The Noble Pundit

No More Tonight

I've worked nearly 35 hours in the last three days and am barely awake. There will be much more tomorrow after I've had a good night's sleep (and am in the middle of a day off, finally).

Looking For A New Web Hosting Company?

I just wanted to make a quick comment on the recent outage that I had to deal with.

My webhost, One World Hosting, recently did an upgrade to the server my site is on. During the upgrade, they failed to upgrade the Berkeley database that runs the backend of this site.

When I found out, I was able to work with the company (one rep in particular) and was able to get the situation resolved in a matter of about 36 hours from when it was first reported.

My father also had major problems with his site (which is on the same box) and they had his issue corrected in less time than mine.

If you're looking for a new webhost, take a look at One World. They are a little more expensive than some of the other hosting companies, but their customer service is top-notch.

Investing Strategy - Part I

Buy and Hold

The most basic strategy for novice investors (and serious ones also) is a strategy of buy and hold. Essentially this means that you're going to find a good stock (usually through a thorough fundamental analysis) and then you buy it to hold for the long term (defined here as 5 years or more).

Buy and hold is only effective when the stocks are well researched and then are monitored on a regular basis. This is not buy and forget. Every position in your portfolio should be re-examined at least every six months. This doesn't need to be the same as the initial investigation, you should just simply be looking to make sure that nothing has really changed since you bought the stock in the first place. The changes in both Enron and Lucent, among the multitude of poor performers from the last few years, were telegraphed more then a year before the collapse. A regular re-examination of the fundamentals (and the news) would have kept you out of those stocks during their final respective collapse.

Why would someone want to use a buy and hold strategy? After all, it means that there are going to be times when you're holding the stock as it's declining in price.

The idea of the buy and hold is that quality companies will always perform well over the long term. A 20% one year decline isn't really all too important if over the course of five years your average annualized return has been running around 15%. Over the long term, you should really be concerned with your overall return, not a one-year return that may not be representative of the quality of the company.

Buy and hold is one of the best strategies to use for the core portion of your portfolio. Just remember, it is buy and hold, not buy and forget. Keep vigilant with your stocks.

My Plan

OK, the last part of my series of investing tips has now been posted. I'll have a wrapup post with links to all ten sections up sometime tomorrow hopefully.

I will also be starting my new series on investing strategies, the first post - on the buy and hold strategy - is almost ready to go.

I'll also have a little on the recent server problems I had and maybe one or two other personal type topics.

This will all be in addition to my usual news and politic blogging.

Just as soon as I can done with the 12 hours away for that work stuff.

Investing - Part X

Choosing the right account

OK. This is the tenth and final part of my four part series on investing basics. This time, we're going to focus on making the right account type selection.

How hard can it be? You go and open an account with whatever broker you chose after going through the questions, right?

But do you open a brokerage account, a margin account, an options account, an asset management account, an IRA, a Roth IRA, a 401k...which choice is the right one?

Depends on what you're looking to achieve in your investing. Are you looking for maximum flexibility and nearly immediate access to your money? Are you looking to defer some taxes and are willing to give up penalty free access to the money? What kind of trading are you looking to do in the account? These are all factors in deciding which type of account to open.

For most people, one of the most important factors in deciding which type of account to open first will be whether or not your employer has a 401k with matching. If they do, and you're not maximizing the portion that they match, putting extra money in the 401k needs to be a top priority. The matching money - it's free money. Take advantage of it!

Once you're sure that you're not leaving any free money on the table, then we can look at opening an actual account with a broker. First question needs to be: why am I investing this money? Is it for retirement? Is it for a new home purchase? Is it for a vacation? What is my reason?

If your reason is retirement (or a down payment on a house) then an IRA account will probably be the best way to go. IRAs have a few advantages, and a couple of significant restrictions.

First, your money in an IRA will grow either tax deferred, in the case of a Traditional IRA, or tax free, in the case of a Roth IRA. With a Traditional IRA you also get to deduct the contribution from your income for this year (but you have to pay taxes on everything as ordinary income when you take it out). A Roth IRA is funded with after tax money, but as long as you wait until 59 1/2, you can take it out tax free - plus with a Roth you can always take out your contributions with no penalty because the money was already taxed.

