Part 1 - Ask Questions Part 2 - ...the Rising Sun...

Ask Questions

Did anyone notice the 100 point drop in the Dow yesterday? Sure - you noticed it. But did you bother to figure out why?

I'm very inquisitive by nature, and when shares fell so rapidly, I definitely wanted to know the reason behind it. (Vice versa for shares rising sharply)

Yesterday's dip was caused by an inverted treasury curve yield, which means that long-term interest rates are higher than short-term interest rates. While that doesn't necessarily mean anything to the normal investor, you should probably note that whenever the treasury curve yield is inverted, a recession is most likely on the way. (For more commentary on the inverted curve, see Twists and Turns in the Yield Curve by the Fool's Tom Taulli).

...the Rising Sun...

Recession has been on a few peoples' minds lately. Most of my financial magazines are coming out with their "2006 Investment" picks or choices or what not. While recession isn't a main concern for 2006, it has been mentioned a few times over.

So if your own country might be entering into a recession, is there any reason why you're not looking into foreign equities? While China and India are currently the foreign investment darlings, Japan is also a nice consideration. The world's second largest economy is on the brink of getting out of it's almost-2-decade-long recession. Japan's benchmark index, the Nikkei 225, reached a 5-year closing high of 16,194.1. (Our own DJIA, on the other hand, is reaching no highs. In fact, the DJIA will probably end the year with no significant gains or losses. FLAT. International equities markets are looking a little better now, eh?)

For additional stock picks and a little propaganda in my case for Japan (it highlights EWJ - iShares MSCI Japan Index - which I control shares of), download Forbes' 6 Stocks and 6 Funds for 2006.

*Bloomberg just published a good article about the lack of office space vacancy in Tokyo that's pretty interesting.

Am I diversified?

Like I've mentioned in the past, I like reading Jim Cramer's stuff on http://www.thestreet.com. I have to say, the most common question asked is, "Here are the stocks I own [and they list them]. Am I diversified?"

I used to track my portfolio through the Fool, but alas. Their portfolio function was deleted, either temporarily or permanently. Either way, it sucks. That's why I also track my portfolio through just plain Excel. I have several worksheets within Excel (dividends, individual portfolio breakdowns, industries, holding distributions, etc). I use my industries page to follow which industries I'm in, and I created a pie chart that shows this graphically.

(Sorry it's a little fuzzy) Yes, I realize I'm heavy in the "restaurants and bars" industry. I think it's alright for now, because they're not all technically restaurants (i.e. Panera Bread, Starbucks, McDonalds).

Anyway, back to the original point. How do you not know if you're diversified? Is it that hard to look it up yourself and figure it out? Each stock-type website (MSN Money, Yahoo! Finance, etc) has a company snapshot sort of page. Just look up all your companies, and see for yourself. I gotta say, if you're investing, and you honestly have no clue what industries you're investing in, you must not know much about your companies. If you don't understand your companies, how do you know you're investing in a good one? A fine point to ponder for the time being.

Let me leave you with another point to ponder - If you're diversified within industries, I wonder - are you diversified internationally?

Stuff a stock in your friends' stocking...

Last year I had an epiphany - I decided to buy my best friend and my boyfriend stock for Christmas. Seeing as both of them know me better than I know myself, they realized that it was a perfect gift from someone as stock eccentric as me. The reason behind my epiphany was - anything you buy depreciates immediately. iPods, TVs, cars- whatever. The second you buy it, it's already lost value. (Although it can be argued that because it came from a close friend it gains value, I'll argue back that it doesn't gain any monetary value.) I then started to think of gifts that only appreciate in value. Being the stock person that I am, it hit me like a ginormous bus. Buy them stock!

For my best friend last year, I bought 1 share of Sonic Drive-In (SONC) along with a $10 gift certificate to Sonic. I bought the share at $29.09, and even though Sonic has seen share prices in the mid to high 30s during the year, it is trading a hair under $30. Within one year, my friend had earned $0.90 on my Christmas present. How many people can say they've earned money off of a present?

For my boyfriend, he got a little more extravagant present - 3 shares of Google (GOOG). I wanted to buy Google for myself for the longest time. But seeing as how people have been screaming overvaluation since the day it IPO'd, I was afraid it would drop in the short term, and since I check my positions every day, it might've devastated me too much. So I bought them for him. He's made a cushy 130% return.

