospects for being able to do so in the next few months are looking pretty grim. Baby-related expenses, along with preschool for my almost 3-year-old daughter, are going to eat into the budget. My wife and I will both be receiving raises (me in July, my wife in September), which will hopefully offset these expenses to a degree.

Some interesting things happened in my portfolio today.

Investing success:
Planetout Inc. (LGBT) -- up 13.3%. This after being down throughout the day. This stock sucks so bad, where the hell is Rupert Murdoch to snap this company up and save me?!? Tell you what, since I'm already down huge in this stock (look at this one year chart!), this will be the last time I ever mention anything about Planetout in this column. Unless it goes up or down by more than 25% in a day.

Novastar Financial (NFI) -- up 7%. Another stock I don't care about. LGBT and this one are the two biggest dogs in my portfolio, so I actually hate listing them as successes. They did well today, but are an overall cancer on my portfolio. I think I'll stop listing this one too, unless it makes a 25% move. I see alot of bloggers stating, "Invest at your own risk, this site is for entertainment purposes only, I am not making official recommendations to buy stocks, don't sue me..." I can safely advise you to avoid LGBT and NFI. Just walk the other way.

Meritage Homes (MTH) -- up 4.6%. Home builders are a beaten down bunch. But these stocks cannot remain in the dumps forever. I bought this stock at a very unpopular time for homebuilding stocks, and I'm up 6.3% in total. I have hopes this will go higher.

Sadia (SDA) -- up 3.9%, and I'm up 80% in total on this stock.

Vail Resorts (MTN) -- up 3.3%. A ski resort operator has its stock go up in May? I know it's alot more complicated than that....

I had eight other stocks that were up between 1.5% and 3%.


Investing failures:
Kongzhong (KONG) -- down 25.8%. Oh dear. Out of my six Chinese holdings, this one is seriously underperforming. But down 25% in one day? KONG, you're killing me! I'm down 32% on this one overall.

Blackboard Inc (BBBB) -- down 6.5%. The stock fell on news of a downgrade from a single analyst. One guy dropped his rating to "Hold" from "Buy." One analyst. And he basically said the stock was approaching his $43 price target. The stock is now at $40.17. Does any of this add up? I don't think so. This is a prime example of how Wall Street overreacts to news - this is where you can profit. I did not add to my position today because of limited cash, but Warren Buffett's voice is ringing in my ear again... "Profit from folly rather than participate in it."

I am also still holding two $525 checks from my troublesome tenant. He gets paid on the 26th of each month, which falls on a Saturday this month. I assume he'll be getting paid on Friday then. I plan on calling him this week just to confirm that there's going to be $1,050 in his account ready to go.

Buying stocks at the right price

If you'll have a gander at my latest net worth update, you'll see I have about $100,000 in equities. Nothing to sneeze at, but nothing to write home about. To get to $1 million, I have to multiply that pile of money by 10. I have some work to do!

One of my credos that I will repeat until I'm blue in the face is to stay diversified, and I define diversification as not having any one position in my portfolio comprise more than 5% of my holdings. My two exceptions are my real estate, and my S&P 500 index funds - two safe risks, in my opinion.

Because of my 5% rule, I own alot of stocks. And since I don't have alot of money to invest, the positions I usually take in stocks are small. I own $4,000 of some companies, $300 of other companies. If I'm not sure about a particular stock, I will open up a $300-500 position. I pay $9.99 per trade, and I'm not concerned with this. If my stock doubles, that $10 is nothing in the grand scheme of things. And I have 21 stocks that are up 25% or more in the past year. I paid $209.79 to get into those 21 stocks. That's worth it to me.

Now, because I'm buying small positions, I'm not buying alot of shares. If a stock is at $30, and I'm buying $300 worth, I'm buying a measly 10 shares. The question is: With a long term hold strategy, and with the small amount of shares I'm buying, does the price paid for the shares really matter? I mean, if I pay $32 per share instead of $30, is that a big deal?

My answer is: YES! Here's why: Buying stocks is a learning process for me. I find a company I like, and I review its 1-month, 3-month, 1-year, 2-year, and 5-year charts. I try to determine what I'd like my entry point to be. And then I stick to it. I decide what I want to pay for the stock, and then I do not deviate from that decision. But why bother when it's only a few extra bucks here and there to buy the stocks I want?

