Blog of Parag

Buffett's portfolio

Legendary investor Warren Buffett's company, Berkshire Hathaway, publishes their current holdings every so often. Here is a list from their latest disclosure.

1. Coca-Cola ***
2. American Express ***
3. Wells Fargo ***
4. Procter & Gamble ***
5. Moody's
6. Wesco Financial
7. Anheuser-Busch
8. Washington Post
9. ConocoPhillips
10. Ameriprise Financial ***
11. Wal-Mart
12. M&T Bank
13. USG Corporation
14. American Standard
15. First Data
16. H&R Block ***
17. Comcast
18. Costco
19. General Electric
20. Tyco International ***
21. SunTrust Bank
22. Nike
23. Gannett
24. Gap
25. Home Depot ***
26. Torchmark
27. Iron Mountain
28. Lexmark International
29. United Parcel Service
30. Outback Steakhouse
31. PetroChina
32. ServiceMaster ***
33. Sealed Air
34. Pier 1 Imports
35. Lowe's Companies
36. Comdisco Holdings
37. Tesco PLC
38. Kingfisher (OTC)

Options trading - II

Here is a real life example of how to make money with options. The leverage you get with options compared to the underlying stock is just amazing.

Feb 16, 2006:
1 options contract for Kohls (OSSAJ.X strike price $50, expiring in Jan 2007) bought, priced at $4.50. Cost: $450. Kohls stock (KSS) closed that day at $46.85

Apr 25, 2006:
1 options contract for Kohls (OSSAJ.X strike price $50, expiring in Jan 2007) sold, priced at $9.00. Proceeds: $900. Kohls stock (KSS) closed today around $55.

For the options trade, profit was $450 (100%). For the same $450, 9.6 shares of KSS could have benn bought. In the same time period, profit on selling these 9.6 shares would have been $78.24 (17%).

After taking out $30 in commision profit for options trade was $420 (93%). Profit for stock trade would have been $48.24 (11%).

There it is. The power of options trading.

Don't pay off your debt

Any personal finance advisor would suggest that paying off credit card debt is the first thing to do to get one's money matters in order. If you decide to heed that advice and pay off a chunk, you could be a suspected terrorist and your accounts could be frozen by the Department of Homeland Security. I am not joking. This is exactly what happened to Walter and Deana Soehnge of Rhode Island. They paid off a $6000 balance on their JCPenney card and they got into trouble.

Anyway, if you are not borrowing money to spend on things that you don't need, you are not supporting the American economy, hence you are as bad as a terrorist. So, don't pay off your debt. Spend more, get deeper into debt and you'll be fine.

Options trading

My first foray into options trading. I had selected Kohl's (KSS) for investing after doing some research on 'retail-stores' sector. The prospects for Kohl's look good for the next 12-18 months. Instead of buying stock, I decided to give a try to options investing. You can get a bigger bang for your buck (better % return) with options. The details of this can be found on various options websites around the net.

In February, I bought a call option (OSSAJ.X) for strike price of $50 expiring in Jan 2007. It was priced at $4.50 and now it is $6.70. That is 44% up in just over 1 month after commissions. I'll probably sell it in the early 4th quarter of 2006, hopefully, for even better profit. After this positive experience (at least till today) I definitely will look for other opportunities to trade options in the future.

Savings Bonds

It is a good time to start buying savings bonds. Interest rate on the inflation-protected I-bonds is 6.73% for the first 6 months on bonds bought till April 2006. This is the best interest rate available on any investment other than junk bonds. The inflation protected bonds always yield more than the current rate of inflation. So, you'll never lose your principle to inflation. The best place to buy them is online, directly from the government... TreasuryDirect.

Free money

I was surprised to see the participation statistics about 401(k) retirement plans. Less than half of eligible employees participate and less than 10% contribute the maximum allowed ($14,000 for 2005) by the law. Even if you can't contribute the maximum, you should try to put in enough to get the employer's match. If you are not contributing enough to capture all of your employer's matching contribution, you are throwing away free money.

Boring but safe

If you are looking for better yields than a Certificate of Deposit, with minimal risk, check out ING Prime Rate Trust (PPR). This is a closed end fund that holds commercial loans as assets. At the current trading price of just below $7, it sells at a 5.4% discount to its net asset value and yields 6.6% in dividend that is paid out monthly. I have bought and held this security over the last 2 years and it has done well. The commercial loan rates are variable, hence, in my opinion, in the current climate of interest rate hikes, it should continue to do well.

Disclaimer: I am not a financial consultant. Do your own research before making investments. I am not responsible for your gains or losses.

IPO

My first ever experience with an Initial Public Offering (IPO) is paying off quite well. I bought some shares of Morningstar, Inc (MORN) through their IPO on May 30th, 2005 for $18.50 per share. Today, MORN shares traded at $28.60. A nice 54.59% gain in just over one month. I can only imagine the excitement with technology IPOs in the 90's when the share price increased by 4-5 fold in one day.

Largest consumer products company

P&G to Buy Gillette for $55.6 Billion

This fall when the merger goes through, you'll be able to buy products for almost every daily need that are made by just one company, P&G.

I'll be in good company as a P&G stockholder.

The deal has the key support of billionaire investor Warren Buffett, whose Berkshire Hathaway Inc. has a 9 percent stake in Gillette.

Buffett said he would raise his holding in the combined company by 7 percent, to 100 million P&G shares, a $350 million investment at current prices.

General Motors

If one wants to add a auto-industry stock to their long-term portfolio, General motors looks like an attractive choice right now. At current stock price of $36.54, it is closer to the bottom of its 52-week range and P/E ratio for trailing 12 months is 5.68. GM pays $2.00 dividend per year. The dividend yield is more than 5%. The company is in trouble due to reduced market share leading to loss of revenue. It also has a huge number of retirees drawing pensions and healthcare costs for current employees and retirees are rising. But, the company should be able to work out these issues in the next few years and would make a nice long-term investment.

Disclaimer: These are just my thoughts. Don't take this as qualified professional financial advice. Do your own research or find another advisor. I am not responsible for your investment losses.

iShares Cohen & Steers Realty Majors

For diversification in real estate other than the house that we live in, I started periodic investment in an ETF (Exchange-traded Fund), iShares Cohen & Steers Realty Majors (ICF). This was one of the real estate funds recommended by Kiplinger's magazine.

When to retire?

Most everyone wants to retire as soon as possible and enjoy life. But, it is never clear when would be a good time to do that and one always doubts if s/he has enough resources to live in retirement. This is something I read in Kiplinger's magazine. It can be a rough guide to help in making these decisions. If a person takes out 4-5% of the funds in first year of retirement and then, keep taking the same amount (adjusted for inflation), those funds (invested 50/50 in stocks and bonds) will last for at least 30 years or more.

For example: If one has $1,000,000 portfolio at the time they stop working, they can take out $40,000 to $50,000 in the first year and then same amount adjusted for inflation year after year for 30years and can leave an inheritance.

• Find out your life expectancy (X yrs) from how long your grandparents and other blood relatives lived.
• How much you would need per year ($Y) to live the kind of life you decide to live.
• Set a target to have $25*Y ready by the time you are X-30 years old. This is a good estimate for the 'when should I retire' question.