Carnival of Financial Independence #38

Welcome to the December 27, 2011 edition of road to financial independence.

 

Beating Inflation

Michael Sanders presents How to Get the Best Return on Savings posted at Smart Savings.

Frugal Living

Jonathan from Debt Loans presents Four Tips for Saving on Transportation Costs posted at Wallet Watcher, saying, "For people who have places to go but don’t want to spend an arm and a leg to maintain a car, there are several great alternatives to traveling alone in your car:"

SavingMentor presents magicJack: A Canadian Review Of The Money Saving Telephone Device posted at HowToSaveMoney.ca, saying, "We have been using it successfully ever since and I’m happy to report that it is definitely not a scam! That’s not to say that there weren’t any problems with it, there were, but they were trivial in comparison to the amount of money that magicJack will save us every month for as long as we continue to use it."


J.B. presents Managing Your Impulsive Buying Habits posted at My University Money, saying, "mpulsiveness can be fun at times, but it has a way of surprising you at the end month when that credit card statement comes in the mail."

Maddy Han presents Don?t be an Ostrich posted at The Turtle Method.

My Journey presents December 2011 Net Worth Update posted at My Journey to Millions, saying, "From November 1, 2011 to November 30, 2011 my net worth increased only 1.32% From January 2011 to November 30, 2011 my net worth has increased 64.41%"

Jon Elder presents Ditch Your Bank and Join a Credit Union posted at Free Money Wisdom, saying, "You need to prepare for the switch before you join a credit union and do your homework just like if you were switching to a bank. That is why I am sharing three things you need to do before you switch."

Erik North presents Problems With Recessed Lighting (And How To Fix Them) posted at Energy Auditing Blog, saying, "The ways recessed lighting loses heat and money (and how to fix it)."

Paul Vachon presents Ready to go Travel? - Try a Vacation Rental for Big Savings posted at The Frugal Toad, saying, "Vacation rentals are becoming a popular choice for today’s traveler because of the flexibility they can offer. Vacation rentals come in a variety of options and also offer flexible length of stays from overnight to monthly to accommodate the tourist as well as the business traveler."
 Control your Cash presents 控制现金”人造橙色鸡 posted at Control Your Cash: Making Money Make Sense, saying, "We’re here to argue that eating at a restaurant, in our example one a step below P.F. Chang’s “upscale casual” category, can be financially savvy."

Super Saver presents Check Whether a Deal is a Deal posted at My Wealth Builder, saying, "Not all deals save money as I found out when evaluating alternative options for purchasing residential natural gas and electricity."

Dr. Dean presents Frugal Groceries: Home-made Cinnamon Roll Edition! posted at Dr. Dean's TheMillionaireNurse.com Blog, saying, "The holidays make it difficult to stay within the grocery budget, especially if you do a lot of baking. At our house, we spend extra on groceries but save on gift giving with these wonderful homemade cinnamon rolls. Get the recipe!" 

Marie presents How to Use a Gap Year to Make Some Extra Cash posted at Money Spending Mommy, saying, "An increasing number of upcoming college students are using their gap year to work and earn money. But that doesn’t necessarily mean they have to keep the job they had during high school. There are lots of ways that they can make money and gain valuable life and/or job experience. Here are some ways to accomplish that."


DJ presents Tips to Stop Spending and Start Saving posted at The Family Wallet, saying, "It can be difficult to curb your spending habits in favor of saving money. The first thing to realize is that your current spending habits have been established for some time and it will take some changes in your lifestyle to get you back on track. Changing your ways is very possible and before you know it you will be planning for tomorrow, today."

misst presents 3 Vital Tips You Need to Start a Frugal Lifestyle posted at Prairie Eco-Thrifter, saying, "If you are planning to live a frugal lifestyle, it is important to know that you are not depriving yourself. Instead of looking at it this way, think of the act as a way of saving money for your future benefit. At the same time, you should look at the many benefits frugality has provided in many people. Even though they have all the money in the world, they have simple lives free of all the complexities."

Passive Income

Jon Rhodes presents Why Building An Online Business Is So Good posted at Affiliate Help!, saying, "This article shows you why it is so good to start up an online business, by someone who has had success in this area."