With any IRA account, to reap the full benefit of the account, you need to leave the money in until age 59 1/2 (it can also be used the fund a portion of a first time home purchase with no penalty, as well as a few other oddball penalty exceptions that are almost never used). If it is taken out early it will be subject to a 10% penalty, on top of any other taxes that may become due on the funds.

Also, IRA accounts have other, special rules. For instance there is virtually no options trading allowed in IRAs, only covered calls (or protective puts - see CBOE.com for more information on these strategies). There is also no margin allowed in IRAs. And finally they are all Cash Up Front or CUF, meaning that the money has to be in the account before a purchase can be made. There are no extensions available in IRA accounts.

If for you're investing for most any other reason, or if you want to trade options (or short stock - ie: borrow it to sell and buy back later for less) then you'll probably want to look into a standard, taxable brokerage account. Regular brokerage accounts come in several different flavors, which represent different features and trading possibilities.

You really have three main features on brokerage accounts: margin accounts, asset management accounts, and option accounts. Your account may have any combination of these features, none of them or all of them. But why would you want them?

The margin account feature is the most common for an account. Essentially it lets you borrow money against your existing stock or you can borrow stock from others to short. Margin is the one feature that brokerage firms are the most loose with and is also the most dangerous. Margin calls (a condition where your ownership in the account is less than the company or the NYSE requires) can and have wiped out entire fortunes. If you're not careful, you can end up with nothing except a debt to the brokerage firm. Make absolutely sure that you understand the firm's rules for margin before adding or using this feature on your account.

The asset management feature is really the brokerage industry's first foray into the banking world. Essentially they give you checks and a VISA/MasterCard debit card for easy access to the money in your account. Usually the free cash balance in these accounts will be interest bearing (although not much interest), giving them a slight advantage over traditional bank checking accounts. There are disadvantages in most cases. Most brokerage firms don't accept cash. Branches are usually only one or two per town. Checks, from anyone - including major corporations, are usually held for up to a week before the funds are cleared. Make sure to check into fees, minimums and restrictions before making any decisions about this type of account at your firm.

Finally is the options account. This is basically the additional qualifying that the firm is required to perform before allowing you to trade options at their firm. Differing levels of experience and financial resources will allow for different trading strategies. Usually riskier strategies will require more experience and resources. Firms have put this in place as options do have additional risk involved and they want to make absolutely sure that they are covered from liability in case you manage to make a mistake. Check with your broker and find out what exactly their requirements are and what you can do at the different levels of approval.

Selecting the right type of account for your investing really isn't all that difficult, but it is very important to do it right. Take some time to research your different options and their various fees and restrictions. Also look at the fee waivers that might be available from your firm. Then with your goal and strategies in mind, the right account will usually present itself.

Oh Happy Joyous Day!!!

They finally got my access restored! Now if only I didn't have to work so much this weekend............

I'll try to get a few of the posts I've been working on up tomorrow night.

Thanks for your patience.

Housekeeping Item

Also, tomorrow I'm going to post the last in what I will call my "Basic Investing Tips" series, which will be on selecting the right type of account. A seperate post will then be created with links to all 10 sections and a permalink set up in the sidebar.

After that, I will start a series of shorter posts on specific trading strategies. Nothing real, real advanced, but just kind of a basic overview. No promises this time on how many posts will be in the new series :-)

A Few Quick Links

OK, I'm calling it a night early tonight. Here are a few of the stories I found that I didn't write about:

Greenpeace Tells Coal Industry To Shut Up Shop - what would they propose in it's place? Nuclear energy?

Teacher Fights For Right To Teach Religion After School - isn't the state denying her her right to teach religion on her own time a violation of her right to practice her religion without interference? (I may write on this tomorrow as it really bugs me)

Drivers May Be Taxed Per Mile - No government intrusion into private life here...

Regime Change And Nazi Germany - strikes me a bit as hindsight and a bit as reasonable analysis. Kind of an odd article, I want to write about it, but don't know where to start.

