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What a rebound!

March 26th, 2009 No comments

It’s been a while since I last posted – three weeks to be exact. I just went back and read my last post. Wow – so much has changed! I last wrote on March 5th when the S&P 500 was trading near 675, we had been beaten up for six of the previous seven days, and there was much despair. I wanted to call a bottom, but was hesitant to do so given I was already wrong when we were near 750.

Now, three weeks later, the S&P 500 is trading at about 825. That’s a gain of just over 22%. If I’d taken a position in the leveraged S&P 500 ETF I was considering, I’d be up about 44.5%! That certainly isn’t bad in three weeks. Alas, if only I had. We’ve all heard the phrase “Hindsight is 20-20″ – nowhere is it more true (and more painful) than in the financial markets. In hindsight if I’d gotten in on the double-long ETF, I’d have made quite a bit; in hindsight if I’d not been in Lehman at the time of the collapse, I’d have saved a lot!

As I contemplate my decisions, it becomes apparent that the only reason I didn’t go long is because I was wrong when I thought we wouldn’t dip too far past 750, and because there was an onslaught of punishing days in late February/early March. Thinking 750 was near the bottom, I did get in a little near that level, and so by 675, my long position was already in a loss (just like everything else in the portfolio). Being in such a loss position really makes you want to take risk off the table - in case you lose more. However, this is exactly the time that one should be putting risk on the table. Averaging down as the S&P went from 750 to 675 would have been great! I had never appreciated how much of an impact fear, greed, and psychology in general have on the markets. It’s funny, when you’re studying in business school you’ll rarely hear the words “markets” and “psychology” used together – it’s always more about “risk aversion”, the “rational investor”, and “no arbitrage” (or at least that’s what my experience was like). We spend hours building pricing models based on rational investors and efficient markets, but don’t realize until we actually participate in the markets that though rationality and efficiency make sense in theory (and in practice, to some degree), psychology and emotions are indeed credible forces in practice. In b-school I too was quick to dismiss behavioral finance, but in hindsight I realize that I have much to learn from it.

I guess at the end of the day, I’ve reinforced the lesson that it’s important to diversify – both in terms of the variety of assets you invest in, as well as the cost basis (time you purchase) of any one asset. If one had $10,000 to invest, it would make much more sense to put in $1,000 a week for 10 weeks rather than to put all the money to work at once. Of course, this is probably more true at times like these when market volatility is unprecedented. In a rising market you’d take a hit doing so – but then who amongst us can predict rising markets? So, you’re better off averaging your cost basis just in case. Related to this, it’s important not to let your gains get to your head, and your losses hit you too hard in the gut – if I’d gotten in at the bottom - 675, and was right, there’s a chance that I would’ve thought the S&P was going to 1,000 and put even more in around 800. It’s possible that right after this second infusion of cash the market falls and I lose anything I may have made (or more). Or maybe by 750 I see the money made on the position and decide to lock up the gain – I sell, just to have the market rise another 75 to 825 after doing so. On the flip side, if you take your losses too hard you become paralyzed (as I was) and unable to take advantage of the rising market.

Of course all of this talk implies that one can time the market, which has been proven to be very, very hard to do (if not impossible). The current rally could go to 1,000, or come sliding right back down in the next three weeks – who knows? However, wisdom and experience should help to better time ones entrances and exits from the markets – that’s what I hope to gain from this whole episode…

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Battle of the minivans: 09 Oydssey vs. 09 Sienna

March 25th, 2009 1 comment

We recently purchased a new minivan to replace our 15-year old van, and so I thought I’d share some of my thoughts on the top two contenders for us: the 2009 Honda Odyssey and the 2009 Toyota Sienna. Hopefully these notes will provide useful insight to someone else who may be considering a similar purchase.