Steven Chang presents How to start earning passive income online? posted at Passive Income Online.

Kanwal Sarai presents Which Company Has Paid Uninterrupted Dividends For More Than 110 Years? posted at Simply Investing Blog, saying, "Here is a short list of companies that have paid uninterrupted dividends for more than 110 years"

 

Reducing Expenses

SteveR presents Gambling and taxes – what should you report? posted at 2009 Tax, saying, "Gambling is something that many people enjoy doing either on a regular basis or now and again."

Mike Sowden presents 6 Traits of the Post Recession Consumer | EcoSalon | Conscious Culture and Fashion posted at Sara Ost.

Theresa Torres presents Download Free Ebooks, Legally » Should You Buy a Refurbished eReader? posted at Download Free Ebooks, Legally, saying, "If you're on a budget and are looking to save on buying an eReader, here are some tips to guide you on your purchase." 

Jim Tolley (aka Kidgas) presents Paid Off a Business Credit Card posted at Cash Flow Mantra, saying, "In the near future, I will be considering my overall goals for 2012 some of which will include financial goals for my LLC. As I sit down and reflect on this past year, I am encouraged by the progress I have made and will be looking forward to even more in the year ahead. Having a sense of what is possible will make it easier to sit down and work out those goals."

Tim Chen presents Credit Cards and Charity: Giving (and Getting) the Most Value posted at NerdWallet Blog - Credit Card Watch, saying, "Your credit card might make giving more rewarding for both you and your charity of choice."

Lazy Man and Money presents Save Money with a HARP-Refinance on an Investment Property with PMI posted at Lazy Man and Money, saying, "Having lived in Chumpsville long enough, I decided to call up my lender and see what they could do for me. I came to them as almost a perfect example of who shouldn't get their interest lowered. I had three things going against me:"

 

Stock Investments

Investor Junkie presents Investment in Physical Gold? posted at Investor Junkie, saying, "Gold seems to be all the rage these days — especially physical gold. Whether you are investing in gold coins, or whether you are investing in gold account, receiving a record of numbered gold bars that belong to you, it’s important to understand the challenges that can come with investing in physical gold."

Kanwal Sarai presents Top 5 Reasons Why People Buy Index Funds posted at Simply Investing Blog, saying, "At the end of the day, index investing is fine for people who want to put thirty seconds a month into their investment portfolios and get average results"

Carlos Sera presents An Actual Tale | Financial Tales posted at Financial Tales, saying, "Today I release An Actual Tale - “How Financial Advisors Lie” for those that want to understand how the stock market calculates rate of return. If you think that the stock market averages 10-12% per year for example—you better understand what that means to your pocketbook. It does not mean you will make 10-12% per year. You will make less. If you’re asking yourself, “What is the difference between average returns and actual returns,” this tale will answer that question."

Arquitos presents Analysis Of 'Best Stocks Of 2012' Lists - Who Wins? - Seeking Alpha posted at Arquitos Capital Management's Seeking Alpha page, saying, "Comparison of stock listing for 2012 including picks by Fortune Mag, Goldman Sachs, The Street, Kiplingers and Monthly Income Plan."

That concludes this edition. Submit your blog article to the next edition of road to financial independence using our carnival submission form.

Past posts and future hosts can be found on our blog carnival index page.

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R2I Living - Public Water Service

Kerala is famous for its monsoons and receives on the average 140 rainy days a year. Despite this, many Keralites moving into newly-built homes will testify receiving public water service as a tedious process. At the time of hand-over, the only water available for consumption in our community was from a common RO-Plant (Reverse Osmosis) setup by the builder. The plant functioned on rainwater runoff from a few houses and was sufficient only to quench the thirst of 15 houses or so. Our community has over 100 houses making that facility sorely inadequate. While it can be argued the builder was fraudulent, this setup is fairly common in new single family homes and flat projects. The builders are able to work their way out of this mess as the bulk of these flats and houses are purchased by NRI’s (Non-Resident-Indians) and occupancy is rarely above 10% at the time of handover. At that level of occupancy, there is plenty of water to splash around, and the builders generally succeed in handing over the maintenance of the project to an owner-elected-body (Home Owner’s Association) within the first few years.

