Category: Money

Rigo,

This is the stock picking stuff I promised I would write for you on the internet.  A book was written by a guy named Joel Greenblatt for non-professional traders on how to invest in the stock market in a secure, but effective way.  In a nutshell he says to buy “good” stocks “cheap” and hang onto them for a year.  In his book he describes what he means by good (return on capital) and cheap (earnings yield).  I wrote a program that goes out onto the internet and ranks as many stocks as I can find according to their goodness and their cheapness.  I throw out the fad stocks (clothes, restaurants, etc.) and the financial stocks (banks, insurance companies, etc.), then pick two of the best to buy each month.  I am really not recommending that anyone use these stock picks–they just happen to be the stocks I, myself, am purchasing. The following are links to stuff I already wrote from oldest to newest:

November 30, 2006:  Robot, computer and investment stuff – Re-writing the program and how I did in 2006
December 6, 2006:  Blogging on life, homeschool, programming, writing, and investing –  More about the rewrite and how I did
December 28, 2006:  Homeschool education – A little on why I wrote the program
January 16, 2007:  First real stock purchase – The first time I put real money into the stock picks
January 29, 2007:  Stock pick update – I had a good start with my first pick – it went down later, but it was a pretty amazing start
March 15, 2007:  Stock purchase day – After the stock market tanks, I am still ahead of the S&P 500

This is a link to the place I keep the list of stocks as I purchase them along with the S&P 500 comparison stocks:

My stock purchases

This is a link to the book by Joel Greenblatt on which I based my program:

The Little Book that Beats the Market

This is our webpage:

Chapman Kids

This is where I blog every day:

Chapman Kids Blog

Current status:

• Amount purchased:  $6000
• Number of stocks:  5
• Commission per trade:  $12.99
• Service:  Etrade
• Average time in the market per stock:  33 days
• My picks return (including commissions paid):  +1.27%
• Equivalent S&P 500:  -0.61%

If you have questions, you can post comments here and I will try to respond as best as I can.  It is OK if you want to use Spanish.

In my on-going effort to buy “good” stocks “cheap”. I bought 32 shares of IDCC at 31.22 and 57 shares of WDC at 17.93 today. The whole market is way down from when we got in, but we are still well ahead (1.5%) of the equivalent amount of S&P 500 stocks.

After less than two weeks, my stock picks are up 5.21% and the S&P 500 is down 2.82%. We are doing over 8% better than the S&P 500.

Today is my first day to buy stock using the stock purchase plan I developed to evaluate good and cheap stocks. I had decided to buy PWEI and RAIL, but PWEI got bought yesterday so I am going with RAIL and WIRE. I will track it against an equivalent amount of an S&P Index fund, ^GSPC. I will try to do my purchasing around the fifteenth of each month when I have enough money together to do so. I have January, February, and almost enough for March covered. This is VERY good timing because Christian, Kelly, and I started reading a great little book about economics theory based on the “Austrian” school of economic thought that is associated with Friedrich von Hayek and the “Monetarist” whose leading proponent was Milton Friedman who just recently passed away. The name of the book is What Ever Happened to Penny Candy? by Rick Maybury. The subtitle of the book says it all: A Fast, Clear, and Fun Explanation of the Economics You Need For Success in Your Career, Business, and Investments. It is a fun read and we are learning a lot. I am going to try follow this book up with an investing book so that I can explain why and how to invest in a fun way. We will track these stock picks as a part of the course work.

It rained and froze last night, so there will be no government school again in Albany. It is really nasty out there. I almost fell down when I got out of my car to walk into work. I called Lorena and told her to stay home.

I believe economics education is very important, but have had a struggle trying to figure out how to teach it. I think I have finally come up with a plan to get us started. We have been covering the basic issues all along and have even started the formal academic study of economics with a great little book titled Whatever Happened to Penny Candy. The kids have earned some money and we have laid down some rules that with any money that comes in, ten percent goes to charity, ten percent goes to retirement, fifty percent goes to college savings and the rest is for spending. The two big things we think we are missing are the parts about day-to-day management of money and investing.

For the day-to-day management of money you can only go so far with the management of a weekly allowance. Most of those knowledgeable about homeschool recommend that homeschool families start a small business where the children can keep the books and manage the business. Of course the purpose of the business is to make money, but the amount of money that is made is secondary to learning about running a business, being responsible, and managing money. We plan to do that in a year or two. We are not sure what kind of business we want to start, but we want the kids to be fourteen or fifteen years old. We will probably spend a year before we start to identify a business and write a business plan that includes goals such as how much money we want to make and the expectation that the business will shut down after two years of operation.

The more immediate goal is to find a way to teach the kids about long term investing. It is quite evident that the early one starts saving the better off they are going to be when they get old and the more options they will have, even in middle age. To that end, I am going to have the kids keep track of some investments in stocks we will pick together. The idea behind our investing will be that any stock we pick we will hold at least a year, give or take a couple of weeks based on tax issues. We will pick the stocks based on their goodness and cheapness. I will have them take turns tracking the stocks values versus the S&P 500 which is a good representation of the market as a whole. In conjunction with that, we will set a target amount of savings for them to start investing for themselves. In a couple of years, when they have been tracking the stocks for awhile, they should have enough money together to start investing themselves and enough experience to pick stocks with their investing goals in mind. We will post our results here.

