Subject: IC940605: Another investment.. etc

From: "Gray Zhu, 800-289-2498, 212-279-6700" <[email-masked]>
Date: Sun, 5 Jun 1994 11:45:51 -0400 (EDT)

==================    IC940605: Investment Club  ======================

1. Another investment - house .......................... Xiaobin Bob Ge
2. Security analysis (I): risk ......................... Gray Zhu
3. My way of picking stocks ............................ Gray Zhu
_______________________________________________________________________
   (be sure to read the Disclaimer in the end if you have not read)

1. Another investment - house

>From: [email-masked] (Xiaobin Bob Ge)

Hi! Gray,

Regarding retirement plan, it just turns out to me that another
investment is not bad at all after a little more than one year: A
residential rental house. The following is the figure: Purchase
$74,700	down $700 Loan VA 30 yr fixed 7% Total expense before tenant
moving in $4000 Annual appreciation rate everage >5% ; last year(most
of nation down) 11% (in Orlando FL) Monthly Cash flow now $9 (rent
increase ~3% every year) Current appraised at $90,000 ( one year after
purchase at marginaly below market price) I don't want to bother the
return rate because it is unreasonably high (way over 100%) If this is
a rare opportunity I won't even tell you. This opportunity
available(term and house) about 300-400 cases every 3 weeks in the far
away Southern California.  By the way, for those start paying tax, the
depraiciation rate is 1/27.5.  The interest things is 30 year down the
road when I am retired, I got a free house plus an about $1000 per
month pure income every month, with the initial investment only, does
this look like an IDA?  Back to Wall Street, what do you thing the
near future of Southeast Asia market vs Japan Market(sorry "think"
instead of "thing")?  Please don't feel offensive if you think this is
STOCK club only as your business outreach. I don't mind to keep this
under personal communication gear.

Best regards
Bob (Ge Xiaobin in UCLA)

--------------------------------------------------------
2. SECURITY ANALYSIS (I): RISK

                       I. Risk

Two basic issues of investing are RISK and RETURN. In order to find a
stock which has the desired risk and return, you have to do a two-step
analysis: FUNDAMENTAL and TECHNICAL.  Basically, fundamental tells
what to buy, technical tells when and at what price to buy. What I am
going to do is to introduce you the RISK factor today, and then
fundamental and technical analysis in the future (when I get time).

SYSTEMATIC RISK (MARKET RISK): 

It is caused by some factor that will have the similar effect on all
securities in the same manner. One example is interest rate, another
example is the U.S. government decides socialize the country.

UNSYSTEMATIC RISKS:

o BUSINESS RISK: is the uncertainty that the specific issuer whose
securities you have purchased will not have the business performance
you expected. A company's predicted earnings is $2.0, it come out to
be $1.5, the stock price will probably reach your expectation, not
because of the market, but because the business just didnt perform.
 
o CREDIT RISK: this is related to bond. does the company have the 
ability to pay back the debt?

o PURCHASING POWER or INFLATIONARY RISK: Investor's income or growth
does not keep pace with inflation. A real story: a Korea War veteran
bought AT&T 30 year two bonds ($1000/per bond) bearing rate of 2.875%
in 1955 when he could have bought a new Chevy coupe, and held till the
80's, inflation was in double digits (percetage), he was still paid
28.75/bond per year, and the two bonds worth less than $2000 in the
market (high interest rate, remember when interest rate goes up, bond
price goes down. but when the bonds get closer to maturity, the price
get closer to the face value), and of course, worth less than 1/5 of a
Chevy Coupe.

o INTEREST RATE RISK: described above.

o LIQUIDITY RISK: the risk the regular market doesnt exist. When you
  want to sell something, you cannot find somebody to buy, then you may 
  have to lower your sell price. So, stock volume is importance. when
  you invest, you should be studying total shares issued, the volume,
  insider holding (insiders cannot trade prequently), institutional 
  holding, ... etc.

      THE LESS ACTIVE THE MARKET IN A SECURITY, THE WIDER THE SPREAD
  	(spread: the difference between the bid and ask prices)

o RISK OF LEGISLATIVE CHANGES: an example is: new tax law. 

o CALL RISK: some bonds are callable. i.e. the issuer has the right to  
  buy back the bond from you at certain time and a fixed price, and you
  have the obligation to turn it in. But the time and price are written
  on the bond, and you should know that before you buy it.

o SELECTION RISK: you could make a wrong choice between two seemingly
  similar securities.

o TIMING RISK: when you are bullish, the market may be bearish.

--------------------------------------------------------------
3. My way of picking stocks:

a. check Wall Street research reports:

Many investment banking firms publish research reports, especially
when they are market makers (i.e. dealers, they have inventory of this
stock). Those reports contain most fundamental and technical data,
fundamental includes: line of business, news, competitions, future
prospects, balance sheet, income statement, earnings history and
predictions; technical data includes price history, moving averages,
volume history, momentum, P/E, etc. Some of the reports give ratings
(bug/sell/hold, risk high/medium/low).

o I have like the industry, which must be a growing industry.
o Check the ratings from several reports, if majority of them says 
  buy or outperform (10%-25% return per year), then I would buy.
o Check the future prospects, new products? patents? management changes?
  restructuring?
o Check the p/e ratio, if it is low in the industry, and fundamentally
  sound, this stock is probably undervalued.
o Check the average earnings prediction. if company ABC has earnings
  $2, and the stock price is $36, then current P/E is 18, and the averaged
  earnings prediction is $3.6, the lowest prediction is $3.0, I would 
  expect the price of this stock go to over 18x$3.0=$54 as long as the 
  18 P/E assumption is not odd.

b. Watch the news closely.

  News is the trigger of stock price. But sometimes if you have done
  good fundamental research, you knew something is coming up.

--------------------------------

- From Gray Zhu, Ph.D
_______________________________________________________________________
 ALL INVESTMENTS INVOLVE WITH RISK, STUDY CAREFULLY BEFORE INVESTING.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1. what is ICnet:

ICnet (Investment Club on network) is a club organized as mailing list
discussing  investment issues, organized by Gray  Zhu.  Membership  is
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Past  messages sent out is available  for  anonymous ftp,  archived at
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ftp ifcss.org
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ftp> cd /org/icnet
ftp> mget *        (for everything)
ftp> quit

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Because  the law  (suitability and  to-know-the-customer requirements)
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However, if you want specific recommendations from me, you may want to
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Everything goes to: *************** [email-masked] *****************
_______________________________________________________________________
 ALL INVESTMENTS INVOLVE WITH RISK, STUDY CAREFULLY BEFORE INVESTING.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~