As occupancy improved, the lack of ready water surfaced as a pressing problem. Our Management Committee (MC) in the first two years attempted several avenues to resolve the water issue. To meet the immediate needs, water was purchased in bulk from private water providers in tankers (Lorries). This is a very expensive option and the estimate was that at 50% occupancy, more than 35% of our yearly budget would have to be dedicated to providing water – RO plant operation manning, electricity to run the plant, and purchasing of water from private parties. Alternatives such as bore wells and regular wells were explored but were not a solution – water from the bore well was deemed good only for non-domestic use as it was too saline – the regular well could provide only a certain amount of water daily. Expanding the RO infrastructure to collect rainwater runoff from more houses was also considered but abandoned due to prohibitive costs. That expansion involved replacing or upgrading the RO plant the builders installed which had a capacity to serve the needs of only 20 and odd families. From these various options, rainwater harvesting hooked up with an RO-plant of sufficient capacity is usually the best alternative for most villa and flat projects in Kerala, as the monsoon ensures plenty of freshwater throughout the year.

For the longer-term the Management Committee chalked out a plan which involved the process of procuring KWA (Kerala Water Authority) connection to every villa, possibly with the help of the builder and reserving the existing infrastructure as a backup and for non-domestic water needs. Negotiations with the builder were partly successful - they agreed to bear 50% of the costs involved in obtaining the connection. All said and told, it took two full years after maintenance-handover before the villas in our community got KWA connection. The costs came to around Rs 5K per household and included digging up the roads within our community for laying the KWA pipes. This duplicate work could have been avoided had the builder possessed the foresight and willingness to ensure KWA connections were received and had planned infrastructure accordingly during the construction phase. But, the community’s water problems were still not solved, as by KWA’s unique definition, having a connection does not translate to receiving water. For people used to the woeful service levels of Kerala public sector, this will not sound too bad. At our home, no water dripped down the KWA line for the first five months. The billing rep came by after the first three months of receiving connection and to pacify us called the KWA contractor who agreed to fix the problem. Meanwhile, a few from our community went to check the status with the KWA office and the response received was that our community was given connection mainly to avoid a backlog later on – there is a water shortage in the area and continuous water supply is two years away. They were clueless as to why certain houses received a very small amount of water certain days while others received none whatsoever. The billing rep showed up again a couple of months later and presented us our first bill – apparently, there is a minimum payment regardless of the whether water is available or not (~Rs 90pm). This time, we were on his case and the guy connected us with the Assistant Executive Engineer who called the KWA contractor directly and updated him on the situation in our community. We paid the bill promptly and a few days later started receiving water three to four times a week. With our tank capacity of 2000 liters that level of service barely suffices. Time alone will say if the service level will improve. Rumors are aplenty that corruption is the reason behind water playing hide and seek – KWA contractors, private water suppliers, and valve operators all stand to profit by controlling the water supply to flats and villas in the area ensuring private water suppliers continue to get good business…

Prospective home owners in this God’s Own Country should ensure builders provide rainwater harvesting and RO-plant infrastructure with adequate capacity prior to maintenance handover as any costs past that date will have to be borne from the HOA’s common funds as opposed to by the builder.

Related Posts:

• R2I Living – Solar Water Heater Installation Experience
• R2I Living - Electricity and Inverter Experience
• R2I Living - Gas Service
• R2I Living - Public Water Service
• R2I Living - Purchasing a new car

Last Updated: 03/2012. 
 

