SQL To Calculate Volatility

 I looked at different sites to find an easy formula to calculate stock volatility. Everybody is using Excel or some specialized software. In all cases, calculation is done for one position only. I wrote the following query to calculate volatility for all stocks in the database:

select t.id, t.currticker, 

       stddev(ln(p.close_price/p1.close_price)) * sqrt(252) volatility

from tickers t, prices p, prices p1

where t.id = p.tickerid

  and t.id = p1.tickerid

  and p1.trade_date = (select max(p2.trade_date) from prices p2

               where p2.tickerid = t.id

         and p2.trade_date < p.trade_date)

  and p.trade_date between current_date - 31 and current_date - 1

group by t.id, t.currticker

This query work on Postgresql (Version 12 and up, should work on earlier versions as well). To use Oracle, replace current_date with trunc(sysdate).  To use with MS SQLServer or mysql you nned to change date functions as well.

Tables and columns used:

tickers: table of stocks, 

  columns: id: internal id,

                 currtickers: stock ticker.

prices: daily stock prices, adjusted for splits,

  columns: tickerid: ticker id

                 close_price: ptice at closing,

                 trade_date: self-explaining.

This SQL calculates annualized volatility for the last 30 calendar days the way it's calculated on most financial sites. You can change parameters in the WHERE clause to change the range.

The End of Cheap Labor

 Labor shortages everywhere. Not only in US, everywhere in the developed world. Lots of blame going around. Some blame COVID-19, some blame politicians. But problem is much deeper, than it appears at the first glance.

First, let's take a look at the US resident population pyramid:

We can see that the biggest age groups are 50 to 60 years old and 20 to 35 years old. Obviously, 50 to 60, that's the tail part of baby boomer generation (older boomers are gradually dying out). 20 to 35 are their children. This is the new labor force coming to market right now.

Overall picture is clear: we don't have any room for labor expansion in US, except immigration. Which is politically unpopular and repressed.

But we also know, that in the last 40 years (if not more) wages stagnated, with exception of the last 7-8 years. And that stagnation was the worst at the lowest level of wages. How do we reconcile those two pieces of information? Simple. Starting beginning of 1980s, China opened to the outside world. Adding almost a billion people to the world labor force. Rich countries moved a lot of production to China, depressing wages at home. But market works both ways. Wages in the rich countries have been depressed, but wages in China grew. 

There are still some potential to tap into cheap labor. There is a fast population growth in Africa. But businesses are reluctant to move production there because of political instability in most countries. And in stable countries, surprise!, population growth is mostly over as well.

There are only two ways to handle the current situation:

1. Permanent stagnation, obviously preferred by some business leaders, who wants hard money policies regardless of economic situation.

2. Policies, increasing labor participation and immigration. Which includes government sponsored child care, more government involvement in healthcare.

Of course, partially labor shortage can be solved by increased productivity, which requires increased investment from businesses. I will believe it when I see it. Last 20 years, most businesses tried to invest into productivity as little as possible. And again, in stagnation situation this won't happen, ever.

How To Destroy US Economy In Three Easy Steps

 OK, I admit, destroy is a way too strong a word here. Rather than being destroyed, US ecomony is on the way of becoming 3rd world economy. Something like Brasil. Or Honduras. Your choice.

What is the main difference between US economy and economies of less developed countries? I mean now, not 50 years ago? The answer is simple: Silicon Valley. Nobody can match the rate of innovation coming mostly from Northern California. 

Why is it happening? Brains. There are 3 universities in Northern California pulling the best brains from all over the world: Berkeley, Stanford and California Institute of Technology (Caltech). These brains create innovative companies, go to work for these companies, they created Silicon Valley as we know it. 

What do you need to do in order to destroy Silicon Valley? Restrict flow of brains. It's much easier done than you think.

Step 1: restrict visas for foreign students. Already done in 2018. Should I mention that these three universities only accept the brightest of the brightest? Why would US Government restrict the brightest from our universities? I have no idea. But it's done.