I might only have $100,000 now, but I might (will!) be in control of $1 million, maybe $2 million some day. Instead of buying 10 shares of a stock, I'll be buying 1,000 shares. When purchasing 10 shares at $32 instead of $30, I paid an extra $20, but I really paid 6.7% more than I should have. When it comes time to buying 1,000 shares, it's the same 6.7%, but now my overpayment is $2,000! By sticking to my guns now, by keeping my emotions out of the equation (buy now before it's too late!), I am training myself to not only buy stocks at the right price, but to avoid jumping in at the wrong price.

So even a 50 cent spread is a big deal, no matter how many shares you're buying. Train yourself to act with discipline now when you're not throwing alot of money around, and you'll be well prepared to handle greater amounts in the future.

Investing success (or not) for 5/16/07

Today the Dow, Nasdaq, S&P 500, and Q were all up! No more mixed markets like the last few days - all markets were up, and so was I. Today my TDAmeritrade accounts were up $715. I got paid yesterday, but was unable to pump any money into the market - mortgages, bills, and school uniforms for my daughter sucked me dry! I get paid again on the 31st, and a great portion of that will be invested.

Today's investing success:
Guangshen Railway (GSH) - up 5.5%. Look at this 5-day chart for GSH. That's a thing of beauty!

Blackboard Inc (BBBB) - up 4.4%. My position is up 69% in total.

Sadia (SDA) - up 3.7%

Rofin-Sinar Technologies (RSTI) - up 3.5%

China Unicom (CHU) - up 3%


Today's investing failures:
Planetout (LGBT) - down 4.9%. I now own $77 worth of this stock. F you executives at Planetout, get this stock out of the dumps! Look at this crappy 1-year chart.

My apartment building - out of my 4 tenants, one is causing trouble. We bought the building back in 2004, and this guy has paid his rent late every single month since then. We usually get his check between the 12th and the 15th of the month. However, as described here, we have not rocked the boat with the guy because we just can't be bothered with it right now. Just too busy to mess with him. If I get his check consistently by the 15th, it does no harm to our finances.

But lately he has been slipping. First he bounces a check back in February. Then he asks me to hold his April check until April 26th (long story, again described here). Since he paid me cash last month, I still have his April check. I just need to know from him when I can cash it. So I call him, leave him a message telling him to call me with information. This morning there's a note in our mailbox asking if I can hold that check until the 26th AGAIN. I asked the guy to call me to talk to me about his situation - I need to know what's going on with this guy's finances. If he talks to me, perhaps I'm willing to work with him. No call, just these sneaky notes in my mailbox.

The answer is no, I cannot wait until the 26th. I wrote him a letter and dropped it in his mailbox, stating that I need my money now, and I want to know what the hell is going on with him. I said that if I don't get my money, and I don't hear from him, I'm going to have to start eviction proceedings. I guess I didn't want to rock the boat, but I'm really rocking it now!

Stay tuned.

Investing success (or not) for 5/15/07

Another mixed day in the market, but another very lousy day for Q. My 5 TDAmeritrade accounts were down $606. The portfolio is bleeding a bit ... ..... tis but a flesh wound! The small caps I'm invested in are all fantastic companies, but they have bigger mood swings than large caps. Again, it just feels odd to be setting new records for the Dow while my net worth is taking a hit.

Today's investing successes:
Guangshen Railway (GSH) - up 4.3%. A nice three day run here.

Sadia (SDA) - up 3.8%. My position is up 76% here

Nuance Communications (NUAN) - up 3%. I am up 103% overall here.


Today's failures:
Peerless Systems (PRLS) - down 6.4%. My small position is now up 1%

Vaalco Energy (EGY) - down 4.3%. Tiny position, so I'm not concerned.

PlanetOut (LGBT) - down 4.1%. Surprise surprise. Read my rant here.

Scottish Re Group (SCT) - down 4.1%. I'm still up 30% overall with this stock.

Same as yesterday, I had well over 10 stocks that were off 2% or more. There are days like this, even when the Dow is up. This is no time to get discouraged. In fact, I am scouring my holdings looking for chances to add to my positions. I believe I'll find some buying opportunities, and I'll share what I've done once I've done it!