Stock Portfolio and Watch List Updates for December 2011

Following are the activity from the previous month:

a)      Liquidated the following long positions: Becton Dickinson (BDX) at $73.41 for a 4.5% gain, Owens & Minor (OMI) at $30.55 for an 8.66% gain, US Bancorp (UDB) at $25.28 for a 3.73% gain, Pfizer Inc (PFE) at $19.95 for a 9.86% loss, and Google (GOOG) at $623.21 for a 17.86% gain.

b)      Closed the following short put positions: Berkshire Hathaway (BRK.B) shares (Jan 2012 75) for a 0.15% positive return on the overall portfolio, Wells Fargo (WFC) shares (Apr 2012 22) for a 0.10% positive return on the overall portfolio, Weyerhauser (WY) shares (Jan 2012 20) for a 0.18% negative return on the overall portfolio, and Cisco (CSCO) shares (Jan 2012 20) for a 0.05% positive return on the overall portfolio.

c)      Opened covered calls (short call) on Diebold (DBD) shares (May 2012 30) at $2.90.

d)     Opened long calls on Apple (AAPL) shares (Feb 2012 380 at $22.75) with ~1% of our overall portfolio value.

The cash position in our portfolio is at 28.14%.

Portfolio Update:

 

The overall portfolio is slightly ahead of our cost-basis.

Transactions Summary:

 

Excluding dividends, we have a realized loss of 0.56% in the portfolio.

We also have several options positions:

Short Puts: Click Software (CKSW) shares (May 2012 7.5), Applied Materials (AMAT) shares (Apr 2012 10), Ameritrade (AMTD) shares (Feb 2012 14), H&R Block (HRB) shares (Jan 2012 10 at $1.60 and 12.5 at $2.30), Alcoa (AA) shares (Jan 2012 15 at $1.70), and Cameco (CCJ) shares (Jan 2012 22.5 at $1.60) with a cash coverage requirement of about 38.82% of our cash position.

Short Calls: Diebold (DBD) shares (May 2012 35 written at $3.40).

Long Calls: Apple (AAPL) shares (Feb 2012 380 bought at $21.75) with ~1% of total portfolio value.

Watch List: Automatic Data Processing (ADP), Amgen (AMGN), Air Products & Chemicals (APD), Brown-Foreman (BF-B), Bemis Company (BMS), Canon (CAJ), Church & Dwight Company (CHD), Canadian National Railway (CNI), Cresud (CRESY), Darden’s Restaurants (DRI), Emerson Electric (EMR), Giant Interactive Group (GA), Kaman Corporation (KAMN), Coca Cola (KO), McGraw Hill (MHP), 3M Company (MMM), PepsiCo (PEP), Teva Pharmaceuticals (TEVA), VF Corporation (VFC), and Whirlpool (WHR).

Kelly Criterion based strategies for value investing

Kelly criterion is a very simple formula that returns a percentage value for the size of bets as edge divided by odds. It essentially tells you the best bet size for you to realize maximum returns after n rounds. The original formula is suitable for betting and gambling scenarios. Variations of the criterion have been applied successfully in many areas including as a money management sytem. Below is a look at the use and limitations of the criterion for money management:

Stock Selection: 

Applying Kelly criterion to stock selection boils down to coming up with estimates for Payoff (P), Win% (W), and Loss% (L) in the expanded form of the Kelly criterion: 

(P*W - L)/P.

Value investors can attempt to estimate the edge using Fundamental Analysis - given that the vast majority of the money invested in the stock market goes into blind indexing schemes and unproven stock selection methods, fundamental analysis can result in an edge, as studying company reports including Annual Reports (10K) and Quarterly Reports (10Q) can unearth misconceptions in the marketplace that can result in a significant margin-of-safety. For example, say a company XYZ is trading at $30 and you have come up with an average Fair Value Estimate (FVE) of $50.  The Payoff (P) in this scenario is 50/30 = 1.67. The probability of winning (W) is an estimate that you have to come up with based on how confident you are on your fundamental analysis. In our example, if we take the estimate as 0.5, the formula becomes:

 (1.67 * 0.5 – 0.5)/1.67 = 16.67%.

The value indicates that to maximize returns after n bets, one should invest one-sixth of the money in XYZ. On the other hand, if the FVE is $25 and your confidence in the analysis is the same (0.5), the formula yields -10%. So, one should not invest in XYZ.

The main benefit of using Kelly criterion for stock selection is that it forces investors to think in terms of payoff probabilities thereby allowing them to shy away from high-risk or low-reward opportunities. One disadvantage with the criterion is that the idea with the formula is optimizing returns when doing sequential bets, as in a gambling situation. But, value investing involves selection of multiple companies at a time and as such there is a mismatch – the formula has limited scientific value for stock selection and so investors should also look at other methods to arrive at their final stock selection decision.