Step 2: restrict work visas. First of all, visas for internship. Not long ago, students could receive internship visa almost automatically if they have a job offer in US. Now it's almost impossible. And, of course, H-1B visas, which allow foreign employees work in US. Again, now it's practically impossible to get H-1B visa after internship visa expires, employee has to go to the home country and apply from there. The number of H-1B visas is very limited, so again, if a bright student somehow managed to get internship visa and started working for some innovative US company, after some time he or she has no choice, but return to the home country. Of course, current government has an explanation: we want America and Americans first. The only problem is that is a lie. Foreign contractors, not necessary the brightest, are easily and without many restrictions get L1 visas (transfer within company). 

Step 3: start trade wars and break up the Internet. We live in a globalized world. You can't fence yourself and be a competitive economy. But current government started trade wars with China and EU anyway. And now it's trying to create barriers in the Internet. For 30+ years US tried to keep the Net open and available for everybody, now government behaves almost like Chinese government. US government ordered video service TikTok to sell US operations to US company or to be shut down. Not many people know the history of Presidents rage: TikTok users pretended to sign up for Trump's rally in Tulsa, OK, and, of course, didn't come. US based TikTok users. Now government tries to tell us that TikTok sends user data back to China. Any proof? You can easily analyze net traffic. If it's encrypted, get the warrant and analyze it before encryption. We have US government behaving like some African government.

Of course, there is inertia. Of course, there are thousands of world class companies in Silicon Valley which aren't going anywhere any time soon. But damage is done. You can expect the rate of innovations to go down, you'll see less innovative companies created here. Decay takes time.

And remember, without Silicon Valley US is a 3rd world economy. There is nothing else which would make it outstanding in the world.

Trump Won. Now What?

First, several self-evident facts (you can search internet if you don't believe me).

During democratic presidencies stocks grow much better than during republican.

Any attepmt to restrict imports into US under any pretext will cause trade wars, which would really cost US hundreds of thousands, if not millions, of jobs, and a lot of investment income (or cause investment loss).

Current low interest rate environment is not a fluke. It's a consequence of demographics in the developed world. I don't see how this can be changed by any government. Any attempt to significantly raise rates is going to be disastous.

Changes in strategy

My current cash position is around 25%. Going to increase it to around 30%

I have too much money invested in conventional companies. Now it's mostly dead money. Most of new investment is going to networked economy. The only exception is defence sector. GOP, in their very non-corrupt wisdom, is going to throw a lot of money there (there is a consensus between Trump and other elected GOP members). Going to sell rallies. First candidates are conventional companies with significant exports.

Because I'm close to retirement age, I already moved a lot of money into fixed income CEFs. I am going to increase that portion. All talks about bond crush is huge BS. Yes, effective yields on bonds are going to go down and that requires some careful management.

Significant portion of money should go abroad, one way or another. So far, I used ADRs, looking for other opportunities.

Tell Warren Buffet: I Can Sleep On His Matress

Today Warren Buffet said the following: "Berkshire Hathaway is sitting with billions of dollars of euros in an insurance company ... in Europe and they will bear a negative rate. We would be better off with a big mattress in Europe that we just stick all this stuff in, if I could just find a person I trusted to sleep on that mattress." Quoted from here:
http://www.cnbc.com/2016/02/29/warren-buffett-were-a-more-aggressive-buyer-of-stocks-when-theyre-going-down.html
Well, tell Warren he's got his man (and woman, my wife). No problem, Berkshire Hathaway puts that mattress in some nice home somewhere in Europe, pays for the house, utilities and protection. And I just live here. I will sign an obligation to sleep on the mattress with money, no problem.
But come on! I don't understand why such a great investor keeps idiots to manage his money in Europe. There are a lot of different tools, all bearing interest, to keep your money in. You can invest in sovereign funds (well, Germany is effectively at zero interest, but it's not the only country in Euro zone). There are sub-soveregns (what we call munies in US), issued by provinces and municipalities. There are corporate notes, lots of which are issued by reliable, well-capitalized and profitable companies. What's the problem?
It's a problem for US retail investor. I'm looking for the last several years for some funds investing in Euro debt, and found essentially nothing. There are several funds, but in countries I'm not interested. When PIIGS panic hit (concerns about sovereign debts of Portugal, Italy, Ireland, Greece, Spain), I was ready to buy all of them with exception of Greece, didn't see any tools. Now I'd love to invest in sub-sovereigns, nothing.
For Berkshire Hathaway, having billions and established management in Europe, it's not the problem of finding investments. It's a problem of management. I bet I can find a lot of tools and build a good debt ladder for anything Berkshire can throw at it. European debt market is not as big as ours, but it's for sure orders of magnitude bigger than what Berkshire Hathaway has.

