The Rebull

I’m changing the nature of this website from my side hobby, investing, to my other passion, education reform.  To that end, I’m posting the following story below that was sent to Whitney Tilson, an education reform advocate and NYC hedge fund manager.  I strongly recommend you read it to understand why the need for education reform is so critical:

Whitney,

Thanks so much for putting this survey together. It brought back some memories well beyond the few questions about what it was like to teach in the South Bronx with TFA back in the late nineties. I want to emphasize here that I no longer teach in the Bronx, so I have little idea how things have changed and have seen the current Administration take a number of important steps that may be making a great impact. I’m not close enough to the ground to know, but my guess is that there are still plenty of schools in the Bronx and in every other low-income community in the country that reflect some of the miserable stuff I saw in my school. You should really start collecting a book of stories like these. Among all the people I know who’ve done TFA, these stories are just a few among many sad ones.

As I filled out the survey, I was first reminded of the art teacher in our school. She was truly a caricature of bad teaching. Like something out of the movies. She spent almost every minute of every day screaming at the top of her lungs in the faces of 5-8 year olds who had done horrible things like coloring outside the lines. The ART teacher! Screaming so loud you could hear her 2-3 floors away in a decades old, solid brick building. When she heard I was looking for an apt, she sent me to an apt broker friend of hers. I told the friend I wanted to live in Washington Heights. “Your mother would be very upset with me if I let you go live with THOSE PEOPLE. We fought with bricks and bats and bottles to keep them out of our neighborhoods. Do you see what they have done to this place?” This same attitude could be heard in the art teacher’s screams, the administration’s ambivalence towards the kids we were supposed to be educating and the sometimes overt racism of the people in charge. The assistant principal (who could not, as far as I could tell, do 4th grade math, but offered me stop-in math professional development for a few minutes every few months with gems like “these numbers you see here to the left of the zero are negative numbers. Like when it is very cold outside.”) once told me “I call them God’s stupidest people” referring to a Puerto Rican woman who was blocking our way as we drove to another school. She also once told me I needed to put together a bulletin board in the hallway about Veteran’s Day. I told her we were in the middle of assembling an Encyclopedia on great Dominican, Puerto Rican and Black leaders (all of my students were Dominican, Black or Puerto Rican). “Mr. ____, we had Cin-co de May-o, and Black History Month, and all that other stuff. It is time for the AMERICAN Americans.”

Not everyone in the school was a racist. There were many hard working teachers of all ethnicities who did not reflect this attitude at all. But the fact that the leadership of the school and a number of the most senior teachers was either utterly disdainful of the students they taught, or has completely given up on the educability of the kids, had a terrible effect on overall staff motivation. And many of the well-meaning teachers were extremely poorly prepared to make a dent in the needs of the students even if they had been well led. The Principal told more than one teacher there that “as long as they are quiet and in their seats, I don’t care what else you do.” This was on the day this person was HIRED. This was their first and probably last instruction. He never gave me a single instruction. Ever. And I was a new teacher with nothing but TFA’s Summer Institute under my belt. The Principal proceeded to get a law degree while sitting in his office ignoring the school. When we went to the Assistant Superintendent to report that the school was systematically cheating on the 3rd grade test (i.e., the third grade team met with the principal and APs, planned the cheating carefully, locked their doors and covered their windows and gave answers) she told the principal to watch his back. A few months later, inspectors came from the state. After observing our mostly horrible classes for a full day, they told us how wonderful we were doing and that they had just come down to see what they could replicate in other schools to produce scores like ours. And the list goes on and on.

Like when I asked the principal to bring in one of the district’s special education specialists to assess two of my lowest readers, both of whom had fewer than 25 sight-words (words they could recognize on paper) in the 3rd grade, he did. She proceeded to hand one of the students a list of words that the child couldn’t read and tell her to write them over again. Then she went to gossip with the Principal. After explaining to him in gory detail, IN FRONT OF THE STUDENT, that she had just been “dealing with a case where a father had jumped off a roof nearby and committed double-suicide with his 8 year old daughter in his arms”, she collected the sheet with no words on it, patted the child on the head and left. No IEP was filed nor was I allowed to pursue further action through official channels (I lobbied the mother extensively on my own). I never asked for her to come back to assess the other student.