Diversification:

One of the classic value investor dilemmas is coming up with a number for how many stocks one should optimally own in the portfolio. Kelly criterion can be used to come up with a value for this number, if you know your average edge and odds of winning – just plug-in these values into the formula to get a percentage rate.   

Coming up with your average edge and odds of winning is easier said than done. One approach is to look at your historic trades to derive these numbers, based on your past behavior. The obvious assumption is that future behavior will parallel the average of your past behaviors. Below is a look at the steps to come up with this number:

1. Calculate your historic payoff (P): From the list of your previous trades, sum up all dividends, interest, and total value of your stock sales. Divide this value by the sum of your cost basis of all your trades.
2. Calculate your historic winning probability (W): From the list of your previous trades, divide the number of trades that yielded a positive return including dividends by the total number of trades.
3. Apply the numbers to the formula (P*W - L)/P to come up with a percentage value. For example, if the criterion returns 2%, then you should take 50 different positions at 2% each.

The criterion looks at your historic performance to come up with an optimal value on how much your diversification should be. The main advantage with this formula is that you can come up with an absolute number for the number of stocks you should own. There are however many limitations to the approach:

1. Although the criterion yields an absolute number, the fact that the size of each position should be the same is a limitation. It is highly unlikely that you have the same conviction on all your stock picks.
2. The criterion assumes your historic behavior can be projected into the future. In the real world, this is not true – investors either get better at stock picking over a period of time or they give up and outsource money management.

The criterion can return a zero or negative value, if your historic returns have been poor. In this scenario, the criterion is useful only as a warning that a change in investment approach is necessary. 

Stock Trading:

Stock Traders are always on the look out for automated methods that generates stock selections, holding period, exit criteria, and position sizing. Kelly criterion is a useful method to determine position sizing based on your historic trading pattern. The diversification steps above can be applied to come up with the position size you should be taking. Here again, the main advantage with the criterion is that you get an absolute number. Again, the criterion has several limitations:

1. The scientific method applies only when you do sequential bets. That is you take just one position at a time.
2. The criterion assumes your historic trading behavior can be projected into the future. In the real world, this may not be true.

The criterion can return a zero or negative value, if you are a poor stock trader. In this case, the criterion is useful only as a warning that a change in your trading approach is necessary.

Related Posts:

• Cash holdings in an investment portfolio - strategies to squeeze income for value investors
• Kelly Criterion based Strategies for Value Investing
• Covered Call Strategy for Stable Income Portfolio
• Basics of Options and Futures for Value Investors
• Basic Options Strategies for Value Investors
• Basic Futures Strategies for Value Investors
• Short Selling Strategy for Value Investors

Last Updated: 04/2012.

 

Holyland Trip Report - Old Cairo - Day 8

On the morn of our final day we visited Old Cairo before boarding the afternoon flight back home. The breakfast buffet included Om Ali, a popular breakfast dish in Egypt made from flour, almonds, and other nuts. It is similar to oats but very sweet and can be eaten hot or cold. The most popular and common dish in Egypt is Kushari, regarded by many as the national dish. It is traditionally a vegetarian dish – rice, lentils, chickpeas, and macaroni topped with garlic, vinegar, and salsa – although sometimes shawarma meat is added.

Old Cairo is located east of central Cairo and encompasses Coptic Cairo with its many old churches and historical ruins of other cities before Cairo. The major sites of Coptic Cairo include the Babylon Fortress, the Coptic Museum, the Hanging Church, and the Greek Church of St. George. We first stopped by the Saints Sergius and Bacchus church and the Holy Crypt, aka Abu Serga. Dating back to the 4^th century, it is among the oldest Coptic churches in Egypt. The church is believed to have been constructed at the site where the Holy Family rested at the end of their journey into Egypt and the Holy Crypt is believed to be at the exact location where Mary, Joseph, and the infant Jesus rested. It is 10m deep and is subject to flooding by the Nile. The church took its name from soldier-saints martyred during the 4^th century in Syria. It was first built in the 4^th century but has since been destroyed and rebuilt several times. The building is still considered a model of the early Coptic churches. The southern wall features many ancient icons and the central hall is divided into three naves by two rows of pilasters.