Why I Bought PayPal

Bought PayPal (PYPL) yesterday. Wanted to buy this great company for a long time, but didn't like the price. Now price is OK. Doesn't mean it can't go lower, nothing is certain. But fast growing company, part of internet financial revolution, trading at less that 20 future P/E and PEG 1.20 is cheap in my view.
There are several new growth areas for a company. First of all, now many companies offer PayPal as an option when paying for online purchases. Second is xoom.com. If you transfer money between countries, you know how outrageously expensive it is for small amounts. Xoom lets you transfer money much cheaper at better currency conversion rates that alternatives.
There are companies on the receiving side as well. I don't know how long Moneygram (MGI) and Western Union (WU) can survive. MGI, in my opinion, is walking dead. WU has bigger reach and a lot of loyal customers. I think those loyal customers are growing old and dying, and company will be dying with them.

Full disclosure: I have long position in PYPL and no positions in MGI and WU.

Market Is Down. Now What?

Correct answer is "I don't know". Of course. I thought that Wednesday intra-day drop of more than 500 Dow points is a capitulation. Maybe even THE capitulation. Which signifies the end of bear market and a start of a new bull one. But there is one interesting fact which goes against it. Bottom on that day happened exactly at 2:30 ET. That was the time of Feb WTI futures expiration. Oil futures roll over usually doesn't create huge drop at expiration, although some analysts claim that's what happened. It looks like some huge dump of contracts in which buyer had to take delivery, but didn't want to. It also appears that a lot of trading algorithms are currently trained to trade stock ETFs in line with oil. It shouldn't be this way, but if high frequency guys use neural networks algos, that's how such networks would react, according to the last several months of trading. Unfortunately, HFT is the majority of trading now. Not complaining, just clarifying the reality in which we trade.
OK, so what is the current situation? China is in a big trouble. Widely advertised turn to consumer economics isn't happening. At the same time, workforce in the country is not the cheapest in the world anymore, banking system is still doesn't really exist, and nobody believes government statistics. Some analysts wonder why volatility of Chinese market affects much bigger US one. The answer is simple: hedge funds invested in China are getting margin calls and selling whatever they can. Plus HFT algos are doing their thing, magnifying the effect.
Next elephant in the room: sovereign wealth funds of oil producing countries. These funds are huge net sellers of everything they own in the last 6 months. They have to, budgets of these countries need money now. Of course, this selling is also magnified by algos.
Last, but not least, is a bunch of idiot fund managers invested in commodities (especially oil futures). They are losing money hand over fist, need to sell something to avoid margin calls, so they sell stocks and bonds.
Market direction will be defined by money balance, as usual. On one side above mentioned sellers. On the other side multiple funds investing money long term, not bothering with trading. In the long term, bulls always win. The main question: when sellers are going to be exausted?
Interesting trivia. I watched Rose Bowl Parade this year and was surprised how many bears were on the floats. Never seen that many.