Muslims Protest TV Show On Bombers - tough luck. If you don't like, get the merchants of hate under control.

Good Parents & Bad Parents

I read with some interest the latest post from the Not-So-Venomous-This-Time Kate over at Electric Venom in which she describes receiving the perfect birthday gift. And from the way she describes it, it couldn't have been any better. There is nothing in this world that is more important than family. Nothing.

I just couldn't help while reading her story, juxtaposing it against my own situation. Almost everything is the exact opposite.

My girlfriend has three kids with two different fathers (I have none of my own). But instead of fighting to keep them out of their lives, we spend a great deal of time trying to remind the kids that they actually do have biological fathers.

With the oldest, it doesn't much matter to her. She knows that her father is a drunk whose only really care is where the next beer is coming from. She knows not to expect him to keep any promises.

It's the two little ones that are tough.

Christmastime, we buy gifts and put their father's name on them, so that they think he cared enough to buy them something. Phone messages? We have to make them up, not throw them away. The only thing we lie about is that we don't tell them that Daddy is coming around because he stole from them so he could hit the crack pipe; we tell them that he's working or that he went back to his Mom's house. I hate perpetuating a false myth, God do I hate it, but they're too young to know the brutal reality of their father. They need to be kids first; they can grow up later.

There are times that I wish these kids, my kids, could have parents that cared even one-tenth as much, no one-one hundredth as much, as Mrs. Kate does for her daughter. Even an acknowledgement of their existence would be nice.

If only they could be so lucky.

600 MPH Subways?

Think it sounds a little far fetched?

One man has actually written a book promoting the idea of underground subways that run at the speed of jet airplanes.

Is it technically feasible? Sure. I think that his cost of $55 million a mile seems a little low to me (no concrete reason behind that thought, it just doesn't pass my "smell test"), but if we want to build it, we can do it. No problem.

But is it practical? I don't think so.

Who would want to pay money to sit in a tunnel for 4, 5, or even 6 six hours going cross-country? I've ridden through the Chunnel three times now and that's about as long as I want to spend playing mole.

I believe that more efficient use of our transportation network is needed. And rail is really the component that is most lacking. As a nation, we never allowed the restructuring of our rail network (Interstate Commerce Commission stood in the way) and as a result, we have relatively modern and efficient air and highway networks, but a rail network that is still designed really for the 1950s.

I posted early on what my idea of an efficient transportation network would look like. Basically, it was cars for trips under about 75 miles, trains from there to about 500 miles, and then airplanes for the longer distances. What it would achieve is about a hour and a half driving range, about two and a half hours by train, and no less than an hour in the air. Of course it is all predicated on an efficient local mass transit system at the destination (which makes it impractical basically everywhere in the US right now), but it is a nice perfect world goal.

The big key component that is missing (outside of local transit) is high-speed rail.

But this is not the answer. $55 million a mile is simply too much.

We should instead be focusing more on developing and constructing real high-speed, grade free (no crossings, roads go either over or under bridges), electrified rail lines. Out existing network could be used with some heavy duty reengineering.

Would it be expensive? Sure would. But it would cost less than the subway "pipe dream."

We need more national debate on our transportation network. It is my belief that we have neglected one of the triad of road, rail and air.

But pipe dreams like this are just too much. We need something innovative and practical.

Airlines and Repair Stations

The media is starting on one of their favorite crusades, the Airline Safety Crusade again. Every few years they seem to go off about something having to do with airline safety. This time we're back to one of their old standbys - the repair stations.

Repair stations are basically contracted repair facilities. They can usually do most of repairs at a lower cost than the airlines, as they aren't subject to the same union rules. They do however, have to complete the repairs to the same standards as the airlines would be held to.

In theory there should be no difference in quality between an airline doing its own maintenance or a contractor doing it for them. In practice, there really is little to no difference. So why the big stink in the media about repair stations?

It mainly has to do with misconceptions. One of the biggest problems facing the airline industry over the last few years has been that of undocumented parts. Basically these are parts where the required FAA paper trail is incomplete. Sometimes the parts are undocumented, but quality rebuilds. Other times they are parts that should be taken out of services. Either way they usually they cost substantially less than documented parts.

