Three Reasons to Own Individual Stocks
What Is a Bitcoin and Why Should You Care?
Raw Power: Huaneng Power (
In 2002, the Investment Company Institute, the industry group
for mutual fund companies, found that just about half (52.7 million
or 49.5%) of all U.S. households owned stock in some way. But just
21 million households (fewer than 20%) owned individual stocks
outside their 401(k) plans and other mutual funds.
I know that much has changed since 2002, but I'm betting that
those figures are still in the ballpark.
And that's because owning mutual funds is easy.
If you own a chunk of a fund that owns a basket of stocks, you
don't have to watch the daily movements of stocks and make
decisions about buying and selling. (The mutual fund companies
certainly work hard enough to discourage you from taking much
initiative with your investments.) Plus, if you have a tax-deferred
mutual fund, you don't have to consider the tax consequences of
Personally, I have the bulk of my retirement savings-what's left
of it anyway-in exactly the same kind of mutual funds as most
people. They are mostly a legacy from my days with earlier
employers, and I mostly just let them be.
But, of course, I also own individual stocks. And I think there
are some really good reasons for taking on that role. Here they
1) Owning stocks is real.
Facebook, Twitter, YouTube, Second Life, chat rooms, massively
multiplayer online role-playing games and every game console joint
ever made may be fun, even addictive. But life online doesn't make
or lose a thing.
If you own a stock though, you're joined at the wallet to the
fortunes of the company that issued it. It's real money, and you
can make actual money with it. You can also lose money, but that's
part of being real. You can't hit restart (or
command/option/escape) and make it go away. Real risk, real
opportunity. There's nothing like making a decision and having it
lead to real consequences.
2) Owning stocks gives you a chance to test
It's one thing to watch the markets in a general way. And you
may find yourself making some interesting adjustments to your
mutual fund allocations during the open enrollment at the end of
your company's plan year.
But owning stocks allows you to test yourself against Warren
Buffett, Gordon Gekko and Jesse Livermore, the Speculator King.
How good are you at picking the nuggets out of the gravel? Do
you have the nerves to wait out a market correction and the
gumption to follow a sell discipline? If you're willing to pay for
the class, the market will be more than happy to give you exactly
the grade you deserve. It can be a humbling experience at times,
but also personally rewarding.
3) Owning stocks is fun.
It amazes me all the time that people go to Las Vegas knowing
that they're probably going to lose money ... and yet they enjoy
themselves. But then that's what huge fountains, famous headline
acts and billions of dollars of advertising and fantasy
architecture will do for you.
The stock market, on the other hand, just has the boring old
ticker. Stocks and indexes go up and they go down. You have to
supply the fireworks.
But if you've ever talked to an investor who owns a stock that
has just doubled in six weeks, you've probably seen something akin
to real joy. (Yeah, I know that it's nothing compared to
parenthood, finding true love and sinking a hole in one, but you
have to work with me here.)
I also know that it may not be fun if you're desperately playing
catch-up, trying to get your retirement funds back up to where they
should be so you can quit a job you don't like and head for the
ivy-covered cottage in which you hope to live out your years. I'm
not saying it's fun for everyone. But for people who prefer
investing to woodworking or collecting Pez dispensers, it can be a
hugely enjoyable thing to do.
What Is a Bitcoin and Why Should You Care?
Soft news is like junk food for the mind. It's also a
distraction and an annoyance. Imagine what it would be like if the
amount of coverage given to any subject was proportional to its
actual importance in real-world, practical terms. Suddenly, when
you clicked onto Yahoo! or Comcast or any other Web portal, entire
armies of soft news stories wouldn't be there.
Imagine, no little headlines teasing you about which celebrity
had what tattoo on which part of his/her body. Imagine a total
absence of Lindsay L. stories. Ditto for the K-girls, the Real
Housewives, Donald T., Octomom, the young women of the Jersey
Shore, the Pregnant Princess and every other reality star, movie
star, TV star and flavor-of-the-week gossip magnet. All of them
gone. At least gone from the places where you're trying to find out
what's actually happening in the world. And by that I mean the
world in which getting your face seen on the Internet is not the
highest human aspiration.