Lousy Year

I lost 2.5%. No excuses. Yeah, I know, some hedge funds lost 25%. Well, I never invested in commodities, they are not an investment class. So no, I didn't have margin calls, didn't have to do a fire sale. I didn't predict some trends, true. I thought that China's crash is coming, just didn't think how much could it scare investors. I thought that oil going down is good for economy. I still do. I just didn't see that oil crash would create huge problems for funds, which would have to fire sell everything to avoid margin calls. What I completely forgot about is the amount of oil money invested in US equities. That's a big issue nobody's talking about. It affected equities in 2015, and going to affect them more in 2016.
Anyway, no excuses. I lost money. Not much. But lost.
The only bright things in 2015: Althabet (GOOGL), Facebook (FB), Raytheon (RTN) and muni bonds.
What I think about 2016? Wait for the next article.

Disclosure: I have long positions in GOOGL, FB, RTN and muni bonds.

Is It Really China?

Everybody is sure that current sell-off is triggered by China. I have my doubts.
Yesterday everything was down. Global panic. What usually happens during global panic? Yes, everybody buys dollars, which is going up. What happened yesterday? Dollar down. Why?
There is one possible explanation. I am not sure it's true, but it fits know data, including the fall of the dollar. This sell-off is driven by sovereign wealth funds of oil producing nations. It's a well known fact that Saudi Arabia has deficit budget this year. They are not borrowing money, because they have more than 700 billion reserves. And most of these reserves are kept in sovereign wealth funds, mostly in US. Other oil producing nations have similar investments. It's not easy to follow them, the don't report daily. If they are selling, they are selling dollars as well, converting to local currencies.
If this idea is right, this sell-off should end soon, most probably this week. One thing can make things worse: window dressing. Hedge funds are probably selling like crazy, to show their customers in the end of month report that they were in cash (mostly).
In any case, I am going to make a purchase or two by the end of the week. Wrong or right, time will tell. But discipline tells me to buy when there is blood on the streets.

Trading Around

This is trader's market. If you are buy and hold (or buy and pray) investor, bad luck.
I did several trades around my positions in last several months

Facebook (FB): was selling put and call out of money options. Unfortunately, last call option ($86 on Jul 31) was exercised, so effectively I sold part of position for $88. Less profit than expected.

Polaris (PII): Added to position at 143 some time ago, sold at 150 before earnings, bought back several days ago at 133.

Raytheon (RTN): Added to position in June at 100, sold lately at 110.

I'm going to continue such trades, that's the only way to make money in current market. Yes, Google (GOOGL) and Facebook (FB) made money for me, but with everything else down or flat, that's not enough.

Rearranging Fixed Income Portfolio

Did some thinking last week, today started acting. I don't like First Trust Strategic High Income Fund (FHY) anymore. Fund reduced distribution and started including return of capital into distribution. ROC doesn't do anything for you, just complicates your tax return. I decided to replace it with Credit Suisse High Yield Bond Fund (DHY). Distribution yield is higher, and it doesn't include ROC most of the time. Done my first trades today.

A little bit of trading history for this year. Didn't mention it before, I did some Facebook (FB) optioin selling (naked puts and covered calls). Profitable so far, even though first time covered call got exercised, second time - put. You can see those trades on my twitter account.

Full disclosure: author is long FHY, DHY, FB and short FB June puts and calls.

Annual Portfolio Review

It's this time of the year again. Need to explain myself what am I doing. Lot's of worries around the world: Ukraine (it's a real war in Europe, make no mistake), Greece, ISIS. Ebola just subsided (don't know why that one scared investors). And yes, collapse of oil prices (only really rich people think it's bad). But let's not forget, worries are good for investors. They allow us to get good entry points. And bull markets climb a wall of worry. It's scary when everybody's happy (remember March 2000?)

Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.

Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.

Strategy. Most money is invested in US. But I increased my European exposure lately. Europe is coming back. Domestically, with GOP controlling Congress, we might get into some ugly fights, with possible veto and government (or parts of government) shutdowns. I think every such fight is a buying opportunity.

Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.

Google (NASDAQ:GOOGL), (NASDAQ:GOOG)

Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.

Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.

No changes since last review.

Plan: Hold, trade around.