The media likes to portray undocumented parts as a problem unique to repair stations. But it's not. During the last big sweep for bad parts, the major airlines were finding substantial quantities of them in their inventories too.

Now undocumented parts weren't the issue in this case. This time it was a trainee and his supervisor skipping 12 steps in a maintenance manual. Surely this wouldn't have happened at a major airline in the in-house repair facilities, right?

Don't bet on that. Airline mechanics are just as likely to skip steps as repair station mechanics. If anything, the guy at Joe's Fleet Maintenance is probably going to do more repair work than any airline line mechanic.

Now I'm not condoning the trainee and his supervisor for skipping 12 steps, if that's what they did. There is no acceptable excuse for that kind of inaction.

Just don't let the media hype affect you. An airplane repaired at a repair station is every bit as safe as one fixed at an airlines base. If there is a problem with a lack of oversight, it is industry wide.

That should be the scariest fact in this case.

A Few Quick Links

OK, here are tonight's stories that didn't quite make the cut with me for whatever reason:

Palestinian Authority Says Rift With Hamas Can Be Healed - Yeah, right.

In Defense Of Islam - an American Jew puts forth a defense of moderate Islam.

Give Me A Job - Or I'll Sue - Frivolous lawsuits hit Britain.

Elf, Oiling The Wheels Of Corruption - More reason to feel good about cancelling their contracts with Baghdad.

Watch Out, Kim Jong Il, The Heat Is On - Anti-North Korean psyops

Investing - Part IX

Choosing your broker

OK, it's been a few days since we last had an entry in the Investing Tips series that I've been running. This is the ninth part of my four part series. Potentially, your choice of broker may have one of greatest effects on the overall performance of your portfolio.

So where to start?

Well first, how comfortable are you with making your own decisions and living with the consequences? Believe it or not, but when it comes to investing, most people are not able to live with the consequences. Next, how much time do you have to devote to your investing? Third, how much knowledge do you have, and more importantly, how much are willing to invest in learning about investing?

Why are these questions important?

Well, there are really just two types of brokers: full-commission and discount brokers. Oh, they'll both try to fool you into thinking that they fall into some mystery category that is neither full-commish nor discount, but reality is that they will be one or the other. Finding a quality full-commission broker is like finding a gold nugget. Finding a quality discount broker is like hitting the Comstock Lode.

That's not to say that full commission brokers are necessarily better than discount brokers. It's just that full commission brokers tend to take your account more seriously as you are their client, not the firm's. Discount brokers tend to look at you more as a number, and everything that they are measured on is numbers. The company will view it as more important to talk with 100 clients in a day than to have 10 good conversations. That small difference in perception goes a long way towards defining the client/broker relationship. Both sets of brokers will have similar bases of knowledge. How much of gets imparted to you, the client, is the major difference.

So let's go back and look at your answers to the questions in light of the differences in the types of brokers.

The questions really answer three important questions: how much independent are you (as an investor), your time constraints, and your knowledge. The first question will also be greatly influenced by your previous investing experience.

It generally works out that if you're inexperienced, don't have much investing book knowledge, and are looking for someone to hold your hand, a full commission broker will be your choice. He's going to be much more willing to take the time to time and effort needed to explain what he's doing and why it's in your best interest (this last point is key, if he's not willing to explain any recommendation in terms of your interest then you need to reconsider using that broker). He is also going to spend much more time helping to find just the right investment choice for you. You'll pay a bit more (sometimes quite a bit so), but in return you'll receive individualized service and commitment.

On the other hand, if you've invested before, you've got some knowledge and some time on your hands, you can do very well with one of the discount brokers. Most discount firms will provide you with most of the needed tools, like research reports and market updates, to get you pointed in the right direction and then they watch as you go off and do your thing. Theoretically they will watch over your account to make sure that you're not destroying yourself. In practice, you can do pretty much anything without someone stepping in to question or guide you. It's only when the firm is at risk that they start to care.

