After a successful year of trading in 2009, last year was a home run in almost every possible way. I do truly believe that the main changes I made last year ended up making a positive difference, especially my decision to stop opening trades later in the year. I know that it was not the most popular decision since those stock picks are among the most read posts but in the end, getting higher returns is the objective.

Last year, I got many questions regarding the stock picks or other technology stocks that I follow. I answered many of them by email, some were comments on the blog, but there was no ideal place really. I ended up creating a new mailing list, dedicated to tech stocks and the trades that I do. If you would like to get more information about the picks, other stocks that I like, or don’t, I highly encourage you to join, it’s free. I will also try to answer some of the questions that I get there since I’m not going to be writing 5 different posts about one trade. The mailing list is sent once every 1 or 2 weeks.

To join the list, simply fill out your name and email here:

Biggest Change For 2012

In the past, I’ve held at most 5 live trades on the stocks that I follow. This year, I will increase that number to 7. Why? There are a few different reasons. First off, it will help me trade more often since chances are greater that 1 of those 7 trades reaches its stop gain or stop loss. Also, it gives me less concentration on a few different names. Each person might have a different view on this but I personally prefer doing a few more picks with less money involved. That means less gains when a trade goes exceptionally well but also less losses when they don’t.

Why Not Add Even More Live Trades?

It’s always a matter of opportunities isn’t it? I track a universe of stocks and try finding opportunities in there. It’s not always easy to find good ones, even with 5. But I do believe that I will be more active on many of the recently turned public stocks such as Groupon (GRPN), Pandora (P), LinkedIn (LNKD) and even Zynga (ZNGA) as well future ones such as Facebook.  That will certainly provide more trading opportunities which is what I’m counting on to be honest. It’s a fairly big change so there is always that possibility that at some points in the year, I will not see good opportunities and prefer not trading for a few days/weeks but I somehow think I’ll find some good ones.

Better At Tracking

I’ve been reliable about posting trades on this blog but not as much in updating the live positions on the right sidebar and the results in the stock picks page. I will make an effort to make it easier for you to track my picks and performance.

What’s The Plan Now?

The plan is to continue to monitor the markets for the next 2 weeks, start preparing myself and then I will be opening a couple of trades in the first week of January. If you have any questions about the tech trades, comments or simply an opinion, feel free to contact me, I’d love to hear from you.

Recently, I’ve been spending an increased amount of time studying investing psychology and that is bringing up several questions. Yesterday, I was reading about intuition and how it influences the ways that we act. I started wondering about what role (if any) intuition plays in my trading, especially the long & short technology picks but even in dividend investing.  The reality is that it plays a big role.

“Intuition provides us with beliefs that we cannot necessarily justify” – Wikipedia

Intuition Is A Big Part Of Investing

As much as I think we try to always be rational, to invest based on numbers, on P/E ratios, growth rates, dividend rates, etc. In the end, when I do filtering, the result is never just one stock. There are usually several trade possibilities. What makes me go one way rather than the other? You could probably include several factors:

-My feelings about these stocks/companies
-My past experience trading these names
-Trading momentum
-etc

Intuition Comes Into Play

At some point, we gather all of the numbers, feelings and we end up making a decision. Even deciding not to buy a specific stock is a decision in a way, so yes there is always a decision involved. My question thus becomes: What triggers these decisions? I think intuition plays a big part. I tend to be a strong believer in Google (GOOG) for example and if you showed me two companies that have exactly the same profile, chances are that I would end up picking the one named Google simply because I feel like I will be better off in most cases being long Google.

The Limits Of Intuition

I think we end up getting to know ourselves better over time and knowing when to trust our intuition. Personally, one of the ways I try to improve my analysis is using stop limits. Why? Because when a trade reaches the stop loss point, I force myself out of the trade, to rethink the trade and see if the numbers truly make sense or if I was wrong. In most cases, I do choose to not re-open the trade. The day that you admit to using some intuition, it also opens you up to several possible issues such as being over-optimistic, stubborn, etc. Of course, very few investors to not use intuition at all and those would be trading strictly on technical factors. You can read an interesting piece from one such frame of mind on why intuition is not a good trading tool here.

I Stay Away From Short Term Intuition Plays

Generally, as most of you know, I do stay away from day trading so no I do not trust my intuition on telling where Amazon will end up on Monday. In the same way, I try to stay away from opening new positions just before earnings because it seems like those taking such bets are doing so solely on intuition and luck (except for those that have access to inside information).