ARM Holding (NASDAQ:ARMH)

Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs. Additional plus in current environment: it's a European company, based in UK.

Added to position since last review

Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.

Plan: hold, trade around.

Facebook (NASDAQ:FB)

Not the only social network company worth investing anymore. But the most profitable so far.

Sold some calls and puts since last review.

Risk: Wall Street hates the company.

Plan: hold, trade around.

DSW Inc (NYSE:DSW)

Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.

No changes since last review.

Risk: Any retailer is a high risk company. Anything can go wrong.

Plan: hold.

Twitter (NYSE:TWTR)

Many people think that company is only good as a possible takeover target. Wrong! They are just at the beginning of monetizing their popularity.
No changes since last reivew.
Plan: hold.

Banks / Financials

Banco Santander (NYSE:SAN)

Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles.

Added to position and reinvested dividends since last review.

Risk: Currency fluctuations, more problems in Eurozone.

Plan: Hold.

HSBC Holding (NYSE:HSBC)

As far as I know, the biggest bank in the world. European, more to the point, British. And UK loves her banks.

Reinvested dividends since last review.

Risk:currency fluctuation, another financial crisis.

Plan: hold.

Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.

Airbus Group (OTCPK:EADSY)

One of two big aircraft manufacturers. As Cramer would say, we love duopolies. Company has at least 8 years of backlog.

No changes since last review.

Risk: currency fluctuation.

Plan: hold, add on weakness.

Polaris Industries Inc (NYSE:PII)

One of the best recreation equipment manufacturers out there. Local (for me) company as well.

Added to position since last review.

Risks: another recession, people don't like buying discretionary items in recessions.

Plan: Hold, reinvest dividends.

3M Company (NYSE:MMM)

Most innovative company in Dow Jones index. Another company headquartered in Minnesota.

No changes since last review.

Risk: another recession, management mistakes.

Plan: Hold, reinvest dividends.

Raytheon (NYSE:RTN)

Bought this company because of instability in the world. Company makes missiles, including popular air-to-air AMRAAM and SIdewinder, radars, software, i.e. most sophisticated military equipment.

Reinvested dividends since last review.

Sold since last review: l'Oreal (OTCPK:LRLCY), Diana Containerships (NASDAQ:DCIX). I hate all shipping now. As for l'Oreal, I sold it just to take profit, can return at a lower level

Fixed Income

I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on Twitter, @afilonov

Disclosure: The author is long ARMH, DSW, EADSY, FB, GOOG, GOOGL, HSBC, MMM, PII, RTN, SAN, TWTR.

Additional disclosure: I have no position in DCIX or LRLCY. Positions can change any time.

2014: So-so year

Honestly, I sucked. My main investment accounts grew 3.2%. Shame on me. Retirement accounts did a little better, in line with S&P 500. And fixed income account had a stellar year: almost 20%.
Lessons learned. First lesson: don't chase performance. Ever. I had pretty good 2013, and thought what worked then would work in 2014. Wrong!  I bought a lot of stuff in the beginning of the year, which didn't perform. Second lesson: think twice or more, before buying any transports. I bought Diana Containerships (DCIX) in 2013, it was one of my worst investments. Third lesson: take at least some profit when you have it. True, I traded around Polaris (PII), but possibilities were endless and I didn't use most of them.
Last but not least. My European investment didn't work. I think they still deserve a chance.

Full disclosure: I have a long position in PII, no positions in DCIX and long positions in several European stocks.

