Tuesday, July 31, 2007

Mutual Funds vs. Individual Stocks

The vast majority of people should invest in mutual funds. Essentially, a mutual fund is a conglomeration of various stocks, and/or bonds, and cash. It is funded by many investors pooling their money together and rely on the expertise of a professional mutual fund manager who with a team of analysts manage the investments. They determine which stocks will be invested in and when the appropriate time is to buy, sell, or hold a stock.

The mutual fund manager and his or her analysts spend a great deal of time researching various companies and staying up to date on news surrounding them, financial reports, and market trends. These guys are major financial nerds who live and breath numbers.

Another major reason that mutual funds are a good option is the concept of diversification. Most mutual funds will hold at least 30 different stocks all the way up to index funds such as the Vanguard 500 fund which emulates the movement of the 500 companies in the S&P 500. This broad base of stocks spreads risk amongst many different companies so that if an example such as what occurred with Enron, the effect to the fund would be minimal.

When investing in individual stocks, a high degree of risk is present. A company may come out with poor earnings, encounter a major lawsuit, or their industry turns sour, and the stock price plummets. The investor may see any gains made quickly erased. By the same token, positive results may occur for the company and the stock price will sky rocket.

The only reason a person should ever invest in an individual stock is if he or she thinks that he can beat the return on a mutual fund. This implies special knowledge about the company which the rest of the market may not be aware of. It doesn't necessarily refer to insider trading but if he or she knows something about a company, chances are that some of those financial nerds at the mutual fund do too. Remember, those guys do it for a living. They have a vested interest in making good picks.

If a person insists on investing in an individual stock, he or she must be disciplined to spend significant time researching the stock before purchasing as well as while holding the stock. News comes out on a regular basis which can dramatically affect the price of a stock and so it behooves the investor to stay well informed on the health of the company in which their invested.

Mutual funds don't sound especially exciting but over a long term (5-10 years) consistently perform well. Gains of 12% can be expected if looking at a good fund over a long period of time. An investor should research the track record of a fund and select one which lines up with his or her goals (there are many different types of funds such as growth, value, index, aggressive, international, small cap, blue chip, etc.) He or she would likely want to invest money into several types of funds as well which will add further diversification.

Mutual funds provide a solid investment vehicle which offer great returns over a number of years. While great gains can be made with individual stocks, great losses can also be incurred. The risk along with the significant knowledge gap and time the individual has versus professional money managers should give significant pause and nearly always tip the scale in favor of investing in mutual funds.

Saturday, July 28, 2007

Young Men & Fire

Young Men & Fire by Norman Maclean

This true story by the author of A River Runs Through It tells the events surrounding the Mann Gulch Fire in 1949. A good portion focuses on the smokejumpers (paratrooping firefighters)13 out of 16 of which perished in the fire.

In those days, the smokejumping program was very new having been introduced within the past 8 to 10 years. The men had to be between the ages of 18 and 30, single, and in superb physical condition. The main tools they carried were a shovel and something called a Pulaski which is a combination ax and hoe built into one. They utilized these tools to dig fire lines, and fell trees ahead of the fire so as to reduce the amount of fuel and prevent it jumping from one tree to the next.

When dropped from the plane onto the ground by the fire, a foreman would be in charge of the crew as they fought the fire. In the instance of the Mann Gulch fire in Montana, the fire started out as a fairly decent sized fire. It then progressed into what is known as a "blowup." This occurred as a result of a combination of factors such as fuel type, moisture, incline of terrain, and wind.

It quickly got out of control and the crew had to run for their lives. Occasionally, in a blowup a vortex of fire will be formed which will sweep across a vast area burning everything in its path. It looks and functions like a tornado. I recently talked with a man who used to be a farmer and he indicated that when they burned fields to prepare them for future seasons a fire vortex would sometimes occur. He said it was an awesome and amazing sight to behold.

During the blowup it was not possible for the majority of the men to outrun the fire and they perished mainly from suffocation due to lack of oxygen. The foreman saw this happening and created a secondary fire to try to create a burned out place which would provide shelter from the main fire. Unfortunately, amidst the confusion of the fire, the men did not understand the foreman and thought he had gone crazy to be lighting a second fire. He did survive but all but 2 others did not.

