I know, it’s too early for a quiz. But it’ll be fun! =) Vanguard has a quiz on investment knowledge with 20 questions. The questions are pretty good overall, some good questions that probe common misconceptions. I scored 95%. I know, I’m hot stuff. That’s pretty good – according to Vanguard:

“Some 1,000 investors completed the 20-question 2002 Vanguard/Money Investor Literacy Test in May and achieved a mean score of 40%, which is a modest improvement over the 37% score on a similar test administered by Vanguard in 2000.”

Yeesh, 40%? If you score that low, I’d recommend either more coffee or go read Random Walk Down Wall Street or Informed Investor. Which one did I miss?
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This is not good. According to various sources, including this article at ABC News and one in the SF Chronicle, E-Trade is looking to buy Ameritrade. Boo. I especially like the quote “Every one of these brokers has customers because of a negative experience with another broker”. So true.

I have had bad experiences with E*Trade Brokerage (here, here, and here), and I have always liked Ameritrade’s “simple, but just works” model, along with their superior customer service over E-Trade. E-Trade seems to have a major focus on very active traders as well (although Ameritrade also has their Apex program). But Ameritrade has lower minimums, slighly less services, and less overall fees than E-Trade.

I personally use Ameritrade I-Zone now, with $5 trades and online-only access. I’m happy with it, and would really hate to see it go. Something to keep an eye on.

Every Friday, Chuck Jaffe at CBS Marketwatch posts an article about a shady investment opportunity, aptly named the Stupid Investment of the Week (this week’s article).

I first ran across this column while researching an ad I saw in the local newspapers Business section, advertising 8% to 11% annual returns on unsecured “investment notes”, by a company called ABFS, or American Business Financial Services (ABFIQ.PK). Chuck’s timely column helped me (and probably many unsuspecting others) realize that this company was bad, bad news (sub-prime housing lending. Can you imagine the rates they were charging if you were even getting 10%??) . See the article here (7/04).
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I just got a piece of mail from Kiplinger’s Personal Finance, of which I am a subscriber, offering free annual reports and prospectuses of many publicly traded companies and funds at http://kpf.ar.wilink.com. They even ship them to you for free. However, many popular companies are not available (I searched for Costco (COST)).

A better option is AnnualReportService.com, which doesn’t ship but shows you the .pdf version of reports for many more companies. You’ll need to log in to see them, but feel free to use the one I just made (cut & paste):
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Even more bad news. What a week! After hearing some rumors, I just read an e-mail from FreeTrade saying that they will be shutting down and transferring my account to Ameritrade IZone on April 29th. Goodbye, free trades. Dangit! I’ve only made one trade, and I’ve only had my account open for a couple of months. I should have seen the writing on the wall, as IZone was newly introduced about 6 months ago, and had many of the same features as FreeTrade. At least I have 30 days notice to make some last minute trades.
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I closed my accounts with both Ameritrade and E-Trade recently, as I was moving all my stock trading to FreeTrade.com. When I cancelled my E-Trade account, there was a long hold time, and then the person who cancelled my account was rather rude – they said “Ok, it’s cancelled” and basically just hung up on me. In contrast, when cancelling my account with Ameritrade, the person actually asked me why (E-Trade didn’t even ask). I told them I was going to move to FreeTrade instead, and they said that the could either close my account as wished, or I could “freeze” the account. What’s that?
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One drawback of using FreeTrade for my brokerage is that I don’t get free real-time quotes. I’m not a very active trader, but when I do make a trade it’s nice to have the best information possible, especially if I can still find it for free. Most brokerage offer real-time quotes if you hold an account with them, such as Scottrade, Ameritrade, or Fidelity. But after a bit of research, I found that you can get free quotes and some decent charting software for free.
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Warren Buffet, the 2nd richest man on the planet, released his annual letter to shareholders over the weekend. He apologized for the fact that this was the second year in a row that his company, Berkshire Hathaway (BRKA), has lagged the S&P 500 Index. He has openly said in the past that it will be very hard for a company of Berkshire’s size to beat the S&P 500 by very much, especially of you buy a low-cost index fund like Vanguard’s VFINX. Of course, he is a very humble man. Over the past 40 years, Berkshire has grown its book value per share at an annualized rate of 21.9%. That’s more than twice the S&P 500’s 10.4% annualized return in that time.
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Warren Buffet, the 2nd richest man on the planet, released his annual letter to shareholders over the weekend. He apologized for the fact that this was the second year in a row that his company, Berkshire Hathaway (BRKA), has lagged the S&P 500 Index. He has openly said in the past that it will be very hard for a company of Berkshire’s size to beat the S&P 500 by very much, especially of you buy a low-cost index fund like Vanguard’s VFINX. Of course, he is a very humble man. Over the past 40 years, Berkshire has grown its book value per share at an annualized rate of 21.9%. That’s more than twice the S&P 500’s 10.4% annualized return in that time.
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I woke up early today to watch the stock market open, as Neville does. I’ve been thinking of buying some shares of Scholr Pharma (Symbol DDD) for some time now. I won’t go into details why, but I just put in a limit order for 100 shares of DDD at $4.80, good till cancelled, in my Freetrade “Play Money” account. This should be a short-term position, I intend to set another limit sell order soon. We’ll see if it fills today.

Now where did I put that disclaimer? Oh, here it is.

Another semi-conservative option I am considering for my Ameritrade side-bet goal is buying stocks with high dividends. Due to their favorable tax rate of 15%, a semi-sluggish stock market, and itty bitty bond yields, dividend-paying stocks are getting popular. Here are some of my findings:

There are many ways of getting into the action, my leading favorite is the ETF iShares Dow Jones Select Dividend Index fund (DVY) that invests in dividend-paying stocks. DVY owns the 50 highest-yielding stocks in the Dow Jones Total Market Index, excluding real estate investment trusts (they don’t get the 15% tax rate). The expense ratio is also a very reasonable 0.40%.

Dogs of the Dow is a strategy that involves picking the ten stocks of the Dow Jones (DJIA)which have the highest dividend yield within the last year. I have heard some good things and more bad things about this strategy. Here are some performance comparisons, note that they lag the S&P 500 in the long-term, but are much more stable.

Here is another article on ADVDX, an actively managed fund that seeks income through dividends.

Even the semi-famous bull Siegel now has modified his position to support buying dividend paying stocks. An interest except is the assertion that the 100 highest-yielding stocks in the S&P 500 have done better than the index as a whole over the past 50 years. Hmm, but could you identify those stocks ahead of time?

I find it interesting that E*Trade announced that it would cuts its fees and commissions just a month after I moved all of my accounts out of their brokerage. I guess I wasn’t the only one to do so. Capitalism in action! $19.99 per trade + bogus $3 “handling fee” coupled with subpar customer service is simply not competitive. I like the CEO Lilien’s quote – “If we treat (small investors) right, they will become the larger investors”.

Very true, but too little too late, Mr. Lilien. You guys even charged me $120 ($60 per account) to leave and it was worth it. I definitely intend to become a larger investor, but it sure won’t be at E*Trade.