Investing success (or not) for 5/14/07

The market was mixed today, with the DOW slightly up and the S&P slightly down.

My portfolio was decidedly down - my 5 TDAmeritrade accounts were collectively down $717. Nothing took a massive nosedive for me, but several larger holdings declined, while the ones that were up today happened to be much smaller holdings. Just a weird day for me, with the market being basically flat, to have the portfolio drop that much.

Today's investing successes:
Guangshen Railway (GSH) - up 3%. I have alot of faith in my Chinese holdings, and each of them has performed well, except.....

KongZhong Corp (KONG) - up 2.7%. I opened up a position in KONG, and it dropped 17%. I opened a second position, and it kept dropping. With today's move, my second lot is back to breakeven.


Today's failures:
OYO Geospace (OYOG) - down 5%

Novastar Financial (NFI) - down 4.6%. I don't even care anymore.

Buffalo Wild Wings (BWLD) - down 4.25%. This stock seems to be prone to wild price swings, but definitely with a propensity towards UP. This has been wonderful to me, so I don't complain about days like today.

Whole Foods (WFMI) - down almost 4%. I am really starting to regret purchasing this stock. I really like going to Whole Foods, high prices and all. Their steaks are kickass - awesome meat department. I really thought they had a niche with high barriers to entry. Who knew Wal-Mart would start offering tons of organic food? Who knew hundreds of other local grocers across the country would (and could) do the same thing? The stock price got juiced a bit by the Wild Oats merger announcement back in February. But the stock has fallen again, and my lot is down 18%. Ugggh.

I had ten other stocks that were down 2% or more. Rough day in Q's portfolio.

Investing success (or not) - new feature

Today I'm going to start a new regular feature called "Investing success (or not)." On days where significant things happen in my portfolio, I'll write about it. I may also share updates on the apartment building in this new feature.

With this blog, I want to steer young people (and middle-aged folks too, if you haven't started) towards saving and investing. There are plenty of articles to write about that subject. But I also want to communicate with investors that invest primarily in mutual funds, or even money market funds. I am not recommending the stocks that I own and will consequently talk about. But I will be candid about what I own and which stocks are doing great and which ones are killing me. I hope that it opens the eyes of my readers to the wonderful world of small cap stocks - I have been buying them for almost a year now, and I have killed the market. My 12 month return on my portfolio of small cap stocks is 31.6%, versus 16.6% for the S&P 500 and 11.9% for the Russell 2000.

So take a look at these stocks, if you like. Do your own research and invest at your own risk. Here goes.....

It was hard not to have success today! The DOW was up over 110 points.

Today's investing success:
Novastar Financial (NFI) -- up 8.2% today. I'm hardly jumping for joy, as my lot is still down almost 87% - easily the worst stock I have ever owned, without peer! But any up days with this dog are welcome news to me.

Guangshen Railway (GSH) - up 6.3% today, up 41% over the last year.

Dawson Geophysical (DWSN) - up 5.7% today.

iShares FTSE/Xinhua China 25 Index Fund (FXI) - up 5.5% today

China Telecom (CHA) - up 5.25%


Today's failures:
PlanetOut, Inc. (LGBT) - down 6.82%. This after being down 29% yesterday. LET ME TAKE THIS MOMENT TO PUBLICLY FLOG THIS STOCK. I wrote here about LGBT, and that you want to keep emotions out of your decision-making. Now that my small holding in this company is down 77%, I say the hell with that. I hate this stock! PlanetOut is a media and entertainment company that caters to the lesbian, gay, bi-sexual, and trans-gender community; hence, their LGBT stock symbol. I read somewhere that this company could be a takeover target for News Corp. And I have nothing against the LGBT community, certainly nothing that would keep me from investing in a micro-cap stock. So I opened up a small position, just a few hundred dollars. Well, this one has been nothing but a total disappointment. I have no plans to sell, since I'd reap so little cash by getting out.

Peerless Systems Corp (PRLS) - down 7.19% today, up 8% from where I bought it. This one languished down near $2 before recently rebounding to above $3.50. My position is very small, so I'm not really fretting this one.

Diversify your stock holdings

Once I create labels and categories for my blog, this will get the "Duh!" label!