So the question is, what stocks should you buy? Marketwatch.com had a fund manager suggest four:

- Netflix (NFLX) - $24.43 (I kinda like this idea)
- Yankee Candle (YCC) - $25.85
- Tempur-pedic (TPX) - $12.37
- 1-800-CONTACTS (CTAC) - $12.51

I have two choices myself - although they're trading in the $30s and therefore might be too expensive to be classified as stocking stuffers -

- Starbucks (SBUX) - $31.66 - for those coffee drinkers a loaded Starbucks card (i.e. $5)would go along nicely with it
- McDonalds (MCD) - $35.50

I like to choose companies that I know they'll end up supporting. My best friend enjoys Sonic drinks. Sonic was the most obvious choice for her, because she'll stay loyal to a company she's already loyal to. Ownership will only increase her loyalty and thus drive earnings too.

Stock gifts NOT to give -

- NutriSystems (NTRI) - $39.20 - helps people lose weight through online correspondence and pre-packaged meals. The receiver will take the gift the wrong way. (*Note - this stock is on my watchlist though)
- Krispey Kreme (KKD) - $6.01 - you definitely don't want to buy friends shares of a company that may go under.
- Foundation Coal Holdings (FCL) - $37.26 - don't be giving your friends or loved ones that lump of coal for Christmas! (*Note - Other than the name, I know nothing about this stock)

Another alternative is buying one share through (the aptly named) OneShare.com. They send the receiver a nice framed (if you pay for the frame) stock certificate. I have to admit, they are quite good looking. But you have to buy it at a premium because of their "transfer fee". They still have the market prices as a base, but there's no way to compete with your own discount broker. For example, one share of Starbucks - SBUX - would be a total cost $71 ($32 market price + $39 transfer fee), whereas a share of Starbucks through my brokerage and transferred to my friend would cost $32 market price + $7 commission = $39. On the other hand, If I ever wanted a fancy schmancy stock certificate (which eventually I might), this would be the way to go.

Even though giving stock as presents sounds like a good idea, it may be too much trouble to actually go through with. If you and your friends don't share brokerages, it's a big hassle and you should contact your brokerage if that's something you really want to look into. Luckily, my friends and I use Scottrade, so we can transfer positions freely within Scottrade and all is well.

Also, don’t assume that because you love stocks that everyone does too. There were some friends that I chose to omit from my stock-giving because I know they would appreciate tangible gifts more. To each his own.

Anywho, remember that the holiday season is the time for giving – be nice to those who are less fortunate too.

Can't we all just be happy...for our company?

After the bell today, two of my companies reported news. Electronic Arts (ERTS) is acquiring Jamdat Mobile (JMDT) for $680 million. Personally, I think this is a GREAT move. ERTS is the big kahuna when it comes to video games. And considering technological innovation is making it's move toward smaller mediums (like the sleek MotoRazr, the Sony PSP, or merely the new iPod nano), this acquisition was the next logical step. Other ERTS shareholders apparently don't view this buy as being a positive thing, sending shares down 2.6% in after hours trading. On the other side, JMDT's shares rallied 18.71%, ending after hours trading +4.26 to $27.03.

Shuffle Master (SHFL) reported fourth quarter earnings after the bell. Quarterly profit surged 30% to $0.24 a share, which was inline with Thomson First Call estimates. Revenues rose from $25.9 million a year ago to $33.8 million. I hate it when companies report record earnings, and still shares slump immediately afterwards. Shares are down roughly 5% in after hours.

As a fairly satisfied investor in both companies, I don't agree with people dumping shares after what seems to be fairly good news. I was honestly expecting shares to go up after reading the news, but I guess you can't predict how individual investors are going to act. Investors are so fickle! So who knows? As long as these short term dips don't phase you too much, and you still believe in your company, there should be nothing to worry about.

Update: Apparently the first news feed I read about ERTS acquiring JMDT failed to mention that the video game maker was posting lower than expected sales in the first few days of December. For more information and commentary, see No Holiday Cheer for Electronic Arts. Now, in hindsight, the 2.6% slump of ERTS in after hours seems a little more justified now.

iBought iRobot

In the same holiday spirit as wives buying husbands tool sets so they can fix odds and ends around the house, this year's household fixing gift (I think) will ultimately be an iRobot consumer product. Picture this: You (the married female) open your nicely wrapped present and *gasp!* it's a vacuum. Immediately somewhat dismayed, the husband jumps right in and wows you with "But you won't have to vacuum anymore! It'll do it for you!" What he really means on the inside is, "Now the house will be clean and if it's not, it's so simple that I can make the iRobot vacuum."

All sarcasm aside, I really do like iRobot's line of consumer products. I think they're particularly fascinating and hope to purchase one myself soon. But I do think a Roomba or Scooba could be on a lot of shopping lists this year (because of the aforementioned mentality). Retailers are anticipating this too. I've seen advertisements for Roomba's and Scooba's at Sam's Clubs, Linens N Things, and Target - just to name a few.