Sometimes Politician Knows Better

March 18, 2014. Russia just annexed Crimea. All G-7 countries condemned the move and promised more sanctions. First sanctions were small and weak. That same day, Jay Carney, Obama's chief spokesman, literally said: "I wouldn't, if I were you, invest in Russian equities right now. Unless you're going short."
I remember big noise on CNBC. Several pundits, including Jim Cramer, said that it's not for a politician to predict any market, including stock market. Several financial companies predicted serious (15-20%) growth for the year for Russian stocks. Well, let's see. I'm using Market Vectors Russia ETF (RSX) as a proxy for Russian stock market.
March 18. RSX closed at $23.51
Today, December 29. RSX closed at $14.61. 38% Drop.
QED. Sometimes politicians know better. Russian market was a toast even before sanctions. GDP growth for the year was expected at 0.5%. After the sanctions, there is no growth. For the year 2015, Russian officials predict GDP drop in range of 3-5%.
Why politicians know better? At least in this case? Because they saw that Putin declared the war on Western World. Western World in extended sense, including Australia and Japan. In other words, country with GDP 2% of the total world GDP declared the war on countries with about 55%. Sanctions moved this war from war of words to the war of economics. Can't you predict the result?

Full disclosure: I don't have any positions, long or short, in RSX or any other Russians stocks.

Can't Make Money in Shipping

Well, I can't. Maybe you are better at it. Before going on vacation I closed my Diana Containerships (DCIX) position. Huge loss, more than 60%.
When I bought it in March 2013, it looked like a reasonable investment. Economy of the whole world is recovering, trade, especially trade in finished goods, is blooming. Most finished goods are shipped in containers. Should be good for container shipping companies, right? Here comes DCIX. Unlike others it's very transparent. You can go to the company's website and see current and near future ship employment, with rates and commissions. Company usually buys ships which are already employed, choosing moment right, or so it seems.
What I didn't think about is competition. There are a lot of ships entering service right now. more than enough to carry increasing trade. And, despite increasing trade, rates are going down. Right now they are at the point of zero margin. And this isn't the end of it. I decided to sell DCIX when I saw this article. The problem isn't that Maersk is building the biggest container ship in the world. The problem is that Maersk is building 9 of them right now. Which means that shipping capacity of post-panamax ships (those which can't travel through Panama Canal) is increasing a lot. That's the segment in which DCIX was trying to make money lately.
Lesson learned. When analysing any business, main attention should be paid to supply and demand in the industry, everything else comes after that. Demand might be increasing, but if supply is increasing faster, there is no money to be made.

Disclaimer: I don't have any positions in companies mentioned in this article.

Maybe US Isn't Turning Japanese...

First, a bit of the money theory. It usually called one of theories, but to me, it's the only one that's working. In short, all money is debt. And it's not the debt that banks take from Fed or Central Bank, it's debt which is taken by people and businesses. Because only this debt is used to buy goods and services. Yes, there is some paper money in circulation, but the volume is microscopic comparing to the total amount. When people say that Fed (or Central Bank) is printing money, that's wrong. In reality money is created by businesses and people which are taking credit to buy goods and services. That credit is usually provided by banks, which need to get credit from each other and Fed to have enough money. Thus, the debt pyramid is build bottom to top, not other way around. The problem with credit money is that credit has to be paid with interest. It means that either money mass should increase in time, or there would be a lot of credit defaults, bankruptcies and financial crisis every several years. Exactly what was happening during "good" days of the Gold Standard, which forced deflation. So, some inflation is necessary. Best growth rates for economies were reached when inflation was between 3 and 5 percent. Despite that, Central Banks of the developed world want inflation in range 2-2.5%. Beats me. In normal times, Central Banks regulate inflation using interest rates. Problem is, when rate is either zero, or pretty close to it, you need different tool. Here comes quantitative easing. Central Bank injects more money buy buying debt, public and/or private. But, remember, money doesn't affect prices unless it it's used to buy goods and services. QE affects consumer debt by reducing rates on private debt. In US low rated trickle down to business and consumer debts, thus increasing money available to buy goods and services. It will be happening in Europe as well, when Euro QE starts for real.

Problem in Japan: link between QE and consumer debt doesn't exist. Money from Central Bank is going to banks, which repair their balance sheets, but in no hurry to lend to consumers. Consumers themselves aren't that ready to use consumer credit to buy goods and services. They want to save, but for the good of economy as whole they need to spend. They need to change culture, which is a very slow process.