A secondary portion of the book analyzes the various components of the fire, what caused it, and some of the science behind fire. Maclean spent around 12 years researching the book, gathering documents, interviewing the 2 remaining survivors and returning to the site of the fire. He was well equipped to tell the story having spent time as a forest fire fighter in his younger years before going on to be a literature professor and writer. The book was masterfully written but slightly meticulous at times. It is the type of story that would make a very dramatic movie if a studio were interested in producing it.

Monday, July 23, 2007

Rocky Mountain Hiking

This past week I went on a hiking trip with Kevin, his dad, and their friend Kurt. We had loads of fun experiencing the great outdoors and enjoying God's beautiful creation as well as doing general manly things. In all the trip was 4 days and 3 nights. 21 miles round trip.

The altitude change (from 800 ft in KC to 10,000 ft the first campsite) on the first day was fairly brutal to all of us with a consequence that we had to help one of the guys carrying his pack about half the way. The second day we re-evaluated our plans and did a bit of backtracking.

Our packs weighed in varying amounts from upwards of 50 pounds to the mid 30s. On the trail, you feel every single pound and promise yourself that next time you'll cut off every spare ounce available.

The views all along the trail were splendid with varying amounts of wildlife including squirrels, chipmunks, birds, flowers, streams, mountains, marmots, ducks, and elk. There was no confirmed sighting of large game such as bears or mountain lions but much discussion and action was taken to try to avoid any unpleasant encounters with these hungry denizens of the forest.

On the second day, we got to experience the continental divide at 12,005 feet which is the determining spot for where rivers/streams flow towards the Atlantic or Pacific ocean. In fact, there are a couple streams which start within a few feet of each other yet ultimately wind up in opposite oceans.

Some of the highlight spots in the trip were the various lakes along the way. My very favorite was Odessa Lake which was at our campsite the first evening.
Vicious mosquitoes were ever present throughout the trip and natural lemon scented bug spray was much used and appreciated.

Meals consisted of a variety of things such as Ramen noodles, rice and beans with chicken, bagels with peanut butter for lunch, oatmeal for breakfast, trail mix, and some of the guys brought freeze dried foods which were of differing edibleness.

Sleeping arrangements consisted of tent dwelling which turned out reasonably well. Sleeping pads are essential on the trail and help provide a bit of cushion from the ground. I think the majority of us got increasing amounts of sleep as the trip went on whether from familiarity with surroundings or pure exhaustion.

Our experiences with the park rangers were sundry. Some were helpful and some seemed very intent on keeping the legalistic rules of the road. One such individual whom we'll call Ranger Rex instructed Phil that he couldn't talk to him because he wasn't in the car. Phil got back in the car, we pulled forward 10 feet and Ranger Rex was satisfied that communications could commence. "Safety regulations, you know."

Once above and beyond the day hiker reach, there was not a large quantity of people. Those that we did meet seemed fairly friendly. It was nice to be out in the back country with few people around. One can really feel at peace and relax in the beautiful creation and worshiper the Maker.

Group Picture Before Hitting the Trail

Odessa Lake

Fern Lake

Bierstadt Lake

Looking at Bierstadt Lake



Rocky Trail

Path to Campsite

Camp Site


On the Bridge

Kevin on the Trail

Andrew and Kevin on the Continental Divide

Mountain Flowers

Flowers by Mountain Stream


For more pictures go to http://www.flickr.com/photos/aallen30605/sets/72157600971841920/

Friday, July 13, 2007

July 4th Fireworks

Here are some pictures of the fireworks surrounding my apartment complex on the 4th of July. Hidden Valley park which is a hop, skip, and a jump away turns into a battle zone on July 4th with constant explosions and smoke hovering in the air. Vigilante style fireworks are blown up in various sorts. Differing levels of safety precautions are adhered to.

And then of course there are the more proper Worlds of Fun fireworks on the viewing horizon.

Monday, July 09, 2007

Marley & Me

Marley & Me by John Grogan

In Marley & Me Grogan discusses his adventures in life with a labrador retriever named Marley. Marley is a crazy dog, full of all kinds of abundant energy. He has trouble obeying commands and consequently fails obedience school. This does not diminish his passion and joy for life. He approaches everything with a an attitude of "ok, what's next, bring it on, I'm ready for the next excitement."

The story also follows Grogan as he starts a family and begins to raise them first in Florida then in Pennsylvania. Marley is an integral part of their family and is as loyal as a dog, so to speak, no matter the circumstances. It's a fun read with some nice laughs throughout.
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