Our Union Rep was said to have tried to push another teacher down a flight of stairs. The same Union Rep, while I was tutoring a child, cursed out a fellow teacher in the room next door at the top of her lungs so the child I was tutoring could hear every word. When I went to address her about it, the other teacher had to restrain the Rep as she threatened to physically attack me. And when the cheating allegations were finally take up by city investigators, the same Union Rep was sent to a cushy desk job in the district offices. I hear that most of the people I’m referencing here are long gone now, and some of them actually got pushed out of the system, but how rare can this story really be given the pitiful results we see from so many of our nation’s poorest schools and how far the system goes to protect horrible teachers and administrators like the ones I worked with?

At the same time as all of this was happening, by the way, the few good teachers in the building often became beaten down and disillusioned. One of the best in my building was consistenly punished for trying to make her corner of the school a better place for learning. They put her in a basement corner with no ventilation, no windows and nothing but a 6-foot-high cubicle-style partition separating her from the other 5 classrooms in the basement. After fighting the good fight she went to teach in the suburbs. When I got a financial firm to donate 20 computers, the principal said he didn’t have the resources to get them setup for use and refused to allow them into the school. When I had my students stage a writing campaign to get the vacant lot behind the building turned into a playground, the principal wanted me silenced.

The saddest thing about the whole damn mess was that our K-3 kids still REALLY WANTED TO LEARN. Every day they came eager for knowledge. And every day this cabal of cynicism, racism and laziness did everything within their powers to drain it out of them. It was unreal. Don’t get me wrong. There were some good teachers there. And some well meaning, but poor teachers. But in many classrooms, the main lesson learned was that school became something to dread, many adults thought you were capable of very little, and some adults couldn’t be bothered to lift a finger.

I hope if any of the good, hard-working teachers who fought so hard to rid the school of this mess read this, they’ll know I’m not lumping them in with the rest. But the problem was, when I addressed the worst practices in the school at a staff meeting, the bad teachers laughed and the good teachers took it the hardest and thought I was criticizing them.

Thanks again for the survey. Let’s make these stories known.

A few months ago I wrote about Celgene’s undeserved 25% drop in its stock price (December 11th post) and why you should buy it. The market does not always behave rationally - it is driven by fear and greed, both of which are irrational emotions. So what’s happened since I recommended you buy Celgene on the drop? It’s up 25%. My portfolio is happy.

So what’s the lesson here? Watch for irrational drops…because they will almost always pop. Its easy money, and that is definitely something you want to ride.

Though the numbers are mixed, most experts agree we are now in a recession. However, this does not mean the stock market will necessarily continue to tank. During the 1991 recession the market actually rallied, so its quite possible the same could happen now. Market historians note that based on the average length of recent recessions, we should hit bottom at some point between May and August. Most money managers who were hording cash for the last 6 months (as you should have been doing as well) have already begun pouring money back into equities…so should you?

I think, YES. When the Fed bailed out the investment banks after the collapse of Bear Stearns, it sent a strong signal to Wall Street that the financial crisis was over - the Fed had come to save the day. While many banks are still facing liquidity issues, lending is finally happening again. With the “crisis” over, the market has rallied 5% over the last 5 weeks, breaking the all important 12,800 technical barrier for the Dow Jones.

This doesn’t mean all stocks are headed north. The financials, which have been the pariah of Wall Street for the last 9 months, can see the light at the end of the tunnel more than any other industry so I would pick them. JP Morgan, U.S. Bancorp, Allied Irish Banks, and Goldman Sachs are some of my picks. Open positions and add gradually. Industries to avoid would be anything related to consumer retail/discretionary spending, however.

Overall, there is still reason to be skeptical of the current market rally. Consumer confidence and spending are hitting lows we haven’t seen in decades. Inflation in energy and food prices has skyrocketed and depleted everyone’s wallets. Remember, consumer spending accounts for 2/3 of the economy. If consumer spending tanks…so too will the economy.

The Bear Stearns buyout/collapse has probably scared lots of you. To watch a company with an $80/share book value sell for $2 three days later is pretty scary. Or is it? When the markets get rattled like this we start truly separating the wheat from the chaff. Lehman today fell 40% before regaining half that loss. I think its approaching value territory. These market corrections provide excellent buying opportunities. It’s hard to tell if we’ve reached the bottom but this is certainly a good time to buy a little here and there. Trust me, we are not out of the woods at all but you can still take advantage of the cheap stocks out there. I would still maintain a large cash position of at least 25%.

Also, keep on eye on what the presidential candidates are saying about the current situation…one of them is going to be responsible for getting out of this mess.