I have been evaluating what we do here on this blog to come up with some additional blog topics. If anyone has any ideas, please let me know by posting a comment. I would be happy to do some research, especially on homeschool, Linux, and investing issues. Kelly is doing better and better about writing down her thoughts and doings on the blog; she is especially good when she does poetry. I am going to encourage her to do excerpts from her book and from articles she and Christian write for their Kaktus Kids magazine. It dawned on me, though, that at any given time, most of the people who read this blog are wildly disinterested in at least a third of the stuff I write. When it comes to homeschool, programming, and investing–the things about which I write–I can imagine that our readership is interested in one or two out of the three. Nevertheless, the point of this writing is to have a dialog with our friends and eventually print out the blog and bind it into a diary for the kids to show their kids what it was like to grow up in our household. I really have enjoyed the writing. I hope we will enjoy looking back at it in future years.

So, right now, the thing I have been enjoying and finding very interesting is the development of my investment program. It is coming along quite nicely. My goal is to have it finished by the end of the year so that I can start picking stocks again for 2007. I am programming the system to run on both Windows and Linux using KDevelop as my IDE, the QT API to develop the GUI, and libcurl for internet access. I am successfully pulling the information down from the web now. I will try to add multithreading to application so that the GUI is a lot more snappy and the downloads happen in parallel, because it is dog ugly right now. After that, I need to extract the data I need from the pages and sort them according to the criteria of the investment program. I have done it once before, but I want to make it a little more automatic. The current program only stores the data in a comma-delimited file which has to be processed in the OpenOffice.org spreadsheet. My hope is to be ready to start posting my picks in late December or early January.

Update: Just a note on how the investing is going. Using the stock picking program to pick and buy (pretend) $1000 each of two stocks on February 15, March 13, and April 15 of 2006 for a total of $6000 and tracking equal purchases of the S&P 500 gave the following results:

Stock program picks
Initial purchase: $6000
Current value: $7225
Annual gain percent: ~27%
Feb. 15, 2006: 33.3333 shares of PONR @ $30.00
Feb. 15, 2006: 25.3165 shares of NSS @ $39.50 – merged with IPSCO on Dec. 1, 2006 – paid cash @ $66.00 per share
Mar. 13, 2006: 44.4444 shares of TNH @ $22.50
Mar. 13, 2006: 11.3310 shares of RS @ $88.25 – split 2:1 July 19, 2006
Apr. 15, 2006: 56.5931 shares of ITWO @ 17.67
Apr. 15, 2006: 34.5781 shares of PWEI @ 28.92

Equal amount of S&P 500
Initial purchase: $6000
Current value: $6617
Annual gain percent: ~14%

Christian showed me his last Lego NXT creation yesterday. It is a scorpion that walks around and stings stuff. If he has time to email me a photo or a video of the thing, I will put it up here on the website (Note to Christian: Get your all of your homework finished before doing this!). It was one of the example projects in the manual, but he wrote and used his own programs. There are several other things he can make and program, but he is getting to the point where it would be great for him to program it with something other than the point and click software that comes with the Lego NXT. His latest innovation is that he set up the computer and the robot controller so they can communicate over Bluetooth, so he no longer has to connect to the computer with a serial port. Christian is far enough along in his C# programming tutorials now that I think the next step will be to get him programming the robot controller using C#. He has downloaded the SDK (software development kit) from Microsoft), so I think I can get him going with a minimal amount of hand-holding. The biggest issue is getting the programs download from the PC to the controller.

As for my programming projects, I have decided to port my stock picking program from C# mono to C++. The stock picking program implements the methods described in Joel Greenblatt’s book The Little Book that Beats the Market. The methods are what I would call conservative methods for long-term investors; Day traders need not apply. I am doing the port for two reasons. The technical reason is that I do not know if C# will have much of a future in the Linux world and I love programming in C++ using QT and KDevelop. The second reason as that I plan to use the program and the book next year as a homeschool program to teach Kelly and Christian about investing. I blogged, earlier, about making stock picks. The first two stocks I picked with the program are spectacularly bad–I actually had one of the two formulas upside down in my program when I picked those stocks. The subsequent six stocks I picked with the program are fabulous. I am just doing dry trading (tracking the stocks only without buying any). Of course, I am going to run this for at least a year and a half longer before we start putting anything into it for real. That will give the kids a year of practice and the program two years of testing.

After an average of nine months in the market, a $6000 pretend investment in the S&P 500 is up $559 for an annual growth rate of almost 12.5%. Program picked stocks purchased at exactly the same time as the S&P 500 investment have returned $1110 for an annual growth rate of over 24.5%. We are in a growth market, but this is not an inauspicious start. Most of all, though, it will be a fun way for the kids to learn about investing for the long haul while they are learning about business at the same time.