The Honda Odyssey and Toyota Sienna are widely considered the top two minivans in the U.S. There were a few features we (okay, fine, I – the rest of the family isn’t so into car gadgets) were looking for: three-zone climate control, navigation, rear entertainment system, and 8-passenger seating. Furthermore, the vehicle is to be used mostly for family driving and so comfort was preferrable over handling. To be perfectly honest, after the two test drives I wasn’t too excited about either van, which was a surprise for me since I’d heard so many good things. Don’t get me wrong – they’re both fine vehicles, it’s just that neither is perfect for what we were looking for (and, yes, I suppose there is no such thing as the perfect vehicle). Here are my thoughts:

Odyssey:

  1. At the trim level we’re interested in (EX-L R/N or XLE EVP #4), the Odyssey allows for 8-passengers. We have a large family and so an 8-passenger van is a must for us. I’m surprised that Toyota offers an 8-passenger for some trims (CE and LE), but not for the higher trims. That seems pretty stupid to me.
  2. There’s more legroom and headroom in the 3rd row. I’m 6′ tall and thought I’d sit in the back of both vans to get a feel for it. In the Sienna my knees where pressed against the 2nd row seat back, which was uncomfortable (though I believe the second row seats do roll forward, which may have helped a bit). Also, the back of my head would keep touching the roofliner towards the back of the van. The Sienna definitely has a larger storage space behind the 3rd row, but I’m afraid it comes by moving the third row forward, costing you leg room there. The Odyssey was much more comfortable in this regard.
  3. The RES is more flush with the roofliner so you don’t bang your head. Both my wife and I banged out heads on the RES in the Sienna. It sits lower than that of the Ody. My guess is that this is because in the Sienna the actual DVD player and screen are mounted in the roof whereas in the Ody the DVD player is up front with just the screen in the back.
  4. Quieter acceleration in the Ody. Yes everyone raves about the Sienna being quieter, but in acceleration it was notable louder than the Ody. In fact, I believe Car and Driver also found this to be true.
  5. Bigger NAV screen in the Ody than in the Sienna. The two main reasons for me to get a factor NAV is the integration with other car functions and the larger screen (relative to a hand held). So, the bigger screen in the Ody is great.

Sienna:

  1. The ride in the back seat is MUCH more tolerable than the Ody. The ody was much more bumpy in the back, and also caused me to slide around more while back there. This, in my opinion, is a direct result of the stiffer suspension that allows the Ody to handle better (though the Sienna handled just fine for our purposes – the difference is good vs better, not bad vs good). Since we want a comfortable family mover, this is my biggest concern with the Ody.
  2. Features: for about the same price, the Sienna has all the features of the Ody plus some, like: auto on/off headlights (come on now Honda, how can you not include this. Do I really have to pay $40K to get this basic feature). Trip computer – miles to empty, MPG, etc (this is the most frustrating thing of all from a feature perspective – Honda requires you to pay $40K for a touring to get a feature that should be included in all models from the LX up! This is probably stupider than Toyota’s not having an 8th seat in all trims!!). Finally, sonar – the comparable Sienna has the corner and rear proximity sensors that you don’t get on the Ody unless you get a Touring.From a feature perspective, the Sienna hands down wins
  3. This is purely subjective, but I thought the Sienna had a better navigation system. First off, I fully acknowledge the frustrating inability to use it while moving – no argument there. It’s the same way in my Lexus, and I hate it (well, I do the 5-key bypass, but it’s still way worse than just being able to use it when I’m moving). However, I can get around this by getting a hybrid disk. So, looking past that, I thought the Sienna system was better for a few reasons: 1) the resolution and color depth seem better – the Honda looked grey and grainy to me compared to the Sienna. 2) the most important is that the POI search on the Toyota systems seems much better than Honda. I often find that I know the name of the place I’m looking for, and need directions to the nearest one. For instance, the nearest Steak n Shake. I tried to search for places by name in the Honda, entered Steak n Shake and was presented with a couple of options, all more than 300 miles away (I know there are some closer than that). I then tried the same for a Baskin Robbins and was presented the directions for one that’s in Canada! The dealer sat in the car with me the whole time and admitted that he didn’t think I could search by the name of the place – just by category (either that, or he didn’t know how to – he also insisted that the Ody had a 255HP engine, which was wrong). It could just be that I need to play with it some more, but after fumbling with it for over 15 minutes, we just weren’t able to get it.