What are your thoughts on intuition in trading/investing?

Before getting started today, I’d love to invite you to try our new quiz if you have not done so already, “Do you have what it takes to be a dividend investor?” on TheDividendGuyBlog, it’s meant to be fun, don’t take it too seriously:)

The other day, a reader sent me a video of Buffett explaining how he would fix within a few minutes, the problem of recurring US government deficits and a growing debt. His idea?

“I could end the deficit in 5 minutes” he told CNBC. “You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of congress become ineligible for re-election“.

It’s a terrible, maybe even stupid idea in my opinion. The thought behind it isn’t bad: If we could could give a strong incentive to those members to avoid big deficits, the idea is that they would do everything in their power to keep their job. I do agree that they are generally more worried about their own job than about what is happening to the country so the idea could make sense from an “initial perspective.

Extreme Case Scenarios

The reason the European Union is turning out to be so disfonctional is not because the whole concept is necessarily always flawed. It is however very difficult to make the EU work in unusual circumstances such as a financia/credit/sovereign crises. Such events are unusual but they do happen. It’s not a matter of when or how but rather when they will occur.

Financial Crisis/Crash

You might agree (or not) with the whole bailout that the Obama administration used after arriving to power and the effect that it had on the economy. One thing that you would have to agree with though is that there is no way the US government could have avoided a big deficit in those years. Why? Tough financial times meant less income for individuals and for companies, less capital gains, etc. All of that combined had a dramatic impact on the revenues of the US government. Let’s imagine that the revenues suffered a 5% decline which is certainly possible in difficult economic times.

What To Do Then?

Imagine a government that would face a 5% shortfall in revenues with members of the government losing their jobs on any deficit of 3% or more. Just think about it. They would be stuck with one of two choices:

#1-Stimulating the economy (either through bailouts/subsidies or tax cuts) and ensure the deficit would surpass the 3% cap or
#2-Cut government expenses in order to avoid the defitic breach.

Would you trust the members to do the right thing and say goodbye to their high paying jobs or do you think they would risk putting the economy in even more turmoil in order to save their own jobs? I don’t know about you but I’m not convinced they would only be looking after the interests of the nation.

There Is No Easy Fix

I do have a lot of respect for Buffett but I certianly hope he was joking when he talked about this. The reality is that the issue is not simple enough to be fixed in 5 minutes. I think there are two main things that must be done (also very difficult) in order to fix the system and get our finances back in order:

-Get compromises between the Republicans and Democrats
-Get top politicians to manage with a long term perspective instead of always focusing on the next election.

What are your thoughts? Do you think Buffett was way off on this as I do?

I thought it would be an interesting experience. Imagine that you were able to accumulate $1000/month that you would invest into a dividend portfolio such as the Ultimate Sustainable Dividend Portfolio, how long would it take you to generate a significant amount of money from that portfolio? For simplification purposes, I created a spreadsheet (that you can download later in this post) where an investor would be buying one stock, I used the ticker USDP (Ultimate Sustainable Dividend Portfolio). Obviously, an investor would not be buying only one stock. The objective however would be to buy a dividend growth focused portfolio similar to the one I presented some time ago. Thus, for simplification purposes, I used an investor that would be buying this type of portfolio from the start.

In any financial forecast, many different “assumptions” are necessary, here are the ones that I used for my sample investor which I will name John:

-John is able to invest $1000 per month
-Every month, John buys as many shares as he can of USDP
-The shares of USDP start at a price of $100 and pay a dividend yield of 2.86%
-Every year, the price of USDP increases by 2% and the dividend increases by 9% (much lower than the historical growth rates from the sustainable portfolio that we built)
-John reinvests all dividend payments until he achieves his “objective”, in this case $5000.

I think you could probably argue for any one of these assumptions and probably make a case on both sides (too conservative or too aggressive) but I personally think those are easily achievable with the right type of portfolio.

What It looks Like

I simply built a spreadsheet that would be used to calculate the portfolio’s value and payments. You can see an example here.

Obviously, you could easily increase the annual dividends that you will receive by increasing the amount that John invests every month or dividend growth rate. Even more dramatic would be increasing the amount of time. If John uses the same strategy for 20 or 30 years, you can see the dramatic impact it would have on the passive income generated. Yes, that is exactly why we always hear that the most important part of planning a good retirement is starting early. That has much more of an impact than any investing strategy.

Using Debt?

Next week, I will be sending over to the mailing list the impact of adding debt into this investing strategy… you can sign up now if you have not already done so, it’s free!