The Hanging Church (officially Saint Virgin Mary’s Coptic Orthodox Church) is located above a gatehouse of a Babylon Fortress – its nave is suspended over the Roman Fortress columns thus accounting for the name. It is also among the oldest churches in Egypt, the first church at the site dating back to 3^rd century AD. As the surface of the church location has risen by around 6m since the Roman times, the Roman Towers are mostly buried below ground making it difficult to visualize the hanging design of the church. However, there are several locations within the church that allow for glancing below and then it is obvious the structure is held on Roman Pillars. The twenty nine steps leading to the entrance of the church earned it the moniker ‘Staircase Church’. The entrance features a small sketch depicting the plight of the Holy Family into Egypt – the event is described in the Bible in the Gospel of Matthew – Joseph, his wife Mary, and infant son Jesus fled to Egypt after they learned that King Herod intended to kill the infants in the area. The church has 110 icons with the earliest from the 8^th century. The ebony iconostases are inlaid with ivory with icons of the Virgin Mary and the Apostles surmounting it. Seven larger icons adore the top altar screen with Christ seated on a throne at the center – icons of Virgin Mary, Archangel Gabriel, and Saint Peter on one side and Saint John the Baptist, Archangel Michael and Saint Paul on the other. After these visits we parted ways with our Egyptian guide and headed to the airport.

Many who visit Holy-land describe it as a life-changing experience and we join that chorus in a heartbeat. The organization and planning that went into making the whole tour go like clockwork impressed us immensely. In spite of the fast pace of the program, we nicked only the major landmarks from a religious Christian perspective. One could easily spend a couple of months in Holy-land to appreciate what is on offer, provided one has the interest, time, and money.

 Related Posts:

1. Holyland Trip Report - Jordan - Mount Nebo, Madaba - Day 1.
2. Holyland Trip Report – Israel - Yardenit, Tiberias, Tabgha, Cappernaum, Ginosar, Sea of Galilee (Day 2).
3. Holyland Trip Report - Israel - Nazareth, Cana, Tel Aviv, Jaffa, and Bethlehem (Day 3).
4. Holyland Trip Report - Israel - Jerusalem (Day 4).
5. Holyland Trip Report – Israel – Jerusalem, Jericho, Dead Sea (Day 5).
6. Holyland Trip Report – Egypt – Red Sea, Sinai (Day 6).
7. Holyland Trip Report – Suez Canal, Cairo - Day 7.
8. Holyland Trip Report - Old Cairo - Day 8.
9. Holyland Trip - Gotchas to avoid.  
10. Holyland Trip - Jordan - Other Sites. 

Last Updated: 12/2012.

Holyland Trip Report – Suez Canal, Cairo - Day 7

Mount Sinai (city of Saint Catherine) to Cairo is around 520 km by road and was the most exhausting leg of the whole trip. Wake-up call was at 4AM and by 5AM we were on our way complete with packed breakfast. The ‘helpers’ in the bus became five for this road-trip – main guide, two helper guides, bus driver, and a gun man – the gun man, provided by the Egyptian authorities, is mandatory for all tour buses. Egypt was under a transitional military rule following the revolution that ousted Hosni Mubarak after 30 years in power. People seemed relieved to have seen the last of Mubarak – the guide repeatedly attributed all the problems of Egypt as the cause of the revolution.

Crossing the Suez Canal is a major landmark along the desert landscape of this road-trip. The canal is 180 km long and the tunnel across to Africa is 1.8 km. Suez Canal, connecting the Mediterranean Sea to the Red Sea, is a military zone and hence cameras are not allowed. On the average around 100 ships use this Canal daily so the odds are high for sighting a ship while using the tunnel to reach Africa. Immediately upon crossing the Suez Canal on the African side of Egypt, we stopped by a coffee shop named Sinai Rest House. The place has a smallish ‘museum’ with a number of original historic photos of the Suez Canal and an art piece inside a glass cabinet showing the canal in miniature. It is definitely worth a short-stop to see this and appreciate the engineering marvel.