So if you need lots of help, you'll want to go the full commission route. If you want to be left alone, you'll want to go the discount route. But what if you fall somewhere in between?

This is where it's going to get a bit trickier. You'll have to weigh what's most important to you. If you have experience and knowledge, try talking to a full commission broker and see if he'll discount his rates some if you do most of the work. That tact might be successful, it might not. On the other hand, if you have some time and a willingness to learn, but not much experience, a discount broker with branch offices might be the best way to go.

But what if you make the wrong choice? Or what if your situation changes?

Don't be afraid to switch brokers or your type of broker. Most firms do charge Transfer of Account or TOA fees when you take an account out of their firm. The fees normally run between $50 to $100 per account. Weigh that one time cost against the expected benefit of transferring. Say you've learned a bit about picking stocks and you're looking at switching from a full commission broker to a discount firm. The full commission firm has a TOA fee of $100, but you will save $75 per trade at the discount firm. Pure economics says that at two trades, you're already more profitable. Just don't forget to consider the value of the advice the full commission broker gives you. That might be worth another $1000 or more per year (it's all subjective, though. The question is how is his advice worth to you).

By the same token, if you're at a discount firm and you're losing your shirt on poor trades, switching to a full commission broker might be just what you need. His higher cost per trade, and the discount firm's TOA fee, may be more than offset by a reduced number of trades and more profitable trades when they are made.

But more than anything else, the most important thing when picking your broker is: how do you feel about them? The cheapest discount firm in the world will be a poor choice if you can't feel comfortable with their skills or knowledge. At the same time, the absolute top performing full commission broker will be a poor choice if the two of you can't properly communicate.

Before committing to a broker, talk to them. Ask them about favored strategies. Find out what the broker likes because it will influence his recommendations to you. If you're looking at a discount firm, call them at different times of the day. See what the typical hold time is like. Request samples of their research tools. Look around their website; see if it seems intuitive to you.

With either type of firm, don't be afraid to ask questions. Don't be afraid to put them on the spot. And if they don't make your cut, move on to someone else.

Choosing your broker will probably be the single most important decision that you'll make in investing. If it takes some time, that's ok. If you're not absolutely comfortable once the decision is made, don't be afraid to change. You are the boss of the relationship. Don't ever, ever forget it.

France Doesn't Have An Islam Problem

France has one of the largest Muslim populations outside of the Middle East. It also has one of the most militant Islamic populations. Yet Paris continues to look the other way as more and more stories like this one about Islamists causing problems at a French university keep cropping up.

Administrators commenting that female students going from jeans to burqas in four months is a problem. Students complaining that they came 1700 km to school to get away from the Muslim fanatics. And reports indicate that the worst rabble-rousers aren't even students.

Students are showing up at classes and exams with burqas, refusing to reveal their faces to men for identity checks. One student sent her brother – dressed in a burqa – to take an oral exam for her. His large feet apparently gave him away.

And the government doesn't do anything to protect the educational integrity of the school. The best that has been done is that the head of the school has called an emergency meeting of the board to discuss how to deal with the problem.

Muslim students complain that they paid their tuition so teachers should respect their faith. Yet they have no concern for the wishes and desires of anyone who paid their tuition to get a real education.

The fanatical students are attempting to impose their beliefs on others - and they cite "egalite" as their reason for doing so. They believe that it is their right to have their wishes and desires adhered to "equally."

They are true to the French Socialist dream - equality of outcome. They want everyone to worship as they do - to believe as they do - because only then will there be equality.

The students fear the idea of equality of opportunity because they know that their ideas are intellectually bankrupt. They know that their own people are fleeing great distances to get away from the religious fanaticism. They know that if secularism, Judaism, or Christianity is given an equal opportunity, the backwardness of the fanatical Islam will be exposed.

The wake up call is being given. Who is going to open their eyes?

Protecting Iraqi Culture?

Looks like the National Museum in Baghdad is back at the top of some people's compilation of complaints. ALESCO is holding meetings on how the Arab nations are going to protect Iraqi culture in the aftermath of the US-led war.