The Rebull is back. Let’s get down to the nitty gritty: the economy continues to tank and drag Wall Street down with it. This should not be a surprise. Early January saw a bounce on the Street but you should have all known that was temporary. The credit mess is not over and until it is, the markets will continue to suffer. Experts had long warned that the write downs of November/December were not the last we would see - as of the end of last year there were still $140 billion in unaccounted subprime mortgages that had yet to be written down. Of course, we are now seeing that reflected in the market slump. Do not panic. Do not sell. At this juncture you have to hold your positions and ride out the storm for the next year or so.

You should also be hording cash. Increase your standard cash position of 10% to at least triple that. I’m currently at 40%. Why? Because stocks are only going further downhill into serious value territory. Stocks like GS, GOOG, and APPL are taking brutal hits despite their pristine balance sheets. These three will only continue to get cheaper. Timing the bottom is difficult, however, so I recommend buying your positions slowly over time so that you average a good price. Do not buy yet, though. There is further weakness coming in the next 4 weeks at least. And remember: do. not. panic.

As the American economy continues its volatile slide downward, many of you are wondering if there are any opportunities OUTSIDE the U.S. The answer is yes. There are lots. Emerging markets have long been the domain of risk takers but nowadays are becoming a must for everyone’s portfolio. The reason, in a nutshell, is that the economies of emerging markets are growing at a torrid pace - much, much faster than the American (or any Western) economy. This means the returns on investment are enormous. So where do savvy investors look for good opportunities? Wall Street calls it BRIC:

Brazil

Russia

India

China

Some people might find investing in U.S. securities puzzling enough, so they may wonder “how the hell do I invest in CHINA??” Thankfully we live in a global economy and have easy access to one of the world’s foremost financial capitals: NYC. Many foreign companies actually list on the New York Stock Exchange using ADRs - American Depository Receipts. These are traded just like traditional securities on the NYSE and give Americans access to very lucrative emerging markets. BRIC companies are the most established of the emerging market firms on the NYSE. These also tend to have a lot of available research online, and even analysts covering their stocks. As time goes on, however, be prepared to find even better investment opportunities in Sub-Saharan Africa (especially Namibia, Botswana, South Africa, etc.), Latin America, and the Middle East. Private equity firms are already injecting billions into companies there - soon, we will all be able to get in on the game. In the meantime, there is BRIC to play with. More on this next time….

I know many of you really want to get into the stock market. You ask me for advice, you tell me about prospects, etc etc - its awesome and I love the enthusiasm. Eventually though, many conversations turn into “…but I don’t have the money to invest.” Many people think that you have to have serious bank in order to start an account. Let me remind you that the minimum amount needed to start a free trading account at Zecco is only $2,500. You can open an account with even less than that, but trades will cost you about $4 a pop, which is still not bad.

If you’re still convinced you don’t have enough to open an account…then how come you have enough to get drunk three times a week? Buy illicit substances? Shop for nice clothes? Every time you make a non-necessary-for-life purchase, think about this: is this purchase going to diminish or increase in value over time? Couldn’t I be putting this amount of money aside to invest? I do this every single day. Every time I see something I want to buy but don’t really need, I ask myself: what if I just invested these $100 instead of blowing it on crap?

Let me put it another way. If you invested JUST $100 a month for 40 years (age 25 to 65), you would have $1,176,477 saved up by the time you retired (@12% compound interest). If you waited until you were 35 to start investing $100 a month you would lose BIG time - you would only have $349,496 saved up by the time you were 65. That’s a difference of roughly $800K because you were too lazy to save a measly $100 a month between the ages of 25 and 35. Compound interest is incredible - USE IT.

I’m going to give you another example to drive this point home. If you invested $2,000 a year between age 25 and 30 (for a $12K total) and invested ZERO after that…you would have $959,793 by age 65 (@12%). Remember, that’s after investing NOTHING after age 30. However, if you waited until age 31 to start investing, you would have to save $2,000 EVERY year until age 65 to come up with a comparable amount ($966,926) - that’s a total investment of $70,000 over 34 years compared to only $12,000 over 6 years. Isn’t the choice obvious?

Ye who are reading this probably spend about $25 every time you go out…if you go out just 4 times less per month, that’s $100 saved and ready to turn into more than $1M for retirement. Put the bottle down every now and then and make the smart choice. Make it rain.

