Archive for the ‘Investing’ Category

How do you know you’re cool? You wear body armor of course.

Some things are just plain silly. A good example is this fashion article from the NYT called “A Look That’s Bullet Proof.” 

I don’t usually read the fashion section of the NYT, but  I have personalized my google news aggregator and it provides me with a section called recommended reads. I have found that the recommendations are rather good. I am either informed, shocked or appalled.

At first I thought this article fell into the last category, appalling, because the article describes how people are now wearing bullet proof vests and other body armor as fashion accessories. The whole idea made me recall the incident with my son and the light saber he wanted for Christmas.  He didn’t get what he wanted, but he still believes that we could have gotten him a real light saber in America. He rationalizes the oversight by saying we didn’t get it for him because it’s too dangerous. So, to me, the whole idea that people are actually considering wearing bullet proof vests and other body armor as fashion accessories only seems to feed into this image that my son and other like him have about America. What kind of message are people trying to send? I know how my son would understand it.

After I was initially appalled, I began to wonder: “Why did google recommend this article for me?” And then I understood.  I realized that their was a possible upside  in this fashion trend for me.

In the summer of 2002 in the lead up to the war with Iraq I bought stock in a company that manufactures body armor, DHB Industries, Inc. Although I can’t justify buying stock in companies that manufacture offensive weapons, I though a body armor manufacturer would be a good play.

My reasoning: Bush is a madman. There will be war in Iraq. It will not be as quick and easy as he believes. There will be a lot of urban fighting. There will be partisans, and an insurgency. There might even be civil war. We will be there for a long time and our troops will need protection.

My initial investment looked promising. I bought 100 shares at around $4.50 a piece. By mid-2004 the shares had zoomed to $25 each and there was no end in sight to either Afghanistan or Iraq and then something completely unexpected happen. The company’s frontline product which it had developed with DARPA was recalled. See wiki article on the Interceptor Body Armor if you want to know more. 

The stock plummeted faster than I could dump it. It, of course, didn’t help that the company was saying one thing and the US military wasn’t saying anything because it was a matter of national security and troop protection. The price was dropping but I had no information regarding why it was dropping. Obviously some people were in the know and they dumped the stock by the boat load, but others like me were not. Due to the lack of information I decided to stand pat. By 2007 it was clear what the problem was and many of the uniformed large investors were angry, so they sued. My investment wasn’t large enough to qualify me as a participant in the class action suit against the company, you had to have $10,000 or more invested and so today I am stuck with stock that is valued at .38 cents a share. 

So, my question to you is: Are you cool? Do you have your own body armor? Do me a favor, and buy your own body armor today. Make sure it says: Point Blank Solutions. Here’s a link to their product catalog so that you ca get yours today.

Thursday, January 21st, 2010

House Of Cards Revisited

Thursday, 23 October, 2008

A little over a month ago a wrote about the financial house of cards that our financial institutions had created. As I was writing that original piece I remembered that I had read a prediction about a similar meltdown in the Atlantic Monthly. I wanted to link to the story, but at the time I was unable to find it. I have, however, recently prevailed in my search.

It’s an interesting piece it was written in the summer of 2005, so only two-years into the Second Gulf War. Its premise is how the Bush Administration would bankrupt America which in turn would create the necessary conditions for a return to a depressed and stagnant economy with high inflation, taxes and interest rates. The coda or moral for the piece seems obvious: If you don’t pay now, then you will certainly pay latter.

The piece is written as a fictitious strategy memo to an unnamed third party candidate who is running for the US Presidency in 2016. The memo assures the candidate that he will win, but that it is important to truly understand the problems that exist so that he can be both honest and hopeful with the American people.

Some of the details that lead to the “meltdown” did not happen as the author foresaw, but his timing is almost dead on. He guessed that the meltdown would occur in the early part of 2009. Instead the meltdown occurred in September and continued through October of 2008. He was off by about six months. If you’re interest in checking out the piece it’s called “Countdown to Meltdown” by James Fallows

It took only a year for the house of cards to fall. On the 9th of October, 2007 the Dow reached it’s all-time high closing at 14,164.53. A year later on the 9th of October, 2008 the Dow had fallen 5,585 points, or 39.4 percent. However, our current meltdown continues. Yesterday the Dow closed at  8519, so it’s now down 6645 points or 46.9 percent since the 9th of October, 2007. This is even a worse run on the Dow than the nearly two-year bear market that ended in December 1974 when the Dow lost 45 percent. That oil-shock induced meltdown took two-years yet our current meltdown succeeded in wiping out a similar percentage of wealth in only about eight weeks.  