When I talk diversification, I do not speak of holding xx% in bonds, xx% in muni bonds, xx% in international holdings. I don't own any bonds - well-picked stocks will always outpace bonds. And I'm 36 and feel I'm too young to be conservative. Diversification for me means ensuring that no one position comprises more than 5% of my portfolio. I make two exceptions: 1.) I own Vanguard 500 Index (VFINX) and the S&P 500 SPDR (SPY), and together they currently comprise 9.3% of my holdings. I recommend that young investors start out with a nice base of index funds, and then move on to stocks and mutual funds, and 2.) I own an apartment building and a lakehouse that currently comprise 49.3% of my portfolio. That number is dropping as I refocus on pumping cash into my 5 TDAmeritrade accounts. I am very unconcerned about this number, as real estate is an extremely safe place for my money.

Why do I apply this 5% rule to my portfolio? Take a look at Dendreon Corp (DNDN) this morning. It's off a whopping 58% on bad news. Now take a look at the Yahoo Message Boards for DNDN (warning: if you've never been to the Yahoo Message Boards, it can get a little "randy" in there, so if you're offended by foul language, do not click the link!). There is a thread with over 60 posts entitled "my life is over. God bless." The person that started the thread is claiming to have lost one million dollars, plus another million on margin.

As previously stated, the Yahoo Message Boards are, needless to say, a little wacky, so take it all with a grain of salt. But has this not happened to countless investors before? Some folks that worked at Enron had all of their eggs in one seriously shaky basket. If this investor at Yahoo Message Boards was worth $100 million, then this 58% price drop in DNDN is no big deal. If this person indeed lost everything (at least on paper), then this person was not diversified the Q way.

Monitor your portfolio and ensure that no one position makes up more than 5% of your holdings. Then, when bad news strikes one of your stocks, the stress will roll right off your back, you won't panic, and you'll keep your focus on your long term investing goals.

Top 5 good reasons to sell a stock

Sell or hold? We've all struggled with what to do with a particular stock, whether it's risen 90% or plummeted 90%. Darren Rowse at Problogger.net is hosting a Top-5 Group Writing Project, so I would like to discuss the good reasons to part with a stock holding.


1. You need the money. For me, this seems like the worst of the good reasons listed here. But there are situations that mandate a sale. If you are a retiree, it might be time to liquidate some holdings to generate some cash. Or you may want to reinvest in an investment vehicle that can generate income for you (dividend paying stock, for instance). Maybe you're a father or mother and it's time to pay for college. Or maybe you're younger and have hit a money crunch (please set up your personal finances in a way so that this can't happen to you!) But sometimes, no matter what you do, you may get into a crunch, and if you absoultely need the money and have no place else to turn, you may have to sell.

2. You have a superior investment that you can make with the money. For me, I would only sell in this instance if I didn't have available cash laying around to make that superior investment. That's one reason I sold NRGY. I had invested most of my cash and needed some funds to invest in a stock I really liked. So I sold half my position (50 shares) and invested the cash in my new stock. Also, the stock had risen over the years and I just didn't want to own that much of it anymore. I originally bought it because of its dividend, but never really did alot of research on it. So I sold half for a gain and generated some cash. As I said though, for me the decision would have been tougher had I had some excess cash laying around to invest in the new stock - I would likely have held on to all 100 shares.

3. You need to rebalance your portfolio. Come to think of it, my NRGY sale also sort of fits here. I owned almost $3,500 of it, while many of my small cap stock purchases are for amounts between $500 and $1,000. I just did not feel the need to own that much of NRGY (besides the fact that the stock had been good to me). If one of your holdings rises 1,000% and starts to represent over 10%, 20% of your overall net worth, you might feel better about your portfolio if you sell some or all of it and rebalance. Of course, I hope you're not selling the next Wal-Mart (WMT) -- that's scares the bejesus out of me and it's what keeps me holding on to the majority of my small caps -- hope that I'm holding that next superstar stock. So besides my NRGY sale, I haven't had to or done much rebalancing. But it's not a bad idea.