Anyway, I digress. My whole revelation on iRobot being a hot item for Christmas prompted me to buy shares today. I was a little weary - statistically, companies that just IPO end up with their shares trading significantly lower on the one year anniversary date of the IPO. (Most obviously, Google is an outlier in that statistic, with shares trading up 360% since it's IPO a year and a half ago.) Since I'm not too patient, I give myself props for even waiting a solid month before purchasing. But I do believe iRobot has a lot of growth potential. In addition, iRobot has a solid and very satisfied customer base that looks again to iRobot to fulfill their vacuum's filter-refill needs and dream of the day when iRobot will fulfill their cooking needs or bathroom cleaning needs. (If you're bored, read through some of the Owner Reviews.) Not only are consumers chiming in on their love for their product, iRobot has actually been receiving it's fair share of awards for their Scooba this year. I mean, it is the first floor washing robot available for home use. (Oh. If you didn't know, the Roomba vacuums, and the Scooba washes, scrubs, and dries hard floors. Pretty ingenious, huh?)

IRBT's trading range thus far has been between $26.29 (IPO date) to $37.33 (two days after it's IPO), and is currently trading around $31. This will be one of my buy and hold positions. It has too much upside potential to risk cashing out too early.

New investment strategy

I love reading about new strategies on investing. I remember this one strategy to find hidden value - to only look at stocks with a P/B < 1.0.

With that said, I found a new strategy, that I have yet to try out. For legal ramifications, I probably can't spell out the strategy to you, so here: Jim Cramer's Mad Money Mailbag. It's the M*E = P equation.

P.S. I'm a huge Jim Cramer fan.

Get Excited for Income Tax Time!

I'm probably one of the few people in the U.S. that enjoys income tax time. Well, more specifically, I enjoy doing my own taxes - I don't necessarily enjoy the massive overtime I'll be working. But it comes with the territory. This year I'm looking at a ~ $2000 refund! It's also the first year I can itemize my deductions because of my mortgage. (That's a pretty exciting milestone for me) :)

Tax professionals will tell you that the "smartest" income tax return has either very little to pay or very little as a refund. People are always asking me why I choose to be "Single-0" (no dependents) and withhold more federal and state withholding taxes than necessary. Yes, the general aim of withholding taxes is to estimate income tax for the full year to offset any taxes you may need to pay. Thus having little to no refund or payment is the best. But, in a nation where people save very little, I withhold extra so I have one large lump-sum "bonus" come income tax time. Many people do approach this as giving Uncle Sam an interest free loan for the year. Yes - that's pretty true. But honestly, how many people do any patriotic duty to the U.S. anyway? Is giving Uncle Sam (who is in a ridiculous defecit) a few bucks of earned interest that terrible? I am personally otherwise unpatriotic, but this is the way I give back to my country. Earn interest on me. I don't quite care.

Now that it's the end of the year, it's also time to make some decisions.

• Are my stocks at a loss? If there are losses, are there gains to offset it? You can deduct capital losses (against any gains) of $3000 (which is the limitation) for married couples, or $1500 for single people.
• Is there a worthy cause that could use a contribution? Hurry up and make contributions before year-end so they count toward this year's income taxes. There are tons of organizations and causes that could use your money this year. The most obvious is Hurricane Katrina and Rita relief. Another is the Pakistan Earthquake relief. There's also local charities and the Red Cross or Salvation Army. Personally, since I already contributed to the hurricanes earlier, I'm going to donate some money to the Pakistan Earthquake relief. Other countries need help too.
• Or (on the same note of donating), donate old (but usable) items to the Salvation Army or Goodwill. Donate up to $500 worth of items without having to itemize the contribution. (Trust me - itemizing it will take up more time and effort than it's worth)
• Make your January 1st mortgage payment on December 31st. That way, you have an extra month's mortgage interest to deduct. (You better hurry up and deduct mortgage interest while you can - before Congress eliminates it!)
• Pay your property tax bill on December 31st and deduct your property taxes this year.
• Start thinking about your retirement account contributions. If you haven't already started one, perhaps it's time to!
• If you're thinking about making your house more energy efficient, WAIT! 2006 will have better tax credits for energy efficiency.

Oh and off the top of my head, here are a few changes that may be good or bad for you:

• The standard deduction has been raised: Single $5000, Married $10,000
• The mileage reimbursement rate was raised (twice) to: 40.5 cents per mile from 1/1/05 to 8/31/05 and 48.5 cents per mile from 9/1/05 to 12/31/05 (because of record gas prices).
• IRA contributions have increased to: $4000 for those under 50 years old, and $4500 for 50 years old and up.

And remember - tax preparers always appreciate it when tax information is somewhat neatly organized. In the past, some clients have given us tax information shoved in shoe boxes and dresser drawers. Give people the same courtesy you'd want for yourself. :)