Cairo, spread over 175 sq miles, is considered a mega-city with a population of around 8 million. Urban part of Cairo is over 2500 sq miles and hosts almost a fourth of Egypt’s population. Nearly all of the 80 million population of Egypt reside along the banks of River Nile, an area covering 15,000 sq miles out of Egypt’s total 387,000 sq miles. Alexandria, the 2^nd largest city with a population of 4 million, is a tourist attraction with many beaches and museums. Our itinerary did not include Alexandria – those keen on visiting the place are encouraged to opt for tour programs that include an overnight stay in Alexandria. Cairo is an extremely crowded city and traffic can seem a mess to the uninitiated. It is normal to see vans with open doors and donkeys used as transportation modes.

The first stop in Cairo was at the Egyptian Museum located in Tahir Square. As our itinerary for Egypt was crowded only a couple of hours were allotted for this world famous museum. Construction near the Square slowed us down a bit too. The museum is organized chronologically starting as far back as 3000 BC. The two major attractions are the King Tut’s treasures on Level 2 and the Royal Mummies Gallery. King Tuts treasures include the 11Kg gold crown, two gold-plated coffins at over 111kg each, jewelry etc. The Royal Mummies Gallery has a separate entrance fee – $20 adults and $10 kids. Royal Mummies are a major archaelogical find from the 1920s. The main sections did not have mummies on display and we did not squander away our chance to see them. The gallery has two sections on either side of the main isle on Level 2. At the entrance to the first section the ticket is torn in half and one half returned. This half gets you into the section on the other side of the aisle. Given our tight schedule we took advantage of our guide’s suggestion whereby we purchased one adult ticket and one child ticket - two of us visited one section and the other two visited the other section – while the cost is halved the obvious tradeoff is seeing only half the gallery. Our time at the Egyptian Museum was beyond doubt a run-around – to give justification to the 120,000-odd items on offer, it is best to plan atleast a day for this museum. Lunch was at the Taj Mahal Indian restaurant (Misr Helwan Road) – decent Indian buffet food with live entertainment.

We proceeded to Giza Necropolis for the pyramids, about 14 km from the Egyptian Museum - across the Nile River and to the end of Al Ahram. The mere sighting of these mammoths from afar is a humbling experience. This universally acclaimed archaeological site consists of three pyramid complexes together known as the Great Pyramids, the famed massive sculpture the Great Sphinx, cemeteries, worker’s village, and an industrial complex. The Great Pyramid was completed around 2560 BC and is the oldest of the Seven Wonders of the Ancient World and the only one to remain largely intact. It towered as the tallest man-made structure in the world for over 3,800 years until the Lincoln Cathedral of England was completed in 1300 AD. The Great Sphinx is another significant landmark of Giza Necropolis. It is the largest monolith statue in the world at 73.5 meters long, 6 meters wide, and 20.22 meters high and is believed to have been built around the same time period as the Great Pyramid by Pharaoh Khafra. The origin and purpose of the Sphinx is a matter of debate. There is an entrance fee for going inside the pyramids - $20 adults and $10 kids for the Great Pyramid and a little less for others. Stepping inside the Great Pyramid has a profound effect – more so to the tech savvy generation. The path is via the giant cut-out inside with multiple flights of steep and long stairs leading up to the upper room – it is located at roughly one-third the total height of the pyramid which is about 140 meters. The government ‘guide’ in the upper room spoke very little English but still convinced us to shell out a tip :). The necropolis area has numerous street vendors whose offers range from curios to camel rides around the area. They can also be aggressive although pricing in general is rather cheap – one or two dollars for artefacts and a wee bit more for a camel ride.