4. The company you've invested in has changed. You bought into a company because of its story, but for whatever reason, times have changed. Circuit City (CC) was actually featured in the cultish business book Good to Great, but look at it now. Its price is lower than it was 5 years ago. AOL was once a stratospheric stock .... need we say anything at all about it now? If the story has changed, that is OK - time change, people change, hairstyles change. Get out if you must.

5. Your stock has risen to what you think it's truly worth. For me, this also means that you don't think it's going to go any higher, that it's leveled off. For the value investor, I think it would mean that there is no longer hidden value to be unearthed in the price and it's time to move on. Either way, if you feel like the stock is worth a price that is just perfect for you, whatever that may mean, it may be time to sell.

BBBB on the way up

Blackboard Inc. (BBBB) is up over 9% this morning on a 13-fold increase in Q1 profit. This was one of the first small cap stocks I bought. I got in almost a year ago, and my holding is up 60%.

Go small caps!

Two of my small cap stocks on the way up today

After a really nasty day yesterday, I have two stocks on the increase today.

Drew Industries (DW) manufactures RV components, and is up almost 15% today on strong Q1 results. I bought an original position almost a year ago at $28.95, then opened up a second position at $24.78. So this holding has been dragging down my portfolio's performance. I bought that second position because the price had dropped over 14% below my original position, but I hesitated to buy a sizable amount. The reason was gas prices - I was personally unconvinced that the RV business was a good one to be in during times of $3 gas (soon to be $4???).

Atheros Communications (ATHR) is up over 7.5% on great Q1 results. My position, opened up less than a year ago, is up 55%.

2 great stocks today, one dog

Two of my stocks are making nice moves today:

Loopnet, Inc. (LOOP), up 10%
Meritage Homes Corp. (MTH), up 7.8%

On MTH, I got in at 34, so this move is only helping recoup losses. I like this as a long-term hold -- home builders have been so beat up, and of all of them, I think MTH is positioned well for the long-term. I have had some folks look at me cockeyed for buying this, but it goes back to another favorite Warren Buffett quote: "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." The market is down on home builders - I see an opportunity to get in.

Besides Novastar Financial (NFI), the other dog of my portfolio is Planetout, Inc. (LGBT). Down 15% today, and down 64% for me overall. Luckily, I hold only 50 shares, so basically a $360 investment has turned into $130. I really thought they would get bought out by News Corp., but alas it hasn't happened yet. Q1 revenue failed to meet expectations; hence, the freefall. NFI and LGBT - two of those stocks that I have a hate-hate relationship with. Do any of you ever get "attached" to your stocks? I wouldn't call it love, but seriously - how can you not love a stock like Middleby (MIDD)? Up 77% from where I bought it less than a year ago? It is best not develop "personal relationships" with your stocks. But how can you help yourself from cursing a blue streak at NFI or LGBT? You just hate holdings like that!

The key is to not let your emotions, be they positive or negative, get the best of you.

3 of my stocks are making moves today

I have three stocks that are making wonderful moves today:

Portfolio Recovery Associates (PRAA) , up 11%
RC2 Corporation (RCRC), up 12%
Cheesecake Factory (CAKE), up almost 10%

I can't remember a day where I had three shoot up that much

Trade Triggers firing

My TDAmeritrade Trade Triggers are firing like mad today. I have never used their Trade Trigger service to actually have a trade execute automatically - I just have it send me an email. Here are the stocks, and the levels I deemed important at the time I set up the triggers.

MRH, dropped below $17.49
LOOP, below $16.01
IIVI, below $30.00
OXPS, below $23.99
LOOP, below $15.29 (I have two triggers, and they both fired, as the stock is down 4% today)
NFLX, below $21.37

I do not think I am going to buy MRH, nor NFLX. I have been tempted to open a position in NFLX, but think they are being put at a competitive disadvantage by Blockbuster Total Access. As I posted earlier, I added to my IIVI position today. I am considering opening positions in LOOP and OXPS, but have not done so yet.



UPDATE: literally 5 seconds after hitting the "publish button," another trigger fired.

BEBE, dropped below $17.45

IIVI on the way down - I'm buying

I own a small position in II-VI, Inc., which I bought some months back at $24.17/share. The stock is down 18% this morning on lower guidance for the remainder of this fiscal year. I added to my position on this drop - got in at $28.41.

UPDATE - now down over 23%! Oh well, I bought a little early.