As I wrote before, I decided that if stock indices could shed excess pounds, that I would attempt to do the same. I am calling this the Crash of 2008 Diet. You simply see how far back in time the Dow goes and you attempt to rollback your weight in keeping with the Dow. For example, yesterday the Dow closed at 8519. The Dow hasn’t been at the 8500 level since the summer of 2003. This mean that I am currently trying to get down to my 2003 weight, and that means I should lose another 5-7kg. 

I done well, I’ve drop about 5 kg and all I’ve really done is stopped my consumption of beer and avoided all late night snacks. However, my weight has been trading in a narrow range the last few weeks, so further reduction will not be possible without exercise. As I mentioned before, I injued my ankle, and it was only last week that Noah and I began taking our 40 minute walks again. This is good, but I really need to return to the gym so I can increase the amount of calories I am burning. I think the stationary bike should be low impact enough for my still tender ankle.

Thursday, October 23rd, 2008

House of Cards

Friday, 19 September 2008

I am an insignificant monthly investor. I only put away a few hundred dollars a month. I have been doing this regularly since 2004. got me started and I now have a small diversified portfolio of about 12-15 stocks and ETFs.

I have been rather smug at my cautious approach. Although my portfolio hadn’t exactly fared well (down 10% on 9/13), I was certain that many people with more money and investment acumen had fared worse.

A week has passed and I’m feeling a lot less smug. My portfolio lost another 10% of its value thanks in a large part to AIG.

Through facebook I said to Paul:

Things seem to be falling apart nicely in the US these days. Merrill Lynch, Bear and Stearns, Lehmans Brothers, WashMu, Countrywide, AIG, Fred and Fan all terminal.

I successfully steered clear of most of this mess, but AIG hurt me. Thankfully I can’t lose a lot of money because I don’t have a lot of money to invest, but I did lose about a month’s pay on my AIG investment, and to think they were supposed to be Blue Chip. I avoided most financial stocks because I knew that it was only a matter of time before the house of cards that they began building in the late 90’s would come crashing down. I figured that an issurance company whose job is to manage risk through the selling of insurance policies would understand what deratives to invest in and which ones to thumb one’s nose at. Obviously I was wrong. Seriously wrong.

Yup, it was supposed to be Blue Chip but I guess cheese is where it’s at because Kraft is replacing AIG on the Dow.

I remember reading an article in the Economist in the late 1990s that looked at the pros and cons of derivatives, hedge funds and other complex financials. The article, after looking at the two sides of the issues concluded that complex financials were all about risk management and how, it believed, that the financial community was getting very good at assessing and placing a value on risk.

A couple of years later I remember Warren Buffet saying how complex financials are just too complex for anyone to understand therefore how can you know if they are correctly priced.

It seems that Warren Buffet was more correct than the Economist. I wonder if Warren was for or against going into Iraq. The Economist certainly took Bush and Blair’s bait; hook, line, and sinker. I wonder if the Oracle of Omaha was as prescience about Iraq as he was about the impending implosion of our financial institutions. I think this is something I will have to check out.

In any event, because no one knew how to price and, therefore, value these complex financials, we are experiencing the biggest realignment of our financial institutions since the 1930s. Hmm, didn’t the last major financial crisis start under Republican stewardship? Is this just coincidence or a suspicious trend? Is George Bush the next Herbert Hoover? Actually, he isn’t, because Hoover was slow to open the magic piggy bank (link/archive) to the collapsing firms. Hoover truly believed in small government and that government is separate from business. Bush is from Texas so he doesn’t do anything small and he has no illusion about what his role in government is. After all he was a failed businessman himself, before government (politics) rescued him. He is in office to make sure the magic piggy bank is available to those institutions that need it.

Friday, September 19th, 2008