On the way back to the hotel, the tour guides offered the choice between visiting a ‘certified’ papyrus shop or a perfume shop (athar) and we chose papyrus. From the manner the guide put it, we gathered it was a government run place, but from the enthusiasm of the people employed there it was evident the place was a private establishment. Nevertheless, we were given a good demo on papyrus making – Remove the green parts from the stem of a papyrus plant, do vertical cuts, cross-connect to make a sheet, place it under a heavy press for 5 days to get rid of the moisture, soak it in water for 5 days to do away with cellulose, dry it in the sun – the water is changed every day to get ‘white paper’ and  reused to get ‘brown paper’ – no chemicals none whatsoever is used. They also demoed the strength of papyrus – by first drenching the paper and then pressing it to remove the water and straightening the paper out. Pricing at the shop was expensive – around $15 and up depending on size and subject after roughly 50% discount from the published prices. Overnight stay was at Horizon Pyramids Hotel (~4 KM back on Al Ahram), a good 4-star facility – good sized room, smallish pool on the front, and decent food.

Nile cruise is another popular tourist activity in Cairo. To us this is a bit overrated, given the outstanding quality of the other options available to spend time upon. Typically, Nile Cruises are a combo offering – an evening cruise from 7PM to 9PM combined with a dinner buffet and live-entertainment for roughly $30. Drinks are not included and are upwards of $6. Our buffet spread was well below par and the live entertainment even more so. Live entertainment consists of belly dancer shows, folklore music and dancers, and other shows. Given the competitive pricing, the overall experience was not disdainful and can be considered value for money.

 Related Posts:

1. Holyland Trip Report - Jordan - Mount Nebo, Madaba - Day 1.
2. Holyland Trip Report – Israel - Yardenit, Tiberias, Tabgha, Cappernaum, Ginosar, Sea of Galilee (Day 2).
3. Holyland Trip Report - Israel - Nazareth, Cana, Tel Aviv, Jaffa, and Bethlehem (Day 3).
4. Holyland Trip Report - Israel - Jerusalem (Day 4).
5. Holyland Trip Report – Israel – Jerusalem, Jericho, Dead Sea (Day 5).
6. Holyland Trip Report – Egypt – Red Sea, Sinai (Day 6).
7. Holyland Trip Report – Suez Canal, Cairo - Day 7.
8. Holyland Trip Report - Old Cairo - Day 8.
9. Holyland Trip - Gotchas to avoid.  
10. Holyland Trip - Jordan - Other Sites. 

Last Updated: 12/2012.

Covered Call Strategy for a Stable Income Portfolio

Constructing a stable income portfolio can be pretty challenging in an environment of low interest rates. Options that guarantee capital preservation such as bank fixed deposits, treasury bonds and bills (assuming it is held to maturity) provide comparatively little income. Holding defensive dividend paying stocks is a strategy that many investors use. The option is somewhat risky in that capital preservation is not guaranteed and it is rare that such a portfolio can produce income over 4%. A variation on the same theme is using covered calls to produce more income while sacrificing some of the capital appreciation potential. This approach guarantees more income but capital preservation is still a problem. Capital preservation can be achieved by purchasing puts against the long positions but that will obviously reduce income.

We are in a similar dilemma currently as we attempt to diversify away from a significant stock position held in an Employee Stock Purchase Plan (ESPP). Basically, the idea is to preserve capital while generating as much income as possible to support part of our on-going cash needs. To that end, we are in the process of building a defensive portfolio with good income generation. Below are a set of steps we are following to implement the strategy:

1. Build a core set of 20 to 30 stable stocks that are optionable,
2. Invest in four to six of the best value plays from this list,
3. Write short-term (up to 90 days) covered calls – the premium should be >5% at a minimum,
4. If the stock is called away, replace it with the best value play from the list in step 1. If the option expires worthless, rollover by writing another short-term covered call or if the value matrix has changed, close the position and write another covered call, and
5. Revisit and update the core list in step 1 once every twelve months.

The strategy should ensure >20% annual income but will have downside risk. To minimize the risk of significant capital losses in the face of a correction, selectively buy puts against some of the positions. Below is a core list of 25 stocks (see step 1 above) that we have come up with:

Related Posts:

• Cash holdings in an investment portfolio - strategies to squeeze income for value investors
• Kelly Criterion based Strategies for Value Investing
• Covered Call Strategy for Stable Income Portfolio
• Basics of Options and Futures for Value Investors
• Basic Options Strategies for Value Investors
• Basic Futures Strategies for Value Investors
• Short Selling Strategy for Value Investors

Last Updated: 04/2012.