But there is another problem as well. Japanese economy is not open, like EU or US. It's hard to import goods, even when official barriers don't exist. To support exports, government buys hundreds of billions of dollars, but growth of export increases value of yen, which forces government to buy more dollars. Cursed circle... Japan is slowly opening economy, but it creates extra deflationary pressure, because internal prices for many goods are just crazy. Just search Google for food prices in Japan... And imports drive those prices down (deflation). In the end (another generation or two), Japan will become another open, consumer based economy. Maybe...

That's why I think that US will be OK. And Europe, too. Because these are open economies, with channels which move money from Central Banks to private banks to businesses and consumers. This process is slow and painful. But it works.

As usual, it's not just an idle speculation. I write my blog in order to get my thought in order and make investment decisions. I am going to hold on my US holdings, buy more Europe and avoid Japan.

Semi-Annual Portfolio Review

World Cup is over. I liked it, although 2010 one was better. I think. Anyway, my congratulation to Germany's team. Four World Cup wins, equal to Italy and just one short of Brazil. What's more important, it's the first time European team won World Cup in America. European football rules!

Well, back to investments. Looks like I (at around 0%) missed this year's rally. Of course, fixed income helped (I account for most of it separately), but it hurts anyway. Below is my current portfolio and my thoughts

Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.

Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.

Strategy. I am starting to think that political environment is getting better for stocks. Of course, if GOP takes Senate in November, all bets are off. Other than that, things are getting better. Of course, there is a war between Russia and Ukraine (don't believe that crap about rebels, they are from Russia, mostly). There are problems in Iraq. Europe is still lethargic. But US is booming.

Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.

Google (NASDAQ:GOOGL)

Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.

Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.

Since last review stock was split into voting (NASDAQ:GOOGL) and non-voting (NASDAQ:GOOG) shares. I keep both.

Plan: Hold, trade around.

ARM Holding (NASDAQ:ARMH)

Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs

No changes since last review

Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.

Plan: hold, trade around.

Facebook (NASDAQ:FB)

Not the only social network company worth investing anymore. But the most profitable so far.

No changes since last review.

Risk: Wall Street hates the company.

Plan: hold, trade around.

DSW Inc (NYSE:DSW)

Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.

Reinvested dividends since last review.

Risk: Any retailer is a high risk company. Anything can go wrong.

Plan: hold.

Twitter (NYSE:TWTR)

New position.

I wanted it from the beginning. Didn't get a fair (from my point of view) price until April-May. Many people think that company is only good as a possible takeover target. Wrong! They are just at the beginning of monetizing their popularity.

Sold since last review: Restoration Hardware (NYSE:RH).

Banks / Financials

Banco Santander (NYSE:SAN)

Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles. This is also can be placed in International part of the review.

No changes since last review.

Risk: Currency fluctuations, more problems in Eurozone.

Plan: Hold.

HSBC Holding (NYSE:HSBC)

As far as I know, the biggest bank in the world. European, more to the point, British. And UK loves her banks.

Reinvested dividends since last review.

Risk:currency fluctuation, another financial crisis.

Plan: hold.

Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.

Airbus Group (OTCPK:EADSY)

One of two big aircraft manufacturers. As Cramer would say, we love duopolies. Company has at least 8 years of backlog.

Added to position since last review.

Risk: currency fluctuation.

Plan: hold, add on weakness.

Polaris Industries Inc (NYSE:PII)

One of the best recreation equipment manufacturers out there. Local (for me) company as well.

No changes since last review.

Risks: another recession, people don't like buying discretionary items in recessions.

Plan: Hold, reinvest dividends.

3M Company (NYSE:MMM)

Most innovative company in Dow Jones index. Another company headquartered in Minnesota.

No changes since last review.

Risk: another recession, management mistakes.

Plan: Hold, reinvest dividends.

Diana Containerships (NASDAQ:DCIX)

Looks like a big mistake. Supply of ships exceeds demand.

Risk: multiple risks related to supply/demand in container ship business.

