Tuesday, April 29, 2008
Bank on China Update
I hope you were able to purchase last weeks stock China Merchants Bank Co Ltd symbol: CIHHF. We were able to make a quick 11% gain in the past week! I will be paring back on my position but the stock will continue to do well and I don't plan to completely liquidate my entire position. Stay tuned for my next China play that I am working on right now.
Subscribe to:
Post Comments (Atom)
5 comments:
Congrats on the quick profit.
Speaking of banks, my family and I have been buying nothing but various bank stocks in the last few months, since they are all undervalued at this point after the mortgage meltdown. We target bigger corporations such as Bank of America and WaMu, which are currently way down, but are not going anywhere (meaning it's only a matter of time before they bounce back).
I'd recommend buying up larger banks for anybody who is looking for a long-term holding strategy, as the unrealized gains will come in due time, tax-free until the cash is needed. On top of that, banks are always good about throwing the investors some good ol' dividends.
I would be cautious with Wamu stock, also their dividend is too small to make a difference and may be completely wiped away when this is all said and done. If you are looking at holding big banks for the long haul stick with JP morgan, US Bank, and B of A.
Also be careful of falling into the "dividend pays me to hold" camp as you now need almost 8% return per year to keep up with inflation after capital gains tax on dividends and the bank stocks may not be done going down.
My next blog will also talk about how the rules have changed with regards to the U.S. stock market and buy and hold no longer seems like a good option as it once was.
I don't think long term investment will ever be a "lesser" strategy for most people, but I was taught at a young age to believe that (so I'm not completely objective in my text below).
My family has been doing nothing but long-term investing (property and stock) for four generations, so again, I'm naturally biased in favor of longer term strategies over churning stock (which I realize many people have made good money doing). But since it's been ingrained into me from a young age, here's my understanding of why "buying and holding" worked so well for us for over seven decades:
1) We always buy up companies in industries when they're in the worst of times. Companies that are still surviving at that point (B of A, CitiGroup, or WaMu for current day example) most likely will bounce back in the long run (and when they do bounce back, we'll gain a lot of tax-free net worth as long as we hold on to most of it).
2) Over the years, we accumulated companies that were all bought very low during recession years. So while it's impossible to catch a stock perfectly at its bottom every time, you gain so much from buying blue chips near the bottom, the difference is moot.
3) Here's the best part: only about 90 percent of the net worth gained is taxed. That's because we don't sell the stock unless cash is needed. And when we do need the cash, we're not selling off a large chunk. In fact, most buy & holders sell the stuff that hasn't gone up much (to avoid taxes) and hold-on to the investments that continue to climb (if it's a strong company, their's no reason to believe getting taxed to put that money elsewhere will profitable enough to cover the taxes, so there's no good reason to sell besides needing cash).
In short, I don't really see "buying and holding" as a real strategy, but just simply investing in companies you believe will stay intact through thick and thin (and will gain tax-free net worth over the long haul).
Conversely, buying and selling all the time isn't really investing, it's gambling, which requires much more strategy (hence the fun). A smart gambler can sometimes make more than a smart investor, but since most of us don't have the research time to intelligently gamble on the market, we're more likely to maintain our wealth with long-term blue-chips instead.
With that being said, I can see the appeal of buying/selling constantly, but because of capital gains tax, commissions, and potential big losses, I doubt buying/selling will yield better returns on average than investing for the long term.
But since you do all the research, I'm sure you can make more with high turnover than most people can. So maybe for you, churning stock will increase your net worth over long term investing. But for most people, I doubt that there's any better strategy than simply buying a diverse group of blue chips, and timing your buys for when the stocks are close to the bottom.
Opps...I made a typo. I said:
"Here's the best part: only about 90 percent of the net worth gained is taxed."
I meant to say, by holding on to 90 percent of your net worth instead of selling it, that 90 percent will avoid taxation.
On a side note: I think somebody who is highly diverse (in both property, stock, and other investments) will make decent money no matter what their strategy is (as long as they stay clear of too many volatile investments).
WOW, Wamu is down 40%+ since this comment was posted!I hope it's just "a matter of time" before people get their 40% back!
Post a Comment