I need to make one thing clear. It's not that I don't have any
curiosity about celebrity gossip. I have as much of a taste for
soft news as I do for junk food. But that doesn't mean I'm happy
about it. I now know more than I ever wanted to about people I
don't know and don't give a rat's patoot about. And that's just
from the headlines! Imagine how much of my day could disappear down
an intellectual rat-hole if I actually read the stories!
But despite all the useless subjects that have been caught in
the spotlight of online celebrity-and I'm including grown men who
have an unhealthy fixation on My Little Ponies-the one that I'm
actually enjoying is the Bitcoin. The Bitcoin is a synthetic
currency, a kind of online money that can be used to make purchases
both online and in the real world. It came into being when a group
of cypherpunks (people who advocate the use of online cryptography
as a way to block government snooping, interference and control)
started to take practical steps to create a non-governmental
infrastructure for society.
Bitcoins came into being as an idea in 2008 and as a practical
reality in 2009. Bitcoins are a virtual currency, worth just as
much as people are willing to pay for them. They can be spent
online or converted to real-world currency. One exchange doing this
conversion says it can "do an exchange from Bitcoins to Liberty
Reserve, Perfect Money, Pecunix, Liqpay, HD-Money, OKPay,
CashMoney, PayZa, Visa, MasterCard, Paypal, Webmoney, Technocash
and Bank Wire." There is no central bank and no reserve system.
Transactions are all public, but the parties to the transaction are
anonymous. Bookkeeping is handled by the distributed Bitcoin
community. New money is created by people solving electronic
The total amount of Bitcoin in circulation is increasing (it's
now just under 11 million BTC), but the rate of increase is being
halved every four years. The amount will reach a maximum of 21
million Bitcoins in 2140 and will be capped permanently at that
The thing I find fascinating about the whole Bitcoin movement is
that it is a conscious attempt to create an exchange medium that's
completely outside government control. This is a principled act of
crypto-anarchy. Its creators realize that it can be used to buy
drugs, finance terrorism or for other bad purposes, but believe
that the benefits of having a system that exists outside government
control is worth the risk. After all, as they point out, "real"
money can be used for the same purposes. Privacy, they say, is
worth the price.
The price of one BTC was about $35 at the beginning of March,
but skyrocketed to above $90 as the financial uncertainty caused by
the Cyprus Crisis peaked. This is obviously a bubble situation, but
the market will rein that back in soon.
If you're tempted to own some Bitcoin, it's certainly possible.
Probably not a good idea, but it will make great conversation at
parties and raise your hipness level. Just don't bet the digital
ranch on making any money.
For making money, I think you'd do much better finding a Cabot
investing newsletter that aligns with your investing goals and
style. You can find a tool on the Cabot website that will help you
There's nothing cypherpunk about Cabot newsletters. They're
rooted in the real world, with decades of experience built in
practical, usable recommendations. Find out more by
For my stock pick today, I'm consciously getting as far from the
digital world as I can. There's nothing virtual about
Huaneng Power (
, the Chinese energy giant that turns coal into electricity. And
with 48 power plants in 19 Chinese provinces and 1 in Singapore,
the company burns a lot of coal.
With a market cap of over $15 billion and annual sales of over
$21 billion, Huaneng Power is a big player in the Chinese energy
picture. While the government would like to move toward renewable
sources like wind and solar power, the enormous demand for
increasing amounts of electricity (and the huge reserves of coal in
China) make it a practical necessity to use what's available.
Huaneng has an active program to mitigate its impact on air
pollution, including the first-in-the-world generating plant to use
seawater as a desulfurization agent. The company's new plants also
use super-critical combustion technology to increase efficiency and
reduce CO2 emissions. But for now, the big story for Huaneng is its
buying power for coal and its active program of new plant
The company's earnings per share have gone from about $1.25 five
quarters ago to $2.73 in the latest quarter. The stock also pays a
small dividend (0.6% forward annual yield). But the most impressive
thing about Huaneng Power in many ways is its stock chart. HNP
bottomed at 15 in October 2011 and has climbed steadily as earnings
have improved. HNP is now trading above 43, and looks to have more
coal for its boilers.
This is a thinly traded stock (just 63,000 shares per day on
average) so volatility is potentially high. Short interest is at a
reasonable 3.5 days of trading, which is neither threatening nor a
short-covering opportunity. HNP is a good play on the global demand
for electrical power in general and the still-robust growth of
China in particular. I think it's buyable on a pullback to 41. A
drop to 38 would be bearish.
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