Odds N Ends

The market action has not been so hot while I have been away. It is possible my steps to start defensive action before we left for NZ was not the best idea but it was not the worst either. In the couple of weeks since I sold a couple of stocks the SPX has not been able to mount much of a comback. The 200 DMA was at 1200 when I began to get defensive, as I write this it is at 1185. While this has not been a big move down I am concerned that the move has been important. As I am using someone else’s computer I can’t save images to post ( I should also add the spell checker won’t work I unless I change pop-up setting which I won’t do either), but the chart of the SPX looks to have been very faithful to a downtrend of late and from here the market would need to go up some just to challenge that resistance. On a postive note, there are countless times in market history where the market has big fast rallies for no reason at all. I think this is about the only thing that could lift the market right here. Lastly I got an email from Bob over at Bob’s Adivce For Stocks who told me that this site was mentioned in Kiplinger’s. I haven’t seen it yet but that’s pretty...

Benchmarks

A reader sent an email shortly before I left asking me about investment benchmarks. The emailer said he favors foreign equities and wondered what I thought a suitable benchmark would be. I’m not positive what type of input he was looking for. A reasonable foreign benchmark would be MSCI EAFE which has no US exposure and is easy to follow, another reasonable benchmark would be the MSCI World which is about 50% US but is very difficult to follow. Currently I have about 32% in foreign stocks and perhaps I will have more in the future. Even though I have such a large weight to foreign I still use the S+P 500 as a benchmark. The reason for this is that my use of foreign is my attempt to add value to client accounts versus an easy to follow and understand benchmark. An argument could be for several different broad based measures to use as a benchmark but a lot of the big ones have a fair bit of correlation to them and the SPX lets clients know where they stand. I manage one account that is targeted to be all foreign, which in practice means 70%-80% foreign. I am not the primary point of contact for this one so I don’t know if the firm uses EAFE as a benchmark but I use EAFE for this one as a starting point for portfolio construction and...

I May Rue The Day

I’m not sure if that is how you spell rue or not but this morning I sold Google across the board for clients. Only about 2/3’s of the accounts I manage owned the stock. I am still in New Zealand so I had to wake up at 2:30 am local time to sell it at the open. I bought the stock back in August at about $288 with a specific catalyst in mind, index inclusion. That has not panned out yet but in a post on my blog I said that if I could get $330 or $340 for it quickly I might take it. Last week the earnings came in and and took the stock to $340. Yesterday in the middle of our drive from Cape Reinga (the very northern tip of New Zealand) down through to the car ferry to Rawene and on to Tane Mahuta (a giant and spiritual Kauri tree) we stopped at an Internet cafe and I saw the stock print $347. Not being a knee jerk guy I thought about it a little and woke up this morning to sell the stock. Given the totality of the situation, getting the catalyst wrong but getting my price target anyway I sold it at the open for a little over $345. I still think good things are coming for Goog but after the big run it had in such a short period of time would anyone be shocked if the next 20 points were...

Model Portfolio? Who’s Model?

A good friend of mine works in the investment services division at one of the big domestic banks. Shortly before I left he faxed me a printout of the bank’s model ETF portfolio. I plugged it into Morningstar to help me look under the hood. Here are the components and weighting of the all equity version, all of the funds are from iShares; S+P 500 Barra Growth IVW 32% S+P 500 Barra Value IVE 32% Russell Midcap Growth IWP 7% Russell Midcap Value IWS 7% Russell 2000 Growth 3% Russell 2000 Value 4% MSCI EAFE 13% Cash 2% On surface it seems reasonably diversified for cap size and it has some foreign exposure. After plugging it in to Morningstar it actually looks a lot like the S+P 500. In comparing the ten S+P sectors of SPX to the portfolio, eight of the ten are within 1% of the SPX weight. So the portfolio makes no effort to add value with sector weightings. The bank’s strategist is on CNBC all time talking about sector weighting so the portfolio does not leverage off of this part of the bank’s work. I believe another flaw is only using EFA for foreign exposure. More than 40% of the fund is western Europe. I have written a few times my belief about the correlation between economic and stock market cycles of Europe and the US growing tighter. If this holds water that should mean the products like EFA will not offer as much diversification as in the past. The last point to make, and I mention this all the time about ETFs, is that...

Always Wear Your Helmet!

On each of the last two weekends before we went to New Zealand I participated in very similar medical calls. Both were helmet-less head injuries, one a woman fell off a dirt bike or ATV (she did not remember what she was riding) and the other was a woman that fell off a galloping horse. I have said before I have no medical training but I can lift and haul which comes in handy and I don’t get queasy. I think there might be an analogy with portfolio management, at least the way practice it. This is a recurring theme for the site but I don’t think it matters what type of helmet you use as long as you have something in place. Exposure to gold, timber, defense stocks, inverse index funds or something else that serves the same general purpose of offering some sort of zig to the stock market’s zag. The other part of an investment helmet is some sort of exit strategy. The lack of one did in countless portfolios managed by sell side firms. During the ten minutes I spent at Morgan Stanley there was no attention given to this concept. The idea with brokerages and banks is to get the assets in the door get them placed and then go after new assets. Even the managed asset programs don’t really allow for exit strategies. When a salesman puts client money with a money manager the manager has to assume the asset allocation decision has been made. The manager invests the money into his discipline; growth or value, small cap, all cap, whatever. While there...