Stock market panic

I was reading a March Wall Street Journal article this morning (I just can't throw them away till I read them) and came across an article on the subprime lender mess (see my earlier NFI post). It's actually interesting to pick up a one or two month old paper and read its contents with today's perspective.

Here we are knocking on the door of 13,000, and this article spoke of the troubles the market was having back then. "We're in a kind of panic mode," said one economist from RBS Greenwich Capital. It goes back to one of my favorite quotes of Warren Buffett: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." I love when the market overreacts, whether in general or to a specific stock I own, because it always presents a buying opportunity. Sometimes the panic even seems irrational - as far as I can tell, we still have a mess on our hands with the subprime lenders. This problem has not been fixed, and yet the market was really uptight about it a month or more ago, but has simply shrugged it off in April.

The worst recent example of this overreaction, in my opinion, was the recent British sailor hostage crisis with Iran. The market had a bit of trouble digesting this news. Of course we were all on edge over their capture, as we all wondered if they had actually done anything wrong. I had a tough time figuring out what this had to do with stock prices. Then, the headline in Businessweek read, "Stocks Jump as Oil Dips - Crude oil prices dropped on hopes the Iran hostage crisis will be resolved diplomatically." And then of course it was resolved, and the market reacted positively. Iran was still the same country after they released those hostages (a threat, a nuclear threat, a friend, whatever your opinion is) - nothing really had changed about Iran! Further, nothing had changed regarding the fundamentals of any publicly traded company, except maybe oil companies.

You can profit from these erratic market fluctuations. The tempation for so many Americans is to stay out of the market when there's signs of trouble, but to pour money in when things are on the rise. Do the opposite, to the best of your ability, and you'll do very well for yourself. Take a long-term view, and you'll not only be able to stomach market turbulence, but profit greatly from it.

Novastar Financial - OUCH!

Full disclosure: I once owned $1,000 worth of Novastar Financial (NFI), and now I own about $100 worth. @#$%&@!

First off, it's pretty disconcerting when one of your holdings drops by 90%. I had originally purchased Novastar for its high dividend yield, and I probably pulled almost $500 in dividends off it over the last few years. Nevertheless, it clearly ranks as my biggest investing disappointment ever.

And the great part is that it's not really holding me back. Besides owning a bunch of index funds, and Fidelity Contrafund (FCNTX), I own a basket of approximately 40 stocks. Novastar represented only a small part of my holdings, and that's of course intentional. The majority of my other stocks are on the rise - this dog dropped precipitously and probably isn't coming back. (The dividend is probably toast, too). But the pain was mitigated by diversification.

I don't even diversify in the classic sense - I don't own any bonds, and I keep very little cash around. But that large basket of stocks allows me to not sweat a little meltdown like Novastar's.

At this point, I'm not sure it's even worth selling - I don't need the $100 dollars. Perhaps Novastar will be purchased and I'll recoup at least some of my money.

Exchange Traded Funds

Motley Fool has a nice recap of the Wall Street Journal front page article of Thursday the 19th that discussed ETF's. Exchange traded funds are really skyrocketing in popularity, and the number of ETF's available is rapidly increasing. So much so that indexing patriarch John Bogle has had some very choice words for this growing industry (also a growing thread to Vanguard!).

For me, the bottom line is this: I believe that a core group of index funds is the right start for your portfolio. I own SPY, DVY, RSP, VTI, and FXI. I also own VFINX, which obviously is redundant since I also own SPY. I have not added much to this pile recently, as I've been investing much more in Small Caps. But I encourage anyone starting out to own some index funds. They are safe core holdings that are not expensive to own.

With all of that being said, I am not sure I necessarily need to own many more of these ETF's. There's one coming out that's going to own companies with high customer loyalty. Please do not mistake owning one of these for being diversified. Owning the Vanguard Total Stock Market Index is diversification - the rest of these super-specialized ETF's feel a bit gimmicky to me.

One note on RSP - this has been a wonderful holding for me. Perhaps I'm killing my diversification by holding it along with SPY, but I do not care. This fund owns all of the companies in the S&P 500, but without respect to market capitalization. It owns an equal amount of each company. I would argue that this will have your portfolio even more diversified than if you held SPY.