Well, getting bad news is never good - and yesterday’s insufficient rate cut definitely counts. So thats the bad news. But there is good news. There is always good news when it comes to investing. Even when shit hits the fan - sometimes that can be the best news ever. Why, you say? Because this is when things start to get cheap. Really cheap. Wall Street was obviously displeased with .25 point rate cut; the Dow closed almost 300 points down. In the midst of all that sadness and gloom, however, the great Oracle of Omaha made an appearance on CNBC with our favorite candidate, Hillary Clinton, who he supports. And what did Warren B have to say? Same thing I’ve been trying to impart here all along - contrarian investing is the most lucrative of all. When everyone is yelling “shark” and running out of the market waters that is exactly when YOU should be getting in. You’ve heard that old adage: buy low, sell high. But most people tend to buy high and sell low, moved to pull the trigger on market decisions based on hype and not facts. Pretty soon things will start looking very grim on Wall Street…and that is when things will be bargain basement cheap. Warren B reminded everyone today that the best investments he’s ever made in his entire career where in 1974, when the country was in the midst of a horrific recession. Such investments included $10M in the Washington Post Company - an investment that is worth over $1 billion today.

So what does this mean for you? It means don’t freak out during these volatile times. Remember, Wall Street operates on fear. You, on the other hand, can capitalize on it. So if things do get dire and we fall into a recession just remember that its not all bad news. Who knows, it could be the best news you’ll ever hear.

In my last post I explained how its relatively easy to make money on certain trading opportunities that pop up every now and then. Well, the market gods seem to be reading my blog because lo and behold such an opportunity has entered the radar screen. Yesterday, Celgene (CELG) dropped 25% when all was said and done. Celgene is a very popular stock and has returned massive profits to those who got in early while the getting was good. It is also one of those rare stocks where buying it at its 52 week high is NOT a mistake - it has plenty of room to grow. So why did it tank yesterday? Celgene is a pharmaceutical company whose blood cancer drug has performed phenomenally - but yesterday an analyst warned that the results of the latest study of the drug might cause a delay in further FDA approval. BUT. Huge but. The same analyst went on to say he believes the drug will nonetheless win FDA approval and that he reiterates his buy rating on Celgene!

There you go. Classic example of Wall Street insanity. The guy merely said there’s a chance of a delay in getting FDA approval - and that was enough for money managers everywhere to oversell CELG and drive it down 25% - despite the fact the analyst went on to reiterate his buy rating. Lucky for you and me, this has created the perfect opportunity to open a position in CELG. Nothing in the markets is ever certain, but I’m pretty darn sure CELG is going to sky rocket back up in the next several days. BUY NOW.

Why should you listen to me? Because the S&P 500 and the Dow Jones Industrials are both up less than 2% since September (3 months) while over the same period my portfolio has risen 21%. ‘Nuff said.

One of the major decisions you must make every time you open a position is how long you plan on holding it. That largely depends on why you’re opening the position to begin with. Hopefully most of the positions you will open will be investments, but from time to time the opportunity for a trade arises. What’s the difference between a trade and an investment? Simply put, a trade is a stock purchase and sell that is completed over a very short period of time. I’m sure you’ve all heard of “day traders” - these people do not invest, they trade. In contrast, when you open a position for the long haul, you’re investing. Trading can be very profitable. Small trades that garner 2-4% profit can add up to a tidy sum after a while. However, trading requires that you pay very close attention to the market and the news - and have a solid understanding how both work. If you’re reading this, it’s unlikely you have the time to watch the markets that closely so I don’t recommend it in general.

From time to time, however, there will be opportunities you can act on without much effort. A few weeks ago, Nokia announced it was buying the company that provides the maps used in GPS navigation - the same company that provides maps for Google, Yahoo, MapQuest, and most importantly Garmin (the leader in personal navigations systems). Garmin stock immediately plummeted. Wall Street feared it would get ensnared in a bidding war for the map company or perhaps have to pay more for map data if Nokia won out. The bottomline, however, is that Garmin’s fundamentals had not changed - Wall Street simply drove down the stock based on fear, not facts. So I did what any successful contrarian would do - I seized this opportunity and loaded up on Garmin stock knowing well that it would bounce back within a matter of days…and of course it did. As soon as it was back to pre-Nokia-freakout levels I sold my position and made an easy ~10% profit.

So, bottomline: watch the news and make Wall Street fears line your wallet with some easy, quick trades every now and then.

Make

it

rain.