After MUCH consideration we decided to go with the Odyssey. An 8-passenger Sienna XLE with package #4 would have been the perfect vehicle, but they just don’t make that vehicle. We also ended up dropping the navigation and rear entertainment system from the van. I disliked the Honda system so much that I decided that I’ll install an aftermarket system in the van myself this summer. As far as rear entertainment – as we thought about it more we realized that the kids will get enough television at home – we don’t want to give them more in the car…

Categories: Life Tags:

Out with the old, in with the new…

March 24th, 2009 No comments

I’ve been slow to post recently – there’s been a lot going on. Firstly there’s the seemingly never-ending market volatility (though over the past few weeks we’ve shot up considerably, so I’m not complaining!). On top of that I’m way behind on preparations for the upcoming CFA exam in June. I’m supposed to be half way through the curriculum by now, but am only about 15% done. Needless to say, the next two months are going to be spent studying. Finally, we spent last weekend back in Columbus working our way through a transition…

We’ve had our family house (read: my parents house) in Columbus for the last 13 years or so. Finally we decided to sell it and so went through the labor-some task of packing things up and moving. Some of the stuff went to my brother’s new home, and some came with us. It was a stressful experience really – taking a couple of days off to go back home and pack up parts of your life over the last 13 years in a couple of days. I found many things that I’d held on to over the years for sentimental reasons that I ended up just throwing away. It’s interesting how being away from your things for several years and the constraints of time to pack force you to purge things you’d have otherwise found valuable. It was also very odd walking around a near empty home that you’d lived in for so many years. Just walking around brought back memories of good times and bad, and memorable moments that happened in each and every room. Needless to say, we didn’t get everything emptied. So, we’ll have to make another trip back to finish the process, and take care of some things around the house. I’m sure that once that’s done, the final walk through a completely empty home will be eerie.

On the topic of out with the old and in with the new, we also got rid of our old minivan (it was now 15 years old) and ended up getting a new Honda Odyssey. I spent a lot of time researching the Honda Odyssey and the Toyota Sienna. One of these days I’ll post my findings for anyone else that may be making a similar comparison…

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March 5th, 2009 – Another punishing week

March 5th, 2009 No comments

Wow, what a week! And it’s not even over yet…

This week sees a continuation in the slaughter in equity markets. Today marked the sixth day of losses out of the last seven (with yesterday being the exception – the market was up on speculation that China will boost their stimulus plans and that lawmakers would reach an agreement on a plan to stem mortgage defaults). Well today we learned that the China speculation was just that – speculation; the Chinese Premier said there will be no changes in their plans. Furthermore Moody’s downgraded JP Morgan, fueling a slide of about 10% in financials.

It’s really a tough market in these times – it’s very volatile and investors don’t seem to be reacting in a rational manner. The slightest bit of news tends to move the market dramatically, regardless of whether the news is credible or not. The market seems to be driven by sentiment and emotion more than by rational logic  and valuation. Maybe this is a great buying opportunity for just that reason – just as sentiment and emotion cause investors to get carried away on the upside, creating bubbles, we’re now creating a negative bubble (an abyss?) with investors getting carried away and creating buying opportunities. Of course, the difference being that if you fail to call the top of a bubble and sell too early, you don’t mind too much because you’ve likely still made a handsome sum. However, if you fail to call the bottom and buy too early, it’s devastating to watch the losses add up beyond the massive losses that your portfolio has already suffered.

Among other points to note recently: Citigroup (C) traded for less than $1 today (though it closed at $1.02), GE traded as low as $5.75 earlier this week, and the S&P 500 got almost as low as 675. Ouch…

Overall, I think we go up from here. It seems as if investors have really hammered stocks for no good reason (heck, the lack of news itself has the same effect on the markets as bad news). As our President said earlier this week, I think now may be a good time to buy stocks (if you can hold on for a few years, that is). The losses incurred thus far are amongst the largest historically and fear runs amuck. The S&P 500 is trading at it’s lowest level since 1996, wiping out 13 years of gains. The upside potential here is huge – a recovery of a modest 40% over two years could deliver you 80% or so with a leveraged ETF. Of course, as I said earlier, it’s hard to call the bottom. Does it make sense to get it now with the S&P 500 near 680? Will it bounce back to 720+ in a couple of weeks? Will it fall below 650? Who knows?

I certainly don’t – earlier this year I thought that the 750 we had reached during the fear and chaos of November, 2008 was as low as we’d go. I didn’t doubt that we’d test that level again, but I certainly didn’t expect that we’d fall another 10% past it. So, I called a bottom at 750 and was clearly wrong. 675 feels pretty close to a bottom now, but heck, given this irrational market and volatility, I just can’t tell…

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