Their main complaint? The National Museum, again. This despite even the BBC reporting that the number of items missing from the main collection totals up to the whopping total of...........

47 items.

Not the bulk of the collection. Not the majority of it. Not even a significant number out of the 18,000 pieces.

There are 47 pieces unaccounted for.

It's time for the anti-warriors to find something else to latch on to. The looting of the Baghdad museum is becoming almost as discredited as the Afghani death totals.

The looting of the Museum of been pretty well proved to be a non-event. It's time to move on.

America's Decline?

You knew it had to be coming. As our economy continued to weaken, and in the aftermath of the War in Iraq, the envy of the world would be turned against us.

Pravda is the latest to try to take its shots at the US. One of their writers, Anton Golovin, has written an article in which he almost gleefully predicts the downfall of the US as a world superpower. He derides our victory in Iraq as being the fault of corrupt Iraqi officials and a need for the US to secure, essentially, tribute instead of loans.

The author fails to recognize two relevant points though.

One, everyone can copy us and narrow the gaps in economic efficiency, but when they copy they will never surpass us. Our nation is set up to reward inquiry and innovation. Most other nations are not. In order to actually surpass us they would have to leapfrog us in some way - and their systems (economic and political) don't sufficiently reward those kind of innovative efforts. So the likelihood of someone coming up with an innovation to put them ahead of the US is unlikely.

Second, with the exception of China, demographics are working against the other major "threats" of the EU and Russia. Both the EU and Russia are saddled with aging populations and heavily socialistic states. These nations, rather than being a threat to us, are on the verge of implosion. Their populations simply cannot support the social structure that has been imposed by the rampant spread of socialism since the end of WWII.

The US will also be coming up on a similar demographic problem, but we don't have quite the socialist social structure of the EU and Russia. We will strain our social fabric to the breaking point, but the problem is not as deep and the structure not as onerous as to cause a European style implosion.

And what about China? What's going to happen when their economy surpasses that of ours?

Not much. China's economy, measured on a per-capita basis, will still be tiny. And the composition of their economy isn't all too hot either. They do very, very well with manufacturing cheap, disposable consumer goods. Their getting better at the high tech end also, but they aren't anywhere near as innovative or efficient as the US.

Where they really fall down, as does most of the world, is in the very low tech, boring realm of food production. The US (and Canada) still feeds the world. It is only through our ability to produce copious quantities of food that the rest of the world can even begin to concentrate on the other parts of their economy. Other nations pay subsidies to encourage farmers to grow more food; we pay subsidies to encourage farmers to not grow anything.

If everyone stopped importing oil to us, it would severely hamper our economy, no doubt about it (it would also crush everyone else’s economies as well so it wouldn't be too bright). But we would figure out how to rebuild our national energy system to work without the massive supply of cheap oil. We'd use more coal and much more in the way of nuclear energy. But we would figure it out. That's the American spirit.

But what happens if our food exports stop? China, Russia and Europe have to make major reallocations of labor to try to feed themselves.

Which means that the US still holds the cards in the end. Even if China surpasses us in terms of absolute economic size, we will still hold the most economic influence of any nation simply because we can dictate major disruptive shifts in the economies of others.

I've noticed several articles coming out from people who are green with envy and who are looking for any American weakness to exploit as a salve for their own wounded egos.

Just remember, it's not a good idea to write off and dismiss as weak the United States of America.

Why Bother?

Oh, the horror!

The Norwegians are getting ready to pull their soldiers out of Afghanistan because of the risk involved.

I guess no one ever told them that when you're in the military sometimes bad people shoot at you. Sometimes you might get hurt.

The fact that they're part of a "Security Force" doesn't change the fact that it's dangerous over there still. Helping to establish a secure environment sometimes means coming in to conflict with those who, for whatever reason, prefer anarchy.

This is why we shouldn't be relying on fair weather friends. If Norway doesn't want to risk their soldiers, but they want to contribute to the war on terror, maybe they should just stick to trying to talk the EU out of supporting the terrorists.

But then if they were really serious about contributing, they wouldn't be pulling out when everyone else is counting on their support.