Plan: Sell.

l'Oreal (OTCPK:LRLCY)

I wanted to buy cosmetics company for a while. Most of cosmetics are produced by diversified companies, which is not exactly what I wanted. I don't care about toothpaste, razors and cotton swabs. l'Oreal is a pure cosmetics company, located in France, fits the bill.

Played around position since last review.

Risk: management, competition, economic downturns.

Plan: hold.

Raytheon (NYSE:RTN)

Bought this company because of instability in the world. Company makes missiles, including popular air-to-air AMRAAM and SIdewinder, radars, software, i.e. most sophisticated military equipment.

New position.

Fixed Income

I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on stocktalk of Seeking Alpha.

Disclosure: The author is long ARMH, DCIX, DSW, EADSY, FB, GOOG, GOOGL, HSBC, LRLCY, MMM, PII, RTN, SAN, TWTR.

Additional disclosure: I have no position in RH. Positions can change any time.

Everybody Hates Twitter. That's Why I Bought It

I waited. And waited. Wanted to buy Twitter (TWTR) for a long time. But price was too high for my taste. Now it's close to the IPO price. So I decided to open this position. Another reason: nobody likes the company. Cramer plain hates it.

I think this company can make big money for shareholders. They just started monetizing and are close to break even. Might be something like Facebook (FB), which increases earnings despite all forecasts.

Twitter reports next Tuesday. Nobody knows what is in the report and how market would react. So I started position today, and if stock drops after earnings, well, that would be a good reason to increase position.

It's hard for me to understand current internet sell-off. The biggest risk right now is war between Russia and Ukraine. Formally speaking, war is going on, it's just not full scale. But what does it have to do with the internet? Whatever any internet company is earning in these two countries can't be seen in the microscope. Industrials and energy are more at risk here.

Disclosure: I am long FB, TWTR.

Additional disclosure: Positions can change any time.

Why I Reduced Restoration Hardware Position

It looks like I found this stock too late. I like the stores, I'm sure that they sell stuff appealing to rich home owners. But there is a small problem. There is nothing unique in the stores. OK, they recover, restore and sell beautiful (and not so much, but beauty is in the eye of the beholder) pieces of hardware for home decoration. But... Last Saturday I went to Home and Garden show. There were a lot of companies selling restored hardware. Granted, they don't have variety of Restoration Hardware (RH) stores. But it's just a matter of time.

Another problem: one of the reasons I bought the stock in the first place was the fact that CEO was Italian. Well, that CEO is gone.

I am not sure I want to close the whole position. I might as well be wrong. I am thinking about it.

Disclosure: I am long RH.

Additional disclosure: Positions can change any time.

I Am Ashamed To Be Russian

I don't write here on political matters. But, the situation is way too dire.

For the first time in my life I am ashamed to be Russian. When USSR entered Afghanistan, I was young and poisoned by Soviet propaganda. Later, I was happy when USSR fell apart. I thought that I could live in free Russia. By 1994 I found out that people of Russia don't want to be free and responsible for themselves. Now I live in USA, I am US citizen, proud of my new country and relatives are the only link to my former country. But now Russia invaded Ukraine. This is war. It doesn't matter that nobody died yet. Naval blockade, occupation of Crimea and its almost certain annexation are acts of war. And it doesn't look like the end. Russian military already probed approaches to Ukraine borders in the North (shortest way to Kiev). They retreated, when found out that Ukraine military are ready to meet them. Will they retreat next time?

I know a lot of people in Ukraine. My heart is with them. I wish them all the luck, they need it.

Ukraine sovereignty was guaranteed by US, UK and Russia in 1994 (Budapest agreement). Looks like this was just a piece of useless paper. US and UK don't want to defend Ukraine in any meaningful way and Russia is an aggressor. According to Budapest agreement, Ukraine surrendered all nuclear weapons on its territory to Russia. I don't think they are happy about it now. The lesson is clear.

If Putin is not stopped now, Baltic countries will be next. This looks like beginning of World War III.

My heart is with Ukraine.

Слава Україні! Героям слава!