The 2010 Mix - More Thoughts

Though I'm generally pretty happy with the new portfolio for 2010, there are a couple of things I'm thinking about in regards to it.

• Do I have enough money allocated to cash?  Right now we are sitting at ~6.6%.  That seems a little low to me.  Even if Apple is sold (which I'm not hoping for), that will put me at about 11% cash position.  Is this enough to take advantage of opportunities that may arise?
• What is the correct manner to use stop with the portfolio?  Are trailing stops better than normal one?  What percentage should the stops be set at?  Should it be the same value for everything?  Am I prepared to lose 10%, or 15% through the use of stops.  I guess I would be if the market drops more than the stop.

Getting Ready for 2010

I know it's been a long time since my last post.  I've been spending a lot of thinking about both my lack of investing direction and the direction of the global economy (and markets) for the next year.

One big problem that I have, is that I read too much.  I subscribe to a number of financial/economic/investing blogs and while I can't read every post that shows up in Google Reader, I tend to think I can get a general feel.  The one thing that has become apparent to me is that nobody really knows what is going to happen!  The other big problems that I seem to find myself having is my general pessimism and my fear of another of a another big tumble.

So where does that leave me? Well, I've sat down and tried to think about more general ideas about where things are going and tried to shake find constructive ways to deal with the fear and pessimism.

Here are my few general ideas I've come up with:

1. Interest rates in the US are at all time lows.  In fact the Fed rate is effectively at zero!  So I think that interest rates will eventually go up.  That means that bond yields will likely also go up and bond prices down.
2. The low interest rates seem to be indicative of the US government trying to inflate their way out of their current problems.  Basically, if you are a huge debtor, inflation is good for you because it make your debt essentially smaller.  So inflation will soon be an issue.  This means that "stuff" like metals (precious and otherwise), oil, agricultural product, ect. will be more expensive and the people (ie countries) that produce them this "stuff" will be more profitable.
3. Oil and gas are in this "stuff" class, and as they get more expensive, alternative energy will become an important and necessary area.
4. There are a number of up and coming countries around the world who are very open to new business and so far seem well governed.  These tend to have large populations that will soon what all thing we take for granted like cars, cell phones, resturants, clean water, ect.

Most investing will be based on one or more of these 4 central themes.

As I mentioned above, I am horribly afraid of another deep loss.  To help take some of the emotion out when I should sell, I plan to use Stops and Trailing Stops to help set some trigger on when to sell.

So, on to the investments:

Ticker	Description	Allocation	Theme(s)	Notes
BKF	BRIC ETF	7%	#4	General Exposure to Brazil, Russia, India and China
EWA	Australia ETF	4%	#2	Australia seems to be well governed and they are a big producer of "stuff"
EWC	Canada ETF	4%	#2	Again, well-governed (for the most part) and a big "stuff" producer
EWW	Mexico ETF	4%	#2 and #4	A "stuff" producer, that finally seems to have figured out they need to deal with gangs
GDX	Gold Miner ETF	2%	#2	Exposure to gold miners
HGI	International Asset Income ETF	5%	no theme(s)	Looking to get more international exposure as well as something to generate some dividend income.
IDX	Indonesia ETF	4%	#2 and #4(s)	Indonesia has a huge population in a fairly stable country(some terrorism issues), they can also be considered a stuff producer.
SLV	Silver ETF	2%	#2	Silver is "stuff" and good hedge against inflation.
GLD	Gold ETF	2%	#2	Gold is "stuff" and good hedge against inflation.
TBT	Short Treasury Bond ETF	7%	#1	Will go up as yields rise, ie is inverse to bond prices
TUR	Turkey ETF	4%	#1 and #2	Similar to Indonesia
VIPSX	Inflation Protect Treasuries	5%	#1 and #2	Treasuries indexed to inflation
VTI	Total US Markets	7%	no theme	straight up bet in US markets, I used it to give a bit more US exposure to a portoflio short of it.
XLU	Utilities ETF	7%	no theme	Stable dividend payers
XME	Metals and Mining ETF	2%	#2	Stable dividend payers
IXN	Global Technology ETF	5%	#4	I think technology is a good play
PSP	Private Equity ETF	5%	no theme	Interesting play,a little risky
PCY	Emerging Market Bond ETF	6%	#4	Should be a fairly stable, with nice growth prospects and a good yield.
PUW	Progessive Energy ETF	2%	#3	Concentrates on companies using fossil fuel more efficiently
PBD	Clean Energy ETF	2%	#3	Concentrates on companies using green renewable energy sources
PIO	Global Water ETF	3%	#3	Concentrates on companies water treatment and efficient water consumption
AAPL	Apple	4.37%	no theme	Only stock left ofver
Cash	Cash	6.63	no theme	It's cash!

Trades for 11/10/09

Made 3 new trades today, all in stocks I've been in before.
HURC @ $15.30
ARAY @ $5.66
IRE @ $11.75

I view IRE as a speculative play.  They are a troubled Irish bank that was down as much as 10%.  I'm looking for a bit of a bounce here and will tighten stops as it moves up.

HURC and ARAY are both companies that we punished in the last downturn.  Both currently stand at a point with no debt.  Should the turn around be real, I think these could move up.

All positions were initiated with a 10% trailing stop to protect downside and lock in upside, should it occur.  I may look at tightening the stops should we see some quick gains.

This brings me to my current mindset with IRA accounts.  In my mind I think the market has rallied too much and is actually set up for a correct.  I've thought this since July and have lost ground to the market by having some position on the short side of the market or by simply being in cash.  My current philosophy is trade around this uncertainly, by making trades protected by stops to limit the downside.

Disclosure - links go to MarketWatch my current employer.

The 401(k)s

Both Barb and my plans are with Fidelity, and though they both offer slightly different funds the mix is about the same.

30% in an International Fund
30% in a Growth Fund
20% in a Mid Cap Fund
20% in a Small Cap Fund

Currently I contribute 7% of my pre-tax income to my plan.  In addition to that my company contributes an additional 7%.  This company match is VERY good.

Barb's plan has two option a regular 401(k) option and a Roth 401(k) option.  The regular option comes out pre-tax and taxes are paid on all monies when withdrawn.  With a Roth 401(k) plan all the money goes in post tax, however no taxes are paid, even on gains, when withdrawn.  Since Barb's employer has currently suspended their contribution, we have decided to switch her 6% contribution to the Roth 401(k).

As mentioned above I contribute 7% and Barb 6%.  This lower than what I would like.  Ideally I'd like us to each to be able to contribute 10% at a minimum.  We've talked about getting to that level in the next couple of years.

I am pretty hands off with these two accounts.  Typically only I re-balance them once a year.

Barb's plan is up 26.7% this year after a last year's terrible -43.7%.
My plan is up 32.4% this year, compared to last year's -40.4%

Trades for 11/9/09

Bad Trade

Sold QID I bought on 11/5 for a 6% loss.  This was a bet on the NASDAQ going down.  I had a 6% stop loss set on it that triggered mid morning.

Good Trade

Sold FAS I bought on 11/6 for an 11.75% gain.  This was a leverage bet that Financial stocks going to go up.  I had a stop in that locked in a 6% gain, but figured I'd book the whole thing near the end of the day.

Trade for Tomorrow?

Based on the huge jump in financials today, I though I'd buy some FAZ, on a feeling that there might be some profit taking tomorrow.  FAZ is an inverse leveraged bet on Financials, ie if the sector goes down, FAZ goes up.  I have a 4% stop loss set on it.  This buy is about half the size of the position I sold in FAS today.  I'd be happy if I could book 3%-4% here, and would look at locking in gains at that level.

Return Comparisons

In my previous, I posted my annual returns since the start of 2007, but I didn't post how it compared to the markets in general. I use two S&P indexes as benchmarks for myself. They are the S&P 500 and the S&P Global 1200. I picked these because the S&P 500 is a fairly good indicator of the U.S. markets in general. I picked the Global 1200 because, well, it's really a global context working in and I felt it makes sense to compare myself to the world in general. Note: I compare to both indexes TR or Total Return, which includes dividends.

Here's how I've stacked up against those markets:

Year Ben S&P 500 S&P Global 1200

2007 +15.34% +5.49% +10.23%

2008 -45.55% -37.88% -40.68%

2009(as of 11/6/09) +27.45% +20.85% +26.98%

Cumulative Return -16.14% -20.71% -20.52%

The Good News, I'm beating the markets!

The Bad News, I've still lost money!

Background and Current State

In late 2006, my wife and I decided to fire our financial planner and start to keep track of our own retirement funds. This included old 401k accounts that we rolled into IRAs and our current companies 401ks. Currently, we have no investments outside of though 2 IRAs and 2 401ks.

Taking 01/01/2007 as a starting point, here are the annual return of all 4 combined accounts

-2007 : +15.34%

-2008 : -45.55%

-2009(as of 11/6/9) : +27.45%

Note: I currently am using Google docs to keep track of things. I use the XIRR function to account for monthly inflow to the 401k accounts.

Currently, I've been lagging the markets for the last few months, as I've taken a more conservative bent on the markets. I'm under the impression that markets have run too far, too fast given underlying fundamentals. However the market seems to be providing us with evidence to the contrary.

In my next post I'll talk more about the make up and current status of the 4 accounts, as well as provide more about my thoughts and strategy.

Meanwhile here is a link to an interesting article I read on one of my favorite financial sites on the web, Minyanville. In it writer John Maudlin discusses the possible approaches to getting out of this financial mess, or ways we could make it worse, All America's Possible Futures.

Inaugural Post

Hi, I'm Ben Music, and this is first serious attempt at a blog. I'm just a regular guy trying to make a buck or two in the stock market. My plan with this blog is use it to keep track of my thought on investments and markets through time, link to some interesting articles, elicit some response from readers, and hopefully make my buck or two.